The ban on gaming app PUBG might not make the Modi Govt popular with kids but it can spur local development
The events of June 15 in the Galwan valley of Ladakh have had some repercussions on the lives of millions of Indians and not just on those bravehearts who were mortally wounded in the battle. That clash changed our bilateral dynamic forever. It taught Indian policy makers that the Xi Jinping-led Chinese administration was not a good faith actor and would continue its territorial imperialism. Its continuous pushiness in Ladakh is proof enough. It spurred India, which had been lackadaisical in the development of infrastructure in border areas, to dramatically ramp up building activity. The embryonic ‘Quad’ alliance between India, Australia, Japan and the US got a growth spurt. It woke us up to the need to gradually withdraw our trade dependencies and shrink Chinese revenue at the expense of our markets. And it also allowed Indian policy makers to realise the level of Chinese influence in the mobile and internet arena in India. The ban on popular application TikTok and several others was just the start. Now the Indian Government has also taken down the popular gaming application, Player Unknown: Battlegrounds, usually called by its acronym PUBG, citing security and data privacy issues. Much can be written about the ban of these applications but as internet-entrepreneur Sanjeev Bikchandani explained on the first episode of The Pioneer Conversations, the national security establishment would have made this decision, taking into account all major factors. Data pilfering is a concern but yes, this is a punitive cyber counter-strike against Beijing, hitting it where it hurts most, namely its growing applications and tech penetration in India. In fact, Beijing implied as much, saying India had imposed the ban in the face of pressure from the US, with foreign ministry spokeswoman Hua Chunying warning against “short-sighted” participation in US restrictions against Chinese technology. India’s strategic shift to the US is becoming more pronounced and with the combined US-India blackout of Chinese tech access, the dragon could be impacted quite a bit.
Several of these applications had a vast majority of their users based in India and thus their valuations were powered by us. However, there are questions on the creators of PUBG, although its beneficial ownership is by Chinese firm Tencent. If the government chooses to target Chinese ownership, that could become a huge problem for several Indian start-ups, including PayTM, which has significant ownership from the Alibaba-controlled Ant Financial. The lack of Chinese money would make it difficult for some Indian start-ups to raise resources although it might make life easier for Indian investors. Thankfully, PUBG has pushed the live game streaming industry in India with a large number of content creators earning good money. Then there is another aspect to the latest ban which impacted several games and not just PUBG. What effect will that have on India’s nascent e-sports craze as well as game creation? We have been a laggard in the latter, and while there were tens of TikTok clones within hours of that app being banned, no Indian company is in any shape or form close to creating a reasonable gaming experience for users. That said, the burgeoning popularity of games in India and worldwide, the only entertainment sphere that has grown exponentially globally during the lockdown, might mean that there could be some good games being created in India in the coming years. This move could, in fact, goad game developers into innovating their products. However, bans work both ways and a ban on Chinese-created or owned games in India might mean that Indian-created games will also find it difficult to expand into new markets going forward.
Investing large amounts of money in world-class healthcare facilities will provide thousands of jobs immediately
T his is usually that time of the year when many community festival organisers are in a last-minute frenzy for a long and massively busy festive season ahead. People from the western part of the country and increasingly other areas would be busy winding down the Ganpati celebrations, while those in the eastern part of India would be ramping up for Durga Puja. Yet, despite several relaxations given by the Government in successive unlocking orders regarding mobility of people and gathering for religious functions and so on, this will be an extremely muted festive season for India. This means that the V-shaped economic recovery that policymakers have been predicting, if not dictating, may remain an elusive dream for the forthcoming two quarters. The math, even if we overlook the massive crater in the Gross Domestic Product, in the April-June quarter, can be better explained by a few examples.
Last month, I got a call from a traditional drum player (also known as Dhaaki in Bengali) who lives in a remote village in West Bengal. Every year during the Durga Puja he, along with a few of his family members and friends, hop on to a bus traversing a patchy road full of potholes. The bus snakes through some of the lush green fields to reach the nearest railway station were the Dhaaki and his companions board a train to reach Delhi, Mumbai or various destinations around the country outside Bengal. He is not alone; thousands of idol makers, traditional tent decorators, artisans, artistes and so on make this annual pilgrimage to various destinations around India and the globe to perform as backroom talent for the great India festival economy.
They usually return home with a one-time bonus and upgraded skill sets from the glamorous and glittery pilgrimage they undertake. Once back on their turf, they pump back the money earned, leading to increased consumption mirroring the city-dwellers, keeping the overall economic wheels chugging. With the ongoing pandemic still raging across the country and new infections rising daily, the fear of local lockdowns (in the eventuality of a sharp increase in cases) has pushed most patrons of such festivals, along with their bandwagon of large sponsors, to keep all celebrations at bay for next year.
This talk of festivals brings to mind a tall statesman and bipartisan leader that India lost recently, Pranab Mukherjee. The former President of India, known for his long working hours would always go back to his village in another remote part of West Bengal during Durga Puja to perform all the rituals associated with the festival. The little that I have known of the late ex-President and Finance Minister, Mukherjee was not a very religious person. However, this journey to his village during the festive season he undertook without fail. This ensured great infrastructure development of the entire semi-urban or rural pocket to which he belonged. Many politicians and influential corporate leaders seek out the festival season to make a sort of constituency connect, thereby administering small doses of health boosters to the economy.
However, by any stretch of imagination, this year will not be a festive one, and if at all there are any festivities, they will be muted, both due to the need for social distancing and the economic hardships people are facing due to the pandemic. This, in turn, will lead to a massive dark cloud on the fate of lakhs of enterprises, large, medium and small et al and millions of jobs. Now, the big question is, what can the Government do at this stage to push the economy bus back on the high-growth $5 trillion highway? Many top business leaders, industry veterans and policy analysts have suggested a closer synchronisation between actions of the Central Government and the Reserve Bank of India (RBI). Their unified demand is for a sharp bank rate cut by the RBI, thus enabling more money into the system for spending. This, I am told, is being actively considered by the Central Bank.
Second, due to the global slump in exports, travel and the economy, almost the entire nation is increasingly looking at the Government to boost its spending. There is a huge demand for the Government to provide a one-time relief to the middle and lower-middle income group. After all, a set of estimates suggests that nearly 19 million salaried individuals would have lost their jobs or have had to take massive salary cuts, including many from the informal sector.
The Government may look at providing a one-time direct money transfer like an unemployment allowance to these people. Many argue that the first round of nearly Rs 20 lakh crore provided by the Government may just have been more of a “Band aid” applied to a large, deep and developing tumour of economic deceleration. The only solution to save the gasping economy is aim for long-term growth with a sharp eye on the immediate road ahead. The Government needs to get money from around the globe, including sovereign wealth funds and persuade them to invest in roads, highways and maybe even global-standard healthcare facilities. This is because the construction and manufacturing sectors consume a large chunk of the rural workforce and giving these sectors a booster shot will prevent millions from slipping back into abject poverty.
Investing large amounts of money in world-class healthcare facilities will provide thousands of jobs immediately. It will create a potential vaccine and drug research facility for future pandemics. The migration of millions of people from small towns and cities to large metropolitans is also because of the state-of-the-art healthcare facilities available in them. Even during the ongoing health crisis, one of the key challenges being faced is lack of adequate testing and diagnostic facilities in majority parts of the country. If the Government, along with the private sector, puts its mind and might behind developing world-class and affordable diagnostic facilities in every nook and corner of the country and directly links them to already running schemes like Ayushman Bharat, it could be a huge game changer. There could be a parallel construction of neighbourhood healthcare centres with assured availability of good quality doctors and specialists.These spends in public health like Swastha Bharat will create a healthier and stronger India.
(The writer is policy analyst)
The framework of Govt spending right now focusses more on increasing consumption and demand instead of reducing the impact of a fall in demand
The neo-Keynesian pressure on the Union Government to spend more and more and generate purchasing power among the largest segment of the Indian populace has been counteracted by a strong monetarist lending policy. The economic gap between the people who need cash and wage support and those who take loan to run their businesses is so wide across India that a monetarist policy can hardly overturn the situation of falling demand. A perceptual illusion about a rise in demand for small cars, pharmaceutical drugs and online sale of several consumer products no doubt raised consumption indices with the unlock phases of the economy but it could not offset the fall of demand in food, milk and cereal markets. The rise in consumption spurred by lending activity is limited to specific sectors, while larger demand still remains dependent on a rise in income and employment.
This brings us to two parallel streams of lending activity by banks and other financial institutions and generation of income and wages by larger sectors of production and distribution. The seeming disjunction between the two reflects a certain kind of weakness in the overall framing of economic stimulus package and other policies to revive the economy. Market-directed moves of expanding the credit market by the RBI and the Government, irrespective of the fiscal deficit of all kinds like revenue deficit, GST shortfall, non-availability of revised estimate of funds for critical healthcare and education, are a kind of provisioning that RBI earns through various financial instruments.
The expenditure policy is getting determined by instant availability of funds, for which the RBI is taken to be the most resourceful institution, re-fuelling the Government over the last few years. This presents a paradoxical situation of fund crunch, austerity and internal borrowings on the one hand and credit and lending activity to generate a large part of fiscal expenses on the other. The tax exemptions granted to the rich and the corporates by the Modi government capture the gross reduction in tax revenue, which lead to higher public debt in relation to the gross domestic product (GDP). In effect, credit expansion in the financial sector is risked against shortfall in revenue generation, which as a policy measure, further contracts targetted Government expenditure supposed to counter the falling demand.
This perpetual imbalance between monetary and the fiscal sides leaves the Government with very little policy options except the so-called God’s hand. If Atmanirbhar Bharat is taken into account, the Government’s spending as assistance towards MSME and agriculture cannot generate sustainable trade and employment as the most important product market remains sluggish. The local chain of markets for agri and MSME products is still to develop into a continuous supply chain, for which the local governments need to have sizeable interventions. This brings one to the role of State Governments in generating demand activity, which again is dependent on MNREGA, developmental work and building up a vibrant human capital. Homeward migration during COVID lockdown placed an added responsibility of finding productive work for at least four crore returnees, who are still struggling.
The bleak picture does not deter economists from producing their own variety of green shoots of economic theory. In a recent piece, Kaushik Basu argued for revival of the Indian economy through IT, outsourcing of digital economy, higher education, all of which ironically lack any labour-linking technological innovation. Seemingly the demand side is taken to be a suo moto available thing by Basu. In contrast, economists Anu Abraham and Mohd Imran Khan in their paper—Covid-19: How long can consumption be sustained in lockdown?—had shown that nearly 33 crore poor people cannot sustain consumption-to-income ratio at a satisfactory level and can at most sustain themselves for six to seven weeks. Combining Basu and Abraham and Khan, one gets a rather contrarian picture of growth in the service industry versus a total deceleration in basic income-generating sectors, which monetarist interventions cannot alter. This does not address the disequilibrium between cash flow, capital formation and demand generation at the levels of macro-economics or meta theory. One interesting way of looking at this knowledge gap is what Economics Nobel prize winner Robert J. Schiller considered as creation of a mainframe narrative to drive growth in an economy. In the case of the American economy, borrowing from medical sciences, Schiller considered a trending curve as an “art of narrative” by which an economy develops certain demands and succeeds in generating money. He further showed the role of a variety of narratives in sustaining macro-economy and most notably an epidemiological narrative that goes viral, in which income is the most contagious element that resembles the hump-shaped epidemiological models. For example, the distress sale of foreign securities in the Indian stock market due to the pandemic, resulting in outflow of capital, when combined with fiscal deficit due to the stimulus package, looks just like a COVID-synchronised model of economic losses that Schiller had predicted as an “epidemic of fear.”
India’s highly priced US treasury holdings of $ 162.7 billion at two per cent with equally huge foreign currency-based loans worth $105 billion from the World Bank at 9.5 per cent result in a massive loss of Rs 50,000 crore per annum from India’s coffers. Combined with short selling of bonds and securities, India’s attempt to hold foreign government securities has resulted in a cost worth a million crore in the capital account, leading to a challenging trend of capital account deficits and current account surpluses. Capital account deficits worth Rs 139 crore in 2020 show a trend of excessive financial outflow while current account surplus to the tune of 0.1 per cent of the GDP shows sharp fall in import as well as export due to recessionary conditions. The monetary management by adjustment of rates and control on money market by the RBI is not able to bring sustainability in the balance of payment. This is how India’s balance of payment looks more like a rising epidemiological curve that shows no sign of receding. The demand management through Atmanirbhar Bharat or the “Made in India” narrative cannot match the pandemic-induced fall in demand.
The other narrative of self-reliance in key sectors like space and defence production has nothing much to do with capital outflow or demand contraction. A futurist narrative of companies off-shoring them to India in digital technologies with a positive impact on job creation gets blunted by privatisation of the ordnance industry involving substantial job losses. One-time revenue generation through selling public sector giants in contrast with past nationalisation of key industries is an impact of the pandemic hump. The rising death rates in India combined with restrictive lockdowns spawn new gaps between overburdened health infrastructure and overall fund crunch. In the absence of a plausible narrative, one could look at sustainability economics. Advocated by environmental economists like Giorgos Kallis and institutional economists like Kate Raworth, this shows how economies can sustain themselves through an equitable contraction of demand. In a Corona-hit economy, such a contraction certainly reduces pressure on natural and material resources. At the same time, it does not create a steady state economy of equilibrium between income and employment; rather it increases the bullish behaviour in stocks and securities.
Sustaining degrowth by decoupling employment and growth could be a fiscal alternative in which a contraction in demand could release an extra or reserve fund for giving cash to poor and middle classes as a “political right.” On the other side, a contraction of demand has resulted in unemployment and job loss to the tune of five million salaried employees in July alone. Altogether 1.8 crore salaried people have lost jobs since April, as stated by CMIE data. This certainly requires what degrowth theorists proposed, a universal basic income and job guarantee decoupled from economic growth. The policy framework of government spending right now focusses more on increasing consumption and demand instead of reducing the impact of a fall in demand. This can be made possible by way of distribution of resources in a socially co-operative manner. This is how we can grow the green shoots.
(The author is a political economy analyst based in Shillong)
Is it a case of strangling the golden goose? Have corporate raiders profiting from public goods been stopped?
There is little doubt that the Indian telecommunications industry has transformed the lives of Indians and has done so at a price, to the final consumer, of pennies. Once upon a time, an outgoing call cost over 32 rupees a minute and data cost a hundred rupees for a megabyte. Today, mobile services are so affordable that many consumers don’t think twice about placing calls or downloading videos. In fact, data is so cheap that some consumers prefer mobile data or fibre-optic cables coming into their homes.
But were the cheap prices all based on a ruse of cheating the Government out of revenue? That is what the Government claimed and won a victory in the Supreme Court in the now famous “Adjusted Gross Revenue” (AGR) case. The telecom companies fought hard to ensure that payments are made over an extended period of time rather than in one go, which was also fair on the face of it. Now that the issue has been settled, what next for Indian telecom companies? They will need to raise billions of dollars to pay these fines and it is unlikely that they will manage to drastically raise access prices, although that might be the only solution. For far too long, India has operated on the basis of the “long tail” where low-income consumers make up a huge volume thanks to low prices. This has enabled low-cost invention but has stifled innovation to a large degree. India really needs to raise its median income higher and a constant focus on low-cost jugaad will not help, so higher prices might be the only way forward.
And those will be needed if India needs the next generation of telecom technology, 5G, which will dramatically increase access speeds and could be the backbone of Narendra Modi’s much-ballyhooed “Digital India.” India doesn’t want a monopoly in the telecom space and it needs the latest technology as well. Higher prices might be frowned upon by some in the government but they have gotten to the cake. They can’t keep on admiring it anymore.
Editorial: The Pioneer
Our economy contracted by a massive 23 per cent. Things might be looking better but there could be long-term damage
Patients who have ostensibly recovered from a bout of Covid-19 are reporting strange traits. CNN’s flamboyant business correspondent Richard Quest, who fought off the disease during its initial days, recently said that he has not felt quite the same. The virus might have made him more clumsy. Others tormented by the disease are reporting reduced lung function, some have been left diabetic and yet others afflicted with brain damage. But what about the patient called the Indian economy? Although mortality rates, we are told, are under check, it seems those hit by the economy going into a tailspin will soon outnumber those directly impacted by the disease. With demand taking a tumble, economic activity in the first quarter of the current fiscal dropped a scarcely believable 23 per cent.
Were matters made worse by the seeming ineptitude of the doctors treating the economy? To be fair, no doctor, medical or economic, has really managed to conquer the disease and its effects, but some have dealt with it better than others. Could those overseeing the Indian economy have done a better job? Much has been written about this and many constructive as well as several idiotic suggestions have been made. However, it is no secret that our economy was already close to stalling before the virus from Wuhan spread across the world. While Narendra Modi’s appeal remains strong with the masses, there is a growing degree of frustration among many about the handling of the economy by him and his team of ministers, bureaucrats and even bankers. Make no mistake, the Reserve Bank of India, by holding onto its cash reserves, even though what the economy is going through is the archetypal definition of a ‘rainy day’, has not helped the situation.
Yes, there has been an uptick in demand in July and August and some believe that by the end of September we will get a clearer idea of the situation for better or for worse. Wholesale dispatches by the larger automobile manufacturers have picked up of late. While the retail offtake has remained steady, the expectation is the festive season will see a pick-up in consumer demand powered by the rural economy. But even then, the damage might be long-lasting. Millions of white collar and blue collar workers from the formal economy have lost their jobs and many of those will not return, as some sectors such as aviation and hospitality are almost certain to require years to recover to 2019 levels. Others like the media might never be the same again. That said, there is opportunity in adversity. After all, a bounce-back in 2021 even to 2019 levels will mean that the 23 per cent decline might become a 30 per cent climb next year. It is darkest before the storm ends.
Courtesy: Editorial: The Pioneer
The idea of ending fratricidal tax competition among States and creating a common market in India across State borders was mooted by the Bhairon Singh Shekhawat Committee (1995). If sovereign nations of Europe could do it, we could do as well. So the Goods and Services Tax (GST) was implemented from July 2017 with the underlying vision of “one nation, one tax, one nation, one market.” The States had agreed to an all-India common slab for particular items, thereby surrendering the power to tax the items at a rate of their own choice.
GST changed the principle of indirect taxation from originating/producing States to the destination/consuming States. The benefit of GST collection accruing to the State, where the final sale takes place, was seen as a loss by the producing States. The GST took so long to materialise mainly because the States were apprehensive not just about the loss of power to tax but also of revenue. It was challenging to convince all the Governments to agree to a common tax rate on a particular item, superseding multiple Central/State/local taxes like Central Excise Duty, Central Sales Tax, Value Added Tax, Sales Tax, Purchase Tax, Tax on Works Contracts, Entry Tax, Octroi and so on, which were discontinued and subsumed in GST.
To assuage the anxieties about potential loss of revenue, a revenue protection guarantee backed by law was agreed to. The revenue to be protected is calculated by assuming 14 per cent per annum growth over the tax collection in 2015-16 from the taxes subsumed in the GST. Accordingly, the GST (Compensation to States) Act, 2017 mandates the Centre to levy a GST compensation cess over and above the GST. The cess is at present levied on certain luxury and sin goods such as cigarettes and tobacco products, paan masala, caffeinated beverages, high-end passenger vehicles and so on. The guaranteed compensation period is five years from the commencement of GST (July 1, 2017).
In 2018-19, the Centre had collected Rs 4,57,535 crore as Central GST, Rs 28,947 crore as Integrated GST and Rs 95,081 crore as GST compensation cess. For 2019-20, the corresponding figures (all provisional) are Rs 496,699 crore, Rs 9,186 crore and Rs 95,551 crore. A total amount of Rs 81,141 crore was released as compensation to States in 2018-19 but the compensation requirement for 2019-20 has nearly doubled to Rs 1,65,000 crore. GST revenue was already below target even before Covid-19 and the pandemic is set to further enhance the compensation requirement for 2020-21 and beyond. The States’ monthly protected revenue, which was Rs 49,020 crore for 2018-19 and Rs 55,882 crore for 2019-20, has risen to Rs 63,706 crore in 2020-21.
A prolonged lockdown, suspension of train, metro and air services, and subsequent behavioural changes are expected to seriously dent demand for goods and services in various sectors, especially exports, tourism, hospitality and outdoor entertainment. Estimates of likely compression of demand vary widely depending on the observer’s outlook, pessimistic or optimistic.
The Government expects to collect a total GST of over Rs 1,00,000 crore per month but GST collections during April-July have been Rs 32,172 crore, Rs 62,151 crore, Rs 90,917 crore and Rs 87,422 crore. In FY21, GST shortfall left uncovered by existing compensation cess is assessed to be Rs 2,35,000 crore. The scope for an extraordinarily large increase in GST compensation cess to cover the whole GST revenue loss is limited as it may adversely affect sales.
When the States were given a five-year revenue protection guarantee in 2017 with an assured 14 per cent increase, such a large reduction in revenue could not have been foreseen. Hence, it can be argued that Covid-19 is an “Act of God” and the States should not insist on getting fully compensated.
In the law of contracts, the courts refuse to enforce a contract when the performance becomes “impossible” (Section 32 of the Indian Contract Act, 1872). What is impossible is open to judicial interpretation. In the Tsakiroglou vs Noblee Thorl case, defendants had contracted to supply Sudanese peanuts to Hamburg but the Suez Canal was closed, blocking the customary shipping route (In July 1956, the Egyptian government nationalised the Canal earlier owned by UK and France causing a crisis). The defendants sought to renege on supply commitment, citing the canal closure. The House of Lords held that peanuts could have been transported via the Cape of Good Hope, a four-time longer alternative route. It would have become commercially onerous but not impossible! In the Alopi Parshad & Sons, Ltd vs Union of India case, the Supreme Court did not allow a supplier of ghee to wriggle out of his pre-war contract merely because World War II had upset his whole economics. Increased commercial difficulty did not amount to impossibility to perform, the court held.
Most contracts, therefore, have a standard clause of “force majeure” detailing extreme situations of war, natural calamities, change of laws or other governmental actions and so on. But the compensation to States for GST revenue shortfall is not part of any contract and not amenable to examination with the lens of “force majeure.” It is basically a legal commitment arising out of a political settlement to arrive at a common taxation framework in a federal polity. The obligation flows from an Act of Parliament. The Parliament can very well change, prospectively or retrospectively, or even scrap the 2017 Compensation Act. The amended law can reduce 14 per cent assured growth to a lower level or introduce additional fiscal measures to compensate the States.
In the present circumstances, a review of the 2017 Act could theoretically be an option but that can potentially re-open settled issues on GST.
The financial interests of the Centre and States are not adversarial but closely inter-connected. The States’ dependence on Central financial support is significant. Central transfers to States constitute about 20 per cent of total Central government expenditure. In 2017-18, the combined expenditure of Centre and States was about Rs 45 lakh crore — Rs 21 lakh crore by Centre (including transfers to State governments of Rs 4 lakh crore) and Rs 28 lakh crore by the States (including expenditure against transfers from Centre of Rs 4 lakh crore). States realise that the Centre itself is facing financial crunch and insisting on full GST compensation as promised can potentially mean cut in other discretionary Central assistance to States if the Centre is asked to go beyond compensation cess to cover the shortfall.
On August 27, the GST Council discussed the vexed issue of compensation to States for huge loss of GST revenue. States have been given two options to borrow additional money. Borrowing is nothing but deferred taxation. Today’s government borrowing is tomorrow’s tax. May be tomorrow’s tax will become tomorrow’s borrowing and day after tomorrow’s tax and so on. More than 20 per cent of total government expenditure is financed through borrowings. This is how the governments have been piling mountains of debt and there is no visible exit from this trap, not in the immediate future, certainly not in crisis time. Crisis justifies borrowings, to be repaid/serviced in better times.
If GDP at factor cost (proxy for total base of indirect taxes) is assumed to be Rs 160 lakh crore and 60 per cent of this GDP pays average GST of 15 per cent, then the GST revenue should be Rs 1.2 lakh crore per month, almost 10 per cent of GDP. The revenue from taxes subsumed in the GST was about six per cent of GDP in 2016-17. Obviously, GST revenue is below expectation and potential. Strong facilitation and anti-evasion measures can reduce the revenue loss and concomitant compensation requirements.
The great federal bargain on GST among governments is facing an acid test. The hard-won political consensus needs to be preserved and nurtured and no cost is big enough to make GST a grand success, by removing the pending irritants, mostly on the implementation side.
(The author is an IAAS officer, superannuated as Special Secretary, Ministry of Commerce and Industry)
The ailments afflicting PSBs won’t go away so long as majority ownership and control remain with the Government. There is a dire need to unshackle them and grant autonomy to the management
The Reserve Bank of India (RBI) has recommended to the Centre a reduction in shareholding of the latter in six top Public Sector Banks (PSBs), namely the State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Canara Bank, Union Bank of India (UBI) and Bank of India (BOI) to 51 per cent in the next 12-18 months. At a recent meeting with the Ministry of Finance (MOF), the RBI had argued for reduction in stake to 26 per cent. But, observing that this might not be possible in the near term for now, it has settled for lowering the Government’s shareholding to 51 per cent. Given its precarious financial position and looking for all possible avenues for increasing revenue, the Narendra Modi Government has promptly latched on to the idea. It is aiming to garner about Rs 25,000 crore by shedding its stake in the six banks which could even go up to Rs 43,000 crore (according to an estimate).
The PSBs in question have already started gearing up for this as they have decided not to take any lumpy credit exposure and are taking steps to reduce their non-performing assets (NPAs) by one-third by the end of the current financial year March 31, 2021 — all aimed at improving their valuation and getting a good price from the sale. The Centre (besides, the RBI) is closely monitoring the situation. At the end of the day, it may re-fill its denuded coffers somewhat. But the larger question still remains unanswered.
Is the Modi Government really serious about bringing down its stake in PSBs to as low as 26 per cent? Is it committed to their privatisation? Does it have anything credible to show? The idea was first mooted by the NDA dispensation under the then Prime Minister AB Vajpayee (1999-2004). It had proposed reduction in the Government’s shareholding in PSBs to less than 50 per cent initially and eventually to 33 per cent. That remained on paper.
In 2015, a RBI committee headed by P Nayak made sweeping recommendations to bring about structural reforms of PSBs in sync with the requirements of an economy on an accelerated growth trajectory and to make it globally competitive. It recommended (i) setting up of an autonomous Bank Boards Bureau (BBB) with a mandate to select the top management; (ii) setting up of a bank investment company (BIC) where all Government shares in PSBs will be vested and (iii) divestment of its shareholding in all PSBs to below 50 per cent.
The committee had contemplated the Board as an interim arrangement — to serve as a precursor to the BIC. In 2016, the Government approved the constitution of the BBB as a body of eminent professionals and officials to make recommendations for appointment of whole-time directors and non-executive chairpersons of PSBs and State-owned financial institutions (FIs). The BBB was also mandated to engage with the board of directors of all PSBs to formulate appropriate strategies for their growth and development besides, encouraging them to restructure their business strategy and suggest ways for their consolidation and merger with other banks based on requirement. Initially headed by Vinod Rai, former Comptroller and Auditor-General (CAG) till April 2018, the BBB has been under a part-time chairman (a retired bureaucrat) and other part-time members. Recently, the term of the BBB was extended for a period of two years beyond April 11 or until further orders, whichever is earlier. How much importance does the Government give to the BBB? Being headed by a part-time chairman and part-time members, this by itself conveys a lot. On the other two recommendations, while (ii) is not even on the radar, as regards (iii), the only action seen thus far is the Government’s decision to divest its majority stake in IDBI Bank.
But things didn’t work out as planned and during 2018-19, the Life Insurance Corporation (LIC) was roped in to acquire 51 per cent controlling stake in IDBI Bank. The acquisition was completed on January 21, 2019 with LIC being re-classified as promoter of the bank with management control and the Centre continuing to be the co-promoter without management control. While it is normal to see LIC in the role of a financial investor, for it to be owning and running a business enterprise is anomalous.
Meanwhile, most of the ills that go with majority ownership of the Government continue to afflict PSBs. The political brass appoints the CMD/MD and deputes bureaucrats as its nominee on the bank board. For appointment of directors, until last year, the nomination and remuneration committee (NRC) included the Centre’s nominee. In August, 2019, the RBI tightened the fit-and-proper criteria to exclude him/her. But, this is only cosmetic with CMD and MOF nominee — both handpicked by the Government — calling the shots when it comes to taking policy decisions or even in its day-to-day running.
In the past, meddling in the affairs of the PSBs took the form of what came to be known as the cult of “crony capitalism.” The businessmen patronised by the ruling establishment managed loans on considerations other than merit and got them ever-greened (taking a new loan to pay back the earlier one). Neither the banks insisted on repayment, nor the defaulters had any sense of fear as those who were expected to take action chose not to act. The political brass also rides piggyback on PSBs for absorbing liabilities created by populist policies such as supplying power to farmers and households at subsidised rates (or even free in some States).
Be it a spate of bailout packages given to power distribution companies (four bailouts have been granted so far) or loan waiver given to farmers and now moratorium on loan repayment extended to all and sundry, all have inflicted heavy losses on PSBs.
No wonder the country is grappling with high NPAs. In March 2018, gross NPAs (GNPAs) had reached a high 11.5 per cent (14.5 per cent for PSBs). These declined to 8.5 per cent as of March; courtesy a number of measures, including resolution of accounts under the Insolvency and Bankruptcy Code (IBC). But the ratio may worsen to 12.5 per cent by March 2021 under the optimistic baseline scenario (14.7 per cent under a severely-stressed one). For PSBs, it would be much higher at 15.2 per cent (16.3 per cent under severely-stressed).
The Government has put investigation and prosecution agencies in top gear to nab fraudsters and the Prime Minister is allegedly against “crony capitalism.” But these exhortations and central agencies seen in action mode do not seem to be yielding the desired result. The proof of the pudding is in eating. To get a sense, we only need to look at the value of bank frauds in recent years. During 2014-15 and 2015-16, the value of bank frauds was Rs 17,000 crore each. During 2016-17 and 2017-18, this went up to Rs 20,500 crore and Rs 22,500 crore respectively. Thereafter, the value galloped to Rs 64,000 crore during 2018-19 and further to Rs 110,000 crore during the first six months of 2019-20.
The message is loud and clear. The ailments afflicting PSBs won’t go away so long as majority ownership and control remain with the Government. There is a dire need to unshackle them and grant autonomy to the management. The RBI’s recommendation that the Government’s stake in six PSBs be reduced to 51 per cent won’t achieve the desired objective. To get the intended results, the Nayak Committee’s prescription should be adopted in totality.
The Government should set up a BIC with eminent professionals as members. While the position of chairman should go to a professional, the member-secretary can be drawn from the bureaucracy. All of the shareholding of the Centre in all PSBs should be transferred to the BIC.
The company should be given necessary authority to take all decisions on behalf of the sovereign Government and allowed to work with full autonomy — at arm’s length from the latter.
The BIC should guide the management of individual banks to improve their working, prepare the roadmap for divestment of majority ownership and control and see through its execution. It should determine the timing of sale so as to realise maximum value. The shares should be so distributed as to avoid concentration in a few hands and ensure greater accountability to the public.
It is also crucial for the RBI to strengthen its “supervision” over banks to guard against irregularities and mismanagement to prevent the fiasco of the kind we have seen in the case of Yes Bank — a private bank. It should maintain strict vigil over the auditors to ensure that they do their job diligently.
(The writer is a New Delhi-based policy analyst)
With Reliance buying out Kishore Biyani, how will the retail market in India play out and compete with online majors?
Say what you will about Mukesh Ambani, one can certainly not accuse India’s richest man of chilling out during the lockdown. While millions of Indians have been contemplating their lives, Mr Ambani has been on an overdrive. First, he got a host of investors onto his Jio telecommunications platform, and now having secured his group’s future in that industry, he is pivoting to retail. By picking up the assets of India’s largest home-grown retail chain, Future Group, Reliance Industries is doubling down on its already ambitious retail play. What will this mean for retail wars in the future? Whether consumers will benefit as more of them choose to buy products online is something that remains to be seen. However, it is the end of a dream that Kishore Biyani had set himself. Saddled with debt and ill-advised expansions over the years, the man, whom business magazines called the “Rajah of Retail”, will use much of the money he gets to pay off his loans.
The Future Group might have brought in the big discount sales on national holidays but unable to pivot to the increasingly online world of consumers, it was swamped by the likes of Amazon, Flipkart (now Walmart) and other start-ups such as BigBasket and Grofers. The question remains if Reliance Industries will be able to make that shift as well or will it need to shop around a little more. Much has slipped between the lip and the cup when it comes to Reliance and its operations, as ground realities and the customer experience seem disconnected from the grand ambition of the promoters and management. The integrated telecommunications and services play that is being aimed for might work on paper but will the notoriously fickle Indian consumer bite? With incomes devastated by the pandemic, the consumer might ditch brand loyalty for the cheapest prices. That said, by buying a ready group with an established front-end network of stores, often in high-footfall areas and a clockwork back-end logistics chain, Reliance Retail has certainly not done itself any disfavour. As for Kishore Biyani, unfortunately he had to sell his kingdom, but he did create a tremendous network and several high-profile brands and left his mark in Indian corporate history.
Courtesy: The Pioneer
Hitting a wall in China, the social media giant has played panderer to deepen its market in India
Facebook CEO Mark Zuckerberg had once said that opinions aired on social media do not shape people’s choices, their lived experiences under a particular political regime do. Since then, much water has flown under the bridge and social media has not only been used as a propaganda tool but has been weaponised to create a wave of opinion and manipulate public perception. Russia was first accused of data mining, hacking and using details to influence the US election. After that, social media became such a powerful barometer of discourse that willy-nilly it has become a partisan tool. So it comes as no surprise that an article published in The Wall Street Journal on Friday stated how Facebook India “took no action after BJP politicians posted content, accusing Muslims of intentionally spreading the Coronavirus, plotting against the nation and waging a ‘love jihad’ campaign by seeking to marry Hindu women.” The report quoted a former Facebook employee as saying that Facebook India was told not to filter extreme Right-wing messages by BJP leaders as that would be inimical to its business in India. This is a serious allegation as it makes Facebook equally guilty of differential standards when it comes to hate speech and blots its claimed ethics of being an accessible platform for all kinds of issues. Worse, it makes Facebook look like a panderer of the establishment, more interested in holding on to its Indian market with 290 million users and another 400 million on Whatsapp. With China erecting a wall against Western platforms, the corporation looks desperate to consolidate its presence in India. But as usual, this concern, despite a series of denials by the company, got buried in the competitive whataboutery of political parties. As Congress leader Rahul Gandhi claimed vindication, BJP leader and Union Minister Ravi Shankar Prasad reminded him how the Congress itself had harvested data in alliance with Cambridge Analytica before the Lok Sabha elections. Many Opposition parties, too, had accused Facebook of being the BJP’s de facto campaign manager before the Lok Sabha polls.
The larger question is, therefore, can social media ever again claim to be an open platform of free-flowing speech and ideas, considering it has gotten deeply embedded in all aspects of our life and cannot but be an influencer in itself? Facebook and Twitter are two corporate giants who can wield information as power, with the former having snapped up rivals Instagram and WhatsApp in recent years. With over 2.3 billion monthly users across its networks, it is too much of a behemoth to be democratic. Some estimates say that internet users spend an average of two hours and 22 minutes a day on such platforms, giving political parties the power to harness the numbers and attention span to disseminate their ideologies and even dump them indiscriminately, picking up some stray attention, too, in the process. US President Donald Trump was calculated to have utilised Twitter for an estimated $2.2 billion of free media coverage. Even newer political leaders from the opposite end of the political spectrum have captured popular imagination because of their online presence. For the corporations themselves, they are not non-profit and will, in the end, look out for their revenue graphs than the greater good. And, therefore, are into a lot of self-serving governance protocols in the absence of a public propriety code. In fact, Nick Clegg, Facebook’s VP of Global Affairs and Communications, had commented last year that “we don’t believe … that it’s an appropriate role for us to referee political debates and prevent a politician’s speech from reaching its audience and being subject to public debate and scrutiny.” The problem with this uninvolved approach is that politicians are emboldened to do whatever it takes to get their viewpoint across, even lies. Because there is no fact-checking, a campaign can go viral — sometimes tidal — before it can be called out. Any rejoinder or retraction then seems rather pointless. Besides who would prevent mainline politicians from lying about their own data, which they quote citing their own statistical sources? No wonder the misinformation has catastrophic consequences though stakeholders benefit in their limited domain. There’s undoubtedly a need for a middle ground than a mutually self-serving club of the information propagator and the disseminator. Also such is their combined monopoly that while Facebook made money from paid political advertisements in the last US elections, Twitter capitalised on the anti-Facebook rant and banned such campaigns, drawing the alternative traffic to itself. Either way, both parties are capitalising on their database, a heaving monster that is beyond anybody’s control, and apportioning it between themselves. And users continue to be a captive audience.
Courtesy: Editorial-The Pioneer
Perovskite-based solar cells are a good alternative to silicon-based PV cells. But the problem of degradation due to weather conditions needs to be addressed
Recently, the Prime Minister inaugurated the country’s largest photovoltaic (PV) cell-based solar energy plant at Rewa in Madhya Pradesh. While inaugurating this 750 megawatt (MW) plant, he stressed upon the need for atmanirbharta (self-reliance). Considering that about 80 per cent of our solar power generation equipment is of Chinese origin, the inauguration of the solar plant was timely. The Prime Minister used the occasion to emphasise this aspect. Said he, “India won’t be able to fully use its solar power potential if the country doesn’t develop better solar panels, batteries and storage manufacturing capacity.” India imported $2.16 billion worth of solar photovoltaic cells, panels and modules in 2018-19.
India is lucky that sunlight is available in abundance here but the challenge lies in the procurement of the PV cells. This has been one of the major constraining factors in our efforts to realise the full potential of solar energy. According to a report submitted by the parliamentary Standing Committee, in order to achieve the target of 100 GW of solar electricity capacity by 2022, India should have had an installed capacity of 32,000 MW by 2017-18. But as of January 31, 2018, the country only had a capacity of 18,455 MW. As per the standing committee, the Ministry of New and Renewable Energy has to install the remaining 81,545 MW in just four years — this is over 20,000 MW a year and appears difficult to achieve.
However, despite the constraints, the price of solar energy has come down to Rs 2-2.50 per unit from Rs 7-8 per unit in 2014. A serious lacuna in this entire exercise of achieving the solar power target continues to be our poor record of indigenous manufacturing of solar panels and our near-complete dependency on Chinese imports.
Today, China is the only country that caters to most of the global PV cell demands. It produces the cheapest solar panels. It is difficult for any country to match such low prices. This has led to a situation where China has a virtual monopoly and this may not be desirable in the long run. Our own imports, mostly from China, accounted for 90 per cent of 2017 sales, up from 86 per cent in 2014. Thus, it is paradoxical that both our sources of energy, oil as well as solar, are currently heavily dependent on imports.
The Chinese advantage is based on low cost of manufacturing despite the process being highly power consumptive and polluting. In the present scenario, particularly in the wake of the Galwan incident, imports of solar technology from China have been banned as it would not have been logical on our part to continue to nourish their economy.
In the absence of cheap imports, the current situation may, perhaps, appear to be disappointing but there are alternatives which must be fully exploited. First, the solar thermal route for harnessing solar energy has found limited application so far. As of now, there are only six functional solar thermal plants, which amount to just a fraction of our total requirement.
Understandably, this technology has its own advantages but is somewhat more expensive than the PV cell route. This is why it has not gathered much acceptance. More research in this area can ensure that costs are further cut down leading to profitability.
An alternative to silicon-based PV cells, which is the speciality of China, has since been found in the form of Perovskite solar cells. This is also a tried and tested method. According to the work done at the National Institute of Advanced Studies, Bengaluru, the efficiency of the Perovskite cells, which was about three per cent in 2006, showed a marked improvement. It has now been determined to be at about 22 per cent, which makes it quite viable.
Perovskite is a crystalline form of the chemical called calcium titanate. It may sound formidable but fortunately, all the raw materials used to manufacture it are indigenously available. The process, too, is much simpler, less polluting and consumes less power than the production of silicon chips.
Perovskite is the product of limestone, which is abundantly available in the country, and titanium oxide, which is obtained from sands containing ilmenite, an ore of titanium. Ilmenite, too, is available in abundance as we have reserves of several million tonnes of this ore in the sands along the shores of Andhra Pradesh, Odisha, Tamil Nadu and Kerala.
The present usage of titanium oxide is confined to the paints and pigment industry as well as in the manufacture of cosmetics and sunscreens as it offers good protection against UV rays.
The absence of Chinese products from now onwards needs to be considered as an opportunity for accelerated research so as to put this technology to commercial use at the earliest. Perovskite-based solar cells have performed exceedingly well in controlled conditions but the problem of degradation due to weather conditions needs to be addressed. The silicon-based PV cells are almost weather proof, so the durability of Perovskite has to be brought up to that level.
Perovskite technology has the potential of being a game -changer in our quest for harnessing solar energy with less polluting and low cost solutions. The renewable energy firm, ReNew Power Pvt Ltd, has already announced that it is in discussion with various States to set up a Rs 1,500-2,000 crore facility to make solar cells and modules. The need is for close monitoring and allocation of sufficient funds for research. India can’t afford to lose the new solar race.
Writer: KK PAUL; Courtesy: The Pioneer
(The writer is a former Governor and senior advisor at the Pranab Mukherjee Foundation)
Chennai techie finds Pragyan, the rover on-board Chandrayaan-2, intact while assessing NASA images
In some good news for India, which is grappling with the twin woes of an ailing economy and the deepening Coronavirus crisis, a Chennai-based techie has claimed that the rover onboard Chandrayaan-2, the Indian Space Research Organisation’s (ISRO’s) moon mission, is intact on the lunar surface and had even moved a few metres. India’s second mission to the moon had ended in disaster as a last-minute software glitch led to the Vikram lander crash-landing on the lunar surface, just 500 metres short of touchdown. Yes, we were ambitious to land on the dark side of the moon, which bigger space-faring nations have not attempted, but the rover’s presence is reassurance that while we need to refine our efforts, they have all not gone to waste. And ISRO needs to follow through the Chandrayaan series in mission mode.
Since the failure of the Chandrayaan-2 last year, things have not gone too well for ISRO, with its GISAT-1 launch being mysteriously called off on March 4, a day before take-off citing an ambiguous “technical reason.” Plus, the space agency, which had a very busy schedule for this year — with around two dozen launches, including Aditya, India’s first solar probe — is having trouble keeping its commitments. Due to the pandemic playing spoilsport, ISRO, too, had to go into a lockdown mode. India’s ambitious human space flight programme Gaganyaan, is in trouble because the astronaut training of the four test pilots of the Indian Air Force has been stopped. Besides over 100 manufacturing units in the private sector, that are contracted to manufacture components for ISRO’s missions, are shut and the work of producing rockets, satellites and scientific instrumentation is on hold right now. But what is most encouraging is that the rover was found by a Chennai techie, Shanmuga Subramanian, from NASA’s images. He had earlier helped NASA find the debris of the Vikram lander, earning him plaudits from the space agency and the gratitude of an embarrassed ISRO. His persistence should be a reason for inducting him and others like him in our space-faring projects. Space nerds should be identified from school and encouraged. It was difficult to detect the rover because it was on the South Pole of the Moon, which is not always well-lit and was missed by the NASA flyby on November 11 possibly for this reason. Not just this, it seems that the rover uploaded commands to the lander, which could not relay them back. Is some data stored there? But with the Vikram lander going silent, we will never know. Whether this translates into any gains for ISRO, only time will tell. But for now, there is something to cheer about in the Indian space community.
Courtesy: The Pioneer