📰 Have electoral bonds made a bad system worse?
In disallowing voters from knowing the identity of donors, the scheme is even more opaque now
•Last month, an investigative series on electoral bonds by independent journalist Nitin Sethi, with the help of Right to Information (RTI) activist Commodore Lokesh Batra (retd), exposed how the BJP leadership misled the Election Commission (EC) and Parliament on key features of the electoral bonds scheme and overruled the Reserve Bank of India (RBI)’s objections in its hurry to implement it. In a conversation moderated by Anuradha Raman , Jagdeep Chhokar and Milan Vaishnav speak of the flawed design of the scheme. Edited excerpts:
The Modi government had introduced the electoral bonds scheme with the promise of bringing in transparency in political funding. But information under the RTI Act shows that it is anything but transparent. In a series of papers in 2017, you, Milan, had flagged several concerns, all of which have been proven true. Do you feel vindicated?
•Milan Vaishnav:I think we should start from the original premise that the introduction of electoral bonds was a victory for transparency. Actually, by their design, electoral bonds legitimise opacity in how elections are funded. There is concern that electoral bonds could become vehicles for money laundering for shell companies, for foreign donations, which are prohibited. We now know that the RBI and the EC shared those concerns. One of the big threats to electoral funding worldwide is that it becomes difficult for voters to hold their elected representatives accountable when they cannot see who is financing whom. That is the central flaw of this scheme.
How important is it for voters to know who is financing whom?
•Jagdeep Chhokar:This is the most fundamental piece of information that voters need to know. When persons who donate money are not philanthropists and are commercial profit-making entities, they donate only when there is a more-than-adequate rate of return. So, when a corporation donates money to a political party, there is obviously a quid pro quo, whether it is known or not. If voters do not know whose money a candidate is using to fund his or her election, they won’t know subsequently whether a decision made by the government is based on the interest of the constituents, in national interest, or in the interest of whoever donated the money.
Prior to electoral bonds, political parties had to maintain records of donations above Rs. 20,000. The cheque number and PAN card of the donor had to be provided to the EC, which put it out in public domain. But we know how parties and donors gamed the system. So, when electoral bonds were announced, did you see them as a ray of hope?
•MV:Far from it. This is an extremely regressive scheme. Essentially whatever modicum of transparency might have been under the previous system [is not there now]. Granted, [there was very little transparency then] because even though anything above Rs. 20,000 had to be disclosed, there were ways to circumvent that. Corporations/ individuals gave cheques/ payments that were Rs. 19,999! But be that as it may, there was limited transparency. Now, even the incentive to give through that route is gone because the government has essentially said it is perfectly legitimate for you to give anonymously any amount to any party from anywhere.
•JC:Former Finance Minister Arun Jaitley had said electoral bonds will be in the nature of bearer bonds and the identity of the donor will be anonymous. How do anonymity and transparency go together? They are the anti-thesis of each other.
Mr. Chhokar, did the earlier system provide a modicum of transparency in political funding?
•JC:Certainly not. But this is much worse. In that system, no company could donate more than 7.5% of its profits to a political party. Now that limit has been completely removed. Today, a company can donate 100% of its profits... I would imagine there is no bar if the company also decides to donate its capital. This opens up the possibility of any foreign company or entity opening a shell company in India, with the money coming to it through a banking channel from Costa Rica or wherever, and then giving [that money] to the political party in power. Therefore the possibilities of unaccounted, illegal money controlling the policies and decision-making of the Indian government is now alive.
•MV:I think any analysis of electoral bonds has to be viewed in the broader context of a number of legislative changes which were made. The first was the removal of the cap on corporate donations. The second was the elimination of the requirement that companies must disclose details of their political funding. And the third is the complete rewriting of the Foreign Contribution (Regulation) Act, 2010, to redefine what a foreign firm is, and this is because both the Congress and the BJP have been guilty of taking donations from foreign firms. So, rather than confessing to their crimes, or being held accountable, they just decided to redefine what a foreign company was. All these three things go hand in hand with electoral bonds.
How concerned are you that the concerns of the RBI and the EC were swept away?
•MV:One of the biggest takeaways for me is how leading institutions seem completely unmatched when compared to the power of the executive. We know that the RBI, the EC and even Parliament had significant concerns. Those were dismissed in a variety of ways. And their concerns really match what groups like the ADR [Association for Democratic Reforms] had been saying, what independent analysts had been saying, which was that you are essentially going to create a system that is even worse than the status quo. Now, it is true that the executive has a lot of power, and it’s not clear what the EC could have done to stop it, but it surely could have done more than what it did in terms of going to the public raising concerns, even considering resignations.
Should the EC have done more?
•JC:First, the EC is a constitutional institution so it can’t be easily played around with. Second, the RBI Act under Section 31 says that any currency or similar documents or instruments can be issued only by the RBI. That bit was also changed to say that the State Bank of India will issue bonds. Lastly, the concerns of the RBI and EC were flippantly and irresponsibly undermined and overlooked.
•Now, could the EC have done more? I don’t think so. The EC is kind of hemmed in by Supreme Court decisions and the laws that Parliament makes. So, I think the EC in writing that letter did a wonderful job. Milan talks about commissioners resigning. Whether that achieves any purpose is questionable. If one person resigns, there are 20 more willing to be appointed and do the bidding of the government.
•MV:I think one has to separate two issues. Jagdeep and I agree that the design is fundamentally flawed. But there’s also the question of implementation. And I think what Nitin’s investigation has shown is that we have several fundamental issues with implementation. We know, for instance, that the Prime Minister’s Office intervened to go beyond the regulations to create new windows. We know that pressure was applied to encash expired bonds before State elections. The government has not even come close to answering the allegations on the table about the violation of regulations which they themselves had written.
So, in effect, what the government has managed to do is legalise a system that was seen as a corrupting influence on the democratic process of government formation?
•MV:That’s right. You could argue that we’re going to have too much money in politics and there’s little we can do to stop it. But if that’s your position, let’s at least try to allow voters to be able to connect the dots. If you really believe the rhetoric about the war on cash, why has the government not scrapped cash-giving altogether, which was in their power to do so? But of course, they chose not to do that because they’d like to have their cake and eat it too.
•JC:I don’t think the government legalised an illegal system. The point is that the system is not legal because the way electoral bonds were introduced as part of the Budget, as a Money Bill, was unconstitutional. We are hoping that as the whole scheme was pushed as a Money Bill, it will be struck down by the court.
Former Chief Election Commissioner S.Y. Qureshi had suggested the setting up of a National Electoral Fund to address the issue of political funding. Do you think that could be a way out?
•JC:The problem is that if political parties are to be given money from the election fund in proportion to the number of votes that they have pulled in the previous election, then they would not be allowed to take money from anywhere else. I will bet whatever anybody wants, parties will not agree to the proposal. It is impractical simply on that count.
•MV:Not under the current status quo. I think injecting funds into the current opaque system would be throwing away good money. There has to be a grand bargain that if you want to put public funding on the table, you’re going to have to insist on much stricter norms and adherence to those norms by parties and candidates so that there should be a requirement that any funds raised be processed digitally. Second, there has to be an independent third party scrutiny of political party accounts. Third, the EC has to be given greater power and authority to go after wrongdoers.
•JC:There are two more things. Appointments of Election Commissioners have to be made non-partisan. And it is ridiculous that the EC has no power to de-register a political party.
What is the way out?
•JC:Political parties have to understand that they are also governed by the law. The Central Information Commission (CIC) says six national political parties are public authorities under the RTI. The Central Information Commission is the highest statutory authority for the RTI Act. But all the six parties have blatantly defied that. And the government has given an affidavit in the Supreme Court that political parties should not be under the RTI Act.
•MV:You can’t have a situation where six major political parties thumb their nose at the CIC saying, we reject your ruling that we are under your ambit and there’s nothing apparently anyone can do about it.
•But we also have to set the default position at a more transparent level, so that citizens, every time they want to know who’s funding whom, don’t have to submit an RTI. In the wake of demonetisation, the government asked every private citizen, companies, entrepreneurs to go digital and shun cash payments. Political parties weren’t asked to comply. There is a fundamental hypocrisy at work here that has to be rectified.
Central bank buys dollars to check sharp appreciation of rupee
•The country’s foreign exchange reserves crossed the $450-billion mark for the first time ever on the back of strong inflows which enabled the central bank to buy dollars from the market, thus checking any sharp appreciation of the rupee.
•“India’s foreign exchange reserves were at $451.7 billion on December 3, 2019 — an increase of $38.8 billion over end-March 2019,” RBI Governor Shaktikanta Das said at the post monetary policy press conference.
•At $451.7 billion, the country’s import cover is now over 11 months.
•The rise in foreign exchange reserves will give the central bank the firepower to act against any sharp depreciation of the rupee, currency analysts said.
•The Reserve Bank has always maintained that it intervenes in the foreign exchange market to curb volatility and does not target a particular level of exchange rate.
Foreign investment
•Net foreign direct investment rose to $20.9 billion in the first half of 2019-20 from $17 billion a year ago while net foreign portfolio investment was $8.8 billion in April-November 2019 as against net outflows of $14.9 billion in the same period last year. “Net investment by FPIs under the voluntary retention route has amounted to $6.3 billion since March 11, 2019,” Mr. Das said.
•During the taper tantrums of 2013, (or the collective reactionary panic after the U.S. Federal Reserve said it would apply the brakes on its Quantitative Easing programme), India’s foreign exchange reserves fell to $274.8 billion in September of 2013, prompting the Centre and RBI to unleash measures to attract inflows. It has been a steady rise for the reserves since then, with $175 billion added in the last six years.
📰 In a surprise, RBI keeps interest rate unchanged
There is space for further policy action: Shaktikanta Das
•The Reserve Bank of India (RBI) surprised the market by keeping the policy interest rate unchanged at 5.15% at the fifth bimonthly monetary policy review meeting, despite slowing economic growth, citing inflation concerns.
•The market was expecting the central bank to cut interest rates for the sixth straight time. All six members of the monetary policy committee voted for keeping the rate unchanged. The accommodative stance of the monetary policy was retained.
•“...the MPC has committed to maintaining an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target,” RBI Governor Shaktikanta Das said at a briefing.
•“This forward guidance in itself indicates that there is space for further monetary policy action. However, there is a need to optimise the impact of rate reductions. The key consideration has to be the timing of further actions, even as we monitor the impact of actions taken so far,” Mr. Das said. He said the RBI paused to wait for further clarity on the inflation front and the steps that the government might take in the Budget to prop up growth.
•RBI’s concern over inflation comes mainly from food prices apart from increase in tariff by telecom players.
•Mr. Das said there is a need to optimise the impact of rate reduction, indicating he expects banks to cut lending rates further in response to the earlier 135 bps rate cut. Banks have reduced their one year marginal cost of fund based lending rate only by 49 bps in response to the 135 bps repo rate cut.
•“The RBI decision for a status quo, though an unanticipated policy surprise, is the most appropriate as monetary policy works with a lag,” said Rajnish Kumar, chairman, State Bank of India.
•RBI raised inflation forecast to 5.1-4.7% for the second half of 2019-20 and 4.0-3.8% for the first half of 2020-21. In the October policy, CPI inflation was projected at 3.5-3.7% for H2 of 2019-20 and 3.6% for Q1 of 2020-21.
Growth forecast
•Growth forecast for the current financial year was revised downward sharply — from 6.1% projected in the October policy, to 5%.
•“Clearly, the RBI has responded to hardening headline inflation and rising inflation expectations of households,” said Abheek Barua, Chief Economist, HDFC Bank.
•“It also seems that the RBI wishes to see the lagged impact of its front-loaded 135 basis point cut in the policy rate along with how some of the slew of fiscal measures plays out for future growth,” Mr. Barua said.
•Bond yields reacted sharply to the RBI’s decision with the yield on the 10-year benchmark government bond shooting up 14 bps to close the day at 6.61%.
📰 A potential seedbed for private profits
The new Seeds Bill is tilted against farmers’ interests and loaded in favour of seed companies
•After passing through at least two versions, Seeds Bill 2019 is now under Parliament’s consideration. The earlier versions of the Bill, in 2004 and 2010, had generated heated debates. The present version promises to be no different.
•In 1994, India signed the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In 2002, India also joined the International Union for the Protection of New Varieties of Plants (UPOV) Convention. Both TRIPS and UPOV led to the introduction of some form of Intellectual Property Rights (IPR) over plant varieties. Member countries had to introduce restrictions on the free use and exchange of seeds by farmers unless the “breeders” were remunerated.
Balancing conflicting aims
•TRIPS and UPOV, however, ran counter to other international conventions. In 1992, the Convention on Biological Diversity (CBD) provided for “prior informed consent” of farmers before the use of genetic resources and “fair and equitable sharing of benefits” arising out of their use. In 2001, the International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) recognised farmers’ rights as the rights to save, use, exchange and sell farm-saved seeds. National governments had the responsibility to protect such farmers’ rights.
•As India was a signatory to TRIPS and UPOV (that gave priority to breeders’ rights) as well as CBD and ITPGRFA (that emphasised farmers’ rights), any Indian legislation had to be in line with all. It was this delicate balance that the Protection of Plant Varieties and Farmers’ Rights (PPVFR) Act of 2001 sought to achieve. The PPVFR Act retained the main spirit of TRIPS viz., IPRs as an incentive for technological innovation. However, the Act also had strong provisions to protect farmers’ rights. It recognised three roles for the farmer: cultivator, breeder and conserver. As cultivators, farmers were entitled to plant-back rights. As breeders, farmers were held equivalent to plant breeders. As conservers, farmers were entitled to rewards from a National Gene Fund.
•According to the government, a new Seeds Bill is necessary to enhance seed replacement rates in Indian agriculture, specify standards for registration of seed varieties and enforce registration from seed producers to seed retailers. While these goals are indeed worthy, any such legislation is expected to be in alignment with the spirit of the PPVFR Act.
•For instance, a shift from farm-saved seeds to certified seeds, which would raise seed replacement rates, is desirable. Certified seeds have higher and more stable yields than farm-saved seeds. However, such a shift should be achieved not through policing, but through an enabling atmosphere. Private seed companies prefer policing because their low-volume, high-value business model is crucially dependent on forcing farmers to buy their seeds every season. On the other hand, an enabling atmosphere is generated by the strong presence of public institutions in seed research and production. When public institutions, not motivated by profits, are ready to supply quality seeds at affordable prices, policing becomes redundant.
•But this has not been the case in India. From the late-1980s, Indian policy has consciously encouraged the growth of private seed companies, including companies with majority foreign equity. Today, more than 50% of India’s seed production is undertaken in the private sector. These firms have been demanding favourable changes in seed laws and deregulation of seed prices, free import and export of germplasm, freedom to self-certify seeds and restrictions on the use by farmers of saved seeds from previous seasons. Through the various versions between 2004 and 2019, private sector interests have guided the formulation of the Seeds Bill. As a result, even desirable objectives, such as raising the seed replacement rates, have been mixed up with an urge to encourage and protect the business interests of private companies. Not surprisingly, many of the Bill’s provisions deviate from the spirit of the PPVFR Act, are against farmers’ interests and in favour of private seed companies.
Problematic provisions
•I shall, for illustration, highlight six examples where the Bill, despite revisions, continues to be tilted against farmers’ interests.
•First, the Seeds Bill insists on compulsory registration of seeds. However, the PPVFR Act was based on voluntary registration. As a result, many seeds may be registered under the Seeds Bill but may not under the PPVFR Act. Assume a seed variety developed by a breeder, but derived from a traditional variety. The breeder will get exclusive marketing rights. But no gain will accrue to farmers as benefit-sharing is dealt with in the PPVFR Act, under which the seed is not registered.
•Second, as per the PPVFR Act, all applications for registrations should contain the complete passport data of the parental lines from which the seed variety was derived, including contributions made by farmers. This allows for an easier identification of beneficiaries and simpler benefit-sharing processes. Seeds Bill, on the other hand, demands no such information while registering a new variety. As a result, an important method of recording the contributions of farmers is overlooked and private companies are left free to claim a derived variety as their own.
•Third, the PPVFR Act, which is based on an IPR like breeders’ rights, does not allow re-registration of seeds after the validity period. However, as the Seeds Bill is not based on an IPR like breeder’s rights, private seed companies can re-register their seeds an infinite number of times after the validity period. Given this “ever-greening” provision, many seed varieties may never enter the open domain for free use.
•Fourth, while a vague provision for regulation of seed prices appears in the latest draft of the Seeds Bill, it appears neither sufficient nor credible. In fact, strict control on seed prices has been an important demand raised by farmers’ organisations. They have also demanded an official body to regulate seed prices and royalties. In its absence, they feel, seed companies may be able to fix seed prices as they deem fit, leading to sharp rises in costs of cultivation.
•Fifth, according to the PPVFR Act, if a registered variety fails in its promise of performance, farmers can claim compensation before a PPVFR Authority. This provision is diluted in the Seeds Bill, where disputes on compensation have to be decided as per the Consumer Protection Act 1986. Consumer courts are hardly ideal and friendly institutions that farmers can approach.
•Sixth, according to the Seeds Bill, farmers become eligible for compensation if a plant variety fails to give expected results under “given conditions”. “Given conditions” is almost impossible to define in agriculture. Seed companies would always claim that “given conditions” were not ensured, which will be difficult to be disputed with evidence in a consumer court.
The way ahead
•Given the inherent nature of seeds, farmer-friendly pieces of seed legislation are difficult to frame and execute. This is particularly so as the clout of the private sector grows and technological advances shift seed research towards hybrids rather than varieties. In hybrids, reuse of seeds is technically constrained.
•The private sector, thus, has a natural incentive to focus on hybrids. In such a world of hybrids, even progressive seed laws become a weak defence. On the other hand, strong public agricultural research systems ensure that the choices between hybrids, varieties and farm-saved seeds remain open, and are not based on private profit concerns. Even if hybrids are the appropriate technological choice, seed prices can be kept affordable. For the seed sector and its laws to be truly farmer-friendly, the public sector has to recapture its lost space.
📰 RBI lays down guidelines for payments banks’ SFB licence
Approval only after 5 years of operations, says central bank
•Payments banks willing to convert themselves into small finance banks (SFBs) can apply for such a licence only after five years of operations, the Reserve Bank of India (RBI) said on Thursday in the final guidelines on on-tap licensing for SFBs.
•“Existing payments banks (PBs), which are controlled by residents and have completed five years of operations, are also eligible for conversion into small finance banks after complying with all legal and regulatory requirements of various authorities and if they conform to these guidelines,” the norms said.
•The minimum capital for setting up an SFB has been mandated at Rs. 200 crore, the RBI said, addingm for primary (urban) co-operative banks (UCBs), which wish to become SFBs, the initial requirement of net worth will be Rs. 100 crore, which will have to be increased to Rs. 200 crore within five years from the date of commencement of business.
•Separately, the banking regulator said, to reduce the concentration risk in the exposures of primary (urban) co-operative banks and to further strengthen the role of UCBs in promoting financial inclusion, certain regulations will be amended.
•“The guidelines would primarily relate to exposure norms for single and group/interconnected borrowers, promotion of financial inclusion, priority sector lending, etc,” the Reserve Bank said. A draft circular proposing the changes will be issued shortly.
•The banking regulator also added that it decided to bring UCBs with assets of Rs. 500 crore and above, under the reporting framework of the Central Repository of Information on Large Credits (CRILC).
📰 Lack of demand for corporate loans, says SBI
‘Retail lending growing at decent rate’
•State Bank of India (SBI), the country’s largest lender, said on Thursday it was witnessing a lack of demand for corporate loans, a category where growth is also ‘muted’. Retail lending, however, is growing at a decent rate, the bank said.
•“Corporate lending growth is at 2-3%. Clearly, there is a lack of demand for corporate loans. However, retail lending [home loans, personal loans] is seeing reasonable growth at 18%,” SBI MD Arijit Basu told reporters here.
•He said the SBI Purchasing Managers’ Index (PMI) has crossed the 50% mark for the first time last month.
•“This shows sentiments are slightly improving now.” Asked about the status of non-performing assets (NPA), Mr. Basu said that gross NPAs declined by 1.5% to 7.2% as on September 30.
•Net NPAs stood at 2.79%, he said.
