📰 16 balsam species found in 5 years in Arunachal
Discovery crucial as these varieties are facing a threat to their habitat from fast-changing landscape of the region
•In August 2017, a research paper describingImpatiens walongensis, a new species of balsam, was published in the peer-reviewed scientific journalPhytotaxa .
•The species was discovered from Arunachal Pradesh’s Anjaw district, one of India’s easternmost. About a meter tall with ovate elliptical leaves and light pink flowers, the plant was named after Walong, the locality where it was found.Impatiens walongensisis the latest but not the only new discovery of balsam in Arunachal Pradesh.
•In 2017 alone, scientists discovered and published their findings on five other new species of balsam, taking the total number of balsam species discovered this year to six.
•Impatiens arunachalensis, which bears purple flowers and a pink throat, was discovered from the Upper Siang district. Since only 50 plants of the species were found at a particular location, scientists described the conservation status of the plant as critically endangered.
•Another species,Impatiens zironiana, with lanceolate pale yellow floral buds flowering and fruiting in the rainy season from July to September, was discovered from the Lower Subansiri district.
•Two more species of balsam,Impatiens rugosipetalafrom the State’s Lower Dibang valley, andImpatiens tatoensisfrom the West Siang district, were also discovered and described earlier this year.
•“Three new species of balsam were discovered from Arunachal Pradesh in 2016, and five [were discovered] in 2015. Since 2013, at least 16 new species of plants under the genus Impatiens, commonly referred to as balsam, have been discovered from Arunachal Pradesh,” said Rajib Gogoi, a scientist with the Botanical Survey of India (BSI), who has been working on balsams in Arunachal Pradesh since 2012, told The Hindu .
•He said that botanists have found 55 species of balsam from the northeastern State, 16 of which are new discoveries to science.
Soil requirement
•Known for their starkly differing flower shapes, which are produced along the stem with vivid colours like pink, red, white, purple and yellow, balsams grow in rich moist soil. Across the world, about 1,000 species of these angiosperms or closed seeded plants are known to occur.
•In India, about 210 balsam species were known till these new discoveries from Arunachal Pradesh emerged. Now, the number of balsam species has increased to 230.
•“What makes the Impatiens interesting is the high endemism among these plants. In most cases, while collecting the specimens, only a handful of plants are spotted. Since these plants have a very small habitat, they face a threat from the fast-changing landscape of the region,” said Souravjyoti Borah, another botanist associated with these discoveries.
•Mr. Borah, who has been working with Mr. Gogoi on genus Impatiens, pointed out that inaccessibility and the difficult terrain of the region were among the reasons why it took so long for the new species to be discovered.
•The researchers also had to dissect and study their morphology in the field itself.
Study on hybrids
•Both botanists emphasise that balsams have immense horticultural importance. Studies on hybrids of the plants have been undertaken in parts of the country to produce flowers that can sustain in different environmental conditions. Different hybrids can be created from wild balsam species, so it is important to know the actual number of balsam species in the wild, Mr. Borah said.
📰 Mapping the not-so-normal monsoon
States where rainfall has been deficient make a difference to crop prospects
•If you’re statistically inclined, you may be celebrating the fact that the south-west monsoon for 2017, which is now bowing out, has turned out to be normal for the second consecutive year. But farmers know that there can be many shades of grey to an officially ‘normal’ monsoon.
Another bumper year?
•India has received a total 841.3 millimetres (mm) of rain in the south-west monsoon season from June 1 to September 30 this year.
•IMD deems the season ‘normal’ if the all-India quantum of rain falls within a 10% range of its long-period average of 887.5 mm. The 2017 monsoon fell short of the number only by 5%. In fact, the cumulative rainfall numbers this year aren’t very different from 2016 when the country recorded 862 mm of rain. This may seem like good news. In 2016-17, India harvested a record crop of cereals (252.7 million tonnes) and managed a quantum jump in its output of both pulses (16.3 million tonnes in 2015 to 22.9 million tonnes in 2016) and oilseeds (25 to 32 million tonnes). This contributed to a significant bump-up in the agriculture leg of the GDP which grew 4.9% in FY17 compared with 0.7% in FY16.
•But expecting an encore of that impressive performance just because this year’s monsoon has turned out ‘normal’, would be unrealistic. More than the quantum of rainfall that is dumped on the sub-continent during the four critical months, it is the spatial and temporal distribution of rains that make or break crop prospects. On this score, the 2017 monsoon has been quite whimsical.
Patchy distribution
•For the purposes of measuring the spatial spread of rainfall, the IMD categorises India into 36 meteorological sub-divisions.
•IMD’s wrap-up of the recent monsoon season tells us that in the just-concluded monsoon season, 5 of India’s 36 sub-divisions received excess rains, 25 received normal rains and 6 witnessed deficient rains. Last year, 4 sub-divisions were showered with excess rains, 23 were normal and 9 were deficient.
•But the devil really lies in the details and the identity of the States that suffered deficient rains really matter to crop prospects. This year’s monsoon has played truant in some key food-bowl States. For instance, West Bengal, Uttar Pradesh and Punjab account for a lion’s share of kharif rice production. But this year’s monsoon has been 29% below normal in Uttar Pradesh and 22% short of normal in Punjab. West Bengal alone has enjoyed a near-normal season, as has much of the southern peninsula. Madhya Pradesh, which is a critical growing region for the rabi wheat crop, has seen a deficiency of 20%.
•Madhya Pradesh, Rajasthan and Maharashtra are similarly critical for pulses output. Of these, while Rajasthan has received excess rains (8% above normal) and Maharashtra has been just about normal, rains playing truant in Madhya Pradesh look set to impact pulses output.
•While excess rains in Gujarat (19% above normal) could augur well for the groundnut and cotton crops, the patchy show in both Madhya Pradesh and Haryana (26% below normal) cloud the prospects for oilseeds such as soyabean, rapeseed, mustard and sunflower. There have also been wide variations between growing regions within each state, which can have a bearing on crop prospects.
Weak ending
•Month-wise rainfall patterns during the south-west monsoon also play a big role in deciding cropping area and yield. In 2016, the monsoon got off to a snail-paced start, but picked up pace in the latter half of the season.
•But this year’s monsoon has behaved in exactly the opposite fashion. After excess rains of about 4% and 2% against normal seasonal patterns in June and July, the months of August and September have seen all-India rainfall fall 12-13% short of normal levels. Good rains in the months of June and July may have contributed to good sowing and coverage of the kharif crops. But deficit rains in August and September could impact the eventual output by pruning crop yields.
•It is also important to note that rainfall in the last two months of the south-west monsoon dictate reservoir storage and soil moisture, both of which set the tone for the planting of the winter crops. Though there is much tracking and analysis of India’s south-west monsoon and the kharif crop, the rabi season has been equally important to the country’s agricultural prospects in recent years. Rabi output often matches or even exceeds the kharif output.
•The rabi season accounts for the whole of India’s wheat and gram harvest, a fourth of the output for coarse cereals and chips in with over a third of the yearly harvest of urad and moong. Oilseeds such as rapeseed and mustard, sunflower and safflower are also predominantly winter crops. Therefore, dry spells in the latter half of this monsoon, taken with deficient rains in key rabi growing regions, can make for less than rosy rabi prospects.
•All this could explain why the agriculture ministry, in its First Advance Estimates, has painted a somewhat muted picture of crop prospects for FY18. The estimates are based mainly on cropping and sowing patterns and a lot can change on yields and output, as the year progresses. But so far, it appears as if India will have a hard time living up to the 4.9% expansion in agriculture GVA that it so comfortably managed last year.
📰 Simultaneous polls feasible: EC
‘Apart from amendments to Constitution, all parties should come on board’
•Favouring simultaneous Lok Sabha and Assembly polls, the Election Commission on Sunday said all political parties need to be brought on board before such an exercise was carried out.
•“The Election Commission has always been of the view that simultaneous elections will give enough time to the incumbent government to formulate policies and implement programmes continuously for a longer time without interruptions caused by the imposition of the model code of conduct,” Election Commissioner O.P. Rawat said.
•He said the step would be possible only when necessary changes were carried out in the Constitution and the Representation of the People Act.
•Existing legal and constitutional provisions mandate that elections are to be held within six months ahead of the end of the term of an Assembly or the Lok Sabha.
•“The Commission may conduct such elections after six months [after constitutional and legal changes are made],” he said. The Assembly elections for Andhra Pradesh, Telangana and Odisha are due in mid-2019, along with the next general polls.
•Mr. Rawat said the Election Commission was in 2015 asked to give its view on the synchronised polls. “The Commission gave its views on the matter in March that year. It had suggested a few steps that need to be taken before such elections are made feasible.”
•Mr. Rawat said it would be logistically possible to hold the elections together if sufficient time was given to the Commission. Besides, it needs 24 lakh each Electronic Voting Machines (EVMs) and Voter Verifiable Paper Audit Trail (VVPAT) Machines.
•“We need two sets of EVMs — one for the Lok Sabha and another for the Assembly polls,” he said.
‘Orders placed for EVMs’
•Mr. Rawat said orders had already been placed for more number of EVMs and VVPAT machines and new inventory had started coming in. “The Commission would be able to get the required number of EVMs and VVPAT machines by mid 2019 or before if need be.”
•Mr. Rawat’s assertion assumes significance as Prime Minister Narendra Modi had already pitched for simultaneous polls.
📰 China swears by 1890 treaty with Britain
Urges India to abide by the provisions of the agreement
•China on Sunday referred to the 1890 U.K.-China treaty which it claims demarcated the Sikkim sector of the India-China border as it urged New Delhi to abide by its provisions, a day after Defence Minister Nirmala Sitharaman made her maiden visit to the Nathu La post.
•Reacting to Ms. Sitharaman’s visit, the Chinese Foreign Ministry said, “The Sikkim section of the China-India border has been demarcated by the historical boundary.”
‘Face the facts’
•“It is the best testimony to this fact. We urge the Indian side to face the facts, abide by the provisions of the historic boundary treaty and the relevant agreement of the parties, and work together with the Chinese side to maintain peace and tranquillity in the border areas,” it said in a written response to PTI.
•The Ministry did not directly name the 1890 Britain-China treaty which Beijing often referred to during the Doklam standoff stating that as it had defined the Sikkim section of the boundary with Tibet, the border in that area had been settled.
•Ms. Sitharaman on Friday visited the Nathu La area, and interacted with the Army and Indo-Tibetan Border Police officials. Nathu La is the last post separating the border between Sikkim and Tibet.
•Ms. Sitharaman’s trip was the first high-level visit to the area after the 73-day standoff at Dokalam which ended on August 28 following a mutual agreement.
📰 Navigating a changing world
A close relationship between the India and the EU will benefit both
•That the talks to negotiate the India-European Union trade pact, the Broad-based Trade and Investment Agreement (BTIA), have not progressed during the 14th India-EU Summit, held in New Delhi on October 6, is, among other things, a sign that both sides continue to recalibrate their bargaining power and understanding of their relative positions on the international stage. Nevertheless, there are some important positive outcomes of these interactions, which go beyond just trade. The very fact that the two sides are talking and working together in several areas is significant.
•Much has changed for the EU since the last summit held in Brussels in 2016: Brexit; several key elections, including in France and Germany; and visible rifts between eastern and western European countries on what core EU values are and should be. The inaugration of Donald Trump as U.S. President and consequent retreat of America from its leadership role in the West has provided a significant external stimulus to the EU’s identity shift.
•Interestingly, the EU leadership referred to India and the EU as being the “world’s largest democracies” — a statement usually made with regard to politically sovereign entities. The EU is a single market, the world’s largest, but comprises 28 sovereign democratic countries, i.e., it is not sovereign in itself (Britain has just driven home that point). This projection as one of the world’s largest democracies, which happened at the end of last year’s summit as well, is more notable this time in light of the U.S.’s uncertain position on the international stage and the fact that pro-EU leaders such as French President Emmanuel Macron have been pushing for a stronger union in Europe as Britain leaves the EU.
•Also notable is that India and the EU reaffirmed their commitment to a “rules-based” international order and a “multipolar” world. This is significant in the context of the U.S. moving towards reneging on several international deals. Mr. Trump has said he is going to “decertify” the nuclear deal with Iran — a deal that the EU is keen to uphold — and his administration has given notice of intent to withdraw from the Paris Accord. He has shown a willingness to walk away from the game if the rules are not altered as per his taste. The reference to multipolarity is a recognition that there is more than just one chair at the top table, not just with the U.S.’s shifting position but also due to Russia and China’s ascent.
•The India-EU joint statement on terrorism this year called for “decisive and concerted actions” against Hafiz Saeed, Dawood Ibrahim, Lashkar-e-Taiba and other purveyors of terror; this will further bolster India’s efforts to call out Pakistan on the issue of sponsoring terror. The EU itself has been no stranger to terrorism these last few years and the two sides have agreed to enhance cooperation at multilateral and bilateral interactions.
Talking of trade
•The centrepiece of the recent summits, the BTIA, however continues to be conspicuous by its absence. Among the reported causes for the failed talks is a disagreement on whether the protection of foreign investments will be part of the BTIA or dealt with in a stand-alone treaty. (India has allowed tens of bilateral investment treaties to lapse, including those with EU states, so it can bring these in line with a model treaty from 2015.)
•Other sticky points in the negotiations have been India wanting a greater ease of movement of temporary skilled workers to provide services in the EU and the EU wanting greater market access for its automobiles and its wines and spirits.
•India is right to strike a hard bargain as far as the temporary movement of skilled workers is concerned. The EU and other developed countries have been historically reluctant about moving forward on this and the issue has become more challenging with the rise of populism and protectionism in Europe. Nevertheless, the liberalisation of services and access to EU markets for those who deliver them go hand in hand with the liberalisation of the goods market; wanting an open market for automobiles and liquor but unduly restricting the movement of natural persons seems to be a case of ‘have your cake and eat it too’ thinking. It bears repeating that there are winners and losers from globalisation on both sides of the border and it is up to governments to institute policies to redistribute the gains from trade. All too often, the movement of skilled workers from India to developed countries is made onerous with barriers to overcome in terms of salary thresholds, recognition of qualifications, visa fees, social security and so forth.
•Another issue holding up the trade talks has been the EU not granting “data secure” certification to India — a condition that facilitates the cross-border transfer of personal data, key to a number of companies’ services, especially in the IT industry. India does not have a stand-alone data privacy law yet and the state recently went to great lengths to create a false dichotomy between development and privacy during the right to privacy hearings in the Supreme Court, including, by (unsuccessfully) arguing that privacy was an elitist concern. On the other hand, the EU is, commendably, at the forefront of protecting citizens’ rights as regards what happens to their data online. It will be no easy task for the government — whose approach to privacy can be described as casual at best (one got the impression that the government’s equivocation on its position on privacy, apparent during the conclusion of the hearings in the case, were face-saving measures undertaken to resonate with the tide of public opinion and then the Supreme Court ruling itself) — to align its laws to a standard required by the EU to get the appropriate certification. It would certainly be a shot in the arm for consumer rights and privacy standards in the digital age if India were to adopt and implement strict standards for handling data, an outcome desirable in itself.
Taking a longer view
•India and the EU should continue to welcome each other’s leadership roles in the world, primarily because of commonly shared values. For those who prefer to take a more expedient view of the situation, reasons can perhaps be found in the fact that the EU is India’s largest trade partner and it is also, like India, wary of China’s political (the summit declaration makes a reference to freedom of navigation principles) and economic dominance. The EU is concerned about China flooding global markets with inexpensive steel and its response to China’s Belt and Road Initiative has been lukewarm, but the strength of China’s relationship with EU member states themselves is heterogeneous, with China trying to make inroads into Eastern and Central Europe through infrastructure investments. This makes it vital for India to cement its bonds with the EU further.
•With around €100 billion in bilateral goods and services trade last year, India and the EU have a lot to gain from a trade deal. It’s not just about trade. It is far from clear what presence the EU will have in a decade’s time as this is a matter that can only be settled internally by its constituents. But the sands are shifting, both in Europe and the world, and spaces and opportunities for leadership and partnership are opening up. It will certainly pay for both India and the EU to keep each other close as they feel their way around the emerging international order.
📰 Mr. PM: it’s time for bold economic thinking
The chief of the government would do well to take a leaf out of Narasimha Rao’s book and show statesmanship
•The Indian economy is currently in a paradoxical situation. The world has been praising India for its rapid economic growth, inflation is down, forex reserves are more than $400 billion, fiscal deficit is on target and current account deficit until recently has been less than 1% of GDP and comfortably financed by capital inflows.
•India’s oil imports in FY13 was $164 billion and by FY17 it was only $83 billion, thereby lowering the current account deficit as a percentage of GDP from 4.8% in FY13 to just 1.1% in FY17. The lucky government has also had two straight years of good monsoons. However, both the supporters and detractors of the present government have described the state of the economy as ‘sinking’ and as being ‘in a tailspin’, etc.
•The stock market is at an all-time high in anticipation of a surge in earnings which is yet to materialise. The newly appointed head of the NITI Aayog, Rajiv Kumar, has been refreshingly honest in admitting that lack of investment and anaemic job creation are significant challenges for this government.
•The RBI, in its latest monetary policy report, lowered the projected growth rate for FY18 from 7.3% to 6.7% and, more importantly, reserved its opinion as to whether the marked consecutive dip in growth rates for the last two quarters was a blip or not. So, what’s going on? Politically, the government is on the defensive. But, it has so far refrained from taking hasty and populist spending decisions.
‘Production possibility’
•Going by the hefty anecdotal evidence available, both the demonetisation episode of 2016 and the introduction of GST in July have imposed short-term costs in the form of lowering of growth rate in the current fiscal.
•But it must be told in the same breath that the culture as well as the regime for direct and indirect tax compliance in India is undergoing a fundamental shift for the better in a way that has not happened before. This is certainly going to expand the ‘production possibility frontier’ of the economy. However, there is uncertainty on how fast this is going to happen. A lot will depend on follow-up policy actions on the part of the government. The equity market seems to bet the recent downward growth rate trend is just a blip.
‘Eroded confidence’
•Our diagnosis is, the lack of speedy resolution of the stress in PSU banks and corporate balance sheets has eroded business confidence leading to lower investment and poor job creation. The government announcement of a stimulus package may deal with the problem cosmetically rather than address it at its root. The current government has shown limited appetite for serious financial sector reform.
•It has been long on rhetoric such as ‘Indra Dhanush’ and has evinced little resolve to deal with the massive non-performing loans problem.
•The recent RBI move to refer large stressed accounts to the National Company Law Tribunal so that they could be dealt with under the Insolvency and Bankruptcy Code will likely lead to two consequences: One, the resolution will take a very long time, and two, recoveries will be much lower than what would have been possible by way of one-time payments that could have been negotiated with delinquent borrowers for full and final settlement of dues.
•The aim to ring-fence boards and executive of PSU banks from probes by the three Cs, CBI, CVC and CAG, will impose a cost on the economy by delaying resolution of distressed loans and causing more losses to PSU banks. A decisive break from the shackles and shibboleths of the past is needed in respect of PSU bank policies.
•The high savings in India are currently not directed to productive, long-term investments as corporates have still not been able to repair their balance sheets.
•Further, that intangible thing called “confidence”, be it consumer or business, has been faltering. In fact, the Dun and Bradstreet composite CFO Optimism Index which takes into account the overall financial and macroeconomic conditions has declined to a five-quarter low, slipping to 11% on an annual basis and by 5.7% on a sequential basis.
•The AC Nielsen Consumer confidence index for India in Q2 2017 was 128, declining 7 percentage points compared with Q42016, while global consumer confidence rose 3 percentage points during this time interval. Despite the fall, Indian consumers are still the second most optimistic among the 63 countries surveyed by AC Nielsen.
•The table captures the real interest in India (calculated as the difference between the yield on the 90-day Treasury Bill and consumer price inflation) which is currently hovering around 4%. Against the backdrop of a perceptible decline in the investment rate in the recent quarters and given such high real rates, it would be irrational to expect investment to pick up in an environment where earnings growth has also been elusive. What needs to be done now to get India back on the high growth track? We recommend a five-step plan:
Five-step plan
•First, demonetiation was politically successful but an economic failure. We can use the current crisis to introduce an amnesty scheme, a la Indonesia, to allow tax payers to voluntarily disclose hitherto undisclosed income kept domestically and abroad. Indonesia — a nation of 250 million people, with 32 million registered tax payers but only 8.9 million actual tax payers — had close to 1 million people disclose $365 billion (40% of GDP) of undisclosed income this year, the bulk of which was held domestically and a portion abroad, notably $55.5 billion in Singapore.
•The Indian government should announce a one-time programme valid till December 31, by when anyone can disclose previously undisclosed income held within the country and abroad, for which they will pay a small, one-time fine of 4%, while 50% of the domestic holdings (100% of foreign cash/ near cash holdings) will need to be invested in two large government funds — one for infrastructure and the other for bank recapitalisation.
•The amounts thus invested will be locked for seven years with a compound interest of 4% per annum. Post redemption, the amounts and the interest thereon can be used freely for any lawful purposes in India.
•While scheme will be generous, come January 1, criminal prosecution should be instituted against Indian residents holding large sums of undisclosed income. This government has built some credibility to pursue cases of high-profile corruption. By highlighting the automatic exchange of financial account data with nations such as Singapore and Switzerland, it can ensure that the scheme is taken seriously.
•The work done so far by the SIT on money stashed abroad and the information obtained through Panama leaks could be a good input to test and start the scheme. After all, this government had made the bringing back of black money kept abroad as one of its core election promises. Now it needs to walk the talk.
•Second, ensure that the full extent of the NPA problem is recognised latest by December 31 and that banks make necessary provisions in this regard. The consequent shortfall in equity capital adequacy for PSU banks should be met through recapitalisation by March 31.
•The boards of PSU banks should be recast by bringing in persons with demonstrated professional experience and achievement. The selection of CEOs of PSU banks and determination of their tenure and compensation package should henceforth be the exclusive domain of their boards.
•Boards should be fully empowered decide on loan resolution by way of real restructuring, with or without haircut, and one-time payment. All cases of suspected wrongdoing involving collusion between borrowers and banks in loan resolution should be screened and vetted first by a high-level committee of former bankers drawn from public and private sectors before being taken up by the 3 Cs. Clear guidelines should be established for such screening and vetting.
•Third, accelerate infrastructure investments, especially in agricultural storage/ support infrastructure, in post-harvest processing, water efficiency technologies, extension services etc. to make agriculture more productive.
•Fourth, facilitate new export engines — ‘Make in India’ and ‘Serve in India’ — with emphasis on defense exports and medical tourism. An ambitious target of $100 billion over the next 10 years can be set for these two segments as the world is becoming an increasingly dangerous place and global population less healthy with chronic diseases for which India can offer holistic cures.
•Lastly, the PM must take a leaf from the book of former Prime Minister, Narasimha Rao, who was heading a minority government. Despite its existence on the edge, he dared to bring in a technocrat at that time — Dr. Manmohan Singh — to launch economic reforms. That was statesmanship. Mr. Modi needs fresh and bold economic thinking to steer the future of 1.3 billion aspiring Indians and the next big battle for the ballot in 2019.
📰 Why do we need external benchmarks while pricing loans?
•An internal Study Group constituted by the Reserve Bank of India (RBI) has recommended that banks should set interest rates based on an external benchmark and not as per internal benchmarks as is the practice now. Here is what you need to know on the subject:
What is the need for external benchmarks?
•The Study Group has found that the present loan pricing regime, that is, the marginal cost of fund based lending rate (MCLR) or the base rate under the previous regime were both calculated based on banks’ internal factors such as cost of funds. They are insensitive to changes in the policy interest rate or repo rate. Analyses by the group suggested that banks deviated in an ad hoc manner from the specified methodologies for calculating the base rate and the MCLR to either inflate the base rate or prevent the base rate from falling in line with the cost of funds.
What external benchmarks are available?
•The study group has cited 13 possible candidates as external benchmarks: the weighted average call rate (WACR), collateralised borrowing and lending obligation (CBLO) rate, market repo rate, 14-day term repo rate, G-sec yields, T-Bill rate, certificates of deposit (CD) rate, Mumbai interbank outright rate (MIBOR), Mumbai inter-bank forward offer rate (MIFOR), overnight index swap (OIS) rate, Financial Benchmark India Ltd. (FBIL) CD rates, FBIL T-Bill rates and the Reserve Bank’s policy repo rate. The report also said that no instrument in India met all the requirements of an ideal benchmark.
•However, the group shortlisted 3 candidates from these 13 — one of which could be selected by RBI as external benchmarks after receiving feedback from all stakeholders. The Study Group is of the view that the T-Bill rate, the CD rate and the RBI’s policy repo rate are better suited than other interest rates to serve the role of an external benchmark.
From when will the external benchmark come into effect?
•The Study Group has recommended that all floating rate loans extended beginning April 1, 2018 could be referenced to one of the three external benchmarks selected by RBI. The report said banks may be advised to migrate all existing loans to the new benchmark without any conversion fee or any other charges for switchover on mutually agreed terms within one year from the introduction of the external benchmark, i.e., by end-March 2019.
What will the spread be?
•The Study Group was of the view that the decision on the spread over the external benchmark should be left to the commercial judgment of banks. However, the spread fixed at the time of sanction of loans to all borrowers, including corporates, should remain fixed all through the term of the loan, unless there is a clear credit event necessitating a change in the spread.
What is the reset clause?
•The group suggested quarterly interest rate resets as opposed to a one-year reset as practised now for improvement in monetary transmission.
Will deposits also be linked to the external benchmark?
•The report said banks may be encouraged to accept deposits, especially bulk deposits at floating rates linked directly to one of the three external benchmarks. The new State Bank of India chairman Rajnish Kumar has already expressed the need to move deposits rates to an external benchmark, in case loan prices are based on such benchmarks.
📰 Course correction
The GST Council does well to simplify the tax regime; it must sustain this conciliatory stance
•Nearly 100 days after India’s tryst with the new Goods and Services Tax regime began, the GST Council empowered to oversee its implementation has approved several alterations. These relate to coverage and compliance norms with a view to easing the burden of paperwork and stretched cash flows imposed on smaller businesses and exporters. The Council lowered the rates on 27 items, including dried sliced mango, khakhra , unbranded namkeen and, more importantly, yarn and sewing threads to soothe the textile industry that has been in distress over GST norms and is a bulwark for job-creation. Prime Minister Narendra Modi has said the Council’s decisions at its 22nd meeting, taken at his behest to overcome the GST system’s apparent shortcomings, are akin to an early Deepavali. That the meeting was advanced by almost 20 days, and that it has tried to deliver on the Prime Minister’s promise to fix the problems faced by traders in the first quarter of GST is welcome. The decision to switch the requirement to file three monthly returns and an annual return to a quarterly frequency for firms with a turnover of Rs. 1.5 crore will ease the burden of compliances on small and medium enterprises, and reduce the workload on the tax regime’s fledgling IT backbone.
•Equally critical is the expansion and proposed simplification of the composition scheme, under which firms with an annual turnover of up to Rs. 1 crore pay a flat and low tax, and the six-month suspension of the reverse charge mechanism that required large firms to deduct tax on supplies from firms outside the GST net. This should spur fresh confidence among small firms and help expand the tax base. The promise of faster tax refunds, starting Tuesday, for exporters facing a working capital crunch too is re-assuring. Time will tell how smoothly these decisions pan out on the ground, but suspension for six months of the payment of integrated GST (IGST) on inputs used for exports will bring immediate relief. While putting off the e-way bill provisions dealing with movement of goods that were making businesses and transporters nervous, the Council is instead considering a staggered introduction. So the system would begin with one or more States from January 2018 and cover the entire country by April 2018. It is not clear how this will impact inter-State movement of goods in the interim three months, and industry has good reason to worry about fresh complications. Amidst this flurry of adjustments, suspense persists on the operationalisation of the GST law’s anti-profiteering provisions, which cramp pricing decisions by businesses. The government needs to move swiftly to bring clarity on all such remaining grey areas. Lastly, though some of the latest rate revisions may be based on impeccable economic rationale, it is important to resist giving the impression that some tweaks, even if they are warranted, are based on the Assembly election schedules.
📰 Resources aplenty, no jobs
Redefining economic models to get them in sync with the technology-accelerated age is the need of the hour
•We are in the midst of the most transformative age in human history where technological leaps could make possible a world of limitless food, water, and energy. Although we have attained the ability to produce any resource at any speed or in any quantity, human capital requirement is on a steep decline owing to the advent of cutting-edge technologies such as artificial intelligence and robotics.
•While five high-technology firms find themselves among the list of the top seven most valuable companies in the world, with a cumulative market capitalisation of almost $3 trillion, it is distressing to note that that they employ just under 700,000 people among them. The inevitable widespread adoption of next generation technologies indicates a future of mass unemployment, and concentration of wealth in the hands of a few enterprises capable of providing minuscule job openings.
•Today’s primary challenge is the optimal allocation of copiously produced resources among an increasing population with dwindling wage-earning opportunities. Taking cue from these trends, several progressive political outfits across Europe have started demanding legislation favouring reduced working hours with no cuts in pay, three-day weekends, and the introduction of a universal basic income.
•Even if new models built around the reduction, sharing, and diffusion of work and the provision of a supplementary income can sustain employment levels and living standards in wealthy nations with a steady, declining, or ageing population, with most of them plugged into the formal economy, it will be impractical in countries like India. The Indian scenario already looks grim with the Labour Bureau stating that India added just 1.35 lakh jobs in eight labour-intensive sectors in 2015, against a backdrop of almost 1.5 crore annually entering the job market. Conditions are ripe for the creation of a plenitude of frustrated people who would be easy prey to the sway of radical nationalists and populists.
•Nevertheless, the informal economy employs more than 90% of our workforce. Efforts to structure the informal sector, by encouraging them to adopt modern-day tools and best practices, and by giving them adequate access to capital for expansion, would stimulate the economy and the job market.
•India has massive basic infrastructural capacity requirements. Focussed government planning and spending, along with the creation of an environment that would encourage private investments into these potentially large-scale projects, could create immediate openings for millions in sectors like construction, India’s second largest employer, providing jobs for over 44 million. If leveraged to create essential and permanent assets, employment-guaranteeing schemes like MGNREGA would also effectively absorb a large slice of job seekers. Redefining the existing economic planning, employment and resource-allocation models, to get them in sync with this technology-accelerated age, is the need of the hour.
