📰 Bombay High Court upholds reservation for Marathas
Calls 16% quota unjustifiable,caps it at 13%
•The Bombay High Court on Thursday upheld reservation for Marathas in the State but quashed the 16% quota by calling it “not justifiable”. The court said it should not exceed 12% for education and 13% for jobs as recommended by the Maharashtra State Backward Class Commission (MSBCC).
•A Division Bench of Justices Ranjit More and Bharati Dangre said, “We hold and declare that the State possesses the legislative competence to enact the Maharashtra State Reservation for Seats for Admission in Educational Institutions in the State and for appointments in the public services and posts under the State (for Socially and Educationally Backward Classes) SEBC Act, 2018, and the State’s legislative competence is not in any way affected by the Constitution.”
•Welcoming the verdict, Chief Minister Devendra Fadnavis said in the Assembly, “The court has upheld the extraordinary and exceptional circumstances mentioned in the report to provide quota to Marathas, due to which the reservation quantum in the State has crossed 50%.”
Extraordinary situations
•In the 487-page judgment, the Bench noted, “We hold and declare that the report of the Gaikwad Commission has set out the ‘exceptional circumstances and extra-ordinary situations’ justifying crossing of the limit of 50% reservation as set out in the Indra Sawhney case (Supreme Court).”
•The court recorded, “The 50% limit of reservation can be crossed subject to availability of quantifiable and contemporaneous data reflecting backwardness, inadequacy of representation and without affecting the efficiency in administration.”
•The judgment said the classification of the Maratha class into “Socially and Educationally Backward Class” was justified.
•The court held that the classification “complies with the twin test of reasonable classification permissible under Article 14 (equality before the law) of the Constitution of India, namely, intelligible differentia and rational nexus to the object sought to be achieved.”
•It stated, “We, however, hold that the quantum of reservation set out by the Maharashtra State Reservation for seats for admission in educational institutions in the State and for appointments in the public services and posts under the State for SEBC as 16% is not justifiable and we quash and set aside the quantum of reservation under the said provisions over and above 12% and 13% respectively as recommended by the Commission.”
•Senior counsel Anil Sakhare appearing for the State told The Hindu , “we will definitely go in appeal to the Supreme Court on the limited point of 12% for education and 13% for jobs and will bring it back to 16%.”
•Advocate Gunratan Sadavarte, opposing the verdict, also said, “We will appeal in the Supreme Court as the reservation is against the spirit of the Constitution and breaks the 50% mandate of reservation in the State. It is reverse discrimination against general category.”
Rs. 450 crore-proposal is part of the 100-day action plan charted out by MeitY
•The Ministry of Electronics and IT will soon place before the Union Cabinet a Rs. 450 crore proposal for Natural Language Translation — one of the key missions identified by the Prime Minister’s Science, Technology and Innovation Advisory Council (PM-STIAC).
•The proposal is part of the 100-day action plan charted out by MeitY, following Prime Minister Narendra Modi’s instructions.
•The national mission on natural language translation aims to make science and technology accessible to all by facilitating access to teaching and researching material bilingually — in English and in one’s native Indian language. To achieve this, the government plans to leverage a combination of machine translation and human translation.
•“We will be looking at speech-to-speech machine translation as well as text-to-text machine translation for this. Additionally, human translation will be used,” a senior government official told The Hindu .
•The official said the Ministry had proposed an outlay of Rs. 450 crore for the mission over the next three-year period.
•The official said that to overcome the language barrier, the government planned to set up an ecosystem which involved the Central and State agencies and start-ups. “Start-ups can help expedite the work to build implementable solutions to help make research,” he said.
•Translation activities can also help generate employment for educated unemployed, he pointed out, adding that the mission would help not just students who find it difficult to access knowledge because of language barrier, but also teachers, authors, publishers, translation software developers and general readers.
•The IT ministry is the lead agency for implentation of the mission along with Ministry of Human Resource Development and Department of Science and Technology. The PM- STIAC is an overarching body that identifies challenges in certain areas of science and technology.
•The IT ministry is the lead agency for implentation of the mission along with the Ministry of Human Resource Development and Department of Science and Technology.
•The PM-STIAC is an overarching body that identifies challenges in certain areas of science and technology. It then creates a road map to deal with these challenges and presents the recommendations to the Prime Minister.
•Besides natural language translation, other missions identified by the body include Quantum Frontier, Artificial Intelligence, National Bio-diversity mission, electric vehicles, BioScience for Human Health and deep ocean exploration.
📰 Trump terms India’s high tariffs on U.S. products unacceptable
President says he will take up the issue with PM Modi at G-20 summit in Osaka
•U.S. President Donald Trump has said he will speak to Prime Minister Narendra Modi on India’s “high tariffs” on American products, which are “unacceptable”.
•“I look forward to speaking with Prime Minister Modi about the fact that India, for years having put very high Tariffs against the United States, just recently increased the Tariffs even further. This is unacceptable and the Tariffs must be withdrawn!” Mr. Trump tweeted on Wednesday night Washington DC time, en route to Osaka in Japan for the G-20 meetings.
•He was referring to the tariffs India had levied on 28 goods, starting June 16. The list, which included walnuts, pulses and almonds, were in retaliation for the March 2018 tariffs the Trump administration had levied — ostensibly on national security grounds — on steel and aluminium from a number of countries, including India.
•U.S. Secretary of State Michael Pompeo, who was in New Delhi this week, discussed trade with his counterpart, External Affairs Minister S. Jaishankar.
•Mr. Modi is expected to meet Mr. Trump at a bilateral at 9.35 a.m. local time in Osaka on Friday morning, prior to which he will hold a trilateral with Mr. Trump and Japanese Prime Minister Shinzo Abe.
Reciprocal trade
•On Thursday morning, the White House issued a statement on the G-20, which talked about Mr. Trump’s intent to achieve “fair and reciprocal trade”.
•“President Trump will encourage our allies and partners to lower tariff and non-tariff barriers to free, fair, and reciprocal trade,” the statement read.
•The White House also referred to “the free flow of data” — curbs on taking data outside border, or ‘data localisation’ is one of the trade issues on the table for India and the U.S., with India having initiated policies for data localisation. “The United States urges members of the G-20 to work together to advance an open, fair, market-based digital economy, which will benefit all our nations through the free flow of data,” the statement said.
•On the world trading system, the statement said: “The United States is urging reforms and modernisations to the World Trade Organization (WTO), while making sure the WTO functions as originally intended.”
•Interestingly, the U.S. is seen by critics as crippling the ability of the WTO to execute a crucial aspect of its mandate, by blocking the appointment of judges to the WTO’s Appellate Body (trade court). Without the statutorily mandated number of judges to hear cases (three or more), the trade court will become non-functional for all practical purposes at the end of this year, if the U.S. does not allow new nominees to go through.
📰 Modi holds talks with Abe
•Prime Minister Narendra Modi held talks with his Japanese counterpart Shinzo Abe in Osaka on Thursday on the global economy, fugitive economic offenders and disaster management. He also announced that President Ram Nath Kovind would participate in the coronation ceremony of Emperor Naruhito in October. Addressing the Indian community in Kobe, Mr. Modi said India’s ties with Japan had become stronger from the time the two countries cooperated to make a car to their coming together to make a bullet train.
📰 Will the idea of ‘one nation, one poll’ work in India?
The proposal will undermine the federal structure by pushing the regional parties out
•Last week, when Prime Minister Narendra Modi convened an all-party meeting to discuss the idea of ‘one nation, one poll’, several parties stayed away, calling the idea “anti-democratic” and “anti-federal”. In a discussion moderated byAnuradha Raman , Tiruchi Siva and Jagdeep S. Chokkar speak of the implications of the proposed move. Edited excerpts:
When Prime Minister Modi floated the idea of ‘one nation, one poll’ yet again and invited the Opposition for a discussion last week, many prominent parties, including the DMK, stayed away from the meeting. What are your concerns?
•Tiruchi Siva:One of the reasons the ruling party puts forth [to hold simultaneous elections] is the huge expenditure involved in the election process. In a democratic country, it the right of the people to exercise their franchise. It is the discretion of the people to elect or unseat a government. Citing expenses incurred in elections is not such a big issue in a country as vast as ours.
•Our main contention is that as long as we have Article 356 in the Constitution, which allows any State government to be removed by the Central government, how can you be sure that the Centre will not unseat a State government for its own personal reasons by using Article 356 if simultaneous elections are held? What will happen to the remaining tenure of that elected Assembly? As long as Article 356 is in the Constitution, no State government is assured its full term of five years. Will somebody give us an assurance that Article 356 will be removed from the Constitution?
Some argue that simultaneous elections will be long-drawn, drain manpower, that the role of money is questionable, and that the Model Code of Conduct will stall government activities. How valid are these reasons?
•Jagdeep S. Chokkar:Well, are we trying to get the cheapest possible democracy or are we trying to get the most effective and representative democracy? I think it is wrong to put a monetary value on democracy and elections.
•The point on the issue of expenses is, who spends this money? The money that the Government of India and the Election Commission spend, which is public money, is minuscule compared to the money that political parties and candidates spend. If political parties and candidates want to reduce expenditure, they can do that. Nobody is asking them to spend that money. They spend this money because no political party is internally democratic.
•The Model Code of Conduct only says that if the government wants to introduce a programme or a policy which may have a bearing on the result of the elections, it has to seek clearance from the Election Commission. There are a number of cases where the Election Commission has given such permission. The Model Code does not say that all existing schemes should be stopped. So, to say that development stops because of the Model Code is strange. The reason is that parties which are in power think of development programmes in the last six months or three months before the elections.
•Then there’s the point about the government machinery getting caught in the election process. Every State has two elections every five years — one for the Assembly and one for Parliament. Today, elections to a small and remote State Assembly are considered to be a referendum on the national government, so much so that the national government and the political establishment gets into that election. A State election should be fought by the people of the State. Why should Ministers of the Central government and the Prime Minister go to every State to campaign? As a matter of fact, a case can be made that the Minister who takes an oath to fulfil his ministerial duties to the best of his ability for five years and then goes on electoral campaigns violates the oath of office which requires him to do his work as a Minister. If there are people required to campaign everywhere in the country, let them not be made Ministers. If elections are held in one or two States, why should the administration in the remaining States stop functioning?
The Law Commission, a Parliamentary Standing Committee, and the Election Commission have supported this idea in principle.
•TS:Adding to what Mr. Chokkar said, till 1967, simultaneous elections were in vogue. The situation changed after that. All the reasons Mr. Chokkar gave are valid. You see, in a democratic country, an election is the core thread through which people can express their views about the government. At other times, the government has the upper hand. Saying that a few crores being spent on elections is a waste is not a valid argument.
•Then I come to the Lok Sabha. In 1977, the Lok Sabha’s term lasted only for three years. In 1989 it lasted only for two years. In 1996, the 11th Lok Sabha lasted for 18 months, and the 12th Lok Sabha lasted 13 months. Even the Lok Sabha cannot be assured of a full term. And if the Lok Sabha is dissolved and the State governments are stable, what is the solution to that?
Does the proposal display a contempt for the parliamentary system and the federal arrangement?
•TS:Yes, there is an apprehension that it is so. What is the urgency when there are so many issues to debate? There are serious concerns about the federal structure and its future against the backdrop of this proposal.
•JSC:Part VI of the Constitution concerns the States. The States have an independent constitutional entity and existence. They have their own rhythm of elections. To forcibly change a constitutional entity’s natural progression is unconstitutional. And as has been said by Siva, it is a violation of the federal structure. So, one, there is independent constitutional existence, and two, there is the famous Kesavananda Bharati judgment in which a 13-judge Bench said, yes, Parliament does have the power to amend the Constitution, but that power does not extend to the point where the basic structure can be changed. The basic structure has been defined variously by several Supreme Court judgments. And in all those descriptions the federal character of the Constitution is a permanent component and prevents Parliament from amending the basic structure of the Constitution. Therefore, I maintain that even if all parties agree that simultaneous elections should be held, it is unconstitutional and it will not stand the test of judicial scrutiny. It is against the spirit of democracy and it should not be done.
•If the party in power wants to have absolute control over all the States, it should move a formal proposal to have a presidential form of government. I have no problem with that, but that should be discussed in that form and not through this devious and circuitous way.
How unfair is this proposal to smaller parties and particularly regional parties?
•TS:Importance to States was accorded only after the emergence of regional parties. Till then, the national party dominated. After the emergence of regional parties, importance was given to local issues, and regional importance, of course, gained momentum. That cannot be sought to be undermined or underestimated in the future. If a simultaneous election comes through, the national party may take that as a sign for a simultaneous verdict. There are chances that the prevailing situation will help a party to remain in power at the Centre and in the States. This proposal will undermine the federal structure by pushing the regional parties out.
•JSC:Absolutely. I feel that this is perhaps one of the unstated intentions. To get rid of all the minor parties, so to say, is to get rid of the Opposition. Regional parties will lose out because it will be argued that we are also voting for Parliament and for national issues. So, should the voter be voting on national issues in the State elections or on regional issues?
•I had written a piece with Sanjay Kumar for your newspaper [in 2016] where I had said that [from the 1989 general election onwards], out of 31 instances where elections for State Assemblies and Parliament were held simultaneously, in 24 cases the same party was voted for the State Assembly and Parliament. So, the chances of voters voting together for the same party for the State and the Centre are high.
•Even when the Congress was in power, and during Indira Gandhi’s time, there was a proposal for a presidential form of government, though the slogan of ‘one nation, one election’ was not used. So, it is a fact that any party which finds itself in a rather strong position feels like perpetuating its rule. But that does not mean that it is democratic.
•The third issue is that in the last three years, there have been a number of discussions on simultaneous elections. And this government, even before Parliament meets, calls a meeting of the political parties on this issue. This makes me wonder whether it is a diversionary tactic of the government so that people don’t think about other issues.
What do you have to say about electoral bonds brought in by the NDA government to ensure transparency?
•JSC:It is ironic that there is a limit on the expenditure that a candidate can incur during elections but there is no limit on the expenditure that a party can incur. What is the source of income of political parties? Nearly 70-80% of the income of parties on an average is from unknown sources. And now, on top of that, we have this new scheme called electoral bonds. This is a blatant way of converting black money into white. Data show that in 2017-18, 95% of the bonds were received by the party in power. Now, this is a way of choking the funding to all Opposition parties, big or small. And if funding to all Opposition parties is choked, obviously other parties will be unable to function. That’s why we are in the Supreme Court and the matter is under the consideration of the Court. Our contention is that it is against all the apex court’s judgments on transparency. I mean, the whole exercise of making electoral bonds a Money Bill, which it is not, is questionable. There are many things wrong with electoral bonds and they will make the election expense issue even more opaque.
•I repeat, election expenses are not an issue. If political parties are going to be truly democratic in their internal functioning, they have to stop choosing candidates on their winnability quotient, the exact definition of which is not known to anybody, but we do know that money and muscle power form two very important parts. Till that is corrected, the election expenditure issue is not going to be sorted out.
•TS:I would like to know how much money can be saved by holding simultaneous elections. We will oppose the move and continue to do so. The government cannot paralyse the best practices which have been followed so far.
📰 BIMSTEC, a viable option
Unlike SAARC, it provides an opportunity for economic, cultural and social cooperation in the region
•S. Jaishankar’s first foreign visit as External Affairs Minister to Bhutan might be indicative of the government’s attempt to rekindle India’s ‘Neighbourhood First’ policy that started with Prime Minister Narendra Modi inviting SAARC leaders to his swearing-in ceremony in 2014.
•The shift of focus from other regional initiatives such as SAARC to BIMSTEC in the past five years can be attributed to the inability of SAARC to foster regional cooperation and make progress. Regional cooperation under SAARC saw no progress, as indicated by the fact that the group has not met since 2014. Further, the summit stood cancelled in 2016 because it was boycotted by India, along with three other member states, owing to terror attacks in India allegedly sponsored by Pakistan-linked operatives. This prompted the Indian government to shift its focus to BIMSTEC to enhance regional cooperation, as manifested by the BIMSTEC state heads being invited to the oath-taking ceremony of the incumbent Modi government.
•The Indian government, however, needs to be cautious in its approach toward BIMSTEC, otherwise it may meet a fate akin to previous attempts at cooperation in the region. Indeed, the trajectory of regional cooperation is driven by the nature and success of previous attempts at regional cooperation because there tends to be an acquiescence to the way states interact in a region. This is not to say that states will interact only in that manner. As seen in Europe, the relationship dynamic has changed time and again over the decades.
•Regional initiatives in Asia, like SAARC, have been defined along the tangents of strategy and security more than they have been along economic, cultural and social lines. This can be attributed to contemporary geopolitical concerns and the mistrust that exists among the countries that are party to these organisations. Nevertheless, it is likely that looking towards BIMSTEC for regional economic, cultural and social cooperation may prove fruitful. This is because it does not include Pakistan, which has been an impediment to SAARC’s success and has kept the group’s relational dynamic focused on security and strategy. Further, China’s absence in BIMSTEC could mean that there may be fewer obstacles hindering the achievement of the organisation’s mandate. This is because bilateral and contentious issues will be excluded from the group’s deliberations, especially given that India and China have conflicting world views and sometimes clash on regional goals. As the renegotiation of SAARC remains unattainable, BIMSTEC might be a viable option for India to maintain its foreign policy discourse. However, New Delhi will have to take into account the fact that in Asia, economics and politics have historically been deeply integrated, and not fall into the acquiescence trap.
📰 At the high table
India must think big as it takes a step towards a non-permanent seat on the UNSC
•By winning the unanimous endorsement of the 55-nation Asia-Pacific Group at the United Nations Security Council, India has cleared an important hurdle in its quest for a non-permanent seat for 2021-22. The decision of the grouping this week was taken as India was the sole candidate for the post. In the next step, all 193 members of the UN General Assembly will vote for five non-permanent seats in June 2020, when India will need to show the support of at least 129 countries to go through to the UNSC. It will then occupy the seat at the UNSC for a two-year period, as it has previously on seven occasions since 1950-51. There are several reasons why India decided to pursue its candidature for 2021-22. The government at the time had felt it was necessary to have India’s voice at the high table as many times as possible, and therefore began the process for another seat shortly after it had ended its previous tenure in 2011-2012. By rotation, that seat would have reached India only in the 2030s, and India had to reach out to Afghanistan, which had put in its bid already for the 2021-22 slot, to request it to withdraw. Afghanistan did so because of the special relationship between the two countries. India has a unique role to play at the UNSC, given the near-complete polarisation among the permanent members (P-5 nations), with the U.S., the U.K. and France on one side, and Russia and China on the other. India’s ability to work with both sides is well known. The year 2022 also has a sentimental value attached to it, as it marks the 75th year of India’s Independence, and a place at the UNSC would no doubt add to the planned celebrations that year. Since 2013, when it first announced the bid, the government has run a quiet but consistent campaign towards this goal.
•It is significant that despite the poor state of bilateral relations with Pakistan, and the many challenges India has faced from China at the UN, both the countries graciously agreed to the nomination. From this point on, it is necessary for the government to think beyond the campaign for the UNSC, and work out a comprehensive strategy for what it plans to do with the seat. In the past, India has earned a reputation for ‘fence-sitting’ by abstaining on votes when it was required to take a considered stand on principle, and the seat will be a chance to undo that image. Given the twin challenges of a rising China, and the U.S. receding from its UN responsibilities, India must consider how it will strengthen the multilateral world order amid frequent unilateral moves by both the world powers. An even bigger challenge will be to nudge all five permanent members on the one issue they have unitedly resisted: towards the reform and expansion of the UNSC, which would include India’s claim to a permanent seat at the high table.
📰 Prudent prescription
An RBI panel’s suggestions on the MSME sector cut to the heart of crucial issues
•The micro, small and medium enterprises (MSME) sector in India is not only a key engine of growth, contributing more than 28% of the GDP and about 45% to manufacturing output. It is also a true reflection of economics where people really matter. Providing employment to about 111 million people, the sector’s health is crucial to the economy’s vitality and society’s well being. An expert committee constituted by the Reserve Bank of India has in this context submitted a substantially germane study on the issues bedevilling MSMEs and made a fairly exhaustive set of recommendations to redress them. The panel is emphatic that the policy environment needs to be urgently refocussed. To that end, it is imperative that the thrust of the enabling legislation — a 13-year-old law, the MSME Development Act, 2006 — be changed to prioritise market facilitation and ease of doing business. Observing that many Indian start-ups that are at the forefront of innovation are drawn to look overseas, given the conducive business environment and the availability of infrastructure and exit policies, the experts suggest that a new law ought to address the sector’s biggest bottlenecks, including access to credit and risk capital. A substantial part of the study is justifiably devoted to reimagining solutions to improve credit flow to MSMEs. For instance, the experts recommend repurposing the Small Industries Development Bank of India. In its expanded role, it is envisaged that the SIDBI could not only deepen credit markets for MSMEs in under-served regions by being a provider of comfort to lenders including NBFCs and micro-finance institutions, but also become a market-maker for SME debt.
•With technology, especially digital platforms, having become so ubiquitous, the panel has made a case for greater adoption of technology-facilitated solutions to a plethora of problems encountered by the sector. To address the bugbear of delayed payments, the mandatory uploading of invoices above a specified amount to an information utility is a novel approach. The aim is to name and shame buyers of goods and services from MSMEs to expedite settlements to suppliers. While it does sound simplistic, and banks a lot on the power of moral suasion, it is a tack worth trying. Another suggestion entails expediting the integration of information on the Government 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 to switch to cash flow-based lending, especially once account aggregators are operational and able to provide granular data on borrowings. The RBI and the Centre clearly have their work cut out in acting on this prudent prescription to help actualise the sector’s true economic potential.
📰 SEBI tightens norms for MF investments
Regulator does not recognise funds’ standstill agreements with company promoters
•In a reaction to a series of credit-related events that put investor money at risk, markets regulator Securities and Exchange Board of India (SEBI) on Thursday tightened norms on investments by mutual funds (MFs).
•Vowing to take action against MFs getting into standstill agreements with the promoters of companies, SEBI Chairman, Ajay Tyagi said, “We don’t recognise any such standstill agreements. MFs are not banks and there is nothing called ‘standstill’. They (MFs) are investing rather than lending and some of these restrictions have been put to bring in more discipline.”
•Last month, the markets watchdog had questioned the legality of an agreement between some fund houses and the Essel Group, giving the business house time till September to repay its dues.
•Early this year, the Anil Ambani-led Reliance Group had reached an understanding with more than 90% of its lenders to avoid sale of any stock pledged by the promoters until September 30.
•This was despite the collateral cover shrinking and margins contracting following an unprecedented fall in share prices of the group firms.
•SEBI is also looking into the recent stake sale by Emami promoters in the company to raise Rs. 1,600 crore from a group of investors, including SBI Mutual Fund.
•Announcing a slew of reforms after its board meeting on Thursday, Mr. Tyagi said that there was a need to improve enforcement on all fronts.
•SEBI’s board had decided on key reforms over liquid funds, credit rating firms, promoters’ pledge of shares, and royalty payments.
•SEBI said MFs will now be mandated to invest in only listed non-convertible debentures. All fresh investments by MFs in commercial papers (CPs) and equities will also be allowed only in listed securities and liquid mutual fund schemes will have to hold at least 20% in liquid assets.
Protecting investors
•Amit Singh, CEO, Investica, an online platform for investing in mutual funds said, “Today’s SEBI meeting has created a tighter framework for debt mutual funds which will ensure that investors are not exposed to undue risk. By making it mandatory to invest in listed NCDs and CPs, SEBI has taken a step towards ensuring the liquidity of the instruments.
•Valuation of securities in debt funds will now be on mark-to-market value and hence, there will uniformity across the industry with fair valuation of each debt security.”
•“The cap on sectoral limit of 25% shall be reduced to 20%. The additional exposure of 15% to HFCs shall be restructured to 10% to HFCs and 5% in securitised debt,” said SEBI in a statement.
•In a further tightening, promoters, promoter groups and persons acting in concert (PACs) will need to disclose the reason for creating an encumbrance as soon as 20% of their share capital is leveraged.
•SEBI also approved the framework for issuance of differential voting rights (DVRs) and introduction of superior voting rights for tech companies, which will be effective from July 01, 2019.
•Welcoming SEBI’s move to allow DVRs for Indian tech companies, Bhavish Aggarwal, founder, Ola, in a tweet said, “I‘m certain this will encourage Indian companies to list within the country, backed by our own people. Made in India businesses and entrepreneurs can control their destiny and build for the world!.”
📰 NBFC crisis separated the good from the bad, says RBI
‘Firms with strong fundamentals managed their liquidity’
•The on-going crisis in the non-banking financial companies (NBFC) sector has brought it under greater market discipline, even as the better performing companies continued to raise funds, while those with an asset liability mismatch and asset quality concerns faced higher borrowing costs, the Reserve Bank of India said in its half-yearly Financial Stability Report.
•NBFCs are facing a crisis of confidence post the IL&FS debt default in September last year, with a sharp increase in their borrowing costs.
•As on March 31, there were 9,659 NBFCs registered with the RBI, of which 88 can accept public deposits.
•“Despite the dip in confidence, better-performing NBFCs with strong fundamentals were able to manage their liquidity even though their funding costs moved with market sentiments and risk perceptions,” the report said.
•While bank borrowings, debentures and commercial papers are the major sources of funding for the NBFCs, borrowings from banks have shown an increasing trend as their (banks) share in total borrowings has increased from 23.6% in March 2018 to 29.2% in March 2019 and NBFCs’ dependence on debentures declined.
•“This indicates that banks are compensating for the reduced market access for NBFCs in the wake of stress in the sector,” the RBI said. Commercial paper issuance by NBFCs sharply declined post the IL&FS default.
•Gross non-performing assets (NPA) of the NBFC sector as a percentage of total advances increased from 5.8% in 2017-18 to 6.6% in 2018-19, though the net NPA ratio declined marginally.
•Their capital adequacy ratio (CAR) also moderated to 19.3% as on March 2019 as compared to 22.8% a year ago. The stress test revealed that their CAR may decline further.
📰 Government revamps WPI revision team
To choose most appropriate base year
•The government has reconstituted the working group tasked with revising the current wholesale price index (WPI), it announced on Thursday.
•The terms of reference (ToR) of the working group include selecting the most appropriate base year for the preparation of a new official series of index numbers of wholesale price (WPI) and producer price index (PPI) in India.
•The working group will also have to review the commodity basket of the current WPI series and suggest additions or deletions of commodities in the light of structural changes that occurred in the economy since 2011-12.
•The ToRs also include a review of the existing system of price collection and suggesting improvements, along with coming up with a computational methodology to be adopted for the monthly WPI and PPI.
•“The current series of wholesale price index with 2011-12 as base year was introduced in May 2017,” the Ministry of Commerce said in a statement. “Since 2011-12, significant structural changes have taken place in the economy. Therefore, it has become necessary to examine the coverage of commodities, weighting diagram and related issues pertaining to the existing series of index numbers of wholesale price index.”
•The working group will be chaired by NITI Aayog Member Ramesh Chand and will have members from the Central Statistical Office, the Ministries of Finance, Petroleum and Natural Gas among others.
📰 NPAs down, credit growth picking up: RBI
Capital infusion helps improve CAR
•Gross non-performing assets in the banking system have declined for the second consecutive half year, while credit growth is picking up, the Reserve Bank of India (RBI) said in the half yearly Financial Stability report.
•“With the bulk of the legacy non-performing assets (NPAs) already recognised in the banking books, the NPA cycle seems to have turned around,” the report said. Gross NPA ratio declined to 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 adequacy ratio 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, there was a marginal decline in the CAR of private sector banks.
•In his foreword, RBI Governor Shaktikanta Das said state-run lenders showed a noticeable improvement with recapitalisation, with both provision coverage as well as capital adequacy improving, 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 in the public sector banks’ ability to attract private capital through market discipline, rather than being overly dependent on the government for capital.
•With the number of banks having more than 20% gross NPAs coming down in March 2019, RBI said this implied a broader improvement in asset quality. Credit growth of public sector banks were at 9.6% while private lendsers continue to robust growth of 21%. Overall credit growth marginally 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 and a widening current account deficit have exerted pressure on the fiscal front. “This has implications for the government’s market borrowing programme and market interest Rates,” RBI said, observing that reviving private investment demand remained a key challenge going forward. Mr. Das said a dip in consumption and private investment exerted pressure on the fiscal situation, but with current inflation outlook remaining moderate, growth could help alleviate fiscal constraints to some extent.
📰 Cut logistics cost to 9% of GDP, Goyal tells States
‘Ministries of railways, transport, shipping and aviation must work in tandem to reach goal’
•Commerce and Railways Minister Piyush Goyal on Thursday asked the various transport Ministries to find ways to reduce logistics costs in the country to 9% of GDP by 2022 from the current 14%.
•Mr. Goyal held the meeting with officials from the Ministries of Railways, Road Transport and Highways, Shipping, and Civil Aviation to review the draft National Logistics Policy and the proposed implementation plan of the Policy.
•“Piyush Goyal directed that all four Ministries must work in coordination with each other so that the 14% logistics cost of India’s GDP may be brought down to 9%,” the Ministry of Commerce said in a release following the meeting.
•One key aspect discussed in the meeting was the need to reduce the time taken for the transport of farm produce such as foodgrains, fruits and vegetables from the farm to the market, according to an official in the Ministry of Commerce, who also attended the meeting. “There was also some talk about including a central scheme for a cold chain across the country to be included in the draft logistics policy,” the official told The Hindu .
Reducing loss of produce
•“The focus of the Minister in this regard was to reduce the loss of agricultural produce of the farmers.”
•“Commerce and Industry Minister also directed that whenever any new road, railway, airport and shipping port project is being considered, the Logistics Department must be a part of the consultation process so that holistic planning will be possible, freight movement will be rationalised and passenger experience will improve,” the release added.
