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The rise of the trillion-dollar state economies
Why is this article relevant for IBPS / SBI Bank PO, RRB and Other Bank Exam Aspirants?
Almost all exams including IBPS PO, IBPS RRB, SBI PO evaluate students on their knowledge of Banking General Knowledge and Current Affairs. This section is not only high scoring but also has high cut-offs. To ensure that you do well in this section, you need to ensure that you are regularly in touch with the latest news in the banking world and the economy.
The rise of trillion-dollar state economies in India:
Maharashtra has ambitiously set its eyes on becoming a trillion-dollar economy by 2025. The Maharashtra economy is now around an estimated $400 billion, so the target is not beyond the realm of possibility as long as growth in nominal output stays on track over the next eight years.
States versus nations in the race towards trillion-dollar economies:
There are currently only 16 countries whose value of annual economic output is more than $1 trillion. What this means is that Maharashtra could in effect have one of the largest economies in the world by the middle of the next decade.
India in trillion-dollar club according to the IMF:
It is useful to remember that India as a whole entered the trillion-dollar club in 2007, according to data from the International Monetary Fund. Now one state is aspiring to be of that size. Further, the Indian economy was $274 billion at the time of the 1991 economic reforms. The fact that a state can now aim to become a trillion-dollar economy shows how the scale of economic activity has been transformed in India in recent decades.
Maharashtra, Gujarat, Uttar Pradesh, Tamil Nadu and Karnataka - the states:
But that is not all. There are other states that have local economies in excess of $200 billion. These states—Gujarat, Uttar Pradesh, Tamil Nadu and Karnataka —have a good chance of becoming $500 billion economies by 2025, or perhaps a couple of years later. To use the same comparison metrics as above, there are 25 national economies that are right now over $500 billion, while the Indian economy crossed that mark in 2002.
Challenges for a trillion-dollar economy state:
However, amid all these big numbers, the rise of these regional economic powerhouses will present challenges as well. There are two central challenges.
First, most states do not have the economic management capabilities to deal with such size. There is no doubt that the Union government will (and should) be in charge of macro policy in the broadest sense, but state governments are important stakeholders in terms of fiscal management, competitiveness, ease of doing business, infrastructure development and the provision of local public goods.
Quality of living
Second, many of the more successful states will have to satisfy the demands of citizens who have moved up the income ladder. The type of government needed to meet the needs of a state at what the World Bank defines as higher middle income is radically different from the needs of a state still at the lower end of the middle-income category.
The rise of state powerhouses should change federal dynamics—both in terms of the distribution of responsibilities between New Delhi and state capitals, as well as in terms of the balance of political and economic power between states. These pressures make an effective and responsive central power in New Delhi even more important, to ensure that extreme forms of federalism do not create fault lines in the Indian union.
National Financial Reporting Authority (NFRA):
Events leading to setting up NFRA:
Since 1948, India’s finances and audit have been left to the care of the The Institute of Chartered Accountants of India (ICAI).
Harshad Mehta, Ketan Parikh, the Satyam imbroglio and the latest Nirav Modi scam involving our second-largest public sector bank say that all was not well with the way audits were being conducted. Despite ICAI Guidelines, the CAs did not tally entries made in the SWIFT (Society for Worldwide Interbank Financial Telecommunications) software with those made in the core banking solution. The Institute’s Guidelines specifically required auditors to check the records independently. Off balance sheet financing can come in handy. Double accounting is now well known — one for the shareholder and one for the Income Tax Officer, which practice had led to the introduction of the minimum alternate tax (MAT).
The Union Cabinet has at last approved the proposal for establishment of the National Financial Reporting Authority as envisaged under section 132 of the Companies Act, 2013.
The National Financial Reporting Authority (NFRA):
The National Financial Reporting Authority (NFRA) was brought into the Companies Act on the specific recommendations of the Standing Committee on Finance. It will oversee the functioning of the ICAI and ensure credibility in financial reporting. Its jurisdiction will cover investigation of chartered accountants and their firms covering both listed and unlisted public companies. The inherent regulatory role of the ICAI as provided for in the Chartered Accountants Act, 1969 will continue. Threshold limits will be modified.
NFRA will have the power to investigate not only chartered accountants who audited a firm but also firms of chartered accountants and can impose a penalty of up to five times the fee received in case of misconduct by individuals and ten times the fees received in case of firms. It can also debar an auditor for up to ten years. While the NFRA can have up to 15 full-time or part-time members besides its chairman, the appellate body can have two members other than the chairman.
The Companies Act casts a responsibility on auditors to see that corporate accounts are in order. Auditors can choose not to sign the accounts if their concerns are not addressed by the management. The Companies Act also allows auditors to report to the Centre if they believe an offence involving fraud is being committed by the company, by its officers or employees.
Oversight provisions in existence:
Enron exploded onto the international financial scene and this led to the creation of the Public Companies Accounting Oversight Board (PCOAB) under the Sarbenes-Oxley Act, 2002. American auditors are subject to external and independent oversight in order to protect investors and public interests by promoting informative, accurate and independent audit reports.
After the Enron and the Worldcom scandals, the U.K. used an independent regulator, the Financial Reporting Council (FRC), transforming a system of self regulation into a mixed system in which FRC and professional bodies have major responsibilities.
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