Economy Current Affairs

Government constitutes Economic Advisory Council headed by Bibek Debroy

Prime Minister Narendra Modi has constituted Economic Advisory Council to the Prime Minister (EAC-PM). The five member of council will be headed by Niti Aayog member Dr Bibek Debroy.

Other members are Dr Surjit Bhalla, Dr Rathin Roy, Dr Ashima Goyal and Ratan Watal. The committee will analyse any issue economic or otherwise referred to it by the Prime minister.

Economic Advisory Council

The EAC-PM is an independent body which provides advice on economic issues to the government, specifically to the Prime Minister. It consists of economists of high repute and eminence.

Terms of reference of EAC

EAC will analyse any issue, economic or otherwise, referred to it by prime minister and advising him thereon. It will also address issues of macroeconomic importance and present its views to the prime minister. It advise can be either suo-motu or on reference from prime minister or anyone else. It can also attend any other task as may be desired by prime minister from time to time.

Background

Formation of EAC by PM Narendra Modi comes over three years after he assumed power. It will play a critical role in reviving the economy’s growth momentum that has has slipped to 5.7% in April-June quarter, the lowest since May 2014. Earlier PM Manmohan Singh had EAC headed by former RBI Governor C Rangarajan, who resigned in May 2014 after UPA government lost power.

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RBI takes masala bonds out of corporate bond limit for FPIs

The Reserve Bank of India (RBI) has increased corporate bond investment limit for foreign investors by taking out Masala bonds (rupee-denominated bonds) from ambit of total debt investment limit. They will be considered as part of External Commercial Borrowings (ECBs) and will be monitored accordingly.

Key Facts

Currently, masala bonds are reckoned both under combined corporate debt limit (CCDL) for FPI (Foreign Portfolio Investments) and external commercial borrowings (ECBs). At present, limit for investment by FPIs in corporate bonds is Rs. 2,44,323 crore. It includes issuance of rupee-denominated bonds (RDBs) overseas by resident entities of Rs 44,001 crore (including pipeline). The amount of Rs 44,001 crore arising from shifting of Masala bonds will be released for FPI investment in corporate bonds over the next two quarters.

Background

With surge in inflows in Indian debt markets in current year, cumulative utilisation of FPI limit in corporate bonds stood at 99.07% as on September 2017, reflecting limited scope of further FPI investments. The revised limit is expected to allow FPIs to make additional investments of a similar amount in corporate bonds.

Masala bonds

The Masala bonds refer to rupee-denominated bonds through which Indian entities can raise money from foreign markets in rupee, and not in foreign currency. Basically, they are debt instruments used by corporates to raise money from investors. The issuance of rupee denominated bonds, protects Indian entity against risk of currency fluctuation, typically associated with borrowing in foreign currency. It also helps in internationalization of the rupee and in expansion of t Indian bond markets. These bonds are usually traded on the London Stock Exchange (LSE) and not in India.

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