indian economy - june 2019€¦ · relevant for: indian economy | topic: issues relating to growth...

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Source : www.pib.nic.in Date : 2019-06-02

UNION CABINET CLEARS NEW INITIATIVE TOCONTROL FOOT AND MOUTH DISEASE (FMD) ANDBRUCELLOSIS TO SUPPORT THE LIVESTOCKREARING FARMERS

Relevant for: Indian Economy | Topic: Economics of Animal-Rearing incl. White, Blue & Pink Revolutions

Cabinet

Union Cabinet clears new initiative to control Foot andMouth Disease (FMD) and Brucellosis to support thelivestock rearing farmers

Farmers associated with the animal husbandry sector togain from this move

Posted On: 31 MAY 2019 8:41PM by PIB Delhi

During the Union Cabinet Meeting chaired by Prime Minister Narendra Modi today, the first sincethe outcome of the 2019 Lok Sabha election, a novel initiative was cleared that will benefitcrores of farmers and improve the health of animals.

This initiative pertains to controlling Foot and Mouth Disease (FMD) and Brucellosis to supportthe livestock rearing farmers. The Cabinet had cleared a total outlay of Rs. 13,343 crores to fullycontrol these diseases amongst the livestock in the country in the next five years andsubsequently eradicate these diseases.

This decision indicates the spirit of compassion towards those animals who are a valued part ofour planet but are not able to speak.

The threat of Foot and Mouth Disease (FMD) and Brucellosis:

These diseases are very common amongst the livestock – cow-bulls, buffaloes, sheep, goats,pigs etc.

If a cow/buffalo gets infected with FMD, the milk loss is upto 100% which could last for four to sixmonths. Further, in case of Brucellosis the milk output reduces by 30%, during the entire lifecycle of animal. Brucellosis also causes infertility amongst the animals. The infection ofbrucellosis can also be transmitted to the farm workers and livestock owners. Both the diseaseshave a direct negative impact on the trade of milk and other livestock products.

The decision of the Cabinet today fulfils the major promise made in the manifesto as it providesmuch relief to crores of farmers in the country who rear livestock.

Care and compassion for animals:

In case of FMD, the scheme envisages vaccination coverage to 30 crore bovines (cows-

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bulls and buffaloes) and 20 crore sheep/goat and 1 crore pigs at six months’ interval along withprimary vaccination in bovine calves, while the Brucellosis control programme shall extend tocover 100% vaccination coverage of 3.6 crore female calves.

The programme so far has been implemented on cost sharing basis between the Centraland State Governments. In a rare instance of departure, the Central Government has decidedto now bear the entire cost of the programme to ensure complete eradication of thesediseases and better livelihood opportunities for all the livestock rearing farmers in the country.

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Source : www.thehindu.com Date : 2019-06-02

CAPITAL BUFFERS: RBI DRAFT NORMS TIMELY FORNBFCS

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

Non-banking financial companies, already reeling under a painful liquidity crisis, are up against afresh challenge in the form of new regulatory norms set by the Reserve Bank of India. Thecentral bank has released draft norms on liquidity risk management for deposit taking and non-deposit taking NBFCs. According to these proposed rules, NBFCs would have to comply with ahigher liquidity coverage ratio (LCR), which is the proportion of assets that an NBFC needs tohold in the form of high-quality liquid assets that can be quickly and easily converted into cash.The new norms, which are expected to be implemented by the RBI over four years starting fromApril 2020, would likely put significant pressure on the margins of NBFCs. Under these norms,NBFCs would have to maintain their LCR at 60% of net cash outflows initially, and improve it to100% by April 2024. If the norms are implemented, NBFCs may be forced to park a significantshare of their money in low-risk liquid assets, such as government bonds, which yield muchlower returns than high-risk illiquid assets. The strict norms have to be seen in the context of thepresent crisis where even prominent NBFCs are struggling to meet their obligations to variouslenders.

While the profit outlook and other short-term financial metrics of NBFCs may be affected by thenorms, there are good reasons to be optimistic about their long-term impact on the health ofNBFCs and the wider financial sector. NBFCs, which are in the business of borrowing short termto lend long term, typically run the risk of being unable to pay back their borrowers on time dueto a mismatch in the duration of their assets and liabilities. This is particularly so in instanceswhere panic sets in among short-term lenders, as happened last year when lenders, worriedabout the safety of their capital, demanded to be paid back in full. In other words, NBFCs relyheavily on short-term lenders rolling over their loans without fail in order to avoid any kind ofliquidity crisis. The new norms would discourage NBFCs from borrowing over short term toextend long-term loans without the necessary buffer capital in place. This could compel NBFCsto shrink the scope of their lending from what it is today, but it would save them from largercrises and significantly reduce the need for the government or the RBI to step in as the lender oflast resort. Undeniably, NBFCs have done a tremendous job in recent years in widening anddeepening access to credit by taking a share from the public sector banks, which have beenseverely affected by the bad loans crisis. However, the latest liquidity norms for NBFCs are stillnecessary to ward off systemic crises.

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Source : www.indianexpress.com Date : 2019-06-03

OVER THE BARREL: HOW TO BOOST THE ENERGYDRIVE

Relevant for: Indian Economy | Topic: Infrastructure: Energy incl. Renewable & Non-renewable

© 2019 The Indian Express Ltd.All Rights Reserved

The writer is the chairman of Brookings India and senior fellow, Brookings Institution.

India faces a variety of challenges related to energy and environment. Here are some initiativesthat the next government could contemplate early on its term.

One, integrate energy and environment policy. The various ministries currently engaged withenergy and the environment should be collapsed into one omnibus Ministry of Energy andEnvironment. This will perforate the current siloed approach to energy policy and enable the newgovernment to view the sector through an integrated and holistic lens. It could more easily trackand evaluate the systemic implications of changes in any one or more component variable.Secondly, an “Energy and Environment Security Act” should be passed at the earliest possibleopportunity. The objective of such an act should be to bring energy and environment into thenational narrative; to set out the road map for managing and mitigating the emergent challengeof balancing economic development and energy demands with the goal of environmentalprotection; and, to mobilise public support for the policy and regulatory changes required tohasten the transition to a non-fossil fuel based energy system. Finally, energy data is scatteredacross various government departments. This hinders policy and investment. The newgovernment should establish an integrated energy data centre, whose data should be regularlyupdated and made available to all players on commercial terms.

Two, decarbonisation, demand management and efficiency should be the watchwords of thenew government’s energy policy. In this context, the focus should be on generating electricityfrom solar and wind, incentivising electric vehicles, curtailing diesel consumption in agriculture,enforcing standards and emission norms, redesigning buildings and factories to make themcarbon neutral and influencing behavioural change towards energy conservation. A multi-pronged thrust along these lines will weaken the current unhealthy relationship betweeneconomic growth, energy demand and the environment. Additionally, the “clean energy fund”which is currently funded through a cess on coal production and is managed by the ministry offinance should be augmented through the issuance of “green bonds” and a clean energy tax.This is to intensify research and development on clean energy technologies (battery storage,carbon capture and sequestration, hydrogen, coal gasification, modular nuclear reactors, etc.)and to fund the transmission and distribution infrastructure required for absorbing the flow ofclean energy. Its loci of administration should be handed over to those with domain expertise.This to safeguard the funds from sequestration into the consolidated fund and to ensure that theconditions are created for incubating innovation, and forging international R&D and technologypartnerships.

Three, energy diplomacy. The levers of energy and, in particular, oil policy, are today in thehands of autocratic leaders. This “personalisation” of energy politics would not have been anissue in the past when oil was traded mostly against long-term supply contracts. But today,against the backdrop of an integrated, liquid and fungible market characterised by short-termflexible supply deals, this is of relevance especially for import-dependent countries like India.The local actions of leaders now have global, supply-related ramifications. The new government

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should, therefore, look to develop a specialised cadre of “energy diplomats.” It shouldcontemplate lateral entrants at mid- and senior levels of government with relevant domain andinternational expertise. It should unshackle the energy public sector units from intrusivebureaucratic oversight to enable their management to respond with agility to unexpected marketdevelopments. And it should establish strong personal relations with the leaders of oil exportingstates. At a crunch time, the latter could be the peg on which will hang India’s supply security.

Four, intensify exploration and enhance recovery. India’s unattractive geology is the reason whythe various bidding rounds for private sector investment in oil and gas exploration have not beena success. The new government should not stop this effort but it should consider three changesto the current contract terms. One, it should replace the current revenue-sharing model with aproduction-sharing model for new exploration. Two, it should link investment in the marginal andsmaller discovered fields with access to the domestic retail market and remove the condition thatonly companies that have invested Rs 2,000 crore will be eligible for a marketing licence. Three,it should contemplate bidding out Mumbai High and other major producing oil and gas fields tointernational players with proven enhanced oil recovery technologies. The current recovery ratesof production from these fields are well below the global average.

Five, increase competition. Coal India Limited (CIL) is a major producer of coal but faces hugelegacy issues (labour unions, mafia, politics and organisation) which constrain its ability to fullyand efficiently harness the country’s indigenous coal reserves. These issues cannot beaddressed without first redrawing the contours of India’s political economy. The new governmentcannot, understandably, tackle these issues early on in its tenure. It can, however, resurrect anearlier decision to allow private sector companies into commercial coal mining. The consequentpressure of competition will bear positively on the performance of CIL.

Six, natural gas. This has also not realised its full potential. Five early initiatives should becontemplated. First, Gas Authority of India Limited (GAIL) should be unbundled into a monopolygas pipeline company. It should be divested of its upstream (production/ re-gassification of LNG)and downstream (petrochemicals) operations. These can be merged into one or more of theexisting PSUs. Second, the “common access” principle must be fairly enforced. Every player,private or public, must have equal access to gas pipelines. Third, the price of gas should bedetermined on the basis of market and competitive principles. This principle should apply acrossthe gas value chain, except pipeline transport tariffs which should be linked to return on capital.Fourth, a gas trading hub should be expeditiously established. Finally, special energy courtsshould be established to expedite adjudication of disputes and ensure sanctity of contracts. Thelatter have been major deterrents to investment in the energy sector.

The writer is chairman & senior fellow, Brookings India

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© 2019 The Indian Express Ltd. All Rights Reserved



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SLOWDOWN CONFIRMED: ON DEEPENING ECONOMICCRISIS

Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & SustainableDevelopment

There is now no denying that the second Modi government takes office amid a clear economicslowdown. The first macro data set released under the new Finance Minister, NirmalaSitharaman’s watch, on Friday, showed an under-performing economy with GDP growth fallingto 5.8% in the fourth quarter of 2018-19 and pulling down the overall growth for the fiscal to afive-year low of 6.8%. Growth in gross value added (GVA), which is GDP minus taxes andsubsidies, fell to 6.6% in 2018-19, pointing to a serious slowdown. If further confirmation wereneeded, the growth in core sector output — a set of eight major industrial sectors — fell to 2.6%in April, compared to 4.7% in the same month last year. And finally, unemployment data,controversially suppressed by the Union government so far, showed that joblessness was at a45-year high of 6.1% in 2017-18. These numbers highlight the challenges ahead for Ms.Sitharaman as she sits down to draft the Budget for 2019-20, to be presented on July 5. Theeconomy is beset by a consumption slowdown as reflected in the falling sales of everything fromautomobiles to consumer durables, even fast-moving consumer goods. Private investment is nottaking off, while government spending, which kept the economy afloat during the last NDAgovernment, was cut back in the last quarter of 2018-19 to meet the fiscal deficit target of 3.4%.

The good news is that inflation is undershooting the target and oil prices are on the retreatagain. But the rural economy remains in distress, as seen by the 2.9% growth in agriculture lastfiscal; the sector needs a good monsoon this year to bounce back. Overall economic growth inthe first quarter of this fiscal is likely to remain subdued, and any improvement is unlikely untilthe late second quarter or the early third. There are not too many options before the newFinance Minister. In the near term, she has to boost consumption, which means putting moremoney in the hands of people. That, in turn, means cutting taxes, which is not easy given thecommitment to rein in the fiscal deficit. In the medium term, Ms. Sitharaman has to takemeasures to boost private investment even as she opens up public spending again. These callfor major reforms, starting with land acquisition and labour, corporate taxes by reducingexemptions and dropping rates, and nursing banks back to health. On the table will be optionssuch as further recapitalisation of the ailing banks, and consolidation. The question, though, iswhere the money will come from. With tax revenues likely to be subdued owing to the slowdown,the Centre will have to look at alternative sources such as disinvestment. There may be littlechoice but to go big on privatisation. A rate cut by the Reserve Bank of India, widely expectedthis week, would certainly help boost sentiment. But it is the Budget that will really set the tonefor the economy.







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THE SUM AND SUBSTANCE OF THE JOBS DATARelevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable

Development

This increase in unemployment for educated youth comes at a time when education hasexpanded substantially. | Photo Credit: Getty Images

The report from the Periodic Labour Force Survey (PLFS) is finally out, garnering a lot ofattention based on selective reading of tables and spurring partisan debates. In particular, thestaggering increase in the unemployment rate, from 1.7% in 2011-12 to 5.8% in 2017-18 forrural men and from 3.0% to 7.1% for urban men, has generated wide ranging hand-wringing.However, a more nuanced picture emerges if we are to look beyond the partisan debates topolicy implications of the data on employment and unemployment. Three takeaway points fromthese data are of particular policy relevance.

First, while the unemployment rate is a frequently used measure of poor performance of theeconomy, under conditions of rising school and college enrolment, it paints an inaccuratepicture. Second, the reported unemployment rate is dominated by the experience of youngerIndians who face higher employment challenges and exhibit greater willingness to wait for theright job than their older peers. Third, the unemployment challenge is greatest for people withsecondary or higher education, and rising education levels inflate unemployment challenges.These three conditions, taken together, suggest that part of India’s unemployment challenge liesin its success in expanding education while not expanding formal sector jobs.

Comparison of male employment and unemployment data from the National Sample SurveyOffice’s (NSSO’s) 68th round Employment survey conducted in 2011-12 and the new PLFS of2017-18 illustrates each of these points. The unemployment rate is calculated by dividing thenumber of unemployed by the number in the labour forces, that is, the sum of employed andunemployed. This statistic ignores people who are out of the labour force — students,homemakers and the disabled.

As long as the proportion of the population out of the labour force is more or less stable, theunemployment rate is a good indicator of the changes in the employment situation. However,India has seen massive changes in proportion of individuals enrolled in an educational institutionover the past decade. For 15-19-year-old rural men, the proportion primarily engaged in studyingincreased from 64% to 72% between 2011-12 and 2017-18. As a result, while the proportion ofthe population aged 15-19 that is unemployed doubled from 3% to 6.9%, the unemployment ratetripled from 9% to 27%. Leaving the numerator (proportion of population unemployed) samewhile the denominator changes by removing students from the labour force can overstate joblosses.

The proportion of the population that is unemployed has increased only slightly for populationaged 30 and above but increased substantially for younger men. For rural men (30-34), theproportion of unemployed increased from 1% to 2.3% while that for men (20-24) increased from4.6% to 16.1%. Much of the increase in male unemployment is located among ages 15-29. It isimportant to recognise that in a country dominated by informal sector work, remainingunemployed is possible only for individuals whose families can survive without their immediatecontributions. While a 25-year-old may spend his time diligently applying for a formal sector andbe supported by his parents during this period, a 30-year-old with a wife and children may haveno option but to take any work available to him, even if it pays poorly and offers little job security.

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Finally, the unemployment rate has been traditionally high for men with secondary or higherlevel of education and this is the segment in which most of the increase in unemployment islocated. The unemployment rate for illiterate rural men increased from 0.5 to 1.7 between 2011-12 and 2017-18 but the absolute increase was substantially larger, from 3.8 to 10.5 for rural menwith at least secondary education. Similar trends are evident for urban men.

This increase in unemployment for educated youth comes at a time when education hasexpanded substantially. Among rural men (15-29 years), the population with secondary or highereducation increased from 43% to 53% between 2011-12 and 2017-18; in urban areas there wasa five percentage point increase, from 61% to 66%.

These three observations taken together suggest that the roots of India’s present dayunemployment challenges lie in its very success. Educational expansion affects theunemployment debate by skewing the unemployment statistics and by creating greatercompetition for well-paid jobs among a rising population of educated youth. Rising prosperityallows young graduates to wait for well-paying jobs, creating an army of educated unemployed,before being forced to accept any work, frequently returning to family farms or starting smallshops.

Recognition of rising unemployment as a function of rising education forces us to grapple withdifferent issues than a simple focus on unemployment statistics. If public policies such asdemonetisation are responsible for rising unemployment, we would see across-the-boardincrease in unemployment for all age groups. That this phenomenon is located mainly amongthe young and well educated reflects a challenge that goes well beyond the temporary slowdownfacing India post-demonetisation.

Modern India is an aspirational society. After decades of economic stagnation, the 21st centuryhas seen massive growth in aspirations. Parents invest their hearts and souls along with theirrising incomes in educating their children. Children hope to make rapid economic progress wellbeyond the modest gains achieved by their parents’ generation. The unemployment statisticsbased on PLFS data document the challenges these young people are likely to face.

The Bharatiya Janata Party-led National Democratic Alliance has returned to power with amandate that allows it the freedom to focus on key challenges facing modern India. Creatingjobs for an increasingly educated workforce and ensuring that the new workers are wellequipped to enter the labour force are twin challenges that deserve greatest priority. One hopesthat leaders of the present government who made their political debut during the studentmovement in the 1970s will meet this challenge head-on.

Sonalde Desai is Professor, University of Maryland and the National Council of AppliedEconomic Research (NCAER). The views expressed are personal


It opens the window for India to take advantage of economic opportunities in the geopoliticalspace




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SAFETY NET THAT WORKSRelevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable

Development


The writer is a development economist who has previously worked at the World Bank andconsults at 3ie

In the run up to the elections, a plethora of redistributive programmes, including farm loanwaivers, cash transfers and minimum income guarantees came to the forefront as campaignerssought to balm rural distress. Amongst these is a proposal to launch a revised NREGA 3.0, inwhich 150 days of employment would be guaranteed to the rural poor. Almost 15 years after itwas enacted, the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) stillmakes waves in the news, but very little is known about its impact on the poor. Has the world’slargest workfare programme worked?

To elicit a fair answer to this question begs another question. What does the NREGA intend todo? Enacted as a legal right, the NREGA’s primary goal is social protection for the mostvulnerable. But like all good things, expectations of the programme have ballooned — with somebelieving it could even enable most poor households in rural India to cross the poverty line.Measured against such ambitious objectives, any workfare programme would most likely not liveup to its expectations. But India has had relative success with workfare, with the MaharashtraEmployment Guarantee Scheme being the most important precursor to the NREGA.

The primary advantage of workfare programmes over farm loan waivers, cash transfers andminimum income programmes is that the poor self-select themselves into the programme, thusreducing the identification costs. The ability of a programme to parsimoniously target the ultra-poor without elaborate means testing is critical for its long-term success, particularly when fiscalresources are scarce.

Crucially, the most basic tenet of the NREGA — its self-targeting mechanism — does work.Poorer and disadvantaged households are more likely to seek NREGA work. In practice,however, not all those who demand NREGA work receive it. In 2009/10, almost half thehouseholds in rural India wanted NREGA jobs but only a quarter received them, according toestimates by Liu and Barrett (2016). More recently, employment provided under NREGA in3,500 panchayats in 2017/18 was a third less than that demanded.

Given the enormous, though sometimes unmet, demand, has NREGA enabled the rural poor tocross the poverty line? Whilst the three available national counterfactual-based studies showmodest increases in household per capita expenditures and consumption in the first few years ofthe programme, the picture is entirely different for marginalised groups, who have benefitedgreatly due to NREGA. A study by Klonner and Oldiges in 2014 find that Scheduled Caste andScheduled Tribe recipients increased their real monthly per capita expenditure by 37 per cent inthe lean season of 2008, cutting poverty by almost half.

Likewise, state-level studies show NREGA favours the most disadvantaged. In Andhra Pradesh,monthly per capita food consumption amongst the very poor who received work under NREGAincreased by estimates of 9-10 per cent in the first year of implementation (Ravi and Engler2015, Deininger and Liu 2019). The poorest SC/ST households and those with a disabled

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member saw even higher growth in consumption and nutritional intake in the short-run, and inthe medium-term, substantially increased their non-financial assets. In Bihar, Dutta et al (2014)estimate that NREGA reduced poverty by roughly 1 percentage point in 2009, a figure that couldbe closer to 8 percentage points if it was rolled out to all those who wanted it.

Aside from its impact on the poorest, NREGA also plays a critical role in reducing vulnerability.Research indicates that NREGA provides employment after an adverse rainfall shock, enablesworkers to smoothen their consumption with variations in rainfall, and reduces risk during thelean season. Despite been severely rationed, NREGA acts, as per its mandate, as a verydesirable social protection mechanism amongst the most disadvantaged classes. Compared toother proposals on the table, NREGA efficiently allows the most disadvantaged to spur theirconsumption in times of rural distress.

As a new administration weighs policy options at a time of rural unemployment and weakeningconsumption, pre-monsoon, it would be prudent not to eschew this proven pro-poor programme.Instead, they should quickly and substantially ramp up NREGA so all those who demand jobs,receive them. Why reinvent the wheel when NREGA would provide a vital safety net — and thedignity of rightful employment — to those who are most vulnerable?

The writer is a development economist who has previously worked at the World Bank andconsults at 3ie





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Source : www.economictimes.indiatimes.com Date : 2019-06-04

NILEKANI-LED COMMITTEE RECOMMENDS MAKINGALL DIGITAL TRANSACTIONS TO GOVT FREE


Mumbai: RBI appointed panel headed by Nandan Nilekani for strengthening digital paymentsecosystem has set a target for the government and regulators to achieve a ten-fold volumegrowth in digital payments over the next three years through customer-friendly pricingmechanisms and broadening access infrastructure.

In their recommendation report published by the RBI on Monday, the committee listed acomprehensive set of regulatory interventions that will be needed to achieve New Delhi’s goal ofa less-cash economy where the focus would be “pivoting the ecosystem from issuance toacceptance.”

Initiatives such as removing transaction charges on digital payments made to government,inducing a competitive Merchant Discount Rates (MDR) pricing structure and easing KYC coststo banks are amongst the key recommendations put forward by the committee.

“The committee noted the recent growth in volume of digital payments by a factor of 10 over fiveyears and has set a target for additional growth of 10x in three years,” according to the Nilekanireport. “This growth will be driven by a shift from high value, low volume, high cost transactionsto low value, high volume, low cost transactions. Over a longer period, this will eventually lead toa decline in cash requirements.”

The five-member high-level panel headed by Aadhar architect and former Infosys chairmanNilekani was constituted earlier this year by the central bank tasked to submit a comprehensivereport holding consultations with all the major stakeholders to strengthen the digital paymentsindustry which has seen a ten-fold growth in the last five years.

The report has made policy recommendations to all major regulators such as RBI, SEBI, IRDAIand DoT with the objective to reduce cash based payments. Additionally, the committee has putthe onus on government to be at the forefront of the transition by taking steps such as removingtransaction charges on all digital payments made by customers to the government.

“The committee recommends that the Government, being the single largest participant inpayments, take the lead on all aspects of digitization of payments… just as the Governmentbudgets for accepting payments in cash, it is recommended that it also budget for acceptingdigital transactions, ensuring that no convenience fee is charged on C2G payments,” accordingto the report.

Further the committee has also asked RBI to set an interchange rate for transaction betweencustomers and leave the MDR on competitive market pricing which would reduce the transactioncost for customers.

“…the regulator should adjust the interchange rate and let the market compete on MDRultimately growing the acceptance ecosystem rather than inhibiting it.”

Special impetus on digitising mass volume channels such as recurring bill payments, toll andticket payments at public facilities and digital onboarding of khirana store merchants has alsobeen recommended by the panel in order to achieve the targeted growth.

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The panel has also asked the government to set up special risk mitigation and complaintregistering digital portals. A special data monitoring mechanism to garner granular district leveldata on consumer trends and payment behaviour has also been suggested by the committee fortargeted intervention to improve the existing infrastructure.

“We support macro recommendations to shift focus from issuance to merchant acquisition,simplified KYC for wallets and other instruments and allowing sharing of KYC with PMLAamendment across regulated entities, overall risk based light touch regulation,” said NaveenSurya chairman emeritus, Payment Council of India. “Target of 10x growth in three years isachievable if all these recommendations are implemented in time bound fashion.”Mumbai: RBI appointed panel headed by Nandan Nilekani for strengthening digital paymentsecosystem has set a target for the government and regulators to achieve a ten-fold volumegrowth in digital payments over the next three years through customer-friendly pricingmechanisms and broadening access infrastructure.

In their recommendation report published by the RBI on Monday, the committee listed acomprehensive set of regulatory interventions that will be needed to achieve New Delhi’s goal ofa less-cash economy where the focus would be “pivoting the ecosystem from issuance toacceptance.”

Initiatives such as removing transaction charges on digital payments made to government,inducing a competitive Merchant Discount Rates (MDR) pricing structure and easing KYC coststo banks are amongst the key recommendations put forward by the committee.

“The committee noted the recent growth in volume of digital payments by a factor of 10 over fiveyears and has set a target for additional growth of 10x in three years,” according to the Nilekanireport. “This growth will be driven by a shift from high value, low volume, high cost transactionsto low value, high volume, low cost transactions. Over a longer period, this will eventually lead toa decline in cash requirements.”

The five-member high-level panel headed by Aadhar architect and former Infosys chairmanNilekani was constituted earlier this year by the central bank tasked to submit a comprehensivereport holding consultations with all the major stakeholders to strengthen the digital paymentsindustry which has seen a ten-fold growth in the last five years.

The report has made policy recommendations to all major regulators such as RBI, SEBI, IRDAIand DoT with the objective to reduce cash based payments. Additionally, the committee has putthe onus on government to be at the forefront of the transition by taking steps such as removingtransaction charges on all digital payments made by customers to the government.

“The committee recommends that the Government, being the single largest participant inpayments, take the lead on all aspects of digitization of payments… just as the Governmentbudgets for accepting payments in cash, it is recommended that it also budget for acceptingdigital transactions, ensuring that no convenience fee is charged on C2G payments,” accordingto the report.

Further the committee has also asked RBI to set an interchange rate for transaction betweencustomers and leave the MDR on competitive market pricing which would reduce the transactioncost for customers.

“…the regulator should adjust the interchange rate and let the market compete on MDRultimately growing the acceptance ecosystem rather than inhibiting it.”

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Special impetus on digitising mass volume channels such as recurring bill payments, toll andticket payments at public facilities and digital onboarding of khirana store merchants has alsobeen recommended by the panel in order to achieve the targeted growth.

The panel has also asked the government to set up special risk mitigation and complaintregistering digital portals. A special data monitoring mechanism to garner granular district leveldata on consumer trends and payment behaviour has also been suggested by the committee fortargeted intervention to improve the existing infrastructure.

“We support macro recommendations to shift focus from issuance to merchant acquisition,simplified KYC for wallets and other instruments and allowing sharing of KYC with PMLAamendment across regulated entities, overall risk based light touch regulation,” said NaveenSurya chairman emeritus, Payment Council of India. “Target of 10x growth in three years isachievable if all these recommendations are implemented in time bound fashion.”



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BANK FRAUD TOUCHES UNPRECEDENTED RS 71,500CRORE IN 2018-19: RBI


NEW DELHI: Over 6,800 cases of bank fraud involving an unprecedented Rs 71,500 crore havebeen reported in 2018-19, the Reserve Bank of India has said.

A total of 5,916 such cases were reported by banks in 2017-18 involving Rs 41,167.03 crore, itsaid.

As many as 6,801 cases of fraud were reported by scheduled commercial banks and selectfinancial institutions involving an amount of Rs 71,542.93 crore in the last fiscal (increase of over73 per cent in the fraud amount), the Reserve Bank of India (RBI) said in reply to an RTI queryfiled by this PTI journalist.

In the last 11 fiscal years, a total of 53,334 cases of fraud were reported by banks involving amassive amount of Rs 2.05 lakh crore, the central bank's data said.

During 2008-09, a total of 4,372 cases were reported involving an amount of Rs 1,860.09 crore.In 2009-10, Rs 1,998.94 crore worth fraud was reported in 4,669 cases.

A total of 4,534 and 4,093 such cases were reported in 2010-11 and 2011-12 involving Rs3,815.76 crore and Rs 4,501.15 crore, respectively.

In the 2012-13 fiscal, 4,235 fraud cases involving Rs 8,590.86 crore were reported by banks asagainst 4,306 cases (involving Rs 10,170.81 crore) in 2013-14 and 4,639 cases (involving Rs19,455.07 crore) in 2014-15, the RBI said.

As many as 4,693 and 5,076 cases of fraud were reported in 2015-16 and 2016-17 involving Rs18,698.82 crore and Rs 23,933.85 crore, respectively, it said.

"Cases of fraud reported to RBI are required to be filed by banks as criminal complaints with lawenforcement agencies. The information in respect of action being taken or already taken is notavailable readily," the central bank said.

The data assumes significance as banks are grappling with high-profile fraud cases involvingabsconding billionaire Nirav Modi and liquor baron Vijay Mallya among others.The large-scale fraud had prompted anti-corruption watchdog Central Vigilance Commission(CVC) to do an analysis and it came out with a report on top 100 frauds.

The analysis focussed on the modus operandi, amount involved, type of lending (consortium orindividual), anomalies observed, loopholes that facilitated perpetration of the fraud concernedand the systemic improvement required to plug the gaps in the system and procedures.

The frauds were classified and analysed for 13 sectors, including gem and jewellery,manufacturing and industry, agriculture, media, aviation, service and project, discounting ofcheques, trading, information technology, export business, fixed deposits, demand loan andletter of comfort.

The measures suggested by the CVC included strengthening standard operating procedures

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(SOPs) and the monitoring system, among others.

The CBI in 2018 booked top officials of two public sector banks, a former CMD of IDBI Bank,former Aircel promoter C Sivasankaran, his son and companies controlled by him in connectionwith a Rs 600-crore loan fraud in the IDBI.

The investigative agency named 15 bank officials who worked at senior levels at the IDBI in2010 and 2014 when loans were sanctioned to companies controlled by Sivasankaran, in its FIRregistered on a complaint from the CVC.

Managing Director and CEO of Indian Bank, Kishor Kharat (who was then MD and CEO of IDBIBank) and his counterpart in Syndicate Bank, Melwyn Rego (then deputy managing director inIDBI Bank) along with then Chairman-cum-Managing Director of IDBI Bank M S Raghavan, havebeen named in the latest FIR filed by the CBI.

Central agencies like the Central Bureau of Investigation (CBI) and Enforcement Directorate(ED) are also probing big-ticket bank fraud cases.NEW DELHI: Over 6,800 cases of bank fraud involving an unprecedented Rs 71,500 crore havebeen reported in 2018-19, the Reserve Bank of India has said.

A total of 5,916 such cases were reported by banks in 2017-18 involving Rs 41,167.03 crore, itsaid.

As many as 6,801 cases of fraud were reported by scheduled commercial banks and selectfinancial institutions involving an amount of Rs 71,542.93 crore in the last fiscal (increase of over73 per cent in the fraud amount), the Reserve Bank of India (RBI) said in reply to an RTI queryfiled by this PTI journalist.

In the last 11 fiscal years, a total of 53,334 cases of fraud were reported by banks involving amassive amount of Rs 2.05 lakh crore, the central bank's data said.

During 2008-09, a total of 4,372 cases were reported involving an amount of Rs 1,860.09 crore.In 2009-10, Rs 1,998.94 crore worth fraud was reported in 4,669 cases.

A total of 4,534 and 4,093 such cases were reported in 2010-11 and 2011-12 involving Rs3,815.76 crore and Rs 4,501.15 crore, respectively.

In the 2012-13 fiscal, 4,235 fraud cases involving Rs 8,590.86 crore were reported by banks asagainst 4,306 cases (involving Rs 10,170.81 crore) in 2013-14 and 4,639 cases (involving Rs19,455.07 crore) in 2014-15, the RBI said.

As many as 4,693 and 5,076 cases of fraud were reported in 2015-16 and 2016-17 involving Rs18,698.82 crore and Rs 23,933.85 crore, respectively, it said.

"Cases of fraud reported to RBI are required to be filed by banks as criminal complaints with lawenforcement agencies. The information in respect of action being taken or already taken is notavailable readily," the central bank said.

The data assumes significance as banks are grappling with high-profile fraud cases involvingabsconding billionaire Nirav Modi and liquor baron Vijay Mallya among others.The large-scale fraud had prompted anti-corruption watchdog Central Vigilance Commission(CVC) to do an analysis and it came out with a report on top 100 frauds.

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The analysis focussed on the modus operandi, amount involved, type of lending (consortium orindividual), anomalies observed, loopholes that facilitated perpetration of the fraud concernedand the systemic improvement required to plug the gaps in the system and procedures.

The frauds were classified and analysed for 13 sectors, including gem and jewellery,manufacturing and industry, agriculture, media, aviation, service and project, discounting ofcheques, trading, information technology, export business, fixed deposits, demand loan andletter of comfort.

The measures suggested by the CVC included strengthening standard operating procedures(SOPs) and the monitoring system, among others.

The CBI in 2018 booked top officials of two public sector banks, a former CMD of IDBI Bank,former Aircel promoter C Sivasankaran, his son and companies controlled by him in connectionwith a Rs 600-crore loan fraud in the IDBI.

The investigative agency named 15 bank officials who worked at senior levels at the IDBI in2010 and 2014 when loans were sanctioned to companies controlled by Sivasankaran, in its FIRregistered on a complaint from the CVC.

Managing Director and CEO of Indian Bank, Kishor Kharat (who was then MD and CEO of IDBIBank) and his counterpart in Syndicate Bank, Melwyn Rego (then deputy managing director inIDBI Bank) along with then Chairman-cum-Managing Director of IDBI Bank M S Raghavan, havebeen named in the latest FIR filed by the CBI.

Central agencies like the Central Bureau of Investigation (CBI) and Enforcement Directorate(ED) are also probing big-ticket bank fraud cases.



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LOWER LEVERAGE RATIO MAY IMPROVE LENDINGACTIVITY


The Reserve Bank of India’s decision to bring leverage ratio for banks in line with Basel-IIIstandards will improve the lendable resources, bankers said.

In the second bi-monthly policy review, the central bank has mandated leverage ratio of 3.5% forall the banks except for the domestic systemically important banks (D-SIBs), which will have a4% ratio. “Keeping in mind financial stability and with a view to moving further towardsharmonisation with Basel III standards, it has been decided that the minimum LR should be 4%for domestic systemically important banks (DSIBs) and 3.5% for other banks,” the RBI said,adding instructions in this regard would be issued before the end of June 2019. The ratio wasindicated to be 4.5% earlier.

“On the regulatory front, the decision to lower the leverage ratio will augment the lendableresources of the banks,” Rajnish Kumar, chairman, SBI said.

The leverage ratio was introduced for banks post the financial crisis of 2008, as one of theunderlying features of the crisis was the build-up of excessive on- and off-balance sheetleverage in the banking system.

In many cases, banks built up excessive leverage while still showing strong risk-based capitalratios.

“The easing of the leverage ratio requirement will boost bank lending and should serve as themuch needed countercyclical stimulus,” Zarin Daruwala, CEO, Standard Chartered Bank, India,said.

Working group

The RBI has also set up an internal working group to review liquidity management frameworkwith a view to simplify the current framework. The RBI said the objective was also to clearlycommunicate the objectives, quantitative measures and toolkit of liquidity management by theRBI.

“Liquidity is one of the areas where banks pay a lot of attention. Setting up a committee toimprove the liquidity management process is indeed a positive signal and aligning the leverageratio with Basel standards would also help banks considerably,” said Sunil Mehta, MD and CEO,Punjab National Bank and chairman, Indian Banks’ Association.

The working group is expected to submit its report by mid-July 2019.

Setting up a committee to improve liquidity management is a positive signalSunilmehta,MD & CEO, PNB



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RBI WAIVES NEFT/RTGS FEE, TO REVIEW ATM FEESRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

In a move to encourage digital transactions, the Reserve Bank of India (RBI) has decided towaive off charges for fund transfer via Real Time Gross Settlement System (RTGS) — which ismeant for large-value, instantaneous fund transfers and the National Electronic Funds Transfer(NEFT) System for other fund transfers.

While the charges are levied on banks, they, in turn, pass it to the customers.

“In order to provide an impetus to digital fund movement, it has been decided to do away withthe charges levied by the Reserve Bank for transactions processed in the RTGS and NEFTsystems,” the RBI said. “Banks will be required, in turn, to pass these benefits to theircustomers,” it added.

ATM charges review

Separately, the banking regulator would review the charges levied on customers while operatingautomated teller machines (ATMs).

A committee will be set up, under the chairmanship of the chief executive officer, Indian Banks’Association (IBA), ‘to examine the entire gamut of ATM charges and fees,’ the RBI said.

At present, customers are charged for using other banks’ ATMs beyond a particular number oftransactions.

The Committee is expected to submit its recommendations within two months of its first meeting.








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INDIA NEEDS A SOLAR MANUFACTURING STRATEGYRelevant for: Indian Economy | Topic: Infrastructure: Energy incl. Renewable & Non-renewable

“Low-cost Chinese imports have undercut India’s ambitions to develop its own solar technologysuppliers.“ A solar panel being on the rooftop of a house in Nada, a village near Mangaluru.>A | Photo Credit: AP

India has made significant progress in creating capacity for solar energy generation in the lastfew years. The Prime Minister’s emphasis since 2014 has given a new fillip to solar powerinstallation. The unit costs of solar power have fallen, and solar energy has become increasinglycompetitive with alternative sources of energy. India expanded its solar generation capacityeight times from 2,650 MW on May 26, 2014 to over 20 GW on January 31, 2018, and 28.18GW on March 31, 2019. The government had an initial target of 20 GW of solar capacity by2022, which was achieved four years ahead of schedule. In 2015, the target was raised to 100GW of solar capacity by 2022.

This rapid progress should have been made earlier, however. India is energy deficient, yetblessed with plenty of sunlight for most of the year. It should have taken a lead in solar panelmanufacture to generate solar energy long ago. Despite the new policy focus on solar plantinstallation, India is still not a solar panel manufacturer. Just as India has had no overallindustrial policy since economic reforms began, there is no real plan in place to ensure solarpanel manufacture. The share of all manufacturing in GDP was 16% in 1991; it remained thesame in 2017. The solar power potential offers a manufacturing opportunity. The government isa near monopsonistic buyer. India is regarded by the global solar industry as one of the mostpromising markets, but low-cost Chinese imports have undercut its ambitions to develop its ownsolar technology suppliers. Imports, mostly from China, accounted for 90% of 2017 sales, upfrom 86% in 2014.

Substituting for imports requires human capabilities, technological capabilities and capital in theform of finance. On the first two capabilities, the supply chain of solar photovoltaic panelmanufacturing is as follows: silicon production from silicates (sand); production of solar gradesilicon ingots; solar wafer manufacturing; and PV module assembly. The capital expenditure andtechnical know-how needed for these processes decreases from the first item to the last, i.e.silicon production is more capital-intensive than module assembly. Most Indian companies areengaged in only module assembly or wafer manufacturing and module assembly. No Indiancompany is involved in silicon production, although a few are making strides towards it.According to the Ministry of New and Renewable Energy (2018), India has an annual solar cellmanufacturing capacity of about 3 GW while the average annual demand is 20 GW. Theshortfall is met by imports of solar panels.

So we may not see domestic players, in the short term at least, replacing imported ones. Whilethe safeguard duty now puts locally made panels on par with imported ones in terms of cost, thedomestic sector needs to do a lot more to be effective. For instance, it will have to go down thesupply chain and make the input components locally instead of importing them and putting themodules together here. Public procurement is the way forward. The government is still free tocall out bids for solar power plants with the requirement that these be made fully in India. Thiswill not violate any World Trade Organization commitment. However, no bids will be received asmanufacturing facilities for these do not exist in the country. But as Ajay Shankar, formerSecretary, Department of Industrial Policy and Promotion, argues, if the bids were large enoughwith supplies spread over years, which gives enough time for a green field investment to bemade for manufacturing in India, then bidders will emerge and local manufacturing can begin.

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China’s cost advantage derives from capabilities on three fronts. The first is core competence.The six largest Chinese manufacturers had core technical competence in semiconductors beforethey turned to manufacturing solar cells at the turn of the century. It takes time for companies tolearn and put in action new technologies. When the solar industry in China began to grow,Chinese companies already possessed the know-how. Experts suggest that the human andtechnical learning curve could be five to 10 years. Indian companies had no learning backgroundin semiconductors when the solar industry in India began to grow from 2011. State governmentsneed to support semiconductor production as part of a determined industrial policy to developthis capacity for the future.

The second source of cost advantage for China comes from government policy. The Chinesegovernment has subsidised land acquisition, raw material, labour and export, among others.None of this is matched by the Indian government. Perhaps even more important is commitmentby the government to procure over the long run — without that the investment in building up thedesign and manufacturing for each of the four stages of production of solar power equipmentwould come to nought.

The third is the cost of capital. The cost of debt in India (11%) is highest in the Asia-Pacificregion, while in China it is about 5%.

Fifteen years ago, the Chinese could also have remained dependent upon imports from Koreaor Germany; they did not. Remaining dependent on imports only leads to short-term benefits forIndia. A continuation of the current approach means India’s energy sector will be in the samecondition as its defence industry, where enormous amounts of money have been spentprocuring weaponry — so much so that India has been the world’s second largest importer ofdefence equipment for years.

In the solar panel manufacturing sector, the Indian government allows 100% foreign investmentas equity and it qualifies for automatic approval. The government is also encouraging foreigninvestors to set up renewable energy-based power generation projects on build-own-operatebasis. But the Chinese government is clearly adopting an aggressive stance while the demandfor solar power in India continues to grow, as does the government’s commitment torenewables. In 2018, China cut financial support to developers and halted approval for new solarprojects. As a result, Chinese producers will cut prices to sustain their manufacturing plantcapacity utilisation by sustaining exports to India. In other words, the Chinese strategy is toundercut any planned effort by India to develop the entire supply chain capacity within India sothat dependence on imports from China continues. As a counter, India needs a solarmanufacturing strategy, perhaps like the Automotive Mission Plan (2006-2016), which is creditedwith making India one of the largest manufacturers of two-wheelers, three-wheelers, four-wheelers and lorries in the world. This would also be a jobs-generating strategy for anincreasingly better educated youth, both rural and urban.

Santosh Mehrotra is Professor of Economics, JNU, New Delhi





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PANEL TO FOCUS ON EMPLOYMENTRelevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable

Development

The government on Wednesday set up a 10-member Cabinet Committee on Employment andSkill Development with Prime Minister Narendra Modi as its chairman.

Employment data for 2017-18, released on May 31 after the Lok Sabha elections, said India’sunemployment rate rose to 6.1% in the period, the highest in 45 years.

In addition to the Prime Minister, the committee includes Home Minister Amit Shah, FinanceMinister Nirmala Sitharaman, Railway Miinister Piyush Goyal, Minister of Agriculture NarendraSingh Tomar, Human Resource Development Minister Ramesh Pokhriyal ‘Nishank’, Petroleumand Natural Gas Minister Dharmendra Pradhan, Minister Skill and Entrepreneurship MahendraNath Pandey and Ministers of State Santosh Kumar Gangwar (Labour) and Hardeep Singh Puri(Housing and Urban Affairs).

The panel on employment is one of two Cabinet committees set up to spur economic growth andrackle unemployment.

With the GDP falling to 5.8% in the last quarter of 2018-19, lowest in last five years, thecommittee on economic growth will prepare a road map to bring the economy back on thegrowth trajectory.

The GDP growth for 2018-19 was 6.8 %, against the target of 7.2 %.

The fall in growth is result of dip in the performance of the core sectors of the economy, as theeight core sectors — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement andelectricity — recorded a growth of just 2.6 % in April, compared with 4.6% in the same monthlast year.

As per figures released by the government, the country’s economic growth saw the third straightfall in quarterly growth, raising concerns about the slowdown even as the BJP-led NDAgovernment is beginning its second term following a landslide victory in the Lok Sabha polls.








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GOING DIGITALRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI


The payments ecosystem in India has seen a flurry of activity in the recent past. Postdemonetisation, the shift towards digital payments has been particularly striking. Yet,acceptance, from an infrastructure perspective, continues to be low. For instance, while debitcard issuance has touched a billion, there are only about 3.5 million POS devices and two lakhATMs that accept cards. Against this backdrop, a committee headed by Nandan Nilekani hasrecommended several suggestions to broaden the acceptance infrastructure and deepen digitalfinancial inclusion.

On the issue of acceptance, the committee notes that “high cost structures, including merchantfees, as well as limited financial service offering impede merchants from accepting digitalpayments”. To address this, it has recommended reducing the interchange on card payments by15 basis points hoping this will “increase the incentive for acquirers to sign-up merchants”. Thenthere’s also the suggestion of setting up of a committee to review merchant discount rate andinterchange on a regular basis. Now, merchant acquisition is central to expanding the paymentecosystem. But, rather than focusing more on the card-based ecosystem, perhaps greateremphasis could have been placed on the Aadhaar-enabled payment systems, which is likely tohave greater appeal, especially in the rural hinterland. There are also suggestions which call forensuring no user charges for digital payments, and providing businesses tax incentives“calibrated on the proportion of digital payments in their receipts”. These are eminently sensiblerecommendations. But implementation is likely to prove challenging. Take, for instance, thegovernment’s decision to waive of fees on transactions less than Rs 2,000. Theoretically, asound proportion. But, the roll-out was not as smooth as was expected.

The committee has also suggested that non-banks be encouraged to participate in paymentsystems. But, this is where questions over the existing payments architecture crop up. As theinter-ministerial committee had pointed out earlier, there is need to distinguish between theRBI’s role “as an infrastructure institution providing settlement function from its role as regulatorof the payments system”. As the panel has said, the role of the regulator needs to evolve frombeing “largely bank centric”. Non-banks are at an inherent disadvantage in the current paymentecosystem. Perhaps, as the Nilekani committee notes, bringing in “non-banks as associatemembers to build acceptance infrastructure”, and allowing them access to settlement systems,might help create a level-playing field.





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FDI IN SERVICES SECTOR UP 37 PC TO $9.15 BN IN2018-19Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade

& BOP

NEW DELHI: Foreign direct investment in services sector grew 36.5 per cent to USD 9.15 billionin 2018-19, according to the Department for Promotion of Industry and Internal Trade ( DPIIT).

The sector attracted FDI worth USD 6.7 billion in 2017-18. Services sector includes finance,banking, insurance, outsourcing, R&D, courier, tech testing and analysis.

The government has taken several measures like fixing timeliness for approvals andstreamlining procedures to improve ease of doing business in the country and attract foreigninvestments.

Increasing FDI inflows in services sector is vital as it contributes over 60 per cent to the grossdomestic product.

The sector accounts for about 18 per cent of the total FDI India received between April 2000 andMarch 2019.

Other sectors that recorded healthy growth in FDI inflows include computer software andhardware, trading, automobile industry, and chemicals.

The overall FDI inflows declined for the first time in the last six years in 2018-19, falling 1 percent to USD 44.37 billion as foreign investments fell significantly in telecommunication andpharmaceutical sectors, official data showed.

Foreign investments are crucial for India as the country needs around USD 1 trillion foroverhauling its infrastructure sector such as ports, airports and highways to boost growth.

A strong inflow of foreign investments helps improve the country's balance of payments situationand strengthens the value of rupee against global currencies, especially the US dollar.

FDI in chemicals sector too registered a marginal decline in 2017-18, when it attracted USD 1.30billion investments as compared to USD 1.39 billion in 2016-17.NEW DELHI: Foreign direct investment in services sector grew 36.5 per cent to USD 9.15 billionin 2018-19, according to the Department for Promotion of Industry and Internal Trade ( DPIIT).

The sector attracted FDI worth USD 6.7 billion in 2017-18. Services sector includes finance,banking, insurance, outsourcing, R&D, courier, tech testing and analysis.

The government has taken several measures like fixing timeliness for approvals andstreamlining procedures to improve ease of doing business in the country and attract foreigninvestments.

Increasing FDI inflows in services sector is vital as it contributes over 60 per cent to the grossdomestic product.

The sector accounts for about 18 per cent of the total FDI India received between April 2000 and

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March 2019.

Other sectors that recorded healthy growth in FDI inflows include computer software andhardware, trading, automobile industry, and chemicals.

The overall FDI inflows declined for the first time in the last six years in 2018-19, falling 1 percent to USD 44.37 billion as foreign investments fell significantly in telecommunication andpharmaceutical sectors, official data showed.

Foreign investments are crucial for India as the country needs around USD 1 trillion foroverhauling its infrastructure sector such as ports, airports and highways to boost growth.

A strong inflow of foreign investments helps improve the country's balance of payments situationand strengthens the value of rupee against global currencies, especially the US dollar.

FDI in chemicals sector too registered a marginal decline in 2017-18, when it attracted USD 1.30billion investments as compared to USD 1.39 billion in 2016-17.



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RBI REVISES STRESSED ASSET RESOLUTION NORMSRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

After the Supreme Court struck down the controversial February 12, 2018 circular of ReserveBank of India (RBI) on stressed asset resolution, the banking regulator on Friday releasedrevised set of norms which are substantially less stringent from the previous one.

In particular, neither there is a mandate to start resolution which results in higher provisioning ifthere is a single day default nor a mandate for initiating insolvency proceeding if resolution planis not implemented for large accounts within a time frame. However, the RBI has sought tonudge banks towards the insolvency courts by introducing a disincentive in the form of additionalprovisions for delayed resolution.

At the same time, the central bank said it would issue directions to banks for initiation ofinsolvency proceedings against borrowers for specific defaults ‘so that the momentum towardseffective resolution remains uncompromised.’

The new circular asked lenders to undertake a prima facie review of the borrower account within30 days from a default, which is termed as “review period.”

During this review period, lenders may decide on the resolution strategy, including the nature ofthe resolution plan (RP), the approach for implementation of the RP etc.

Legal proceedings

“The lenders may also choose to initiate legal proceedings for insolvency or recovery,” thecircular, which comes into effect immediately, said.

If the RP is to be implemented, lenders have been asked to enter into an inter-creditoragreement (ICA), within the review period, to provide for ground rules for finalisation andimplementation of the RP.

“The ICA shall provide that any decision agreed by lenders representing 75% by value of totaloutstanding credit facilities (fund-based as well as non-fund based) and 60% of lenders bynumber shall be binding upon all the lenders,” the circular said. The RP will have to implementedwithin 180 days from the end of review period, RBI said.

The review period shall commence not later than the date of the this circular for loans above Rs.2000 crore; January 1 ,2020 for loans above Rs. 1,500 crore to Rs. 2,000 crore.

For loans less than Rs. 1,500 crore, the reference date would be announced later.

There is a disincentive for banks if they delay implementing a viable resolution plan. In case theplan is not implemented within 180 days from the end of review period, banks have to makeadditional provision of 20% and another 15% if the plan is not implemented within 365 days fromthe start of the review period.

The additional provisions would be reversed if resolution is pursued under Insolvency andBankruptcy Code (IBC).

Half of the additional provisions could be reversed on filing of insolvency application and the

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remaining additional provisions may be reversed once case is admitted for insolvencyproceedings.

“Incentives to reverse 50% of these provisions upon reference under IBC will incentivise lendersto refer such stressed cases to IBC for faster resolution,” says Karthik Srinivasan, group head,financial sector ratings ICRA, who thinks the overall framework is positive and will continue toincentivise banks for accelerated resolution of stressed assets.

Debt recast tools like corporate debt restructuring scheme and strategic debt restructuringscheme are withdrawn. Apart from banks, these new norms are also applicable for non-bankingfinancial companies, small finance banks and other financial institutions.








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SEBI, MCA SIGN PACT FOR MORE DATA SCRUTINYRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Capital Market & SEBI

The Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA)signed a memorandum of understanding (MoU) to facilitate seamless sharing of data andinformation for carrying out scrutiny, inspection, investigation and prosecution.

This assumes significance as the MCA has the database of all registered firms while SEBI onlyregulates listed entities that may have unlisted subsidiaries, with the MCA having access to allthe data of such unlisted entities.

‘Backdrop of frauds’

“The MoU comes in the wake of increasing need for surveillance in the context of corporatefrauds affecting important sectors of the economy. As the private sector plays an increasinglyvital role in economic growth, the need for a robust corporate governance mechanism becomesthe need of the hour,” said a statement issued by the SEBI on Friday.

Incidentally, there is already a protocol of sharing of data between the capital markets regulatorMinistry and, in many cases, the regulator has also sent its orders against various entities to theMCA for further action.

According to the SEBI statement, the MoU will facilitate the sharing of data and informationbetween the regulator and the MCA on an automatic and regular basis, while enabling sharing ofspecific information such as details of suspended companies, delisted firms, shareholdingpattern from the SEBI and financial statements filed with the Registrar by corporates, returns ofallotment of shares and audit reports relating to corporates.

The MoU will ensure that both the MCA and the SEBI have seamless linkage for regulatorypurposes and in addition to regular exchange of data, the two will also exchange with eachother, on request, any available information for scrutiny, inspection, investigation andprosecution.

A Data Exchange Steering Group will meet periodically to review the data exchange status.








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CRYPTOCURRENCY: DRAFT LAW PROPOSES 10-YEARJAIL TERM FOR DEALING IN CRYPTOCURRENCY


NEW DELHI: Holding, selling or dealing in cryptocurrencies such as Bitcoin could soon land youin jail for 10 years.

The "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019" draft hasproposed 10-year prison sentence for persons who "mine, generate, hold, sell, transfer, dispose,issue or deal in cryptocurrencies.

Besides making it completely illegal, the bill makes holding of cryptos a non-bailable offence.

A cryptocurrency is a digital or virtual currency that uses cryptography for security and isgenerally based on blockchain technology, a distributed ledger enforced by a disparate networkof computers. Bitcoin is the most popular cryptocurrency in the world.

Given the high chances of cryptocurrencies being misused for money laundering, variousgovernment bodies such as the Income Tax Department and the Central Board of Indirect Taxesand Customs (CBIC) had endorsed banning of cryptocurrencies.

The draft bill for banning cryptocurrency has been in the works for some time with EconomicAffairs Secretary Subhash Chandra Garg leading the exercise.

While strict law would soon be in place to deal with people indulging in trade of cryptocurrency,India is likely to have its own digital currency.

"A decision on the launch of Digital Rupee would be taken after consulting the Reserve Bank ofIndia (RBI)," said an official.NEW DELHI: Holding, selling or dealing in cryptocurrencies such as Bitcoin could soon land youin jail for 10 years.

The "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019" draft hasproposed 10-year prison sentence for persons who "mine, generate, hold, sell, transfer, dispose,issue or deal in cryptocurrencies.

Besides making it completely illegal, the bill makes holding of cryptos a non-bailable offence.

A cryptocurrency is a digital or virtual currency that uses cryptography for security and isgenerally based on blockchain technology, a distributed ledger enforced by a disparate networkof computers. Bitcoin is the most popular cryptocurrency in the world.

Given the high chances of cryptocurrencies being misused for money laundering, variousgovernment bodies such as the Income Tax Department and the Central Board of Indirect Taxesand Customs (CBIC) had endorsed banning of cryptocurrencies.

The draft bill for banning cryptocurrency has been in the works for some time with EconomicAffairs Secretary Subhash Chandra Garg leading the exercise.

While strict law would soon be in place to deal with people indulging in trade of cryptocurrency,

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India is likely to have its own digital currency.

"A decision on the launch of Digital Rupee would be taken after consulting the Reserve Bank ofIndia (RBI)," said an official.



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SEBI MULLS NORMS TO REWARD WHISTLE-BLOWERSRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Capital Market & SEBI

The Securities and Exchange Board of India (SEBI) has proposed establishing a framework toreward individuals who bring forward instances of violations of insider trading norms while at thesame time protecting such persons from victimisation in the form of demotion or termination ofjob.

“... it is desirable and prudent that SEBI considers instituting a process that enables timelyreporting of instances of insider trading violations and also provide for grant of reward withadequate checks and balances that could incentivise timely reporting of information relating toinsider trading to SEBI at the first available opportunity,” stated the discussion paper released bySEBI on Monday.

The capital markets regulator has proposed that entities that come forward with such informationwill have to disclose the source of information and give an undertaking that such information hasnot been sourced from any regulator.

Further, the regulator has proposed that if such information leads to a final order by SEBI with aminimum disgorgement of Rs. 5 crore, then a monetary award of 10% of the money collected bySEBI, subject to a cap of Rs. 1 crore, can be given to the informant.

Further, the reward will be paid from the Investor Protection and Education Fund (IPEF). SEBIalso plans to establish an Office of Informant Protection, which will be independent of theinvestigation and inspection wings of the regulatory body.

Anonymous complaint

While the informant would be required to disclose his or her identity at the time of submission ofthe complaint in the official format – Voluntary Information Disclosure Form, in SEBI’s parlance –an anonymous complaint can also be submitted through an authorised representative who is apractising advocate.

To protect such complainants against victimisation, the regulator has proposed that all listedcompanies and intermediaries would include in their code of conduct, provisions to ensure thatsuch individuals are not “discharged, terminated, demoted, suspended, threatened, harassed, ordiscriminated against, directly or indirectly.”

While SEBI has also proposed an amnesty for such individuals, it has also stated that if acomplaint is found to be frivolous, the regulator can initiate actions against the informant.






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STRIKING A BALANCE: ON STRESSED ASSETSRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

The efforts of the Reserve Bank of India to clean up the non-performing loans mess in thebanking system suffered a setback in April when the Supreme Court shot down its circular ofFebruary 12, 2018, terming it ultra vires. Version 2.0 of the circular, titled “Prudential Frameworkfor Resolution of Stressed Assets”, issued by the central bank on June 7, manages to retain thespirit of the original version even while accommodating the concerns of banks and borrowers.The RBI has achieved a good balance between its objective of forcing a resolution of strickenassets and giving banks the elbow room to draw up a resolution within a set timeframe withoutresorting to the bankruptcy process. Banks will now have a review period of 30 days after aborrower defaults to decide on the resolution strategy, as compared to the one-day norm earlier.They will also have the freedom to decide whether or not to drag a defaulter to the insolvencycourt if resolution does not take place within 180 days of default. Banks had no such optionearlier. By making an Inter Creditor Agreement between lenders mandatory, the RBI hasensured that they will speak in one voice, while the condition that dissenting lenders should notget less than the liquidation value puts a floor on recovery from the resolution process.

The RBI’s nuanced approach now is noteworthy. There will be disincentives in the form ofadditional provision of 20% to be made by banks if a resolution is not achieved within 180 daysand a further additional provision of 15% if this extends to a year. If that is the stick, the carrot isthat they can write back half of the additional provision once a reference is made to theinsolvency court and the remaining half can also be clawed back by banks if the reference isadmitted for insolvency resolution. This approach will give banks the freedom to explore alloptions before referring a defaulter to the insolvency process. Instead of treating banks liketruant schoolchildren who need to be disciplined with the stick, the RBI has graduated to treatingthem like responsible adults who know what is good for them when it comes to handlingdefaulters. Of course, the RBI was forced to wield the stick originally only because banksresorted to evergreening loans and pushing NPAs under the carpet. It is to be hoped that theywill now uphold the trust placed in them by the RBI. The central bank, anyway, retains the rightto direct banks to initiate insolvency proceedings in specific cases by drawing on its powersunder Section 35AA of the Banking Regulation Act. Meanwhile, the government has to assesswhat ails the insolvency resolution process, which has got bogged down in the case of severalhigh-profile defaulters, beginning with Essar Steel. The delays in resolution are not good optics,and the gaps that defaulters typically use to subvert the process must be plugged. Ultimately,the RBI’s efforts will be negated if banks, put off by the long delays in the resolution process,choose not to refer cases to the insolvency court.








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PRESS NOTE : CLARIFICATION REGARDING THESTATISTICAL REFORMS AND THE EXISTING GDPSERIES

Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

Ministry of Statistics & Programme Implementation

Press Note : Clarification regarding the Statistical reformsand the existing GDP series

Posted On: 10 JUN 2019 5:19PM by PIB Delhi

Reports have appeared in a section of media regarding the statistical reformsbeing undertaken in the Ministry of Statistics and Programme Implementation(MOSPI) and on the existing GDP series.

1.

In so far as the statistical reforms are concerned, it is important to note thatsystem reforms are an ongoing process and are necessary for ensuringresponsiveness to the changing needs of society. Over a period of time, therehave been increasing demands on the statistical system for production ofrelevant and quality statistics. The Ministry has been accommodating thesedemands by optimising the available resources and use of technology. As in anysystem, the advent of technology necessitates reforms in statistical processesand products with an aim to synergise the existing resources so that the systemremains responsive. The recent step for the merger of CSO and NSSO wasaimed at leveraging the strengths of the two organisations so that it can meet theincreasing demands.

2.

In 2018, the Cabinet had approved several new activities including the conductof new surveys on the Annual Survey of Services Sector (for a more elaboratecoverage of the services sector), Annual Survey of Unincorporated Enterprises(to get a better understanding of these enterprises, primarily in the informalsector), Time Use Survey (for assessing the time disposition of householdmembers) and the Economic Census of all establishments. All these activitiesrequire significant financial and human resources which take time to becomeavailable. The immediate requirement of manpower can be addressed through ajudicious mix of redeployment of existing manpower resources and outsourcingto professional manpower agencies. The outsourced field staff has also to be

3.

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rigorously trained before deployment and thereafter effectively monitored. Thismodel is being implemented in the Economic Census and other NSS Surveys. Inthe last Economic Census conducted in 2013, the State Governments wererequested to arrange for staff to conduct the field work, which led to delays infinalising and releasing the results. In the ongoing Economic Census, 2019,MoSPI has partnered with the Common Service Centres (CSC) SPV toundertake the field work, and the officers of National Sample Survey (NSS),State Governments and line Ministries will be involved in close monitoring andsupervision of the field work to ensure data quality and good coverage. This isthe first time that the rigours of monitoring and supervision of field workexercised in NSS will be leveraged for the Economic Census so that results ofbetter quality would be available for creation of a National Statistical BusinessRegister. This process has been catalysed by the establishment of a unifiedNational Statistical Office (NSO).

In the various media reports regarding the restructuring, what has been missedout, in particular, is the fact that MoSPI is giving an increased focus on DataQuality and Assurance by repositioning the existing data processing personnel.The traditional data processing activity required transformation in light of theadoption of Computer Assisted Personal Interviewing (CAPI) and e-scheduletechnology in NSS. The latter facilitates better and more reliable data capturewith in-built validation checks. These changes require re-skilling of the existingdata processing personnel so that they can perform the data quality assurancefunctions. An emphasis is also being given to more use of administrative datasets that have evolved or are evolving, after ensuring their quality and usability inthe statistical system.

4.

In so far as the credibility of data is concerned, the Government of India adoptedthe United Nations Fundamental Principles of Official Statistics (FPOS) in May,2016. The Government is thus committed to ensure and secure the autonomyand independence of the statistical system to produce appropriate and reliabledata by adhering to internationally agreed professional and scientific standards.In the Indian context, there have been a series of expert committees constitutedin the past, which made several recommendations for improving the functioningof the national statistical system. The reforms being undertaken in MoSPI are inconsonance with these principles as also the various recommendations of theNational Statistical Commission (NSC). In fact, the Ministry had drafted theNational Policy on Official Statistics (NPOS) and placed the same in the publicdomain. Based on the comments received, this policy is being redrafted.

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The order issued on 23rd May, 2019 aimed at a unified NSO, as prevailing inmost other countries, that produces reliable and quality statistical products byleveraging the synergies available within MoSPI. It may also be mentioned thatthe Government had merged the post of Chief Statistician of India (CSI) andSecretary, MoSPI to head the NSO and order of 23 May, 2019 on restructuringhas since been accordingly clarified.

6.

The Chairman and Members of the NSC are senior functionaries and areentrusted with the responsibility of improving the national statistical system, andthe Ministry duly takes into consideration their recommendations and inputs. Thestatus, role and functions of NSC continue as earlier (Press Release of 31 May,2019 refers). Efforts are also on to evolve a legislative framework under whichthe NSC may function with independence and give holistic guidance forimproving the national statistical system encompassing MoSPI, the lineMinistries and the State Governments.

7.

In so far as the GDP series are concerned, the Ministry had issued severalclarifications, which need to be duly considered for an informed and balancedview to emerge. In fact, the detailed methodology and approach for the GDPseries (new series and back series), are available in the public domain. Thedetailed Press Release of 30th May, 2019 explained the coverage of the MCAcorporate data in the GDP estimates vis-à-vis the NSS (74th Round) TechnicalReport on services sector with a view to address issues raised in the media onthe usage of MCA data. It was explained that the NSS had been conducted thissurvey to understand the challenges likely to emerge when the Annual Survey ofServices Sector is undertaken. The findings were analysed at the macro leveland it was noted that majority of the companies had filed their statutory on-linereturns with MCA and were not missed out in the GDP estimation. The issue ofmisclassification was also explained in that the Corporate Identification Number(CIN) has the National Industrial Classification Code embedded which is usuallynot updated even if a company changes its activity declared at the time of itsregistration. Before MoSPI undertakes the Annual Survey on Services Sector,these limitations will be duly factored and incorporated in the survey designmethodology. These findings will also be used when the GDP series is revised toa new base.

8.

It needs to be appreciated that GDP estimation is a complex exercise and isundertaken in an ecosystem of incomplete data. This necessitates complexsimulations and statistical assumptions before a methodological approach isfinalised in consultation with subject experts. In fact, many of the critics of the

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current GDP series were involved in the various Committees that deliberated andfinalised the 2011-12base revision methodology. It may be noted that thedecisions of these Committees were unanimous and collective, and were arrivedat after taking into consideration the data availability and methodological aspectsbefore being recommended as the most appropriate approach. The Ministry hasconventionally involved a wide range of professional experts in its deliberationsand the national statistical system has immensely benefitted from theircontributions. In addition, India has subscribed to the Special DataDissemination Standard (SDDS) of the International Monetary Fund (IMF) andan Advance Release Calendar is decided for release of estimates. The IMF hadraised certain issues on the usage of double deflation in the Indian GDP seriesand India has informed IMF that the existing data availability does not permit itsapplication in India at present. In fact, the media reports, while citing thechanges in GDP growth likely to result from adopting the double deflation, realisethe varying outcomes obtained by different authors from their own distinctassumptions. It was because of such views that the Advisory Committee onNational Accounts Statistics (ACNAS) had not agreed to the use of the doubledeflation at present stage. Moreover, double deflation is used in only a fewcountries that have a Producers Price Index (PPI) to deflate the inputs. MoSPI isworking closely with Ministry of Commerce and Industry to have the methodologyfor the PPI finalised.

Further, revision in GDP estimates occur when data coverage fromadministrative sources improves over time and these improvement get welldocumented. Consequently, the initial estimates of GDP tend to beconservative. To improve this, it would require concomitant changes in thesectoral data flows and associated regulatory framework in the data sourceagencies to facilitate use of more macro modelling techniques. The Ministry isalso proposing to establish a National Data Warehouse on Official Statistics,where technology will be leveraged for using Big Data Analytical tools for furtherimproving the quality of macro-economic aggregates. As all these reforms arean ongoing process, it is important that the readers and users understand andappreciate the limitations of data and the challenges in estimation. Whileundertaking these reforms, it is important to realise that newer data sets andsurvey results will invariably be used and it would be incorrect to comment thatold processes were better than the new. The reforms being undertaken inMoSPI will lead to better data sets and better estimates in future, and will beduly deliberated on by the ACNAS during the Base Year revision.

10.

This is also to clarify on the apparent misconception that in the current GDPseries the informal manufacturing sector grew at the same rate as the formal

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manufacturing sector measured by the Annual Survey of Industries (ASI). Infact, it is only the growth of appropriate type of enterprises in ASI (i.e.proprietary, partnership, HUF) that is used to move the bench mark estimates ofthe informal/unorganized manufacturing segment, and not the growth of theentire ASI. Moreover, while using the Paid-Up-Capital based scaling up ofsample results, MOSPI now uses the much larger MCA database (about 7 lakhactive corporates) whereas the results from a sample of only 2,500 corporatesanalysed by RBI were used in the earlier GDP series.

The national statistical system works in an ecosystem of independence andautonomy in its statistical processes. Allusions to any external influence arealtogether unwarranted. It has been the endeavour of the Ministry to continueeducating users on the various statistical products and processes, which areessentially public goods. In this direction, the Ministry is now making availableall primary data collected to the public free of cost. In so far as sharing theexternal secondary and administrative datasets are concerned, these aregoverned by various legislations and the researchers may approach theconcerned custodian source agencies for more granular data.

12.

***

AKT/VJ/SBP


Read this release in: Assamese , Urdu , Hindi , Marathi



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IS NITI AAYOG OLD WINE IN A NEW BOTTLE?Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

The Narendra Modi government has its plate full. It needs to increase employment and incomes;revive investments and growth; untangle the financial sector; navigate muddied-up internationaltrade; solve the perennial problems of poor education and health, and the growing problems ofenvironmental pollution and water scarcity. Even though statistical confusion was created in therun-up to the election to deny that problems of unemployment and growth were serious, high-powered Cabinet committees have been formed to tackle them.

Regardless of whether or not India has the fastest growing GDP, it has a long way to go toachieve economic and social inclusion, and restore environmental sustainability. India’sproblems are complex because they are all interrelated. Fixing one part of the system alone canmake matters worse. For example, providing skills to millions of youth before there are enoughemployment opportunities is a bold fix that can backfire. The complexity of the task demands agood plan and a good strategy.

Does the Indian government have the capability to make good plans and strategies to addressits complex challenges? Since India has not done as well as it should have to produce fastergrowth with more inclusion and sustainability, one would have to surmise that it has notdeveloped the requisite capabilities. Mr. Modi has known this. Indeed, the first major reform heannounced in his first term was to abolish the Planning Commission. He replaced it with theloftily titled ‘National Institution for Transforming India’ (NITI Aayog).

Now, when the country’s economy has not performed to the high expectations Mr. Modi hadcreated, and citizens’ aspirations for ‘acche din’ have not been realised, the performance of theNITI Aayog is under scrutiny, as it should be. Many people are even nostalgically recalling thePlanning Commission, including some who were very critical of it and wanted it overhauled.

Mr. Modi’s predecessors, Manmohan Singh and Atal Bihari Vajpayee, had faced similar, large,economic, social, political and global challenges. When Vajpayee was presented a nine-pointplan by a global think-tank to increase the economy’s growth to 9%, he famously retorted, “Weknow all that. The question is, how will it all be done?” He highlighted that many stakeholdersmust be involved in the implementation of a plan in a large, diversified and democratic country— the States, the private sector, civil society and even the political Opposition. Therefore, it isnot good enough to have a plan, there must also be a strategy for its cooperativeimplementation too.

Dr. Singh declared that reform of the Planning Commission was long overdue. An intensiveexercise was undertaken. Many stakeholders were consulted. International practices wereexamined. An outline was drawn of a substantially reformed institution which would, in Dr.Singh’s words, have a capability for “systems reform” rather than making of Five-Year Plans,and which would have the “power of persuasion” without providing budgets.

A commission chaired by C. Rangarajan, then chief economic adviser to the Prime Minister,examined budgetary processes, divisions of responsibilities between the Finance Ministry andthe Planning Commission, and distinctions between ‘plan’ and ‘non-plan’ expenditures. Itconcluded that budgetary responsibility must be concentrated in the Finance Ministry, and it wasno longer desirable for the Planning Commission to have powers for financial provisions.

Some in the Planning Commission were worried that it would lose its teeth if it did not have any

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financial power. How else would it persuade the States to do what it wanted them to do? ChiefMinisters retorted that the Planning Commission must improve its ability to understand theirneeds and to develop ideas that they would want to adopt because they accepted the ideas asgood for them, not because they would have to if they wanted the money. Mr. Modi, as apowerful Chief Minister, understood well the limitations in the Planning Commission’scapabilities and what it needed to do to reform itself, which the investigations commissioned byDr. Singh had also revealed. It is not surprising, therefore, that the bold charter of NITI Aayogthat Mr. Modi announced in 2015 was consistent with the insights that Dr. Singh and Vajpayeehad earlier. He was implementing an idea whose time had come.

Implementation of radical change is never easy. If things don’t go well soon, nostalgia will risefor the old order — even though there was dissatisfaction with it. And the change-maker will beblamed for the disruption. The NITI Aayog charter is a good starting point for a new journey intransforming the governance of the Indian economy. The NITI Aayog and the government woulddo well to conduct an open-minded review of what NITI Aayog has achieved so far to adopt thenew role described in its charter — that of a catalyst of change in a complex, federal,socioeconomic system. And assess whether it has transformed its capabilities sufficiently tobecome an effective systems reformer and persuader of stakeholders, rather than merely anannouncer of lofty multi-year goals and manager of projects, which many suspect it is.

There is deep concern that NITI Aayog has lost its integrity as an independent institution toguide the government; that it has become a mouthpiece of the government and an implementerof the government’s projects. Many insist that NITI Aayog must have the ability to independentlyevaluate the government’s programmes at the Centre and in the States. Some recall that anIndependent Evaluation Office set up in the last days of the UPA-II government was swiftlyclosed by the NDA government. Others counter that the Planning Commission had aProgramme Evaluation Organisation all along and which continues. They miss the need forfundamental transformation in the approach to planning and change.

The traditional approach of after-the-fact evaluation sits in the old paradigm of numbers, budgetsand controls. The transformational approach to planning and implementation that 21st centuryIndia needs, which is alluded to in NITI’s charter, requires evaluations and course-corrections inthe midst of action. It requires new methods to speed up ‘organisational learning’ amongststakeholders in the system who must make plans together and implement them together.

The NITI Aayog’s charter has provided a new bottle. It points to the need for new methods ofcooperative learning and cooperative implementation by stakeholders, who are not controlled byany central body of technical experts with political and/or budgetary authority over them. Merelyfilling this new bottle with old ideas of budgets, controls and expert solutions from above will nottransform India. The debate about NITI Aayog’s efficacy must focus on whether or not it isperforming the new role it must, and what progress it has made in acquiring capabilities toperform this role, rather than slipping back into the ruts of yesterday’s debates about the needfor a Planning Commission.

Arun Maira was a member of the Planning Commission




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FROM PLATE TO PLOUGH: THE FARM-FACTORYCONNECT

Relevant for: Indian Economy | Topic: Food processing and related industries in India: scope and significance,location, upstream and downstream requirements and supply chain management


The writer is chair professor for agriculture at ICRIER. Views are personal

As per the last report of National Statistical Office (NSO) released on May 31, the Gross ValueAdded (GVA) at basic prices (2011-12 prices) for the fourth quarter (Q4) of 2018-19 hasslumped to 5.7 per cent for the overall economy, 3.1 per cent for manufacturing, and -0.1percent for agriculture, forestry and fishery. However, for the entire financial year, FY19, GVAgrowth is more respectable — 6.6 per cent for the economy, 6.9 per cent for manufacturing and2.9 per cent for agriculture.

Incidentally, for the Narendra Modi government’s first five-year stint (2014-15 to 2018-19), agri-GDP grew at 2.9 per cent per annum. Many experts believe that agriculture cannot grow at morethan 3 per cent per annum on a sustainable basis. Swaminathan A Aiyar, for example — whosebrilliant writings I admire — has recently written that “no country has managed more than 3 percent agricultural growth over a long period”.

This is not correct. China, for example, registered an agri-GDP growth of 4.5 per cent per annumduring 1978-2016, a very long period indeed. In fact, the first thing Chinese government did in1978, when it started off economic reforms was to reform agriculture. Agri-GDP in China grew at7.1 per cent per annum during 1978-84, and because the Chinese government also liberatedprice controls on agri-commodities, farmers’ real incomes increased at 15 per cent per annum.That set the stage for the manufacturing revolution, which was revved up through town andvillage enterprises (TVEs) to cater to domestic demand from rural areas. The rest is history.

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mIndian industry is today complaining that the rural demand is collapsing. Tractor sales are downby 13 per cent, two-wheeler sales are down by 16 per cent, car sales are down by similarpercentage, and even FMCG (fast move consumer goods) sales are down in April 2019 overApril 2018. One of the reasons is that India has never had any major agri-reforms and farmers’incomes have remained very low. But there have been periods, reasonably long enough, whenagri-GDP has grown well above 3 per cent. In fact during the 10 years of UPA from 2004-05 to2013-14, agri-GDP grew at 3.7 per cent per annum. This dropped to 2.9 per cent during theNDA’s stint between 2014-2019. When the masses do not gain, the demand for manufacturedgoods remains limited, slowing down the wheels of industry. So, if industry wants to prosper, wemust aim at an agri-GDP growth of more than 4 per cent. My assessment is that it can groweven at 5 per cent per annum at least for a decade, provided we are focused on reforming thissector.

For that, we need to raise farm productivity in a manner that can cut down unit costs and makeIndian agriculture more competitive, enabling higher exports. Unfortunately, agri-exports had anegative growth during Modi 1.0 (see graph).

During UPA-2, agri-exports more than doubled, from $18.4 billion in 2009-10 to $43.6 billion in2013-14. But during Modi 1.0, they declined, going down to $ 33.3 billion in 2015-16 and thenrecovering to $ 39.4 billion by 2018-19 — but still below the peak of 2013-14.

Officials managing agri-trade need to pay heed to this massive failure as it has implications notonly for overall agri-GDP growth, but also for slowing down of manufacturing growth due tosluggish demand for industrial products in rural areas. There is ample evidence that much ofIndian agriculture is globally competitive. But our restrictive policies constrain the private sectorfrom building direct supply chains from farms to ports, which bypass the mandi system. Thisleads to a weak infrastructure for agri-exports. The net result of all this is that Indian farmers donot get full advantage of global markets. Further, an obsessive focus on inflation targeting bysuppressing food prices through myriad controls works against the farmer. If these policiescontinue, Prime Minister Modi’s target of doubling farmers’ real incomes by 2022-23 will remain

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a pipe-dream.

It has to be noted that any attempt to artificially prop up farmers’ prices through higher minimumsupport prices (MSPs), especially in relation to global prices, can be counterproductive.Normally, MSPs remain largely ineffective for most commodities in larger parts of India. Buteven if they are operational through massive procurement operations, a policy of high MSPs canbackfire when it goes beyond global prices.

Take the case of rice. India is the largest exporter of rice in the world, exporting about 12 to 13MMT of the cereal per year. If the government raises the MSP of rice, by say 20 per cent, riceexports will drop and stocks with the government will rise to levels far beyond the buffer stocknorms. It would be a loss of scarce resources. Besides, it would create unnecessary distortionsadversely impacting the diversification process in agriculture towards high-value crops. Thisneeds to be avoided.

Our global competitiveness in agriculture can be bolstered by investment in agri-R&D and itsextension from lab to land, investment in managing water efficiently and investment ininfrastructure for agri-exports value chains. Today, India spends roughly 0.7 per cent of agri-GDP on agri-R&D and extension together. This needs to double in the next five years. Thereturns are enormous. The meagre investments in Pusa Basmati 1121 and 1509, for example,have yielded basmati exports between $ 4 and 5 billion annually. The returns from thesugarcane variety Co-0238 in Uttar Pradesh are similarly impressive. The recovery ratio hasincreased from about 9.2 in 2012-13 to more than 11 per cent today. Massive investments arealso needed in managing our water resources more efficiently, to produce more with less.

But augmenting productivity alone — without pushing for export markets — can lead to glut at ahome and depress farm prices, shrinking their profitability. So, first think of markets and thengive a push to raise productivity and exports simultaneously.

Can all this be done under Modi 2.0? Only time will tell.

The writer is Infosys Chair Professor for Agriculture at ICRIER





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SQUANDERING THE GENDER DIVIDENDRelevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable

Development

If labour force survey data are to be believed, rural India is in the midst of a gender revolution inwhich nearly half the women who were in the workforce in 2004-5 had dropped out in 2017-18.The 61st round of the National Sample Survey Office (NSSO) recorded 48.5% rural womenabove the age of 15 as being employed either as their major activity or as their subsidiaryactivity — but this number dropped to 23.7% in the recently released report of the PeriodicLabour Force Survey (PLFS). Is this part of a massive transformation of rural lifestyles or are oursurveys presenting a skewed picture? If this change is real, does it offer a cause for worry?

Before we turn to examining these changes, it is important to note that the drop in workparticipation by rural women is not sudden. The latest data from the PLFS simply continue atrend that was well in place by 2011-12. Worker to population ratio (WPR) for rural women aged15 and above had dropped from 48.5% in 2004-5 to 35.2% in 2011-12, and then to 23.7% in2017-18. In contrast, the WPR for urban women aged 15 and above declined only mildly,changing from 22.7% in 2004-5 to 19.5% in 2011-12, and to 18.2% in 2017-18.

One can view this drop in the rural female WPR both positively and negatively. If rising incomeslead households to decide that women’s time is better spent caring for home and children, that istheir choice. However, if women are unable to find work in a crowded labour market, reflectingdisguised unemployment, that is a national tragedy.

If the WPR is declining due to rising incomes, we would expect it to be located in richerhouseholds — households with higher monthly per capita expenditure and among women withhigher education. A comparison of rural female WPRs between 2004-5 and 2017-18 does notsuggest that the decline is located primarily among the privileged sections of the ruralpopulation. Between 2004-5 and 2017-18, women’s WPR declined from 30.6% to 16.5% for thepoorest expenditure decile, and from 31.8% to 19.7% for the richest expenditure decile. Moreimportantly, most of the decline in the WPR has taken place among women with low levels ofeducation. For illiterate women, the WPR fell from 55% to 29.1% while that for women withsecondary education fell from 30.5% to 15.6%.

This broad-based decline with somewhat higher concentration among the least educated andthe poorest is consistent with the industries and occupations in which it has occurred.Decomposing the 24.8 percentage point decline in women’s WPR between 2004-5 and 2011-12,the decline in work on family farms and allied activities contributed the most (14.8 percentagepoints), followed by casual wage labour (8.9 percentage points) and in work on familyenterprises in other industries (2.4 percentage points). These were counter-balanced by a 0.7percentage point increase in regular salaried work and a 0.5 percentage point increase inengagement in public works programmes such as Mahatma Gandhi National Rural EmploymentGuarantee Act (MGNREGA). Most of the decline — 23.1 percentage points out of 24.8 — camefrom reduced participation in agriculture and allied activities.

Men’s participation in agriculture has also declined. Among men aged 15 and above, 56.1%participated in agriculture in 2004-5, while only 39.6% did so in 2017-18. However, men wereable to pick up work in other industries whereas women reduced their participation in otherindustries as well as agriculture — resulting in a lower WPR. Therein lies the conundrum forrural women. Mechanisation and land fragmentation have reduced agricultural workopportunities for both men and women. Other work opportunities, except for work in public works

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programmes, are not easily open to women. This challenge is particularly severe for ruralwomen with moderate levels of education. A man with class 10 education can be a postalcarrier, a truck driver or a mechanic; these opportunities are not open to women. Hence, it is notsurprising that education is associated with a lower WPR for women; in 2016-17, 29.1% illiteratewomen were employed, compared to only 16% women with at least secondary education.

Another clue to the decline in women’s work opportunities rather than women’s desire to work isreflected in the fact that women who are counted as being out of labour force are not simplycontent to be homemakers but often engage in whatever economic activities they find. Women’swork and family responsibilities rarely fit in neat compartments but household responsibilities donot prevent women from working. Many rural women raise chickens as well as children; huskpaddy for sale while daal simmers; and sell vegetables in a market while caring for babies.

The NSSO and PLFS survey design relies on two questions. First, interviewers assess theprimary activity in which respondents spent a majority of their prior year. Then they note downthe subsidiary activity in which individuals spent at least 30 days. If individuals are defined asworking by either primary or subsidiary criteria, they are counted among workers.

This is a categorisation that serves well in cases where agriculture is the primary activity andvarious agriculture-related tasks can be grouped together to comprise the 30-day threshold. Butas demand for agricultural work declines and women engage in diverse activities, their worktends to become fragmented. A woman who spends 15 days on her own field during the sowingperiod, 10 days as a construction labourer and 15 days in MGNREGA work should be countedas a worker using the subsidiary status criteria, but since none of the activities exceed the 30days threshold, it is quite possible that interviewers do not mark her as being employed. On-going experimental research at the National Council of Applied Economic Research’s NationalData Innovation Centre (NCAER-NDIC) suggests a tremendous undercount of women’s workusing standard labour force questions, particularly in rural areas.

This is not to suggest that fixing the problem of undercount in surveys is the solution to decliningWPRs. The undercount is a symptom of the unfulfilled demand for work. Although women try tofind whatever work they can, they are unable to gain employment at an intensive level that risesabove our labour force survey thresholds. This suggests an enormous untapped pool of femaleworkers that should not be ignored.

Establishment of the Cabinet Committee on Employment and Skill Development is a welcomemove by the new government. It is to be hoped that this committee will take the issue ofdeclining female employment as seriously as it does the issue of rising unemployment amongthe youth. Not all policies need to be gender focussed. One of the most powerful ways in whichpublic policies affect rural women’s participation in non-agricultural work is via development oftransportation infrastructure that allows rural women to seek work as sales clerks, nurses andfactory workers in nearby towns. If the cabinet committee were to focus on multi-sectoralreforms that have a positive impact on women’s work opportunities, the potential genderdividend could be far greater than the much celebrated demographic dividend.

Sonalde Desai is Professor of Sociology, University of Maryland, U.S., and Professor andCentre Director, NCAER-National Data Innovation Centre. The views expressed are personal




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THE MIDDLE INCOME ILLUSIONRelevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable

Development


The writer is chairman, Economic Advisory Council to the PM. Views are personal.

Is there a middle-income trap? Words have multiple meanings. The word “trap” has three majormeanings — trap(1), a situation one can’t get out of (trap shooting comes from that); trap(2),mouth; and trap(3), a horse-drawn carriage. Outside of literature (often old), I have not comeacross trap(3) being used for a long time, certainly not in India. Trap(2), as in, “shut your trap” iscolloquial and also rare in India. There certainly is a middle-income trap, interpreted as trap(2),though people who use the expression mean it in the sense of trap(1).

Economists are usually known for their precision. When they use the expression “middle-incometrap”, they should define what they mean by “middle income”, “trap” having hopefully beendefined. I have said that economists should be precise. They aren’t always, and presume thatlike the “Khan Market consensus”, there is a “middle-income trap consensus”.

The World Bank has a definition of middle income. It is a range of per capita income between$996 and $12,055, with $996 to $3,895 defined as lower-middle income and $3,895 to $12,055defined as upper-middle income (the thresholds are often changed, these are 2019 levels). Witha per capita income of around $2,000, India is still a lower-middle income country and $12,055 isa long way off. With a per capita income of $12,055, India’s economy and society will be vastlytransformed. Nevertheless, like Vitalstatistix, we must worry about these vital statistics. Whathappens when we cross that threshold? What happens if the sky falls on our head tomorrow?

These numbers are based on official exchange rates, the so-called nominal per capita GDP orAtlas method figures. But a country’s per capita income is in local currency, that is, rupees. Forpurposes of cross-country comparisons, they have been converted through a commonnumeraire, the US dollar. For the sake of sheer perversity, just before 1991 reforms, it was Rs20 a dollar and right now, it is about Rs 70 a dollar.

Had that exchange rate continued, under an economist’s favourite expression of ceterisparibus(everything else remaining unchanged), the per capita income would have been around$7,000 now — closer to the threshold and perhaps, a reason to worry even more. Typically,when economists use the trap idea, they at PPP (purchasing power parity) dollars, using PPPexchange rates, not official exchange rates. India’s PPP per capita income is now around$7,000. Through sheer coincidence, it is identical to the number obtained by using Rs 20 a dollaras the exchange rate. Do countries get stuck in the middle-income range, PPP or otherwise?Might India get stuck?

The grist to the mill is usually provided by empirical research, documenting the developmentexperience of a diverse range of countries. I know of two such recent surveys of literature on themiddle-income trap proposition. The first was by Fernando Gabriel Im and David Rosenblatt,published as a World Bank Policy Paper in 2013. The second was in the Economic Survey2017-18. Both found no evidence.

The Economic Survey also said, “But, recently doubts about the convergence process have

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been articulated around the notion of a ‘middle-income trap’. can themselves be traps so it isimportant to be careful about them.” Who pays attention to such advice when trap(2) beckons?The Survey added: “The reasons for the trap/stall were supposed to be two-fold, operating as akind of pincer. On the one hand, as countries attained middle-income status, they would besqueezed out of manufacturing and other dynamic sectors by poorer, lower-cost competitors. Onthe other hand, they would lack the institutional, human, and technological capital to carve outniches higher up the value-added chain. Thus, pushed from below and unable to grasp the top,they would find themselves doomed to, well, middle-income status.

As it turned out, there was neither a middle-income trap nor stall. Middle-income countries as agroup continued to grow as fast or faster than the convergence standard demanded.” In thisquote, conceptual arguments behind the middle-income trap are also mentioned. The burden ofempirical evidence is — there is no such trap. Note two further points. First, a trap cannot bedefined without referring to a time-frame. The time series on PPP per capita is a bit more difficultto get than the official rate per capita. With that caveat, take a look at the time series of anyrelatively more advanced country. Until a few decades ago (a cut-off in 1960 or 1970 willsuffice), all these countries were stuck in middle-income traps.

Second, the middle-income trap is sometimes defined not with respect to an absolute thresholdlevel of per capita income, but with per capita income expressed as a share of US per capitaincome. Even if one uses this relative notion, the case of a middle-income trap existing has notbeen proven.

Does this mean there are no issues with the Indian economy? Certainly not. After the elections,with a new government in place, plenty of people have come up with agendas for reform. Inmost instances, these are not short-term quick fixes, but medium-term changes. Therefore, theycan rightly be called structural reforms, and the suggestions should be debated, accepted andimplemented. Having granted that, the limited point is that nothing is gained by muddying watersthrough expressions that sound profound, without conveying anything of import.

(The writer is chairman, Economic Advisory Council to the PM. Views are personal)





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CABINET APPROVES THE SPECIAL ECONOMIC ZONES(AMENDMENT) BILL, 2019

Relevant for: Indian Economy | Topic: Investment Models: PPP, SEZ, EPZ and others

Ministry of Commerce & Industry

Cabinet approves the Special Economic Zones(Amendment) Bill, 2019


The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has approved tointroduce a Bill, namely, the Special Economic Zones (Amendment) Bill, 2019 that is the Bill toreplace the Special Economic Zones (Amendment) Ordinance, 2019 (12 of 2019). The Bill willbe introduced in ensuing session of the Parliament.

After the amendment of sub-section (v) of section 2 of the Special Economic Zones Act, 2005, atrust or any entity notified by the Central Government will be eligible to be considered for grant ofpermission to set up a unit in Special Economic Zones.

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RATIFICATION OF THE MULTILATERAL CONVENTIONTO IMPLEMENT TAX TREATY RELATED MEASURES TOPREVENT BASE EROSION AND PROFIT SHIFTING

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation &Black Money incl. Government Budgeting

Cabinet

Ratification of the Multilateral Convention to Implement TaxTreaty Related Measures to Prevent Base Erosion andProfit Shifting


The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has approvedtheratification of the Multilateral Convention to Implement Tax Treaty Related Measures toPrevent Base Erosion and Profit Shifting (MLI)

Impact:

The Convention will modify India's treaties in order to curb revenue loss through treaty abuseand base erosion and profit shifting strategies by ensuring that profits are taxed wheresubstantive economic activities generating the profits are carried out and where value is created.

Details:

i. India has ratified the Multilateral Convention to Implement Tax Treaty RelatedMeasures to Prevent Base Erosion and Profit Shifting, which was signed by the Hon'bleFinance Minister Sh. Arun Jaitley at Paris on 07/06/2017 on behalf of India.

ii. The Multilateral Convention is an outcome of the OECD / G20 Project to tackleBase Erosion and Profit Shifting (the "BEPS Project") i.e., tax planning strategies thatexploit gaps and mismatches in tax rules to artificially shift profits to low or no-taxlocations where there is little or no economic activity, resulting in little or no tax beingpaid. The BEPS Project identified 15 actions to address base erosion and profit shifting(BEPS) in a comprehensive manner.

iii. India was part of the Ad Hoc Group of more than 100 countries and jurisdictionsfrom G20, OECD, BEPS associates and other interested countries, which worked on anequal footing on the finalization of the text of the Multilateral Convention, starting May2015. The text of the Convention and the accompanying Explanatory Statement wasadopted by the Ad hoc Group on 24 November 2016.

iv. The Convention enables all signatories, inter alia, to meet treaty-related minimumstandards that were agreed as part of the Final BEPS package, including the minimumstandard for the prevention of treaty abuse under Action 6.

v. The Convention will operate to modify tax treaties between two or more Parties tothe Convention. It will not function in the same way as an amending protocol to a single

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existing treaty, which would directly amend the text of the Covered Tax Agreement.Instead, it will be applied alongside existing tax treaties, modifying their application inorder to implement the BEPS measures.

vi. The Convention will modify India's treaties in order to curb revenue loss throughtreaty abuse and base erosion and profit shifting strategies by ensuring that profits aretaxed where substantive economic activities generating the profits are carried out andwhere value is created.

Background:

The Convention is one of the outcomes of the OECD/G20 project, of which India is a member, totackle base erosion and profit shifting. The Convention enables countries to implement the taxtreaty related changes to achieve anti-abuse BEPS outcomes through the multilateral routewithout the need to bilaterally re-negotiate each such agreement which is burdensome and timeconsuming. It ensures consistency and certainty in the implementation of the BEPS Project in amultilateral context. Ratification of the Multilateral Convention will enable application of BEPSoutcomes through modification of existing tax treaties of India in a swift manner. The CabinetNote seeking ratification of the MLI was sent to the Cabinet on 16.04.2019 for consideration.Since the said Note for Cabinet could not be taken up in the Cabinet, due to urgency, theHon'ble Prime Minister vide Cabinet Secretariat I.D. No. 216/1/2/2019-Cab dated 27.05,2019has approved Ratification of MLI and India's Final Position under Rule 12 of the Government ofIndia (Transaction of Business) Rules, 1961 with a direction that ex-post facto approval of theCabinet be obtained within a month. Consequent to approval under Rule 12, a separate requesthas already been sent to L&T Division, MEA for obtaining instrument of ratification from theHon'ble President of India vide this office OM F.No. 500/71/2015-FTD-I/150 dated 31/05/2019.

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UNION AGRICULTURE MINISTER SHRI NARENDRASINGH TOMAR URGES ALL STATES AND UTS TOEXPEDITE FARMERS’ ENROLMENT PROCESS SOTHEY GET THE BENEFIT UNDER PM-KISAN

Relevant for: Indian Economy | Topic: Agricultural Finance & Insurance

Ministry of Agriculture & Farmers Welfare

Union Agriculture Minister Shri Narendra Singh Tomarurges all states and UTs to expedite farmers’ enrolmentprocess so they get the benefit under PM-Kisan

Village- wise campaign to cover one crore farmers underKisan Credit Card scheme in the next 100 days

States and UT’s urged to create awareness of the Pensionscheme for farmers


Union Minister for Agriculture and Farmers Welfare Shri Narendra Singh Tomar chaired ameeting with Agriculture Ministers of all States/UTs via Video Conference today and discussedthe implementation of three key schemes of Government of India namely Pradhan Mantri KisanSamman Nidhi Yojna (PM-Kisan), Pension Scheme for Small and Marginal Farmers and KisanCredit Card Campaign.

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Union Agriculture Minister urged all States/UTs to expedite the process of enrolment of alleligible farmer families/ beneficiaries in a time bound manner so that the benefit under PM-KISAN for the period from April to July, 2019 can be transferred directly to their bank accounts.

The Minister also informed all States/UTs regarding rolling out of Pension Scheme for Farmersbelonging to the age group of 18-40 years. He also requested all States/ UTs to createawareness about the Pension Scheme.

Shri Tomar also requested all States to organise village –wise campaign to cover one crorefarmers under Kisan Credit Card Scheme within next hundred days.

The PM-Kisan Yojna is an income support scheme for farmers. It is a 100% central sectorscheme which will give farmers Rs. 6000/- per year in 3 equal instalments. From 01.04.2019, thescheme has been extended to cover all farmers, the total beneficiaries will be 14.5 crores.During the video conference it was stressed that there should be 100% enlistment of eligiblebeneficiaries by States/UT’s, timely uploading of corrected data on PM-Kisan portal andestablishment of proper redressal Mechanism.

The pension scheme for small and marginal farmers will provide a social security net for all suchfarmers. Under this scheme a minimum fixed pension of Rs 3000 per month will be provided tothe eligible small and marginal farmers subject to certain exclusion causes on attaining the ageof 60 years. The scheme aims to cover around 5 crore beneficiaries in the first three years. It willbe a voluntary and contributory pension scheme with entry age of 18 to 40 years. Thebeneficiary can opt to become member of the scheme by subscribing to a pension fund. Thebeneficiary would be required to contribute Rs. 100 per month at median entry age of 29 years.The Central government shall also contribute to the Pension Fund in equal amount. Contributionshall be made to a Pension Fund managed by the LIC which will be responsible for the pensionpay out. Under the scheme farmers can also opt to allow contribution to be made directly fromthe benefits drawn from the PM-KISAN scheme. There will be an online grievance redressalsystem for complete transparency.

The Kisan Credit Card was introduced in 1998, presently there are 6.92 crore live KCCs against14.5 crore operational landholdings. The recent initiatives for KCC saturation include addingfarmers engaged in Animal Husbandry & Fisheries; removal of inspection ledger folio chargesand processing fee of loan under KCC; raising limit of collateral fee on existing agriculture loanfrom l lakh to 1.6 lakhs. DAC & FW on 04.02.2019 advised all Chief Secretaries/PrincipalSecretaries of State/UT Administration to launch KCC saturation drive. During the proposedsaturation drive, bank wise or village wise campaigns will be organised to collect KCCapplication forms. States like Gujrat, Maharashtra, UP, Chhattisgarh, WB, Bihar, Jharkhand, HP,J&K and NER states have already been identified where KCC penetration was found lagging. Atarget of 1 crore is to be achieved in the next 100 days.

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APS


Read this release in: Urdu , Hindi , Marathi

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DIGITAL TECHNOLOGY IN INDIA: UN PANEL LAUDSINDIA'S DIGITAL INITIATIVES FOR ECONOMICINCLUSION


UNITED NATIONS: India has been lauded by a high-level panel on digital cooperation launchedby UN chief General Antonio Guterres for undertaking revolutionary digital initiatives to ensureeconomic inclusion for its 1.3 billion citizens.

Launched in July last year by the UN Secretary General, the 20-member panel, co-chaired bybillionaire philanthropist Melinda Gates and Alibaba founder Jack Ma, in its report recognisedthe consequential role played by new digital ecosystem 'India Stack' in helping the governmentagencies and entrepreneurs achieve economic inclusion in India.

IndiaStack is a set of Application Programming Interface that allows governments, businesses,startups and developers to utilise a unique digital infrastructure to solve India's hard problemstowards presence-less, paperless and cashless service delivery, its website said.

The panel, tasked to map the trends in digital technologies, identify gaps and opportunities andoutline proposals for strengthening international cooperation.

It was launched to consider how digital cooperation can contribute to achievement of theSustainable Development Goals.

"Combinations of digital public goods can create 'common rails' for innovation of inclusive digitalproducts and services," the panel's said in the report 'The Age of Digital Interdependence' at theUN headquarters this week.

"The India Stack is an example of how a unified, multi-layered software platform with clearstandards, provided by public entities, can give government agencies and entrepreneurs thetechnological building blocks to improve service delivery and develop new business modelswhich promote economic inclusion," it said.

The report recognised the revolutionary digital initiatives taken by India to ensure economicinclusion for its 1.3 billion citizens.

The report stressed that digital cooperation must be tailor-made to meet the requirements ofindividual nations and communities, highlighting how India is achieving financial inclusionthrough its own digital platforms.

"What works in one country may not work in another. Rather than try to replicate specificsuccesses, digital cooperation should aim to highlight best practices, standards and principlesthat can create conditions for local innovations to emerge and grow based on local issues,needs and cultural values," it said

"India, for example, has added 300 million bank accounts in three years as new businessmodels have been built on the India Stack, a set of government-managed online standards inareas including online payments and digital identity," the report said.

Introducing the report to the UN members States in the presence of the UN Chief, Minister of

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Digitalisation of Norway and a member of the panel Nikolai Astrup referred to India's uniqueidentity infrastructure 'Aadhaar'.

"There can be great mechanisms for enhancing International digital cooperation. We call itdigital public goods and the good news is that there are already great such technologies andcontent out there," Astrup said.

"The Modular Open Source Identity Platform (MOSIP) which has been developed by Indianstakeholders and a group of international donors based on learnings generated from India'simplementation of its Aadhaar system and other early implementation of digital ID systems,"Astrup said.

Speaking at an informal meeting of the General Assembly to hear a briefing by members of thepanel, India's Permanent Representative to the UN Ambassador Syed Akbaruddin said thereport highlighted that the spread of digital technologies has revolutionised the ability tocommunicate with others and to share and access knowledge.

It has also offered much needed solutions for ending extreme poverty, to promoting inclusiveeconomic growth and decent work to achieving universal literacy and doubling the productivity ofsmall farmers, he said.

"While digital technologies are rapidly transforming societies and economies, they are alsocreating unprecedented challenges," Akbaruddin said.

"Digital technologies have brought new and serious concerns, including invasion of privacy,promotion of misinformation, infiltration of critical infrastructure through cyber-attacks, threat tohuman rights and the issue of the growing digital divide," he said.

Akbaruddin noted that around the world there are some very polarising debates about dataprotection frameworks, human rights regimes and security policies.

"While the speed and scale of digitisation is increasing rapidly, the agility, responsiveness andscope of cooperation and governance mechanisms need some serious catching up to do," hesaid.

Akbaruddin said the unique benefits and profound risks arising from the dramatic increase incomputing power and interconnectivity in the digital age fall in the realm of the "knownunknowns".

"In many ways, your report seems to me is a call for enhanced multi-stakeholder digitalcooperation, involving governments, civil society, academics, technologists, marginalised groupsand the private sector. Such cooperation must be grounded in common human values such asinclusiveness, respect, human-centeredness, human rights, international law, transparency andsustainability," Akbaruddin said.

He emphasised that to capture the power of digital technologies, there is a need to cooperate onthe broader ecosystems that enable digital technologies to be used in an inclusive manner.

"This will require policy frameworks that directly support economic and social inclusion," he said.UNITED NATIONS: India has been lauded by a high-level panel on digital cooperation launchedby UN chief General Antonio Guterres for undertaking revolutionary digital initiatives to ensureeconomic inclusion for its 1.3 billion citizens.

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Launched in July last year by the UN Secretary General, the 20-member panel, co-chaired bybillionaire philanthropist Melinda Gates and Alibaba founder Jack Ma, in its report recognisedthe consequential role played by new digital ecosystem 'India Stack' in helping the governmentagencies and entrepreneurs achieve economic inclusion in India.

IndiaStack is a set of Application Programming Interface that allows governments, businesses,startups and developers to utilise a unique digital infrastructure to solve India's hard problemstowards presence-less, paperless and cashless service delivery, its website said.

The panel, tasked to map the trends in digital technologies, identify gaps and opportunities andoutline proposals for strengthening international cooperation.

It was launched to consider how digital cooperation can contribute to achievement of theSustainable Development Goals.

"Combinations of digital public goods can create 'common rails' for innovation of inclusive digitalproducts and services," the panel's said in the report 'The Age of Digital Interdependence' at theUN headquarters this week.

"The India Stack is an example of how a unified, multi-layered software platform with clearstandards, provided by public entities, can give government agencies and entrepreneurs thetechnological building blocks to improve service delivery and develop new business modelswhich promote economic inclusion," it said.

The report recognised the revolutionary digital initiatives taken by India to ensure economicinclusion for its 1.3 billion citizens.

The report stressed that digital cooperation must be tailor-made to meet the requirements ofindividual nations and communities, highlighting how India is achieving financial inclusionthrough its own digital platforms.

"What works in one country may not work in another. Rather than try to replicate specificsuccesses, digital cooperation should aim to highlight best practices, standards and principlesthat can create conditions for local innovations to emerge and grow based on local issues,needs and cultural values," it said

"India, for example, has added 300 million bank accounts in three years as new businessmodels have been built on the India Stack, a set of government-managed online standards inareas including online payments and digital identity," the report said.

Introducing the report to the UN members States in the presence of the UN Chief, Minister ofDigitalisation of Norway and a member of the panel Nikolai Astrup referred to India's uniqueidentity infrastructure 'Aadhaar'.

"There can be great mechanisms for enhancing International digital cooperation. We call itdigital public goods and the good news is that there are already great such technologies andcontent out there," Astrup said.

"The Modular Open Source Identity Platform (MOSIP) which has been developed by Indianstakeholders and a group of international donors based on learnings generated from India'simplementation of its Aadhaar system and other early implementation of digital ID systems,"Astrup said.

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Speaking at an informal meeting of the General Assembly to hear a briefing by members of thepanel, India's Permanent Representative to the UN Ambassador Syed Akbaruddin said thereport highlighted that the spread of digital technologies has revolutionised the ability tocommunicate with others and to share and access knowledge.

It has also offered much needed solutions for ending extreme poverty, to promoting inclusiveeconomic growth and decent work to achieving universal literacy and doubling the productivity ofsmall farmers, he said.

"While digital technologies are rapidly transforming societies and economies, they are alsocreating unprecedented challenges," Akbaruddin said.

"Digital technologies have brought new and serious concerns, including invasion of privacy,promotion of misinformation, infiltration of critical infrastructure through cyber-attacks, threat tohuman rights and the issue of the growing digital divide," he said.

Akbaruddin noted that around the world there are some very polarising debates about dataprotection frameworks, human rights regimes and security policies.

"While the speed and scale of digitisation is increasing rapidly, the agility, responsiveness andscope of cooperation and governance mechanisms need some serious catching up to do," hesaid.

Akbaruddin said the unique benefits and profound risks arising from the dramatic increase incomputing power and interconnectivity in the digital age fall in the realm of the "knownunknowns".

"In many ways, your report seems to me is a call for enhanced multi-stakeholder digitalcooperation, involving governments, civil society, academics, technologists, marginalised groupsand the private sector. Such cooperation must be grounded in common human values such asinclusiveness, respect, human-centeredness, human rights, international law, transparency andsustainability," Akbaruddin said.

He emphasised that to capture the power of digital technologies, there is a need to cooperate onthe broader ecosystems that enable digital technologies to be used in an inclusive manner.

"This will require policy frameworks that directly support economic and social inclusion," he said.



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FULL DISCLOSURE: ON SEBI NORM FOR FINANCIALDISCLOSURE

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Capital Market & SEBI

Amidst the rising number of defaults by companies, the chief markets regulator is taking the fightto what it thinks is the enemy: ratings agencies. The Securities and Exchange Board of India hasasked credit rating agencies in the country to, among other things, clearly state the “probabilityof default” of the instruments they rate for the benefit of investors. There have been a record 163downgrades of debt instruments this year, according to data released by Prime Database thisweek. This is more than double the number of defaults over the whole of last year. Debtinstruments issued by prominent companies including Yes Bank, Essel and Jet Airways havebeen downgraded this year. This spate of defaults, which may well be a sign of the turning of thecredit cycle in the broader economy, may have forced SEBI to crack the whip on credit ratingagencies. In a circular released on Thursday, SEBI laid down a new standard framework forfinancial disclosure by credit rating agencies that it believes will enhance the quality ofinformation made available by these agencies to investors. Notably, the agencies will have topublish information on how their performance in the rating of debt instruments compares with abenchmark created in consultation with SEBI. The regulator believes this will help investors tobetter gauge the performance of credit rating agencies.

SEBI’s aggressive regulatory approach seems to suggest a certain disappointment with creditrating agencies, which may not be unfounded. They have been caught napping on severaloccasions, including during the recent default by Infrastructure Leasing & Financial Services onits debt commitments. They are also seen by many as being more loyal to companies whoseinstruments they rate rather than to investors who provide precious capital. These concernsneed to be addressed. SEBI’s attempt seems to be to align ratings methodologies with globalbest practices. The suggestion to revise the method of computing default rates and the precisedefinition of terms that raters should use in describing a client’s liquidity position — strong,adequate, stretched and poor — are aimed at sharpening disclosure and leaving little room forraters to be ambiguous. What is not clear, though, is how the new framework will effectivelyresolve the conflict of interest issue that plagues the rating industry. The issuer-pays modelwhere the ratings agency is paid by the issuer of the instrument that it rates is not a healthy one.But the problem is that a viable alternative is yet to be proposed. The bottomline is that the poortrack record of credit rating agencies is known to most investors and is appropriately discountedby market participants.








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IN THE ABSENCE OF GOOD LAWRelevant for: Indian Economy | Topic: Public Distribution System: Objectives, Functioning, Limitations &

Revamping

Recently, the Supreme Court expressed its growing concern over the award of tenders beingchallenged in writ proceedings almost as a matter of routine. In anguish it added, “It howeverappears that the window has been opened too wide as almost every small or big tender is nowsought to be challenged in writ proceedings almost as a matter of routine.”

The court’s observations fail to appreciate the fact that these challenges, exasperating as theymay be to constitutional courts, are the unfortunate effect of inadequacies in our national publicprocurement laws. Therefore, one is tempted to respond to the court’s laments using the wordsof Portia in Shakespeare’s The Merchant of Venice: “Tarry a little. There is something else.”

The rude fact is that India has still to enact parliamentary legislation to comprehensively dealwith public procurement. Consider this. Procurement by the government accounts for 30% of theGDP; yet notwithstanding such fiscal significance, there is no comprehensive parliamentarylegislation till date to regulate such public procurement by the Central government. Instead thereis a maze of regulations, guidelines and rules.

In the past, instances of charges of corruption in public procurement have brought down electedgovernments. It is therefore nobody’s case that existing processes are squeaky clean orenviably efficient. Given such a scenario, parliamentary legislation to regulate publicprocurements which provide adequate means for aggrieved parties to challenge inequities andillegalities in public procurement needs to be put in place. The government is also well aware ofthis inadequacy. For example, the United Progressive Alliance introduced the PublicProcurement Bill in the Lok Sabha in 2012, “to regulate public procurement with the objective ofensuring transparency accountability and probity in the procurement process”. The sad fact isthat it was not passed by Parliament. The National Democratic Alliance, in 2015, revamped theprovisions of the earlier Bill to come up with the Public Procurement Bill, 2015; it was asignificant improvement to the 2012 Bill. Unfortunately, this Bill too is floundering. The significantpoint is that both versions had provisions for robust internal machinery for grievance redressarising out of public procurement. Sadly, they never became reality. Against such a background,it is hardly surprising that the award of tenders is being challenged in constitutional courts.

Existing constitutional provisions are themselves no great help in this area. While Article 282provides for financial autonomy in public spending, there are no further provisions that addressany guidance on public procurement principles, policies, procedures or for grievance redress.

While this is the position with regard to public procurement by the Central government, laws toregulate State public procurement are not any better in providing effective alternate disputeresolution mechanisms. State public procurement is regulated by a State Act only in five States:Tamil Nadu, Karnataka, Rajasthan, Andhra Pradesh and Assam. The grievance redressmechanisms provided in these Acts are not confidence-inspiring as they are neither independentnor effective. They fall woefully short of the prescriptions set out by the Supreme Court inMadras Bar Association v. Union of India, in which the court spelt out the requirements thattribunals must possess to qualify them as being “efficacious alternative remedy” — a phrase sowisely provided in Article 226 by our founding fathers. The emphasis being on the word“efficacious”. The Madras High Court, in a judgment, while testing the efficacy of these

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mechanisms, denounced them as mere “Caesar to Caesar appeals”.

Further, getting back to the issue of tenders being challenged, courts have imposed suchstringent self-imposed restrictions in the area of judicial review vis-à-vis tenders that the powerto interfere is very sparingly exercised, if at all. The procuring officer is empowered by judicialprinciples such as “Government must be allowed a play in the joints”. Given such a feeble legalframework which demands so little accountability, the award of tenders can become a happyhunting ground for the unscrupulous.

While such restraints imposed on courts by themselves would be admirable if alternativeefficacious remedy is available, they, unfortunately, would only encourage the growth of othernegative aspects of public procurement, in the absence of an alternate efficacious remedy toredress grievances. In such a depressing legal scenario, it is no surprise that public procurementtender awards are often challenged in constitutional courts. Till such time as a robust efficaciousalternative remedy is provided, one would only appeal to the constitutional courts using thewords of the Bard of Avon: “Upon the heat and flame of thy distemper sprinkle cool patience.”

N.L. Rajah is Senior Advocate, Madras High Court










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AFTER A DECADE, BLACK TIGER SHRIMPS STAGE ACOMEBACK IN KERALA


Tiger shrimps displayed for sale in Kochi, Kerala. File

Ending a decade’s slide in the production of black tiger shrimps, Kerala is experiencing acomeback of the top healthy seafood, thanks to a much-needed initiative of the Marine ProductsExport Development Authority (MPEDA) launched earlier this year.

The MPEDA’s efforts to revive the production of black tiger shrimps on a mass sale of its seedshave been receiving encouraging feedback, according to authorities with the statutory body thatfunctions under the Union Governments Ministry of Commerce & Industry.

The mass sale of seeds since the past 100 days shows a rapidly growing interest among thefarmers to raise the disease-free variety, the authorities said.

The Kochi-headquartered MPEDA had on February 18 begun supplying black tiger shrimpseeds from its new multi-species aquaculture complex (MAC) at Vallarpadam.

The inaugural sale was done by MPEDA chairman K.S. Srinivas by handing over one lakhseeds to former Kerala Director-General of Police Hormis Tharakan, a progressive shrimpfarmer.

Today, Mr. Srinivas noted, the black tiger prawn supplied from the nine-acre MAC has beenshowing ‘excellent’ performance in various parts of the State.

We knew that increased production of the black tiger variety can boost India’s shrimp exports inthe long run. We are seeing the early signs of it happening, he said.

Recently, I visited some of the aquaculture farms to understand the field performance of theseeds from our facility. Our seeds are doing well. The farmers comments are encouraging,” hesaid.

Mr. Tharakan, buttressing the point, said the seeds showed good performance during the threemonths of culture period.

“They [seeds] gained an average weight of 38gm, thanks to the quality. I got 260kg of shrimp inthe 90 days from an area of 50 cents by stocking 10,000 seeds. Currently, we are rearinganother 90,000 seeds, he said.

This is in happy contrast to my facing a continuous crop loss for the last three years, he said.

The 7.26-crore MAC, which was inaugurated on December 8 last, features a hatchery with anannual production capacity of 20 million black tiger shrimp seeds, besides nurseries for fourvarieties of fin fishes.

C.V. Mathew, another farmer who has been into shrimp cultivation for 16 years in his nativeKumbalangi suburb, said black tiger seeds from MAC attained 25gm size in the first 50 days.

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In 86 days, the animals reached an average size of 40gm, he said.

I have never experienced such a growth rate of my crop. No different has been the feedbackfrom the farmers from down State Kollam and Kannur in north Malabar after culturing the seedstaken from the Vallarpadam hatchery, top MPEDA officials said.

It was from 2010 that the black tiger shrimp, an endemic species to south-east Asia, began toface a slump in its traditional reputation as a major variety of cultivated shrimp item in India. Thatwas after aquaculture farmers in the country began to focus on growing the exotic vannameispecies of shrimps in a big way.


New find is bigger in size than one discovered in 2016, also in Arunachal Pradesh

The Nandankanan Zoological Park (NZP) has lost one of its beloved members — 41-year-oldOrangutan, an extant species of great apes.According to NZP,








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COTTON IMPORTS MAY RISE TO 22 LAKH BALESDURING THE CURRENT SEASON

Relevant for: Indian Economy | Topic: Major Crops, Cropping Patterns and various Agricultural Revolutions

Import of cotton in the 2018-2019 cotton season is expected to be 22 lakh bales, almost sevenlakh bales higher compared with the previous season.

The Cotton Advisory Board, which met on Tuesday, estimated (provisional) cotton productionthis season (October 2018 to September 2019) to be 337 lakh bales of 170 kg each.

“Though the area under cotton has been almost the same for the last two years, productivity hasdropped. The board, in its previous meeting, estimated production in the current season to be361 lakh bales. However, it is learnt that farmers did not go in for the fourth or fifth pickings forvarious reasons. Hence, the production estimate was revised,” said K. Selvaraju, secretarygeneral, Southern India Mills’ Association, who took part in Tuesday’s meeting.

“In our estimate, the actual imports can be between 28 lakh bales and 30 lakh bales when theseason ends. The board has estimated it to be 22 lakh bales,” he added.

The international price of cotton is lower compared to the domestic price. It is not just the mills,but traders are also importing, especially African cotton. There are offers for American cottontoo, added J. Thulasidharan, president of Indian Cotton Federation.

Meanwhile, cotton consumption (total demand) during the current season is expected to belower at 361.5 lakh bales as against 386.65 lakh bales last season.








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BUILDING CONFIDENCE, BIT BY BIT Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade

& BOP

As Minister of Finance and Corporate Affairs Nirmala Sitharaman gets ready to present the firstbudget of the 17th Lok Sabha, she faces enormous challenges. The GDP growth rate is at afive-year low, domestic consumption is sinking, the business confidence index has plunged, andIndia has recorded its highest unemployment rate in the last 45 years. To add to this list of woesis a claim made by Arvind Subramanian, India’s former Chief Economic Adviser, that India’sGDP has been overestimated. Foreign direct investment (FDI) equity inflows to India in 2018-19contracted by 1%, according to the government’s own data. After an increase of 22% and 35%in 2014-15 and 2015-16, respectively, FDI equity inflows began tapering off since 2016-17 withthe growth rate falling to 9% and then to 3% in 2017-18.

This contraction in FDI inflows comes at a time when global supply chains are shifting base as aresult of the ongoing trade war between the U.S. and China. India has failed to attract firmsexiting China. Many of these supply chains have relocated to Vietnam, Taiwan, Malaysia andIndonesia. India is clearly not the natural/first option for these firms for a host of reasons, suchas poor infrastructure, rigid land and labour laws, a deepening crisis in the banking sector and alack of structural economic reforms.

The decline in the FDI growth rate, despite the well-advertised improvement in India’s ease ofdoing business rankings, interestingly, has coincided with India’s decision, in 2016, tounilaterally terminate bilateral investment treaties (BITs) with more than 60 countries; this isaround 50% of the total unilateral termination of BITs globally from 2010 to 2018. Unilateraltermination of BITs on such a mass scale projects India as a country that does not respectinternational law. India also adopted a new inward-looking Model BIT in 2016 that prioritisesstate interests over protection to foreign investment.

In the absence of empirical evidence, one cannot conclude that termination of BITs and adoptionof a state-friendly Model BIT adversely impacted FDI inflows. Nonetheless, since studies haveshown that BITs positively impacted foreign investment inflows to India, an examination of thelink between the two should be a high priority for the Ministry of Finance and Corporate Affairs— the nodal body dealing with BITs.

The decision to terminate BITs and adopt a state-friendly Model BIT was a reaction to Indiabeing sued by several foreign investors before international arbitration tribunals. Thegovernment concluded that these claims were an outcome of India’s badly designed BITs,signed in the 1990s and 2000s that were based on a laissez faire template.

True, India’s BITs gave extensive protection to foreign investment with scant regard for state’sinterests — a characteristically neoliberal model. This design flaw could have been corrected byIndia negotiating new balanced treaties and then replacing the existing ones with the new onesinstead of terminating them unilaterally, which has created a vacuum. Importantly, the designflaw was not the real reason for the increasing number of BIT claims. A large number aroseeither because the judiciary could not get its act together (an example being inordinate delays indeciding on the enforceability of arbitration awards) or because it ruled in certain cases withoutexamining India’s BIT obligations such as en masse cancellation of the second generationtelecom licences in 2012. Likewise, the executive — the Manmohan Singh government — gotthe income tax laws retrospectively amended in 2012 to overrule the Supreme Court’s judgmentin favour of Vodafone and cancelled Devas Multimedia’s spectrum licences in 2011 without

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following due process, thus adversely impacting Mauritian and German investors.

These cases are examples of bad state regulation. They also reveal an absence of fullknowledge of India’s obligations under BITs by different state entities. Thus, the Ministry ofFinance and Corporate Affairs should invest extensively in developing state capacity so that theIndian state starts internalising BITs and is not caught on the wrong foot before an internationaltribunal.

In correcting the pro-investor imbalance in India’s BITs, India went to the other extreme andcreated a pro-state imbalance as evident in the Model BIT.

Correcting this imbalance should be high on the reform agenda of the government. ‘Progressivecapitalism’ (channeling the power of the market to serve society, as explained by Nobel laureateJoseph Stiglitz) provides the right template. Indian BITs should strike a balance betweeninterests of foreign investors and those of the state. A certain degree of arrogance andmisplaced self-belief that foreign investors would flock to India despite shocks and surprises inthe regulatory environment should be put to rest. Clarity, continuity and transparency indomestic regulations and a commitment to a balanced BIT framework would help India projectitself as a nation committed to the rule of law, both domestically and internationally, and thusshore up investor confidence. As the 2019 World Investment Report confirms, since India is fastbecoming a leading outward investor, balanced BITs would also help in protecting Indianinvestment abroad.

Prabhash Ranjan teaches at South Asian University and is the author of ‘India and BilateralInvestment Treaties: Refusal, Acceptance, Backlash’










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SEBI SETS UP PANEL TO REVIEW MARGINS ONDERIVATIVES

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Capital Market & SEBI

Lacking vigour:The current framework has not been able to manage risk in an efficientmanner.Reuters

Based on the feedback that the existing margin requirements in the derivatives segment ispushing up cost of trading while not managing risk in the most efficient manner, the Securitiesand Exchange Board of India (SEBI) has decided to review the current framework of margins inthe futures and options segment.

The capital markets regulator has set up a working group, headed by NSE Clearing Ltd., to lookinto the issue and submit its recommendations to the Secondary Market Advisory Committee.

This assumes significance as lower cost of trading was primarily the reason why institutionalinvestors preferred to trade in Nifty contracts on SGX at Singapore rather than on the highlyliquid derivatives segment of the National Stock Exchange (NSE). Incidentally, a recent studyjointly conducted by Association of National Exchanges Members of India (ANMI) andconsultancy firm Ernst & Young (EY) highlighted the fact that trading in derivatives in India costsmuch more when compared with most of the other leading markets due to a variety of marginsthat are imposed on the traders.

It further disclosed that unlike other markets where higher event-based margins are appliedtemporarily during instances of increased volatility, Indian bourses levy a variety of marginsduring the normal course thereby pushing up the overall cost of trading.

“Margin requirements in India are excessive and highest of any comparable market and there isan urgent need to rationalise this system,” said Rajesh Baheti, director, ANMI.

“We have been engaging with the SEBI for the past couple of years on the issue and haveconveyed to the regulator that margining as a tool should address risk of a given portfolio butshould not be used to control market volumes or exposures... We are glad that after relentlesspursuit, SEBI has agreed to a review of margining practices,” added Mr. Baheti, who is also themanaging director and chief executive officer of Crosseas Capital.

Meanwhile, as per ANMI-EY report, while every other market has a single margin system orSPAN margin, India levies exposure margin and excessive short option margin as part of theinitial SPAN margin.

“In India, initial margin in equity F&O segment consists of SPAN margin, exposure margin andother additional margins... Across global exchanges considered under review, only SPANmargin is collected as the initial margin. Intermittent periods of higher volatility are covered byapplying event-based margins,” stated the report.




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GRAND PLANS FOR THE FARM SECTORRelevant for: Indian Economy | Topic: Agriculture Issues and related constraints

In full strength:President Ram Nath Kovind, Prime Minister Narendra Modi, Vice-PresidentVenkaiah Naidu, Lok Sabha Speaker Om Birla and others on their way to the central hall ofParliament for the joint session.Sandeep Saxena

The Centre plans to invest Rs. 25 lakh crore in the farm sector in the coming years to boostagricultural productivity, President Ram Nath Kovind said on Thursday.

Addressing the joint sitting of both Houses of Parliament, the President said that a committee ofChief Ministers was being set up to look into structural reforms in the field of agriculture. Withregards to drought-hit areas, Mr. Kovind said the government was aware of the crisis and wasassisting farmers and tackling drinking water shortages with the support of State governmentsand village sarpanchs .

Listing the BJP-led government’s decisions in its first 21 days, the President began byhighlighting the expansion of the Pradhan Mantri Kisan Samman Nidhi, an income supportscheme, to all landowning farm families. Earlier, the scheme was only open to small andmarginal farm families owning less than two hectares of land. The expansion of the scheme inkeeping with a BJP poll promise would increase its annual budget to Rs. 90,000 crore (from theprevious Rs. 72,000 crore estimate), said Mr. Kovind, adding that Rs. 12,000 crore had alreadybeen disbursed in the past three months.

Pension scheme

Other initiatives include the contributory pension scheme for farmers above the age of 60, a Rs.13,000-crore scheme to fund treatment of common diseases in cattle, the Grameen BhandaranYojana to provide village-level storage facilities for farm produce and the plan to create 10,000new farmer producer organisations. A new department for fisheries development is expected tousher in a new blue revolution, the President said.

With regard to higher education, the President said the government was “striving to increase thenumber of seats in the country’s Higher Education System by one-and-a-half times by 2024.”This would create two crore additional seats, he said.








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THE FORGOTTEN FUNDSRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation &

Black Money incl. Government Budgeting

The season of filing tax returns brings with it an increased emphasis on the accountability of theprivate sector towards the government. In this period of accounting and accountability, ascitizens, it is equally important to apply the same principles to the working of the government. Akey area is the social accounting of the education cess, which is a compulsory contributionmade by all taxpayers, both individuals and firms.

A cess is levied on the tax payable and not on the taxable income. In a sense, for the taxpayer,it is equivalent to a surcharge on tax. Direct taxes on income are compulsory transfers of privateincomes (both individual and firm) to the government to meet collective aims such as theexpansion of schooling infrastructure, an increase in health facilities, or an improvement oftransportation infrastructure. A cess can be levied on both direct and indirect taxes. The revenueobtained from income tax, corporation tax, and indirect taxes can be allocated for variouspurposes. Unlike a tax, a cess is levied to meet a specific purpose; its proceeds cannot be spenton any kind of government expenditure. Recent examples of cess are: infrastructure cess onmotor vehicles, clean environment cess, Krishi Kalyan cess (for the improvement of agricultureand welfare of farmers), and education cess. To make the point clear, the proceeds from theeducation cess cannot be used for cleaning the environment and vice versa.

From the point of view of the government, the proceeds of all taxes and cesses are credited inthe Consolidated Fund of India (CFI), an account of the Government of India. It constitutes allreceipts, expenditures, borrowing and lending of the government. The CFI details are publishedannually as a part of the Union Budget documents. And the approval of Parliament is necessaryto withdraw funds from the CFI. While the tax proceeds are shared with the States and UnionTerritories according to the guidelines by the Finance Commission, the cess proceeds need notbe shared with them.

To meet specific socioeconomic goals, a cess is preferred over a tax because it is relativelyeasier to introduce, modify, and abolish.

The education cess, at 2%, which was first proposed in 2004, was aimed at improving primaryeducation. In 2007, an additional cess of 1% was introduced to fund secondary and highereducation (SHEC). And recently, in the 2019 Union Budget, a 4% health and education cesswas announced which incorporates the previous 3% education cess as well as an additional 1%to provide for the health of rural families.

Data from various years of the Union Budget show an increase in the amount of education cesscollected via corporation tax and income tax. Initially, the education cess was also levied oncustoms, excise, and service taxes. When tax proceeds increase, the cess collected also rises.From the inception of the education cess until 2019, the total proceeds have been 4,25,795.81crore.

In order to utilise the cess proceeds lying in the CFI, the government has to create a dedicatedfund. As long as a dedicated fund is not created, the cess proceeds remain unutilised. Thededicated fund for primary education is the ‘Prarambhik Shiksha Kosh’, or PSK, (created inOctober 2005, a year after the cess was introduced) while that for higher and secondaryeducation is the ‘Madhyamik and Uchchtar Shiksha Kosh’ (set up in August 2017). It is bafflingwhy the government set up the dedicated fund for higher and secondary education in 2017, 10

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years after the introduction of SHEC; it is also shocking that this fund has remained dormant asof March 2018.

Moreover, data from the 2017-18 annual financial audit of government finances conducted bythe Comptroller and Auditor General (CAG) show that 94,036 crore of SHEC proceeds is lyingunutilised in the CFI. In fact, it appears that the government finally set up the ‘Madhyamik andUchchtar Shiksha Kosh’ after consecutive CAG reports, repeated Lok Sabha queries, andnewspaper articles.

The degree of economic injustice becomes sharper when the unspent account is seen inconjunction with the Central government’s expenditure on education; for example, in 2017-18,the public expenditure on school and higher education was estimated to be 79,435.95 crore. Inother words, the cumulative unutilised SHEC funds far exceeded the expenditure on both schooland higher education for the year 2017-18.

Taxes in democratic societies indicate the presence of a collective socioeconomic vision aimedat improving livelihoods. Just as taxpayers have a responsibility to pay taxes, the governmentought to ensure that tax proceeds are appropriately utilised. Since a cess is introduced with aspecific purpose, it is completely unjustified when the proceeds remain unutilised for so manyyears. Moreover, in the current context of self-imposed fiscal discipline and the consequentreduction of public expenditure, the opportunity cost of unutilised education cess proceeds issignificantly high. Finally, it is imperative that the government immediately begins utilising cessproceeds and also publishes an annual account of the manner in which they have been utilised.

Alex M. Thomas teaches economics at Azim Premji University. Varun Nallur works with theBengaluru District Institute, Azim Premji Foundation










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PROJECT SET TO REVOLUTIONISE AGRICULTURE INTELANGANA

Relevant for: Indian Economy | Topic: Different types of Irrigation & Irrigation systems storage

Three large barrages, five pump houses including two underground, long tunnels, huge surgepools and an underground sub-station, all constructed within a short span of less than threeyears make Kaleshwaram Lift Irrigation Project most unique.

Reaching a position to lift 2 tmc ft of water a day literally from scratch in just 30 months makesthe project one of the fastest to be executed in the country by any standards. Thousands ofworkers, hundreds of engineers and technicians, discipline of the work agencies andcommitment of the government have all made it possible.

To be able to create a mechanism to lift Godavari water to a height of 220 m, from 100 m abovesea level at Medigadda to 320 m level at Laxmipur, with the help of five pump houses, includinghuge ones underground, is no mean task given the challenges posed in their construction.Establishing an underground 400 KV sub-station and excavating tunnels running to a length ofnearly 50 km, 24.917 km long twin tunnels in Package-6, 7 and 8, was also a test to thetechnology and expertise of engineers and other technicians.

Canal networks

All these works, three barrages and five pump houses, which are to be operationalised now, tomake the project partly functional would enable the irrigation engineers take Godavari water toMid Manair reservoir. Supplementation from there to the linked canal networks of Sriramsagarwould stabilise a portion of the 15.78 lakh acres existing ayacut under Stage-I, II and Flood FlowCanal.

According to project engineers, over 60% of the total work would be over with the completion ofLink-I and II which have the three barrages and five pump houses to lift water to 220 m out of atotal of 518 m in the last link of the project. “Execution of the project has not only been a lifetimeexperience for all the engineers involved in it but also a rare and one-off opportunity of handlingsuch a mega project,” project Engineer-in-Chief N. Venkateshwarlu said. Execution of theproject taught many of them a lesson or two in management as they were involved in everyprocess from land acquisition to installation of crest gates and gigantic motor pumps, the ENCsaid adding that the two underground pump houses in Package-6 and 8 are engineeringmarvels.






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REIMAGINING THE NITI AAYOGRelevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

India’s Constitution-makers thought of India as a union of States with a centripetal bias, done,advisedly, to preserve the unity and integrity of a newly fledged nation. Since then, the Indianeconomy, polity, demography and society have undergone many changes. The new aspirationalIndia is now firmly on a growth turnpike. It is in this context that we revisit India’s fiscalfederalism and propose redesigning it around its four pillars.

Typically, federations (including the Indian one) face vertical and horizontal imbalances. Avertical imbalance arises because the tax systems are designed in a manner that yields muchgreater tax revenues to the Central government when compared to the State or provincialgovernments; the Constitution mandates relatively greater responsibilities to the Stategovernments. For example, in India, post the advent of Goods and Services Tax (GST), theshare of States in the public expenditure is 60% while it is 40% for the Centre to perform theirconstitutionally mandated duties.

The horizontal imbalances arise because of differing levels of attainment by the States due todifferential growth rates and their developmental status in terms of the state of social orinfrastructure capital. Traditionally, Finance Commissions have dealt with these imbalances in astellar manner, and they should continue to be the first pillar of the new fiscal federal structure ofIndia.

However, in India, the phenomenon of horizontal imbalance needs to be understood in a morenuanced fashion. It involves two types of imbalances. Type I is to do with the adequate provisionof basic public goods and services, while the second, Type II, is due to growth acceleratinginfrastructure or the transformational capital deficits. The latter are known to be historicallyconditioned or path dependent. Removing these two imbalances clearly comprises two distinctpolicy goals and calls for following the Tinbergen assignment principle, which are two differentpolicy instruments. It is here that we believe that NITI Aayog 2.0 must create a niche, assumethe role of another policy instrument and become the second pillar of the new fiscal federalstructure.

In the past, the Planning Commission used to give grants to the States as conditional transfersusing the Gadgil-Mukherjee formula. Now with the Planning Commission disbanded, there is avacuum especially as the NITI Aayog is primarily a think tank with no resources to dispense,which renders it toothless to undertake a “transformational” intervention. On the other hand, it istoo much to expect the Union Finance Commission to do the dual job. In other words, there is anurgent need for an optimal arrangement. It is best that the Union Finance Commission beconfined to focussing on the removal of the horizontal imbalance across States of the Type I: i.e.the basic public goods imbalance. We need another institution to tackle the horizontal imbalanceof the Type II; for this the NITI Aayog is the most appropriate institution. It can be argued that theFinance Ministry is the other alternative to deliver the goods in this regard but it is ill-suited to dothis; its primary duty is to concern itself with the country’s macro-economic stability and theproper functioning of the financial system rather than be an instrument of growth at the sub-national level.

Is NITI Aayog old wine in a new bottle?

Towards this task of cooperative federalism, NITI Aayog 2.0 should receive significant resources(say 1% to 2% of the GDP) to promote accelerated growth in States that are lagging, and

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overcome their historically conditioned infrastructure deficit, thus reducing the developmentalimbalance. In short, the NITI Aayog should be engaged with the allocation of “transformational”capital in a formulaic manner, complete with incentive-compatible conditionalities. The variablesor parameters used in this formulaic transfer will be very different from those traditionally usedby the Finance Commission.

NITI Aayog 2.0 should also be mandated to create an independent evaluation office which willmonitor and evaluate the efficacy of the utilisation of such grants. In doing so, it should notcommit the mistake of micro-management or conflicts with line departments. It must be alsoaccorded a place at the high table of decision-making as it will need to objectively buy-in thecooperation of the richer States as their resources are transferred to the poorer ones.

The same perspective will have to be translated below the States to the third tier of government.This is crucial because intra-State regional imbalances are likely to be of even greater importthan inter-State ones. Decentralisation, in letter and spirit, has to be the third pillar of the newfiscal federal architecture. De jure and de facto seriousness has to be accorded to the 73rd and74th constitutional amendments. For this, the missing local public finance must be birthed. Oneof the ways for this is through the creation of an urban local body/panchayati raj institutionsconsolidated fund. This would mean that Articles 266/268/243H/243X of our Constitution willneed to be amended to ensure that relevant monies directly flow into this consolidated fund ofthe third tier.

GST collections at 1.06 lakh cr. in March, clock the highest-ever

Through such constitutional amendments, the Centre and States should contribute an equalproportion of their Central GST (CGST) and State GST (SGST) collections and send the moneyto the consolidated fund of the third tier. For instance, one-sixth sharing of the CGST and SGSTwith the third tier can generate more than 1% of the GDP every year for the financing of publicgoods by urban-level bodies. Such an arrangement will be the third pillar of fiscal federalism.Further, the State Finance Commissions should be accorded the same status as the FinanceCommission and the 3Fs of democratic decentralisation (funds, functions and functionaries)vigorously implemented. This will strengthen and deepen our foundational democraticframework.

The fourth pillar — and in a sense what is central and binding — is the “flawless” or model GST.It is to the credit of our democratic maturity that the GST Bill was passed unanimously byParliament; but in its present form, it is far from flawless. It needs further simplification andextended coverage. We need to quickly achieve the goal of a single rate GST with suitablesurcharges on “sin goods,” zero rating of exports and reforming the Integrated Goods andServices Tax (IGST) and the e-way bill. The GST Council should adopt transparency in itsworking, and create its own secretariat with independent experts also as its staff. This willenable it to undertake further reforms in an informed and transparent manner. Thus, India will beable to truly actualise the “grand bargain” and see the GST as an enduring glue holding the fourpillars together by creating the new fiscal federal architecture and strengthening India’s uniquecooperative federalism.

Vijay Kelkar and Abhay Pethe are the Vice-President and Founder Member, respectively, of thePune International Centre


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CREATING SANCTUARIES OF HOPE FOR MIGRANTWORKERS


There is a wilderness within our borders. It’s so vast that it covers an entire nation, with around100 million inhabitants, one-fifth of our labour force. The total earnings of these seasonalwanderers, India’s internal migrant workers, are around $170 billion per annum, i.e. around 6%of India’s GDP. Sadly, this wilderness, comprising the residents hidden away in industrialcomplexes, in soot-ridden kitchens of hotels and in dusty construction sites, is invisible to thenaked eye.

Shambhu Ghatak, from the Inclusive Media for Change Project, says the migrant population inIndia is riddled with the issues of inadequate housing; low-paid, insecure or hazardous work;extreme vulnerability of women and children to trafficking and sex exploitation; exclusion fromstate services such as health and education; and discrimination based on ethnicity. Furthermore,there are mental health issues, not to mention the darkness of debt-ridden, bonded labour. But,herein lies an irony: a treasure-trove of close to $3 billion, levied as cess on builders under twomigrant workers acts, lies grossly underutilised. Access to the money eludes migrant workers asthey need to provide proof of address, which is difficult due to the fluidity of their lives. Further,ration cards, Voter IDs and Aadhaar cards are also not easy to obtain.

Govt working towards housing for all by 2022, says PM Modi

Trade unions are the best way for the workers to benefit from government welfare schemes butemployers often prefer hiring unregistered migrants over their registered counterparts, furtherdistancing the migrants’ access. There is also the Inter-State Migrant Workmen Act (1979),enacted to prevent migrant workers from being exploited, but it is rarely invoked and the penaltyis minimal.

However, there are rays of hope, stemming from civil society organisations like the AajeevikaBureau, Hunnarshala Foundation and Ci3; some Corporate Social Responsibility (CSR)initiatives; forward-thinking government schemes like that for affordable, migrant housing inBhuj; and from these resolute workers themselves (the women toilet-masons of Assam are astory of positive irony, for a change).

We need something more than the promise of ‘Housing for All by 2022’, which fails to addressthe needs of accommodation for such workers. There need to be multi-level reforms, with anemphasis on sustainable, inclusive construction practices; affordable temporary housingschemes; and inclusive urbanisation at the top. These should be peppered with legally bindingimplementation protocols. We need to accommodate the wilderness within, so as to help morphthis open cage, in which migrant workers live, into a sanctuary of inclusive hope.

The writer is based in Chennai


The U.S. and Iran are muddying the waters with accusations and counter-accusations


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Source : www.prsindia.org Date : 2019-06-26

PRSINDIARelevant for: Indian Economy | Topic: Investment Models: PPP, SEZ, EPZ and others

IntroducedLok SabhaJun 24, 2019Gray



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CASH IN CIRCULATION FELL POST NOTE BAN: FMRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

Notes in circulation have been growing at an average annual growth rate of 14.51% sinceOctober 2014.Sushil Kumar Verma

Demonetisation, coupled with increased digital transactions and the reduced cash usage in theinformal economy, led to a reduction in currency in circulation by Rs. 3.4 lakh crore, according toFinance Minister Nirmala Sitharaman.

‘Significantly lower’

Replying to a question in the Rajya Sabha, Ms. Sitharaman said that the level of currency incirculation as of May 31, 2019, was significantly lower than what it would have been ifdemonetisation had not happened.

According to the data provided, the value of notes in circulation on November 4, 2016, (fourdays before demonetisation was announced) stood at Rs. 17.74 lakh crore, which has nowincreased to Rs. 21.71 lakh crore as of May 31, 2019.

However, Ms. Sitharaman said that the notes in circulation had been growing at an averageannual growth rate of 14.51% since October 2014.

“At this rate, notes in circulation would have increased to Rs. 25,122.53 billion (Rs. 25.12 lakhcrore) as on May 31, 2019,” Ms. Sitharaman said in her reply. “As actual notes in circulation onMay 31, 2019 are only Rs. 21,713.85 billion [Rs. 21.71 lakh crore], demonetisation, followed bydigitalisation and reduction of cash use in informal economy, has succeeded in reducing thenotes in circulation by as much as Rs. 3,408.68 billion (Rs. 3.4 lakh crore).”

Ms. Sitharaman went on to cite Reserve Bank of India data to show that the number ofcounterfeit bank notes detected decreased from 762,072 pieces in 2016-17, to 522,783 in 2017-18 and 317,389 pieces in 2018-19 and hence “demonetisation resulted in curbing of thecounterfeit currency”.

However, she did not mention whether this reduction in detection of fake currency was due totheir incidences coming down or their sophistication surpassing the RBI’s ability to detect.

“A significant growth has been observed in digital transactions in the country postdemonetisation,” Ms. Sitharaman added. “Growth of digital transactions in terms of value hasincreased to Rs. 188.07 lakh crore in September 2018 from Rs. 112.27 lakh crore in November2016. Digital transactions in terms of volume have increased to 241.88 crore in September 2018from 91.83 crore.”

The Minister also said that demonetisation led to a “significant positive impact on most theatresof violence” in the country since illegally held cash formed a major chunk of terrorfunding, andthat the note ban rendered the cash held with terrorists worthless.

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SINHA-LED PANEL PROPOSES RS. 5,000 CRORESTRESSED ASSET FUND FOR MSMES

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Industry & Services Sectorincl. MSMEs and PSUs

A committee formed by the Reserve Bank of India (RBI), headed by former SEBI Chairman U.K.Sinha, has recommended a Rs. 5,000 crore distressed asset fund for micro, small and mediumenterprises (MSMEs).

The fund will assist units in a cluster where there is a change in the external environment suchas plastic ban, which had resulted in large number of such entities becoming non-performing.“This would be of significant size which makes equity investments that help unlock debt or helprevive sick units. It is a variation of venture capital fund , meant for equity investment of Rs. 1lakh to Rs. 10 lakh in proprietary or partnership MSMEs, which will not or cannot list on the stockexchanges,” the committee, which submitted its report to the RBI few days back, said.

“The structure would recognise that exits will not be big bang but through a percentage ofrevenues or profits over a period of 3-5 years. The onus of creating this fund would lie with thegovernment,” it said.

The panel also suggested that the RBI should increase the limit for non-collateralised loans toRs. 20 lakh, and this would address a significant proportion of the sector needs. In addition, italso suggested revision in loan limit sanctioned under MUDRA by the Finance Ministry to Rs. 20lakh from Rs. 10 lakh.

The committee has also recommended banks that wish to specialise in MSME lending, theirsub-targets for farm loans under the priority sector lender could be waived off, and instead canbe given a target for loans to the SME sector. The targets, committee said, could be of 50% ofhe net bank credit for universal banks and 80% for small finance banks.

At present, the overall priority sector lending target for a universal bank is 40% of their net bankcredit and 75% for small finance bank.

Commercial banks have been suggested that they should develop customised products toassess the financing requirements based on expected cash flows moving away from traditionalforms of assessment.

“Banks need to build their ability to capture cash flows of MSME borrowers on a regular basis,for which tie-ups with industry majors / aggregators / online platforms will have to be done by thebanks,” the report said. In order to provide loan portability in a seamless manner to MSMEs, thecommittee recommended that the RBI should come out with measures on portability of MSMEloans with a lock-in-period of one year.





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PROJECTS WORTH RS. 11 LAKH CR. REMAINSTALLED: FINMIN

Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

Projects worth almost Rs. 11 lakh crore remain ‘stalled’ or have issues under consideration,according to data provided by the Finance Ministry, with the Railways, roads, and power sectorsaccounting for more than half of these stalled projects.

According to an answer provided to the Lok Sabha on Monday by the Finance Ministry, thegovernment’s Project Monitoring Invest India Cell (PMIC) has resolved the issues surrounding740 projects worth Rs. 30.5 lakh crore. However, 298 projects worth Rs. 10.98 lakh crore stillhave problems that are yet to be resolved.

According to the data, the projects under the Ministry of Railways seem to be the mostproblematic. While the PMIC has resolved all issues surrounding 42 projects in the sector worthRs. 77,555 crore, there are still 115 projects worth Rs. 4 lakh crore “in which issues are stillunder consideration”.

On the other hand, projects under the Ministry of Power have seen the highest success rate ofissues being resolved. While 36 projects worth Rs. 2.05 lakh crore are still under consideration,the PMIC has resolved issues with 246 projects worth Rs. 13.2 lakh crore. Similarly, the PMIChas resolved issues around 201 road transport projects worth Rs. 2.21 lakh crore, with 89projects worth Rs. 1.83 lakh crore under consideration.














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MAINTAINING ADEQUATE DOMESTIC SAVINGS ISESSENTIAL TO SOUND MACROECONOMICMANAGEMENT

Relevant for: Indian Economy | Topic: Issues relating to Mobilization of resources incl. Savings, Borrowings &External Resources


The writer is chief economist, CRISIL.

Verma is economist at CRISIL

Empirical evidence shows that developing economies have a positive long-term correlationbetween savings and growth. In a fast-growing economy like India, investments generallyoutpace domestic savings, and the gap gets funded by foreign savings. This shows up ascurrent account deficit. Maintaining adequate domestic savings, therefore, is essential to soundmacroeconomic management — more so in today’s challenging global environment.

Unfortunately, Indians have been saving less. Worse, our rate of savings has fallen sharply. Theoverall savings rate (households, public sector and private sector), or the proportion of grossdomestic savings in the GDP, plunged to 30.5 per cent in fiscal 2018 from a peak of 36.8 percent in fiscal 2008, rising marginally in the interim. It has been downhill since fiscal 2012. Theexternal shock of the global financial crisis led to a sharp slowdown in public savings in fiscal2009, with the government resorting to fiscal stimulus. The savings rate recovered marginally inthe next three years, only to lose momentum thereafter. This could compound India’s problem ofslowing growth.

Understanding the granular trends in the savings rate helps us pinpoint solutions. The largestsavers in the economy, household savings, (the government and the corporate sector being theother two categories) fell from 23.1 per cent as a per cent of the GDP in fiscal 2010 to 17.2 percent in fiscal 2018. As a result, its share in gross savings fell from 68.2 per cent to 56.3 per cent.Household savings in physical form (largely in real estate and also referred to as physicalsavings), declined from 15.9 per cent to 10.3 per cent. Financial savings declined too, from 7.4per cent to 6.6 per cent. That’s a major source of concern because households have beentraditionally net suppliers of funds to the private corporate sector as well as the public sector.This means that excess of household sector savings over their investments is used to fund thesaving-investment gap of the other two sectors. That level of financial savings is just aboutenough to finance the combined fiscal deficit of the Centre and the states. A continuation of thistrend will shrink the pool of savings available to facilitate private investments. Put another way, itcould lead to a “crowding out” of private investments.

What explains the decline in household savings? A part of the answer lies in the consumptiontrend. National accounts data shows that over the past few years, private consumption as apercentage of the GDP has risen — in a reversal of the trend seen till the early 2000s. Fromaround 65 per cent at the beginning of 2000s, private consumption as a percentage of the GDPfell to 55 per cent towards the end of that decade. It has rebounded since then to 59.4 per centin fiscal 2019.

Given favourable demographics, households are becoming consumption-centric, and their

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financial liabilities have been rising, as evidenced in retail credit, which, at 17 per cent annually,is the fastest-growing loans segment in the past five years. Pertinently, this has happened intandem with a moderation in household disposable incomes. This fall in household savings rateis also corroborated by a sharp fall in household saving elasticity (the proportional change insavings to a change in income) since the beginning of this decade.

So what are the reasons for the fall in the household savings rate? Franco Modigliani’s life cyclehypothesis says a youthful population typically tends to consume more than they earn.Individuals seek to smoothen their consumption over the course of a lifetime — borrowing intimes of low-income (initial working years) and saving during periods of higher income. In India,about 70 per cent of the working age population falls in the 20-40 years category. On the otherhand, savings of government corporations (departmental and non-departmental enterprises) arelargely offset by government dis-saving (as it runs a revenue deficit), which keeps the overallpublic savings rate low.

But the private corporate sector savings bucked this trend, surging to 11.6 per cent of the GDPin fiscal 2018 from 7.4 per cent about a decade ago. Part of this is the result of a change in thebase year to 2011-12, which led to physical assets of quasi-corporations being excluded fromhouseholds and included in private corporations. So while private corporate savings surged,household savings declined commensurately. Yet, the rise in private corporate savings is in linewith evolving global trends in savings after the global financial crisis. According to research,“Whereas in the early 1980s most of global investment was funded by household saving,nowadays nearly two-thirds of global investment is funded by corporate saving.”

In India too, rising corporate savings could be channeled for financing private corporateinvestment when the opportunity arises. Beyond these domestic sources, an increase in privatesector investment will need to be financed by foreign savings, which carries its own set of risksbeyond a point. It is noteworthy that the expansion of the Indian economy before the globalfinancial crisis coincided with a significant lift in both savings and investments. With the election-related uncertainty behind us, a softer monetary policy stance, and the government’s resolve topush growth up, investments are likely to increase in the future. But if savings do not risecommensurately, India’s current account deficit could come under stress. Clearly, it’s time toreignite the virtuous cycle of high savings, investment, and growth so that the country returns tothe high-growth trajectory of the past. Pushing up household financial savings would requiregreater efforts towards financial inclusion, and possibly, incentives for saving. These must becomplemented by productivity-enhancing reforms that encourage private sector investments.

(This article first appeared in the July 26, 2019, print edition under the title The savingsdilemma. Joshi is chief economist, and Verma is senior economist at CRISIL)





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PAYROLL REPORTING IN INDIA – A FORMALEMPLOYMENT PERSPECTIVE


Ministry of Statistics & Programme Implementation

Payroll Reporting in India – A Formal EmploymentPerspective

Posted On: 25 JUN 2019 11:38AM by PIB Delhi

The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation hasreleased Employment Outlook of the country covering the period September, 2017 to April,2019, based on the administrative records available with selected government agencies toassess the progress in certain dimensions.

Click here to access the detailed note related to Employment Outlook

*****

AKT/VJ/SBP


Read this release in: Marathi , Hindi , Bengali



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‘DEFAULTER COUNT IN PSBS HAS RISEN 60% SINCEFY15’


Nirmala Sitharaman

The number of wilful defaulters in nationalised banks has increased by more than 60% to 8,582to March 2019 from 2014-15, the government said on Monday. By the end of the 2014-15 fiscal,the figure had stood at 5,349, Finance Minister Nirmala Sitharaman told the Lok Sabha.

A wilful defaulter is an entity or a person that has not paid a loan back despite the ability to repayit.

The Minister was replying to a question as to whether the cases of wilful defaulters of bankshave increased in the last five years. Rising consistently since 2014-15, the number of suchborrowers increased to 6,575 in 2015-16, 7,079 in 2016-17 and further to 7,535 in 2017-18.“Wilful defaulters are acted against comprehensively. Moreover... as per RBI’s instructions, wilfuldefaulters are not sanctioned any additional facilities by banks or financial institutions, and theirunit is debarred from floating new ventures for five years,” she said. An amount of Rs. 7,654crore has been recovered from their accounts in the period.














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BASIC NEEDS, BASIC RIGHTS: ON AFTERMATH OFBIHAR AES DEATH


Three thoughts occur to me in the aftermath of the horrific tragedy in Muzaffarpur, Bihar,where the systemic failure of health care has killed over a hundred children. First, like theconstitutional principle of a basic structure, it is time to articulate an equally robust doctrine ofbasic rights. Second, these basic rights must be viewed primarily as positive, rights not againstinterference from the state (negative rights) but to the provision of something by it. Third, just asindividuals are punished for legal violations, the government of the day must also be punishedfor the violation of these basic rights. This punishment need not await the next round of electionsbut must be meted out immediately, by the law itself. In short, defaulting governments must beheld legally accountable. The systematic violation of basic rights must be treated on a par withthe breakdown of constitutional machinery.

But what are basic rights? How are they different from other fundamental rights? Basic rightsflow from basic needs such as physical security or subsistence. Needs are different from wants.You may want a chocolate every morning but don’t need it. Heavens won’t fall if you don’t get it.But basic needs are different: their non-fulfilment can cause great harm, even kill. The failure toget an antibiotic if you have a bacterial infection can hurt you very badly. Heavens will fall if youdon’t get it! Moreover, wants are subjective; you cannot be mistaken that you desire thatchocolate. But you may be misguided, even unaware of what you need. You may not be able totell if you need an antibiotic because your mind can’t tell the difference between bacterial andviral infections. This determination is done by a more objective criterion. Needs depend on theway human bodies are constituted. They are a solid necessity; one cannot get on without them.Nor can they be fulfilled by substitutes. For us, nothing can take the place of water, food and air.

India facing critical shortage of healthcare providers: WHO

It is true, of course, that though terribly important, basic needs are not what we live for. Theydon’t make our life worth living. But anything really worth pursuing depends on the satisfaction ofbasic needs. If we are continuously thirsty, cold, hungry, ill or homeless, we will be incapable ofeven framing a conception of worthwhile life, let alone pursue it. Imagine the plight of those whoqueue up for long hours to get a bucket of water or a place to bathe, dress or defecate. Peoplesuffer if basic needs are met inadequately or with delay. They are then denied a minimallydecent life.

When basic needs are not fully met, we feel vulnerable and helpless. We grieve, cry for help,seek assistance. We complain and demand elementary justice from our community, especiallyfrom the state. Elementary justice requires that before anything else, the state does everythingat its disposal to satisfy all basic needs of its citizens, particularly of those who cannot fend forthemselves. We feel aggrieved when the state abdicates this responsibility.

But what does the language of rights add to the idea of basic needs? First, a right is somethingthat is owed to us; it is not a favour. So, rights help the recognition of anything that satisfiesbasic needs as an entitlement. Basic rights are claims on the state to provide us with goods andservices that satisfy our basic needs. Second, when something is identified as a basic right, itputs the state under a duty to enable its exercise. The state becomes its guarantor. Forexample, the right to physical security, the first basic right, is socially guaranteed when the state

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provides its people a well-trained, professional police force. When society and its governmentreneges on its commitment to do so, we hold them accountable. It follows that basic rights are ashield for the defenceless against the most damaging threats to their life which includestarvation, pestilence and disease. As the philosopher Henry Shue, puts it, it is ‘an attempt togive to the powerless a veto over some economic, social and political forces that harm them’.

The Hindu Explains: How litchi toxin is causing the deaths of undernourished children inMuzaffarpur

These rights are basic also because many intrinsically valuable rights can be enjoyed only oncethese rights are secured. Imagine that we have a right to assemble freely in public but that justas one begins to exercise this right, one is threatened with assault, rape or murder. Most peoplewill simply retreat. Is not a threat to physical security or bodily integrity the commonest weaponwielded by goons, political thugs and oppressive governments?

The second is the right to minimum economic security and subsistence, that includes clean air,uncontaminated water, nutritious food, clothing and shelter. By showing the devastation causedby its absence, the Muzaffarpur tragedy amply proves that the right to primary health care is alsoan integral part of the right to subsistence. A straightforward link exists between malnutrition anddisease. As Dr. T. Jacob John explained in an article in The Hindu on June 19, 2019 (OpEdpage, “Averting deaths in Muzaffarpur”), encephalopathy, the biochemical disease that resultsfrom eating litchi fruit pulp, occurs only in malnourished children. It is common knowledge thatmalnourishment lowers resistance to disease. A similar link exists between disease,unemployment and poverty.

Credible threats to these rights can be reduced by the government by establishing institutionsand practices that assist the vulnerable; for example, by setting up hospitals with adequatenumber of doctors, nurses, beds, medical equipment, intensive care units, essential drugs andemergency treatments. For this, proper budgetary allocation is required that depends in turn ongetting one’s political priority and commitment right. When a government fails to provide primaryhealth care to those who can’t afford it, it violates their basic rights.

To these two basic rights, I add a third — the right to free public expression of helplessness andfrustration, if deprived of other basic rights. The scope of freedom of expression is large and Idon’t think all of it can be deemed basic. But the relevant part of it is. The right to make one’svulnerability public, be informed about the acts of commission and omission of the governmentregarding anything that adversely affects the satisfaction of basic needs, to critically examinethem and to hold state officials publicly accountable is a basic right on a par with right to physicalsecurity and subsistence and inseparably linked to them.

It follows that governments must make arrangements for people to demand that their basicrights be satisfied, to complain when these demands are not met, to report lapses and omissionson the part of governments, point fingers at apathetic government officials, criticise thegovernment for its failures and to do so without fear.

These three basic rights can be summed up in a single phrase, the right to a minimally decentlife. This is a threshold right. A society may soar, strive for great collective achievement. Thereare no limits to the longing for a better life. But the point of having a threshold of minimaldecency is that our life must not fall below a certain level of existence. Anything short of aminimally decent life is simply not acceptable. It is this precisely that horrifies us about thecallousness of the Bihar government in Muzaffarpur and governments in India more generally.They routinely abdicate responsibility for the suffering they directly or indirectly cause. This iswhy we must ask why governments are not immediately and severely penalised when they

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undermine the exercise of these basic rights.

Rajeev Bhargava is Professor, Centre for the Study of Developing Societies, Delhi









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PLAN TO INCREASE THE NUMBER OF MSMES IN THECOUNTRY


Ministry of Micro,Small & Medium Enterprises

Plan to increase the number of MSMES in the country


The Ministry of Micro, Small and Medium Enterprisesis striving to increase thenumber of micro and small industries in the country on a sustainable basis throughimplementation of various schemes andprogrammes. The Ministry provides bettercredit facility, technology upgradation and skilling to boost the entire MSME eco-system.

Followings are the major schemes being implemented by Ministry of MSME:

(i) Prime Minister’s Employment Generation Programme (PMEGP): This is acredit-linked subsidy programme aimed at generating self-employmentopportunities through establishment of micro-enterprises in the non-farmsector by helping traditional artisans and unemployed youth. The Scheme waslaunched during 2008-09. A total of 5.45 lakh micro enterprises have beenassisted with a margin money subsidy of Rs.12074.04crore, providingemployment opportunities to an estimated 45.22 lakh persons since PMEGP’sinception till 31.03.2019.

An amount of Rs. 2247.10 crore has been allocated under PMEGP for financial year2019-20 which is substantially higher with respect to allocation in earlier financial yearwhich would further lead to increased number of units assisted and employmentgeneration.

(ii) Scheme of Fund for Regeneration of Traditional Industries (SFURTI): Itis a cluster-based scheme for development of khadi, village industries and coirclusters by providing them with improved equipments, common facilitiescenters, business development services, training, capacity building and designand marketing support, etc. SFURTI Scheme has been revamped in 2015. Atotal of 34,791 artisans have benefitted with an assistance ofRs. 143.15 crore

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during 2018-19.

(iii) A Scheme for Promotion of Innovation, Rural Industry andEntrepreneurship (ASPIRE): was launched on 18.3.2015 to set up a network oftechnology centres and to set up incubation centres to accelerateentrepreneurship and also to promote start-ups for innovation andentrepreneurship in agro-industry. Under ASPIRE, 74 Livelihood BusinessIncubation (LBI) centres and 11 Technology Business Incubators have beenapproved since inception of the scheme.

(iv) Coir Board: Ministry of MSME, through Coir Board, is also implementingvarious Schemes/programmes to assist entrepreneurs to set up new Micro,Small and Medium Enterprises (MSMEs) in all coconut producing states. UnderCoir VikasYojna, 36,30,653 employment opportunities have been created since2014-15 till 2018-19 in the Coir Sector.

(v) Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE):The scheme facilitates credit to the MSE units by covering collateral- -freecredit facility (term loan and /or working capital) extended by eligible lendinginstitutions to new and existing micro and small enterprises. The Scheme hasextended guarantee cover to over 35 lakh enterprises leading to approx. 1 croreemployment generation. During FY 2018-19, a total of 4,35,520 proposals havebeen approved providing guarantee to a tune of Rs. 30,168 crore.

(vi) Credit linked Capital Subsidy Scheme (CLCSS): CLCSS facilitatestechnology upgradation of small scale industries, including agro & ruralindustrial units by providing 15% upfront capital subsidy (limited to maximumof Rs.15.00 lakhs). Since inception of the scheme in 2000-01 till date, a total of62,827 MSE units have been assisted utilizing subsidy of Rs.3888.13 crore.

During 2018-19, a total of 14,155 MSE units have been assisted utilizing subsidy ofRs. 980.44 crore.

(vii) Micro & Small Enterprises-Cluster Development Programme (MSE-CDP):The Ministry of Micro, Small and Medium Enterprises (MSME),Government of India (GoI) has adopted the Cluster Development approach as akey strategy for enhancing the productivity and competitiveness as well ascapacity building of Micro and Small Enterprises (MSEs) and their collectives inthe country. A cluster is a group of enterprises located within an identifiable

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and as far as practicable, contiguous area and producing same / similarproducts / services.

During 2018-19, 17 Common Facility Centres and 11 Infrastructure Developmentprojects have been established.

This information was given by Shri Nitin Gadkari, Union Minister for Micro, Small andMedium Enterprises in reply to a question in Rajya Sabha today.

*****

NP


Read this release in: Marathi , Bengali



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NATIONAL POLICY ON BIO-FUELRelevant for: Indian Economy | Topic: Infrastructure: Energy incl. Renewable & Non-renewable

Ministry of Petroleum & Natural Gas

National Policy on Bio-Fuel


The National Policy on Biofuels-2018 notified on 8.6.2018, inter-alia, allows production ofethanol from damaged food grains like wheat, broken rice etc. which are unfit for humanconsumption. The policy also allows conversion of surplus quantities of food grains to ethanol,based on the approval of National Biofuel Coordination Committee.

Use of damaged foodgrains and surplus foodgrains for production of ethanol will increase itsavailability for Ethanol Blended Petrol (EBP) Programme. During the ethanol supply year 2017-18, 150.5 crore litres of ethanol was blended in Petrol which resulted in foreign exchange impactof about Rs. 5070 crore and carbon emission reduced to the extent of 29.94 lakh tonnes.

The National Policy on Biofuels-2018 approved by the Government envisages an indicativetarget of 20% blending of ethanol in petrol and 5% blending of bio-diesel in diesel by 2030.Under EBP programme, ethanol blending in petrol is being undertaken by the Oil MarketingCompanies (OMCs) in whole country except island Union Territory (UT) of Andaman Nicobarand Lakshadweep wherein, OMCs blend up to 10 % ethanol in petrol under the EBPProgramme.

Further, Government has approved Pradhan Mantri JI-VAN Yojana to provide Viability GapFunding (VGF) to Second Generation bio-ethanol manufacturing projects to increase availabilityof ethanol for EBP programme. Ministry has also issued Gazette Notification dated 1.5.2019 on“Guidelines for sale of Biodiesel for blending with high speed diesel for transportation purposes-2019” dated 30.4.2019.

Government has decided to leapfrog directly to BS-VI quality w.e.f. 1st April, 2020 in theentire country. Considering the rise in environmental pollution in National Capital Region,Government has started supply of BS-VI auto fuel in National Capital Territory of Delhi from 1stApril, 2018. Further, in line with the directions issued by Ministry of Petroleum and Natural Gas,supply of BS-VI auto fuel has started in ten districts of National Capital Region and three otherdistricts/cities outside of National Capital Region (Karauli, Dhaulpur and city of Agra) w.e.f. 1stApril, 2019.

This information was given by the Union Minister for Petroleum and Natural Gas ShriDharmendra Pradhan in a written reply in the Lok Sabha today.

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YB


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RBI BEGINS MONITORING HFCSRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

Snowballing issue:In RBI’view, crisis in HFC sector could spill over to other segments in thefinancial sector.Reuters

The Reserve Bank of India (RBI) has started monitoring the liquidity position, asset-liability gapand repayment schedules of housing finance companies (HFCs) on a daily basis after theliquidity crisis hit these firms, resulting in defaults.

Mortgage lenders are regulated by the National Housing Bank. But the central bank is of theview that the since the liquidity crisis of the HFCs could have a spillover effect on the othersegments in the financial sector, including banks, and hence, could affect financial stability, itwas necessary to monitor these entities on a regular basis

For this purpose, a general manager in National Housing Bank has been asked to be in regularcommunication with a chief general manager in the department of non-banking supervision(DNBS) of the RBI, sources familiar with the development told The Hindu , adding the processhad started about a week ago.

The non-banking financial sector, particularly the mortgage lenders, are fighting a crisis ofconfidence with banks having stopped lending to these entities since the debt default by IL&FSin September last year.

NBFCs saw their cost of funds going up sharply in the last few months. This has impacted theirbusiness growth as the lenders have to cut down on their loan disbursements.

Feeling pressure

The move to monitor HFCs on a daily basis comes after some mortgage lenders started feelingthe pressure to meet their financial obligations. Dewan Housing Finance Corporation, forexample, partially defaulted on repayment to its commercial paper holders. Earlier, the companyhad to delay repayment to its non-convertible debenture holders.

RBI Governor Shaktikanta Das had emphasised on the importance of maintaining financialstability in the wake of the HFC crisis.

“... the RBI does not regulate the housing finance companies, nonetheless, the banks havesignificant exposure to the housing finance companies. And, the RBI in any case is mandated tolook after the financial stability of the entire economy…the RBI will not hesitate to take whateversteps are required to ensure that financial stability is not adversely impacted in any manner byany development,” Mr. Das had said during a media interaction earlier this month.





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PAYMENTS DATA MUST BE SAVED LOCALLY: RBIRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

The Reserve Bank of India (RBI) has clarified on Wednesday that payment system providersneed to store entire payments data in a system only in India.

Following clarifications sought by Payment System Operators (PSOs), RBI has releasedfrequently asked questions (FAQ), in which it said data processed abroad would have to bebrought back to the country within 24 hours.

“The entire payment data shall be stored in systems located only in India,” RBI clarified in theFAQ.

“The data should include end-to-end transaction details and information pertaining to payment orsettlement transaction that is gathered/transmitted/processed as part of a paymentmessage/instruction,” the RBI said.

The data could be pertaining to customer data like name, mobile number, Aadhaar number,PAN; Payment-sensitive data like customer and beneficiary account details; payment credentialslike OTP, PIN and, transaction data such as originating and destination system informationamount, among others.

The RBI further clarified that in case the processing is done abroad, the data should be deletedfrom the systems abroad and brought back to India within one business day or 24 hours fromthe payment processing, whichever is earlier.

The central bank had issued a directive in April 2018 on ‘storage of payment system data’ whereit advised that all system providers to ensure that within a period of six months, the entire datarelating to payment systems operated by them is stored in a system only in India.

The FAQs further said there is no bar on processing of payment transactions outside India if sodesired by the PSOs. “...the data shall be stored only in India after the processing. The completeend-to-end transaction details should be part of the data,” the RBI said.










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CENTRE EXPANDS TERMS OF REFERENCE OF DIRECTTAX LAW BODY


The Central Board of Direct Taxes (CBDT) has expanded the terms of reference (ToR) of thetask force set up to come up with a new direct tax law, according to a notification issued onWednesday.

The existing terms of reference include drafting an “appropriate direct tax legislation” keeping inview; the direct tax litigation in other countries; international best practices; the economic needsof the country; and other related issues.

The new additions include the creation of a “faceless and anonymised” verification and scrutinysystem, and the sharing of information between GST, Customs, CBDT and the FinancialIntelligence Unit.

Cross verification

Other terms of reference added include setting up a mechanism for cross-verification of financialtransactions and reduction in tax-related litigation.

In light of the resignation of Arvind Subramanian from the post of Chief Economic Adviser(CEA), his special invitation to the task force had been transferred to the current CEAKrishnamurthy Subramanian, the notification added.

Further, in light of the expanded terms of reference, the Central Board of Direct Taxes hasdecided to invite Ritvik Pandey, Joint Secretary (Revenue) as a member of the task force.

The Finance Ministry has clarified that the expanded terms of reference will not affect the July31, 2019 deadline for the submission of the task force’s recommendations.










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SEZ BILL CLEARED AMID PROTESTSRelevant for: Indian Economy | Topic: Investment Models: PPP, SEZ, EPZ and others

Stiff resistance:Congress leader Shashi Tharoor speaking in the Lok Sabha onWednesday.PTIPTI

The Lok Sabha on Wednesday passed the Special Economic Zones (Amendment) Bill, 2019,making a trust or any entity notified by the Central government eligible for consideration of grantof permission to set up a unit in special economic zones.

Union Commerce and Industry Minister Piyush Goyal said the Bill, which would replace anordinance, was aimed at improving and encouraging more investments and introducing featuresincluding single-window clearance and to ease imports and exports.

“To attract both domestic and international investors, the Prime Minister wants to keep up withthe evolving business environment,” Mr. Goyal said, introducing the legislation. “To this effect,we want to add alternative investment funds trust in the definition of persons,” he added.

Opposition parties, however, questioned the manner in which the Bill had been brought in, withCongress MP Shashi Tharoor stating, “As per rule, an ordinance can be promulgated only whenthe President deems it necessary in emergency situations and when issues of extreme urgencyarise and when it’s not possible to wait for Parliament to convene.”

“The Minister has to explain the urgency in this matter,” Mr. Tharoor said. “The PM must nottreat this House as a rubber stamp for his political agenda,” he added.

Questioning the government for the urgency in passing an ordinance, DMK leader D.N.V.Senthilkumar said: “Large chunk of trusts owned by minorities have been shut down under theprevious Act. There are suspicions that the government has a hidden agenda to favour aselected few who are close to the government and have vested interests.”











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SMALL STEPS FORWARDRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Industry & Services Sector

incl. MSMEs and PSUs


The committee set up to undertake a comprehensive review of the micro, small and mediumenterprises (MSME) sector, which has submitted its report to the RBI, has examined issues suchas access to finance and infrastructure bottlenecks that continue to plague the sector. Broadly,its suggestions are well-judged.

Lack of access to finance continues to be an impediment to the sector’s growth. Bank lendingcontinues to be disproportionately geared towards large entities, leaving a huge funding gap forMSMEs. The committee traces this skew to two factors — high level of non-performing assets(NPAs), and high cost to servicing. Typically, banks tend to restrict credit flow to MSMEs,discouraged by the high level of bad loans, which range between 8 to 11 per cent. A majorreason for these bad loans is delay in buyer payments. MSMEs struggle to recover their duesfrom both the private and the public sector. To address this problem, the committee hassuggested that public sector procurement from MSMEs be routed through the GeM portal tobring transparency in procurement and to quicken payments. This, if monitored closely, couldhelp shorten the payment cycle considerably. There is also the suggestion that the MSMEdevelopment act be amended to ensure that all MSMEs mandatorily upload their invoices to aninformation utility, which will display names of defaulting buyers. This, it hopes, could “act as amoral suasion on buyers”, ensure timely payment, and thus minimise NPAs. But this is easiersaid than done. Big companies, with greater bargaining power, are likely to continue to stretchout the credit cycle. There is also the issue of documentation. Banks are wary of lending in theabsence of detailed financial information as it makes assessing credit worthiness difficult. Theproblem is compounded by lack of collateral. To address this issue, the committee proposes anovel approach. Rather than relying on the traditional balance-sheet based funding route, it hasproposed shifting to a cash flow based lending model. This not only provides greater clarity onthe payment capacity of firms, but can also help in determining the repayment schedule.

The committee has also suggested doubling the collateral free loan limit to Rs 20 lakh, up fromthe current limit of Rs 10 lakh. While the move could address the sector’s cash flow issuesconsiderably, coming at a time when concerns are being voiced about the true extent of badloans under Mudra, this could be a risky proposition.





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BEEKEEPING DEVELOPMENT COMMITTEE UNDEREAC-PM RELEASES ITS REPORT


EAC-PM

Beekeeping Development Committee under EAC-PMreleases its report


The Economic Advisory Council to the Prime Minister set up a Beekeeping DevelopmentCommittee under the Chairmanship of Professor Bibek Debroy. The Beekeeping DevelopmentCommittee (BDC) has released its report today. BDC was constituted with the objective ofidentifying ways of advancing beekeeping in India, thatcan help in improving agriculturalproductivity, enhancing employment generation, augmenting nutritional security and sustainingbiodiversity. Further, beekeeping can be an important contributor in achieving the 2022 target ofdoubling farmer incomes.

As per Food and Agricultural Organization database, in 2017-18, India ranked eighth in theworld in terms of honey production (64.9 thousand tonnes) while China stood first with aproduction level of 551 thousand tonnes. The report mentions that beekeeping cannot berestricted to honey and wax only, products such as pollen, propolis, royal jelly and bee venomare also marketable and can greatly help Indian farmers. Based on the area under cultivation inIndia and bee forage crops, India has a potential of about 200 million bee colonies as against3.4 million bee colonies today. Increasing the number of bee colonies will not only increase theproduction of bee-related products but will boost overall agricultural and horticultural productivity.

India’s recent efforts to improve the state of beekeeping have helped increase the volume ofhoney exports from 29.6 to 51.5 thousand tonnes between 2014-15 and 2017-18 (as per datafrom National Bee Board and Ministry of Agriculture & Farmers’ Welfare). However, challengespersist and a lot more can be done to enhance the scope and scale of beekeeping. Some of therecommendations in the report include,

Recognizing honeybees as inputs to agriculture and considering landless Beekeepersas farmers.

●

Plantation of bee friendly flora at appropriate places and engaging women self-helpgroups in managing such plantations.

●

Institutionalizing the National Bee Board and rechristening it as the Honey andPollinators Board of India under the Ministry of Agriculture and Farmers’ Welfare. Sucha body would engage in advancing beekeeping through multiple mechanisms such assetting up of new Integrated Bee Development Centres, strengthening the existingones, creating a honey price stabilization fund and collection of data on importantaspects of apiculture.

●

Recognition of apiculture as a subject for advanced research under the aegis of IndianCouncil for Agricultural Research.

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Training and development of beekeepers by state governments.●

Development of national and regional infrastructure for storage, processing and●

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marketing of honey and other bee products.Simplifying procedures and specifying clear standards for ease of exporting honey andother bee products.

●

The BDC’s report has been submitted to the Prime Minister and has also been placed in thepublic domain.

*****

AKT/SBP


Read this release in: Urdu , Marathi , Hindi



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NPAS DOWN, CREDIT GROWTH PICKING UP: RBIRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

Gross non-performing assets in the banking system have declined for the second consecutivehalf year, while credit growth is picking up, the Reserve Bank of India (RBI) said in the halfyearly Financial Stability report.

“With the bulk of the legacy non-performing assets (NPAs) already recognised in the bankingbooks, the NPA cycle seems to have turned around,” the report said. Gross NPA ratio declinedto 9.3% as on March 2019. It was 10.8% in September 2018 and 11.5% in March 2018.

Further decline

Gross NPAs could further decline to 9% by March 2020, the macro stress tests indicated.

Following capital infusion by the government in public sector banks, the overall capital adequacyratio of commercial banks improved from 13.7% in September 2018 to 14.3% in March 2019,with state-run banks’ CAR improving from 11.3% to 12.2% during the period. However, therewas a marginal decline in the CAR of private sector banks.

In his foreword, RBI Governor Shaktikanta Das said state-run lenders showed a noticeableimprovement with recapitalisation, with both provision coverage as well as capital adequacyimproving, though a significant rise in provisioning had impacted the bottomline.

Highlighting the need for governance reforms, Mr. Das said that the proof of the pudding lay inthe public sector banks’ ability to attract private capital through market discipline, rather thanbeing overly dependent on the government for capital.

With the number of banks having more than 20% gross NPAs coming down in March 2019, RBIsaid this implied a broader improvement in asset quality. Credit growth of public sector bankswere at 9.6% while private lendsers continue to robust growth of 21%. Overall credit growthmarginally improved to 13.2% in March 2019 from 13.1% in September 2018.

“Credit growth of scheduled commercial banks (SCBs) picked up, with public sector banks(PSBs) registering near double-digit growth,” RBI said.

The picture is not so rosy on the macroeconomic front, as private consumption turned weak anda widening current account deficit have exerted pressure on the fiscal front. “This hasimplications for the government’s market borrowing programme and market interest Rates,” RBIsaid, observing that reviving private investment demand remained a key challenge goingforward. Mr. Das said a dip in consumption and private investment exerted pressure on the fiscalsituation, but with current inflation outlook remaining moderate, growth could help alleviate fiscalconstraints to some extent.





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GOVERNMENT REVAMPS WPI REVISION TEAMRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Inflation & Monetary Policy

The government has reconstituted the working group tasked with revising the current wholesaleprice index (WPI), it announced on Thursday.

The terms of reference (ToR) of the working group include selecting the most appropriate baseyear for the preparation of a new official series of index numbers of wholesale price (WPI) andproducer price index (PPI) in India.

The working group will also have to review the commodity basket of the current WPI series andsuggest additions or deletions of commodities in the light of structural changes that occurred inthe economy since 2011-12.

The ToRs also include a review of the existing system of price collection and suggestingimprovements, along with coming up with a computational methodology to be adopted for themonthly WPI and PPI.

“The current series of wholesale price index with 2011-12 as base year was introduced in May2017,” the Ministry of Commerce said in a statement. “Since 2011-12, significant structuralchanges have taken place in the economy. Therefore, it has become necessary to examine thecoverage of commodities, weighting diagram and related issues pertaining to the existing seriesof index numbers of wholesale price index.”

The working group will be chaired by NITI Aayog Member Ramesh Chand and will havemembers from the Central Statistical Office, the Ministries of Finance, Petroleum and NaturalGas among others.












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PRUDENT PRESCRIPTION: ON MSME SECTORRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Industry & Services Sector

incl. MSMEs and PSUs

The micro, small and medium enterprises (MSME) sector in India is not only a key engine ofgrowth, contributing more than 28% of the GDP and about 45% to manufacturing output. It isalso a true reflection of economics where people really matter. Providing employment to about111 million people, the sector’s health is crucial to the economy’s vitality and society’s wellbeing. An expert committee constituted by the Reserve Bank of India has in this contextsubmitted a substantially germane study on the issues bedevilling MSMEs and made a fairlyexhaustive set of recommendations to redress them. The panel is emphatic that the policyenvironment needs to be urgently refocussed. To that end, it is imperative that the thrust of theenabling legislation — a 13-year-old law, the MSME Development Act, 2006 — be changed toprioritise market facilitation and ease of doing business. Observing that many Indian start-upsthat are at the forefront of innovation are drawn to look overseas, given the conducive businessenvironment and the availability of infrastructure and exit policies, the experts suggest that anew law ought to address the sector’s biggest bottlenecks, including access to credit and riskcapital. A substantial part of the study is justifiably devoted to reimagining solutions to improvecredit flow to MSMEs. For instance, the experts recommend repurposing the Small IndustriesDevelopment Bank of India. In its expanded role, it is envisaged that the SIDBI could not onlydeepen credit markets for MSMEs in under-served regions by being a provider of comfort tolenders including NBFCs and micro-finance institutions, but also become a market-maker forSME debt.

Sinha-led panel proposes 5,000 crore stressed asset fund for MSMEs

With technology, especially digital platforms, having become so ubiquitous, the panel has madea case for greater adoption of technology-facilitated solutions to a plethora of problemsencountered by the sector. To address the bugbear of delayed payments, the mandatoryuploading of invoices above a specified amount to an information utility is a novel approach. Theaim is to name and shame buyers of goods and services from MSMEs to expedite settlementsto suppliers. While it does sound simplistic, and banks a lot on the power of moral suasion, it is atack worth trying. Another suggestion entails expediting the integration of information on theGovernment e-Marketplace, or GeM, platform with the Trade Receivables Discounting System.The goal here too is to boost liquidity at MSMEs. A noteworthy recommendation urges banks toswitch to cash flow-based lending, especially once account aggregators are operational andable to provide granular data on borrowings. The RBI and the Centre clearly have their work cutout in acting on this prudent prescription to help actualise the sector’s true economic potential.


In Bihar, authorities failed at several levels in preventing deaths due to encephalopathy





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THE RIGHT CONVERGENCERelevant for: Indian Economy | Topic: Agriculture Issues and related constraints


The government has taken a long overdue measure by combining the Ministries of Agricultureand Farmers Welfare, Rural Development and Panchayati Raj under the same minister. This willenhance convergence between programmes related to food, nutrition and livelihoods security ofmillions of rural households. It is a step in the right direction. But, it is not enough.

The large -scale of operations and degree of commonality between the agriculture and ruraldevelopment ministries is evident from their 2019-20 interim budget estimates, and the fact thatagriculture and allied activities consume some 70 per cent of resources under MGNREGA, theflagship programme of the rural development ministry. MGNREGA accounts for nearly half ofthe ministry’s budget. Convergence of labour-intensive MGNREGA activities with productivity-oriented schemes of other ministries and states transforms MGNREGA from an essentiallywage-labour safety-net programme to an instrument for rejuvenating land, water, agriculture andbiodiversity.

Convergence were initiated in 2008-09 with the ministries of agriculture, water resources, landresources, environment and forests. This was to enhance the durability and productivity of theassets created under MGNREGA. Over the years, linkages have been forged with centralprogrammes on food security, horticulture, agro-forestry, rural livelihoods, animal husbandry,fisheries, and state schemes such as Kapildhara, Sahastradhara, Bhumi Shilp and Vanya inMadhya Pradesh.

If the challenge of doubling farmers’ incomes by 2022-23 has to be met, it needs to beemphasised that agriculture is a multi-dimensional enterprise. The sector is rapidly undergoingstructural transformation, influenced by several factors. No longer limited to a commodityproduction system, the agriculture sector now embraces post-production activities like marketsand value-chains in a holistic agri-food system. Simultaneously, farmer welfare, buildingresilience of vulnerable communities, rejuvenating natural resources, addressing climate changemust be kept centrestage.

The complexities of handling an agri-food system can be gauged by the processes involved:Sustainable management of soil, water, biodiversity, climate change; input supplies such asseeds, fertilisers, plant protection, farm-machinery, irrigation, credit, insurance, extension;conservation production and agronomic practices such as soil-testing, zero-tillage, water andnutrient use efficiency; post-harvest activities in drying, sorting, grading, warehousing, cold-storages; marketing, related to village markets, mandis, contract farming, cooperatives, farmerassociations, e-NAM, private markets, supermarkets; agro-processing linked to milling,preservation of perishables, transportation, supply-chain management; retailing, branding,labeling, certification of organics, bio-fortification; services for farmers’ welfare such as pensions,insurance, health coverage; rural infrastructure; and rural non-farm income generation.

This requires convergence between not just two or three ministries but across at least 15ministries bearing on agriculture and farmers. Presently the linkages between agriculture andagriculture-related non-production activities are weak. The missing links limit efficienciesaccruing from coordination between agriculture, development and sustainability. There is adisconnection between agriculture and the sectors dealing with agro-processing, environmental

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services, natural resources, rural non-farm livelihoods and urban and peri-urban activities.

The implementing agencies while spending their annual budgets and individually achieving theirlimited goals, are unable to make the desired impact on the collective outcome. Bringingagriculture and rural development under one minister is an important step but not enough. Onthe other hand, it is not feasible to place multiple ministries under a single minister. Overarchingmechanisms and capacities need to be built that catalyse convergence between variousagencies at all levels.

At the state level, the institution of agriculture production commissioner (APC) was created tocoordinate between relevant departments. In the context of the holistic agri-food systemsapproach, going beyond commodity production, the APC needs to be reviewed so as to bealigned with the emerging realities. The district level agriculture technology management agencyalso requires restructuring that factors in markets and supply chains. Coordination is requiredbetween different implementing agencies, notably the district rural development agencies, krishivigyan kendras, fish farmers development agencies, farmer producer organisations and privatesector agri-service providers. The capacities of the panchayati raj institutions need to be re-oriented.

The NDA 2 government may consider constituting a cabinet committee on agriculture and ruralrejuvenation. The target of doubling farmer incomes by 2022-23 is more likely to be achieved if asignificant proportion of that income accrues from rural non-farm activities. There is muchpotential for employment generation in the holistic agri-food system. A separate agriculturebudget taking into account the complementarities of agriculture-related components in variousschemes will be a robust framework for an integrated approach.

The Niti Aayog’s task force for structural agricultural reforms will know that while the centralgovernment can propel the nature and scope of agricultural transformation through its policy andprogrammes, the primary responsibility for agriculture development rests with the stategovernments. Partial remedies will not suffice. Comprehensive long-term measures are needed.

The writer is former secretary, Ministry of Rural Development and joint secretary, Ministry ofAgriculture





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WILL THE RBI TRANSFER RS 1 LAKH CRORE TO THEGOVERNMENT?


The Centre may have windfall gains this fiscal in the form of higher central bank dividend at Rs 1lakh crore, Deutsche Bank said in an internal report to its clients before a key panel makespublic its recommendations on the reserves at North Block’s money manager.

“The RBI may give a larger share of dividend to the government of India in this fiscal,” KaushikDas, chief economist at Deutsche Bank India, said in the report. “There is a possibility that theauthorities will likely use the Rs 1 trillion one-off transfers from RBI to fund social welfareprogrammes and boost the expenditure side of the budget.”

Das expects allocation for several development-focused areas, such as agriculture, ruralinfrastructure, health and education, to be increased in the upcoming budget.

The Bimal Jalan Committee’s recommendations on the central bank’s economic capitalframework are likely to be submitted soon, and those suggestions may contain pointers to thelikely fate of central bank reserves.

“We think the government will budget a sizable portion of the likely transfer in this budget itself,which will be reflected in the non-tax revenue component,” the Deutsche report said.

On economic expansion and India moving into the $5-trillion club, Deutsche said the rupeeneeded to stay stable in the 71-72 per dollar range. At the same time, India needs to maintain areal GDP growth of 7.1-7.3 per cent through the forecast horizon until 2024.

Real GDP is an inflation-adjusted measure that reflects the value of all goods and servicesproduced by an economy in a given year.

The global bank sought to allay apprehensions over excessive market borrowing by thegovernment, a move that usually sends benchmark rates higher, distorting the bond market.

“Overall, we do not expect major surprises either regarding the fiscal deficit projection or marketborrowing estimates,” Das said in the note.The Centre may have windfall gains this fiscal in the form of higher central bank dividend at Rs 1lakh crore, Deutsche Bank said in an internal report to its clients before a key panel makespublic its recommendations on the reserves at North Block’s money manager.

“The RBI may give a larger share of dividend to the government of India in this fiscal,” KaushikDas, chief economist at Deutsche Bank India, said in the report. “There is a possibility that theauthorities will likely use the Rs 1 trillion one-off transfers from RBI to fund social welfareprogrammes and boost the expenditure side of the budget.”

Das expects allocation for several development-focused areas, such as agriculture, ruralinfrastructure, health and education, to be increased in the upcoming budget.

The Bimal Jalan Committee’s recommendations on the central bank’s economic capitalframework are likely to be submitted soon, and those suggestions may contain pointers to thelikely fate of central bank reserves.

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“We think the government will budget a sizable portion of the likely transfer in this budget itself,which will be reflected in the non-tax revenue component,” the Deutsche report said.

On economic expansion and India moving into the $5-trillion club, Deutsche said the rupeeneeded to stay stable in the 71-72 per dollar range. At the same time, India needs to maintain areal GDP growth of 7.1-7.3 per cent through the forecast horizon until 2024.

Real GDP is an inflation-adjusted measure that reflects the value of all goods and servicesproduced by an economy in a given year.

The global bank sought to allay apprehensions over excessive market borrowing by thegovernment, a move that usually sends benchmark rates higher, distorting the bond market.

“Overall, we do not expect major surprises either regarding the fiscal deficit projection or marketborrowing estimates,” Das said in the note.



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WHAT IS ‘BOND VIGILANTE’ IN FINANCERelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

This refers to any of the large bond market investors who aggressively sell government bonds inthe open market as a mark of protest against the policies adopted by the government or thecentral bank of a country. The huge selling of government bonds can cause the price of thesebonds to witness a sharp drop in price, thus leading to a significant rise in their yields. In otherwords, bond investors can cause a considerable rise in the borrowing rates of governments,thus exerting significant pressure on them. While some view bond vigilantes as harmfulspeculators, others see them as an essential force disciplining governments that spend beyondtheir means.


The draft National Policy on Education has an important reform on the first stage of education








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CRAR MAY FALL BELOW 9% FOR 5 BANKS SANSFRESH GOVERNMENT CAPITAL, SAYS RBI


Reserve Bank of India has cautioned that as many as five banks may see capital to riskweighted assets ratio (CRAR) falling below the minimum stipulated level of 9 per cent by March2020 if the government does not infuse further capital.

If macroeconomic conditions deteriorate, the central bank said that nine banks may face erosionof CRAR below 9 per cent.

"As far as public sector banks are concerned, the proof of the pudding lies in their ability toattract private capital through market discipline rather than being overly dependent on thegovernment for capital," RBI said in its financial stability report released Thursday.

RBI has made the capital projection assuming minimum 25% profit transfer to capital reservesfor profit making banks, RBI said.

Banks' collective CRAR improved to 14.3 per cent in March 2019 from 13.7 per cent inSeptember 2018 after the government recapitalised public sector banks. CRAR for public sec torban k group improved to 12.2 per cent from 11.3 per cent.

Bank-wise distribution of capital adequacy indicates that therewere 19 banks with CRAR more than 12 per cent in March 2019 as compared 15 banks as onSeptember 2018. At the end of March, only two of 55 banks had CRAR less than 9%.

Recapitalisation of banks helped the public sector ones showing improvement with higherprovision coverage as well as capital adequacy.

The regulator forced banks to recognise bad loans leading to the non-performing assets cyclepeaking in March 2018 with the gross ratio declining to 9.3 per cent in March 2019.

"The significant rise in provisioning has impacted the bottomline of PSBs. Efforts to improve thebalance sheets of banks should therefor continue," RBI said.Reserve Bank of India has cautioned that as many as five banks may see capital to riskweighted assets ratio (CRAR) falling below the minimum stipulated level of 9 per cent by March2020 if the government does not infuse further capital.

If macroeconomic conditions deteriorate, the central bank said that nine banks may face erosionof CRAR below 9 per cent.

"As far as public sector banks are concerned, the proof of the pudding lies in their ability toattract private capital through market discipline rather than being overly dependent on thegovernment for capital," RBI said in its financial stability report released Thursday.

RBI has made the capital projection assuming minimum 25% profit transfer to capital reservesfor profit making banks, RBI said.

Banks' collective CRAR improved to 14.3 per cent in March 2019 from 13.7 per cent inSeptember 2018 after the government recapitalised public sector banks. CRAR for public sec tor

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ban k group improved to 12.2 per cent from 11.3 per cent.

Bank-wise distribution of capital adequacy indicates that therewere 19 banks with CRAR more than 12 per cent in March 2019 as compared 15 banks as onSeptember 2018. At the end of March, only two of 55 banks had CRAR less than 9%.

Recapitalisation of banks helped the public sector ones showing improvement with higherprovision coverage as well as capital adequacy.

The regulator forced banks to recognise bad loans leading to the non-performing assets cyclepeaking in March 2018 with the gross ratio declining to 9.3 per cent in March 2019.

"The significant rise in provisioning has impacted the bottomline of PSBs. Efforts to improve thebalance sheets of banks should therefor continue," RBI said.



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DESPITE NBFC CRISIS FINANCIAL SYSTEM STABLE;NPAS FALL TO 9.3% IN FY19: RBI REPORT


MUMBAI: The country's financial system "remains stable" despite recent setbacks and the NPAcycle has "turned around" with a sharp reduction in the ratio of dud assets to 9.3 percent, theReserve Bank said Thursday in the Financial Stability Report.

The non-performing assets has "turned around" with a sharp fall in the system-wide NPAs to 9.3percent in March 2019 from 11.2 percent a year ago,the bi-yearly report said.

The NPAs ratio is expected to narrow down further to 9 percent in March 2020 as per thebaseline scenario, it said.

The share of the state-run banks in the overall NPAs was at an elevated 12.6 percent, but islikely to come down to 12 percent by March 2020.

"The country's financial system remains stable despite some dislocation of late," the report said,probably alluding to the troubles being faced by the non-banking lenders.

However, the financial market risks continue to be perceived as a "high-risk category" affectingthe system, while global risks, and risk perception on macroeconomic conditions as alsoinstitutional risks are perceived medium, it said.

The report said the market has got a "discipline" among NBFCs, wherein better performing onescontinue to raise funds while those with asset-liability mismatch and asset quality concerns aresubjected to higher borrowing costs.

The report said resilience of the banks has increased with a sharp improvement in the provisioncoverage ratio of all banks to 60.6 percent in March 2019 from 52.4 percent in September 2018and 48.3 percent in March 2018.MUMBAI: The country's financial system "remains stable" despite recent setbacks and the NPAcycle has "turned around" with a sharp reduction in the ratio of dud assets to 9.3 percent, theReserve Bank said Thursday in the Financial Stability Report.

The non-performing assets has "turned around" with a sharp fall in the system-wide NPAs to 9.3percent in March 2019 from 11.2 percent a year ago,the bi-yearly report said.

The NPAs ratio is expected to narrow down further to 9 percent in March 2020 as per thebaseline scenario, it said.

The share of the state-run banks in the overall NPAs was at an elevated 12.6 percent, but islikely to come down to 12 percent by March 2020.

"The country's financial system remains stable despite some dislocation of late," the report said,probably alluding to the troubles being faced by the non-banking lenders.

However, the financial market risks continue to be perceived as a "high-risk category" affectingthe system, while global risks, and risk perception on macroeconomic conditions as alsoinstitutional risks are perceived medium, it said.

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The report said the market has got a "discipline" among NBFCs, wherein better performing onescontinue to raise funds while those with asset-liability mismatch and asset quality concerns aresubjected to higher borrowing costs.

The report said resilience of the banks has increased with a sharp improvement in the provisioncoverage ratio of all banks to 60.6 percent in March 2019 from 52.4 percent in September 2018and 48.3 percent in March 2018.



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INDIANS' MONEY IN SWISS BANKS FALLS, HITSSECOND-LOWEST LEVEL IN TWO DECADES


ZURICH/NEW DELHI: Money parked by Indian individuals and enterprises in Swiss banks,including through India-based branches, fell by nearly 6 per cent in 2018 to 955 million Swissfrancs (about Rs 6,757 crore) to hit its second-lowest level in over two decades, Swiss NationalBank data showed Thursday.

Aggregate funds of all foreign clients of Swiss banks also fell by over 4 per cent to CHF 1.4trillion (nearly Rs 99 lakh crore) in 2018, as per the annual banking statistics released by theZurich-based central banking authority of Switzerland.

However, the 'locational banking statistics' of the Bank for International Settlement (BIS), whichthe Indian and Swiss governments had said last year was a more reliable measure for depositsby Indian individuals in Swiss banks, showed a greater fall of 11 per cent for 2018.

According to the SNB, its data for 'total liabilities' of Swiss banks towards Indian clients takesinto account all kinds of funds of Indian customers at Swiss banks, including deposits fromindividuals, banks and enterprises. This includes data for branches of Swiss banks in India, asalso non-deposit liabilities.

The funds, described by the SNB as 'liabilities' of Swiss banks or 'amounts due to' their clients,are the official figures reported by the banks and do not indicate the quantum of the much-debated alleged black money held by Indians there.

The official SNB figures also do not include the money that Indians, NRIs or others might have inSwiss banks in the names of entities from different countries.

The SNB data had shown the total liabilities of Swiss banks towards Indian clients rising by over50 per cent in 2017 to CHF 1.01 billion (Rs 7,000 crore), reversing a three-year downward trend.

However, the quantum of such funds has fallen again in 2018 to CHF 954.71 million, whichincludes about CHF 15 million held through fiduciaries or wealth managers. This is the second-lowest total since CHF 723 million recorded over two decades ago in 1995. The lowest everamount of CHF 675 million, ever since Switzerland began making the data public in 1987, wasrecorded in 2016.

As per the latest figures, the total customer deposits of Indian clients rose to CHF 572 million in2018, but funds held through banks fell to CHF 104 million, while money parked throughsecurities and other instruments and via fiduciaries also declined.

On the asset side, Swiss banks saw a marginal increase in the amount due from their Indiancustomers to CHF 212 million (from CHF 210 million in 2017).

In comparison, the BIS data showed that the total amount outstanding to non-bank or individualIndian clients of Swiss banks fell to USD 84.6 million at the end of 2018 (by 11 per cent fromUSD 94.8 million at the end of 2017). The fall was much larger at 44 per cent during 2017.

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The BIS publishes quarterly figures, which shows that these funds rose during the first quarter of2018 (to USD 100.9 million), but declined in the three remaining quarters of the year.

The annual SNB data has shown a decline four times during the last five years. The fall was themaximum at 45 per cent in 2016.

The funds held by Indians through fiduciaries alone used to be in billions till 2007 but beganfalling after that amid fears of regulatory crackdown.

The total funds held by Indians with Swiss banks stood at a record high of CHF 6.5 billion (Rs23,000 crore) at 2006-end, but came down to nearly one-tenth of that level in about a decade.

Since those record levels, there has been a rise only three times -- in 2011 (12 per cent), 2013(43 per cent) and then in 2017.

A new framework has been put in place for automatic exchange of information betweenSwitzerland and India to help check the black money menace with effect from January 1, 2018.

Detailed financial information on all Indian residents that have an account maintained by a Swissfinancial institution in 2018 will be provided for the first time to the Indian tax authorities inSeptember 2019 and on a yearly basis thereafter. The information would also include accountsthat would be closed during 2018.

While Switzerland has already begun sharing foreign client details on evidence of wrongdoingprovided by India and some other countries, the new framework would expand the cooperation.

A number of strategies have been deployed by the government to combat the stashed-fundsmenace, in both overseas and domestic domain, which includes enactment of a new law,amendments to the Anti-Money Laundering Act and compliance windows for people to declaretheir hidden assets.

The tax department had detected suspected black money running into thousands of crores ofrupees post investigations on global leaks about Indians stashing funds abroad and haslaunched prosecution against hundreds of them, including those with accounts in the Genevabranch of HSBC.

As per the SNB, there were 248 banks in Switzerland at the end of 2018, of which 216 reporteda profit while 32 suffered losses.

Their aggregate profit rose to CHF 11.5 billion, but overall balance sheet size decreased slightlyto CHF 3.2 trillion.

Domestic customer deposits rose by CHF 30.3 billion to CHF 1.22 trillion, while foreign customerdeposits were down slightly to CHF 591.1 billion.

There was an increase of 16 per cent in fiduciary funds administered by banks in 2018 to CHF160 billion, but remained much below the high of CHF 482.9 billion set in 2007.

The number of staff declined by 1,547 to 107,388.ZURICH/NEW DELHI: Money parked by Indian individuals and enterprises in Swiss banks,including through India-based branches, fell by nearly 6 per cent in 2018 to 955 million Swissfrancs (about Rs 6,757 crore) to hit its second-lowest level in over two decades, Swiss NationalBank data showed Thursday.

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Aggregate funds of all foreign clients of Swiss banks also fell by over 4 per cent to CHF 1.4trillion (nearly Rs 99 lakh crore) in 2018, as per the annual banking statistics released by theZurich-based central banking authority of Switzerland.

However, the 'locational banking statistics' of the Bank for International Settlement (BIS), whichthe Indian and Swiss governments had said last year was a more reliable measure for depositsby Indian individuals in Swiss banks, showed a greater fall of 11 per cent for 2018.

According to the SNB, its data for 'total liabilities' of Swiss banks towards Indian clients takesinto account all kinds of funds of Indian customers at Swiss banks, including deposits fromindividuals, banks and enterprises. This includes data for branches of Swiss banks in India, asalso non-deposit liabilities.

The funds, described by the SNB as 'liabilities' of Swiss banks or 'amounts due to' their clients,are the official figures reported by the banks and do not indicate the quantum of the much-debated alleged black money held by Indians there.

The official SNB figures also do not include the money that Indians, NRIs or others might have inSwiss banks in the names of entities from different countries.

The SNB data had shown the total liabilities of Swiss banks towards Indian clients rising by over50 per cent in 2017 to CHF 1.01 billion (Rs 7,000 crore), reversing a three-year downward trend.

However, the quantum of such funds has fallen again in 2018 to CHF 954.71 million, whichincludes about CHF 15 million held through fiduciaries or wealth managers. This is the second-lowest total since CHF 723 million recorded over two decades ago in 1995. The lowest everamount of CHF 675 million, ever since Switzerland began making the data public in 1987, wasrecorded in 2016.

As per the latest figures, the total customer deposits of Indian clients rose to CHF 572 million in2018, but funds held through banks fell to CHF 104 million, while money parked throughsecurities and other instruments and via fiduciaries also declined.

On the asset side, Swiss banks saw a marginal increase in the amount due from their Indiancustomers to CHF 212 million (from CHF 210 million in 2017).

In comparison, the BIS data showed that the total amount outstanding to non-bank or individualIndian clients of Swiss banks fell to USD 84.6 million at the end of 2018 (by 11 per cent fromUSD 94.8 million at the end of 2017). The fall was much larger at 44 per cent during 2017.

The BIS publishes quarterly figures, which shows that these funds rose during the first quarter of2018 (to USD 100.9 million), but declined in the three remaining quarters of the year.

The annual SNB data has shown a decline four times during the last five years. The fall was themaximum at 45 per cent in 2016.

The funds held by Indians through fiduciaries alone used to be in billions till 2007 but beganfalling after that amid fears of regulatory crackdown.

The total funds held by Indians with Swiss banks stood at a record high of CHF 6.5 billion (Rs23,000 crore) at 2006-end, but came down to nearly one-tenth of that level in about a decade.

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Since those record levels, there has been a rise only three times -- in 2011 (12 per cent), 2013(43 per cent) and then in 2017.

A new framework has been put in place for automatic exchange of information betweenSwitzerland and India to help check the black money menace with effect from January 1, 2018.

Detailed financial information on all Indian residents that have an account maintained by a Swissfinancial institution in 2018 will be provided for the first time to the Indian tax authorities inSeptember 2019 and on a yearly basis thereafter. The information would also include accountsthat would be closed during 2018.

While Switzerland has already begun sharing foreign client details on evidence of wrongdoingprovided by India and some other countries, the new framework would expand the cooperation.

A number of strategies have been deployed by the government to combat the stashed-fundsmenace, in both overseas and domestic domain, which includes enactment of a new law,amendments to the Anti-Money Laundering Act and compliance windows for people to declaretheir hidden assets.

The tax department had detected suspected black money running into thousands of crores ofrupees post investigations on global leaks about Indians stashing funds abroad and haslaunched prosecution against hundreds of them, including those with accounts in the Genevabranch of HSBC.

As per the SNB, there were 248 banks in Switzerland at the end of 2018, of which 216 reporteda profit while 32 suffered losses.

Their aggregate profit rose to CHF 11.5 billion, but overall balance sheet size decreased slightlyto CHF 3.2 trillion.

Domestic customer deposits rose by CHF 30.3 billion to CHF 1.22 trillion, while foreign customerdeposits were down slightly to CHF 591.1 billion.

There was an increase of 16 per cent in fiduciary funds administered by banks in 2018 to CHF160 billion, but remained much below the high of CHF 482.9 billion set in 2007.

The number of staff declined by 1,547 to 107,388.



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GOVERNMENT HAS TAKEN VARIOUS INITIATIVES TOMAKE KHADI AN INTERNATIONAL BRAND


Ministry of Micro,Small & Medium Enterprises

Government has Taken Various Initiatives to Make Khadi anInternational Brand


Government in the Ministry of Micro, Small and Medium Enterprises, through Khadi and VillageIndustries Commission (KVIC), has taken various initiatives to make Khadi an internationalbrand. Details of the initiatives taken are as follows:

To ensure genuineness of Khadi “Khadi Mark” has been notified by Government of India.1.

Ministry of Commerce and Industry, Govt. of India has extended KVIC, the status ofDeemed EPC, for supporting promotion of Khadi and Village Industries products ininternational market. 1088 Khadi & Village Industries Institutions and REGP/PMEGP Unitshave taken its membership to enter the field of export. KVIC through its assistedinstitutions and units participates in various international exhibitions:

2.

Tie up arrangement with premier institutions like Federation of Indian Export Organization(FIEO), World Trade Centre (WTC), Indian Trade Promotion Organization (ITPO), TradePromotion Council of India etc., for invigorating business opportunities in the overseasmarket by conducting exhibitions and workshops for Khadi Institutions.

3.

Tie up arrangements for bringing out innovative export quality product designs with NIFT,etc.

4.

KVIC participated/Exhibited/Promoted Khadi products on the occasion of 72nd

Independence Day celebrations on 15th August 2018 in 10 Indian Consulates abroad.5.

Exhibited/Promoted Khadi products under an activity of “Global Khadi” on the celebrationof 150th Birth Anniversary of Mahatma Gandhi in 57 Indian Embassies/ Missions abroad.

6.

To unique identity of “Khadi”, a separate HS code for 22 items of Khadi product is alsorequested from the Ministry of Commerce for recognizing the potential of export of KVIproducts.

7.

Participated in International Exhibition in St. Petersburg (Russia) organized by ITPO from12-14 March, 2019 with ten KVI Institutions/ Units from Rajasthan, Himachal Pradesh,West Bengal, Karnataka, Gujarat and Kerala. The Exhibition provided an opportunity andstrong platform to showcase quality of KVI products.

8.

KVIC engaged fashion designer of national and international repute for Fashion Designingto make Khadi products more competitive and appealing in the domestic as well asoverseas market segment.

9.

Financial support under International Cooperation (IC) Scheme of Ministry of MSMEforTechnology infusion and/or up-gradation of MSMEs, their modernization and promotion oftheir exports through participation in international exhibitions/trade fairs etc.

10.

To and Fro economy class air fare subject to a maximum of Rs. 1.50 lakh or actual fare11.

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paid, whichever is lower.100% of the space rent subject to a maximum of Rs. 1.00 lakh or actual rent paid,whichever is lower.US Dollar 150 per day Duty allowance.

12.

Assistance would be provided under the MPDA Scheme to the eligible Khadi and VillageIndustries (KVI) Institutions for participation in International Exhibitions/Trade Fairs held inforeign countries in order to showcase KVI products to foreign countries, accessinternational buyers and sellers and forge business alliances, etc.

13.

The eligible items for such participation and the scale of assistance would be as under:

S. No. Eligible items Scale of assistance for KVIs

i) Space Rent100% of the space rent subject to a maximum of Rs.1.25lakh or actual rent paid, whichever is lower (for onerepresentative from each participating enterprise)

ii) Air Fare100% of the Economy Class air fare subject to a maximumof Rs.1.00 lakh or actual fare paid, whichever is lower (forone representative from each participating enterprise)

Some countries such as Germany are using Khadi as a brand and selling their products. InGermany, the Best Natural Products (BNP) has obtained registration of Trade Mark “Khadi”under classes-3,21,31 from the European Union Intellectual Property Office (EUIPO) and sellingthe products like soap, perfumeries, hair oils etc.

The following steps were taken by the Government to prevent/misuse of Trade Mark of ‘Khadi’:

KVIC had filed invalidation application against BNP and filed appeals in the matter; but itcould not succeed.

i.

KVIC has filed application for revocation of the Trade Mark “KHADI” registered by BNP onthe ground of non-use. The proceedings are pending.

ii.

KVIC is also proposing to negotiate with BNP for assignment of its registered Trade Mark“KHADI” in favour of KVIC.

iii.

Further, KVIC also filed fresh applications in EU under 13 classes i.e. 1, 3, 5, 16, 18, 20,21, 23, 24, 25, 26, 27, 35.

iv.

KVIC has already obtained registration under Trade Mark “KHADI” in 5 countries of the worldviz. Germany, UK, Australia, Russia and China.

This information was given by Shri Nitin Gadkari, Union Minister for Micro, Small and MediumEnterprises in written reply to a question in Lok Sabha today.

*****

NP/SKP/IA

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Source : www.prsindia.org Date : 2019-06-28

PRSINDIARelevant for: Indian Economy | Topic: Investment Models: PPP, SEZ, EPZ and others

PromulgatedMar 02, 2019



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EVEN CENTRAL BANKS NEED ‘CAPITAL’ INFUSIONRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

The central bank of a country sits at the pinnacle of its financial system and is mandated withensuring its stability. From time to time central banks are directly or indirectly involved in shoringup stressed commercial banks with capital infusion. So it may appear odd to suggest thatoccasionally even the central bank may need some of its own medicine. After all central banksmake a surplus from their operations, and indeed pay a dividend to their governments. Thepuzzle is resolved, however, when we recognise that capital is not only funds but also ideas.

In the context, one of the ideas is related to the role of the central bank in the economy. That thisissue is being brought up more than half a century after a central bank was instituted in Indianeed not be interpreted as some weakness in the original conception. An economicarrangement once made cannot be treated as settled for all time to come. This also holds truefor central banks, often considered venerable beyond querying. It’s time to reflect on the role ofthe central bank in India as we hear of impending changes in the higher echelons of the ReserveBank of India (RBI). The media coverage has focused on differences among some of itsfunctionaries and the government of India but this is besides the point as there has beencomplete agreement between them on the role of monetary policy. Moreover for about five yearsnow, the government and the RBI have, as though in concert, implemented a deflationarymacroeconomic policy via fiscal contraction and monetary tightening, respectively. One of PrimeMinister Narendra Modi’s finance ministers claimed credit for the government for having usheredin a period of macroeconomic stability. What this achieved for the economy is a different matter.

Resolving India’s banking crisis

A combination of low inflation and small budget deficits was among the prescriptions of theWashington Consensus that reigned for about a decade and a half from the 1990s. With theimplosion of the former Soviet Union and the folding up of its east European satellites, thisconsensus had, via the clout of the U.S., placed a straitjacket on policy makers in the so-calledemerging markets, like India. In that moment of triumph it had been thought that the businesscycle, or the oscillating trend in market economies, had been permanently tamed. However, asis so often the case in the life of economies, the cunning of history can derail progress with narya warning. This arrived in the form of the global financial crisis in 2008, which originating in theU.S. soon spread across the world including India. Growth slowed and unemployment rose. TheObama Administration did not hesitate to intervene drastically, strongly supported by the FederalReserve Bank. The fiscal deficit rose three-fold and the money supply ballooned. Interestingly,inflation did not rise.

The global financial crisis has led to a substantial re-thinking of macroeconomics. The mainrevisions are that monetary policy defined by inflation targeting can no longer be treated as thecentrepiece of macroeconomic policy, that fiscal policy should be used to stabilise the economywhen needed and that financial regulation is a must. The limitation of inflation targeting wasunderstood when the ‘great moderation’, an extended period of low inflation in the west, endedin the financial crisis. It is this that has led to the view that light regulation of the financial sector,as advised by the then Governor of the Federal Reserve Alan Greenspan, can be a recipe fordisaster. Finally, it has come to be recognised that assertions of the impotence of fiscal policymay be exaggerated. There could be times when the private sector is held back by the state ofthe economy. In a recession this would delay recovery. Now fiscal expansion would benecessary. Apart from theoretical demonstration of the stabilising potential of fiscal policy thebelief that the explosion of the U.S. fiscal deficit following the crisis actually saved the day has

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very likely contributed to the rethinking. The general consensus now is that there should be nogoing back to the pre-crisis practices of narrow inflation targeting, inflexible fiscal policy, and kidgloves for the financial sector.

It is hoped that the Reserve Bank of India and the economic policy-making establishment willtake into account the evolving understanding of macroeconomics globally. It is unfortunate thatpolicymaking in India has been stuck in the past. This would not have mattered if theconsequences were benign. The government has taken credit for attainment of macroeconomicstability, defined by low inflation, even as unemployment has been rising since 2011. Acontinuously declining fiscal deficit has not restrained the RBI leadership from paying hawk-eyedattention to it, constantly lecturing the elected government of the perils of even the slightestdeviation from the path of fiscal consolidation, when strictly it is not its business to do so. Itshould instead focus on putting its own house in order. Two instances of a failure to do so maybe mentioned. Ever since we have had de facto inflation targeting in India, from around 2013,the real policy rate has risen very substantially. This has been accompanied by decliningborrowing in the formal sector likely affecting investment. Inflation has come down but it wasalready trending downward, possibly due to the slowing growth. Subsequent inflation reductionhas been assisted by the declining price of oil. Evidence of the role of inflation targeting inreducing inflation in India is weak, as summarised in the study ‘The dynamics of inflation in India’(Working Paper 485, Centre for Development Studies, Thiruvananthapuram, May 2019) by M.Parameswaran and myself. Ironically, we have had in India the replay of a scene from the globalfinancial crisis where a central bank focusing on inflation loses sight of brewing financialinstability. The crisis at IL&FS, with a group company defaulting on its payment obligationsjeopardising the interests of hundreds of investors, banks and mutual funds is only a specificcase in point. The larger story is of the steady rise in the non-performing assets (NPAs) of bankseven as inflation was abating.

A popular reading is that recently the RBI has had to face some pressure exerted by thegovernment’s nominees. This may well have been the case. But what we need is not just acentral bank that is left to function independently, but also one that is not a slave to somedefunct school of thought. It has many mandated functions, among them ensuring an adequatesupply of clean currency notes in denominations sought after by the ordinary Indian.

Pulapre Balakrishnan is Professor of Ashoka University and Senior Fellow of the Indian Instituteof Management, Kozhikode








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RBI ALLOWS ARCS TO BUY FINANCIAL ASSETS FROMPEERS


The Reserve Bank of India (RBI) has allowed asset reconstruction companies (ARCs) to buyfinancial assets from other such entities. However, all such transactions have to settled in cash,the banking regulator said.

“In view of amendment to the Securitisation and Reconstruction of Financial Assets andEnforcement of Securities Interest Act, 2002, it has been decided to permit ARCs to acquirefinancial assets from other ARCs,” the RBI said.

“Price discovery for such transaction shall not be prejudicial to the interest of security receiptholders,” the RBI further said, adding the selling ARC must utilise the proceeds so received forthe redemption of underlying security receipts.

The date of redemption of underlying Security Receipts and total period of realisation should notextend beyond eight years from the date of acquisition of the financial asset by the first ARC,RBI said.















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INDIA GOT $1.81 BN FDI FROM CHINA IN FIVE YEARS:GOYALRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade

& BOP

India has received $1.81 billion (about Rs. 12,474 crore) foreign direct investment from Chinabetween April 2014 and March 2019, Commerce and Industry Minister Piyush Goyal told theRajya Sabha on Friday.

The sectors which received maximum inflows include automobile ($876.73 million), electricalequipment ($152.5 million) and services ($127 million).

He also said the trade deficit declined to $53.57 billion in 2018-19 from $63 billion in 2017-18with China. India received FDI worth $13.62 billion during the period from the U.S.
















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STATE OF STABILITYRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI


The broad message from the RBI’s latest financial stability report is that, despite some recentdislocation, the financial system is stable. Specifically, the problem of bad loans that hasplagued the banking system appears to have been arrested. Gross NPAs of banks declined to9.3 per cent of advances at the end of March 2019, from 11.5 per cent the year before. Thecentral bank expects them to fall to 9 per cent by March 2020. Further, the number of banks withmore than 20 per cent NPAs — mostly public sector banks — has also come down. Theprovision coverage ratio has also improved, indicating an improvement in asset quality. This isgood news. Quick resolution of cases that are currently stuck in the IBC process would furtheraid the sector’s recovery.

But the liquidity and solvency issues of non-banking financial companies continue to pose risksto the financial system. According to the RBI, NPAs of NBFCs have risen to 6.6 per cent inFY19, from 5.8 per cent in FY18. This is likely to be an underestimate. While an asset qualityreview could reveal the true extent of bad loans, and help identify the bad apples, the processwill only delay an end to the uncertainty surrounding the sector. Already, the ripple effects of thecrisis are being felt in the larger economy. Data released by the finance industry developmentcouncil shows that loans sanctioned by NBFCs (excluding HFCs) fell by 31 per cent in the fourthquarter of 2018-19.

So far, the RBI has resisted calls to set up a special liquidity window for NBFCs. The centralbank is rightly worried about issues of moral hazard. And the sector, which has seenunsustainable growth, requires a shakeout. But the situation appears to be worsening. Recentreports suggest that some of the bigger players in this segment are struggling to meet their loanobligations. It might be a mistake to assume that this poses no systemic risk. RBI’s own testsshow that failure of the largest NBFC/HFC will not only erode part of the banking system’s tier 1capital, but will also lead to the failure of one bank. Given the interlinkages in the financialsystem, that is built on trust, this could have cascading effects. The shortterm considerationshould thus be to prevent the situation from worsening further. Perhaps backstopping the 263systematically important non-deposit taking NBFCs could be a start, while putting in place aturnaround plan, and tighter regulations.





indian economy - june 2019€¦ · relevant for: indian economy | topic: issues relating to growth...

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