The recently approved Infrastructure Debt Fund (IDF) will be based on a tripartite agreement b/w developer, lender (bank) and the IDF. The decision has been taken to infusing greater funds into infrastructure development in the country. Loans by the banks would be refinanced by IDF so that the lenders have free funds for more lending. The fund would try to gather resources from domestic and off-shore institutional investors, especially insurance and pension funds.

What will IDF do here?

Initially, infrastructure projects are financed by banks or a consortium of banks. Such projects need long-term funding of 20-25 years, while banks cannot fund beyond 5-7 years. IDF s will provide the long-term funds for the remainder of the life of the project.

Who will regulate IDF?
An IDF may be established either as a trust or company. A trust based IDF (Mutual Fund) would be regulated by SEBI, while an IDF created as a company (NBFC) would be regulated by the RBI.
The 12th Plan (2012-17) has pegged the requirement of infrastructure fund at $1 trillion.

As per the suggestions made by Financial Sector Legislative Reforms Commission (FSLRC), headed by former Justice B. N. Srikrishna, key regulators such as the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority (IRDA), the Pension Fund Regulatory and Development Authority (PFRDA) and the Forward Markets Commission (FMC) should be merged into a Unified Financial Agency (UFA).

Why the commission was set up?

FSLRC was set up in March 2011, to recast the financial sector legislations in tune with the contemporary requirements of the sector.

Key recommendations of Financial Sector Legislative Reforms Commission:

• Establish a Financial Redressal Agency (FRA) to look into consumer complaints against companies across the financial sector.
• Set up independent Debt Management Office (DMO) and a Financial Sector Appellate Tribunal (FSAT) to hear appeals against regulators.
• Establish five new regulating agencies namely UFA, FSAT, FRA, DMO and Resolution Corporation.
• Need for separating the adjudication function from the mainstream activities of a regulator in order to achieve a greater separation of powers.

What is the present scenario?

Under the current structure, the financial sector is regulated by eight agencies: the RBI, SEBI, the IRDA, the PFRDA, the FMC, SAT, deposit insurance agency DICGC and the Financial Sector Development Council (FSDC). As per the recommendations of the panel, there would be 5 new agencies besides the RBI and the FSDC. The new ones would be UFA, FSAT, FRA, DMO and Resolution Corporation.

India slipped to 7^th position in the world Coffee production in 2011-12 from 6^th in the previous year with a share of 4%. Brazil produced 33% of the world's coffee, followed by Vietnam (15.2%), Indonesia (6.3%) and Colombia (5.9 %). The Coffee Board has estimated 3,14,000 tons for the season in 2011-12, this includes 1,01,500 tons of Arabica and 2,12,500 tons of Robusta.

The Kelkar’s committee’s recommendations were made public by the government for an informal debate by the stakeholders. The committee has suggested bold reform measures. 

Kelkar Committe:

• A 3-member committee headed by the former Finance Secretary and 13th Finance Commission Chairman, Vijay L. Kelkar.
• Members: a) Vijay L. Kelkar b) Indira Rajaram and c) Sanjiv Mishra
• Objective: To devise the fiscal consolidation roadmap for 2012-13 to 2014-15

Recommendations:

• Tight fiscal consolidation roadmap for the government, with subsidy targets, the future course of action on administered prices of petroleum products and fiscal deficit targets.
• Pegs the fiscal deficit at 5.9% of the GDP for the current fiscal against the Budget estimate of 5.1%.
• Enforcing the proposed Food Security Bill in phases.
• Government should raise the prices of food items sold through ration shops, every time the minimum support price is revised.
• Remov the system of selling the sweetener through the ration shops.
• Instantly raising the diesel prices by Rs 4 a litre, kerosene by Rs 2 a litre and LPG by Rs 50 per cylinder. These steps, would reduce under-recoveries of oil marketing companies by Rs 20,000 crore.
• Regular raising of diesel prices until it becomes completely deregulated, and keeping subsidy at affordable level on LPG and kerosene.
• Increase the MRP of Urea by 10 per cent during the first year with any further increase being limited to any increase in the pooled gas price and in fixed
• The government should save additional Rs 20,000 crore in plan expenditure through proper prioritization and efficient use of available resources.
• On tax front, the government should review Direct Taxes Code Bill as it would result in slippages for which there is no fiscal space.
• On indirect tax front, there should be standard deduction rate from 12% to 8% in phases, pruning the list of 6% excise duty to merit goods only etc.
• The government should at least garner Rs 30,000 crore from disinvestment by making offer for sale model attractive and using exchange traded model for securities held by it in public sector units. 
• The government should set up a group to suggest monetizing government's land resources.

The Commission held that if the recommendations made by it are taken by the government, then the Centre may be able to cap its fiscal deficit at 4.6% of GDP in the next financial year and 3.9% in 2014-15.

Fiscal consolidation is a policy aiming at reducing fiscal deficit of government.

The Prime Minister’s Economic Advisory Council Chairman, C Rangarajan, has opined to reduce the use of CRR and suggested that it should be used only in extraordinary circumstances. As per him, the need for using it reduces with the option of Open Market Operations (OMOs) already in place.

• Cash Reserve Ratio which is abbreviated as CRR is that minimum part of deposits that a commercial bank has to keep with the central bank. It is used by the central bank in monetary policy. Before 1991 financial reforms, CRR and SLR (Statutory Liquidity Ratio) was also a major instrument to source of funding and control over credit and interest rates. But after the reforms, the use of CRR as an effective instrument was de-emphasized and the use of Open Market Operations came to the fore. OMO’s are more effective in adjusting market liquidity.

What is Open Market Operation (OMO)?

• OMO is an activity by a central bank to buy or sell government bonds on the open market. A central bank uses them as the primary means of implementing monetary policy. The central aim of OMO is to control the short term interest rate and the supply of base money in an economy, and thus indirectly control the total money supply. This involves meeting the demand of base money at the target interest rate by buying and selling government securities, or other financial instruments. Monetary targets, such as inflation, interest rates, or exchange rates, are used to guide this implementation.

Types of OMO are used by RBI:

1. Outright purchase (PEMO): Is outright buying or selling of government securities. (Permanent)

2. Repurchase agreement (REPO): Is short term, and are subject to repurchase.

As per the prescription by PMEAC:

• If government is not able to capitalize public sector banks timely under Basel-III norms, their market share will decline
• The govt has to make additional budgetary support in order to meet about 50% of additional capital requirement
• Low base effect in the second half of last year will help gross domestic product to show higher growth by end of this financial year
• Growth rate will regain pace, it probably will touch 8% in next 2 years