indian economy - august 2019...farm ponds can be cost-effective structures that transform rural...

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Source : www.thehindu.com Date : 2019-08-01

TRANSFORMING LIVELIHOODS THROUGH FARMPONDS

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

With an increased variability of monsoons and rapidly depleting groundwater tables, large partsof India are reeling under water stress. A number of peninsular regions like Bundelkhand,Vidarbha and Marathwada have been facing recurring drought-like situations. Given theenormity of the crisis, at a recent NITI Aayog meeting, Prime Minister Narendra Modi explicatedthe need to implement innovative water management measures, stressing particularly theimportance of rainwater harvesting both at the household and community levels. Here, oneintervention that has been tried out in various States, and perhaps needs to be taken up on abigger scale, is the construction of farm ponds.

Farm ponds can be cost-effective structures that transform rural livelihoods. They can helpenhance water control, contribute to agriculture intensification and boost farm incomes.However, this is possible only if they act as rainwater harvesting structures and not asintermediate storage points for an increased extraction of groundwater or diversion of canalwater. The latter will cause greater groundwater depletion and inequitable water distribution.

In a recent study on farm ponds in Jharkhand and West Bengal, we found that they aided insuperior water control through the harvesting not just of rainfall but also of surface run-off andsubsurface flows. Some of them functioned exclusively as recharge points, contributing togroundwater replenishment. They also helped in providing supplemental irrigation in the kharifseason and an enhanced irrigation coverage in rabi. The yield of paddy, the most important cropin kharif, stabilised, thus contributing to greater food security.

Farm ponds retained water for 8-10 months of the year; thus farmers could enhance croppingintensity and crop diversification within and across seasons. The area used to cultivatevegetables and other commercial crops also increased. Further, figures indicated that the pondswere also a financially viable proposition, with a fairly high Internal Rate of Return, of about 19%,over 15 years.

However, in parts of peninsular India, the idea of a farm pond as an in-situ rainwater harvestingstructure has taken a complete U-turn. Here, some of them are benefiting farmers at anindividual level, but not contributing to water conservation and recharge. They are being used asintermediate storage points, accelerating groundwater depletion and increasing evaporationlosses as the groundwater is brought to the surface and stored in relatively shallow structures.

In Maharashtra, the State government is promoting farm ponds under a flagship programme thataims to dig over one lakh structures by offering a subsidy of up to 50,000 per farmer. However,most of them are being constructed without inlet and outlet provisions and their walls are raisedabove the ground level by only a few feet. They cannot arrest the excess run-off as there is noinlet, and therefore they cannot be used effectively for rainwater harvesting. Further, farmers linethem at the bottom with plastic, restricting seepage and converting the ponds into intermediatestorage points.

Such farm ponds have an adverse impact on the water tables and accelerate water loss. Theusual practice here is to lift water from a dug well and/or a borewell, store it in the pond and thendraw it once again to irrigate the fields, often using micro-irrigation. While offering secureirrigation facility, this intensifies competition for extraction of groundwater from the aquifer, which

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is a common pool resource.

In such cases, in the command area of the irrigation project, farmers fill up their farm ponds firstwhen the canal is in rotation and then take it from the pond to the field. This can impedecirculation of water.

During canal rotation, the aquifer will get recharged because of the return flow of water comingfrom the irrigated fields. This return flow benefits all, as most of the farmers access water thoughwells in this command. But if canals fill up the farm ponds first, it restricts their benefits only tothe pond owners and, in the long term, reduces the overall return flow at the system level.

Overall, farm ponds can act as effective harvesting structures and also yield healthy financialreturns. But if they are promoted merely for on-farm storage of groundwater and canal water,they could accelerate, rather than reduce, the water crisis in the countryside.

Nirmalya Choudhury works with VikasAnvesh Foundation. Sachin Tiwale teaches at the TataInstitute of Social Sciences, Mumbai

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Source : www.economictimes.indiatimes.com Date : 2019-08-01

INDIA RECEIVED HIGHEST-EVER FDI WORTH USD64.37 BILLION IN FY19Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade

& BOP

India received the highest-ever FDI inflow of USD 64.37 billion during the fiscal ended March2019, said a government report. According to the Annual Report 2018-19 of the Department forPromotion of Industry and Internal Trade ( DPIIT), foreign direct investments (FDI) worth USD286 billion were received in the country in past five years.

"In the current financial year (2018-19), the country registered highest ever FDI inflow of USD64.37 billion," the report said.

Highlighting the importance of FDI, it said the foreign inflows bring in resources, the latesttechnology and best practices to push economic growth on to a higher trajectory.

The DPIIT under the commerce and industry ministry further said path-breaking reformmeasures undertaken during the last financial year have resulted in India surpassing the FDIreceived in 2016-17 and registering an inflow of USD 60.98 billion during 2017-18, a new all-time high.

The FDI inflows was USD 45.14 billion during 2014-15 when Prime Minister Narendra Modi-ledNDA government assumed power. The inflows were USD 55.55 billion in the following year.

Besides, the DPIIT said an action plan for promotion of Indian 'geographical indications' (GIs)has been prepared. This can help supplement the incomes of our farmers, weavers, artisansand craftsmen. A logo and tagline for all Indian GIs has been prepared through crowd-sourcing.

The government regularly reviews the FDI policy, with a view to make it more investor-friendly.India received the highest-ever FDI inflow of USD 64.37 billion during the fiscal ended March2019, said a government report. According to the Annual Report 2018-19 of the Department forPromotion of Industry and Internal Trade ( DPIIT), foreign direct investments (FDI) worth USD286 billion were received in the country in past five years.

"In the current financial year (2018-19), the country registered highest ever FDI inflow of USD64.37 billion," the report said.

Highlighting the importance of FDI, it said the foreign inflows bring in resources, the latesttechnology and best practices to push economic growth on to a higher trajectory.

The DPIIT under the commerce and industry ministry further said path-breaking reformmeasures undertaken during the last financial year have resulted in India surpassing the FDIreceived in 2016-17 and registering an inflow of USD 60.98 billion during 2017-18, a new all-time high.

The FDI inflows was USD 45.14 billion during 2014-15 when Prime Minister Narendra Modi-ledNDA government assumed power. The inflows were USD 55.55 billion in the following year.

Besides, the DPIIT said an action plan for promotion of Indian 'geographical indications' (GIs)has been prepared. This can help supplement the incomes of our farmers, weavers, artisans

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and craftsmen. A logo and tagline for all Indian GIs has been prepared through crowd-sourcing.

The government regularly reviews the FDI policy, with a view to make it more investor-friendly.



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

Recently, a government panel headed by senior bureaucrat Subhash Chandra Garg placed inthe public domain a draft bill calling for a complete ban on private cryptocurrencies in India. Thepanel recommended a fine of up to 25 crore and a jail term of up to 10 years for anyone found tobe owning or handling private cryptocurrencies. As an alternative to private cryptocurrencies, thepanel recommended the introduction of a single cryptocurrency for the whole country that isbacked by the Reserve Bank of India (RBI). Parag Waknis and Anil Antony examine thesoundness of the panel’s recommendations in a conversation moderated by Prashant Perumal.Edited excerpts:

Parag Waknis: Volatility doesn’t sound like a good rationale to ban cryptocurrencies because ifcryptocurrencies are volatile, so are many other asset classes. We do not ban investments inany other asset class just because it is volatile. The decision of whether to invest in an asset ornot should be left to the investor. The risk return calculation should be done by the investor, notthe government.

Also, banning the consumption of a good or service doesn’t really mean that people will stopconsuming it. The market for the good or service simply goes underground and becomes hard totrack. The market continues to exist, but the government cannot track it or tax it to gain revenue.This applies to cryptocurrencies as well.

It is true that the price of cryptocurrencies, especially bitcoin, has been volatile. And that’sprimarily because of their design. Bitcoin, for example, is designed in such a way that its supplyrises rapidly first, but later very slowly, before stopping at a certain point.

PW: Yes, exactly. In most cases, if the government feels that there is enough rationale toregulate the consumption of a commodity or a service or investments in a crypto asset, the bestway forward is to come up with a regulatory framework that has incentives set right for the users.Maybe you can have a tax on capital gains from investing in crypto assets, just like you havetaxes on investments in other assets.

The Garg panel, while being opposed to the idea of private cryptocurrencies, still seems to be afan of the blockchain technology. It has called for a national cryptocurrency backed by the RBI,which would probably be based on the blockchain.

Anil Antony: The Garg panel opposing cryptocurrencies seems like yet another case of a groupof people not really understanding a concept and hence trying to ban it. Most people equatecryptocurrencies with blockchain, but there is a huge difference between them. Thecryptocurrency is just one application of the underlying blockchain technology. The blockchaintechnology has a lot more potential beyond cryptocurrencies.

PW: No. The way we define money is that it is a generally accepted medium of exchange. So,it’s just trust that basically drives the value of money. There is nothing to back it, except trust.When two strangers have no other way of transacting with each other, when there’s no way theycan verify the creditworthiness of each other, money helps. That’s all that we basically need. Weneed trust for that.

Is banning cryptocurrencies the solution? | The Hindu Parley podcast

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Now, what does a crypto asset or a cryptocurrency offer? It is right that it is not backed byanything. But it doesn’t really require any backing in the sense that, as long as people hold theexpectation that a particular asset will have value, it is sufficient.

PW: Exactly. Yes. Cryptocurrencies allow people to conduct anonymous transactions. The priceof bitcoin, for example, is driven by the access to the anonymity that it offers its users. Peoplemay also want to keep their wealth in some asset that gains in value over a period of time. Sothat is the worth or the “right” that people are paying for when they’re buying cryptocurrencies.

There are also cases where fiat money has retained value even when the bank has ceased toexist. For example, in Somalia, the central bank and all the concerned institutions had ceased towork at some point. But people still continued to value the Somalian currency. So there was nobacking at all for the currency, but people still believed that it had value and they continued touse the currency in transactions. So the strength of a particular asset boils down to what peoplethink about it.

PW: I have done some research linked to this using money search models, where there is a setof competing monies, which could also be cryptocurrencies, and I basically show that there is acertain equilibrium where competing suppliers of cryptocurrencies would behave in a disciplinedway. Theoretically, cryptocurrency providers could issue an unlimited amount of their money.But they’re competing against each other, so the competition forces them to restrict their supplyto a minimal amount that would help maintain the value of their currency. Thus the disciplineimposed by market competition can prevent cryptocurrency providers from overissuing theircurrencies. We can also think about discipline in terms of reputation effects. For example, ifthere is a paper currency, and it turns out that it can be used to finance, let’s say, crime,terrorism, or anything similar, there is the reputation of the supplier at stake.

So there are some ways by which the market can discipline cryptocurrencies. But I thinkregulation, in terms of having the right rewards and punishments in place, would help. Notactions like banning stuff.

AA: Just to add to this... right now, one of the most comprehensive sets of regulationssurrounding this debate on cryptocurrencies being used for various nefarious activities is beingdiscussed across the world. It is one of the biggest concerns everywhere. One of the mostcomprehensive sets of regulations for cryptocurrencies is being brought in by the EuropeanUnion. The EU is putting in a bunch of regulations to tackle money laundering, and it is calledthe AMLD-5. It is a bunch of norms to make crypto transactions more secure. It has a lot of verystringent KYC regulations and self-declaration laws which every holder of a crypto wallet or userneeds to adhere to. Crypto exchanges are all expected to maintain a database that istransparently shared between countries. It is not foolproof, but the EU has started creating abunch of regulations that could become stronger over time. This could be the best way to goforward rather than putting a blanket ban on cryptocurrencies, because the presence ofcryptocurrencies is very important for the further development of the blockchain.

AA: In 2018, in the Silicon Valley alone, almost $2.9 billion worth of private venture funds havegone into blockchain start-ups. In tech hubs across the world, we are seeing billions pumpedinto the blockchain technology. In this scenario, if we decide to put a blanket ban on allcryptocurrencies, then our technology entrepreneurs will suddenly lose the incentive to work inthe sector. You simply can’t just build blockchain applications out of thin air. Right now,currencies are the only viable practical application of the blockchain technology even though itcan be extrapolated to a lot of other sectors. So, for the sake of innovation, I think even if thegovernment is bringing in a state-backed currency, it will be better if the other currencies arealso allowed to operate with sufficient regulations.

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Also, when we are speaking about a country like India, in terms of size, cryptocurrenciesconstitute a very, very minor share of the total amount of money that is already being used tocarry out various activities in the black economy. But the potential rewards that could come outof the blockchain technology are big.

AA: I would say nobody really expected cryptocurrencies to become such a big factor in such ashort period of time. Right now, the global market capitalisation of cryptocurrencies is almost$120 billion. And that’s just the tip of the iceberg, it could get way bigger over time.

PW: People will move to alternative assets and seek more anonymity only if they lose trust ingovernment institutions. So, as long as the trust is maintained, monetary policy doesn’t face anyparticular threat from cryptocurrencies.

When it comes to a central bank-issued digital currency, there is a loose consensus, especiallyamong monetary economists from the New Monetary School, that there is no case forgovernments issuing cryptocurrencies because it would create a lot of problems in the form ofcontradictions in existing regulations and the government will have to deal with severemismatches in regulations. Secondly, there are reputation effects. A digital currency issued bythe RBI that gets misused by criminals can affect trust in the existing fiat currency protocol. Idon’t think a central bank would want to take that risk.

Parag Watkins teaches monetary economics at the Ambedkar Univesity, Delhi; AnilAntony is the convener of the digital media cell of the Kerala wing of the Indian NationalCongress.








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Source : www.pib.nic.in Date : 2019-08-02

KABIL SET UP TO ENSURE SUPPLY OF CRITICALMINERALS

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

Ministry of Mines

KABIL Set up to Ensure Supply of Critical Minerals

Posted On: 01 AUG 2019 5:39PM by PIB Delhi

A joint venture company namely Khanij Bidesh India Ltd. (KABIL) is to be set up with theparticipation of three Central Public Sector Enterprises namely, National Aluminium CompanyLtd.(NALCO), Hindustan Copper Ltd.(HCL) and Mineral Exploration Company Ltd. (MECL). TheMinister of Coal, Mines and Parliamentary Affairs Shri Pralhad Joshi said that the objective ofconstituting KABIL is to ensure a consistent supply of critical and strategic minerals to Indiandomestic market. While KABIL would ensure mineral security of the Nation, it would also help inrealizing the overall objective of import substitution, he said.

Minister of Mines Shri Pralhad Joshi with the CMDs of NALCO, HCL and MECL whosigned a Joint Venture to establish KABIL

The sustained source of mineral and metal commodities is imperative for the transportation andmanufacturing segment. Recalling the commitment at the UN Climate Change Conference,Pairs, 2015, where India has pledged to reduce greenhouse gas emissions and opting a greenermode of transportation, the Minister said that the Prime Minister has been emphasizing uponElectric Vehicle Mobility. Shri Joshi, said therefore it is important to ensure energy storagethrough batteries. Further segments like Aviation, Defence and Space Research also requireminerals with lower weight and high mechanical strength. Among such twelve minerals identified

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as strategic minerals, which have meagre resource base, Lithium Cobalt are significant.

The KABIL would carry out identification, acquisition, exploration, development, mining andprocessing of strategic minerals overseas for commercial use and meeting country’srequirement of these minerals. The sourcing of these minerals or metals is to done by creatingtrading opportunities, G2G collaborations with the producing countries or strategic acquisitionsor investments in the exploration and mining assets of these minerals in the source countries.The new company will help in building partnerships with other mineral rich countries likeAustralia and those in Africa and South America, where Indian expertise in exploration andmineral processing will be mutually beneficial bringing about new economic opportunities. Theequity participation between NALCO, HCL and MECL is in the ratio of 40:30:30

The joint venture agreement was signed in the presence of Shri Pralhad Joshi, Hon’ble Ministerof Mines, Coal and Parliamentary Affairs. Shri Anil Mukim Secretary (Mines) and other seniorofficers were also present.

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RAJYA SABHA PASSES MOTOR VEHICLES(AMENDMENT) BILL 2019

Relevant for: Indian Economy | Topic: Infrastructure: Roads

Ministry of Road Transport & Highways

Rajya Sabha passes Motor Vehicles (Amendment) Bill 2019

Shri Gadkari says the Bill will provide an Efficient, Safe andCorruption Free Transport System in the Country

Posted On: 31 JUL 2019 9:05PM by PIB Delhi

The Motor Vehicles (Amendment) Bill, 2019 was passed by Rajya Sabha today. Speaking onthe occasion Shri Nitin Gadkari, Minister of Road Transport & Highways and MSME thanked theMembers of the House and said that this was a matter of great happiness for him. He said themuch needed amendments will improve road safety, facilitate citizens in their dealings withtransport departments, strengthen rural transport, public transport and last mile connectivitythrough automation, computerization and online services. The Minister reiterated that the Billwould, in no way, encroach upon the powers and authorities of the states. He said the Bill wouldrather empower the states. He added that the Bill will provide an efficient, safe and corruptionfree transport system in the country.

The Bill has been passed with three Government amendments and will need to go back to LokSabha. The Lok Sabha had already passed the Bill on the 23rd of July 2019.

The Motor Vehicles (Amendment) Bill, 2019 is based on the recommendations of the Group ofTransport Ministers (GoM) of States constituted by the Ministry of Road Transport & Highwaysto address the issue of road safety and to improve the facilitation of the citizens while dealingwith transport departments. The GoM was headed by Shri. Yoonus Khan, the then TransportMinister of Rajasthan, and had 18 State Transport Ministers from different political parties asmembers. On the basis of recommendations of the GoM and other pressing requirements, theMinistry of Road Transport & Highways introduced the Motor Vehicle (Amendment) Bill 2016.This, along with amendments, was passed by Lok Sabha on 10th April, 2017. The Bill as passedby Lok Sabha was introduced in Rajya Sabha and was referred to the Select Committee of theRajya Sabha on 08.08.2017. The Select Committee presented its report to the Parliament on22nd December, 2017. The Bill was pending in the Rajya Sabha and lapsed with the dissolutionof the 16th Lok Sabha.

The amendments in the Bill mainly focus on issues relating to improving road safety, citizens’facilitation while dealing with the transport department, strengthening rural transport, last mileconnectivity and public transport, automation and computerization and enabling online services.Some of the important areas of amendment are as follows:

Road Safety

In the area of road safety, the Bill proposes to increase penalties to act as deterrent againsttraffic violations. Stricter provisions are being proposed in respect of offences like juveniledriving, drunken driving, driving without licence, dangerous driving, over-speeding, overloading

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etc. Stricter provisions for helmets have been introduced along with provisions for electronicdetection of violations. Penalty regarding motor vehicles is to be increased by 10 % every year..

Proposed Amendments in Various Penalties under Motor Vehicles (Amendment) Bill –2019

Section O l d P r o v i s i o n /Penalty

N e w P r o p o s e dProvision / MinimumPenalties

177 General Rs 100 Rs 500

New 177AR u l e s o f r o a dregulation violation

Rs 100 Rs 500

178 Travel without ticket RS 200 Rs 500

179D i s o b e d i e n c e o forders of authorities

Rs 500 Rs 2000

180Unautorized use ofv e h i c l e s w i t h o u tlicence

Rs 1000 Rs 5000

181 Driving without licence Rs 500 Rs 5000

182D r i v i n g d e s p i t edisqualification

Rs 500 Rs 10,000

182 B Oversize vehicles New Rs 5000

183 Over speeding Rs 400Rs 1000 for LMVRs 2000 for Mediumpassenger vehicle

184Dangerous dr iv ingpenalty

Rs 1000 Upto Rs 5000

185 Drunken driving Rs 2000 Rs 10,000

189 Speeding / Racing Rs 500 Rs 5,000

192 A Vehicle without permit upto Rs 5000 Upto Rs 10,000

193A g g r e g a t o r s(violations of licencingconditions)

NewRs 25,000 toRs 1,00,000

194 OverloadingRs 2000 andRs 1000 per extratonne

Rs 20,000 andRs 2000 per extratonne

194 AO v e r l o a d i n g o fpassengers

Rs 1000 per extrapassenger

194 B Seat belt Rs 100 Rs 1000

194 COverloading of twowheelers

Rs 100R s 2 0 0 0 ,Disqualification for 3months for licence

194 D Helmets Rs 100R s 1 0 0 0Disqualification for 3months for licence

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194 ENot providing way foremergency vehicles

New Rs 10,000

196D r i v i n g W i t h o u tInsurance

RS 1000 Rs 2000

199 Offences by Juveniles New

Guard ian / ownershall be deemed to beguilty. Rs 25,000 with3 yrs imprisonment.For Juvenile to betried under JJ Act.Registration of MotorV e h i c l e t o b ecancelled

206Power of Officers toimpound documents

Suspension of drivinglicenses u/s 183, 184,185, 189, 190, 194C,194D, 194E

210 BOffences committedb y e n f o r c i n gauthorities

Twice the penal tyunder the relevantsection

Vehicle Fitness

The Bill mandates automated fitness testing for vehicles. This would reduce corruption in thetransport department while improving the road worthiness of the vehicle. Penalty has beenprovided for deliberate violation of safety/environmental regulations as well as body buildersand spare part suppliers. The process for testing and certification for automobiles is proposed tobe regulated more effectively. The testing agencies issuing automobile approvals have beenbrought under the ambit of the Act and standards will be set for motor vehicle testinginstitutes.The Bill also provides for compulsory recall of defective vehicles and power to examineirregularities of vehicle companies.

Recall of Vehicles

The Bill allows the central government to order for recall of motor vehicles if a defect in thevehicle may cause damage to the environment, or the driver, or other road users. Themanufacturer of the recalled vehicle will be required to: (i) reimburse the buyers for the full costof the vehicle, or (ii) replace the defective vehicle with another vehicle with similar or betterspecifications.

Road Safety Board

The Bill provides for a National Road Safety Board, to be created by the central governmentthrough a notification. The Board will advise the central and state governments on all aspects ofroad safety and traffic management including standards of motor vehicles, registration andlicensing of vehicles, standards for road safety, and promotion of new vehicle technology.

Protection of Good Samaritan

To help road accident victims, Good Samaritan guidelines have been incorporated in the Bill.

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The Bill defines a Good Samaritan as a person who renders emergency medical or non-medicalassistance to a victim at the scene of an accident, and provides rules to prevent harassment ofsuch a person.

Cashless Treatment during Golden Hour

The Bill provides for a scheme for cashless treatment of road accident victims during goldenhour.

Third Party Insurance

The Bill has included the driver’s attendant in 3rd Party insurance. re will be no cap on liability ofinsurers. There will be a 10 time increase in insurance compensation, from Rs 50, 000 to Rs 5lakh. Claim process has been simplified. Insurance firms have to pay claims within a month, ifthe victim’s family agree to accept Rs 5 lakh compensation. The Bill also increases the minimumcompensation for hit and run cases from Rs 25,000 to two lakh rupees in case of death, andfrom Rs 12,500 to Rs 50,000 in case of grievous injury.

Motor Vehicle Accident Fund

The Bill requires the central government to constitute a Motor Vehicle Accident Fund, to providecompulsory insurance cover to all road users in India. It will be utilised for: treatment of personsinjured in road accidents as per the golden hour scheme, compensation to representatives of aperson who died in a hit and run accident, compensation to a person grievously hurt in a hit andrun accident, and compensation to any other persons as prescribed by the central government.This Fund will be credited through: payment of a nature notified by the central government, agrant or loan made by the central government, balance of the Solatium Fund (existing fundunder the Act to provide compensation for hit and run accidents),or any other source asprescribed the central government.

Improving Services using e-Governance

Improving delivery of services to the stakeholders using e-Governance is one of the majorfocuses of this Bill. This includes

Provision for online driving licenses.●

The Bill provides for online Learners Licence with mandatory online identity verification Drivingtest will be computerized to avoid fake D.L. The Bill will bring transparency in RTO offices.Commercial licenses will be valid upto five instead of three years. Application for renewal canbe made one year prior to or after licence lapses. Driver Training Schools will be opened so thatmore efficient drivers may be available.

Process of Vehicle Registration●

To improve the registration process for new vehicles, registration at the end of the dealer isbeing enabled and restrictions have been imposed on temporary registration. The Minister hashowever said that state transport departments can inspect the vehicles at dealers end .

To bring harmony of the registration and licensing process, it is proposed to create National

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Register for Driving Licence and National Register for Vehicle registration through “Vahan” &“Sarathi” platforms. This will facilitate uniformity of the process across the country.

Drivers Training●

The driving training process has been strengthened enabling faster issuance of transportlicenses. This will help in reducing the shortage of commercial drivers in the country. More andmore drivers training schools and vehicle fitness centres will be opened

To facilitate transport solutions for Divyang, the bottlenecks have been removed in respect ofgrant of driving licenses as well as alterations in the vehicles to make it fit for their use .

Reforms in Transportation System

Development of integrated Transport System will be possible from the National TransportationPolicy. This will also enhance the powers of the State Governments, provide better last mileconnectivity, rural transport etc.

Taxi aggregators:

The Bill defines aggregators as digital intermediaries or market places which can be used bypassengers to connect with a driver for transportation purposes (taxi services). The Bill providesguidelines for Aggregators. At present there are no rules in many states for regulatingaggregators, taxis etc.

NP/MS


Read this release in: Hindi



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Source : www.indianexpress.com Date : 2019-08-03

BORROW ABROAD AND PROFITRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation &

Black Money incl. Government Budgeting

© 2019 The Indian Express Ltd.All Rights Reserved

The writer is Contributing Editor at The Indian Express, and Consulting Editor at Network 18

The finance minister’s budget speech contained a new policy statement — GOI was planning toissue 10 year bonds denominated in foreign currency. This proposal has generated acontroversy, unlike most others. Every budget has good, bad, and ugly components. And criticsare free to choose and comment on what they like, or hate. There are very few, if any, analystswho believe that the income-tax proposals in Budget 2019 have any merit. Likewise, there arevery few experts who believe that issuance of foreign currency bonds is a good idea. Indeed, thelist of eminent experts who think it is an ugly idea is near endless.

Former RBI governor and distinguished economist Raghuram Rajan states the following in arecent Times of India article: “Foreign bankers often meet finance ministry officials, trying topersuade India to issue a foreign bond. In my experience, they usually started by saying thatsuch borrowing would be cheaper because dollar or yen interest rates are lower than rupeeinterest rates. This argument is bogus – usually the lower dollar interest rate is offset in thelonger run by higher principal repayments as the rupee depreciates against the dollar.” He hasbeen joined by my ex-PMEAC colleague and good friend Rathin Roy who went a step furtherand stated: “Show me one country after world war which has done a foreign currency sovereignbond and not paid dearly for it.” Further: “I would pay very careful attention to what severalgovernors of the Reserve Bank are saying, that these are sovereign liabilities in perpetuity. Ithink there are serious issues regarding loss of sovereignty, which need to be addressed. I donot think that the argument that it is cheaper is a good one, I think it doesn’t even hold if you addhedging costs and I don’t buy the simple argument that if something is cheaper, it is good.”(Business Standard, July 23, 2019).

In addition, the Swadeshi Jagran Manch (SJM) has stated that the issuance of foreigndenominated bonds is anti-patriotic, that it would lead to a loss of sovereignty, and would lead tocurrency depreciation. To my knowledge, this is the first time esteemed economists and SJMare on the same side of an economic argument — can both be right, or are both wrong?

The only eminent person (known for his balanced views) to publicly favour a sovereign foreignbond (SFB) is former RBI governor Bimal Jalan who stated “At the moment we are in a fortunateposition. Our debt to GDP ratio is not very high, exchange rate is stable, and foreign exchangereserves are high. So foreign borrowing, if its long term, which it would be, is not aproblem.”Former RBI governor Y V Reddy had a more nuanced comment stating that if foreignbond issuance was accompanied by a move towards greater capital account convertibility then itmay be worth pursuing.

The key issue in this debate, as nearly always, is empirical, and has to do with currencydepreciation. Show me the money (evidence) and win the argument. Simple accounting mathabout foreign borrowings is as follows. All examples are with respect to dollar borrowings, butthe same set of arguments apply to borrowing in the other three currencies – yen, euro, and theBritish pound. A country pays a country premium for borrowing in dollars; currently the US 10-year bond is trading at 2 per cent and Indonesia just borrowed in June 2019 at around 3.6 per

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cent; at the time it borrowed, it paid close to a 1.5 per cent premium. A complex set of factorsdetermine the country premium, but the magnitude of reserves and foreign currency debt areimportant attributes. About 40 per cent of Indonesia’s debt is denominated in foreign currency; inIndia it is less than 5 per cent. India should be able to borrow at a somewhat lower premiumthan 150 bp, possibly 130bp.

India can borrow abroad in dollars at 3.3 per cent or borrow foreign money in rupees (a masalabond) at a 3 per cent higher premium, or at 6.3 per cent (the current government 10-year bond istrading at 6.35 per cent). The difference between 3.3 and 6.3 per cent is the depreciationpremium that emerging countries pay.

This is what the market “demands” and it is unlikely that this premium has shifted too much foremerging markets over the last 20 years. Over a 10 year period, the 3 per cent annualdepreciation assumption means an economy pays 35 per cent more with a masala bond thanwith an FCB. If the cumulative depreciation at the end of 10 years is more than 35 per cent, theborrowing country loses; if less, than the borrowing country gains. The entire argument againstforeign bonds (except the patriotic one) is whether this depreciation has been (and is expectedto be) more than 35 per cent over a 10-year period.

Data on 10 year currency depreciations are reported for several countries for the period 2009 to2019. This assumes that each country started borrowing in 1999, one year after the East Asiancrisis. Respected scholars (and policymakers) hark back to the Asian crisis for clues about whatwill happen to India’s exchange rates over the next decade. Do these esteemed scholarsrecognise (let alone appreciate) that the rupee/dollar exchange rate was Rs 42 in 1998 (Asiancrisis) and Rs 40 10 years later in 2007? This despite Indian inflation rates averaging 3 per centhigher, per year, than the USA during this period.

In the sample of countries chosen, I have included three countries from Latin America (Chile,Brazil, and Mexico) to satisfy the critics’ assumption that if India were to borrow $10 billion, or $30 billion, even $50 billion, we would face a Latin American crisis. Serious economists have

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invoked this “threat” in their arguments, so it is prudent to account for it. Note that the periodchosen is a fairly long one (20 years) and involves close to 90 countries.

What do the results show? Unambiguously, that it pays for a country to borrow abroad. Let ustake the case of India first. Against the US dollar, the average 10-year depreciation since 2009for India (or average annual depreciation since 1999) is 26 per cent. Which means that Indiawould have made a profit of close to 10 per cent for each 10-year bond that it floated.

Recall what Rajan said about this possibility. He called it bogus. The two worst-performers areMexico and South Africa, and even these two economies break even. Even an averageemerging economy makes a profit of 5 bp on every FCB bond it has floated over the last 20years. This puts into question Rathin Roy’s conclusion that every country has paid dearly forFCBs; empirically, the result is the opposite — since the East Asian crisis, most countries haveprofited handsomely. I don’t know the veracity of his conclusion post WWII; maybe the few whoborrowed abroad (particularly in Latin America) paid dearly between 1945 and 1998. But foreach Latin American disaster, there is an Asian success story. So which continent does Roy(and others) believe that India is comparable too?

Indian inflation has moved structurally downward over the last three years and thankfully thepost Patel-Acharya MPC realises this fact. However, in the six months prior to Das’s first rate cutin early February 2019, inflation had averaged 3.7 per cent and the real repo rate had averaged2.8 per cent (defined the RBI/MPC way of current repo rate minus two month earlier inflation). Inthe six months since (February 2019 to July 2019), two-month lagged inflation has averaged 110bp lower at 2.6 per cent that is, despite 75 bp of repo rate cuts, the average real repo rate hasmoved higher to an average of 3.4 per cent, an increase of 60 bp.

All the empirical evidence (past and expected future) suggests that the finance minister’s idea offloating FCB’s is a terribly good idea — one whose time has definitely come. It will also help tosignificantly lower the real repo rate to respectable levels. No country, has grown at “trend” rateswith a real repo rate around 3.4 per cent, not even 2.4 per cent and not even 2 per cent. Soplease MoF borrow abroad; and please RBI/MPC, smell the real rate before deciding onmonetary policy.

The writer is Contributing Editor, Indian Express. Views are personal

Download the Indian Express apps for iPhone, iPad or Android

© 2019 The Indian Express Ltd. All Rights Reserved



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EXPLAINING THE ASIAN RATE CUTS WAVERelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

The latest International Monetary Fund (IMF)-World Economic Outlook update in July 2019 hasconfirmed a growing belief that global growth has decelerated and dark clouds seem to belooming in the near term. Specifically, the IMF has downgraded global growth multiple timessince October 2018 and now projects it to be 3.2% compared to 3.6% in 2018.

While the deceleration in economic activity is broad-based among both the advanced anddeveloping economies, particular attention should be paid to China. The country has facedstrong headwinds to growth both because of the ongoing supply-side reforms, including dealingwith financial risks (reining in of shadow banking and hidden debt of local governments), as wellas the negative effects of escalating tariffs and their consequent impact on its exports andinvestment. It is noteworthy that China is one of the few major economies that is expected tocontinue to decelerate into 2020 (along with Japan which is faced with acutely unfavourabledemographics and seems unable to escape persistent deflationary pressures).

As corporates look to reconfigure their China-centric supply chains (both in response to theongoing policy uncertainties and rising protectionist sentiments), many export-dependent Asianeconomies that are a part of the intricate production networks have also inevitably been hard hit.While there have been some short-term beneficiaries of the export and trade diversion fromChina to countries such as Vietnam, the global external demand slowdown has more thanoutweighed these gains. For instance, given Singapore’s small size and acute openness, it hasoften acted as a recession barometer for the rest of Asia. Latest data show that exports from thecity state have collapsed and the Singapore economy is expected to face stagnation in 2019 onthe back of a sharp slowdown in the manufacturing sector. This does not bode well for othertrade-dependent economies in the region.

In response to the global economic slowdown as well as generally subdued inflationarypressures, many Asian central banks (India, China, Indonesia, Malaysia, the Philippines, SouthKorea) have begun to ease monetary policy. However, this generalised loosening has happenedlargely following the recent signals from the U.S. Fed that it is set to embark on a new round ofrate cuts in response to the slowdown in the United States and the rest of the world. In fact, inhis congressional testimony on July 10, 2019, chairman Jerome Powell emphasised theslowdown in global growth as the main reason for the Fed moving towards a moreaccommodative stance, leading some to suggest that he has become the “world’s centralbanker”.

The recent wave of rate cuts in Asia is consistent with research which suggests that emergingeconomies tend to be cautious about lowering interest rates when the base country (usually theU.S.) does not do so as they are concerned about potential capital flight and sharp currencydepreciations which in turn could have negative repercussions on domestic firms and otherentities with unhedged external borrowings in foreign currencies. However, when interest ratesin the base country decline, while emerging economies may experience massive surges incapital inflows if they stand pat on interest rates, they can maintain monetary policy autonomyvia a combination of sterilised foreign exchange intervention (leading to sustained reserveaccumulation) as well as tightening of capital controls and/or use of macro prudential policies(MaPs).

Alternatively, if the emerging economies are themselves faced with an economic slowdown, theyare comfortable lowering their interest rates along with the base country, as is the case currently

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in Asia. This said, it is wise for Asian policy makers to ensure that they have enough ammunitionto manage a prolonged downturn given that 2020 is “precarious” with many downside risks, asthe IMF’s chief economist, Gita Gopinath, put it.

Where does all of this leave India? On the one hand, since India has not been well-integratedwith the Asian and global supply chains, it has not been as impacted directly by the China-U.S.trade war. On the other hand, given existing acute domestic bottlenecks, policy missteps andongoing structural challenges, India has not been able to reap significant benefits as analternative production and export platform to China.

On the back of a prolonged downturn in the capex cycle, the IMF has downgraded projectedgrowth for India to 7% in 2019. This is broadly in line with the forecasted range by the ReserveBank of India (RBI). While this growth is admirable relative to other major countries, it is wellbelow the country’s likely potential growth of 7.5% and 8%.

In view of this “growth recession” and subdued inflation, along with a lack of fiscal space, andwith the government having been distracted by the general election, the RBI moved much earlierthan most of its Asian counterparts in taking steps to lower interest rates, having cut ratemultiple times by 25 basis points since October 2018 to a nine-year low in nominal terms. Theconcerns here however have been threefold.

One, despite the rapid interest rate cuts, India’s real interest rates are still higher than most othercountries, though it remains unclear what the neutral real interest rate consistent with India’spotential output actually is. The statement by RBI Governor Shaktikanta Das following the June2019 interest rate cut that the RBI’s policy stance “has again changed… from ‘neutral’ to‘accommodative’” presumably suggests that he views current real interest rates to be belowequilibrium. This is rather odd in view of the fact that real rates have actually risen in recenttimes.

Two, more than most other countries in the region, an ongoing concern for India is that interestrate policy transmission to bank rates tends to be rather slow and limited. This is likely due to acombination of factors: the banking system has been faced with a deterioration in asset qualityand remains saddled with bad debts; there has been and anaemic deposit growth; and there islimited scope to reduce deposit rates.

Three, despite the interest rate cuts, India’s real effective exchange rate (REER) has actuallyappreciated somewhat (around 7%) since October 2018, consistent with the fact that realinterest rates have not declined. This lack of price competitiveness boost is especially ofconcern given that external demand is expected to remain subdued and uncertain and otherregional currencies may themselves face depreciations pressures following the dovish policystances by their central banks which could possibly translate to further REER appreciation in therupee.

Going forward, if India is to succeed in its ambition of becoming a $5-trillion economy by 2024-25, there can be no substitute for undertaking the necessary structural reforms needed to jump-start private investments and longer-term growth. However, in the short term, in all likelihood,monetary policy will have to remain accommodative (more so than what it is currently) and muchgreater attention will be needed to be paid on how to revive public capex without raising the costof capital further.

In the face of constraints in raising revenues in a slowing economy, the government’s preferredsolution seems to be to issue overseas sovereign bonds rather than streamline subsidies andrevenue expenditures. The proposed $10 billion sovereign issuance is manageable vis-à-vis the

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countries stock of forex reserves, while India’s sovereign external debt (as share of GDP) ismodest at present. However, increases in external borrowings add an additional element of riskto the economy. Such a move also likely complicates monetary policy further, as any adverseexchange rate movements will lead to a ballooning of interest payments on government debtwhich is already eating up around a quarter of budgetary spending. It is not clear that the currentpolicy mix is ideal for India.

Ramkishen S. Rajan is a Professor at the Lee Kuan Yew School of Public Policy, NationalUniversity of Singapore







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INSOLVENCY & BANKRUPTCY CODE IS SUCCESSSTORY OF INDIA’S ECONOMIC REFORMS: VICEPRESIDENT

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

Vice President's Secretariat

Insolvency & Bankruptcy Code is success story of India’seconomic reforms: Vice President

It played a critical role in reshaping behaviour ofborrowers;

Insolvency law vital for stability in financial systems;

Inaugurates Insolvency Research Foundation


The Vice President of India, Shri M. Venkaiah Naidu has said the enactment of Insolvency andBankruptcy Code was one of the success stories of Indian economic reforms and that it played acritical role in reshaping the behaviour of borrowers.

Speaking after inaugurating the Insolvency Research Foundation (IRF), here today, the VicePresident said that Insolvency and Bankruptcy Code (IBC) has helped set the stage for superiorrenegotiation between the lenders and borrowers.

Quoting a report by Insolvency and Bankruptcy Board of India (IBBI), the Vice President saidthat “Since 1 December 2016, nearly 1500 Corporate Debts have been brought before CIRPand 142 have already been closed, while 63 have been withdrawn. As many as 302 cases haveended in liquidation, while the resolution plans have been approved in 72 cases.

Asserting that an efficient insolvency law was vital to stability in financial systems andfundamental to economic growth and wealth creation, the Vice President said that a soundinsolvency and bankruptcy process would enable rapid resolutions for problems or risks posedby entrepreneurship.

“Without a bankruptcy law, if an organization defaults on a loan, each claimant races to grab itsshare of the organization's assets. This battle among the claimants can push the organizationinto liquidation regardless of whether it has a generally stable business model,” he said.

Saying that the essence of the insolvency process was to aid against such challenges andencourage entrepreneurship, business, and more risk-taking, the Vice President said that it was,therefore, crucial to continue to invest in the development of the law by studying its impact, andinvestigate its strengths and weaknesses on a regular basis.

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Shri Naidu said that academics play a very important role in supporting policy development,industry research and finding innovative solutions in advanced countries and called for a similarand a more robust collaboration between academia and industry in improving the culture ofresearch in India, especially in matters relating to insolvency and bankruptcy.

The Vice President appreciated the government for initiating a series of economic reforms toimprove the investment climate in diverse areas and make India an attractive destination. Thereforms have added a new dimension to the development story of India.

The Minister of State for Finance & Corporate Affairs, Shri Anurag Thakur, the former Judge,Supreme Court of India and Chairperson, National Company Law Appellate Tribunal, Shri S.J.Mukhopadyay, the Secretary, Ministry of Corporate Affairs, Shri Injeti Srinivas, the Chairperson,IBBI, Dr. M.S. Sahoo, the DG CEO, IICA, Dr. Sameer Sharma and other dignitaries werepresent on the occasion.

Following is the text of Vice President’s address:

“I am delighted to inaugurate the Insolvency Research Foundation (IRF). I would like to thankthe Indian Institute of Corporate Affairs (IICA) and Society for Insolvency Practitioners of India(SIPI) for having invited me.

Before sharing my thoughts on the need for such a foundation in India’s insolvency chapter, Iwould also like to compliment Dr. Sameer Sharma for building a culture of research at IICA.

As you all are aware, an efficient insolvency law is vital to stability in financial systems andfundamental to economic growth and wealth creation. Entrepreneurship, by nature, involves risktaking. Some business ideas will inevitably turn out badly. This may be due to several reasons.A sound insolvency and bankruptcy process enable rapid resolutions of such problems.

Without a bankruptcy law, if an organization defaults on a loan, each claimant races to grab itsshare of the organization's assets. This battle among the claimants can push the organizationinto liquidation regardless of whether it has a generally stable business model.

The essence of the insolvency process is to aid against such challenges and encourageentrepreneurship, business and more risk-taking. It is, therefore, crucial to continue to invest inthe development of the law by studying its impact, and investigate its strengths and weaknesseson a regular basis.

In advanced countries, academics play a very important role in supporting policy development,industry research and finding innovative solutions. I would like to see a similar and a morerobust collaboration between academia and industry in improving the culture of research inIndia, especially in matters relating insolvency and bankruptcy

Dear Sisters and Brothers, the government has initiated a series of economic reforms to improvethe investment climate in diverse areas and make India an attractive destination. As you all areaware, India has jumped by several ranks in the ease of doing business and stands at 77th

position.

Of course, we need to further improve the ranking and make India one of the prime globaldestinations for investors.

Since the establishment of a robust insolvency framework with the enactment of Insolvency andBankruptcy Code in 2016, we have made rapid strides in a short time. Undoubtedly, it is one of

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the success stories of the recent Indian economic reforms.

It has been more than two years since the provisions relating to Corporate InsolvencyResolution Process (CIRP) came into force on 1 December, 2016. According to Insolvency andBankruptcy Board of India (IBBI) report, nearly 1500 Corporate Debts have been brought beforeCIRP as of December, 2018. Of these, 142 have been closed, while 63 have been withdrawn.As many as 302 cases have ended in liquidation, while the resolution plans have been approvedin 72 cases.

The Insolvency and Bankruptcy Code is also playing a critical role in reshaping the incentivesand behaviour of borrowers. The IBC has helped set the stage for superior renegotiationbetween the lenders and the borrowers.

Firms that are undergoing financial distress are not likely to increase labour or capital. The exitof such firms will rather free labour and capital. In other words, the bankruptcy procedures willultimately aid in recycling resources for healthy firms and a healthier economy.

The Insolvency and Bankruptcy Code is providing invaluable gains which are not visible to thepublic eye. Therefore, the gains for India that are attributable to reforms are understated. Anexample of this is the idea of subordinate legislation.

An efficient procedure of utilizing information to improve the working of the insolvency andbankruptcy regime is essential. A research driven regulation making process requires astatistical framework and I believe IRF can be the building block for a more robust regime.

I am told that so far 1,322 cases have been admitted by the National Company Law Tribunaland 4,452 cases have been disposed at the pre-admission stage, while 66 have been resolvedafter adjudication and another 260 cases have been ordered for liquidation.

I have also been informed that the realization by creditors has been around Rs. 80,000 croresfrom 66 resolution cases. In regard to 4452 cases disposed at the pre-admission stage, theamount settled was close to Rs 2.02 lakh crores. I am also aware that some big cases are inadvanced stages of resolution and the realization from these is expected to be around Rs70,000 crores.

Also the decline in new accounts coming under NPA category shows a definite improvement inthe lending and borrowing behaviour. This is a clear evidence of the positive impact of IBC onthe financial market. I am glad to note that through the commitment of the current government, avast industry of Insolvency Professionals has developed in India.

Dear sisters and brothers, Insolvency is a dynamic law and needs constant evolution. Rapidchanges are required in the law to keep pace with market developments.

I am happy to note that the Insolvency Research Foundation (IRF) has been established by theIndian Institute of Corporate Affairs (IICA) in partnership with SIPI, an insolvency think tank, asan independent research center to serve the public good and help in robust policy-making.

I am sure that its activities will lead to the emergence of a cadre of scholars and a robustnetwork of academics, scholars, and jurists in the area of insolvency.

I am aware that the Indian Institute of Corporate Affairs (IICA) has supported the initiatives of theMinistry of Corporate Affairs in key matters relating to Corporate Affairs and governance. It ispromoting research, building capacities and advocating policies in the area of Corporate

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Governance, Competition Law, Investor education, Insolvency & Bankruptcy and CorporateSocial Responsibility, among others.

It is a delight to learn that it is the sole Institution in the country authorized by Insolvency andBankruptcy Board of India (IBBI) to run its flagship Graduate Insolvency Programme (GIP). IICAhas gathered the best minds in India and from abroad to deliver this programme.

Society of Insolvency Practitioners of India, in short SIPI is the first independent think tankdedicated to the cause of insolvency and development of soft infrastructure of insolvencyindustry.

The efforts of the government in bringing the much-needed legal reforms is re-defining India’sgrowth story. Thus, to conclude, the insolvency and bankruptcy reforms have yielded valuablegains in the conduct of borrowers, both towards operational and financial creditors. The wayforward lies in building data sets and high-quality policy teams, which will carry this workprogram forward on various fronts.

I would like IRF to provide support by emulating global best practices and adapting them tomake relevant in the Indian context. I also call upon the industry to support research as part oftheir corporate social responsibility.

My best wishes to IRF. I hope to see it emerge as India’s flagship research center and make amark as a centre of global excellence.

I once again take this opportunity to congratulate IRF, IICA and SIPI and convey my best wishesfor their future endeavours.

Thank you.

Jai Hind!”

***

RR/BK/MS/RK


Read this release in: Urdu , Hindi



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ECONOMIC RECESSION: FIVE REASONS WHY THEECONOMY IS SLOWING DOWN

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

Crisil has lowered its gross domestic product (GDP) forecast for this fiscal to 6.9%, 20 basispoints lower than its earlier projection. This is marginally higher than the 6.8% GDP growth lastfiscal, but lower than the 14-year average of 7%. Credit rating agency Crisil, in its reportreleased on Thursday, listed out some of the reasons for the slowdown.

ICRA, too, has flagged concerns

Crisil has lowered its gross domestic product (GDP) forecast for this fiscal to 6.9%, 20 basispoints lower than its earlier projection. This is marginally higher than the 6.8% GDP growth lastfiscal, but lower than the 14-year average of 7%. Credit rating agency Crisil, in its reportreleased on Thursday, listed out some of the reasons for the slowdown.

ICRA, too, has flagged concerns



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PM MODI 5 TRILLION ECONOMY: INDIA NEEDS TOGROW AT 9% TO ACHIEVE PM'S TARGET OF USD 5TRILLION ECONOMY: EY


The country will need to grow by 9 per cent every year for five years continuously and raiseaggregate investment rate to 38 per cent of GDP to achieve Prime Minister Narendra Modi'starget of turning India into a USD 5 trillion economy, EY has said.

In its latest edition of Economy Watch, EY said assuming India grows by projected 7 per cent inthe current fiscal year ending March 31, 2020, the size of the economy will grow to USD 3 trillionfrom USD 2.7 trillion in the previous year.

It will have to grow by 9 per cent in each of the five subsequent years to take the size of theeconomy to USD 3.3 trillion in FY21, USD 3.6 trillion in FY22, USD 4.1 trillion in FY23, USD 4.5trillion in FY24 and USD 5 trillion in FY25.

"Assuming an inflation rate of 4 per cent which is the target inflation rate as per the MonetaryPolicy Framework, a real growth rate close to 9 per cent would be required to increase the sizeof the Indian economy to USD 5 trillion by FY25. This implies a nominal growth rate of 13 percent, assuming an average annual depreciation of the rupee viz-a-vis the US$ at 2 per cent," itsaid.

In FY19 (2018-19), the gross investment rate, estimated at 31.3 per cent, was able to deliver areal growth rate of 6.8 per cent. The implicit incremental capital-output ratio (ICOR) was 4.6, itsaid. "This is relatively high because of deficient capacity utilisation."

Historically, India's average ICOR during the three-year period from FY17 to FY19 has averaged4.23. The highest achieved investment rate in India was 39.6 per cent in FY12.

EY said achieving such levels would be consistent with the requirements of our demographicdividend.

In China, average saving and investment rates of close to 45 per cent have been maintained fora long period.

Total investment is the sum of public investment, household investment and investment by theprivate corporate sector.

Raising the growth rate to 9 per cent in FY21 would require uplifting the investment rate to closeto 38 per cent of GDP as against 31.3 per cent in FY19, it said.

"If the inflation rate is lower than 4 per cent on an average and if the exchange rate depreciationis higher than 2 per cent per annum, reaching the size of USD 5 trillion would be delayed evenbeyond these target years."

While the central government plays a four-fold role in determining the overall investment ratethrough its budgetary capital expenditure, spending through PSUs, policy initiatives inducingprivate investments and coordination with state governments, the Centre's share in country'saggregate investment was quite small at 1.6 per cent of GDP in FY19.

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As per actuals from the Controller General of Accounts (CGA), this constituted only 5.1 per centof the aggregate investment. After adding central PSU's capital expenditure of 2.4 per cent ofGDP in FY19, the Centre's contribution to the investment increases to 4 per cent of GDP, whichis 12.6 per cent of the total investment.

"This can be substantially improved. The center may therefore provide a policy framework toinduce the state governments and the private sector to uplift their investment rates," EY said.

"Furthermore, if the central government can successfully reduce its revenue deficit, there wouldbe room for higher capital expenditure with the same fiscal deficit. It can also induce additionalinvestment through the CPSEs while keeping in mind, the overall constraint of resources in theform of savings in the system."The country will need to grow by 9 per cent every year for five years continuously and raiseaggregate investment rate to 38 per cent of GDP to achieve Prime Minister Narendra Modi'starget of turning India into a USD 5 trillion economy, EY has said.

In its latest edition of Economy Watch, EY said assuming India grows by projected 7 per cent inthe current fiscal year ending March 31, 2020, the size of the economy will grow to USD 3 trillionfrom USD 2.7 trillion in the previous year.

It will have to grow by 9 per cent in each of the five subsequent years to take the size of theeconomy to USD 3.3 trillion in FY21, USD 3.6 trillion in FY22, USD 4.1 trillion in FY23, USD 4.5trillion in FY24 and USD 5 trillion in FY25.

"Assuming an inflation rate of 4 per cent which is the target inflation rate as per the MonetaryPolicy Framework, a real growth rate close to 9 per cent would be required to increase the sizeof the Indian economy to USD 5 trillion by FY25. This implies a nominal growth rate of 13 percent, assuming an average annual depreciation of the rupee viz-a-vis the US$ at 2 per cent," itsaid.

In FY19 (2018-19), the gross investment rate, estimated at 31.3 per cent, was able to deliver areal growth rate of 6.8 per cent. The implicit incremental capital-output ratio (ICOR) was 4.6, itsaid. "This is relatively high because of deficient capacity utilisation."

Historically, India's average ICOR during the three-year period from FY17 to FY19 has averaged4.23. The highest achieved investment rate in India was 39.6 per cent in FY12.

EY said achieving such levels would be consistent with the requirements of our demographicdividend.

In China, average saving and investment rates of close to 45 per cent have been maintained fora long period.

Total investment is the sum of public investment, household investment and investment by theprivate corporate sector.

Raising the growth rate to 9 per cent in FY21 would require uplifting the investment rate to closeto 38 per cent of GDP as against 31.3 per cent in FY19, it said.

"If the inflation rate is lower than 4 per cent on an average and if the exchange rate depreciationis higher than 2 per cent per annum, reaching the size of USD 5 trillion would be delayed evenbeyond these target years."

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While the central government plays a four-fold role in determining the overall investment ratethrough its budgetary capital expenditure, spending through PSUs, policy initiatives inducingprivate investments and coordination with state governments, the Centre's share in country'saggregate investment was quite small at 1.6 per cent of GDP in FY19.

As per actuals from the Controller General of Accounts (CGA), this constituted only 5.1 per centof the aggregate investment. After adding central PSU's capital expenditure of 2.4 per cent ofGDP in FY19, the Centre's contribution to the investment increases to 4 per cent of GDP, whichis 12.6 per cent of the total investment.

"This can be substantially improved. The center may therefore provide a policy framework toinduce the state governments and the private sector to uplift their investment rates," EY said.

"Furthermore, if the central government can successfully reduce its revenue deficit, there wouldbe room for higher capital expenditure with the same fiscal deficit. It can also induce additionalinvestment through the CPSEs while keeping in mind, the overall constraint of resources in theform of savings in the system."



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CODE RED FOR LABOURRelevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable

Development

The Centre’s proposal to replace 44 labour laws with four codes saw the light of day afterFinance Minister Nirmala Sitharaman announced it in her Budget speech. The question notbeing asked is: aren’t these codes antithetical to the very idea of statutory protection of labourand dignified standard of living for workers? It needs to be stated here that the original labourlaws, enacted after decades of struggle, were meant to ensure certain dignity to the working-class people.

The most glaring instance of the government’s failure to support labour standards is the Ministryof Labour’s proposal to fix the national minimum floor wage at 178, without any defined criteriaor method of estimation. This could lead to a dangerous race to the bottom by individual States,in a bid to attract capital and investments. This is rightly being called ‘starvation wage’,especially given that the Ministry’s own committee recommended 375 as the minimum. Anotherconcerning issue is that the four codes exclude over 95% of the workforce employed in informalunits and small enterprises, who in fact are in greater need of legal safeguards.

Above all, there is a deliberate ambiguity maintained on wording and definitions. There is noclarity on who constitutes an ‘employer’, an ‘employee’ or an ‘enterprise’, giving the ownergreater discretion to interpret the provisions while making it more difficult for the worker to drawany benefits from them.

To minimise wage bills and compliance requirements, it is proposed that ‘apprentices’ be nolonger considered employees, at a time when evidence indicates that apprentices are made todo jobs of contractual as well as permanent employees. The code even has a provision on“employees below fifteen years of age”, which can be construed as legalisation of child labour.The code on wages legitimises and promotes further contractualisation of labour, instead ofabolishing it, by insulating the principal employer from liabilities and accountability in the case ofirregularities on the part of the contractors.

And if all this were not enough, the wage code also brings back the draconian provision of“recoverable advances”, a system that the Supreme Court clearly linked to coercive and bondedlabour, wherein distressed and vulnerable migrant labourers could be bonded to work throughadvance payments. This is akin to modern forms of slavery, also encountered in rural labourmarkets.

Similarly, the eight-hour workday shift has been done away with, and multiple provisions ofincreased overtime have been inserted. The code also gives ample alibis to employers to evadebonus payments.

Further, seeking justice against unfair practices of employers has become even more difficultnow as non-payment of wages will now not be a criminal offence and penalties in case of non-compliance have been reduced. The government wants to provide a “facilitative” rather than aregulatory and punitive environment for the owners, with “facilitators-cum-inspectors” replacingthe “inspectors” who used to ensure implementation of various labour laws to aid employees.

Finally, the code on industrial relations too is replete with restrictions, on forming or registeringunions, calling a strike (which would entail prior permissions and notices) and seeking legalredressal for workers.

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To sum it up, it won’t be a fallacy to assert that the proposed laws, as they stand, resemble‘employer codes’ rather than ‘labour laws’.

Akriti Bhatia is a Ph.D. scholar at the Delhi School of Economics; Chandan Kumar works withthe Working Peoples’ Charter collective








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Source : www.prsindia.org Date : 2019-08-06

PRSINDIARelevant for: Indian Economy | Topic: Infrastructure: Roads

IntroducedLok SabhaJul 15, 2019GrayPassedLok SabhaJul 23, 2019PassedRajya SabhaJul 31, 2019



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GOVERNMENT SHOULD BORROW ONLY LONG-TERMFUND FROM OVERSEAS MARKET: BIMAL JALAN

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

NEW DELHI: Former RBI Governor Bimal Jalan on Tuesday said the government should borrowonly long-term fund from the overseas market, and the quantum should not exceed 1.5 per centof GDP under any circumstances.

"...if you (the government) are borrowing from aboard (then) borrow long-term and the totalforeign borrowing should not exceed more than 1.5 per cent of GDP under any circumstances,"he said at the launch of his book 'Resurgent India'.

Jalan said that he does not have negative view about overseas sovereign borrowing, but hethinks India does not need to borrow from abroad.

The government has announced that it would start raising a part of its gross borrowingprogramme from external markets in foreign currencies.

India's sovereign external debt-to-GDP level is among the lowest globally at less than 5 percent.

Replying to a query, Jalan said the panel on Reserve Bank of India's economic capitalframework will meet again to finalise its report to decide appropriate capital reserves for thecentral bank.

"The report was not finalised... the new finance secretary was appointed by the RBI as amember of the committee and therefore he has to familiarise himself with what the report says.

"...we are going to have another meeting and going to finalise the report," he said.

The six-member panel, headed by Jalan, was appointed on December 26, 2018, to review theEconomic Capital Framework for the RBI.

The panel has got extension beyond the three-month term.

The former MP also said that while deciding the appropriate capital reserves for the RBI, theresources and the risk factors are going to be taken into account.NEW DELHI: Former RBI Governor Bimal Jalan on Tuesday said the government should borrowonly long-term fund from the overseas market, and the quantum should not exceed 1.5 per centof GDP under any circumstances.

"...if you (the government) are borrowing from aboard (then) borrow long-term and the totalforeign borrowing should not exceed more than 1.5 per cent of GDP under any circumstances,"he said at the launch of his book 'Resurgent India'.

Jalan said that he does not have negative view about overseas sovereign borrowing, but hethinks India does not need to borrow from abroad.

The government has announced that it would start raising a part of its gross borrowing

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programme from external markets in foreign currencies.

India's sovereign external debt-to-GDP level is among the lowest globally at less than 5 percent.

Replying to a query, Jalan said the panel on Reserve Bank of India's economic capitalframework will meet again to finalise its report to decide appropriate capital reserves for thecentral bank.

"The report was not finalised... the new finance secretary was appointed by the RBI as amember of the committee and therefore he has to familiarise himself with what the report says.

"...we are going to have another meeting and going to finalise the report," he said.

The six-member panel, headed by Jalan, was appointed on December 26, 2018, to review theEconomic Capital Framework for the RBI.

The panel has got extension beyond the three-month term.

The former MP also said that while deciding the appropriate capital reserves for the RBI, theresources and the risk factors are going to be taken into account.



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RS 3 TRILLION OF CAPITAL INFUSION ONLY HELPEDPSBS TRIM LOSSES, NOT DRIVE CREDIT SUPPLY:INDIA RATINGS


MUMBAI: The massive Rs 3 trillion capital infusion by the government into state-run banks overthe past six years has helped them reduce losses but has failed to boost credit growth, says areport.

Between FY14 and FY19, the government has infused Rs 3 trillion in state-run banks-a goodportion of which came in from the national insurer LIC. This has doubled the value of their stakein these banks to Rs 4.4 trillion as of July 2019, from Rs 2.2 trillion as of March 2014.

"While the government has infused huge capital into PSBs, the same has largely been used tomitigate losses and has failed to contribute meaningfully to credit growth," India Ratings said in areport Thursday.

During this period only FY19 and FY18, bank credit grew in double-digits (13.24 percent inFY19), while in FY17, the credit supply was at five decadal low of 4.6 percent.

The agency said from a value-creation objective, the scenario looks weak as the current marketvalue as of July 29, 2019 the government and LIC's stake was valued at Rs 4.4 trillion comparedto about Rs 2.2 trillion in FY14.

"The increase in market capitalisation over FY14 is significantly lower than the capital infused," ithighlighted.

Nine lenders of the 19 PSBs, including Indian Bank, State Bank, Bank of Baroda and CanaraBank, have reported current value of investment higher than the investment amount, the reportsaid.

The sharp deterioration in asset quality in the last few years has led to accelerated provisionsamong by all the PSBs leading to massive losses.

"In reality, the capital infused was largely consumed to tide over losses resulting from provisionsrequired on non-performing assets," it said.

Over the years, market share of PSBs in incremental credit generation shifted to other marketparticipants including private banks, foreign banks, non-bank financial companies, housingfinance companies and mutual funds.

The market share of PSBs fell to 46.5 percent in FY19 from 60.9 percent in FY14. In terms ofincremental credit, their share has been 26.2 percent over FY14-FY19.

The report said recapitalisation is a prompt response to infuse funds in cash-strapped publicsector banks.

"The capital infusion by the government in PSBs may ensure banks' solvency but may notnecessarily ensure stability and growth in the absence of non-financial and structural reforms,"the agency said.

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MUMBAI: The massive Rs 3 trillion capital infusion by the government into state-run banks overthe past six years has helped them reduce losses but has failed to boost credit growth, says areport.

Between FY14 and FY19, the government has infused Rs 3 trillion in state-run banks-a goodportion of which came in from the national insurer LIC. This has doubled the value of their stakein these banks to Rs 4.4 trillion as of July 2019, from Rs 2.2 trillion as of March 2014.

"While the government has infused huge capital into PSBs, the same has largely been used tomitigate losses and has failed to contribute meaningfully to credit growth," India Ratings said in areport Thursday.

During this period only FY19 and FY18, bank credit grew in double-digits (13.24 percent inFY19), while in FY17, the credit supply was at five decadal low of 4.6 percent.

The agency said from a value-creation objective, the scenario looks weak as the current marketvalue as of July 29, 2019 the government and LIC's stake was valued at Rs 4.4 trillion comparedto about Rs 2.2 trillion in FY14.

"The increase in market capitalisation over FY14 is significantly lower than the capital infused," ithighlighted.

Nine lenders of the 19 PSBs, including Indian Bank, State Bank, Bank of Baroda and CanaraBank, have reported current value of investment higher than the investment amount, the reportsaid.

The sharp deterioration in asset quality in the last few years has led to accelerated provisionsamong by all the PSBs leading to massive losses.

"In reality, the capital infused was largely consumed to tide over losses resulting from provisionsrequired on non-performing assets," it said.

Over the years, market share of PSBs in incremental credit generation shifted to other marketparticipants including private banks, foreign banks, non-bank financial companies, housingfinance companies and mutual funds.

The market share of PSBs fell to 46.5 percent in FY19 from 60.9 percent in FY14. In terms ofincremental credit, their share has been 26.2 percent over FY14-FY19.

The report said recapitalisation is a prompt response to infuse funds in cash-strapped publicsector banks.

"The capital infusion by the government in PSBs may ensure banks' solvency but may notnecessarily ensure stability and growth in the absence of non-financial and structural reforms,"the agency said.



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STATE-RUN OIL MARKETING COMPANIES TO BUYBIODIESEL MADE FROM USED COOKING OIL

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

The scheme is being launched in 100 cities across the country.

In a bid to encourage the biofuel sector, Petroleum and Natural Gas Minister DharmendraPradhan on Saturday announced that the state-run oil marketing companies would procure theentire supply of biodiesel produced from used cooking oil for a three-year period.

The move, announced on World Biofuel Day, means that biodiesel plants using used cooking oilas their raw material will be assured that their entire production will be procured by the oilmarketing companies to be blended with normal diesel. The scheme is being launched in 100cities across the country.

Under the scheme, the OMCs — Indian Oil, Bharat Petroleum and Hindustan Petroleum — willpay biodiesel producers 51 per litre in the first year, 52.7 per litre in the second, and 54.5 perlitre in the third year. The oil companies will also bear the cost of transportation and GST for thefirst year.

The Minister’s announcement comes just a day after the Food Safety and Standards Authority ofIndia’s (FSSAI) has directed Food Safety Commissioners to ensure that Food BusinessOperators (FBOs), whose consumption of edible oils for frying is more than 50 litres per day,stop reusing the oil more than three times.

Mr. Pradhan also launched a ‘Repurpose Used Cooking Oil (RUCO)’ sticker and a phone app toenable the collection of used cooking oil. Restaurants and hotels interested in supplying usedcooking oil can affix the sticker to show availability.

“Prime Minister has given a target to the Ministry of Petroleum and Natural Gas to bring downimport dependency of oil products by 2022, and this can be achieved by enhancing production,improving energy efficiency, promoting conservation and encouraging alternate fuels,” Mr.Pradhan said speaking at an event to launch World Biofuel Day 2019.

“The government is promoting the alternate sources of energy in a big way.”

He added that his Ministry was working on a four-pronged strategy by promoting ethanol,second-generation ethanol, compressed biogas and biodiesel.

“Ethanol blending in petrol has gone up from 1.5% to about 8% and is likely to touch 10% soon,”Mr Pradhan said. “The government is planning to allow production of ethanol from surplusfoodgrains which now sometimes go waste and also entail expenditure on storage.”

“Biodiesel is low hanging fruit in the scheme of alternate source of energies, and abundant rawmaterial is available for the purpose,” the Minister added. “It is a good waste-to-wealth concept.”

The National Policy on Biofuels 2018, released by the Ministry of New and Renewable Energyhas set a blending target of 20% for ethanol in petrol and of 5% for biodiesel blending in dieselby 2030.

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After extending the deadline twice for FBOs consuming more that 50 litres of oil a day for fryingto strictly maintain the usage records and stop reusing the oil more than three times, an August9 order from the FSSAI has directed Food Safety Commissioners to conduct inspections andensure that the oil does not enter the food chain again. The order was issued by FSSAI JointDirector (Regulatory Compliance) Pushp Vanam.

The order says all FBOs should compulsorily dispose off their used cooking oil to authorisedcollection agencies or aggregators and lists eight biodiesel manufacturers enrolled with agencyso far.

FSSAI Chief Executive Officer Pawan Kumar Agarwal told The Hindu on Saturday that theagency will soon come out with a mobile application for tracking and tracing used cooking oil.

“All FBOs whose consumption of edible oil for frying is more than 50 litres per day will now haveto maintain records including date, name of the oil, quantity of oil taken for frying, quantitydiscarded at the end of the day, date and mode of disposal of the used oil and discarded oilcollected by agency. This will be enabled through an app,” he said.

“When used multiple times, cooking oil becomes acidic and darkens in colour. This may alter thefatty acid composition of the oil. FSSAI will also ask cooking oil manufacturers to come out withcolour charts (either on the product or in a booklet along with the product) that will help people toidentify if the oil is fresh or re-used. A prominent oil manufacturer is already doing this and weplan to ask others also to follow the same concept,” Mr Agarwal added.

He said the directive was aimed at ensuring that reused cooking oil is neither directly used infood preparation nor re-enters the food chain. “We have done this to set in safety standards inthe food industry. The August 9 Order is to make sure this rule is strictly enforced henceforth,”he said.

The order on prohibiting reuse of edible oil was initially issued on January 30, 2019, and wasdirected to be effective from March 1, 2019. Subsequently, another Order was issued onFebruary 28 extending the deadline by three months.

Following the initial Order, food safety officials voiced the several challenges in enforcing it,especially in the absence of a strong ecosystem that can facilitate the registration of biodieselmanufacturers and collection aggregators.

Although Karnataka is the first State to have a Bio Energy Development Board and usedcooking oil is being collected from big chain of restaurants by biondiesel manufacturing units, themain issue is regarding the registration of such units and empanellment of re-purposed usedcooking oil (RUCO) collecting aggregators. Without empanellment, many aggregators arefinding it difficult to collect used cooking oil from hotel chains. These challenges were discussedat a meeting of top officials from FSSAI in Bengaluru on March 1. Similar concerns were raisedby other States.

Following this, FSSAI issued an Order on May 6 requiring bio diesel manufacturers to enrol withFSSAI for collection of used cooking oil from FBOs.

(With inputs from Afshan Yasmeen in Bengaluru)



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How Hyderabad’s NIRD-PR campus is reducing its carbon footprint and setting an example withits model road technologies and eco-housing methods

We head to HMA Greens Hydro Farm to understand how hydroponics works





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IRRIGATION, AGRICULTURE SHIFT RAINFALL TONORTHWESTERN INDIA, IIT-B FINDS

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

The shortcoming: Till now, the models used widely for land-surface modelling have not beendesigned for Indian conditions. | Photo Credit: RITU RAJ KONWAR

For the first time, researchers from the Indian Institute of Technology (IIT) Bombay have foundthat even a change in irrigation policy has the potential to shift monsoon rainfall and intensifyextreme rainfall in India through its feedback to atmosphere. They have further found the reasonbehind the shift in the summer monsoon rainfall towards northwestern India and intensification ofextreme rainfall over central India during the month of September.

It became possible to understand what causes the monsoon to shift and the role of irrigation asthe researchers developed a module of land-surface model that takes into account the actualsoil irrigation and agriculture pattern seen in India.

During the month of September, agriculture lands are highly irrigated and the crops are matured.As a result, there is maximum evapotranspiration taking place leading to highest contribution ofmoisture from the land to the atmosphere. “Till now, the models that have been used widely forland-surface modelling were not designed for Indian conditions,” says Subimal Ghosh from theDepartment of Civil Engineering at IIT Bombay and corresponding author of a paper published inGeophysical Research Letters.

“The models used so far considered that irrigation starts only when soil moisture is very low(permanent wilting point) and stops when it reaches slightly below saturated soil moisture state(field capacity)”

But the reality is otherwise — there is uncontrolled irrigation in India. And nearly 50% of croparea is covered by paddy where the fields are kept in submerged conditions. As a result, thecontribution of moisture from the land to the atmosphere is very different from what is followed inthe West, which is what the models used so far took into account.

“So we collaborated with Pacific Northwest National Laboratory to develop a land-surface modelthat takes into account the Indian conditions,” says Prof. Ghosh.

Several studies have already shown that irrigation contributes moisture to the Indian summermonsoon. But the IIT Bombay team along with researchers from Pacific Northwest NationalLaboratory and Oak Ridge National Laboratory have shown that whenever there is a change inthe irrigation management, there is a change in the moisture feedback to the atmosphere.

The researchers considered three scenarios — no irrigation, irrigation that is based on soilmoisture deficit h, and finally uncontrolled irrigation as seen in India.

The researchers found that as a result of excess irrigation over northern India, the summermonsoon rainfall in September shifts towards the northwestern part of the country. There is alsointensification of extreme rainfall over central India during September.

Land-surface processes including irrigation affect the heat fluxes — temperature related andevapotranspiration. Modified heat fluxes along with changes in atmosphere moisture content

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and distribution result in a shift in rainfall towards northwestern part of the country and increasedextreme rainfall over central India during September.

The study has not looked at how irrigation and agriculture influence monsoon in southern India.

“Rainfall increasing the moisture content in soil is well known and can be visualised. But soilmoisture contributing to the atmosphere cannot be visualised easily and is therefore neglected,”points out Prof. Ghosh.

“Our analysis underlines why the soil to atmosphere feedback cannot be neglected. Each of thecomponent — atmosphere and hydrology — have to be coupled together to understand thesystem in full.”

“Any land-surface model used for India should take into account Indian irrigation and agriculturesystem. Otherwise, we will not add value and will come up with incorrect results,” he says.

“We need more detailed irrigation data for southern India to perform much better analysis ofland-surface feedback of human-natural systems,” he says.







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REGISTRATION OPENS FOR PM KISAN MAAN DHANYOJANA; UNION AGRICULTURE MINISTER URGESFARMERS TO REGISTER FOR THE PENSION SCHEME

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

Ministry of Agriculture & Farmers Welfare

Registration opens for PM Kisan Maan Dhan Yojana; UnionAgriculture Minister urges farmers to register for thePension Scheme


Registration for the PM Kisan Maan Dhan Yojana begins today said Shri NarendraSingh Tomar, Union Minister for Agriculture & Farmers Welfare, while addressing aPress Conference in Krishi Bhawan, New Delhi today. Appealing farmers across thecountry to join the old age pension Scheme, the Minister said that the scheme hasbeen envisioned with an aim to improve the life of small and marginal farmers of thecountry. The Minister said that the operational guidelines have been shared with theStates and Agriculture Secretary Shri. Sanjay Agarwal conducted a VideoConference with States in this regard to ensure proper information dissemination andspeedy implementation of the Scheme.

Elucidating the salient features of Scheme, Shri. Tomar said that the scheme isvoluntary and contributory for farmers in the entry age group of 18 to 40 years and a

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monthly pension of Rs. 3000/- will be provided to them on attaining the age of 60years. The farmers will have to make a monthly contribution of Rs.55 to Rs.200,depending on their age of entry, in the Pension Fund till they reach the retirementdate i.e. the age of 60 years. The Central Government will also make an equalcontribution of the same amount in the pension fund. The spouse is also eligible toget a separate pension of Rs.3000/- upon making separate contributions to the Fund.The Life Insurance Corporation of India (LIC) shall be the Pension Fund Manager andresponsible for Pension pay out.

The Minister stated that, in case of death of the farmer before retirement date, thespouse may continue in the scheme by paying the remaining contributions till theremaining age of the deceased farmer. If the spouse does not wish to continue, thetotal contribution made by the farmer along with interest will be paid to the spouse. Ifthere is no spouse, then total contribution along with interest will be paid to thenominee. If the farmer dies after the retirement date, the spouse will receive 50% ofthe pension as Family Pension. After the death of both the farmer and the spouse,the accumulated corpus shall be credited back to the Pension Fund. Thebeneficiaries may opt voluntarily to exit the Scheme after a minimum period of 5years of regular contributions. On exit, their entire contribution shall be returned byLIC with an interest equivalent to prevailing saving bank rates.

The farmers, who are also beneficiaries of PM-Kisan Scheme, will have the option toallow their contribution debited from the benefit of that Scheme directly. In case ofdefault in making regular contributions, the beneficiaries are allowed to regularize thecontributions by paying the outstanding dues along with prescribed interest. The initialenrollment to the Scheme is being done through the Common Service Centres invarious states. Later on alternative facility of enrollment through the PM-Kisan StateNodal Officers or by any other means or online enrollment will also be madeavailable. The enrollment is free of cost. The Common Service Centres will chargeRs.30/- per enrolment which will be borne by the Government.

There will be appropriate grievance redressal mechanism of LIC, banks and theGovernment. An Empowered Committee of Secretaries has also been constituted formonitoring, review and amendments of the Scheme.

Shri Tomar also said that under the Pradhan Mantri Kisan Samman Nidhi the targetof 10 crore beneficiaries for this year will be achieved. The Minister added that tilldate, 5, 88,77,194 and 3,40,93,837 farmers’ families have availed 1st and 2nd

instalments respectively under the PM-Kisan Scheme.

*****

APS/JP


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



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THERE IS A FUNDAMENTAL PROBLEM OF DEMANDTODAY. AT THE CORE OF IT IS INCOMES THAT AREN’TRISING ENOUGH



India traditionally never had a demand problem. On the contrary, its economy was alwayssupply-constrained.

Proof of no demand paucity is that between 2000-01 and 2015-16, domestic consumption ofboth finished steel and cement roughly trebled, from 26.3 million tonnes (mt) and 92 mt, to 81.5mt and 269 mt, respectively. During the same period, annual sales of passenger vehiclesquadrupled (from 6.9 lakh to 27.9 lakh), while growing 4.5 times in the case of two-wheelers(from 36.3 lakh to 164.6 lakh) and five times for commercial vehicles (from 1.4 lakh to 6.9 lakh).Also, the total air passengers flown jumped nearly 10 times (from 14 million to 135 million) andthe number of telephone connections 30-fold (from 36.3 million to 1059.3 million).

Supply not keeping up with demand — recall those long waiting periods for telephones, LPGconnections and Bajaj Chetak scooters — was also manifested in inflation. Annual retail foodinflation during the Nineties, and even the 10 years from 2006-07 to 2015-16, averaged 9.8 percent. Not surprisingly, “supply management” measures — be it stocking limits under theEssential Commodities Act, export bans, zero-duty imports or selective credit control to restrictbank finance against cereals, pulses, sugar, oilseeds and raw cotton — were par for the course.

All this has changed in the last three years or less. The certainty that producers once enjoyed —of finding buyers for their wares without doing much beyond minor price adjustments to bringsupply and demand into equilibrium — has ceased to exist.

This hasn’t been an overnight phenomenon. It started with agriculture from around mid-2014,when global agri-commodity prices crashed, leading to a collapse in export demand for Indianfarm produce and simultaneously increasing vulnerability to imports. But the real deluge hashappened in the last three years, especially after demonetisation. Consumer food inflation has,for 34 months running, from September 2016 to June 2019, ruled below general retail inflationand averaged a mere 1.3 per cent year-on-year.

While such a prolonged near-deflationary phase in farm prices is unprecedented, the othersector to have experienced a similar extended slump is real estate. According to the propertyconsultancy firm Knight Frank, between 2013 and 2017, the number of new residential launchesin India’s top eight cities plunged from 4,20,105 to 1,03,570 units, with sales, too, dipping from3,29,238 to 2,28,072 units. 2018 saw a mild recovery, but it marked the fourth year of growth inresidential house prices trailing overall consumer inflation, with the gap progressively wideningsince mid-2016. As on June 2019, the unsold housing inventory of 4,50,263 units in these citieswas still equivalent to 9.3 quarters of sale. Like agriculture, real estate transactions aresignificantly cash-based. Small wonder, this industry’s woes have also intensified postdemonetisation.

But demonetisation and goods and services tax (GST) were events of late-2016 and 2017. Theireffects shouldn’t plausibly have lasted beyond, say, March 2018, when the total currency in

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circulation had reverted to pre-demonetisation levels. India Inc had, indeed, welcomeddemonetisation and GST, claiming that the temporary economic dislocations causednotwithstanding, these would help create a “level-playing field” vis-à-vis unorganised sectorplayers who were avoiding taxes by doing business largely in cash.

What is interesting, though, is that the demand slowdown has spread to more industries in thelast one year. Thus, sales of passenger vehicles have fallen year-on-year in every monthbetween July 2018 and June 2019, barring October. The same goes for two-wheelers sinceDecember 2018. Hindustan Unilever, a bellweather for India’s fast-moving consumer goodssector, has posted a drop in annual sales volume growth from 12 per cent in April-June 2018 to7 per cent in January-March 2019 and 5 per cent in April-June 2019.

The reasons for such all-round demand deceleration, when the worst of demonetisation andGST are behind us, are hard to fathom. The most common explanation ascribes it to the liquiditysqueeze experienced by non-banking financial companies (NBFCs), following the serial defaultson debt obligations by Infrastructure Leasing & Financial Services Ltd last September. Now, it’strue that NBFCs were accounting for over a third of the incremental credit in the system, withtheir retail loans (mainly for vehicle, consumer durables and home purchases) alone rising by46.2 per cent during 2017-18 on top of 21.6 per cent the previous year. To the extent that theirfunds via bank borrowings and issuing of non-convertible debentures or commercial paper havedried up, it has had an obvious ripple effect on the economy.

The argument, however, misses the point. NBFC credit expansion from 2014-15 was primarilyfuelled by non-performing assets-laden public sector banks cutting back on their lending. Thebig credit explosion, moreover, took place only after and because of demonetisation, whichresulted in a flood of liquidity with banks and mutual funds. This excess cash they then lent toNFBCs, either directly or through market-based instruments that allowed Indiabulls and lesserfirms to get money almost as cheaply as HDFC. The party couldn’t have gone on. The NBFCcredit freeze has, no doubt, affected sectors such as real estate, construction and automobiles.But how does one explain a third consecutive quarter of slowdown for even FMCG, as per themarket research firm, Nielsen? And real estate’s troubles, we know, preceded the current NBFCcrisis.

The diagnosis is clear: There is a fundamental problem of demand today — a devil India hasnever encountered before. At the core of it is incomes that aren’t rising enough. Not only havehousehold savings come down — from 22.5 per cent to 17.2 per cent of GDP between 2012-12and 2017-18, estimates Kotak Institutional Equities — but consumption is also feeling the pinchnow. When jobs and incomes are under strain, how much can loan-pushing by NBFCs help? Atwo-wheeler loan has to ultimately be paid from one’s salary or wages.

The question well worth asking is how much of this income and demand stress is actually anoutcome of demonetisation and GST? The informal sector, to quote T N Ninan (Seminar,January 2018), was some kind of an “employment sink” and “shock absorber” for the Indianeconomy. It also provided the underlying demand support for goods and services that werebought, stocked and distributed through vast decentralised networks.

The country’s formal economy may well be growing by 7-8 per cent today, which the officialGDP data is, perhaps, rightly capturing. But if the informal un-measurable part has beencontracting by 20-25 per cent a year, the effects on demand need no elaboration.

This article first appeared in the August 13 print edition under the title ‘The economydevil we don’t know’. [email protected]

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RUPEE MATTERSRelevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade

& BOP


Over the past few years, there has been consternation, understandably so, over the sharp rise inoffshore rupee trading volumes. Data from the Bank of International Settlements pegs dailyoffshore rupee trading at around $16 billion in 2016, almost equal to onshore trading. Morerecent data from the Bank of England pegs offshore rupee trades at $23 billion in 2018. Theselarge volumes in the offshore market indicate greater investor interest in the rupee. But they alsoraise troubling questions over the forces that “determine the rupee’s value”, and the ability of thecentral bank to ensure “currency stability”.

Typically, offshore markets allow participants to trade in a non-convertible currency. Thesemarkets have evolved for currencies where restrictions are imposed in domestic markets onforeign exchange convertibility. The constraints on foreign participation in domestic currencymarkets stem from cumbersome documentation and KYC requirements, restrictions onproducts, inconvenient trading hours. These restrictions push investors to trading in offshoremarkets to hedge their currency risks. But with the volumes in these markets growing, they havebegun to play a critical role in “price discovery”, more so during “periods of uncertainty”. TheTask Force on Offshore Rupee Markets has pointed to two instances — the taper tantrum in the2013 and the 2018 emerging market crises — when the offshore market was driving the onshoreexchange rate. This, as the report points out, “reduced the efficacy of foreign currencyintervention by the central bank”.

The task force has made several recommendations to incentivise market participants to shift toonshore markets, like extending onshore market hours, examining issues of taxation. Allowingmarket participants to take exposure upto $100 million, without having to establish the existenceof the underlying risk, is also a step in the right direction. This will enable foreign investors tohedge their currency risk and could incentivise greater participation in rupee denominatedbonds. As the economy grows, it makes sense for regulators to expand onshore currencymarkets, in a calibrated manner. The ability to hedge currency risks is also likely to increase therupee’s attractiveness for trade invoicing and portfolio diversification, creating conditions for agradual internationalisation of the currency.





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SANGUINE AMIDST SLOWDOWNRelevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable

Development

vector illustration of collage displaying progress and development of India

Any major country in the world would give an arm and a leg for a growth rate of 6% per annum.But, in India, we lament such an achievement as a ‘slowdown’. This is because, somehow,today we perceive any growth below 7% to be unsatisfactory. And not so long ago, we perceivedany growth rate below 8% to be less than satisfactory.

What has changed now? It is not as if our per-capita income levels have suddenly shot up to apoint where a lower growth rate can be considered satisfying. We are still a lower-middle incomecountry.

What has really changed is our perception of what a satisfactory growth rate will be. Suchperceptions do matter as they reflect the mood of the times that influences economic decisions.For instance, usually, growth in discretionary spending is a function of growth in income. But, ifincome expectations change, then the relationship between income and discretionary spendingcould also change. Similarly, aspirations and social norms impact decisions. If the mood turnssombre, if aspirations are diluted and if social norms turn less upbeat, economic decisions wouldbe less enthusiastic even if income growth remains unchanged.

Further, if changes in perceptions of individuals result in synchronised waves of optimism orpessimism, such shifts could well determine whether an economy moves towards acceleratedexpansion or a slowdown. Hence, it makes sense to ask consumers about their perceptions ofexpected well-being and then derive an aggregated sense of the mood to anticipate futureeconomic trends.

According to George Katona, who pioneered work on consumer sentiments at the University ofMichigan, discretionary spending depends on the ability and willingness of a consumer to spend.While ability is reflected in the consumers’ income and assets, willingness to spend is reflectedin the consumers’ perception of future prospects.

How have Indians perceived their future in the recent past? There are two regular surveys whichanswer this question. The Reserve Bank of India (RBI) has been conducting a ConsumerConfidence Survey since 2010 and the Centre For Monitoring Indian Economy (CMIE) has beenconducting a Consumer Sentiments Survey as a part of its Consumer Pyramids HouseholdSurvey (CPHS) since January 2016.

Both show that during 2018, a rising proportion of Indians felt that their incomes would rise overa one-year horizon. Both show that this increase in income-growth expectations of 2018 was ofa distinctly sharper gradient than seen earlier.

According to the RBI survey, around the end of 2017, 46.5% of households expected theirincomes to increase and 12.7% expected a decline. On a net basis, 34% expected an increase.By end-2018, the net figure had gone up to 57.3%, signifying a major improvement in incomeexpectations during 2018.

The CMIE’s CPHS shows a similar rising trend but at a different level. The net proportion ofhouseholds that expected an increase in income increased from less than 5% in February 2018

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to 23% in May 2019.

Both surveys show that this rising optimism about household incomes has declined in 2019. TheRBI’s survey shows that the decline began in the first quarter of 2019 while the CPHS shows itbegan in the second quarter. Interestingly, both showed pessimism on jobs during 2018. Theconsistent contradiction in both surveys is noteworthy. Households did not see an increase injobs in 2018 but they did expect incomes to improve. This means hopes were high even in theface of job losses.

Received wisdom on consumer sentiments tells us that people have an uncanny way ofrevealing their assessment of change in prospects. Bad news during sustained bad times is notreally newsworthy and it does not attract much attention. On the other hand, good news or newsof hope during a bad patch can change perceptions. Such a hope could have been provided byone-time cash transfers to households last year.

The RBI survey quantifies this eloquently. While 9.5% households, on a net basis, believed thatemployment conditions had worsened in 2018, 28.5% households believed employmentconditions would improve in a year.

Their faith in the future remained intact even in the face of adverse outcomes compared toexpectations. In December 2017, 9.4% of the households believed employment levels wereworse (on a net basis) than a year ago but simultaneously, 33.6% believed they would improvein a year. A year later, in December 2018, 8.7% still believed the employment levels were worsethan a year ago. Yet, a larger proportion — 37.6% believed these would improve in a year.

Optimism continued to prevail even in the latest July 2019 RBI survey, where 13% ofhouseholds believed that employment conditions had worsened over a year but 31% of thembelieved that these would improve in a year. Such optimism is seen in income expectations aswell. As of July 2019, on a net basis, only 3% of the households believed their incomes werehigher compared to a year ago but 48.5% believed these would be better a year later.

How does this optimism on income and employment translate into a willingness to increasespending on discretionary or non-essential items? Here, the RBI and CMIE surveys divergesignificantly. The RBI survey is prescient in anticipating a slowdown in the automobile sector. Itshows that while households are optimistic on jobs and income in spite of current adverseconditions, they are not similarly gung ho about spending on non-essentials. In mid-2018, on anet basis, 53% of the households expected to spend more on non-essentials a year ahead. ByJuly 2019, this proportion fell to 15%.

The CMIE’s CPHS asks a related but somewhat different question, on whether householdsconsidered current conditions to be a good time to buy household durables. It shows that till July2018, respondents who believed that it was a good time to buy consumer durables roughlyequalled those who believed it wasn’t. Both numbers were at about 22.6%. By March 2019, theproportion of pessimists declined to 17% and that of optimists increased to 30%. The CMIEsurvey shows an improvement in the mood to spend on discretionary goods. This reflects thefact that sales of domestic appliances began a recovery in the June 2018 quarter and grew atdouble-digit rates during the December 2018, March 2019 and June 2019 quarters.

Evidently, there isn’t any widespread consumer goods slowdown. The slowdown is prominent inthe automobile sector but not in other industries. The RBI survey reflects the former and theCMIE survey reflects the latter. It may be worth noting here that the RBI survey is based on asurvey from 5,451 respondents from 13 towns while the CMIE’s CPHS is based on over 40,000respondents from over 300 towns and nearly 3,000 villages.

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Different parts of the Indian economy are moving in divergent directions but, Indian householdsmaintain hope in a future that will bring in more jobs and more income.

Mahesh Vyas is Managing Director, Centre for Monitoring Indian Economy








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DEMAND SLOWDOWN: A COORDINATED POLICYRESPONSE, ADDRESSING BOTH STRUCTURAL ANDCYCLICAL FACTORS, IS NEEDED



The writer is the chief economic advisor with the State Bank of India.

There are currently three issues that beg answers from policymakers. First, what are thereasons for the current demand slowdown? Second, whether the current slowdown is structuralor cyclical and third, whether banks have stopped lending and are causing a disruption indemand. Let us address them one by one, in the reverse order.

The slowdown in demand is a fact, but the consensus that banks are not extending enoughcredit to help us navigate through the current slowdown is misplaced. This is a false narrative asEconomics 101 suggests a bi-directional causality between economic growth and credit off-take.Thus, a growth slowdown will percolate into a credit slowdown and not vice-versa. However, letus momentarily digress from Econ 101 and just validate whether banks are extending credit,particularly retail credit, as we are in the midst of a consumer slowdown, if we go by indicatorslike car sales.

Here are the numbers. For the three year period ended FY19, incremental bank credit to theeconomy was at Rs 20.3 lakh crore, of which agriculture received Rs 2.3 lakh crore, services Rs8.8 lakh crore, retail/personal received Rs 8.3 lakh crore (housing was at Rs 4.1 lakh crore) andindustry got Rs 1.5 lakh crore. In the comparable period, GDP expanded by Rs 36.5 lakh crore.In Q1FY20, retail loans have continued to expand at Rs 46,000 crore (bank credit, though, hasshown a de-growth of Rs 1.3 lakh crore, led by industry) even though some segments of retailloans like vehicles have indeed registered a negative growth revealing lack of demand and othercyclical issues afflicting the auto sector.

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What does all this imply? Incremental bank credit doubled the pace in FY19 as compared toFY17. The slowdown in bank credit, if any, is primarily the result of credit to industry, that firstdeclined in FY17, barely managed a positive number in FY18, but has somehow picked up pacein FY19 (ten times larger vis-à-vis FY18). This is the result of several structural reforms anddisruptions, apart from deleveraging and asset quality issues beginning in FY16. It is thusfoolhardy to blame bank credit for the current demand disruption. It is, rather, the lack of demandfor bank credit which is causing the slowdown.

This brings us to the first and second question of the reasons behind the current demandslowdown and how to label it: Structural or cyclical or both? This labeling is important, as astructural slowdown would imply macro reforms, ignoring business cycles, while a cyclicalslowdown would mean unleashing counter cyclical policies. We believe the current slowdown isa combination of both structural and cyclical.

First, what are the structural factors that might have resulted in the current demanddeceleration? We believe that the most crucial factor that is reinforcing the demand slowdown isslow growth of both corporate (a proxy for urban wages) and rural wages. The corporate wage(based on financial data of 4,000 to 5,000 companies) which used to grow in high double digits(peaked at 21.4 per cent in FY09) post the crisis is now down to single digit growth, ascorporates are more conscious of costs in the midst of a massive deleveraging cycle.

In a similar vein, rural wages have also declined from double digit growth rates (peaked at 27.7per cent in FY14) growth till FY15 to less than five per cent in the last three fiscals. Clearly, thishigh growth phase was unsustainable (a deadly cocktail of wage-inflation nexus). However, thebottom line is the subsequent decline in wage growth and structural changes have resulted instagnating per capita income growth (in real terms) and hence to keep the consumptionexpenditure at the same level, household savings also declined.

Of particular interest is the decline in household savings. Our research shows that this decline isattributed to current high real interest rate (RIR), stagnating per capita income (after touching apeak in FY17) and dependency ratio. In particular, the high RIR has two opposing effects onprivate savings. The first is the substitution effect, in which savings increase as consumption ispostponed to the future, and the second is the wealth effect in which savers increase current

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consumption at the expense of saving. According to our results, the wealth effect in Indiadominates the substitution effect resulting in a savings decline. The higher real interest ratetends to increase the lifetime income of lenders and thereby encourages consumption anddiscourages savings. However, such an increase in consumption is being outstripped by otherfactors that are inhibiting its growth like per capita income.

Clearly, there are a host of structural factors that are holding back current consumption. Adecline in wage growth resulting in lower savings is a result of conscious policy decisions tocorrect macro imbalances. But it has resulted in consumption taking a hit.

It is naïve to say that there are no cyclical factors. For example, to solve the NBFC crisis and therecent tax imbroglio, we need more confidence building counter-cyclical measures. In a similarvein, private investment is currently a significant laggard in total investment. The share of theprivate sector has declined from 50 per cent during the 2007-14 period to 30 per cent during2015-19 in new projects investments (in value-terms). A possible increase in capacity utilisation(currently at 76.1 per cent) can happen only if we simultaneously address the sector-specificissues in order to boost demand of bank credit. One such sector is the MSME, where delayedpayments of receivables for MSMEs need to be monitored. Similarly, to improve transmission inMCLR, both the asset and liability side of bank balance sheets need to move simultaneously,and that is already happening.

We must end on an optimistic note though. India can become a $5 trillion economy by FY25,based on an assumed 12 per cent nominal GDP growth and a five per cent depreciation in therupee. Remember, China doubled its GDP in four years and quadrupled it in eight years. Indiaremains a promising growth story — taking continuously shorter spans to add each subsequenttrillion dollars of GDP. For this to continue, a coordinated policy response, both cyclical andstructural, is a must.

This article first appeared in the August 14 print edition under the title ‘Reading theslowdown’. The writer is group chief economic adviser, State Bank of India. Views arepersonal





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CENTRE LAUNCHES SWACHH NAGAR APP FORWASTE COLLECTION

Relevant for: Indian Economy | Topic: Infrastructure: Urbanisation and related Issues

An app that will allow users to have waste — solid, wet or construction and demolition (C&D) —collected by their urban local bodies was launched by the Union Housing and Urban AffairsMinistry on Tuesday, along with a new protocol on wastewater treatment that would become apart of cleanliness rankings of cities.

Launching the fifth edition of the annual cleanliness survey which will culminate in January 2020,Swachh Survekshan 2020, Union Minister of State (independent charge) Hardeep Singh Purialso inaugurated the Swachh Nagar app.

The MoHUA secretary, Durga Shanker Mishra, said the app would let users place a request tohave waste picked up from their homes and make the payment for the same. He said the apphad been tested in Gurugram and in some of the General Pool Residential Accommodationcolonies for government staff. It was already functional in Agra, Palwal and Port Blair and wouldnow be extended to the whole country.

The Minister also launched the Water+ protocol for cities. A city could be given the tag of Water+if it ensures 100% treatment of wastewater and 10% use of treated wastewater, among otherthings.

He also launched another app — mSBM — through which the government would be able tocheck whether funds given to beneficiaries of the Swachh Bharat Mission for constructing toiletsare used for the work before releasing the second instalment.

“This app will not only facilitate the applicants of Individual Household Toilets under SBM-Urbanto know the status of their application in real-time after uploading the photograph but also helpthem upload the correct photo,” a statement said.

Asked about the progress of the construction of toilets under the Swachh Bharat Mission-Urban,particularly in Delhi, Mr. Puri said it was the Delhi Urban Shelter Improvement Board’sresponsibility to do so.

“The Delhi government wants that everything should be given free, but urban development doesnot work like that,” he said.

After announcing free bus and Metro rides for women, the Aam Aadmi Party government inDelhi had recently said it would make electricity free for those who consume up to 200 units amonth.



How Hyderabad’s NIRD-PR campus is reducing its carbon footprint and setting an example withits model road technologies and eco-housing methods

We head to HMA Greens Hydro Farm to understand how hydroponics works

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RBI ALLOWS FINTECH COMPANIES, FINANCIALINSTITUTIONS TO SET UP REGULATORY SANDBOX


MUMBAI: The RBI on Tuesday permitted startups, banks and financial institutions to set upregulatory sandbox (RS) for live testing of innovative products in areas like retail payments,digital KYC and wealth management.

RS usually refers to live testing of new products or services in a controlled/test regulatoryenvironment for which regulators may (or may not) permit certain relaxations for the limitedpurpose of the testing. The RS allows the regulator, innovators, financial service providers andcustomers to conduct field tests to collect evidence on the benefits and risks of new financialinnovations, while carefully monitoring and containing their risks.

Releasing the 'enabling framework for regulatory sandbox', the RBI said the RS fosters 'learningby doing' on all sides and regulators obtain first-hand empirical evidence on the benefits andrisks of emerging technologies and their implications.

This will enable authorities to take a considered view on the regulatory changes or newregulations that may be needed to support useful innovation, while containing the attendantrisks.

Users of an RS can test the product's viability without the need for a larger and more expensiveroll-out, if the product appears to have the potential to be successful, is another major benefit ofsuch exercise.

On risks and limitations of RS, the RBI said innovators may lose some flexibility and time ingoing through the sandbox process. However, running the RS in a time-bound manner at eachstage can mitigate this risk.

"The target applicants for entry to the RS, are fintech companies including startups, banks,financial institutions and any other company partnering with or providing support to financialservices businesses...," the RBI said on eligibility criteria for RS.

The focus of the RS will be to encourage innovations intended for use in the Indian market inareas where there is absence of governing regulations and there is a need to temporarily easeregulations for enabling the proposed innovation.

"The RS may run a few cohorts (end-to-end sandbox process), with a limited number of entitiesin each cohort testing their products during a stipulated period.

"The RS shall be based on thematic cohorts focussing on financial inclusion, payments andlending, digital KYC. The cohorts may run for varying time periods but should ordinarily becompleted within six months," the central bank said.

Further details in respect of the cohorts and the window for submission of applications would beannounced later, it added.

Innovative products/services which could be considered for RS, include retail payments, moneytransfer services, marketplace lending, digital KYC, financial advisory services, wealth

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management services, and digital identification services.

The RBI further said mobile technology applications, data analytics, application programinterface (APIs) services, applications under block chain technologies, and artificial intelligenceand machine learning applications too could be considered for testing under RS.

The guidelines also said the sandbox entity will be required to ensure that any existingobligations to the customers of the financial service under experimentation are fulfilled oraddressed before exiting or discontinuing the RS.MUMBAI: The RBI on Tuesday permitted startups, banks and financial institutions to set upregulatory sandbox (RS) for live testing of innovative products in areas like retail payments,digital KYC and wealth management.

RS usually refers to live testing of new products or services in a controlled/test regulatoryenvironment for which regulators may (or may not) permit certain relaxations for the limitedpurpose of the testing. The RS allows the regulator, innovators, financial service providers andcustomers to conduct field tests to collect evidence on the benefits and risks of new financialinnovations, while carefully monitoring and containing their risks.

Releasing the 'enabling framework for regulatory sandbox', the RBI said the RS fosters 'learningby doing' on all sides and regulators obtain first-hand empirical evidence on the benefits andrisks of emerging technologies and their implications.

This will enable authorities to take a considered view on the regulatory changes or newregulations that may be needed to support useful innovation, while containing the attendantrisks.

Users of an RS can test the product's viability without the need for a larger and more expensiveroll-out, if the product appears to have the potential to be successful, is another major benefit ofsuch exercise.

On risks and limitations of RS, the RBI said innovators may lose some flexibility and time ingoing through the sandbox process. However, running the RS in a time-bound manner at eachstage can mitigate this risk.

"The target applicants for entry to the RS, are fintech companies including startups, banks,financial institutions and any other company partnering with or providing support to financialservices businesses...," the RBI said on eligibility criteria for RS.

The focus of the RS will be to encourage innovations intended for use in the Indian market inareas where there is absence of governing regulations and there is a need to temporarily easeregulations for enabling the proposed innovation.

"The RS may run a few cohorts (end-to-end sandbox process), with a limited number of entitiesin each cohort testing their products during a stipulated period.

"The RS shall be based on thematic cohorts focussing on financial inclusion, payments andlending, digital KYC. The cohorts may run for varying time periods but should ordinarily becompleted within six months," the central bank said.

Further details in respect of the cohorts and the window for submission of applications would beannounced later, it added.

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Innovative products/services which could be considered for RS, include retail payments, moneytransfer services, marketplace lending, digital KYC, financial advisory services, wealthmanagement services, and digital identification services.

The RBI further said mobile technology applications, data analytics, application programinterface (APIs) services, applications under block chain technologies, and artificial intelligenceand machine learning applications too could be considered for testing under RS.

The guidelines also said the sandbox entity will be required to ensure that any existingobligations to the customers of the financial service under experimentation are fulfilled oraddressed before exiting or discontinuing the RS.



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BUDGET SCHEME FOR LIQUIDITY SUPPORT TONBFCS ROLLS OUT


NEW DELHI: New Delhi: India has operationalised a partial guarantee scheme announced in thebudget for non-banking and housing finance companies ( NBFCs and HFCs), which will allowstate-run banks (PSBs) to purchase their assets.

It is aimed at providing liquidity support to avoid distress sale of assets in a sector facing ashortage of cash due to asset-liability mismatch. The stress on NBFCs and HFCs is seen as akey reason for a slowdown in the economy, as it has caused reduced credit flow to smallbusinesses and consumers.

The government is putting in a mechanism to ensure the scheme takes off on ground. It will elicitinformation on a real-time basis on the working of the scheme and has sought real-timereporting of transactions under it.As per the guidelines of the scheme announced in the budget, the Department of EconomicAffairs will provide government guarantee of up to 10% of the fair value of assets purchased bya bank from a stressed NBFC or HFC. The scheme is capped at Rs 1 lakh crore and will beopen for up to six months.

The Department of Financial Services will obtain information on transactions in a prescribedformat from PSBs and send a copy to the budget division of the Department of Economic Affairs.The government will settle claims by banks within five working days.

NBFCs will have to pay a fee to the government, at 0.25% per annum of the fair value of assetssold to banks. They will be able to sell 20% of standard assets, worth up to Rs 5,000 crore, ason March 31.

Assets sold must be at least AA or equivalent rated and the NBFC/HFC selling assets shouldhave appropriate capital, net NPAs of less than 6% and been profitable for the last two financialyears.

NBFCs will also have to rework the asset-liability structure within three months to have a positiveasset liability management in each bucket for the first three months and on cumulative basis forthe remaining period.

The one-time guarantee on the pooled assets will be valid for 24 months from the date ofpurchase and can invoked in specified circumstances. The guarantee shall cease earlier if thepurchasing bank sells the pooled assets to the originating NBFC or HFC or any other entitybefore the validity of the guarantee period, the government said.

“The purchasing bank can invoke the guarantee if interest and/or instalment of principal remainsoverdue for more than 90 days (that is, when liability is crystalised for underlying borrower)during validity of such guarantee, subject to the condition that the guarantee is for the first lossup to 10%,” it added.

NEW DELHI: New Delhi: India has operationalised a partial guarantee scheme announced in thebudget for non-banking and housing finance companies ( NBFCs and HFCs), which will allow

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state-run banks (PSBs) to purchase their assets.

It is aimed at providing liquidity support to avoid distress sale of assets in a sector facing ashortage of cash due to asset-liability mismatch. The stress on NBFCs and HFCs is seen as akey reason for a slowdown in the economy, as it has caused reduced credit flow to smallbusinesses and consumers.

The government is putting in a mechanism to ensure the scheme takes off on ground. It will elicitinformation on a real-time basis on the working of the scheme and has sought real-timereporting of transactions under it.As per the guidelines of the scheme announced in the budget, the Department of EconomicAffairs will provide government guarantee of up to 10% of the fair value of assets purchased bya bank from a stressed NBFC or HFC. The scheme is capped at Rs 1 lakh crore and will beopen for up to six months.

The Department of Financial Services will obtain information on transactions in a prescribedformat from PSBs and send a copy to the budget division of the Department of Economic Affairs.The government will settle claims by banks within five working days.

NBFCs will have to pay a fee to the government, at 0.25% per annum of the fair value of assetssold to banks. They will be able to sell 20% of standard assets, worth up to Rs 5,000 crore, ason March 31.

Assets sold must be at least AA or equivalent rated and the NBFC/HFC selling assets shouldhave appropriate capital, net NPAs of less than 6% and been profitable for the last two financialyears.

NBFCs will also have to rework the asset-liability structure within three months to have a positiveasset liability management in each bucket for the first three months and on cumulative basis forthe remaining period.

The one-time guarantee on the pooled assets will be valid for 24 months from the date ofpurchase and can invoked in specified circumstances. The guarantee shall cease earlier if thepurchasing bank sells the pooled assets to the originating NBFC or HFC or any other entitybefore the validity of the guarantee period, the government said.

“The purchasing bank can invoke the guarantee if interest and/or instalment of principal remainsoverdue for more than 90 days (that is, when liability is crystalised for underlying borrower)during validity of such guarantee, subject to the condition that the guarantee is for the first lossup to 10%,” it added.



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LET’S DRAW LINES IN WATERRelevant for: Indian Economy | Topic: Different types of Irrigation & Irrigation systems storage


Mihir Shah writer was member, Planning Commission from 2009-14.

Spiritual teachers tell us that if we stay calm in the face of a crisis, our response is more likely tobe meaningful, effective and sustainable. Like good scientists, they also advise us to maintain aclear and steady view of the facts of the situation, and then act accordingly. Those trying tosolve India’s water crisis would do well to keep these pieces of wisdom in mind.

That will help avoid resorting to gigantic Stalinist projects like the interlinking of rivers orneedlessly expensive options like desalination. For there is no future in desperately andendlessly trying to increase the supply of water. Luckily, there are simple solutions on thedemand side, which have not even been looked at. The formation of the Jal Shakti ministry is,indeed, a promising step in the right direction. Hopefully, the prime minister will provide greatersubstance to this initiative in his Independence Day speech.

The single largest fact about India’s water is that 90 per cent of it is consumed in farming. Andthat 80 per cent of this irrigation is for water-guzzling crops — rice, wheat and sugarcane.Reducing this number is the most effective way of solving India’s water problem. But can we dothis without hurting our farmers, who are already in so much distress? Yes, we can. Indeed, itturns out that the solutions to India’s water crisis and that of the farmers, lie in the very samedirection.

India’s farmers, even in drought-prone areas, grow these water-intensive crops because theseare the crops that have a steady demand. Governments, over the past 50 years, have primarilyprocured wheat and rice. And, sugarcane is bought by sugar factories. If we diversify ourprocurement operations, to include less water-intensive crops, like millets, pulses and oilseeds,especially in India’s drylands, farmers would have the incentive to grow them. But what will wedo with these crops after procurement? Again, there is a simple answer: Introduce them in themid-day meal scheme and the integrated child development services, which are the largest childnutrition programmes in human history. This would create an enormous and steady demand forthese crops and farmers in the regions where it is ecologically appropriate to grow them wouldbe incentivised to shift away from water-intensive crops.

Official estimates indicate that around 3,00,000 farmers have committed suicide over the past 30years. Although there is no doubt that the Green Revolution played a key role in India’s foodsecurity in the 1970s and 1980s, in the 21st century, the returns from chemical fertilisers andpesticides have steadily fallen. Meanwhile, the costs of cultivation have risen steeply. This hassometimes resulted in even negative net incomes.

Responding to this situation by raising minimum support prices for these very same crops orthrough loan waivers or cash transfers completely sidesteps the deeper crisis of farming in India.It was heartening to see the finance minister, in her maiden budget speech, showing thecourage to at least speak of the need to move towards nature-based farming, even though thiswas not backed up by any change in the budgetary allocations, which continue to flow in supportof chemical agriculture with a whopping Rs 80,000 crore fertiliser subsidy.

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The paradigm shift I am proposing would help secure multiple win-wins: Improvement in soil andwater quality, higher and more stable net incomes for farmers, reduced malnutrition and obesity,and a simple solution to India’s water problem through a huge reduction in the use of water inagriculture. As we diversify the cropping pattern, aligning it more closely with India’s agro-bio-geo-ecological diversity, voluminous quantities of water would be released for meeting thedrinking water needs in both rural and urban areas, and the demands of industry.

As we move towards non-chemical agriculture, the dependence of farmers on high cost externalinputs will decline and even if there is a slight drop in productivity in the transition phase, thiswould be more than made up by the reduced cost of cultivation and the steady demand for thesecrops through government procurement operations.

What is more, if our children were to eat these “nutri-cereals” with much higher protein, iron andfibre, with a significantly lower glycemic index, we would be better placed to solve our twinproblems of malnutrition and obesity. Diabetes has increased in every Indian state between1990 and 2016, even among the poor, rising from 26 million in 1990 to 65 million in 2016. Thisnumber is projected to double by 2030. A major contributor to this epidemic is the displacementof whole foods in our diets by energy dense and nutrient-poor, ultra-processed food products.This has a clear relationship with the monoculture we adopted after the Green Revolution wherefarmers mainly grew wheat and rice.

In an intensely risky enterprise such as farming, it makes no sense whatsoever to adoptmonoculture. With high weather and market risks, resilience (as in the stock market) demandscrop (portfolio) diversification. But we have subjected our farmers to exactly the opposite bycreating incentives against diversification. This has broken the back of Indian farming, even as ithas engineered an artificial water crisis in a land where water is aplenty, if only we were to use itjudiciously.

Allied to this paradigm shift in farming, we need to democratise water. Water, by its very nature,is a shared resource, which can only be nourished through participatory governance. Whether itis our rivers or India’s most important resource — groundwater — we can protect them only if werecognise the integral inter-connectedness of catchment areas, rivers and rural and urbanaquifers. Here again, there are countless examples all over India where stakeholders have cometogether to form democratic associations to manage their shared resource collectively, equitablyand sustainably.

It is now for the government to take the necessary steps to learn from these pioneers andupscale their efforts through a respectful partnership with the primary custodians. This might bethe hard part as governments tend not to find it easy to either respect, listen to or learn frompractitioners on the ground. But, as a people, we have no choice left in the matter. Only a janandolan on water can save us now.

(The writer is former member, Planning Commission. He has worked on water andlivelihood issues for three decades)





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Source : www.prsindia.org Date : 2019-08-17

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

The Chit Funds (Amendment) Bill, 2019 was introduced in Lok Sabha on August 5, 2019.The Bill seeks to amend the Chit Funds Act, 1982. The 1982 Act regulates chit funds, andprohibits a fund from being created without the prior sanction of the state government. Under a chit fund, people agree to pay a certain amount from time to time into a fund. Periodically, one of the subscribers is chosen by drawing a chit to receive the prize amountfrom the fund.

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Names for a chit fund: The Act specifies various names which may be used to refer toa chit fund. These include chit, chit fund, and kuri. The Bill additionally inserts‘fraternity fund’ and ‘rotating savings and credit institution’ to this list.

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Substitution of terms: The Act defines certain terms in relation to chit funds. Itdefines: (a) ‘chit amount’ as the sum of subscriptions payable by all the subscribersof a chit; (b) ‘dividend’ as the share of the subscriber in the amount kept apart forrunning the chit; and (c) ‘prize amount’ as the difference between chit amount and theamount kept apart for running the chit. The Bill changes the names of these terms to‘gross chit amount’, ‘share of discount’ and ‘net chit amount’, respectively.

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Presence of subscribers through video-conferencing: The Act specifies that a chitwill be drawn in the presence of at least two subscribers. The Bill seeks to allowthese subscribers to join via video-conferencing.

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Foreman’s commission: Under the Act, the ‘foreman’ is responsible for managing thechit fund. He is entitled to a maximum commission of 5% of the chit amount. The Billseeks to increase the commission to 7%. Further, the Bill allows the foreman a rightto lien against the credit balance from subscribers.

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Aggregate amount of chits: Under the Act, chits may be conducted by firms,associations or individuals. The Act specifies the maximum amount of chit fundswhich may be collected. These limits are: (i) one lakh rupees for chits conducted byindividuals, and for every individual in a firm or association with less than fourpartners, and (ii) six lakh rupees for firms with four or more partners. The Billincreases these limits to three lakh rupees and 18 lakh rupees, respectively.

●

Application of the Act: Currently, the Act does not apply to: (i) any chit started beforeit was enacted, and (ii) any chit (or multiple chits being managed by the sameforeman) where the amount is less than Rs 100. The Bill removes the limit of Rs 100,and allows the state governments to specify the base amount over which theprovisions of the Act will apply.

●

DISCLAIMER: This document is being furnished to you for your information. You may choose to reproduce orredistribute this report for non-commercial purposes in part or in full to any other person with dueacknowledgement of PRS Legislative Research (“PRS”). The opinions expressed herein are entirely those of

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the author(s). PRS makes every effort to use reliable and comprehensive information, but PRS does notrepresent that the contents of the report are accurate or complete. PRS is an independent, not-for-profitgroup. This document has been prepared without regard to the objectives or opinions of those who mayreceive it.



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HIGH POWERED COMMITEE FOR TRANSFORMATIONOF AGRICULTURE SHOULD REFORM RESTRICTIVETENANCY LAWS

Relevant for: Indian Economy | Topic: Land reforms in India


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

Ritika Juneja is Research Assistant at ICRIER.

Early in its second term, on July 1, the Narendra Modi government constituted a High PoweredCommittee of Chief Ministers for Transformation of Indian Agriculture. Maharashtra ChiefMinister Devendra Fadnavis was appointed the committee’s convenor. The Committee issupposed to submit its report within two months. Its terms of reference (ToR) pertain largely tomatters related to agri-markets. This includes reforming the Agricultural Produce and LivestockContract Farming and Services Act of 2018 and the Essential Commodities Act (ECA) as well assuggesting measures to reinvigorate the e-Nam scheme.

The ToR does talk of quality seeds and farm machinery but the emphasis seems to be ongetting the markets right. We welcome this approach. In fact, we have, in the past, argued forthe necessity of setting up an Agri-Markets Reforms Council on the lines of GST Council (‘First,the low hanging fruit’ IE, May 27).

However, transforming agriculture in the medium to long run requires fundamental reforms inland institutions as well. This is what is missing in the new committee’s ToR. It may be worthrecalling that in its first term, the Narendra Modi government had set up an expert committee onland reforms, chaired by T Haque, which recommended a Model Land Lease Act (2016). TheHigh Powered Committee of Chief Ministers should give urgency to the implementation of thisrecommendation. Better late than never.

Two fundamental reasons make it imperative that urgency is accorded to the liberalisation ofland lease markets. One, the size of the average holding has been declining in India for long(see figure 1).

This raises questions about the economic viability of such tracts, especially since they do notprovide a respectable income to farmers. Two, restrictive tenancy laws have generated oral(informal) tenancy that is said to be much higher than formal tenancy in magnitude. This isadversely impacting land-use efficiency.

As per official records (NSSO, 2012-13), only about 10 per cent of agricultural land is undertenancy, down from 20 per cent in 1953-54 (see figure 2).

However, experts believe that official estimates hugely under-report actual tenancy. It isgenerally believed, based on several micro-level surveys, that about a third of the agriculturalland in India is under tenancy. It is oral tenants who are most insecure. They do not have legalsanction and are not recognised as farmers. This deprives them from availing institutional credit,crop insurance, government-sponsored social benefit schemes and relief support. The fear ofeviction from the land also disincentivises them from making long-term investments in land

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improvement. This results in low capital formation and hurts farm productivity. Even thelandowners fear losing their proprietory rights, if they lease out for longer periods. As a result,many of them prefer to keep their lands fallow. Rough estimates suggest that about 17 millionhectares of cultivable land in the country is lying fallow.

In this context, it may be worth noting that China has lately revised its land lease laws, wherefarmers can lease out their land, even to corporate entities for cultivation for up to 30 years.Such a move can help attract long-term investments in high-value crops — those grown inorchards, for example.

One reason landowners fear leasing out their lands for long is the absence of tamper-proof landrecords with the revenue departments. So, one of the lowest hanging fruits is to digitise and geo-tag land records and link them with Aadhaar and the bank accounts of farmers. This will create acentralised, transparent and easily assessable land records system. It can then help any class offarmers operating a piece of land to access bank credit and crop insurance. Some efforts areunderway in this area, but the results are far from satisfactory. Only three states (not unionterrritories) — Odisha, Sikkim and Tripura — have completed 100 per cent computerisation ofland records. Many others have computerised 80 to 95 per cent of their land records.Liberalising land lease markets, with computerisation of land records and geo-tagging of farms,though challenging, can give a high pay-off with enhanced capital formation. Crop insurancecould also be linked to this platform.

In this context, one may revisit Andhra Pradesh’s Land Licensed Cultivators Act, which hasprovided suitable channels to deliver loans, subsidies, crop insurance and relief support. It doesso by issuing eligibility cards to tenants, who raise crops with the explicit or implied permission ofthe owners.

Kerala’s Kudumbashree initiative is another innovation that is making strides in povertyeradication and women empowerment. Under the initiative, women are motivated to becomemembers of joint liability groups (JLG). They then cultivate leased land with assured access toagricultural credit from NABARD and other banking institutions, increasing their returns fromfarming. Andhra Pradesh’s and Kerala’s innovative institutional experiences offer key lessons forpolicymakers to liberalise restrictive land leasing laws in the country, while fully protecting theland rights of the owners.

Reforms in land markets have been pending for a long time due to lack of political will. But in itssecond stint, the Modi government has the political mandate to carry out these reforms. It is anopportune time for the High Powered Committee of Chief Ministers to carry out fundamentalstructural reforms in the institutions which govern land markets. Can they do so? Only time willtell.

This article first appeared in the August 19 print edition under ‘From Plate to Plough:Unlock the land markets’. Gulati is Infosys Chair Professor for Agriculture and Juneja is aconsultant at ICRIER





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A POLITICALLY INCONVENIENT DATA NUGGETRelevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

Was a task force report that recommended a new law to replace the more than 50-year-oldIncome Tax Act, 1961 suppressed because it inadvertently provided factual evidence for thedebilitating impact of demonetisation on the formal corporate sector?

On September 1-2, 2017, at the Rajaswa Gyan Sangam (an annual conference of senior taxadministrators), Prime Minister Narendra Modi had made an observation regarding the need toredraft the Income Tax Act, 1961. The Union Finance Ministry set the ball rolling for makingdirect taxes (on personal and corporate incomes) simple and in consonance with India’seconomic needs. On November 22, 2017, it appointed a six-member ‘Task Force for drafting aNew Direct Tax Legislation’.

On September 26, 2018, however, an office memorandum was issued “with the approval of theFinance Minister”, requesting the task force’s convenor “not to submit its report to theGovernment until and unless the Draft prepared by the Convenor of the Task Force isdeliberated clause by clause by all Members of the Task Force and has agreement of allMembers or at least majority of Members”.

The convenor, an Indian Revenue Service officer and the former Central Board of Direct Taxes(CBDT) Member (Legislation) Arbind Modi, who was closely involved earlier with tax reforms bythe A. B. Vajpayee and Manmohan Singh governments, was to superannuate on September 30,2018. No extension was given for complying with the office memorandum.

The convenor, nevertheless, submitted “four volumes in sealed cover of the report and draftlegislation” to the Finance Minister and the Finance Secretary on September 28, 2018 “forcontinuity” and “record purposes”.

In November 2018, the Finance Ministry appointed Akhilesh Ranjan, the new Member(Legislation), CBDT, to succeed Mr. Modi as the task force convenor. Mr. Ranjan submitted hisreport to the Finance Minister on August 19, 2019.

Drawing insights from the tax department’s database of annual tax returns filed by corporatefirms and individuals, Mr. Arbind Modi’s report had proposed two alternative approaches alongwith draft legislations corresponding to each of the models for a new direct taxes law.

The chapter on reform proposals for corporate taxes has a table (page 109, Volume I) thatmakes for a significant piece of evidence for how demonetisation may have affected companies.The table shows aggregates of investments corporate firms disclosed in their annual tax returnfilings.

The aggregate of investments disclosed in the assessment year 2017-18, or financial year 2016-17, the demonetisation year, plummeted to 4,25,051 crore — or a drop of nearly 60% from theprevious year.

In the seven financial years, from 2010-11 to 2016-17, the aggregates of investments disclosedwere 11,72,550 crore, 9,25,010 crore, 10,22,376 crore, 11,03,969 crore, 9,98,056 crore,10,33,847 crore and 4,25,051 crore. The near collapse becomes apparent when the aggregatesare seen as a percentage of the GDP. The investments by corporate firms that filed annualreturns in each of the years from 2010-11 to 2016-17 as a percentage of GDP were 15%,

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10.5%, 10.2%, 9.8%, 9%, 7.5% and 2.7%.

The aggregate figures are actuals (therefore nominals) sourced from companies’ statutorydisclosures, and not the estimates or findings of some survey. This in fact makes the dataundeniable evidence of demonetisation’s contribution to the deepening economic slowdown thathas become a headache for the Modi government early in its second tenure.

The report throws up a few more worrying trends. For example, on page 115, Volume I, thereport notes: “About 50 percent of the companies registered with the Registrar of Companiesfiled their income tax returns for the financial year 2016-17 (assessment year 2017-18)”

“Of the 7,80,216 companies which filed their tax returns for AY 2017-18, 45.94 percent ofcorporate filers reported book losses”

“The share of loss-making companies has increased from 42 percent in AY 2013-14 to 45percent in AY 2017-18”

“There has been a decline in the number of corporate filers from the manufacturing sector overthe period AY 2013-14 to AY 2017-18”

“The share of manufacturing in the profits before taxes has marginally declined from 47.3percent in AY 2013-14 to 46.4 percent in AY 2017-18”

“The return on equity declined from 16.4 percent in AY 2013-14 to 15.5 percent in AY 2015-16and thereafter has reversed the trend and increased to 16.5 percent in AY 2017-18”

“The corporate tax liability increased from 19 percent of gross internal accruals in AY 2013-14 to21 percent in AY 2017-18”

“The DDT [Dividend Distribution Tax] liability increased from 1 percent of gross internal accrualsin AY 2013-14 to 2 percent in AY 2017-18”

“The efficiency (productivity) of the corporate tax, which shows the policy choices regarding taxconcessions and the overall levels of non-compliance, is extremely low at 7.5 percent over theperiod AY 2013-14 to 2017-18. Compared to other select economies, India’s productivity ofcorporate income tax is the lowest”.

“In each of the years since AY 2013-14, the profit making companies had substantially moreretained earnings (gross internal accruals minus tax liability) than the investments made duringthe year”

“Given the limited fiscal space available to the Government, economic growth would necessarilyhave to be driven by private investment…. [but] corporate investments have remained virtuallystagnant despite the availability of sufficient retained earnings”.

In the report, the trend in aggregate corporate investments figures corresponds to theinvestment slowdown discernible in the official GDP estimates for 2011-12 onwards. However,the investments aggregate figure for 2016-17 brings into question the GDP growth estimate forthe demonetisation year. In the latest round of scheduled revisions, the government had revisedupwards the 2016-17 GDP growth estimate, from 7.1% to 8.2%.

As per the revised estimate, the demonetisation year, is the best in the Modi government’s firsttenure as far as GDP growth is concerned. This when, nearly every industry association (from

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traders, consumer durables to cement manufacturers) reported sharp drops in sales that year onaccount of the note ban.

The revised estimate defies common sense and runs contrary to comparable data generated bynon-government agencies and, as it turns out now, also corporate annual returns tax returnfilings.

The Finance Ministry has so far not made public the task force reports (the one submitted onSeptember 28, 2018 and the other on August 19, 2019). It remains to be seen whether it will putout the first one for public discussion. Or, if the second one, likely to be made public in duecourse, will retain the data from the corporate annual tax returns that threaten to expose the roleof demonetisation in hurting the economy beyond the informal segment.

Earlier, the government had initially held back and even challenged the validity of the NationalSample Survey Office’s (NSSO) periodic labour force survey results even after the NationalStatistical Commission had duly cleared the findings. The results — that the unemployment ratereached a 45-year high in 2017-18, the demonetisation year — were politically inconvenient.The findings were subsequently only released after the completion of the 2019 elections.

Puja Mehra is a Delhi-based journalist








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NEW NORMS: ON REGULATIONS FOR FOREIGNINVESTORS

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

Foreign investors who have been fleeing the country since the Union budget presented early lastmonth have something to cheer about finally. On Wednesday, the Securities and ExchangeBoard of India (SEBI), based on the recommendations of the H.R. Khan committee, easedseveral regulatory restrictions that are likely to make life easier for foreign portfolio investors(FPIs). Among a slew of measures, the financial markets regulator has simplified the registrationprocess for FPIs by doing away with the broad-based eligibility criteria, which required aminimum of at least 20 investors in a foreign fund, and certain documentary requirements. FPIscan now also engage in the off-market sale of their shares with fewer restrictions. Further, SEBIhas allowed entities registered at an international financial services centre to be automaticallyclassified as FPIs. This might help foreign investors bypass some of the restrictions. Mutualfunds with offshore funds too can invest in India as FPIs to avail certain tax benefits now.Central banks that are not members of the Bank of International Settlements are also allowed toregister as FPIs and invest in the country under the new norms. Smart cities, along with otherurban development agencies, will now be allowed to issue municipal bonds to raise funds fordevelopment. These measures to cut red tape will help lower the regulatory burden on investors,globalise India’s financial markets, and aid the growth of the broader economy by increasingaccess to growth capital.

It is not immediately clear whether SEBI’s move on Wednesday was motivated by the recentflow of funds out of India’s capital markets. Capital in excess of 20,000 crore has left Indianshores in the last few weeks after Finance Minister Nirmala Sitharaman’s budget decision toincrease taxes on FPIs. Policymakers were clearly under pressure to do something to allay thefears of foreign investors, so the timing of SEBI’s move is no surprise. But given the broadertrend of capital flowing out of emerging markets across the world, it remains to be seen whetherSEBI’s present move will yield immediate benefits. Even if it fails to do so, the move will still helpIndian markets become more attractive to foreign investors in the long-run. While the stepstaken by policymakers to make amends for their previous policy errors are obviously welcome,they should not deflect attention from the larger and persistent issue of overreach by thegovernment against investors. In a world of globalised capital markets, where many nimbleemerging markets compete to attract capital from the developed world, India cannot afford to beseen as flip-flopping on its commitments.



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INCREASING INVESTMENT TO STIMULATE GROWTHRelevant for: Indian Economy | Topic: Issues relating to Mobilization of resources incl. Savings, Borrowings &

External Resources

India’s current economic slowdown is due to a combination of two underlying trends. First, thereis the short-run cyclical slowdown exhibited by a number of high-frequency indicators, reflectinga significant fall in demand, especially for sectors such as automobiles, consumer durables andhousing.

Second, there is the more serious long-term fall in investment and savings rates. Raising growthrequires that attention be paid to both cyclical and structural dimensions of the problem.

When it comes to the Gross Fixed Capital Formation (GFCF) relative to GDP at current prices, asteady fall has been visible since 2011-12, when it was 34.3%. By 2017-18, it had fallen by 5.7%points, to a level of 28.6%.

Assuming an Incremental Capital Output Ratio (ICOR) of 4, this meant a fall of nearly 1.4%points in the potential growth rate. The fall consisted of sectoral decreases in the household,private corporate and public sectors (as indicated in the table).

It is noticeable that the fall in the household sector’s investment rate got arrested by 2015-16.However, by then, the rate had already fallen by 6.3% points. From 2016-17, the sector’sinvestment rate even showed some recovery.

In contrast to the household sector rate, the private corporate sector investment rate did notshow any fall up to 2015-16 when, at 11.9%, it was in fact higher than the corresponding rate for2011-12 (11.2%). It fell in the subsequent years, but only by 0.7% points. This near-constancyruns counter to what industry leaders have been saying and what other data sources such asCMIE indicate, casting some doubts on the veracity of the figures.

In the case of the public sector, the rate fell by 0.3% points between 2015-16 and 2017-18.

Thus, the period from 2011-12 to 2017-18 can be seen as consisting of two parts: 2011-12 to2015-16, when the household sector investment rate fell sharply; and 2015-16 to 2017-18 whenthe investment rates of the private corporate and public sectors fell marginally.

The Gross Domestic Savings Rate also fell between 2011-12 and 2017-18 by 4.1% points, from34.6% of GDP to 30.5%. However, this fall was entirely due to the household sector, with theprivate corporate and public sectors showing increases in their savings rates by margins of 2.2%points and 0.2% points, respectively. This differentiated sectoral pattern of investment andsavings rates had significant implications for the financing of investment. Private corporate andpublic sectors were the deficit sectors, financing their deficits from the surplus savings of thehousehold sector. In addition, net inflow of foreign capital added to the flow of investibleresources.

Throughout the period from 2011-12, the savings rate of the private corporate sector increased,reducing its dependence on the surplus savings of the household sector. While the excess ofprivate corporate sector’s investment over its own savings rate was 3.8% points of GDP in 2011-12, the gap fell to 0.5% points by 2017-18.

Given this pattern, at present, all the surplus savings of the household sector is available for the

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public sector. With private corporate sector’s investment demand being largely met by its ownsavings, public sector’s borrowing requirements can be fully financed using the surplus from thehousehold sector, supplemented by net inflow of foreign capital without any fear of crowding out.

In 2018-19, the real GDP growth rate was 6.8%. Two critical policy challenges need to beaddressed. First, a countercyclical policy should increase growth rate to its current potential of7%-7.5% and then structural reforms should raise the potential growth itself to above 8.5% ifIndia is to attain a size of $5 trillion by 2024-25.

From the monetary side, reducing the repo rate by a cumulated margin of 110 basis points in2019 has not as yet induced a noticeable growth response. Complementary fiscal stimulus, inthe form of additional public sector investment, may prove to be more effective.

However, given the fiscal deficit constraint, there is limited flexibility for increasing centre’scapital expenditure directly. In the 2019-20 budget, this is estimated to be 1.6% of GDP. Theremay be some expansion, if additional dividends from the Reserve Bank of India (RBI) flow to thegovernment. Further, there may be some possible additional disinvestment. However, careshould be taken to deploy all of these additional funds for capital expenditure.

Normally, the prescription to meet slowing demand is to increase government expenditure. Inthe current situation, there can be an increase in government expenditure but it has to bedirected towards an increase in investment expenditure.

A similar effort may be made by State governments and non-government public sectorenterprises to increase capital expenditures. All these measures may also crowd in privateinvestment. Thus, this fiscal push, together with the already-initiated monetary stimulus, mayhelp raise the growth rate.

Another area that needs immediate attention is the financial system, which must be activated tolend more.

On the structural reforms that are needed to push the economy onto a sustained high growthpath, much can be said. We will confine ourselves to only one suggestion, on the fiscal account.We need a re-look at the Fiscal Responsibility and Budget Management Act (FRBM) Act. Thegovernment should actually move towards reducing the revenue deficit to zero. This can happenif the Centre focusses more on items on the Union list. Once this is achieved, the CentralGovernment can be given full freedom over fiscal deficit, as the entire deficit will be directedtowards meeting capital expenditures. This was described as the ‘golden rule’ in U.K.

C. Rangarajan is former Chairman, Prime Minister’s Economic Advisory Council and formerGovernor, Reserve Bank of India; D.K. Srivastava is former Director, Madras School ofEconomics. View are personal






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GOVT. TAKES STEPS TO EASE ‘DOING BUSINESS’Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

From October 1, all notices and orders by the tax department will carry a DocumentIdentification Number.Sandeep Saxena

The government on Friday announced several decisions to ease doing business in India,including scrapping the ‘angel tax’ for registered start-ups, expediting GST refunds for theMSME sector, as well as setting a time-bound window for the payment of delayed dues by publicsector companies.

“In order to mitigate genuine difficulties of start-ups and their investors, it has been decided thatthe relevant provisions of Section 56 of the Income Tax Act, which is commonly called the ‘angeltax’, shall not be applicable to a start-up registered with the Department for Promotion ofIndustry and Internal Trade,” Finance Minister Nirmala Sitharaman said, while addressing apress conference to announce the decisions.

The angel tax provision has been a pain point for start-ups who have repeatedly complained thatthe tax burden was slowing down the angel investments made in new companies.

The government will also set up a dedicated cell under a member of the Central Board of DirectTaxes to address the problems of the start-ups relating to income tax.

“Exempting start-ups from the application of the ‘angel tax’ is a good development,” RohintonSidhwa, partner at Deloitte India said. “Previously, the government had provided this exemptiononly for investment below a threshold and where only accredited investors were involved. Itappears now that the exemption would be cast wider and will cover all ‘registered’ start-ups.”Ms. Sitharaman also announced that all pending Goods and Services Tax refunds to MSMEswould be made within 30 days, and that all future refunds will be paid within 60 days. This isexpected to free up a lot of capital that was otherwise locked up for the MSME sector. Thegovernment will also look into amending the MSME Act to arrive at a single definition forMSMEs, to avoid the confusion created by various Ministries and Departments using differentdefinitions.

She also said that the pending payments by Central Public Sector Enterprises (CPSE) toservices providers would be expedited and that the delayed payments would be monitored bythe Department of Expenditure and the performance would be reviewed by the CabinetSecretariat.

Further, in a bid to ease the plight of borrowers, Ms. Sitharaman said that the public sectorbanks will ensure the mandated return of loan documents within 15 days of the closure of theloan. Customers will also be able to track online the status of their loans in order to easetransparency.

“To support decision-making and to prevent harassment for genuine commercial decisions bybankers, the Central Vigilance Commissioner has issued directions that the Internal AdvisoryCommittee (IAC) in banks will classify cases as vigilance and non-vigilance,” Ms. Sitharamansaid. “The decision of the IAC is to be treated as final.”

The move is expected to increase credit outflow by banks as several banks have said that creditdecisions had been held up because bank officials have been wary of taking even genuine

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decisions that could later be hauled up for scrutiny.

In a bid to ease the loan disbursal process for the non-banking financial companies, thegovernment has also allowed them to use the Aadhaar-linked Know Your Customer (KYC)details with banks, instead of having to do the KYC process again themselves.

In what should come as considerable relief for the taxpayer, Ms Sitharaman also said that fromOctober 1, 2019, all notices, summons, or orders by the Income Tax authorities will be issuedthrough a centralised computer system and will contain a computer-generated unique DocumentIdentification Number (DIN).

Notices or orders that do not carry this DIN will be treated as invalid, she said, which should go along way in addressing the instances of alleged harassment by Income Tax officials.

Notices that do not carry the unique identification number will be treated as invalid

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ANGEL TAX RELIEF BRINGS MUCH NEEDED RESPITETO START-UPS

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

Finance Minister Nirmala Sitharaman has provided the much-needed relief for the start-upcommunity by announcing that angel tax will not be applicable on entities registered with theDepartment for Promotion of Industry and Internal Trade (DPIIT).

While announcing a slew of measures to boost the economy, Ms. Sitharaman said while Sec56(2) (viib) of the Income Tax Act — under which the tax is levied — would stay, it would not beapplicable on start-ups that register with the DPIIT.

Industry players were unanimous in welcoming the move as the angel tax was looked upon as amajor hindrance for early stage start-ups that were looking to attract funding from angelinvestors and other entities.

“It is immensely delightful for funded and bootstrapped MSMEs (micro, small and mediumenterprises) that the government has considered to waive off 'angel tax' and simplify the flow ofrisk capital for young companies, which will allow early-stage ventures to raise seed capital,”said Srikanth Iyer, CEO and founder, HomeLane.com.

Ease of doing business

“Furthermore, their decision to fast-track GST refunds in 30 days and CBDT’s move towardssetting up a dedicated cell to address tax problems will further ease business environment,” headded.

Angel tax is imposed on the excess share capital raised by an unlisted firm, over and above thefair market value of its shares.

This tax usually impacts start-ups and the angel investments they attract.

Genuine cases

While aimed at curbing money-laundering, the angel tax also resulted in a large number ofgenuine start-ups receiving notices from the tax department.

“Acknowledging the widespread criticism faced by the tax authorities for their enthusiasm to taxstart-ups, the government has finally decided to put a full stop to it,” said S.R. Patnaik, Partner &Head – Taxation, Cyril Amarchand Mangaldas.

“Today’s decision means once you are registered as a start-up with the DPIIT, you will not bebothered by the tax authorities,” Mr. Patnaik added.

Fast-tracking GST refunds in 30 days and a dedicated cell to address tax problems willfurther ease the business environment

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SENTIMENT BOOSTER: ON GOVT RESPONSE TOSLOWDOWN


For an economy that is downbeat in growth and in sentiment, the comprehensive package ofmeasures announced by Finance Minister Nirmala Sitharaman on Friday may just be the rightboost. They address growth slowdown concerns; free up funds for investment and spending bybanks, housing finance companies and MSMEs; and importantly, undo some controversialproposals, in the budget and outside it, which were affecting sentiment in the markets and thecorporate sector. And, importantly, these have all been done without any significant financialburden on the government. Some of the measures promote the ease of doing business andeven the ease of living for ordinary citizens. The auto sector’s biggest demand — that ofreduction in GST rate — may not have been conceded, but Ms. Sitharaman has given the sectorenough to cheer about. The accelerated depreciation of 15% (in addition to the existing 15%) forall vehicles acquired till March 31, 2020 and the deferment of the proposed increase inregistration fee for new vehicles to June 2020 are positive measures that will boost sentimentand, it is to be hoped, translate into demand. As the festive season sets in, banks will have morespace to increase their lending consequent to the upfront funding of 70,000 crore (announced inthe budget) that they will get from the government towards recapitalisation. This, together withthe strong push for repo rate linked loan products, is likely to benefit consumers borrowing tobuy new homes, vehicles and durables.

The roll-back of the capital gains tax imposed in the budget on foreign portfolio investors, thewithdrawal of angel tax on start-ups and the promise that non-compliance with corporate socialresponsibility (CSR) norms will be decriminalised show a government that is willing to listen tofeedback from the ground. Much of the mayhem in the markets could have been avoided thoughif only the Finance Minister had acted earlier on the negative feedback to the FPI tax proposal.Some of the smaller steps can go a long way. Expediting delayed payments by governmentdepartments and public sector units is alone expected to release a massive 60,000 crore intothe economy. The assurance that all pending GST refunds to MSMEs will be paid within 30 daysand going forward such refunds will be made within 60 days is a great relief for the sector. Thiswill ease the cash flows of MSMEs who often work with stretched finances. The most significanttakeaway though from Ms. Sitharaman’s announcements is the fact that the government is nolonger scared of the suit-boot ki sarkar jibe. She declared upfront that the government respects“wealth creators” and the measures are aimed at helping them. Will these measures put GDPgrowth back on the rails? Will they restore the jobs lost in the last few months? The answers tothese are in the hands of the wealth creators now. The government did what it could; it is now upto India Inc to take the ball and run.



As protesters make new demands, the prospects of a quick settlement recede




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GIVING WINGS TO BETTER AIR CONNECTIVITYRelevant for: Indian Economy | Topic: Infrastructure: Airports

Civil aviation is a Central subject and one that barely got significant attention from the Statesuntil recently. It is evident from the fact that very few States in India have active civil aviationdepartments. This is also due to the reason that States have had a passive role, invariably,having had to look up to the Central government for the development of airports and enhancingair connectivity. However, in the last four years, the situation has changed considerably.

The cooperation of States is seen as a major factor in the growth of the civil aviation sector. TheRegional Connectivity Scheme, UdeDeshkaAamNaagrik (UDAN), has become a game changeras this flagship programme has a built-in mechanism to develop stakes of State governments inthe growth of the sector.

Thirty States and Union Territories have already signed memoranda of understanding with theCentral government. The policies of States and Centre are now being interlinked to make flyingaccessible and affordable. Governments are poised for the growth as they have the potential tostrengthen their partnership under the cooperative federalism framework to provide the requiredimpetus to the sector. Here are some policy intervention suggestions to jump-start the aviationmarket.

For any airline in India, the cost of Aviation Turbine Fuel (ATF) forms about 40% of the totaloperational cost. Keeping petroleum products out of the purview of Goods and Services Tax(GST) may be a policy imperative for the State governments but this is a step that adverselyimpacts the expansion of air services to the States. States have very high rates of value-addedtax (VAT) on ATF — sometimes as high as 25% — which has dampened the growth trajectoryof civil aviation. ATF is a small component of overall petroleum products and deserves to betreated separately.

The airline industry is capital-intensive and works on very thin profit margins. Therefore, relief onATF is a major incentive for airlines to augment their operations. For States, it would be anotional revenue loss which can be offset by enhanced economic activities as a result ofincreased air connectivity to the region. An International Civil Aviation Organization (ICAO) studyhas shown that the output multiplier and employment multiplier of civil aviation are 3.25 and6.10, respectively. Empirically, this has been proved in many airports within India where theconnectivity has changed the economic landscape in a positive way.

Pending the decision on ATF at the GST Council where States are the major stakeholders,UDAN has motivated State governments to reduce the VAT on ATF to 1% for the flights that areoperated under this scheme. Airports such as Jharsuguda (Odisha) and Kolhapur (Maharashtra)have successfully attracted airlines to connect these hitherto unconnected regions. ReducingVAT on ATF is the biggest lever States can operate, which will enable them in being an equalpartner in steering sector policy.

The second area is in the development and management of airports. There are many regionalairports which can be developed by States on their own or in collaboration with the AirportsAuthority of India (AAI). In this, there have been different models of public-private-partnershipwhich can be leveraged to develop infrastructures. Land involves huge capital and is a scarceresource. Innovative models can be explored to create viable ‘no-frill airports’. These functionalairports can open up regions and change the way people travel. India had about 70 airportssince Independence until recently. Under UDAN, the Union government, with the help of the

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States, has operationalised 24 unserved airports over the past two years; 100 more are to bedeveloped in the next five years, which can only be achieved through the active collaborationbetween willing States and the Centre.

Third, States and the Central government can play a crucial role in supporting airlines to developair services in the remote regions. To reduce operational cost of airlines and airport operators,incentives from State governments have been sought: some in the form of financial support suchas VAT reduction; sharing of viability gap funding with airlines, and non-financial incentives suchas providing security and fire services free of cost to airport operators. Similarly, under thescheme, the Union government has declared concessions on excise duty on ATF and madebudgetary allocations for airport development. This unique scheme has been successful inencouraging airlines to operate on regional unconnected routes instead of trunk routes. Marketappetite and aspirations of remote areas can match the plans of airlines where States play acatalytic role. Under UDAN, some success stories have motivated States to announceinnovative approaches and policies in support of airlines.

However, to attract airlines from regional to remote connectivity, further interventions arenecessary. Considering the infrastructural constraints and difficult terrain, small aircraftoperators need to be encouraged. Many a time, policy reluctance is observed considering thefinancial non-viability of the models to connect remote areas using smaller aircraft andhelicopters. But air connectivity to these difficult regions is indispensable. Areas which cannot beconnected meaningfully by road or rail have to be linked by air. No doubt, they will be cost-effective if the economic analysis is factored-in. For example, travel from Dehradun toPithoragarh (both in Uttarakhand) by road takes 16 hours and communication is almost cut-off inthe rainy season. Air connectivity would not only bring down travel time but also be a boon inemergencies. This is also true for northeast India, the islands and also hilly States.

Convergence is an element in governance which is often overlooked due to acompartmentalisation in implementation. States may converge their relevant schemes relating totourism, health, and insurance for supporting air connectivity to supplement the objectives ofregional connectivity.

Currently the penetration of the aviation market in India stands at 7%. There is potential to beamong the global top three nations in terms of domestic and international passenger traffic. Forthis States need to create a conducive business environment to facilitate the strong aspirationsof a burgeoning Indian middle class to fly at least once a year. It would boost ticket sales fromthe present level of eight crore domestic tickets. Developing airports, incentivising airlines andpooling resources of both the Union and State governments can accelerate the harmonisedgrowth of the Indian civil aviation sector which would be equitable and inclusive.

Usha Padhee is Joint Secretary in the Ministry of Civil Aviation, Government of India. The viewsexpressed are personal






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RBI ANNOUNCES MODALITIES FOR 2 PC INTERESTSUBVENTION FOR FISHERIES FARMERS

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

MUMBAI: The Reserve Bank of India ( RBI) on Monday announced modalities for providing 2per cent interest subsidy on short-term loans of up to Rs 2 lakh for farmers engaged in fisheriesand animal husbandry through Kisan Credit Card (KCC).

With this interest subvention, such farmers will get short-term loan of up to Rs 2 lakh at aconcessional rate of 7 per cent. The interest subsidy scheme is applicable for loans taken during2018-19 and 2019-20.

Farmers paying the loans promptly will be eligible for another three per cent discount on theinterest rate.

This also implies that the farmers repaying promptly would get short-term loans at the rate of 4per cent per annum during 2018-19 and 2019-20, the RBI said.

The RBI further said interest subvention is to be provided on a maximum limit of Rs 2 lakh short-term loan to farmers involved in animal husbandry and fisheries.

The farmers already possessing KCC (crop loan) and involved in animal husbandry andfisheries activities can avail a sub-limit for such activities.

"However, the interest subvention and prompt repayment incentive benefit on short-term loan(crop loan + working capital loan for animal husbandry and fisheries) will be available only on anoverall limit of Rs 3 lakh per annum and subject to a maximum limit of Rs 2 lakh per farmerinvolved in activities only related to animal husbandry and/or fisheries," it said.MUMBAI: The Reserve Bank of India ( RBI) on Monday announced modalities for providing 2per cent interest subsidy on short-term loans of up to Rs 2 lakh for farmers engaged in fisheriesand animal husbandry through Kisan Credit Card (KCC).

With this interest subvention, such farmers will get short-term loan of up to Rs 2 lakh at aconcessional rate of 7 per cent. The interest subsidy scheme is applicable for loans taken during2018-19 and 2019-20.

Farmers paying the loans promptly will be eligible for another three per cent discount on theinterest rate.

This also implies that the farmers repaying promptly would get short-term loans at the rate of 4per cent per annum during 2018-19 and 2019-20, the RBI said.

The RBI further said interest subvention is to be provided on a maximum limit of Rs 2 lakh short-term loan to farmers involved in animal husbandry and fisheries.

The farmers already possessing KCC (crop loan) and involved in animal husbandry andfisheries activities can avail a sub-limit for such activities.

"However, the interest subvention and prompt repayment incentive benefit on short-term loan(crop loan + working capital loan for animal husbandry and fisheries) will be available only on an

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overall limit of Rs 3 lakh per annum and subject to a maximum limit of Rs 2 lakh per farmerinvolved in activities only related to animal husbandry and/or fisheries," it said.



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GOVERNMENT GETS WINDFALL GAIN FROM RBI;RAISES EXPECTATION FOR STIMULUS


NEW DELHI/MUMABI: The government will receive a windfall from the central bank in thecurrent financial year thanks to a much higher-than-expected dividend, allowing Prime MinisterNarendra Modi’s administration to provide a tottering economy with additional fiscal stimulus.

The decision by a committee specifically set up to look at whether the Reserve Bank of India(RBI) was holding on to too much of its reserves recommended that it provide the governmentwith 1.76 trillion rupees ($24.62 billion) as a dividend in the bank’s fiscal year that ended June30.

Although 280 billion of the 1.76 trillion rupees has been transferred to the government, thatleaves 1.48 trillion rupees to be moved across in the current fiscal year that started on April 1, astatement by the RBI said on Monday.

The RBI follows the July to June 12 month calendar.

The amount of transfer this year is more than double the 680 billion rupees that it provided in theprevious year. The committee’s proposal was backed by the RBI’s board.

"This is a structurally positive move as the surplus sitting with the central bank will now be usedto stimulate the economy not only now but in the years to come," said Mahendra Kumar Jajoo,head of fixed income at Mirae Asset Global Investments in India.

He said the transfer of funds may not change the fiscal deficit much, but the bond market willtake it very positively.

"The upside risks to bond yield will reduce considerably and give confidence to the marketplayers to build long positions," he said.

It will, though, lead to concerns that the government has again been able to bully the centralbank into doing its bidding. New Delhi’s pressure on the Mumbai-based RBI helped to trigger thedeparture of former central bank governor Urjit Patel last year.

Finance Minister Nirmala Sitharaman proposed a series of measures to help the economy andfinancial markets in an announcement on Friday but some economists said there was a need foran additional stimulus package.

A source familiar with discussions said the government will use the funds to stimulate theeconomy by cutting taxes and providing more money for housing finance companies.

The committee recommended that the central bank should keep 5.5 to 6.5% of its total assets asthe contingency risk buffer (CRB) to meet any emergency fund requirements and transfer theremaining funds to the government, the statement said, as against nearly 7% in 2017/18.

The central board will decide on the level of the risk provisioning from this range, the statementsaid.NEW DELHI/MUMABI: The government will receive a windfall from the central bank in the

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current financial year thanks to a much higher-than-expected dividend, allowing Prime MinisterNarendra Modi’s administration to provide a tottering economy with additional fiscal stimulus.

The decision by a committee specifically set up to look at whether the Reserve Bank of India(RBI) was holding on to too much of its reserves recommended that it provide the governmentwith 1.76 trillion rupees ($24.62 billion) as a dividend in the bank’s fiscal year that ended June30.

Although 280 billion of the 1.76 trillion rupees has been transferred to the government, thatleaves 1.48 trillion rupees to be moved across in the current fiscal year that started on April 1, astatement by the RBI said on Monday.

The RBI follows the July to June 12 month calendar.

The amount of transfer this year is more than double the 680 billion rupees that it provided in theprevious year. The committee’s proposal was backed by the RBI’s board.

"This is a structurally positive move as the surplus sitting with the central bank will now be usedto stimulate the economy not only now but in the years to come," said Mahendra Kumar Jajoo,head of fixed income at Mirae Asset Global Investments in India.

He said the transfer of funds may not change the fiscal deficit much, but the bond market willtake it very positively.

"The upside risks to bond yield will reduce considerably and give confidence to the marketplayers to build long positions," he said.

It will, though, lead to concerns that the government has again been able to bully the centralbank into doing its bidding. New Delhi’s pressure on the Mumbai-based RBI helped to trigger thedeparture of former central bank governor Urjit Patel last year.

Finance Minister Nirmala Sitharaman proposed a series of measures to help the economy andfinancial markets in an announcement on Friday but some economists said there was a need foran additional stimulus package.

A source familiar with discussions said the government will use the funds to stimulate theeconomy by cutting taxes and providing more money for housing finance companies.

The committee recommended that the central bank should keep 5.5 to 6.5% of its total assets asthe contingency risk buffer (CRB) to meet any emergency fund requirements and transfer theremaining funds to the government, the statement said, as against nearly 7% in 2017/18.

The central board will decide on the level of the risk provisioning from this range, the statementsaid.



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