📰 Outsource non-core duties of Delhi police: Home Secretary
•Private agencies could be engaged for performing the non-core functions of Delhi police, if Union Home Secretary Rajiv Gauba’s suggestion is taken forward.
•Mr. Gauba’s suggestion came at a high-level meeting at the North Block chaired by Secretary (Expenditure) Ajay Narayan Jha last April when Delhi Commissioner Amulya Patnaik requested for additional posts to tide over the force’s manpower shortage.
•“CP Delhi raised his concern about the manpower crunch... Home Secretary suggested that the deployment of Delhi police personnel in non-core functions may be devolved within a time frame and the possibility of utilization of services of private agencies be explored,” read the minutes of the meeting that The Hindu has seen.
‘Conduct audit’
•Top government officials were also of the view that an audit to assess the impact of increased manpower in reducing crime be done and the “possibility of deployment of private agencies may be explored”.
•The Department of Expenditure (DoE) responded to Mr. Patnaik’s request by stating that it has cleared the creation of around 23,000 posts for the police nationwide in the past two years and his request for over 12,000 new posts will have to be accommodated within this. While sanctioning 3,000 posts for the Delhi police, the DoE further said that the proposal for the 12,000 posts will be considered in four phases.
•Swati Maliwal, chairperson of the Delhi Commission for Women, who had earlier issued notices to the Centre on the severe manpower crunch in Delhi police, said, “the situation on the ground is terrible as all police stations are working with less than half the strength required.”
•A senior Home Ministry official, however, said the deficit is being plugged gradually. “The Ministry of Finance agreed to our demand for creating 12,518 posts. This is in addition to the creation of another 6,000 posts sanctioned earlier. If all demands have been met, where does the question of hiring private agencies arise?” the official asked.
📰 No longer seeing eye to eye?
With India recalibrating its relations with other powers, the India-U.S. equation is not quite balancing out
•At his speech at the Shangri-La Dialogue in Singapore last week, billed as a major foreign policy statement, Prime Minister Narendra Modi spoke of India and the U.S.’s “shared vision” of an open and secure Indo-Pacific region. Yet his words differed so much from those of U.S. Defence Secretary James Mattis, who spoke at the same event, that it seemed clear that New Delhi and Washington no longer see eye-to-eye on this issue, and several others as well.
Oceanic gulf
•To begin with, Mr. Modi referred to the Indo-Pacific, a term coined by the U.S. for the Indian and Pacific Oceans region, as a natural geographical region, not a strategic one, while Mr. Mattis called the Indo-Pacific a “priority theatre” and a “subset of [America’s] broader security strategy” for his military command, now renamed the Indo-Pacific Command. While Mr. Modi referred to India’s good relations with the U.S., Russia and China in equal measure, Mr. Mattis vowed to counter China’s moves in the Indo-Pacific, and referred to the U.S. National Defence Strategy released this January, which puts both China and Russia in its crosshairs as the world’s two “revisionist powers”.
•The divergence in their positions, admittedly, are due more to a shift in New Delhi’s position over the past year than in the U.S.’s, when Mr. Modi and President Donald Trump met at the White House. A year ago, the Modi government seemed clear in its intention to counter China’s growing clout in its neighbourhood, especially post-Doklam, challenge the Belt and Road Initiative (BRI), and back a Quadrilateral grouping of India, the U.S., Japan and Australia to maintain an open Indo-Pacific. Today, the Doklam issue has been buried, the BRI isn’t as much a concern as before, and the government’s non-confrontational attitude to the Maldives and Nepal indicates a softened policy on China in the neighbourhood. Meanwhile, Mr. Modi now essays a closer engagement with Chinese President Xi Jinping and a relationship reset with China after the Wuhan meeting.
•The Quad formation, which is holding its second official meeting today in Singapore, has also been given short shrift. India rejected an Australian request to join maritime exercises along with the U.S. and Japan this June, and Navy Chief Admiral Sunil Lanba said quite plainly last month that there was no plan to “militarise” the Quad. Contrast this with India’s acceptance of military exercises with countries of the Shanghai Cooperation Organisation (SCO), the Russia-China led grouping it will join this week in Qingdao, and one can understand some of the confusion in Washington. Pentagon officials, who had come to accept India’s diffidence on signing outstanding India-U.S. foundational agreements, are now left scratching their heads as India publicly enters the international arena in the corner with Russia and China, while proclaiming its intention to continue energy deals with Iran and Venezuela in defiance of American sanctions.
Era of summits
•In a world where summits between leaders have replaced grand strategy, the optics are even clearer. Mr. Modi will have met Mr. Xi and Russian President Vladimir Putin four-five times each by the end of the year, if one counts informal and formal summits, as well as meetings at the SCO, BRICS and G-20. In contrast, nearly half the year has gone in just scheduling the upcoming 2+2 meet of Indian and U.S. Ministers of Defence and Foreign Affairs.
•Trade protectionism is clearly the other big point of divergence between India and the U.S., which have in recent months taken each other to the World Trade Organisation on several issues. There has been a surge in disputes between the two countries: on the new American steel and aluminium tariffs, the proposed cuts in H1B professional visas and cancellation of H4 spouse visas, on India’s tariffs and resistance to U.S. exports of dairy and pork products, on Indian price reductions on medical devices, and Reserve Bank of India rules on data localisation on Indian servers for U.S. companies.
•The row over Harley-Davidson motorcycles is a case in point, where what should have been a small chink in the relationship has ended up denting the discourse quite seriously. When Mr. Trump announced to Harley executives and union representatives in February last year that he would stop countries “taking advantage” of them, no one in New Delhi paid much attention. Over the year, Mr. Trump grew more vocal in this demand, including twice during meetings with Mr. Modi in Washington and Manila, calling for India to scrap its 75-100% tariffs, given that the U.S. imposes zero tariffs on the import of Indian Royal Enfield motorcycles. Mr. Modi tried to accommodate U.S. concerns, and even called Mr. Trump on February 8 this year to tell him that tariffs were about to be cut to 50%. But after Mr. Trump divulged the contents of their conversation publicly, trade talks were driven into a rut. Officials in Washington still say that if India were to slash its rates, it would see major benefits in other areas of commerce, while officials in New Delhi say that with Mr. Trump having gone public with Mr. Modi’s offer, it would be impossible to back down any further. In fact, a new cess has taken tariffs back up to 70%.
•The biggest challenges to a common India-U.S. vision are now emerging from the new U.S. law called Countering America’s Adversaries Through Sanctions Act and the U.S.’s withdrawal from the Iran nuclear deal with the threat of more secondary sanctions. Both actions have a direct impact on India, given its high dependence on defence hardware from Russia and its considerable energy interests in Iran. In particular, India’s plans to acquire the Russian S-400 missile system will become the litmus test of whether India and the U.S. can resolve their differences. Clearly the differences over a big ticket deal like this should have been sorted out long before the decisions were made; yet there is no indication that the Trump administration and the Modi government took each other into confidence before doing so.
In the face of sanctions
•Defence Minister Nirmala Sitharaman’s avowal of the S-400 agreement, and Foreign Minister Sushma Swaraj’s open defiance of U.S. sanctions on Russia, Iran and Venezuela at separate press conferences this month couldn’t have helped. It also didn’t help that owing to Mr. Trump’s sudden decision to sack Rex Tillerson as Secretary of State in March, the 2+2 meeting in April, which may have clarified matters, was put off. The truth is, building a relationship with the Trump administration in the past year has been tricky for both South Block and the Indian Embassy in Washington, as more than 30 key administration officials have quit or have been sacked — they have had to deal with three National Security Advisers, two Chiefs of Staff, as well as two Secretaries of State as interlocutors.
•It is equally clear that the India-U.S. equation isn’t balancing out quite the way it did last year, when Mr. Modi and Mr. Trump first announced the idea of the “2+2” dialogue. Ms. Swaraj, Ms. Sitharaman and their American counterparts have their work cut out for them during their upcoming meeting in Washington on July 6. If a week is a long time in politics, in geopolitics today a year is an eternity.
📰 Defend the deal: on Iran nuclear deal
Iran should cooperate with Europe and China to work around U.S. sanctions
•Iran’s notification to the UN that it would launch a plan to increase its uranium enrichment capacity illustrates the risks associated with the U.S. withdrawal from the nuclear deal last month. The Joint Comprehensive Plan of Action, reached among the five permanent members of the UN Security Council, besides Germany, the European Union and Iran, in 2015, curtailed Tehran’s nuclear programme in return for the lifting of international sanctions. But after President Donald Trump withdrew the U.S. from the agreement and threatened to impose new sanctions on Iran, its survival is in question. For now, the other signatories say they remain committed to the agreement. But almost a month after Mr. Trump announced his decision, they are yet to come up with a framework to salvage the deal. The latest Iranian announcement is perhaps aimed at turning the heat up on European powers to come up with guarantees that the deal’s benefits will be in place even with U.S. sanctions. According to the deal, Iran can enrich uranium, but under tight restrictions. Iran now says it would open a centre for the production of new centrifuges at its Natanz facility, which could be used for enrichment. Tehran could argue that it is not technically violating the agreement as long as it does not produce centrifuges. But the move to open a production facility, that too soon after Supreme Leader Ayatollah Ali Khamenei called for preparations to speed up uranium enrichment, could be seen as a provocative step by the remaining parties to the agreement.
•Instead of such posturing, both Iran and Europe would do well to shift their focus to preserving the integrity of the agreement. If Europe remains politically committed to the agreement as it claims, there have to be proper measures to circumvent the impact of U.S. sanctions. It is not yet clear whether European companies will make any significant investments in Iran, or even continue to do business in the country, once U.S. sanctions start targeting them. Earlier, European countries had discussed providing companies that do business with Iran special financing from the European Investment Bank and passing legislation to protect them from U.S. sanctions — but no decision has been taken so far. The EU says it can create conditions for Iran to continue to benefit from the deal but is wary of giving any guarantee. Iran has made it clear that the U.S. withdrawal should not affect its oil exports and access to the SWIFT international bank payments messaging system. The way forward is to continue a dialogue to find an economic and legislative package that would shield European companies and Iranian economic interests from U.S. sanctions. For that, Europe has to assure Iran it will stand up to U.S. pressure, as Iran remains cooperative and compliant with the terms of the 2015 agreement.
📰 Limits to dialogue
It is unwise to suggest people-to-people contact as the way to resolve the Cauvery dispute
•Makkal Needhi Maiam founder Kamal Haasan’s joint press interaction on June 4 with Karnataka Chief Minister H.D. Kumaraswamy has triggered a huge controversy. What did Mr. Haasan say that was so provocative? He said that the court should be the last resort for dispute resolution and that people-to-people contact should be promoted to find the way forward. Various political leaders have asked: “What is Mr. Haasan’s locus standi? Won’t it weaken Tamil Nadu’s case, particularly in a situation where there is a stiff resistance towards the formation of the Cauvery Water Management Authority (CWMA) from the Karnataka Chief Minister?”
Since the judgment
•Ever since the Supreme Court delivered its final judgment on February 16, the situation in both States has been broiling. Although the final judgment brought some initial celebration in Karnataka, it was accompanied by apprehension that constituting the CWMA would be against Karnataka’s interest. At the moment, the CWMA is not fully constituted because three full-time members have not been appointed and there are no nominations from Kerala and Karnataka. The Water Resources Secretary, who is the temporary Chair of the Authority, has indicated that it might take some time before the CWMA becomes a comprehensive body. But the Authority should have been fully formal and functional, according to court’s final verdict, before the start of the irrigation year, which is June 1. If one goes resolutely by the law, the long-pending Cauvery dispute should come to a close after the final verdict and after the CWMA becomes fully and legally functional. But doubts still linger in people’s minds. The situation in Karnataka before and after the verdict has changed very little, which can be gauged from the fact that actor and Rajini Makkal Mandram founder Rajinikanth’s movie Kaala is being resisted severely by Kannada chauvinistic groups and has been banned by the Karnataka Film Chamber of Commerce, which has been supported unofficially by Mr. Kumaraswamy. Therefore, the question is, will Tamil Nadu farmers get water as per the schedule prescribed in the final award upheld by the apex court?
•It needs to be acknowledged that the Cauvery dispute is the longest and most bitter inter-State water dispute that has been fought post-Independence. It has been almost three decades since the Cauvery Water Disputes Tribunal was constituted. We have gone through a full legal cycle; yet, uncertainty and tension remain in both States. So, it this an appropriate time to initiate people-to-people contact, as suggested by Mr. Haasan?
Past initiatives
•If we recall, there have been at least a couple of civil society dialogue initiatives in the past (what is regarded as Track II diplomacy). The first such dialogue took place in 1992. It was initiated by S. Guhan, a distinguished civil servant and former Secretary, Finance and Planning, Tamil Nadu government. The meeting was held in Bengaluru and was attended by S. Ranganathan, S. Manavalan and N. Ram. From the Karnataka side, the meeting was attended by H.N. Nanje Gowda, M.D. Nanjundaswami and B.K. Chandrashekhar. It is important to remember that this unofficial dialogue was organised after the declaration of the interim award in 1991, which was followed by unprecedented violence in Karnataka. The total number of Tamilians killed in the 1991 violence was 18 and an estimated 2 lakh Tamilians left Karnataka in a month. Against this background, this dialogue opened up a new chapter in dispute resolution and was appreciated as a positive approach by people in both States.
•The second civil society dialogue, which I initiated in 2003, followed the eruption of violence in 2002. As an initial measure, two farmers’ dialogue workshops — one in Tamil Nadu (held on April 4 and 5) and the other in Karnataka (June 2 and 3) — were organised. Many prominent people and scholars, besides over 100 farmers and farmers’ leaders from both States, participated in the initial two meetings. After the initial meetings, a committee was formed with 15 members from each State. This committee later came to be known as the Cauvery Family. It had advisers such as Ramaswamy R. Iyer, B.S. Bhavani Shankar, and Gangappa. The Cauvery Family met 18 times in Tamil Nadu and Karnataka, alternatively, between 2003 and 2012 and finally evolved five water-sharing formulae. There continued to be differences of opinion, especially on sharing water during deficit years. The most significant feature of this dialogue initiative was that the members of the Cauvery Family developed a long-term perspective and affirmed their faith in caring, sharing and promoting a feeling of fraternity. What the Cauvery Family could contribute was best described by Ramaswamy Iyer: “The one positive element in this entire unedifying spectacle of State against State and people against people has been the Cauvery Family — a loose and informal group of Cauvery basin farmers from both Karnataka and Tamil Nadu — which is now known internationally. Unfortunately, while it has brought about remarkable mutual understanding and goodwill between the farmers of the two States, it has not so far been able — in spite of several meetings — to arrive at an agreed settlement, including a distress-sharing formula, which can be presented to the Tribunal and the Supreme Court. Even the understanding and goodwill achieved by it is under threat in the present situation of conflict and hostility between the two States, at both official and non-official levels.” (“Bridge over the river Cauvery”, October 16, 2012, The Hindu.)
The legal recourse
•The Cauvery Family last met in 2012. It did not meet after that due to lack of recognition and patronage from political parties and other official institutions. Curiously, after the 2016 violence and after the declaration of the Supreme Court’s final verdict this year, several people from Karnataka and a few in Tamil Nadu approached me for reviving the Cauvery Family. I took a strong negative position because the legal recourse has taken a full cycle (and it took nearly 40 years) and the stage is set to see the value of the legal route in resolving the dispute. The nation is waiting to see the dispute coming to an end, though not to everyone’s pleasure.
•Mr. Haasan’s press statement with Mr. Kumaraswamy, advocating people-to-people contact, needs to be seen in this context. He could have waited for at least a year to see how effectively the CWMA functions before making such a statement. Under the present conditions, seeking people-to-people contact for a social dialogue is unwise, untimely and uncalled for.
📰 Iran preparing to restart nuclear activities
Notifies IAEA of enrichment plans
•Iran said on Wednesday that it was in “preparatory works” to restart nuclear activities in the event of the failure of the 2015 accord. In such a scenario, Iran could “restart its activities without any limits,” Iran’s Ambassador to the International Atomic Energy Agency (IAEA) Reza Najafi told reporters on the sidelines of a meeting of the IAEA’s board in Vienna.
•The preparatory works mentioned by Mr. Najafi refer to steps to boost uranium enrichment capacity by producing new centrifuges, as outlined on Tuesday by Vice President Ali Akbar Salehi, who heads the Iranian Atomic Energy Organisation. Mr. Najafi said that in addition Iran had notified the IAEA of a plan to restart activity at its uranium conversion facility in Isfahan to produce the UF6 feedstock for centrifuges.
•Also, France, Britain, Germany and the EU on Wednesday sent the U.S. a joint official request for their companies to be exempt from punitive measures resulting from fresh U.S. sanctions. “As allies, we expect that the United States will refrain from taking action to harm Europe’s security interests,” said the letter. French Economy Minister Bruno Le Maire said the three countries and the EU were asking the U.S. “to exempt European businesses doing legitimate trade in Iran from all extraterritorial American sanctions”.
📰 RBI hikes repo rate by 25 basis points to 6.25%
The RBI raises rates after 4.5 years as crude price surges
•The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Wednesday increased the repo rate by 25 basis points to 6.25%.
•The MPC arrived at the unanimous decision as the outlook for inflation had become ‘uncertain’ following a surge in international crude oil prices.
•This is the first rate hike in four-and-a-half years; the last was in January 2014.
Interest rates may go up
•Banks may have anticipated the RBI’s move as major lenders such as the State Bank of India, the ICICI Bank and the Punjab National Bank had raised their lending rates last week. While banks that have already raised rates may not increase them immediately, those yet to act are likely to announce revisions.
•The RBI increased its inflation projection to 4.8%-4.9% in the first half (H1) of the financial year and 4.7% in the second half, as compared with 4.7-5.1% in H1 and 4.4% for H2. “A major upside risk to the baseline inflation path in the April resolution has materialised, viz., 12% increase in the price of Indian crude basket, which was sharper, earlier than expected and seems to be durable,” the central bank said, adding that the Indian crude basket surged to $74 a barrel from $66 since the last policy meeting in April.
•“Crude oil prices have been volatile and this imparts considerable uncertainty to the inflation outlook — both on the upside and the downside,” RBI said.
•Consumer price index-based inflation, or retail inflation, rose to 4.6% in April from 4.28% in March.
•The central bank also observed that inflation expectations were on the rise, evident from its survey of households.
•While the central bank has increased the inflation projection, it has maintained the ‘neutral’ stance for monetary policy, meaning interest rates can move either way.
•“It is not conflicting at all… a neutral stance leaves all options open and other central banks also do the same,” RBI governor Urjit Patel said in the post-policy media interaction, asked if an increase in inflation projection along with a neutral stance sent conflicting signals. “The committee felt there was enough uncertainty for us to keep the neutral stance and yet respond to the risk to inflation targets that has emerged in recent months,” Dr. Patel said.
•The outlook for GDP growth for 2018-19 has been retained at 7.4% as projected in the April policy. GDP growth is projected to be in the range of 7.5-7.6% in H1 and 7.3-7.4% in H2, with risks evenly balanced, the RBI said.
•Market participants said they anticipate more rate increases in the coming months due to further risks to inflation.
•“This is not likely to be the end of the hike cycle as domestic price risks such as MSP hikes and firm global commodity prices would warrant further monetary action.” said Abheek Barua, chief economist, HDFC Bank.
📰 Maternal mortality ratio in the country drops to 130 from 167
Kerala has the lowest MMR of 46, followed by Maharashtra with 61 and Tamil Nadu 66
•The latest Sample Registration System (SRS) data indicating the Maternal Mortality Ratio (MMR) has brought glad tidings.
•As per the data, the MMR (number of maternal deaths per 1,00,000 live births) has dropped from 167 (in 2011-2013, the last SRS period) to 130 for the country. This 28% drop is an achievement arising from painstakingly reducing the MMR in each of the States.
•The SRS segments States into three groups: “Empowered Action Group” (EAG) — Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh, Odisha, Rajasthan, Uttar Pradesh/Uttarakhand and Assam; “Southern States” — Andhra Pradesh, Telangana, Karnataka, Kerala and Tamil Nadu; and “Others” — the remaining States and union territories.
•The highest reduction from the last SRS is with the EAG States at 23%, a drop from 246 (2011-2013) to 188, while the Other States have dropped by 19%, taking the MMR down from 115 in 2011-2013, to 93 now. Southern States, which are at a better average of 77, dropped 17%. Truly encouraging is the massive drop of 29% in Uttar Pradesh/Uttarakhand where the MMR has dropped from 285 to 201.
•Kerala remains at the top with an MMR of 46 (down from 61). Maharashtra retains its second position with 61, but the pace of fall has been much lower, dropping from 68 during 2011-13. Tamil Nadu with 66 (79) is in the third position.
•Manoj Jhalani, MD, National Health Mission (NHM), says: “India has bettered the MDG target of 139 for 2014-2016. It’s a proud moment. This is the outcome of systematic work undertaken by the Centre and States under the NHM that has resulted in saving 12,000 more lives in 2015. Three States have already achieved the UN’s Sustainable Development Goal of MMR 70.”
•Former Union Health Secretary Sujata Rao said that overall, it indicates impressive progress, particularly in the EAG States.
‘Lost momentum’
•“I feel Kerala and Tamil Nadu should do better, they can; but I’m very disappointed with Karnataka, Gujarat, Punjab, and Haryana. Maharastra seems to have lost the momentum shown in the last few years, that is a worry.”
•Fresh impetus is required to bring the MMR below 30 for all States except EAG, which might strive to bring it down to 140-120, she adds.
📰 World Bank nod for ₹6,000 cr. groundwater recharge plan
•To address concerns about depleting groundwater reserves in India, the government has joined hands with the World Bank to execute a ₹6,000-crore scheme called the Atal Bhujal Yojana (ABHY).
•The scheme is to be implemented over a period of five years from 2018-19 to 2022-23, according to a statement from the Union water Ministry. It is yet to be cleared by the Cabinet.
•The Atal Bhujal Yojana “aims to improve ground water management in priority areas in the country through community participation,” the statement said.
Priority areas
•The priority areas identified under the scheme fall in Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh, which represent about 25% of the total number of over-exploited, critical and semi-critical blocks in terms of ground water in India.
•India’s groundwater resources have been overexploited, as experts have been warning for some time now.
•According to a sample assessment in 2011, groundwater in 19 of India’s 71 districts — about 26% — were critical or exploited, meaning that nearly as much or more water was being pulled out than their reservoirs’ natural recharge ability. In another assessment in 2013, they included groundwater blocks in districts that had gone saline, and this percentage was up to 31%.
📰 Pre-emptive strike: on RBI's repo rate hike
As inflationary trends harden, the RBI’s rate hike will quell uncertainty in the markets
•At the end of an unusually long three-day meeting, the Monetary Policy Committee of the Reserve Bank of India opted for a hike in key interest rates by 25 basis points — the first such increase in four and a half years. This hike, the first during this NDA government’s tenure, was approved unanimously by the six-member committee, citing worries about hardening inflation trends and a firming up of growth recovery at home. Global uncertainties affecting emerging markets in particular have played a role as well — be it rising tensions over trade wars initiated by the Donald Trump administration or the strengthening dollar or further rate hikes by the Federal Reserve that could strengthen the exodus of global capital from emerging markets such as India. Already, between January and May, outflows from foreign portfolio investors have reached their highest level in 10 years, and by June 4, $6.7 billion was pulled out on a net basis from the domestic capital market. The rupee, along with other emerging market currencies, is hurting too, but RBI Governor Urjit Patel dismissed suggestions that the rate hike was a bid to stem outflows. The MPC, he asserted, is driven purely by its inflation management mandate, and there is no contradiction between the rate hike and the committee sticking to its neutral policy stance.
•To be sure, while retaining its growth projections for 2018-19 at 7.4%, the MPC has revised upwards its inflation projections for the year since its April meeting — from 4.7-5.1% in the first half and 4.4% in the second half to 4.8-4.9% and a significantly higher 4.7%, respectively. This should worry a government gearing for parliamentary elections next year. Though seasonal food inflation spikes are delayed, input cost pressures have hardened owing to a spurt in global commodity prices, led by fuel. Moreover, inflationary expectations among producers as well as consumers have gathered steam. Crude oil prices have been the biggest factor at play, rising 12% from $66 a barrel when the MPC met in April to $74 a barrel. The committee said this rise is “sharper, earlier than expected and seems to be durable”, and termed it a major upside risk to its earlier inflation projections. Industry has expressed concern, but effective borrowing rates and bond yields had been firming up even before this rate hike. The government has, surprisingly, welcomed the RBI’s stance as one that could help steady the markets and dampen uncertainties. The RBI’s neutral stance, as Mr. Patel pointed out, allows it to keep all options open. But a reversal in rates is unlikely till global headwinds clear up and the mandarins in New Delhi work out a viable strategy to minimise the inflation transmission from global oil prices that is exacerbated by their taxation policy for fuels.
📰 ICICI Bank’s growing troubles
What is the ICICI Bank controversy about?
•In 2016, Arvind Gupta, an investor, wrote to the Prime Minister’s Office, the then Reserve Bank of India Governor Raghuram Rajan, and others, seeking an inquiry into transactions between ICICI Bank, the Videocon group and NuPower Renewables, a company promoted by Ms. Kochhar’s husband, Deepak Kochhar, in 2010. It was alleged that a company related to the Videocon group chairman, Venugopal Dhoot, invested ₹64 crore in NuPower in 2010 and that proprietorship of the company was transferred to a trust owned by Mr. Kochhar for ₹9 lakh after the Videocon group received a loan of ₹3,250 crore from ICICI Bank in 2012. Mr. Gupta, who alleged conflict of interest, demanded a forensic audit of the relevant transactions. The controversy came to light last March when the media reported Mr. Gupta’s allegations.
What is ICICI Bank’s response?
•The board of ICICI Bank had reposed confidence in Ms. Kochhar after the issue came to light in March, denying any conflict of interest. Its chairman, M.K. Sharma, had said Ms. Kochhar had made all the necessary disclosures. ICICI Bank also said that the total loan extended by the lenders’ consortium to the Videocon group, which included Videocon Industries and 12 of its subsidiaries, was around ₹40,000 crore. The bank highlighted the fact that it was not the lead bank in the consortium.
•Further, the bank said the committee of creditors that sanctioned loans to Videocon was chaired by the then chairman of ICICI Bank, K.V. Kamath, and it included independent and working directors of the bank. “It is important to note that Ms. Chanda Kochhar was not the Chairperson of this committee,” the bank had said.
What is the investigative agency’s reaction?
•The Central Bureau of Investigation has registered a preliminary enquiry against Deepak Kochhar, officials of the Videocon group and others, to determine if there was any wrongdoing. However, this inquiry did not name Chanda Kochhar.
Where do things stand now?
•Last week, the bank’s board ordered a probe by an ‘independent and credible’ person following fresh allegations from another whistleblower against Ms. Kochhar. The allegations include a potential violation of the bank’s code of conduct and of quid pro quo in dealing with certain borrowers. The board’s Audit Committee will appoint the head of the inquiry panel, outline its terms of reference and specify the period covered by the probe.
📰 India’s rank marginally improves in peace index
Bangladesh, U.S. and China slip; Pakistan improves rank
•India’s rank has marginally improved in “global peacefulness”, at a time when there is an overall decline of global peace owing to escalation of violence in West Asia and and North Africa. Pakistan too has improved marginally, according to the Global Peace Index (GPI), released by Australia-based Institute for Economics and Peace (IEP).
•The IEP, world’s leading think tank that develops metrics to analyse peace and quantify its economic value, released the 12th edition of the GPI, or measure of global peacefulness, on Wednesday.
•India’s GPI rank was 137 out of 163 countries in 2017, when the year 2016 was assessed. In 2018, when the year 2017 is assessed, India’s rank moved up to 136. This is in line with the performance of some of the South Asian countries. Nepal moved up from 93 to 84, while Sri Lanka moved up too, from position 80 to 67. Pakistan moved from 152 to 151. “South Asia experienced the largest regional improvement in peacefulness,” the report noted.
•However, the best performer of South Asia, Bhutan, has slipped from 13 to 19, while Bangladesh’ peace index deteriorated sharply. Bangladesh moved from 84 to 93.
•Peace continues to record a “gradual, sustained fall” across the world, the report noted.
•“The results of the 2018 GPI find that the global level of peace has deteriorated by 0.27% last year, marking the fourth successive year of deteriorations,” the IEP report said. Syria remained the least peaceful country in the world, a position that it had held for the past five years.
•Iceland continues to remain the most peaceful country in the world, a position it has held since 2008.
📰 Co-op banks can become small finance banks, says RBI
Banks allowed 4 quarters to spread MTM losses accruing in April-June quarter
•The Reserve Bank of India has decided to allow urban co-operative banks (UCB) to convert into small finance banks (SFB), a move aimed at bringing these entities into mainstream banking.
•“It has been decided to allow voluntary transition of UCBs meeting the prescribed criteria into SFBs,” the RBI said in its monetary policy statement on Wednesday, adding that a detailed scheme will be announced shortly.
•UCBs had been facing financial trouble till a few years ago, prompting the RBI to stop issuing fresh licences. But their performance has improved recently while their numbers have come down due to mergers and closures. UCBs currently face regulation by both the RBI and the respective State governments. By turning into SFBs, they will be regulated only by the RBI.
•The regulator has also allowed all banks to spread their mark-to-market losses for the April-June quarter, equally over four quarters.
•“It has been decided to grant banks the option to spread the mark-to-market (MTM) losses on investments held in ‘Available for Sale ’ and ‘Held for Trading’ portfolio for the quarter ending June 30, 2018, equally over... four quarters, commencing from the quarter ending June 30.”
Rising yields
•Rising bond yields have resulted in MTM losses for banks. Bond yields and prices are inversely related.
•Yields have hardened in the last two quarters, impelling the RBI to allow similar relaxation earlier. Bond yields may harden further as the RBI raised inflation forecast for this year in Wednesday’s policy review, and cited rising crude prices as a source of uncertainty.
📰 RBI tweaks norms to boost affordable housing lending
Relaxes NPA rules for MSMEs
•The Reserve Bank of India (RBI) has increased the eligibility limit for a loan to classify as priority sector lending in a bid to boost affordable housing
•For metropolitan areas, loan limits have been raised from ₹28 lakh to ₹35 lakh and for other areas, it has been increased from ₹20 lakh to ₹25 lakh, provided the overall cost of the home does not exceed ₹45 lakh and ₹30 lakh respectively.
•The central bank said the move was aimed at giving a fillip to low-cost housing for the economically weaker sections and lower income groups.
•“This would give a boost to affordable housing real estate sector and help in economic growth,” said Khushru Jijina, MD, Piramal Finance and Piramal Housing Finance.
•The central bank would issue a circular to this effect by June 30.
Cautions on bad loans
•The central bank also cautioned about an increase in bad loans for loans of up to ₹2 lakh and said banks needed to strengthen screening and follow-up measures.
•“After a careful analysis of the housing loans data, it has been observed that the level of NPAs (non-performing assets) for the [loans of] ticket size of up to ₹2 lakh has been high and is rising briskly,” RBI said.
•The banking regulator said it may also tighten loan to value ratio (amount of loan to the total cost of a house) or increase the risk weight if there is a need.
•The RBI has also allowed banks and NBFCs to classify their exposure, as per the 180-day past-due criterion, to all MSMEs with aggregate credit facilities up to the ₹25 crore, including those not registered under GST.
•“Eligible MSME accounts, which were standard as on August 31, 2017, shall continue to be classified as standard by banks and NBFCs if the payments due as on September 1, 2017 and falling due thereafter up to December 31, 2018 were/are paid not later than 180 days from their original due date,” the RBI said.
•The RBI said in view of the benefits arising from the increasing formalisation of the economy for financial stability, the 180-day past-due criterion, in respect of dues payable by GST-registered MSMEs from January 1, 2019 onwards, will be aligned to the extant norm of 90-day past-due in a phased manner. For entities that do not get registered under GST by December 31, 2018, the asset classification in respect of dues payable from January 1, 2019 onwards will immediately revert to the 90- day norm.
