Current Affairs

Page 1
Index
What is the economics behind e-vehicle batteries? 2
Banking on the banks for expansion 4
Fintech panel for legislative changes for issuance of FDs, other instruments in demat form 7
On the edge: On economic slowdown 10
India among top 10 nations in gold reserves 12
Bank for the buck 14
Putting accident victims at the centre of vehicles law 16
Will PSB mergers alter the banking scenario? 18
Interesting, but risky: On RBI’s floating rate loans diktat 21
The problem of skilling India 23
State of the economy explained in 10 charts 26
Panel set up to identify infra projects for Rs. 100 lakh-crore investment 30
Centre asks States to identify accident-prone spots 32
Swiss bank data: 1st tranche mostly about closed accounts, enough details to identify hidden
wealth 34
Start-up scenario is not rosy: report 39
Factoring in safety: on stronger worker safety law 41
Let’s talk safety 43
Capital Freedom 44
NPCI slashes MDR for debit cards 47
Spend to grow 49
The slow climb to the trillion economy peak 52
Government exempts cash payments above Rs 1 crore via AMPC from 2 per cent TDS 55
India's current account under threat if oil surge continues: RBI 57
Banks' 2018-19 savings deposits up at Rs 39.72 lakh crore: RBI 60
Let the farmer choose 62
From Plate to Plough: The right to choose 63
MGNREGA wages to be pegged to inflation 66
‘More freight corridors in the pipeline’ 68
Ministry of Railways decides to adopt HOG system (Head on Generation technology) in all LHB
Coaches trains 70
New social security code proposed 74
Corporate tax cut to have 'minor' impact on fiscal deficit: Niti Aayog 76
Many top firms actually pay less than 25% tax; biggest taxpayer RIL pays 20% 79
Income Tax relief for domestic companies 81
‘Tax cuts may not boost investment’ 83
A rural stimulus: On MGNREGA wage hike 85
View: Lowering of corporate-tax rate will widen tax net 87
Taking care of expenditure 90
Seeking to secure: on linking Aadhaar-GST registration 92
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Source : www.thehindu.com Date : 2019-09-01
WHAT IS THE ECONOMICS BEHIND E-VEHICLE

BATTERIES?
Relevant for: Indian Economy | Topic: Infrastructure: Roads
The story so far: Shifting gears in the transition to electric vehicles (EVs), the NITI Aayog, in
May this year, proposed to ban the sale of all internal combustion engine (ICE) powered three-
wheelers post March 2023. It also suggested that all new two-wheelers below 150cc sold after
March 2025 should be electric. In consonance with these proposals, the Union Budget
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presented on July 5 announced tax incentives for early adopters. Even as the automobile
industry had objected to the think-tank’s proposal and called for a practical approach in framing
electric vehicle-related policies, there has been the worry that EVs are still not financially viable
because of various costs associated with their manufacture and use.
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The portion of the costs of the drivetrain of EVs — the system in a motor vehicle which connects
the transmission to the drive axles — in comparison to the cost of the entire vehicle is four
percentage points lower when compared to ICE vehicles. This is primarily due to less parts in
the electric drivetrain. However, the battery pack takes up nearly half the cost of an electric
vehicle. For any meaningful reduction in the physical value of EVs, the cost of battery packs
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needs to reduce significantly. Chart 1 compares the cost breakdown of a conventional ICE
vehicle with an electric vehicle. Chart 2 compares the drivetrain cost breakdown between the
two kinds.
The predominant battery chemistry used in EVs is lithium-ion batteries (Li-ion). No new
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technologies are on the horizon for immediate commercial usage.
The cost of the materials or key-components of the battery, namely the cathode, anode,
electrolyte, separator, among others, contribute the most (60%) to the total cost. Labour
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charges, overheads and profit margins account for the rest.
Labour is a relatively minuscule component of the overall cost. Any reduction in the cost of the
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battery pack will have to come from a reduction in materials cost or the manufacturing overhead.
The graph shows the cost split of a Li-ion battery pack.
The price of these battery packs has consistently fallen over the past few years. This decrease
is in part due to technological improvements, economies of scale and increased demand for
lithium-ion batteries. Fierce competition between major manufacturers has also been
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instrumental in bringing down prices.
The chart shows the change in the price of Li-ion batteries from 2010 to 2016. It is not clear if
the battery cost can be reduced even further. Given that raw materials account for 60% of the
cost of the battery pack, the room for further cost reduction is rather limted.
In India, EV adoption will be driven by two-wheelers rather than cars in high numbers on
because India’s mobility market is driven more by two wheelers. According to the NITI Aayog,
79% of vehicles on Indian roads are two-wheelers.
Three-wheelers and cars that cost less than 10 lakh account for 4% and 12% of the vehicle
population, respectively.
Two-wheelers will also need smaller batteries when compared to cars and hence the overall
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affordable cost.India needs to manufacture Li-ion cells in-house. Now, cells are imported and
“assembled” into batteries. Setting up a Li-ion manufacturing unit requires high capital
expenditure. But battery manufacturing in India is expected to grow as electric vehicles grow.
In conventional ICEs, petrol or diesel fuels the engine. However, in EVs, batteries are not the
fuel; electrons supplied by the battery fuel the vehicle. The battery is a device that stores
electrons/energy which is sourced from electricity.
Presently, most of India’s electricity is generated using conventional sources. In 2018-19, over
90% of India’s electricity was generated from conventional sources, including coal, and around
10% was produced from renewable sources such as solar, wind and biomass. While the rate of
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electricity generated from renewable sources has increased over the years, more needs to be
done for their adoption.
This is because the EV-charging infrastructure needs to be powered through renewable sources
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to make it truly sustainable.
Dr. S. Venkatraman is R&D Manager, Duracell

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BANKING ON THE BANKS FOR EXPANSION

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI
In 2005, a Nobel laureate in economics claimed that the “… problem of depression-prevention

has been solved”. He was exulting over an innovation in economic theory according to which
fiscal policy, associated with profligacy, had no role whatsoever. Just a few years later, following
the North Atlantic financial crisis, the U.S. fiscal deficit had to be raised three-fold, he responded,
“I guess everyone is a Keynesian in the foxhole”, implying that in the face of an impending crisis
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it is alright to rely on fiscal policy after all. A similar pragmatism is absent from economic
policymaking in India today.
By meeting industrialists for policy inputs so soon after the Budget for the year had been
presented and then, via a press conference held a few weeks later rolling back some of the tax
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proposals in it, the government revealed its anxiety about the state of the economy. This is only
to be expected of a party that came to power promising to transform it. Far from having
significantly improved the performance of the economy in its first term in office it has been
presiding over an economy in which growth has been declining for close to two-and-a-half years
by now. So what did the Finance Minister offer in her press conference? And can we expect it be
game-changing?
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Three sets of announcements pertain to concessions impacting upon the automobile sector,
proposals for the banking sector and a change in a practice of the Income-Tax Department. Of
the first it may be said that addressing the problems of any one sector when several are equally
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stressed is not fair governance. There have been reports of severe stress in the packaged foods
industry for instance and we have long been aware that the agricultural sector has been troubled
after demonetisation.
Of the revision of the procedure adopted for issuing an IT notice, it can be said that it does
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address the issue of tax terrorism, but only a thorough social audit of the processes adopted by
the tax authorities can establish whether it would be sufficient to ensure that honest firms are not
be hounded and that the government receives all the revenue due to it. Industrialists are under
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pressure to not speak out against high-handedness, and the compulsory retirement of income
tax personnel for malpractice recently point to not everything being well within that department.
That leaves us with the proposals for the banking sector. Of these it can be said right away that
some of them are quite sound; but if the government’s intention was to reverse the slowing of
growth they are unlikely to make much of a difference.
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Most significant among the measures related to banking is the infusion of capital upto 70,000
crore into the public sector banks. This is expected to contribute to a potential 5 lakh crore
expansion of credit. With this the government has frontloaded a provision already announced in
the Budget. This transfer is now going to be made right away. This is a major step in the
direction of taking the banking sector to a more solid foundation. There is also a proposal to
ensure that loan decisions taken by bankers are treated as economic decisions and not as
instances of corruption when a loan goes awry.
Public sector banking has been hobbled by the colonial attitude that India’s public servants
cannot be trusted, leading to a continuous surveillance that is not conducive to their exercising
initiative in lending. At the same time, the present non-performing assets crisis points to the role
of political pressure on banks in the past. Without addressing both these issues we can never
transit to a strong banking sector. So the capital for the long term infusion should have been
accompanied by governance reforms that both enforce honest behaviour and ring-fence the
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public banker from political pressure.
Finally, there was the announcement that public sector banks will pass on more of the policy
rate cuts that the Reserve Bank of India (RBI) has effected in several rounds by now. The
government’s frustration at this not having happened is easily imagined but is the proposal for a
near automatic adjustment sound by itself? It is tantamount to the lending rate of banks being
determined by the RBI’s actions. There is after all the risk premium that banks tack on to their
prime lending rate, which itself depends on factors other than the policy rate. Overall, the move
towards having commercial bank rates move in tandem with the repo rate by fiat is not
advisable. The decision should be left to the banks.
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Let us, however, assume for a moment that lending rates are set to be lowered whatever be the
mechanism. Will this revive the economy? It is apparent from the Finance Minister’s press
conference that the government thinks this will happen. Generally, the potency of monetary
policy in reversing sluggishness in the economy is considered to be weak. The belief among
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economists is that while a rise in the rate of interest can hold back a decision to invest by raising
the cost of finance, an interest rate reduction can do little in the absence of an urge among
investors to commit capital. A lack of understanding of the factors governing investment is
evident in the suggestion often seen in the press that the government must ‘revive animal spirits’
in the economy. Animal spirits were originally imagined as the spontaneous urge to either
undertake investment or hold back from it. The expectation of future profits is the key element
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here for potential investors. The government can have a role only if it can affect long-term profit
expectations. Certainly not by lowering interest rates.
Presently, we are witnessing an interesting strategic interaction. The government accepts that
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the economy needs more growth but insists that this can only come via private investment and
the private sector awaits an improvement in growth before deciding whether to invest. It is not
clear whether the basis of the government’s insistence on private investment alone is ideological
or based on fiscal considerations. Whatever it may be, it is clear that if it does not get proactive
now, it could be left waiting for a private investment that may not be forthcoming.
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Our experience of the five years of very high growth over 2003-08, when the economy grew at
its fastest ever, tells us that three factors had played a role in it. These were unusually high rates
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of agricultural growth, record levels of public investment and buoyant exports. The package
announced by the Finance Minister on August 23 did not relate to any of these. Of course,
exports depend to an equal extent on factors beyond India’s control but the government could
have addressed the other two factors. Notably, it had nothing for the rural sector which clearly
needs attention. For a start an expansion of the Mahatma Gandhi National Rural Employment
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Guarantee Scheme, with attention paid to building assets that most strongly impact agricultural
output, may be considered. As for public investment, it is the elephant in the North Block. The
government is reluctant to step it up, harping on fiscal space, but fiscal space is for a smart
government to make up. Instead this one shrunk the space for public investment by introducing
an income scheme exclusively meant for farmers just before the elections and then expanding it
soon after it returned to power. It was a case of rewarding political support rather than attending
to the needs of an economy known to be slowing. When in the foxhole you imagine that you are
on a mountain top, you end up paying for your fancy.
Pulapre Balakrishnan is Professor, Ashoka University, Sonipat and Senior Fellow, IIM
Kozhikode

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Source : www.economictimes.indiatimes.com Date : 2019-09-03
FINTECH PANEL FOR LEGISLATIVE CHANGES FOR

ISSUANCE OF FDS, OTHER INSTRUMENTS IN DEMAT
FORM
An inter-ministerial panel on fintech has suggested legislative changes be made to enable fixed
deposits (FDs) and other financial instruments to be issued in dematerialised form as it is
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customer-friendly and secure. The Steering Committee headed by the Economic Affairs
Secretary also suggested that the Department of Financial Services (DFS) and Reserve Bank of
India may examine the suitability of 'virtual banking system' in the Indian context.
The panel, which submitted its report to Finance Minister Nirmala Sitharaman on Monday, said
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dematerialisation of financial instruments is customer-friendly given the wide reach of mobile
technologies and also leads to disaster resilience and speedy recovery.
It recommended that suitable regulatory and legislative changes be made to enable FDs and
other financial instruments to be issued in dematerialised form and allow their frictionless use as
collateral.
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The government should undertake a campaign to convert all financial assets held, especially by
entities under its control like post offices, in demat form as far as possible but certainly in
electronic form, the report said.
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"Necessary suitable amendments to enable dematerialisation of financial instruments such as
FDs and other deposits of the Post Offices, other forms of small savings certificates issued, Gold
Deposit Certificates issued under GMS, Sovereign Gold Bonds, etc. may be undertaken," it said.
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Pending changes in laws and regulations that may be required to enable depositories to store all
financial assets, the information pertaining to the assets may be stored in repositories so that
consumers can access this information through a single window, it said.
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With regard to virtual banking, it said the Hong Kong Monetary Authority (HKMA) has recently
issued guidelines for setting up virtual banks and is examining applications for virtual banking
licences.
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DFS and RBI can examine the issue and prepare for a possible future scenario where banks do
not need to set up branches and yet deliver the full scale retail banking services ranging from
extending loans, savings accounts, issuing cards and offering payment services through their
app or website, it said.
The panel also made a case for increasing pre-paid instruments (PPI) limit from the existing Rs
1 lakh.
"The Committee recommends a thorough review of the PPI system with a view of considerably
liberalising its use with adequate non-monetary limits safeguards to enable expansion of
fintech," it said.
It noted that there is an urgent need to reduce the costs of KYC to promote financial inclusion
among the weaker sections.
Page 8
While large financial institutions can afford to pay for uploads, this may not be affordable for
small players, it said, adding the cost of on-boarding a customer is an expensive proposition and
the new banks are at a serious disadvantage.
The panel suggested that there should be no charge for uploading KYC data, while every
download can be priced based on the user pays principle and this will enable Central KYC to
take off early.
Other members of the committee include Secretary Financial Services, MSME Secretary, UIDAI
CEO and Deputy Governor of RBI.
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An inter-ministerial panel on fintech has suggested legislative changes be made to enable fixed
deposits (FDs) and other financial instruments to be issued in dematerialised form as it is
customer-friendly and secure. The Steering Committee headed by the Economic Affairs
Secretary also suggested that the Department of Financial Services (DFS) and Reserve Bank of
India may examine the suitability of 'virtual banking system' in the Indian context.
co
The panel, which submitted its report to Finance Minister Nirmala Sitharaman on Monday, said
dematerialisation of financial instruments is customer-friendly given the wide reach of mobile
technologies and also leads to disaster resilience and speedy recovery.
It recommended that suitable regulatory and legislative changes be made to enable FDs and
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other financial instruments to be issued in dematerialised form and allow their frictionless use as
collateral.
The government should undertake a campaign to convert all financial assets held, especially by
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entities under its control like post offices, in demat form as far as possible but certainly in
electronic form, the report said.
"Necessary suitable amendments to enable dematerialisation of financial instruments such as

FDs and other deposits of the Post Offices, other forms of small savings certificates issued, Gold
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Deposit Certificates issued under GMS, Sovereign Gold Bonds, etc. may be undertaken," it said.
Pending changes in laws and regulations that may be required to enable depositories to store all
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financial assets, the information pertaining to the assets may be stored in repositories so that
consumers can access this information through a single window, it said.
With regard to virtual banking, it said the Hong Kong Monetary Authority (HKMA) has recently
issued guidelines for setting up virtual banks and is examining applications for virtual banking
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licences.
DFS and RBI can examine the issue and prepare for a possible future scenario where banks do
not need to set up branches and yet deliver the full scale retail banking services ranging from
extending loans, savings accounts, issuing cards and offering payment services through their
app or website, it said.
The panel also made a case for increasing pre-paid instruments (PPI) limit from the existing Rs
1 lakh.
"The Committee recommends a thorough review of the PPI system with a view of considerably
liberalising its use with adequate non-monetary limits safeguards to enable expansion of
fintech," it said.
It noted that there is an urgent need to reduce the costs of KYC to promote financial inclusion
Page 9
among the weaker sections.
While large financial institutions can afford to pay for uploads, this may not be affordable for
small players, it said, adding the cost of on-boarding a customer is an expensive proposition and
the new banks are at a serious disadvantage.
The panel suggested that there should be no charge for uploading KYC data, while every
download can be priced based on the user pays principle and this will enable Central KYC to
take off early.
Other members of the committee include Secretary Financial Services, MSME Secretary, UIDAI
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CEO and Deputy Governor of RBI.
END
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ON THE EDGE: ON ECONOMIC SLOWDOWN

Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms
India’s deepening slowdown has now left the economy on the verge of stalling. The latest
estimates for GDP show year-on-year growth in the April-June period slid for a fifth straight
quarter to 5%, the slowest pace in more than six years. Disconcertingly, the mainstay of demand
— private consumption spending — slumped to an 18-quarter low, with the expansion
decelerating sharply to 3.1%, from 7.2% in the preceding quarter and 7.3% a year earlier. Gross
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fixed capital formation (GFCF), a proxy for investment activity, grew a meagre 4%, less than a
third of the 13.3% growth it posted 12 months earlier. The RBI had, in its annual report released
on Thursday, noted that indicators of GFCF had shown either moderation or contraction in the
fiscal first quarter and pointed specifically to gross value added (GVA) by the construction
industry, which government data revealed had eased to a 5.7% pace, from 9.6% in the year-
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earlier period. With demand for manufactured products ranging from cars and consumer
durables to even biscuits having sharply diminished, manufacturing GVA growth plunged to an
eight-quarter low of 0.6%. In fact, save mining, electricity and other utility services and public
administration and defence, all the five other contributors to overall GVA weakened from a year
earlier. And as the RBI observed in its last monetary policy statement, consumer confidence
gauged by its July survey has worsened appreciably, with 63.8% of respondents expecting
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discretionary spending to stay at the same level or shrink one year ahead. The comparable
reading in June 2018 was 37.3%.
That the government is cognisant of the gravity of the situation is evident from its recent slew of
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policy pronouncements including tweaks to investment norms to draw more Foreign Direct
Investment, moves to relieve the debilitating sales slump in the auto sector and a sweeping
consolidation of public banks. Any beneficial impact from these measures will, however, take
time to feed into the economy and time is a luxury that the faltering economy can ill afford,
especially given the global headwinds. With the farm sector still stuck in a low income trap and
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this year’s mercurial monsoon rains, leaving some parts flooded and others still facing deficits
and engendering a shortfall in kharif sowing, rural demand is unlikely to return any time soon.
Also, with the RBI’s four interest rate reductions since the start of 2019 having, so far, failed to
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incentivise credit-fuelled consumer spending and business investment to any significant degree
and with limited fiscal headroom to try and prime the pump with increased expenditure, big, bold
structural reforms may be the only way out. The government must lose no time in consulting with
the widest possible spectrum, including the Opposition, and then implement the agreed-on
reforms prescriptions to reinvigorate demand and investment.
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As protesters make new demands, the prospects of a quick settlement recede

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Page 12
INDIA AMONG TOP 10 NATIONS IN GOLD RESERVES

Relevant for: Indian Economy | Topic: Issues relating to Mobilization of resources incl. Savings, Borrowings &
External Resources
India’s gold reserves have grown from 357.8 tonnes in the first quarter of 2000 to 618.2 tonnes
in 2019.Reuters
India has pipped the Netherlands to move into the list of top ten countries in terms of total gold
reserves.
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According to the World Gold Council, India has gold reserves totalling 618.2 tonnes, which is
marginally higher than the Netherlands’ reserves of 612.5 tonnes.
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Interestingly, in terms of individual countries, India actually ranks ninth since the International
Monetary Fund (IMF) occupies the third position after the U.S. and Germany.
According to the latest release by the World Gold Council, U.S. leads the country list with total
gold reserves of 8,133.5 tonnes followed by Germany with 3,366.8 tonnes.
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While the IMF is ranked third with a holding of 2,451.8 tonnes, it is followed by Italy (2,451.8
tonnes), France (2,436.1 tonnes), Russia (2,219.2 tonnes), China (1,936.5 tonnes), Switzerland
(1,040 tonnes) and Japan (765.2 tonnes) before India at the 10th spot.
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India’s entry into the list of top ten countries comes at a time when the quantum of monthly
purchases is the lowest in over three years.
“Net purchases [of a tonne or more] in July amounted to a relatively modest 13.1 tonnes. This is
90% less than June and the lowest level of monthly net purchases since August 2017,” said
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Alistair Hewitt, director — Market Intelligence, World Gold Council.
Incidentally, the holding data for most countries is as of July 2019 as the compilation is typically
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reported with a lag of two months.
Previously, when the WGC reported the country-wise reserves in March, India’s gold holding
was pegged at 607 tonnes.
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India’s gold reserves have grown substantially in the past couple of decades from 357.8 tonnes
in the first quarter of 2000 to the current 618.2 tonnes.
India’s neighbour Pakistan has seen its standing unchanged at the 45th position with total gold
reserves of 64.6 tonnes.
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Source : www.indianexpress.com Date : 2019-09-05
BANK FOR THE BUCK

© 2019 The Indian Express Ltd.

All Rights Reserved
Duvvuri Subbarao, former RBI governor, is a retired IAS officer. Views are personal.
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The finance minister’s announcement last week of the merger of public sector banks, coming in
the wake of growth sinking to a six-year low, was meant to be seen as a big bang response to
arresting the slowdown. On the contrary, it’s a needless distraction.
In the short-term, the mergers will contribute nothing towards engineering a turnaround of the
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economy. Worse still, the administrative and logistic challenges of mergers will divert the mind
space of bank managements away from their most pressing task at the moment — of managing
the NPAs and aggressively looking for lending opportunities. Down the line, bank staff will be
worrying, notwithstanding the finance minister’s assurance, about their jobs and career
prospects even as their morale will be sapped by the complexity of coping with a new banking
culture and new practices at a time when they should be giving their undivided attention to
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scouting for borrowers and improving service delivery.
A follow-on question is this: Even if the short-term outcome is not promising, are mergers a net
positive in the long term? That is not unambiguously clear. While organic mergers of banks
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motivated purely by business considerations lead to efficiency gains, whether arranged
marriages of the type the government is organising are a good thing remains debatable.
On the positive side, large banks will entail cost advantages by way of economies of scale such
as centralised back office processing, elimination of branch overlap, eliminating redundancies in
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administrative infrastructure, better manpower planning, optimum funds management, and

savings in IT and other fixed costs. Large banks will also be able to finance large projects on
their own even while staying within the prudential lending norms imposed by the regulator.
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On the flip side, the biggest argument against big banks is that they can become too big to fail.
The financial sector is all inter-connected and a risk in any part of the system is a risk to the
entire system. If a large bank were to fail, it could bring down the whole financial sector with it,
as was evident from the near death experience following the collapse of Lehman Brothers in
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2008, which triggered the global financial crisis. No country can therefore afford the failure of a
big bank. The tacit knowledge that the sovereign will be forced to rescue it encourages
irresponsible behaviour by big banks.
One of the important reforms in banking regulation following the crisis was to curb this moral
hazard by requiring regulators to identify systemically important financial institutions and subject
them to higher capital requirements and more stringent regulation. Indeed, the country’s largest
bank, State Bank of India, was categorised by the RBI as a systemically important bank whose
failure can have big negative externalities. The proposed mergers will increase this “too big to
fail risk”.
It will be tempting to argue that all our public sector banks (PSBs), big or small, operate in any
case under an implicit sovereign guarantee with a built-in moral hazard. There is no additional
risk from merging many small banks into fewer large banks. On the other hand, there could be
efficiency gains.
Page 15
This point can be debated but I do not want to get into that. What I want to do instead is to use
that to segue to a larger debate which is that as far as PSBs are concerned, the issue is not big
or small, but whether or not. Banks were nationalised 50 years ago in a different era, in a
different context. In the event, PSBs rendered commendable service to the nation by deepening
bank penetration into the hinterland and implementing a variety of anti-poverty programmes.
PSB managers, especially at the front end, were entrepreneurial, innovative and committed.
There were many factors responsible for India moving from low income to low middle income,
and financial intermediation by PSBs has to find a place in that list.
Even as it acknowledges the contribution of PSBs, the government needs to confront a stream
of $5 trillion questions. Do we still need PSBs? Isn’t the financial sector wide enough and deep
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enough to take care of financial intermediation without the government at the steering wheel?
Aren’t there better uses for the government’s mind space and its time?
There is wide consensus that today’s economic slowdown is due both to cyclical and structural
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factors. By way of cyclical response, the RBI has cut rates and the government has announced
a few measures like frontloading expenditures and slashing some taxes. Perhaps the RBI will
ease further and the government will follow on with some more measures. The most these can
do is to lift the growth rate to its potential.
But that will hardly make us a $5-trillion economy. We will become a $5-trillion economy not by
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growing at our current potential growth rate but by raising it. That requires structural reforms.
The agenda for structural reforms is now a daily staple of our media discourse and there is no
need to rehash that here.
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Structural measures will take time to work their way through the system. But even the
announcement effect of structural reforms can be stunning. If, for example, the government were
to put out a roadmap for giving up its majority stake in PSBs, it will go a long way in shoring up
sentiment and getting us off the block to a $5-trillion economy. An idea whose time has come?
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The writer is a former governor of the Reserve Bank of India
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© 2019 The Indian Express Ltd. All Rights Reserved
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PUTTING ACCIDENT VICTIMS AT THE CENTRE OF

VEHICLES LAW
The yellow mark portrays a fatal accident spot on Podanur Road in Coimbatore. | Photo Credit:
Photo: S. Siva Saravanan
It is well known that India is one of the most accident-prone countries in the world, accounting
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for nearly 1,50,000 deaths — 10% of all motor vehicles-related fatalities worldwide. However,
the debate often revolves around how to minimise road accidents by incorporating deterrents
into laws and ignores the interests of the victims. The discourse concerning the Motor Vehicles
(Amendment) Act 2019 has only followed this trend, as is evidenced by the disproportionate
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press coverage given to the enhanced penalties to be levied on offenders.
This lack of victim-centricity in the discourse, though deplorable, is unsurprising. The fact that
the National Crime Records Bureau does not collate data pertaining to the socio-economic and
demographic profile of victims of traffic accidents is a testament to the relative apathy shown by
the state machinery.
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The amended Act gives the victims some respite as it provides for an enhanced insurance
compensation of 5 lakh in case of death of a person in a traffic accident and 2.5 lakh where
there is “grievous hurt”. The compensation to be awarded following hit-and-run accidents has
also been raised to 2 lakh when a victim dies and 50,000 when he/she suffers a grievous injury.
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Additionally, the Act now requires insurance companies and the government to notify schemes
relating to cashless treatment during the ‘Golden Hour’ — the period of first 60 minutes from the
occurrence of an accident when the risk of fatality can be minimised to the greatest extent.
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Further, it mandates compulsory insurance of all road users, including pedestrians, who will be
covered through a ‘Motor Vehicle Accident Fund’. Lastly, it also provides for interim relief to be
provided to the claimants.
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These provisions, well-intentioned, are no doubt steps in the right direction. However, much
more needs to be done if the accident victims are to be provided complete justice.
First, closer attention needs to be paid to the formula used to calculate the quantum of
compensation. In the case of Arun Kumar Agarwal & Anr v. National Insurance Co. Ltd & Ors
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(2010), the deceased was a homemaker. The Accident Claim Tribunal reduced the amount of
compensation from the calculated sum of 6 lakh to a sum of 2,60,000, stating that she was
unemployed. In light of the same, on appeal, the Supreme Court commented that: “The time has
come for the Parliament to have a rethink on properly assessing homemakers’ and
householders’ work and suitably amending he provisions of the Motor Vehicles Act… for giving
compensation when the victims are women and homemakers.” The amended Act, however,
does not account for such nuances.
Second, many of the problems with the Motor Vehicles Act highlighted by the apex court in the
case of Jai Prakash v. M/S. National Insurance Co. & Ors (2009) either remain unaddressed or
are inadequately addressed by the amended version. For instance, though vehicle users who
don’t give passage to emergency ambulance vehicle are liable to be punished with fines, such
punitive measures are likely to remain ineffective in the absence of an effective implementation
mechanism. Further, other factors that lead to a poor response time, including lack of road
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infrastructure, also need to be taken into account.
Another problem highlighted by the apex court for which the new Act does not provided any
remedy is that of procedural delays on the part of tribunals in claims settlement. The provision
for interim compensation is bound to bring some respite to the victims but another unaddressed
concern makes this stipulation susceptible to criticism.
An absence of in-built safeguards in the compensation mechanism allows for the money to be
frittered away by unscrupulous relatives, touts and agents, especially in cases where the victim
or his nearest kin are poor and illiterate. It is to address this concern that the Supreme Court in
Jai Prakash suggested payment in the form of monthly disbursements of smaller amounts over a
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longer period of time to victims or their kin, as against a lump-sum award. This has been
overlooked by the new Act.
Understandably, many of the points raised above cannot be specified statutorily. Hence, the
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government needs to notify an institutional framework which encourages advocacy for victims
and facilitates access to the various services.
G. S. Bajpai is chairperson, Centre for Criminology and Victimology at National Law University,
Delhi, where Ankit Kaushik is a research associate
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How an idea for a ‘perfect Mumbai feature story’ failed to materialise

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WILL PSB MERGERS ALTER THE BANKING

SCENARIO?
Last week, the Centre announced a sweeping consolidation that would see 10 public sector
banks being merged into four. While the government has touted the move as one that will
enhance credit capacity, there are concerns that more large banks could make the banking
system vulnerable. In a conversation moderated by Suresh Seshadri, T.T. Ram Mohan,
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Professor of Finance, IIM-Ahmedabad, and V. Srinivasan, a veteran banker, look at the
challenges to successful integration. Excerpts:
T.T. Ram Mohan: How it benefits the economy remains to be seen. Because I think the case for
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the merger has not been articulated properly enough. We have some reference to Indian banks
becoming global in size. But that sort of talk needs to be discounted. Because, even if you take
the largest of the mergers that have been proposed, which is PNB combining with two other
entities, it’s going to give you a bank which is about one third the size of the 50th largest bank in
the world, which is not saying much. S.
Second, the correlation between size and efficiency is suspect beyond a certain minimum size.
And that size is quite low: say $10 billion in assets or so you get the necessary scale of
economy. Beyond that, the empirical evidence does not suggest there are many great
advantages to simply growing bigger. And we have seen this in the Indian context where the
large public sector banks underperform in relation to private banks, which are much smaller. And
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of course, the classic comparison is between HDFC Bank and the consolidated State Bank of
India, which is many times its size. The price to book value ratio of HDFC Bank is close to 4,
whereas the price to book value of SBI is around 1.25. Therefore, the suggestion that getting
bigger is going to, in itself, give you some benefits is not validated by experience, either
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internationally or within India.
V. Srinivasan: I would agree with the argument that, from a timing point of view, this does not
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seem an ideal time for going ahead with these mergers. Because, as all of us are aware, the
economy is clearly going through a major slowdown. And it requires all hands on the deck. And
whenever a merger of such scale happens, I think the senior management gets distracted in
terms of trying to make sure who gets what. I think there’s a lot of work to be done. Even though
that may be done by several teams, ultimately human emotion will come into play here, where
people are going to be looking at saying, “What’s in it for me? Where am I headed as far as this
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action is concerned?” And therefore, in the short term, I think there is going to be some amount
of disruption. That is something which you could have avoided in this sort of time. Consolidation
is good, because from an administrative perspective, as people retire, you would see some
economies of scale getting through, but just sort of putting banks together is not going to solve
the problem as far as the credit flow is concerned.
TTR: The way to look at that question is to see the share of the top three or the top five banks in
assets. And if that share is very large, then you have a concentrated banking system. If the
share is too low, then you have a highly fragmented banking system. And I think it’s fair to say
that in India we were tending towards a high degree of fragmentation rather than concentration.
So, I think so far as the increase in systemic risk is concerned, it’s not going to be an immediate
problem. Because if you look at the share of the top three or four banks in assets it was about
30-32%. That is not a very high degree of concentration.
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How will the bank merger benefit the economy? | The Hindu Parley podcast
But I do know that regarding the point that Srinivasan made, which is that in order to make a
success of a merger, you need two conditions to be satisfied — you need a very high degree of
managerial ability, and at least one of the entities in the merger must be financially strong — I’m
afraid I can’t see either condition being satisfied in the mergers that are being proposed. If you’re
not able to make a success of your operations and deliver the performance of your existing level
of assets, how does the management propose to make a success of a much bigger and more
complex entity? The question is not answered simply by citing the theoretical scale economy.
Making a success of merger is a huge challenge.
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VS: As far as Bank of Baroda (BOB), Vijaya Bank and Dena Bank are concerned, it’s still very
early days... I don’t think the merger integration is complete. And clearly we have not seen much
in terms of how exactly they have put things together and gone to the market, with a single value
proposition. The way I look at it, this was something which has been on the table for a long time.
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I think they tried out BOB and just decided to go ahead.
The feedback from the BOB experiment was that things were not falling apart. And things
seemed to be broadly business as usual, not very different from what was happening in the past.
And they decided that this is something which we can go ahead with and do the rest of the
previous plan, which was actually already, I think, part of the blueprint. I think that’s how they
S.
have gone ahead with these mergers. The only thing here is, I don’t think there’s any identity
which they have tried to create for each of these merged entities in terms of trying to say, one
will be focusing on Corporate, one will be on Small and Medium Enterprises, one will be Retail.
There’s been no thinking in terms of any or each of these banks’ focus on a particular theme,
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particular skill-set and developing expertise in a space which is important as far as the overall
economy is concerned. Basically, I think they’ve said, every bank falls broadly in the same
template, and there’s not much to choose from in terms of who goes with whom.
TTR: In terms of resolution of NPAs there is some merit in having the merger because there are
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coordination problems involved when you have multiple banks trying to resolve NPAs which are
common to all of them. So, you have the middle and senior management deputed for meetings,
where they have discussions with their counterparts from other banks. And then they have to go
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back to the top management for a decision, come back again for a meeting, and it goes on and
on. Therefore, the resolution of NPAs becomes difficult when you have so many banks trying to
arrive at an understanding amongst themselves. So, to the extent that the discussion is
happening among fewer banks, I think the resolution of NPAs will be facilitated. That could be
one argument for the merger.
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But I think the most important rationale is that the multiplicity of banks was making enormous
demands on the bandwidth of the Finance Ministry in terms of appointments of chairmen,
managing directors, executive directors, independent directors. Even though they have the
banks board bureau to advise them on appointments, the process is extremely time-consuming.
There were long delays in making the senior appointments, as a result of which these banks
have been incurring substantial costs. When you don’t have a person at the top or persons at
the top, or even directors in play, it exacts its own cost on the bank. And so, collapsing the
number of banks makes it easier for the Ministry to monitor the banks on its watch. I think that is
probably one argument for the merger which I can sort of relate to.
The other argument is that having bigger entities enables people to make bigger loans, which
would give them a degree of pricing power vis-a-vis corporates because corporates have been
playing one bank off against the other under the multiple banking system. To the extent that you
combine banks and they do a bigger amount of funding, it does improve the bargaining position
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of the bank. Again, fee income that the banks get from selling mutual funds and insurance
products can go up, because now the banks can command a much larger network and therefore
demand a bigger commission from the people whose products they’re selling.
The fundamental issue is a managerial issue with making a success of the merger, which is a
challenge even in a developed economy, where you have a lot of flexibility in terms of laying off
people, rationalising branches. Here, even if you rationalise the branches, a commitment has
been given that people will not be laid off. That is one of the assurances given by the Ministry.
And therefore, it’s not clear how any cost economies will be effected... if people are to be
retained and yet be redeployed for other purposes.
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VS: I would think it is more the lending side which can get impacted on account of this rather
than the customer on the deposit side. The deposit side, however weak the government-owned
banks, they didn’t face any risk of deposits sort of unwinding and they continued to have
reasonably decent deposit growth, irrespective of whether they were figuring in the top quartile
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or the bottom quartile because the sovereign guarantee was clearly there. It will be business as
usual. I don’t think things will change as far as these banks are concerned. From a lending
perspective, the impact will be felt more for the SMEs and small businesses, who have a lot to
gain from the personal contact they have with a local person. And as that becomes a lot weaker,
that can impact... That is something which we will know only as we go along. But there would be
some amount of transition issues as things change.
S.
VS: Clearly, a lesser number of banks means, hopefully, speedier decision-making across
banks. That’s the upside one can hope for. And the other thing which it can trigger is some
consolidation in private sector banks. Because the private sector banks would now be falling
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behind in terms of scale compared to some of these banks. And therefore, to some extent, this
can force the private sector banks to think of a similar consolidation.

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INTERESTING, BUT RISKY: ON RBI’S FLOATING RATE

LOANS DIKTAT
The Reserve Bank of India (RBI) has finally decided that it needs to address the problem of
inadequate interest rate transmission head on. In a circular to banks on Wednesday, it directed
lenders to link all new floating rate loans given to borrowers in the personal, retail and micro,
small and medium enterprise (MSME) categories to external benchmarks, including the repo
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rate, with effect from October 1. While giving banks the relative freedom to choose the specific
external benchmark, including yields on the 3-month and 6-month Treasury Bills published by
the Financial Benchmarks India Pvt. Ltd., the central bank made it clear that lenders would need
to adopt a uniform benchmark within a loan category. Banks have also, crucially, been given the
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leeway to determine their spread over the benchmark rate with a caveat that changes to the
credit risk premium can only be made when the borrower’s credit assessment undergoes a
substantial change. That the inadequate transmission of policy rate moves has been an abiding
conundrum for the RBI is well known. In 2015, then Governor Raghuram Rajan decided that the
system used by banks to price their loans needed to be changed and so introduced the Marginal
Cost of Funds based Lending Rate (MCLR) regime. In October 2017, an internal study group of
S.
the RBI recommended the adoption of external benchmarks to ensure effective policy
transmission, after observing that the MCLR too had failed to deliver.
Policymakers, in fact, have been so vexed with poor transmission — against a total of 75 basis
points (bps) reduction in the RBI’s repo rate between February and June, the weighted average
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lending rate on fresh rupee loans at banks eased only by 29 bps — that Monetary Policy
Committee member Chetan Ghate in August cited the issue as reason to oppose the proposed
35-bps cut and instead voted for a 25-bps reduction. “By a large cut (35 bps) I feel we will be
burning through monetary policy space without much to show for it. While the real economy
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needs some support, we should wait for more transmission to happen,” he said at the MPC’s
rate setting meeting, the minutes show. Though the latest move will surely lower the interest
cost on new floating rate loans availed by borrowers to buy cars or homes, it may force banks to
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start cutting the interest rate they pay deposit holders or risk seeing their margins shrink. And
while the RBI wants to try and nudge an uptick in credit for becalmed personal consumption and
borrowing by beleaguered MSMEs, the success of the measure will ultimately be determined by
a regaining of confidence by consumers to spend and a conviction by industry to invest.

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

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THE PROBLEM OF SKILLING INDIA

Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable
Development

All Rights Reserved
Christophe Jaffrelot is senior research fellow at CERI-Sciences Po/CNRS, Paris, professor of

Indian Politics and Sociology at King's India Institute, London, and non-resident scholar at the
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Carnegie Endowment for International Peace. He offers valuable insights on South Asian
politics, particularly the methods and motivations of the Hindu right in India.
Jumle is an associate at Ikigai Law, New Delhi
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Prime Minister Narendra Modi, in his recent Independence Day speech, said, “We need to worry
about population explosion”. These words stand in stark contrast to his previous references to
India’s demographic dividend where the country’s population was seen as an asset. This shift
reflects a new awareness, according to which demography brings a dividend only if the youth is
trained properly. Without proper training, instead of benefits, the country gets massive
S.
joblessness — at least, this is what common sense suggests. Reality is more complicated.
A minimum of eight million new job seekers enter the jobs market every year. In 2017, only 5.5
million had been created, and the situation is worsening: Unemployment rate is the highest in 45
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years today. The Indian youth has become the first casualty, with the unemployment rate
reaching 34 per cent among the 20-24-year-olds in the first quarter of 2019 — it was 37.9 per
cent among the urban lot, according to the CMIE. Official sources from the government of India
do not give very different data: According to the last 2018 Periodic Labour Force Survey (PLFS),
the unemployment rate among the urban 15-29-year-olds (a very large bracket) was 23.7 per
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cent. One may hypothesise that this pervasive joblessness was due to the poor training of the
youth as only seven per cent of the people surveyed in the framework of the PLFS declared any
formal or informal training.
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But there is a paradox here: According to a recent survey, 48 per cent of Indian employers
reported difficulties filling job vacancies due to talent shortage. The worst affected sector —
which is also one of the strong points of India’s economy — has been Information Technology
(IT), where 1,40,000 skilled techies could not be recruited in 2018 despite the employers’ efforts
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(a high proportion of the 5,00,000 job offers that had been made that year). Indeed, the CMIE
reports show that the more educated Indians are, the more likely they are to remain unemployed
too. The last PLFS for 2018 revealed that 33 per cent of the formally trained 15-29-year-olds
were jobless.
The Modi government assumed that this problem crystallised because the trained youth were
not well-trained enough. Hence, the “Skill India” programme, whose objective was “to train a
minimum of 300 million skilled people by the year 2022”. In 2014, Modi created a Ministry of Skill
Development and Entrepreneurship to harmonise training processes, assessments, certification
and outcomes and, crucially, to develop Industrial Training Institutions (ITIs) — the building
blocks of this endeavour. The Executive Committee monitoring the mission gathered
representatives of nine ministries, as vocational training was seen at the intersection of different
domains, including agriculture, information technology, human resources development.
Modi, who chaired the governing council and announced the setting up of 1,500 new ITIs and
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50,000 Skill Development Centres, committed himself to “Skill India” in eloquent terms: “Today,
the world and India need a skilled workforce. I also want to create a pool of young people who
are able to create jobs. My brothers and sisters, having taken a resolve to enhance the skill
development at a highly rapid pace, I want to accomplish this”.
Clearly, Modi saw “Skill India” as a plan complementary to another flagship scheme he launched
in 2014 — “Make in India”, a policy inviting foreign investors, and, as a way to train
entrepreneurs (as evident from the name of the ministry in charge of “Skill India”).
Besides the creation of more courses and institutes of vocational training, the main innovation of
“Skill India” consisted in integrating “vocational training classes linked to the local economy” with
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formal education from class nine onwards in at least 25 per cent of the schools and higher
education bodies. A very important aspect of Skill India was its PPP character: Companies were
requested to “earmark 2 per cent of their payroll bill (including for contract labour) for skill
development initiatives”. In parallel, the ITIs were supposed to “tie up with industry in the
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relevant trades to improve placement opportunities for candidates”.
One of the most innovative dimensions of Skill India was the Pradhan Mantri Kaushal Vikas
Yojana under which the training fees was paid by the government. The PMKVY’s budget was
approximately Rs 12,000 crore for four years (2016-2020). Its main tool was the “short-term
training”, which could last between 150 and 300 hours, and which included some placement
S.
assistance by Training Partners upon successful completion of their assessment by the
candidates.
While the intentions of Skill India are commendable, the scheme falls short of the initial
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objectives. The target of this scheme was to reach out to 300 million young people by 2022, but
only a mere 25 million had been trained under this scheme by the end of 2018. Partly due to
mismanagement and partly due to the fact that funds available for “Skill India” were either not
spent sufficiently quickly — because of a lack of candidates — or too little was spent. The
money problem is evident from the graph and from the PLF Survey mentioned above which
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showed that, in 2018, only 16 per cent of the youth who had received “formal training were
funded by the government”.
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But the real problem lies elsewhere: Those who have been trained don’t find jobs. The number
of those who have benefited from the Skill India scheme has increased, from 3,50,000 in 2016-
17 to 1.6 million in 2017-18, but the percentage of those who could find a job upon completion of
their training has dropped from more than 50 per cent to 30 per cent. If one focuses only on the
PMKVY, the results are even more disappointing. Responding to a question in the Rajya Sabha
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in March 2018, the then minister for skill development, Dharmendra Pradhan, told the House
that in the framework of this programme 4.13 million people had been trained, but only 6,15,000
(15 per cent) of them got a job.
These limitations may be explained from three points of view.
First, the training was not good enough – and this is why the employability rate remains very
low. Second, while the government expected that some of the PMKVY-trainees would create
their own enterprise, only 24 per cent of the 6,15,000 mentioned above started their business.
And out of them, only 10,000 applied for MUDRA loans —a drop in the ocean. Third, and more
importantly, India’s joblessness issue is not only a skills problem, it is representative of the lack
of appetite of industrialists and SMEs for recruiting. The decline of the investment rate is a clear
indication that the demand is weak —hence huge idle capacities — and investing is not an easy
thing to do anyway because of the limited access to credit that the accumulation of Non-
Performing Assets has generated.
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Skill India will not be enough to create jobs if the slowdown continues. But in the long run, Skill
India will also not be enough if government expenditures in education remain low and if,
therefore, the ground isn’t prepared for proper training. In fact, under the Modi government,
allocation for school education has declined from 2.81 per cent of the budget in 2013-14 to 2.05
per cent in 2018-19. It was above 3 per cent during UPA II.
Jaffrelot is senior research fellow at CERI-Sciences Po/CNRS, Paris, professor of Indian Politics
and Sociology at King’s India Institute, London; Jumle is an associate at Ikigai Law, New Delhi
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Source : www.hindustantimes.com Date : 2019-09-08
STATE OF THE ECONOMY EXPLAINED IN 10 CHARTS

Sep 08, 2019-Sunday

-°C
Humidity
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Metro cities - Delhi, Mumbai, Chennai, Kolkata
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Other cities - Noida, Gurgaon, Bengaluru, Hyderabad, Bhopal , Chandigarh , Dehradun, Indore,
Jaipur, Lucknow, Patna, Ranchi
Powered by
I. How bad is the slowdown?

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1. India’s gross domestic product (GDP) growth slowed to 5% in the quarter ended June. This is
the slowest pace or growth since March 2013, when GDP expanded 4.7%. This is also not a
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one-off deceleration of the growth rate. GDP growth has been declining for five consecutive
quarters now. This is only the first time since 1997 that we have had five consecutive quarters of
declining GDP growth. If September quarter numbers turn out to be lower than 5%, we’d have
six consecutive quarters of decline for the first time.
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2. The current growth slowdown poses an additional challenge, especially for the government.
This is because of a collapse in nominal GDP growth, which was just 8% in the June quarter.
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Nominal GDP figures are not adjusted for inflation, and therefore are not very useful in making
inter-temporal comparisons. But they matter a lot for tax collections. Tax projections made in the
budget are based on projected nominal GDP growth for the year. This year’s budget had a
projected nominal GDP growth of 12%. An 8% growth rate can lead to a serious shortfall in
taxes.
3. Private consumption has been the driving force behind India’s economic growth for a long
time. There are signs that it is stalling. Private Final Consumption Expenditure (PFCE) growth
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was just 3% in the June quarter. Between March 2018 and June 2019, GDP growth has come
down by 3.1 percentage points. PFCE growth has fallen at a much faster pace, by 5.6
percentage points.
II. How did we get here?
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4. One of the biggest factors behind the current slowdown in consumption is the squeeze on the
rural sector. A low inflation regime, driven mainly by falling food prices, had put the squeeze on
farm incomes. This, in turn, has led to a squeeze on rural wages. This is bound to have
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adversely affected rural demand, which must have created headwinds for private consumption.
While there has been some revival in food inflation recently, it continues to be very low in rural
areas.
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5. Even in urban centres, consumer sentiment had been worsening for a long time. The Reserve
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Bank of IndiaI’s Consumer Confidence Surveys (CCS) show a weakening of perception about
the general economic situation as well as spending on non-essential items.
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6. A slowdown in consumption demand, which has been accompanied by growing uncertainty

about export prospects due to trade wars, has made investors jittery. This probably explains why
repeated attempts to boost investment by interest rate reductions by the RBI have not worked.
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The central bank has been downgrading its growth forecasts with every rate cut.
III. What are the constraints in fighting the problem?
7. Given the fact that the monetary policy route of lowering interest rates has not helped in
reviving the economy, demand for a fiscal stimulus is increasing. However, this will not be an
easy thing to do. If the nominal growth rate is significantly short of the projected rate of 12%, the
government might face a significant shortfall in taxes and meeting even existing commitments
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will be difficult. Even last year, the government had a shortfall of Rs 1 lakh crore in Goods and
Services Tax (GST) collections.
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8. While there is a broad agreement about the current slowdown in the Indian economy, we still
do not have clarity about what exactly has happened to the economy in the last few years.
Policies such as demonetisation and GST had a disruptive impact on the economy. But we do
not know how much of this disruption was temporary in nature. For example, the 2017-18
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Periodic Labour Force Survey (PLFS) showed unemployment to be at a four-decade high.
Consumption data for this period has not been released yet. These statistics are critical in
ascertaining how the Indian economy has changed in the recent past and what needs to be
done to revive economic activity.
S.
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9. The global economy is confronting recession concerns. The worries of global growth slowing
down have been compounded by a reversal of the yield curve in the US, with long-term bond
yields falling below short-term yields. Although bond yields are a financial market phenomenon,
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long-term yields falling behind short-term values is seen as a precursor to a slowdown.

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IV. What is at risk?
The Indian economy has not been on a sustained high-growth path after the 2008 economic
crisis. At a time when the global economy seems to be headed towards bigger uncertainties and
all major economies are facing deceleration, the big question is whether India can return to a
high-growth path. This will be the biggest determinant of whether or not we can bridge our per
capita income gap with countries such as China.
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First Published: Sep 08, 2019 08:13 IST
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PANEL SET UP TO IDENTIFY INFRA PROJECTS FOR

RS. 100 LAKH-CRORE INVESTMENT
To achieve $5 trillion in GDP by FY25, India needs to spend $1.4 trillion on

infrastructure.Arunangsu Roy Chowdhury
The government on Saturday said it had constituted a high-level task force to identify
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infrastructure projects for Rs. 100 lakh-crore worth investment to be made by 2024-25 as India
aims to become a $5-trillion economy.
The task force, headed by the Economic Affairs Secretary, will draw up a ‘national infrastructure
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pipeline’ of Rs. 100 lakh-crore, the Finance Ministry said in a statement.
This would include greenfield and brownfield projects costing above Rs. 100 crore each.
The task force will comprise secretaries from different Ministries, senior officials and the NITI
Aayog CEO. It will identify technically feasible and financially/economically viable infrastructure
projects that can be initiated in 2019-20.
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List of projects
Further, it has been asked to list the projects that can be included in the pipeline for each of the
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remaining five years between FY21 and FY25.
The task force, constituted by Finance Minister Nirmala Sitharaman, will submit its report on the
pipeline for 2019-20 by October 31, 2019 and on the indicative pipeline for 2021-25 by
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December-end, the Ministry said.
To achieve the target of scaling India’s GDP to $5 trillion by 2024-25, the country needs to
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spend about $1.4 trillion (Rs. 100 lakh crore) from the fiscal 2019-20 to 2024-25 on
infrastructure, it added.
In the past decade (fiscal 2008-17), India invested about $1.1 trillion in infrastructure.
Boosting investments
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The challenge is to step up annual infrastructure investment so that lack of infrastructure does
not become a binding constraint on the growth of the Indian economy, the Ministry said.
Prime Minister Narendra Modi, in his Independence Day speech, had said that Rs. 100 lakh
crore would be invested in infrastructure over the next five years.
These will include social and economic infrastructure projects.
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CENTRE ASKS STATES TO IDENTIFY ACCIDENT-

PRONE SPOTS
The Ministry of Road Transport and Highways has issued new guidelines to State governments
for identifying accident ‘black spots’ on national highways and rectifying them and has urged
them to give “special attention in a strictly time-bound manner” to the issue.
m
The guidelines detail the process for inspecting the spots, framing a proposal and obtaining
sanctions for rectifying them, suggest a timeline for submitting an inspection report and
completing the civil works.
co
“Based on site inspection, preliminary survey etc., the type of interventions required may be
identified and accordingly the action for taking corrective measures i.e., short-term measures
and long-term measures may be initiated at the regional office level,” states the letter from the
Ministry’s Superintending Engineer Varun Aggarwal to Chief Secretaries, Prinicipal Secretaries,
Engineers-in-chief of PWD, Director General of Border Road and the Managing Director of the
National Highways and Infrastructure Development Corporation. The letter was sent on August
26.
S.
A black spot is defined as a stretch not more than 500m in length where five accidents have
taken place or where ten fatalities have happened in the last three years.
IA
Once the correction has been made, authorities will also monitor whether accidents have
declined.
Recently, Minister for Road Transport and Highways Nitin Gadkari said the government had
k
prepared a Rs. 14,000-crore plan to identify black spots. The Ministry has reached out to the
World Bank for funds after approval from the Ministry of Finance.
ac

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Page 34
SWISS BANK DATA: 1ST TRANCHE MOSTLY ABOUT

CLOSED ACCOUNTS, ENOUGH DETAILS TO IDENTIFY
HIDDEN WEALTH
Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation &
Black Money incl. Government Budgeting
New Delhi/Berne: As India prepares to analyse troves of Swiss banking details of its citizens, a
m
large portion of the first tranche of data being shared by Switzerland under an automatic
information exchange framework this month relates to accounts that have been already closed
due to fear of action, bankers and regulatory officials said.
However, the data that was prepared by all Switzerland-based banks under a direction from the
co
Swiss government for despatching further to the Indian authorities provides full details of the
entire flow of funds to and from all the accounts that were active even for a single day in the year
2018, bankers said.
The data can be quite useful for establishing a strong prosecution case against those who had
S.
any unaccounted wealth in those accounts, as it provides entire details of deposits and transfers
as well as of all earnings including through investments in securities and other asset classes,
they said.
On condition of anonymity, several bankers and regulatory officials said the details being shared
IA
relate mostly to businessmen, including non-resident Indians now settled in several South-East
Asian countries as well as in the US, the UK and even some African and South American
countries.
Bankers admitted there was a huge outflow from these accounts in the last few years after a
k
global crackdown began against the so-called high-secrecy walls associated with the Swiss
banks and several of these accounts got closed.
ac
However, the Automatic Exchange of Information (AEOI) mechanism provides that details are
being shared with India even for those accounts that were closed in 2018.
Besides, there are at least 100 cases of older accounts held by Indians, which might have been
closed before 2018, for which Switzerland is in the process of sharing details with India under an
cr
earlier framework of mutual administrative assistance as Indian authorities had provided prima
facie evidence of tax-related wrongdoings by those account holders.
These relate to people engaged in businesses like auto components, chemicals, textiles, real
estate, diamond and jewellery, steel products etc.
Regulatory and government officials said the special focus of the analysis of the Swiss bank
data could be on identifying people with political links.
A Swiss delegation was in India late last month before the first set of details could get shared
under the new automatic information exchange, while the two sides also discussed possible
steps to expedite execution of tax information sharing requests made by India in specific cases
and enhancing of collaboration in offshore tax compliance matters.
The AEOI is being seen as a major boost in India's fight against suspected black money stashed
Page 35
abroad.
The details that Switzerland will be sharing with Indian tax authorities under this framework
would include account numbers, credit balance and all kinds of financial income for each Indian
client of every Swiss financial institution.
The first despatch this month would be followed by further despatches on a yearly basis,
according to Switzerland's Federal Department of Finance (FDF).
However, the details received by India would be governed by confidentiality provisions.
m
Explaining the AEOI with India, the FDF said Switzerland, as a global wealth management hub,
is committed to contributing to the integrity of the international financial system and to a level
playing field.
co
"Switzerland applies the international transparency standards and therefore actively supports
India in its fight against tax fraud and evasion," it said.
It is feared many Indians might have closed their accounts after a global crackdown on black
money led to Switzerland buckling under pressure to open its banking sector for scrutiny to clear
the long-held perception of Swiss banks being safe haven for undisclosed funds.
S.
However, the AEOI would only relate to accounts that are officially in the name of Indian
residents and they might include those used for business and other genuine purposes.
IA
If an Indian has a bank account in Switzerland, the bank would now disclose his or her data to
the Swiss authorities, which would automatically forward the information to the Indian tax
authorities and any necessary action can be taken thereafter.
The information would be grouped into three broad categories of identification, account and
k
financial details.
The identity details would be name, address, date of birth and tax identification number, while
ac
account information would include the account number as also name and address of the
financial institution.
The financial information would include interest income, dividends and other financial revenue,
receipts from certain insurance policies, credit balances and proceeds from the sale of financial
cr
assets.
Switzerland agreed to AEOI with India after months-long process, including review of necessary
legal framework in India on data protection and confidentiality.
Switzerland's State Secretariat for International Finance (SIF) has said India shared information
with 58 partner countries during 2018 and it has "reasonable" confidentiality and data security
laws. It found no "well-founded negative feedback" from other countries, individuals or
companies to indicate that India has any relevant shortcomings in these laws.
The SIF also found India to have a network of over 100 partner countries with mutual assistance
treaties. It also did not come across any documented findings of serious human rights violations
due to taxation or data exchange.
Also, the Swiss Embassy in Delhi submitted that matters like the AEOI and the cooperation from
Page 36
Switzerland were being talked about positively in India in connection with the country's fight
against tax evasion and it was being seen as a significant tool to handle the black money
problem. P
New Delhi/Berne: As India prepares to analyse troves of Swiss banking details of its citizens, a
large portion of the first tranche of data being shared by Switzerland under an automatic
information exchange framework this month relates to accounts that have been already closed
due to fear of action, bankers and regulatory officials said.
However, the data that was prepared by all Switzerland-based banks under a direction from the
Swiss government for despatching further to the Indian authorities provides full details of the
m
entire flow of funds to and from all the accounts that were active even for a single day in the year
2018, bankers said.
The data can be quite useful for establishing a strong prosecution case against those who had
any unaccounted wealth in those accounts, as it provides entire details of deposits and transfers
co
as well as of all earnings including through investments in securities and other asset classes,
they said.
On condition of anonymity, several bankers and regulatory officials said the details being shared
relate mostly to businessmen, including non-resident Indians now settled in several South-East
Asian countries as well as in the US, the UK and even some African and South American
countries.
S.
Bankers admitted there was a huge outflow from these accounts in the last few years after a
global crackdown began against the so-called high-secrecy walls associated with the Swiss
IA
banks and several of these accounts got closed.
However, the Automatic Exchange of Information (AEOI) mechanism provides that details are
being shared with India even for those accounts that were closed in 2018.
k
Besides, there are at least 100 cases of older accounts held by Indians, which might have been
closed before 2018, for which Switzerland is in the process of sharing details with India under an
earlier framework of mutual administrative assistance as Indian authorities had provided prima
ac
facie evidence of tax-related wrongdoings by those account holders.
These relate to people engaged in businesses like auto components, chemicals, textiles, real
estate, diamond and jewellery, steel products etc.
cr
Regulatory and government officials said the special focus of the analysis of the Swiss bank
data could be on identifying people with political links.
A Swiss delegation was in India late last month before the first set of details could get shared
under the new automatic information exchange, while the two sides also discussed possible
steps to expedite execution of tax information sharing requests made by India in specific cases
and enhancing of collaboration in offshore tax compliance matters.
The AEOI is being seen as a major boost in India's fight against suspected black money stashed
abroad.
The details that Switzerland will be sharing with Indian tax authorities under this framework
would include account numbers, credit balance and all kinds of financial income for each Indian
client of every Swiss financial institution.
Page 37
The first despatch this month would be followed by further despatches on a yearly basis,
according to Switzerland's Federal Department of Finance (FDF).
However, the details received by India would be governed by confidentiality provisions.
Explaining the AEOI with India, the FDF said Switzerland, as a global wealth management hub,
is committed to contributing to the integrity of the international financial system and to a level
playing field.
"Switzerland applies the international transparency standards and therefore actively supports
India in its fight against tax fraud and evasion," it said.
m
It is feared many Indians might have closed their accounts after a global crackdown on black
money led to Switzerland buckling under pressure to open its banking sector for scrutiny to clear
the long-held perception of Swiss banks being safe haven for undisclosed funds.
co
However, the AEOI would only relate to accounts that are officially in the name of Indian
residents and they might include those used for business and other genuine purposes.
If an Indian has a bank account in Switzerland, the bank would now disclose his or her data to
the Swiss authorities, which would automatically forward the information to the Indian tax
S.
authorities and any necessary action can be taken thereafter.
The information would be grouped into three broad categories of identification, account and
financial details.
IA
The identity details would be name, address, date of birth and tax identification number, while
account information would include the account number as also name and address of the
financial institution.
k
The financial information would include interest income, dividends and other financial revenue,
receipts from certain insurance policies, credit balances and proceeds from the sale of financial
assets.
ac
Switzerland agreed to AEOI with India after months-long process, including review of necessary
legal framework in India on data protection and confidentiality.
Switzerland's State Secretariat for International Finance (SIF) has said India shared information
cr
with 58 partner countries during 2018 and it has "reasonable" confidentiality and data security
laws. It found no "well-founded negative feedback" from other countries, individuals or
companies to indicate that India has any relevant shortcomings in these laws.
The SIF also found India to have a network of over 100 partner countries with mutual assistance
treaties. It also did not come across any documented findings of serious human rights violations
due to taxation or data exchange.
Also, the Swiss Embassy in Delhi submitted that matters like the AEOI and the cooperation from
Switzerland were being talked about positively in India in connection with the country's fight
against tax evasion and it was being seen as a significant tool to handle the black money
problem. P
END
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START-UP SCENARIO IS NOT ROSY: REPORT

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Industry & Services Sector
incl. MSMEs and PSUs
With over 7,000 start-ups, the Delhi-NCR area now has the largest number of active start-ups in
the country, pipping cities like Bengaluru, Chennai and Mumbai, according to a report by TiE
Delhi-NCR and consulting firm Zinnov released on Tuesday.
As per the report ‘Turbocharging Delhi-NCR Start-up Ecosystem’, Delhi-NCR accounted for 23%
m
of start-ups with a cumulative value of $50 billion. The National Capital Region (NCR) includes
cities like Gurugram, Noida and Faridabad.
“NCR is home to 10 unicorns, with at least 1 new unicorn emerging each year since 2013,” the
co
study said. While 7,039 start-ups were founded in Delhi-NCR between 2009 and 2019, the
number stood at 5,234 for Bengaluru, followed by 3,829 in Mumbai, 1940 in Hyderabad, 1593 in
Pune and 1,520 in Chennai.
Interestingly, Delhi-NCR also houses three of the four most valuable listed internet companies in
India, namely Infoedge, Makemytrip and Indiamart. The only one not to be headquartered in
Delhi NCR is Justdial.
S.
The report noted that the region has a healthy mix of start-ups across sectors with the maximum
number of over 2650 start-ups in the consumer product and services space, followed by
IA
enterprise products (1,767 start-ups), e-commerce (1,690), health (815) and edtech (763).
“What’s encouraging about the ecosystem in Delhi-NCR is that we actually have a very broad
varied mix...unlike other regions, the 10 unicorns that we have in Delhi-NCR, they’re not from
one particular sector, they are from fin-tech, e-commerce, logistics, food, energy and so on,” Mr.
Anandan said.
k
Within Delhi-NCR, Delhi accounted for 4,491 start-ups, Gurugram 1,544 and Noida 1,004,
according to the report by TiE Delhi-NCR and consulting firm Zinnov released on Tuesday.
ac
However, not everything is good with the start-up ecosystem in the country. The report pointed
out that the pace of new start-ups being founded has slowed over the past two years across
India. The trend is also reflected in the new start-ups coming up in Delhi NCR region.
cr
From a record 6,679 start-ups founded across India in 2015, the pace slowed to 5875 start-ups
in 2016; 3,478 in 2017 and 2036 in 2018. In the first half of 2019, the number stood at 800.

Page 40
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Page 41
FACTORING IN SAFETY: ON STRONGER WORKER

SAFETY LAW
Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Industry & Services Sector
incl. MSMEs and PSUs
India’s record in promoting occupational and industrial safety remains weak even with years of
robust economic growth. Making work environments safer is a low priority, although the
productivity benefits of such investments have always been clear. The consequences are
m
frequently seen in the form of a large number of fatalities and injuries, but in a market that has a
steady supply of labour, policymakers tend to ignore the wider impact of such losses. It will be
no surprise, therefore, if the deaths of four people, including a senior officer, in a fire at the Oil
and Natural Gas Corporation gas facility in Navi Mumbai, or the tragedy that killed nearly two
co
dozen people at a firecracker factory in Batala, Punjab are quickly forgotten. Such incidents
make it imperative that the Central government abandon its reductionist approach to the
challenge, and engage in serious reform. There is not much evidence, however, of progressive
moves. The Occupational Safety, Health and Working Conditions Code, 2019, introduced in the
Lok Sabha in July to combine 13 existing laws relating to mines, factories, dock workers,
building and construction, transport workers, inter-State migrant labour and so on, pays little
S.
attention to the sector-specific requirements of workers. One of its major shortcomings is that
formation of safety committees and appointment of safety officers, the latter in the case of
establishments with 500 workers, is left to the discretion of State governments. Evidently, the
narrow stipulation on safety officers confines it to a small fraction of industries. On the other
hand, the Factories Act currently mandates appointment of a bipartite committee in units that
IA
employ hazardous processes or substances, with exemptions being the exception. This
provision clearly requires retention in the new Code.
A safe work environment is a basic right, and India’s recent decades of high growth should have
ushered in a framework of guarantees. Unfortunately, successive governments have not felt it
k
necessary to ratify many fundamental conventions of the International Labour Organization (ILO)
covering organised and unorganised sector workers’ safety, including the Occupational Safety
ac
and Health Convention, 1981. Those ILO instruments cover several areas of activity that the
NDA government’s occupational safety Code now seeks to amalgamate, but without the
systemic reform that is necessary to empower workers. It is essential, therefore, that the new
Code go back to the drawing board for careful scrutiny by experienced parliamentarians, aided
by fresh inputs from employees, employers and experts. Industries that use hazardous
processes and chemicals deserve particular attention, and the Code must have clear definitions,
cr
specifying limits of exposure for workers. Compromising on safety can lead to extreme
consequences that go beyond factories, and leave something that is etched in the nation’s
memory as in the case of the Bhopal gas disaster.
Boris Johnson seems bent on delivering a no-deal Brexit
Page 42
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LET’S TALK SAFETY


All Rights Reserved
The new Motor Vehicles Act, which came into effect on September 1, has provoked controversy.
The overarching aim of the new law — to bring down the number of road accidents in the
m
country — has wide support. But the penalties stipulated under the Act have attracted criticism.
Gujarat, where the BJP is in power, has slashed the fines for 15 violations under the Act,
reducing the quantum of penalties by 50 to 70 per cent. Two other BJP-run state governments,
Uttarakhand and Karnataka, have also expressed reservations about the new law. Four
Opposition-helmed states have put the implementation of the Act on hold. Union Road Transport
co
and Highways Minister Nitin Gadkari has responded by saying “that the states are well within
their rights to bring down the fines”. He has, however, argued that stringent penalties are
necessary. Because, as he said, “people’s lives must be saved”.
Given that 1,50,000 people die in road accidents in the country — 10 per cent of all such
fatalities worldwide — the necessity of a road safety law cannot be overstated. The Motor
S.
Vehicles Act stipulates a 10-fold increase in fines for road safety traffic violations, driving under
the influence of alcohol, not using seat belts and driving without seat belts. Its litmus test will lie
in effective implementation by enforcement agencies. Punitive measures, however stringent, will
not achieve much without adequate number of traffic police personnel and road-safety devices
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like traffic lights. Moreover, unless law enforcement officials haul up wrongdoers without
succumbing to old habits like bribery, the purpose of the new law will be defeated. The Motor
Vehicles Act does recognise these imperatives. “The Central Government shall make rules for
the electronic monitoring and enforcement of road safety including speed cameras, closed-
circuit television cameras, speed guns, body wearable cameras and such other technology,” it
k
says. It also asks state governments to ensure “electronic monitoring on national and state
highways”.
ac
The critics of the amended law haven’t disputed its rationale. For instance, the Odisha
government, which has relaxed the implementation of the law for three months, has asked traffic
regulators “to counsel and handhold the public”. Rajasthan, which has partially implemented the
Act, has decided to take steps to “self-motivate people”. In the context of road safety, the self-
motivation versus deterrence debate is not new. It’s heartening that the new Motor Vehicles Act
cr
has rekindled this discussion. This conversation must be joined.
END
Page 44
CAPITAL FREEDOM
Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Capital Market & SEBI

All Rights Reserved
The writer is a Senior Research Fellow at Shardul Amarchand Mangaldas & Co
m
co
S.
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Former Finance Minister Arun Jaitley had ushered in a

critical, yet often overlooked, reform — the Depository Receipts Scheme, 2014. On paper, this
ac
scheme generously liberalised the overseas listing regime for Indian corporates. But, it was
never fully operationalised. This was a major setback for Indian corporates. From 2013 to 2018,
only one Indian company raised $185 million on the New York Stock Exchange.
Fortunately, this situation may soon change. Finance minister Nirmala Sitharaman recently
cr
unveiled a set of measures to boost economic growth. This includes the operationalisation of the
scheme by the Securities and Exchange Board of India (SEBI). Indian companies use
depository receipts (DRs) to access international capital markets. DR issuance involves two
steps — Indian securities are deposited with a custodian in India; against such deposited
securities, DRs are issued by a depository bank in a foreign jurisdiction. Consequently, DRs are
foreign securities which are traded and settled off-shore. This arrangement has three major
advantages for Indian corporates.
First, DRs help Indian companies overcome the home bias problem. Home bias refers to the
tendency of foreign investors to disproportionately allocate their funds to their domestic
jurisdiction. Consequently, very few Indian companies are able to attract foreign investment.
DRs avoid this home bias since foreign investors invest in DRs just like any other security in
their home jurisdiction.
Second, DRs unlock valuation potential of Indian companies in innovative sectors like
Page 45
technology and e-commerce. Valuation of a business depends on the market analysts’ exposure
to comparable businesses. Since international capital markets are more likely to have
comparable businesses in innovative sectors, the analysts in those markets are better equipped
to unlock the valuation potential of these Indian companies. In the absence of a functional DR
route, Indian businesses are forced to use an overseas holding structure to list abroad.
Third, DRs offer various commercial advantages to Indian companies. An Indian company
issuing DRs submits itself to the corporate governance standards of that foreign jurisdiction. This
“legal bonding” helps gain trust of local customers, government and earn brand recognition in
that foreign market.
m
India’s tryst with DRs began with the first scheme in 1993. Liberalisation gave a major boost to
export-oriented services sector companies. Given their high growth potential, they could easily
raise equity capital. International financial centres offered sophisticated analysts who could
unlock their valuation potential. Their marquee clients were also in developed countries like
co
USA. All these factors shaped the 1993 scheme. From 1993 to 2013, over 330 Indian
companies used DRs to access international capital markets.
In 2013, the Indian Finance Ministry set up the Sahoo Committee to review the 1993 scheme.
The Committee recommended liberalising the 1993 scheme. Jaitley accepted the
recommendation and announced a liberalised DR scheme in his maiden budget speech in July
2014.
S.
This scheme recognised the principle of competitive neutrality. It allowed DRs to be issued on
any Indian security in which a non-resident could invest under the Foreign Exchange
IA
Management Act, 1999 (FEMA). The scheme also allowed any Indian company, listed or
unlisted, private or public, to sponsor DR programmes. Indian entrepreneurs were given full
freedom to raise capital in India or abroad.
The scheme also addressed the risks of market abuse. It allowed DRs to be issued only in
k
permissible jurisdictions which are members of Financial Action Task force (FATF) and
International Organisation of Securities Commissions (IOSCO). Further, it clarified that market
abuse through DRs having any impact in India would be market abuse under Indian laws.
ac
The RBI promptly amended the FEMA regulations to operationalise the scheme. However, SEBI
was concerned with beneficial ownership. Indian law requires every beneficial owner of equity
shares holding 10 per cent or more of the ultimate beneficial interest in a company to file a
declaration with that company. The challenge was to ensure compliance by foreign holders of
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DRs on underlying Indian equity shares.
This issue was finally laid to rest by SEBI’s Expert Committee in 2018. It observed that the
threshold prescribed for beneficial ownership declaration under Indian law is similar to that
followed in the permissible jurisdictions for DR issuance. It concluded that beneficial ownership
requirements could be met by the information provided by DR investors in the manner
prescribed under the laws of the permissible jurisdiction.
With this, the path to operationalising the scheme is now absolutely clear. Hopefully, SEBI will
take immediate steps to fulfil one of the few incomplete legacies of Jaitley’s tenure.
The writer is a Senior Research Fellow at Shardul Amarchand Mangaldas & Co

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NPCI SLASHES MDR FOR DEBIT CARDS

Mumbai: National Payments Corporation of India has slashed the merchant discount rates (
MDR), or the fees paid by merchants to banks, in a bid to encourage small and big retailers
across the country to set up acceptance infrastructure such as swipe machines and QR codes to
accept digital payments.
m
As per the latest notification, MDR has been revised to 0.60% for transaction above Rs. 2,000
with a maximum cap of Rs 150 per transaction. Presently, this is capped at 0.90% for
transaction above Rs. 2,000 with higher cap of Rs 1,000 per transaction. The new MDR rates
will come into effect from 20th October 2019.
co
Moreover, the card based QR transactions (Bharat QR) MDR also has been reduced to 0.50%
with a maximum cap of Rs 150 per transaction. The MDR rationalisation would be applicable on
all debit cards being processed across Point of Sale (PoS) devices, eCom and BharatQR.
“Significant reduction in MDR will encourage the use of debit cards. With the reduction and
capping of MDR merchants will now be encouraged to accept debit cards, which up till now they
S.
were averse due to higher MDR structure,” said Dilip Asbe, CEO, NPCI.
NPCI, last month, had waived off MDR on small ticket transactions made using UPI scan and
pay option. While the previous rationalisation move was aimed at facilitating adoption of digital
IA
payments for small ticket transactions at grocery shops, local kiranas and chemists, the latest
slash in MDR will incentivise retailers processing large ticket payments through debit cards.
“Rationalisation of MDR on Rupay debit card transactions by NPCI as announced today is

expected to bring the increase in acceptance infrastructure throughout the nation,” said Vishwas
k
Patel, chairman Payment Council of India (PCI). “The move of controlled and reasonable rates
will also spur the healthy competition in the industry ultimately lowering the cost to the maximum
efficient levels.
ac
Mumbai: National Payments Corporation of India has slashed the merchant discount rates (
MDR), or the fees paid by merchants to banks, in a bid to encourage small and big retailers
across the country to set up acceptance infrastructure such as swipe machines and QR codes to
accept digital payments.
cr
As per the latest notification, MDR has been revised to 0.60% for transaction above Rs. 2,000
with a maximum cap of Rs 150 per transaction. Presently, this is capped at 0.90% for
transaction above Rs. 2,000 with higher cap of Rs 1,000 per transaction. The new MDR rates
will come into effect from 20th October 2019.
Moreover, the card based QR transactions (Bharat QR) MDR also has been reduced to 0.50%
with a maximum cap of Rs 150 per transaction. The MDR rationalisation would be applicable on
all debit cards being processed across Point of Sale (PoS) devices, eCom and BharatQR.
“Significant reduction in MDR will encourage the use of debit cards. With the reduction and
capping of MDR merchants will now be encouraged to accept debit cards, which up till now they
were averse due to higher MDR structure,” said Dilip Asbe, CEO, NPCI.
NPCI, last month, had waived off MDR on small ticket transactions made using UPI scan and
pay option. While the previous rationalisation move was aimed at facilitating adoption of digital
Page 48
payments for small ticket transactions at grocery shops, local kiranas and chemists, the latest
slash in MDR will incentivise retailers processing large ticket payments through debit cards.
“Rationalisation of MDR on Rupay debit card transactions by NPCI as announced today is

expected to bring the increase in acceptance infrastructure throughout the nation,” said Vishwas
Patel, chairman Payment Council of India (PCI). “The move of controlled and reasonable rates
will also spur the healthy competition in the industry ultimately lowering the cost to the maximum
efficient levels.
END
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SPEND TO GROW
Relevant for: Indian Economy | Topic: Issues relating to Mobilization of resources incl. Savings, Borrowings &
External Resources

All Rights Reserved
Srivastava is chief policy advisor EY India and former Director, Madras School of Economics.
m
From a level of 8.1 per cent in the fourth quarter of 2017-18, quarterly GDP growth fell to 5 per
cent in the first quarter of 2019-20, a fall of 3.1 percentage points. The slowdown of the Indian
economy is no longer in dispute. Thankfully, the government has come out of denial mode. The
critical question is: What should be done to reverse the process? Is the downturn cyclical or
co
structural? Any downturn that happens because of a weakening of demand is cyclical. On the
other hand, if there are fundamental weaknesses in the structure of the economy, these need to
be removed to sustain high growth. Successful implementation of the structural reforms in 1991
pushed India’s potential growth rate to a high level. What we are witnessing in the Indian
economy is a combination of the two. Several sectors such as automobiles and housing are
facing a sharp weakening of demand. And there has been a significant fall in the savings and
S.
investment rate. Within household savings, the proportion of savings in financial assets has
sharply declined. Apart from these, a significant growth-stifling factor is the weakness of the
banking and non-bank finance sectors due to both cyclical and structural reasons.
IA
The central government and the RBI have responded with a number of policy initiatives. The RBI
has reduced the repo rate by 110 basis points since February 2019, reducing it from 6.5 per cent
to 5.4 per cent. The central government has also undertaken a number of steps post the 2019-
20 budget which include — withdrawal of enhanced surcharge on foreign portfolio investors, a
public sector bank consolidation plan, additional depreciation rates for vehicle manufacturers,
k
additional credit support for housing finance companies and recapitalisation of public sector
banks. The slowdown appears to be continuing in spite of these measures.
ac
The saving rate has fallen from 34.6 per cent in 2011-12 to 30.5 per cent in 2017-18. The
investment rate, which is dependent on the saving rate supplemented by net capital inflows, has
also fallen from 39 per cent of GDP in 2011-12 to 32.3 per cent in 2017-18. This persistent
downward trend of the saving and investment rates has led to a fall in India’s potential growth
rate to below 7 per cent. Any additional fall below the potential growth rate may be due to
cr
cyclical factors.
The monetary authorities have reduced the policy rate but banks have not followed suit due to
structural problems against the background of rising non-performing assets. As one
commentator on the central banking system said several decades ago, “The central banking
system is equipped with efficient brakes but the accelerator is uncertain.” While the RBI can play
a supportive role in expanding liquidity, we must understand the basic limitations. Banks must
also be careful while expanding credit. Inappropriate lending can land them in trouble later.
Recapitalisation of public sector banks does not “infuse” fresh funds. The mechanism adopted
only enlarges their freedom for lending. The bank consolidation plan could have been introduced
at a more favourable time.
In the present context of a declining investment rate and declining demand, a good solution will
be to enhance government expenditure, especially capital expenditure. On the scope for
increased spending, the bonanza from the RBI will go only to meet the shortfall in revenues. A
Page 50
larger disinvestment may help.
Other changes in the fiscal sector during recent years may also have had a structural impact.
For example, GST has changed the structure of indirect taxes, affecting the balance between
goods and services, formal and informal sectors, and central and state tax revenues compared
to the pre-GST period. Since its implementation, the compliance cost has risen considerably for
the assesses, particularly the small and medium enterprises. The buoyancy of centre’s indirect
taxes in the post-GST period has been at low levels — 0.5 in 2017-18, 0.2 in 2018-19 and is
budgeted to be 0.6 in 2019-20.
The decline in price level in recent years partly because of the new monetary policy framework
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has affected the nominal GDP growth rate and growth rate of tax revenues. The implicit price
deflator has fallen more than 3 percentage points compared to the average of 2012-13 to 2013-
14 and 2017-18 to 2018-19. The growth in central tax revenues fell by 3.5 percentage points and
that in the states’ own tax revenues by 4.7 percentage points during the same periods. These
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changes have left limited space for augmenting capital expenditure. The Centre’s capital
expenditure is currently languishing at 1.6 per cent of GDP.
Countercyclical policy is primarily the responsibility of the Centre. Given the revenue trends, it
may not be in a position to increase its capital expenditure relative to GDP. Other available
options include bringing on board state governments for increasing their capital expenditure
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relative to their respective gross state domestic products (GSDPs). Second, the Centre may
invest through central public sector enterprises (CPSEs) an additional one percentage point of
GDP compared to the present levels. Further, through the public-private partnership (PPP)
mode, the private sector may be induced to supplement the government’s investment in select
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projects. The amended FRBM Act has a provision for increasing the fiscal deficit by 0.5 per cent
of GDP under certain circumstances. The government can make use of this provision.
The present slowdown is happening at a time when industrialised countries are themselves
passing through a recession. Boosting export demand in this context becomes difficult. Our
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share in the world’s exports is still small. Despite the recessionary conditions in the industrialised
countries, it may still be possible to pitch for a higher growth in exports. The recent
announcements on boosting exports is a recognition of this. Allowing the rupee to depreciate
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steadily may help exporters. The scope of monetary policy, as already explained, is limited. The
government should explore all avenues to expand its capital expenditures. Public investment in
the present context may crowd in private investment. Perhaps, one redeeming feature of the
current situation is that despite floods, agricultural production may pick-up leading to a possible
pick-up in rural demand. The government should also address sector-specific problems and
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these need not be fiscal in nature. A cautious expansion in banking credit can also help. It is
also the time to look at structural reforms in the banking sector, governance in general and fiscal
reforms relating to direct taxes and GST.
Rangarajan is former Chairman, Prime Minister’s Economic Advisory Council and former
Governor, Reserve Bank of India. Srivastava is chief policy advisor EY India and former
Director, Madras School of Economics. Views are personal
END
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Page 52
THE SLOW CLIMB TO THE TRILLION ECONOMY PEAK

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Demographic Economics &
Various Indexes
On Independence Day, the Prime Minister expressed confidence that India would be a $5-trillion
economy in 2024, a line that has been picked up by ruling party leaders, Ministers and also
senior government officers.
However, this is surprising as the impact of economic growth on major development goals —
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examples being improvement in education, health and overall human development/human
capital formation; expansion in productive employment for all and environmentally sustainable
development, etc — depends on the nature and composition of growth.
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The economic growth experience in India in recent decades has shown that growth has had an
adverse impact on all these developmental goals. To start with, Credit Suisse, for example, has
shown recently that 1% of the wealthiest in India increased their share in wealth from 40% in
2010 to more than 60% in the last five years, and the richest 10% in India own more than four
times wealth than the remaining 90%. That is, if we proceed on the same growth path, a large
part of the increase in wealth and GDP will be claimed by the top 10% richest population in
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India. In other words, the top 10% will take away the lion’s share of the $5-trillion incomes if and
when we reach the target of $5-trillion economy.
Our growth experience so far shows that the rate of growth of employment has declined with
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increasing economic growth; we have now reached a stage where the economy is suffering from
the highest ever unemployment rate. With rising population and, consequently, the labour force,
India will soon experience demographic disaster rather than demographic dividend. The story of
health and nutrition is also quite similar. The literacy rate has grown very slowly and according to
the United Nations, India’s literacy was 71.1% in 2015. India is now far behind many African
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countries such as Rwanda, Morocco and Congo in terms of literacy. According to the Annual
Status of Education Report (ASER) 2018, about 70-74 % children (in the age group 6-14 years)
go to school regularly; far fewer go to secondary school. The quality of education is far from
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satisfactory, if one is to read ASER 2018.
There is an urgent need for a quantum jump in public expenditure on education in order to fill
wide gaps in infrastructure, training and retraining of teachers and to ensure a strong follow up
on the quality of education. However, as against the norm of 6% of GDP, the government spend
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is around 4% of GDP on education. It is the same when it comes to the story of health, where
the decline in malnutrition, particularly among women and children is very slow; against the
norm of 3% of GDP, the government spends around 1.5% of GDP on health. Finally, in the
process of growth in India, there has been a severe depletion and degradation of environmental
resources. A recent Intergovernmental Panel on Climate Change report has warned India of the
seriousness of climate change and its severe adverse impact on the environment and the
livelihood of masses.
Another major concern about reaching the aim of a $5-trillion economy is that at present the
economy is experiencing a severe slowdown; it would be very difficult to raise the rate of growth
to reach $5 trillion in 2024 unless we focus on human capital formation and address the real
reasons for the slowdown. As NITI Aayog has observed recently, the present crisis is the worst
crisis India is facing since the Independence. The rate of economic growth, at 5%, is the lowest
in the last few years. Also, the rates of savings and investment in the Indian economy have
declined, as also exports and total credit. Among the major industries, the automobile industry is
Page 53
experiencing continuous decline, which has led to the retrenchment of 3.5 lakh workers so far.
Apart from the ancillaries of the automobile industry, many other industries are declining fairly
rapidly too — examples are diamond cutting and polishing, textiles and garments, and several
Micro, Small and Medium Enterprises (MSME).
All this has affected trading and business units. Agriculture is in crisis today on account of rising
costs of inputs and low prices of produces, and low public investments in this sector. Again,
agricultural real wages are in decline and non-farm wages are constant if not declining; urban
wages are also declining in recent years. As a consequence of all these developments, there is
a crash in the aggregate demand in the economy.
m
What is needed urgently is for the government to increase public expenditure in investing in
agriculture — in infrastructure, inputs, extension, marketing and storage and training — and in
providing profitable prices to farmers. It should also raise funds for the Mahatma Gandhi
National Rural Employment Guarantee Act to push up demand by following a Keynesian
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approach.
It should raise public employment by filling all vacant sanctioned posts in the Central and State
governments, which would be around 2.5 million jobs. The government should also regularise
contract, casual and “honorary” jobs and make them regular jobs. Increasing additional jobs for
ensuring basic health and good quality education up to secondary level to all so that any
S.
meaningful skill formation is possible should be another aim. Human capital formation will give a
big push to start-ups and MSMEs. And, finally, the government should also focus on promoting
labour intensive sectors such as gems and jewellery, textiles and garments and leather goods.
The government should not worry about the fiscal deficit ratio as these measures will address
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the major problems of the economy.
What we witness, however, is that public expenditure is declining continuously in the last few
years, As the Centre For Monitoring Indian Economy Pvt. Ltd. has pointed out, public
expenditure has declined to the minimum in the last five years. Steps such as rolling back some
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budgeted tax proposals, providing a stimulus package to industries, raising foreign direct
investment flows, reducing Goods and Services Tax to help industries are not likely to increase
much aggregate demand in the economy. Also, reduction in repo rate by the Reserve Bank of
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India and asking banks to pass on reduced rates to customers, recapitalisation of banks by
70,000 crore to raise liquidity in the economy and other steps to ease credit flows to the
economy are all supply side measures; the real problem is a crash in the aggregate demand.
Let us hope that the government looks at the weaker sectors and sections to get out of the crisis
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if not to improve their well-being.
Indira Hirway is Professor of Economics, Centre for Development Alternatives, Ahmedabad

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END
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Page 55
GOVERNMENT EXEMPTS CASH PAYMENTS ABOVE RS

1 CRORE VIA AMPC FROM 2 PER CENT TDS
NEW DELHI: In a relief to the farm sector, the government has decided not to levy 2 per cent tax
deduction at source ( TDS) on cash payments of over Rs 1 crore made through Agriculture
Produce Market Committees (APMCs).
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The government had made the provision of levying 2 per cent TDS on cash withdrawals
exceeding Rs 1 crore in the Union Budget with an aim to discourage cash transactions and
move towards a less-cash economy.
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The provision is set to come into force from October 1.
"Addressing the concerns raised by Agriculture Produce Market Committees (APMCs), it has
been decided not to levy the 2% TDS on cash payments above Rs 1 crore made through
APMCs, in order to make immediate payments to farmers for their produce," Finance Minister
Nirmala Sitharaman said in a tweet.
S.
Meanwhile, in another tweet, the minister said an additional 15 per cent depreciation will be
allowed on motor vehicles purchased between August 23, 2019, and March 31, 2020.
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She had made this announcement on August 23 as part of measures to boost the economy.
"The move is expected to give a boost to the automobile sector by driving sales," she added.
The depreciation on cars purchased during the period will be 30 per cent as against the normal
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rate of 15 per cent.

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While in the case of buses, lorries and taxis, the depreciation rate has been enhanced to 45 per
cent from 30 per cent. Depreciation helps companies reduce tax liabilities.
Farm expert Vijay Sardana commented that the exemption to APMCs will benefit traders but not
farmers.
NEW DELHI: In a relief to the farm sector, the government has decided not to levy 2 per cent tax
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deduction at source ( TDS) on cash payments of over Rs 1 crore made through Agriculture
Produce Market Committees (APMCs).
The government had made the provision of levying 2 per cent TDS on cash withdrawals
exceeding Rs 1 crore in the Union Budget with an aim to discourage cash transactions and
move towards a less-cash economy.
The provision is set to come into force from October 1.
"Addressing the concerns raised by Agriculture Produce Market Committees (APMCs), it has
been decided not to levy the 2% TDS on cash payments above Rs 1 crore made through
APMCs, in order to make immediate payments to farmers for their produce," Finance Minister
Nirmala Sitharaman said in a tweet.
Page 56
Meanwhile, in another tweet, the minister said an additional 15 per cent depreciation will be
allowed on motor vehicles purchased between August 23, 2019, and March 31, 2020.
She had made this announcement on August 23 as part of measures to boost the economy.
"The move is expected to give a boost to the automobile sector by driving sales," she added.
The depreciation on cars purchased during the period will be 30 per cent as against the normal
rate of 15 per cent.
While in the case of buses, lorries and taxis, the depreciation rate has been enhanced to 45 per
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cent from 30 per cent. Depreciation helps companies reduce tax liabilities.
Farm expert Vijay Sardana commented that the exemption to APMCs will benefit traders but not
farmers.
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INDIA'S CURRENT ACCOUNT UNDER THREAT IF OIL

SURGE CONTINUES: RBI
Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade
& BOP
MUMBAI: India's current account and fiscal deficit could take a hit if oil prices continue to rise
after an attack on Saudi Arabian oil facilities over the weekend, the central bank chief said on
Monday.
m
"We should allow a few more days to see how the situation plays out before taking a final
view...depending on how long it persists it will have some impact on the current account deficit
and further perhaps on the fiscal deficit if it lasts longer," Governor Shaktikanta Das told a news
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channel.
Das said it was important to see whether alternative sources of supply come up and how soon
the installations take to resume operation.
U.S. officials blamed Iran for the attack, which damaged the world's biggest crude oil processing
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plant and led to a 19% surge in oil prices. Iran denied blame and said it was ready for "full-
fledged war".
A jump in oil prices is a negative for emerging markets such as India, which is the world's third-
biggest importer of oil.
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The country's current account deficit in the March quarter narrowed on the back of the
merchandise trade deficit contraction but a surge in crude prices could balloon the deficit and
wreck havoc with the currency.
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The partially convertible rupee dropped nearly 1% on Monday to 71.60 per dollar versus its
previous close of 70.92.
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India is also likely to miss its fiscal deficit target for the current financial year, despite receiving
an additional dividend from the central bank, five government officials and advisers told Reuters
earlier this month, as tax collections have sunk amid a sharp economic slowdown.
GROWTH FOCUS TO REMAIN

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Das said the monetary policy committee would continue to focus on growth with inflation
expected to stay within the medium term target.
Asia's third largest economy expanded just 5.0% year on year in the June quarter, its weakest
pace since 2013, far below the median forecast of 5.7%.
"The numbers definitely look much worse. The number of 5% is a surprise. We are analysing
why exactly it has happened," Das told CNBC TV18.
"Growth now is a matter of highest priority, especially with inflation remaining within 4%," he
added.
The retail inflation rate rose to a 10-month high in August but stayed below the central bank's
4% medium-term target.
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Analysts believe the slowdown could persist for two or three years while structural reforms are
put in place.
A Reuters poll conducted after the last monetary policy decision in August predicted the RBI
would cut rates by another 25 basis points at its October review and then by 15 basis points
early next year.
MUMBAI: India's current account and fiscal deficit could take a hit if oil prices continue to rise
after an attack on Saudi Arabian oil facilities over the weekend, the central bank chief said on
Monday.
m
"We should allow a few more days to see how the situation plays out before taking a final
view...depending on how long it persists it will have some impact on the current account deficit
and further perhaps on the fiscal deficit if it lasts longer," Governor Shaktikanta Das told a news
channel.
co
Das said it was important to see whether alternative sources of supply come up and how soon
the installations take to resume operation.
U.S. officials blamed Iran for the attack, which damaged the world's biggest crude oil processing
plant and led to a 19% surge in oil prices. Iran denied blame and said it was ready for "full-
fledged war".
S.
A jump in oil prices is a negative for emerging markets such as India, which is the world's third-
biggest importer of oil.
IA
The country's current account deficit in the March quarter narrowed on the back of the
merchandise trade deficit contraction but a surge in crude prices could balloon the deficit and
wreck havoc with the currency.
k
The partially convertible rupee dropped nearly 1% on Monday to 71.60 per dollar versus its
previous close of 70.92.
ac
India is also likely to miss its fiscal deficit target for the current financial year, despite receiving
an additional dividend from the central bank, five government officials and advisers told Reuters
earlier this month, as tax collections have sunk amid a sharp economic slowdown.
GROWTH FOCUS TO REMAIN

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Das said the monetary policy committee would continue to focus on growth with inflation
expected to stay within the medium term target.
Asia's third largest economy expanded just 5.0% year on year in the June quarter, its weakest
pace since 2013, far below the median forecast of 5.7%.
"The numbers definitely look much worse. The number of 5% is a surprise. We are analysing
why exactly it has happened," Das told CNBC TV18.
"Growth now is a matter of highest priority, especially with inflation remaining within 4%," he
added.
The retail inflation rate rose to a 10-month high in August but stayed below the central bank's
4% medium-term target.
Page 59
Analysts believe the slowdown could persist for two or three years while structural reforms are
put in place.
A Reuters poll conducted after the last monetary policy decision in August predicted the RBI
would cut rates by another 25 basis points at its October review and then by 15 basis points
early next year.
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BANKS' 2018-19 SAVINGS DEPOSITS UP AT RS 39.72

LAKH CRORE: RBI
Mumbai: Indian private and public sector banks (PSBs) had aggregate savings deposits of Rs
39.72 lakh crore as on March 31, 2019, while foreign banks had a share of Rs 58,630 crore,
according to RBI data published in the Handbook of Statistics on Indian Economy 2018- 19.
m
The total savings deposits with commercial banks, including foreign ones, in 2018- 19 stood at
Rs 40.31 lakh crore, up from Rs 36.55 lakh crore in 2017-18, the data showed.
The savings deposits with Indian banks stood at Rs 35.99 lakh crore in 2017-18, the Reserve
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Bank of India (RBI) said, while it stood at Rs 55,896 crore for foreign banks in the same fiscal.
As at the end of the first quarter ending June, the PSB's credit growth was up 8.7 per cent, while
the aggregate desposits growth was 6.7 per cent.
The foreign banks' credit growth was 5.4 per cent and the aggregate desposits growth was 19.3
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per cent, according to the quarterly data on deposits and credits of commercial banks released
earlier this month.
Aggregate deposits with scheduled commercial banks registered a double-digit growth in the
first quarter of the fiscal after a period of nearly two years, although expansion in bank credit
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declined marginally.
India's GDP growth recorded for the first quarter of the fiscal at 5 per cent is at a six-year low.
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Aggregate deposits grew 10.1 per cent in the quarter ended June 30, against 7 per cent in the
same period a year ago. This is the highest growth since the quarter ended June 2017, when
aggregate deposits grew by 12.6 per cent.
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"Aggregate deposits growth year-on-year moved back to double-digits after two years.
Notwithstanding a modest pick- up, public sector banks continued to lag in deposit mobilisation,"
the RBI said.
Bank credit between April and June this year grew by 11.7 per cent, against a growth of 11.1 per
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cent in the same period last fiscal. This was however, much lower than the 13.1 per cent growth
in bank credit in the fourth quarter of the last fiscal.
"All bank groups recorded deceleration in credit growth during the April to June 2019 quarter,"
the RBI said, adding that private sector banks led other bank groups in growing loan portfolios.
Private banks registered a growth of 16.3 per cent in aggregate deposits and of 17.5 per cent in
bank credit in the first quarter of the fiscal, against public sector banks that had a deposit growth
of 6.7 per cent and bank credit growth of 8.7 per cent in the same quarter.
Mumbai: Indian private and public sector banks (PSBs) had aggregate savings deposits of Rs
39.72 lakh crore as on March 31, 2019, while foreign banks had a share of Rs 58,630 crore,
according to RBI data published in the Handbook of Statistics on Indian Economy 2018- 19.
Page 61
The total savings deposits with commercial banks, including foreign ones, in 2018- 19 stood at
Rs 40.31 lakh crore, up from Rs 36.55 lakh crore in 2017-18, the data showed.
The savings deposits with Indian banks stood at Rs 35.99 lakh crore in 2017-18, the Reserve
Bank of India (RBI) said, while it stood at Rs 55,896 crore for foreign banks in the same fiscal.
As at the end of the first quarter ending June, the PSB's credit growth was up 8.7 per cent, while
the aggregate desposits growth was 6.7 per cent.
The foreign banks' credit growth was 5.4 per cent and the aggregate desposits growth was 19.3
per cent, according to the quarterly data on deposits and credits of commercial banks released
m
earlier this month.
Aggregate deposits with scheduled commercial banks registered a double-digit growth in the
first quarter of the fiscal after a period of nearly two years, although expansion in bank credit
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declined marginally.
India's GDP growth recorded for the first quarter of the fiscal at 5 per cent is at a six-year low.
Aggregate deposits grew 10.1 per cent in the quarter ended June 30, against 7 per cent in the
same period a year ago. This is the highest growth since the quarter ended June 2017, when
aggregate deposits grew by 12.6 per cent.
S.
"Aggregate deposits growth year-on-year moved back to double-digits after two years.
Notwithstanding a modest pick- up, public sector banks continued to lag in deposit mobilisation,"
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the RBI said.
Bank credit between April and June this year grew by 11.7 per cent, against a growth of 11.1 per
cent in the same period last fiscal. This was however, much lower than the 13.1 per cent growth
in bank credit in the fourth quarter of the last fiscal.
k
"All bank groups recorded deceleration in credit growth during the April to June 2019 quarter,"
the RBI said, adding that private sector banks led other bank groups in growing loan portfolios.
ac
Private banks registered a growth of 16.3 per cent in aggregate deposits and of 17.5 per cent in
bank credit in the first quarter of the fiscal, against public sector banks that had a deposit growth
of 6.7 per cent and bank credit growth of 8.7 per cent in the same quarter.
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END
Page 62
LET THE FARMER CHOOSE

Relevant for: Indian Economy | Topic: Major Crops, Cropping Patterns and various Agricultural Revolutions

All Rights Reserved
Zero Budget Natural Farming (ZBNF) may have received endorsement from the NITI Aayog, the
finance minister’s budget speech and Prime Minister Narendra Modi himself. But that hasn’t
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stopped the country’s premier academy of agricultural scientists from coming out against an
“unproven technology” that, they say, brings no incremental gain to either farmers or consumers.
Since the mid-1960s, India’s annual foodgrain output has risen from 80-85 million tonnes (mt) to
280 mt-plus, just as it has from about 20 mt to 176 mt for milk and by similar magnitudes in
vegetables, fruits, poultry meat, eggs, sugarcane and cotton. A significant part of these
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increases have come from crossbreeding or improved varieties/hybrids responsive to chemical
fertiliser application, and also crop protection chemicals to ensure that the resultant genetic yield
gains aren’t eaten away by insects, fungi or weeds. Today’s millennials may have little connect
with the Bengal Famine or the ship-to-mouth times hardly five decades ago. But they should
know that without IR-8 rice, urea, chlorpyrifos or artificial insemination, the nation would simply
not have been able to feed itself.
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The basic idea of “zero budget” itself rests on very shaky scientific foundations. Its propounder
Subhash Palekar Palekar, for instance, claims that nitrogen, the most important nutrient for plant
growth, is available “free” from the air. Yes, nitrogen makes up 78 per cent of the atmosphere,
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but being in a non-reactive diatomic (N2) state, it has to be first “fixed” into a plant-usable form
— which is what ammonia or urea are. Even maintaining indigenous cows and collecting their
dung and urine — the main ingredients in Palekar’s microbial, seed treatment and insect pest
management solutions — entails labour cost. Simply put, agriculture can never be zero budget.
Also, crop yields cannot go up beyond a point with just cow dung that has only around 3 per cent
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nitrogen (as against 46 per cent in urea), 2 per cent phosphorous (46 per cent in di-ammonium
phosphate) and 1 per cent potassium (60 per cent in muriate of potash).
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That said, there is a strong case for promoting techniques such as conservation tillage, trash
mulching, green manuring and vermi-composting, apart from reducing use of chemical fertilisers
and insecticides through integrated nutrient and pest management. The time has also come for
eliminating fertiliser subsidies to encourage their judicious use. The government should give
farmers a fixed sum of money per acre, which they can use to buy chemical-based inputs or to
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engage the extra labour necessary for organic agricultural practices. Discrimination must end; let
the farmer choose between non-organic, organic or even ZBNF.
END
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FROM PLATE TO PLOUGH: THE RIGHT TO CHOOSE

Relevant for: Indian Economy | Topic: Major Crops, Cropping Patterns and various Agricultural Revolutions

All Rights Reserved
The writer is chair professor for agriculture at ICRIER. Views are personal
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The Narendra Modi government completed 100 days of its second term (Modi 2.0) last week. On
this occasion, most cabinet ministers spoke of the achievements of their ministries. The
headlines in newspapers were, however, about the abrogation of Article 370, or the biggest
slump in auto sales in the last two decades, or the slowing down of GDP growth. I tried to search
for bold moves in agriculture as it affects the largest number of people. But I couldn’t find any.
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Some already-announced schemes were tweaked and a few new ideas were offered but without
solid scientific and financial backing.
The PM-Kisan Yojana (PMKY) — an income support of Rs 6,000 per year to small and marginal
farmer households — was announced before the parliamentary elections. Modi 2.0 has
extended the scheme to the families of all farmers. The 2019-20 Union budget has provisioned
S.
Rs 75,000 crore for this scheme. This is the first step towards direct cash (income) transfer to
farmers’ accounts. As I have argued earlier, this scheme will be meaningful if other subsidies —
such as those on food, fertiliser, power and irrigation, and agri-credit — are clubbed with the
PMKY and given directly to farmers. The move should be complemented by allowing market
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forces to set prices. Else, PMKY may come at the cost of investments in agriculture, which have
fallen from a peak of 18.2 per cent of the agri-GDP in 2011-12 to 13.7 per cent of the agri-GDP
2017-18. With such a fall in investments, the dream of doubling farmers’ incomes by 2022
cannot be fulfilled.
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Page 64
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In this article, I want to focus on something new and interesting that the prime minister talked
about in his Independence Day speech. He repeated the same in his address to the 14th
Conference of Parties of the UN Convention to Combat Desertification (UNCCD) in Greater
Noida. The PM’s key message was to reduce consumption of chemical fertilisers and promote
zero budget natural farming (ZBNF). The concept, fathered by Subhash Palekar, uses dung
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from desi black cows, their urine, adds jaggery and pulses’ flour in certain proportions and
deploys that, as jeevamrit, to augment microbial activity in soil. This is supposed to make our
soils healthier and augment productivity in a sustainable manner. Incidentally, ZBNF was also
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mentioned as the future of Indian agriculture by Nirmala Sitharaman in her maiden budget
speech.
At the very outset, let me say that I am a supporter of adding organic matter — be it dung or
farm yard manure (FYM) — that can improve carbon in our soils. It is well known that chemical
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fertilisers are not used rationally by our farmers. Although the optimal ratio of using nitrogen (N),
phosphate (P) and potash (K), differs from plot to plot, at the all India level, it is generally agreed
that the optimal combination of N, P and K should be in the ratio of 4:2:1. In 2009-10, this ratio
was 4.3:2:1 — quite close to the desired level. But in 2010, the Nutrient Based Subsidy (NBS)
scheme was introduced. It almost freed prices of P and K from government control and provided
some fixed subsidy on these fertilisers on a per tonne basis. However, N (urea) was excluded
from this scheme. As a result while DAP (di-ammonium phosphate) and MOP (muriate of
potash) carry a subsidy of about 25-30 per cent of their cost of production, urea has a subsidy of
more than 75 per cent on its cost of production. The Indian urea prices are perhaps lowest in the
world, and certainly lowest amongst the major countries (see graph).
No wonder, there is overuse of urea in relation to DAP and MOP. Normally, whenever chemical
fertilisers are used, a good dosage of FYM is recommended. So FYM, or something akin to
jeevamrit, is conceived as a supplement, not a substitute of chemical fertilisers.
Page 65
But there could be serious questions if the government’s intention is to completely jettison
chemical fertilisers — PM talked of halving fertiliser consumption in his “Mann ki Baat” speech of
November 26, 2017. First, has the Indian Council of Agriculture Research (ICAR) studied the
possible impact of ZBNF on yields of major crops like wheat and rice in comparison to chemical
fertiliser-based farming? It needs to do large scale testing in different regions to see the
nationwide implications of ZBNF on the overall production of major crops. I understand that such
studies have not been conducted. In fact, the limited information that is available suggests a 30
to 50 per cent drop in yields. That could puncture a big hole in India’s food security basket. Do
we want to go back to the “ship-to-mouth” situation of the mid-1960s?
Second, if the PM wants to cut fertiliser consumption by half by 2022, why is the government
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investing in new urea plants of 1.27 million tonne, each under the public sector —at Gorakhpur
in UP, Barauni in Bihar, Ramagundam in AP, Sindri in Jharkhand and Talcher in Odisha. The
combined capacity of these plants is likely to be about 6.35 million tonne and the production cost
more than $400 per tonne. One wonders whether there is any coordination between what the
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PM says and what his government is doing? It seems a typical case of left hand not knowing
what the right hand is doing.
My humble submission is that the fertiliser subsidy, which is budgeted at Rs 80,000 crore for
2019-20, be given directly to farmers on a per hectare basis and allow them to decide whether
they want to do ZBNF or chemical-fertiliser based farming. The fertiliser prices will then be
S.
market determined, ensuring their efficient usage, stopping their diversion to non-agri-uses as
well as to neighbouring countries. It will be a win-win situation from several perspectives. Can
the Modi government do that in the next 100 days?
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The writer is Infosys Chair Professor for Agriculture at ICRIER

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MGNREGA WAGES TO BE PEGGED TO INFLATION

Development
“They have now agreed to update the indices annually. MGNREGA wages will be linked to
whichever index is higher in a particular State,” said the official, estimating that the increased
wages based on updated inflation indices may result in 10% higher government expenditure on
the scheme.
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Wage rate revisions are usually notified at the beginning of a financial year, but the Ministry is
trying implement the hike during the current year itself, as part of a stimulus package to counter
the ongoing slowdown.
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“If transferring expenditure [via MGNREGA] is done, rural wages could increase and that could
percolate down into more purchasing power in the hands of the consumer,” said Soumya Kanti
Ghosh, chief economic advisor for the State Bank of India.
However, some economists questioned whether the move is sufficient to revive demand.
S.
“Of course, any increase in wages is welcome. But the base rate itself is so low for MGNREGA,
so it may not be enough to link it to inflation now,” said Dipa Sinha, an economist teaching at
Ambedkar University.
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Wide gap
According to the latest Periodic Labour Force Survey, market wages for men were higher than
MGNREGA wages by 74% in 2017-18, while for women, it was a 21% gap. “They must first
increase the wages and subsequently ensure better inflation indexation. Otherwise, the impact
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will be minimal,” said Dr. Sinha.
Even with existing wages, the scheme is running out of funds due to increased demand for work.
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MGNREGA received a budgetary allocation of Rs. 60,000 crore, of which more than 75% has
already been released by the Centre even before the halfway point of the year. Last week, the
RD Ministry asked the Finance Ministry for an additional supplementary grant of Rs. 15,000-Rs.
20,000 crore.
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Subscribe before price increase to get unlimited access at just Rs.12 per week.
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‘MORE FREIGHT CORRIDORS IN THE PIPELINE’

Relevant for: Indian Economy | Topic: Infrastructure: Railways
The Railways is working on three more dedicated freight corridors at an estimated cost of about
Rs. 2.6 lakh crore, which will help the national transporter to free up the current tracks to run
enough passenger trains so that no traveller gets wait-listed.
Train travellers could expect to be free of waiting list within the four years on the two busiest
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routes of Delhi-Mumbai and Delhi-Howrah routes, where dedicated freight corridors (DFC)
construction is under works and is expected to be completed by 2021, said Railway Board
Chairman V.K. Yadav.
“This is our vision. When the DFC is completed.... the existing Delhi-Mumbai and Delhi-Howrah
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route will be completely free of freight. Then we will be able to run passenger trains on demand.
The work to upgrade [train speed] on the route to 160 kmph has already been sanctioned and
will be done in the next four years,” he said.
“In the next four years, we will run freight and passenger trains on demand and this means we
will meet traffic requirements. On these routes, in the next four years there will be no waiting.”
S.
He also said work on the North-South (Delhi-Chennai), East-West (Mumbai-Howrah) and East
Coast (Kharagpur-Vijayawada) DFC was under way and the final location survey would be
completed in the next one year. The three DFCs would be around 6,000-km long and would be
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commissioned in the next 10 years. As per the preliminary report, the cost of the projects is
estimated to be Rs. 2.6 lakh crore.
“When this is done we will have a lot of capacity and we will be able to run a lot of trains. So, by
the time we have enough capacity we should be able to introduce private operators and
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corporatise production units, so that technologically advanced coaches fit to run trains at 160
kmph are available in the country and we are able to export them as well,” Mr. Yadav said.
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Source : www.pib.nic.in Date : 2019-09-19
Relevant for: Indian Economy | Topic: Infrastructure: Railways
Ministry of Railways
Ministry of Railways decides to adopt HOG system (Head

on Generation technology) in all LHB Coaches trains
Till date, 342 trains have already been converted into HOG.
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This is resulting in saving of approximate Rs 800 crore
Posted On: 17 SEP 2019 5:32PM by PIB Delhi
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The way ACs run and power supply is done in railway coaches is to transform. Such
new technological transformation is also to bring in foreign exchange saving of about
1400 Crore Rupees per year.
S.
In the new technology called - Head on Generation technology, the power will be
drawn from the Overhead Electric supply. The power generator cars which used to
make huge noise and emit fumes will no more be there. In place of two such
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generator cars there will be one standby silent generator car to be used for
emergency. In place of the other car, there will be LSLRD (LHB Second Luggage,
Guard & Divyaang Compartment). This LSLRD will also have capability to convert
power from the overhead supply to be utilised in the entire train while providing space
for luggage guard room and additional passengers. Currently, the cost of power is
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over Rs. 36 per unit and with HOG it will available at Rs. 6 Per unit.
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Giving these details, Member, Rolling Stock, Shri Rajesh Agarwal said that it is
planned to convert all LHB trains to HOG system within this year. Till date 342 trains
have already been converted into HOG. This is resulting in saving of approximate Rs
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800 crore per year now. 284 more trains are to be converted into HOG by the year
end to be resulting in more savings. In the year 2017, decision has been taken for
complete switch over to LHB technology. After this decision, adoption of HOG
conversion has been taken in mission mode to complete this work in time bound
manner. The work involved modification in electrical system of power cars and
coaches: All new coaches from Production Units are to be HOG compliant. The
conversion work has been allotted to Zonal Railways and with the dedicated efforts of
field officers; This will provide noise free and pollution environment for passenger at
station.
Break up of trains already converted to HOG

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Type of Trains Number of Trains
Rajdhani 13
Shatabdi 14
Duronto 11
Sampark Kranti 06
Humsafar 16
Other Mail/ Express 282
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Total 342
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Break up of Trains to be converted to HOG
Type of Trains Number of Trains

Rajdhani 12
Shatabdi 08
Duronto
S. 06
Sampark Kranti 07
Humsafar 08
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Other Mail/ Express 243
Total 284
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Brief about Head on Generation system:

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Head on Generation system is electrical power supply system where electrical power
for catering hotel load of train, which includes Train Lighting, Air conditioning,
Lighting, fannage and other passenger interface requirement working on electrical
power supply. This scheme is widely used power supply system by Railways world
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over. The power in this system is received from locomotive. With introduction of this
scheme heavy underslung power generating equipment gets eliminated. Further it
also reduces use of Diesel sets employed in power cars in End on Generation
system.
In the year 1996, Indian railways entered into ToT agreement with Linke Hofmann
Busch Germany. The LHB coaches have been designed to run on End on
Generation system with two power cars employing two DG sets on either end.
During the period from 2000 to 2017, both LHB and ICF coaches used to be
manufactured in Railway Production Units. LHB coaches continued to be
manufactured with EOG power supply system employing two power cars at either
end. Whereas ICF coaches with self generating technology employing belt driven
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alternators in bogies continued to be manufactured.
Cost of electricity generation from DG set and in self generating coaches is very high
resulting into increase in diesel consumption and substantial operating expenditure
● Advantages of HOG system
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In Rs (Crore)
Annual savings on account of
759
ongoing conversion work
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Total Savings after completion of
1390
HOG conversion work
S.
Energy cost per unit in different power supply system of coaches
Type of coaches Cost of Electricity (Rs per unit)

Self Generating (Diesel Traction) 36.14
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Self Generating (Electric Traction) 12.37
End on Generation (EOG) 22
Head on Generation 6
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Reduction in air and noise pollution from EOG to HOG
EOG HOG
CO2 1724.6 Tons per annum Nil
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NOX 7.48 Tons per annum Nil
***
KSP/AP
(Release ID: 1585323) Visitor Counter : 722
Read this release in: Urdu , Hindi , Bengali

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NEW SOCIAL SECURITY CODE PROPOSED

Development
The Centre has proposed a new draft Code on Social Security that amalgamates eight laws —
covering Employees’ Provident Fund, maternity benefits and compensation among others —
that makes way for establishing funds for PF and pension as well as covering workers of the gig
economy in social security schemes.
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The draft code, which was published by the Labour and Employment Ministry this week, will be
up for public comments till October 25, the Ministry said.
It proposes PF, pension and insurance funds that would be administered by a central board.
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Employees would also be able to opt for the National Pension Scheme if they want.
The draft code proposes schemes related to life and disability cover, health and maternity
benefits and old-age protection for “gig workers and platform workers” as well as the
unorganised sector. S.
As a part of its labour reform agenda, the government had proposed to combine 44 labour laws
into four codes. After coming out with two codes — on wages, occupational safety, health and
working conditions — it has not drafted the third.
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CORPORATE TAX CUT TO HAVE 'MINOR' IMPACT ON

FISCAL DEFICIT: NITI AAYOG
MUMBAI: The Rs 1.45-lakh crore tax giveaway is unlikely to widen fiscal deficit much as the
shortfall will be met through increased tax collections due to higher growth which the massive
tax cuts are expected to achieve, Niti Aayog Vice Chairman Rajiv Kumar said here on Saturday.
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On Friday, the government had announced tax cuts for corporates by 10-12 percentage points,
bringing down the effective corporate tax to 25.17 per cent inclusive of all cess and surcharges
for domestic companies. The new tax rate will be applicable from April 1, involving a revenue
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loss of Rs 1.45 lakh crore this fiscal.
"I don't think tax cuts will leave a gaping hole in the fiscal numbers. There will be some, which
will be minor," Kumar said at an event.
Budget had estimated fiscal deficit at 3.3 per cent of the GDP for the current fiscal but many
S.
analysts have pegged it overshooting by at least 70 bps to 4.1 per cent as the quantum of the
giveaways is worth 0.7 per cent of the GDP.
Significantly, it can be noted that neither the finance minister or her senior cabinet colleagues
who talked to the media after the announcement took questions on the shape of fiscal deficit
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numbers post the tax cuts.
Even, Reserve Bank Governor Shaktikanta Das had lapped it up as growth boosting just a day
before warning the government that it has no leeway to undertake any fiscally expansionary
measures.
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It can be noted that while the GST collection has been ebbing below the desired Rs 1 lakh crore
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mark all through the year expect one month, the direct tax mop-up for the first half lagged way
behind the target. It grew a paltry 4.7 per cent in H1 of this fiscal at Rs 5.5 lakh crore against a
budgeted target of 17.5 per cent growth in collections for the full year.
Kumar said direct and indirect tax revenues are expected to go up with growth picking up after
these tax cuts.
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"There is buoyancy in growth. In the past, our tax buoyancy has been very good. Therefore,
both direct and in direct tax collections will go up with growth," he said.
Kumar said another area for his optimism is the government focus on divestment which he
budgeted at Rs 1.05 lakh crore.
"Asset sales will yield an additional Rs 52,000 crore over the budget estimate. Then you have
got another Rs 50,000 crore from the RBI which was not included in the Budget," he said.
The higher revenue from tax and non-tax fronts will help the government finance the fiscal
deficit, he added.
Kumar said the 5 per cent GDP growth is not yet a crisis and the first quarter number marks the
Page 77
bottoming out of the cycle.
"We will achieve a nearly 6.5 per cent growth this year and we will be on track for doubling up
our per capita income in the next five years," he added.
MUMBAI: The Rs 1.45-lakh crore tax giveaway is unlikely to widen fiscal deficit much as the
shortfall will be met through increased tax collections due to higher growth which the massive
tax cuts are expected to achieve, Niti Aayog Vice Chairman Rajiv Kumar said here on Saturday.
On Friday, the government had announced tax cuts for corporates by 10-12 percentage points,
bringing down the effective corporate tax to 25.17 per cent inclusive of all cess and surcharges
m
for domestic companies. The new tax rate will be applicable from April 1, involving a revenue
loss of Rs 1.45 lakh crore this fiscal.
"I don't think tax cuts will leave a gaping hole in the fiscal numbers. There will be some, which
will be minor," Kumar said at an event.
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Budget had estimated fiscal deficit at 3.3 per cent of the GDP for the current fiscal but many
analysts have pegged it overshooting by at least 70 bps to 4.1 per cent as the quantum of the
giveaways is worth 0.7 per cent of the GDP.
Significantly, it can be noted that neither the finance minister or her senior cabinet colleagues
S.
who talked to the media after the announcement took questions on the shape of fiscal deficit
numbers post the tax cuts.
Even, Reserve Bank Governor Shaktikanta Das had lapped it up as growth boosting just a day
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before warning the government that it has no leeway to undertake any fiscally expansionary
measures.
It can be noted that while the GST collection has been ebbing below the desired Rs 1 lakh crore
mark all through the year expect one month, the direct tax mop-up for the first half lagged way
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behind the target. It grew a paltry 4.7 per cent in H1 of this fiscal at Rs 5.5 lakh crore against a
budgeted target of 17.5 per cent growth in collections for the full year.
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Kumar said direct and indirect tax revenues are expected to go up with growth picking up after
these tax cuts.
"There is buoyancy in growth. In the past, our tax buoyancy has been very good. Therefore,
both direct and in direct tax collections will go up with growth," he said.
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Kumar said another area for his optimism is the government focus on divestment which he
budgeted at Rs 1.05 lakh crore.
"Asset sales will yield an additional Rs 52,000 crore over the budget estimate. Then you have
got another Rs 50,000 crore from the RBI which was not included in the Budget," he said.
The higher revenue from tax and non-tax fronts will help the government finance the fiscal
deficit, he added.
Kumar said the 5 per cent GDP growth is not yet a crisis and the first quarter number marks the
bottoming out of the cycle.
"We will achieve a nearly 6.5 per cent growth this year and we will be on track for doubling up
our per capita income in the next five years," he added.
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MANY TOP FIRMS ACTUALLY PAY LESS THAN 25%

TAX; BIGGEST TAXPAYER RIL PAYS 20%
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(This story originally appeared in on Sep 21, 2019)
An exemption-free tax rate of 22% — 25.17% including cesses and surcharge — sounds
attractive, but an analysis of the tax liability of firms listed in Sensex suggests more than half
have reason to stick to the existing tax regime.
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Budget data shows the average effective tax rate (ETR) — taxes as a percentage of pretax
profits — for roughly 8.4 lakh firms that filed returns for 2017-18 was just over 29%. A TOI
analysis of the 21 nonfinancial firms in the Sensex shows only 10 faced an ETR of over 25% in
2018-19. The remaining 11 had an ETR below the 25.17% that they would have to shell out if
they migrated to the new regime.
S.
Banks and financial sector firms were excluded from the analysis because their taxes are
calculated somewhat differently (mainly because of provisioning) and including them might have
distorted the overall picture. After excluding the nine financial sector firms in the sensex, the
overall average ETR worked out to 22.9% in 2018-19. But individual ETRs vary widely — from
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Sun Pharma with a negative tax burden of 13.5%, to Tata Steel, which paid 35% of its pre-tax
profits as tax.
The actual tax paid can, however, include refunds for extra tax paid in earlier years or additional
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liability for deferred taxes (ETR1 in the accompanying graphic). We therefore looked also at the
current tax as a percentage of the profit before taxes (ETR2 in the graphic). By this measure, the
average for these 21 firms was 25.7%, close to what the new regime would offer.
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Again, about half the firms might not have a compelling reason to make the shift. Even firms just
over the 25% mark in this chart might think twice since once exemptions are given up they
cannot be availed of in future. Having said that, a number of corporate tax specialists TOI spoke
to said most large companies would transition to the new regime because over the last several
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years, exemptions have been whittled down.
Notably, almost all IT firms are below the 25% ETR level — clearly because of tax incentives
given to the sector — as is Reliance Industries, the company paying the highest taxes on this list
but with an ETR of barely 20% if one looks at the current tax liability.
An exemption-free tax rate of 22% — 25.17% including cesses and surcharge — sounds
attractive, but an analysis of the tax liability of firms listed in Sensex suggests more than half
have reason to stick to the existing tax regime.
Budget data shows the average effective tax rate (ETR) — taxes as a percentage of pretax
profits — for roughly 8.4 lakh firms that filed returns for 2017-18 was just over 29%. A TOI
analysis of the 21 nonfinancial firms in the Sensex shows only 10 faced an ETR of over 25% in
2018-19. The remaining 11 had an ETR below the 25.17% that they would have to shell out if
they migrated to the new regime.
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Banks and financial sector firms were excluded from the analysis because their taxes are
calculated somewhat differently (mainly because of provisioning) and including them might have
distorted the overall picture. After excluding the nine financial sector firms in the sensex, the
overall average ETR worked out to 22.9% in 2018-19. But individual ETRs vary widely — from
Sun Pharma with a negative tax burden of 13.5%, to Tata Steel, which paid 35% of its pre-tax
profits as tax.
The actual tax paid can, however, include refunds for extra tax paid in earlier years or additional
liability for deferred taxes (ETR1 in the accompanying graphic). We therefore looked also at the
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current tax as a percentage of the profit before taxes (ETR2 in the graphic). By this measure, the
average for these 21 firms was 25.7%, close to what the new regime would offer.
Again, about half the firms might not have a compelling reason to make the shift. Even firms just
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over the 25% mark in this chart might think twice since once exemptions are given up they
cannot be availed of in future. Having said that, a number of corporate tax specialists TOI spoke
to said most large companies would transition to the new regime because over the last several
years, exemptions have been whittled down.
Notably, almost all IT firms are below the 25% ETR level — clearly because of tax incentives
S.
given to the sector — as is Reliance Industries, the company paying the highest taxes on this list
but with an ETR of barely 20% if one looks at the current tax liability.
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INCOME TAX RELIEF FOR DOMESTIC COMPANIES

“The MAT rate of 18.5% along with surcharges used to be around 21% or 22%. Now that basic
MAT rate has been reduced to 15%, and once you add up the surcharges, that comes to around
17% in the new regime,” he said.
The Finance Minister said that following these changes, India is at par and comparable with the
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lowest tax rates in South East Asian countries. “In the face of global headwinds, this puts India
right up on the map as a forward-looking, business-friendly and competitive operating
environment,” said Naveen Aggarwal, partner and chief operating officer, Tax, KPMG in India.
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Firms now availing income tax exemptions and incentives, can opt for the new concessional tax
regime with a headline tax rate of 22% after the expiry of their existing tax holidays or exemption
periods.
“This option, once exercised, cannot be withdrawn, so as to ensure there are no flip-flops,” Ms.
Sitharaman said.
S.
The Minister said that foreign investors could also avail the new tax rates, provided they have an
establishment in the country or are investing equity into an Indian firm.
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Responding to concerns about the impact of the foregone revenue on the Centre’s fiscal deficit
target of 3.3% of GDP for 2019-20, Ms. Sitharaman said: “We are conscious of the impact this
will have. We will be taking all concerns on board to reconcile how the situation is now and how
to take it forward.” She stressed that economic buoyancy “itself will generate more revenue
generation through higher incomes and the tax basket would widen.” The larger idea behind the
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exercise, the Minister said, is to eventually phase out all exemptions and incentives. On the
other hand, surcharges on income tax will be eased out too, she hinted, in response to a query.
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‘TAX CUTS MAY NOT BOOST INVESTMENT’

While corporate India is cheering the cut in tax rates, announced by the government, economists
are saying mere reduction in levies will not result in increased private sector investments and the
move will definitely result in fiscal deficit slippage.
The overall view is that since the corporate tax cuts do not address the subdued demand
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conditions in the economy, private sector firms will wait for demand to revive before they start
investing.
“Companies will still wait for demand to pick up,” said Madan Sabnavis, chief economist, Care
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Ratings. “The cuts have to encourage manufacturing companies, that have not been investing,
to start investing.Only if demand actually increases, will the tax cut help in bringing about higher
investment, not otherwise.”
“At the end of the day, if you don’t have the assurance that your output is going to be bought,
then you are not going to make profit,” Pronab Sen, former Chief Statistician of India, added.
S.
“A tax on profit kicks in only if you are making profit. It has already given a huge boost to so-
called investor sentiment, but these are all secondary market reactions.”
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However, there is also the view that corporate tax rate cuts will make Indian companies more
competitive globally, and will encourage foreign companies to invest in India, which could boost
private sector investments.
Corporate savings to rise

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“It will increase corporate savings and therefore, also investment and make Indian firms more
competitive,” said D.K. Srivastava, chief policy advisor, EY India.
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“They will also encourage investment from abroad into Indian companies because we will be on
par with comparable economies with regard to tax incidence.
The impact on the fiscal deficit, however, is under debate.

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The combination of the Rs. 1.45 lakh crore revenue foregone due to the cuts announced on
Friday, the fiscal impact of the various export and housing incentives announced recently and
lower-than-budgeted GST revenue is expected to total anywhere between 0.5-1% of GDP.
“In the Budget as presented, they had taken account of Rs. 90,000 crore from the RBI,” Dr. Sen
explained. “What they got was Rs. 1.76 lakh crore. So, the net gain was only Rs. 86,000 crore.
The net loss here [due to the corporate tax rate cut] is Rs. 1.45 lakh crore, so there is still a Rs.
59,000 crore hole because the impact of these cuts was not budgeted.”
“Let’s assume GST collections come in according to plan,” Mr. Sabnavis said. “This corporate
rate cut plus the incentives for exports and housing they announced will together come to 0.5%
of GDP. The fiscal deficit will definitely go from 3.3% to 3.7-3.8%. That is the range we are
looking at.”
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A RURAL STIMULUS: ON MGNREGA WAGE HIKE

Development
The government’s statistical machinery has begun work on revising the indices that capture the
trends in consumer prices experienced in rural India. This opens up the prospect for an upward
revision in the wages paid out to workers under the Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA). The current national average wage is just about 178
per day. The decision to finally embark on a long-overdue exercise is welcome, irrespective of
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the immediate trigger. The basket of items whose prices are tracked for constructing the
Consumer Price Index for Agricultural Labourers (CPI-AL), for instance, has not been updated
for at least three decades. Apart from essential spending on food, rural expenditure patterns
have altered significantly in the intervening period, making space for higher spending on
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services such as education, transport and, of course, telecom. But two-thirds of the dated
inflation index is still driven by food prices, which may effectively end up understating the price
pressures facing rural households. This depressant effect could be accentuated when low food
inflation coincides with decelerating farm incomes that still drive India’s rural economy. Once a
new basket is constructed, the Statistics Ministry, along with the Labour Bureau, plans to
improve the currency of the CPI-AL (to which MGNREGA wages are linked) and CPI-Rural
indices with annual reviews.
S.
If the index revision concludes soon enough, the Centre is geared up to notify updated
MGNREGA wages in the current fiscal year itself rather than wait for the onset of 2020-2021.
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This sense of urgency suggests the government views giving a fillip to the rural economy as a
critical tool to combat the headwinds of the slowing economy. The slowdown narrative (and the
Centre’s measures to address it) so far has been dominated by urban India’s consumption crimp
and easing the corporate tax structure, but the distress in villages where incomes are more
vulnerable is more disconcerting. The Reserve Bank of India, in its annual report, has pointed to
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weakening rural demand since the third quarter of 2018-19 as a serious concern and termed
reviving consumption as its top policy priority. Reflecting rural distress, demand for work under
the MGNREGA has been rising. With job creation in a flux and sentiment about the economy
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worsening, any move to put more money into rural households’ ‘sticky’ spending kitty would
likely have a better pay-off towards stirring up the economy than shopping fests and tax sops for
urban India.

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We turn 141! Check out our foundation day offer
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VIEW: LOWERING OF CORPORATE-TAX RATE WILL

WIDEN TAX NET
By Rajiv Memani
Finance minister Nirmala Sitharaman’s announcement on Friday to slash the basic corporate-tax
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rates to 22% for all domestic companies without tax exemptions or incentives, and 15% for new
manufacturing companies is a bold move. It is, indeed, the most significant corporate tax reform
after the goods and services tax (GST).
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The new rate should reduce the cost of capital and catalyse investments by repositioning India
as one of the most competitive economies. In a way, GoI has handed over its own corpus of
about Rs 1.45 lakh crore to India Inc to improve its balance-sheet. The alacrity with which it has
acted after a series of engagements with industry is commendable. It is now for India Inc to
rekindle its entrepreneurial spirit and make fresh investments.
S.
Some of the decisions announced are in alignment with the proposals made by the task force on
the new direct tax law. On the rate front, however, the reforms have gone much beyond those
recommendations. The option of a 17.01% effective tax rate for new domestic companies
incorporated after October 1, 2019, making fresh investments in manufacturing and
commencing operations by March 31, 2023, is one of the most competitive tax rates in the
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world.
Even for existing companies, the new effective tax rate of 25.17% is lower than the GoI’s own
estimate. Hitherto, the average effective tax rate for all profit-making companies, inclusive of
surcharge and cess, was, post-incentives, 29.49%. The option for companies to adopt
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concessional tax without exemptions and incentives lends fairness and simplicity, which should
encourage better compliance and reduce litigation.
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Corporate income tax (CIT) is 25% in China and Indonesia, and 30% in the Philippines. The new
rate for India becomes much closer to the OECD average of 21.4%. The US witnessed a far-
reaching impact after reducing its CIT to 21%. However, considering the combined impact of
state-level income tax applicable in the US, India will be more competitive than some US states.
This advantage will strengthen India’s position to leverage opportunities in the global supply
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chains being disrupted due to the US-China trade war.
There is also a sweetener in the form of exemption from minimum alternate tax (MAT), a huge
relief for companies, especially loss-making enterprises and those that have converged to Indian
Accounting Standards (Ind-AS). The exemption eliminates scope for litigation on accounting and
fair valuation adjustments.
There may be transitional adjustments for deferred tax assets and MAT credit as an accounting
offshoot of the corporate-tax reductions. But industry should not mind, given the larger interest of
substantial savings in future tax liability.
Another welcome measure is the relief from buyback tax for listed companies, which had
announced buyback plans before the Budget was announcement. The companies were worried
about the retrospective impact of the announcement, which made them liable to pay additional
Page 88
20% buyback tax. Recognising concerns, the FM has decided that tax on buyback of shares,
prior to the Budget announcement on July 5, for such companies won’t be charged. For any
future buyback arrangements, GoI should provide the right mechanism for estimating tax on
such transactions, so that investors do not suffer double taxation on the same capital.
Until now, companies were allowed to provide corporate social responsibility (CSR) funds to
technology incubators located within GoI-approved academic institutions. The expansion in the
scope of mandatory CSR spending of 2% by including payments to central or state government-
funded or recognised R&D institutions provides an opportunity to companies to better comply
with CSR requirements. It will also help channelise more funds towards research.
m
These announcements and other measures are estimated to make a dent of Rs 1.45 lakh crore
to government revenues. There have been arguments that, given the constrained fiscal
situation, any stimulus package may be precarious. However, the booster shot of low taxes was
much needed. If GoI accelerates disinvestment, the fiscal burden can be partially alleviated.
co
Moreover, lowering of corporate-tax rate will widen the tax net and gradually increase revenues.
Recent measures to stimulate exports and the housing sector, together with steps taken on the
consumption side, demonstrate GoI’s commitment to growth.
The writer is chairman, India, EY

S.
By Rajiv Memani
Finance minister Nirmala Sitharaman’s announcement on Friday to slash the basic corporate-tax
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rates to 22% for all domestic companies without tax exemptions or incentives, and 15% for new
manufacturing companies is a bold move. It is, indeed, the most significant corporate tax reform
after the goods and services tax (GST).
The new rate should reduce the cost of capital and catalyse investments by repositioning India
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as one of the most competitive economies. In a way, GoI has handed over its own corpus of
about Rs 1.45 lakh crore to India Inc to improve its balance-sheet. The alacrity with which it has
acted after a series of engagements with industry is commendable. It is now for India Inc to
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rekindle its entrepreneurial spirit and make fresh investments.
Some of the decisions announced are in alignment with the proposals made by the task force on
the new direct tax law. On the rate front, however, the reforms have gone much beyond those
recommendations. The option of a 17.01% effective tax rate for new domestic companies
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incorporated after October 1, 2019, making fresh investments in manufacturing and

commencing operations by March 31, 2023, is one of the most competitive tax rates in the
world.
Even for existing companies, the new effective tax rate of 25.17% is lower than the GoI’s own
estimate. Hitherto, the average effective tax rate for all profit-making companies, inclusive of
surcharge and cess, was, post-incentives, 29.49%. The option for companies to adopt
concessional tax without exemptions and incentives lends fairness and simplicity, which should
encourage better compliance and reduce litigation.
Corporate income tax (CIT) is 25% in China and Indonesia, and 30% in the Philippines. The new
rate for India becomes much closer to the OECD average of 21.4%. The US witnessed a far-
reaching impact after reducing its CIT to 21%. However, considering the combined impact of
state-level income tax applicable in the US, India will be more competitive than some US states.
This advantage will strengthen India’s position to leverage opportunities in the global supply
Page 89
chains being disrupted due to the US-China trade war.
There is also a sweetener in the form of exemption from minimum alternate tax (MAT), a huge
relief for companies, especially loss-making enterprises and those that have converged to Indian
Accounting Standards (Ind-AS). The exemption eliminates scope for litigation on accounting and
fair valuation adjustments.
There may be transitional adjustments for deferred tax assets and MAT credit as an accounting
offshoot of the corporate-tax reductions. But industry should not mind, given the larger interest of
substantial savings in future tax liability.
m
Another welcome measure is the relief from buyback tax for listed companies, which had
announced buyback plans before the Budget was announcement. The companies were worried
about the retrospective impact of the announcement, which made them liable to pay additional
20% buyback tax. Recognising concerns, the FM has decided that tax on buyback of shares,
co
prior to the Budget announcement on July 5, for such companies won’t be charged. For any
future buyback arrangements, GoI should provide the right mechanism for estimating tax on
such transactions, so that investors do not suffer double taxation on the same capital.
Until now, companies were allowed to provide corporate social responsibility (CSR) funds to
technology incubators located within GoI-approved academic institutions. The expansion in the
S.
scope of mandatory CSR spending of 2% by including payments to central or state government-
funded or recognised R&D institutions provides an opportunity to companies to better comply
with CSR requirements. It will also help channelise more funds towards research.
IA
These announcements and other measures are estimated to make a dent of Rs 1.45 lakh crore
to government revenues. There have been arguments that, given the constrained fiscal
situation, any stimulus package may be precarious. However, the booster shot of low taxes was
much needed. If GoI accelerates disinvestment, the fiscal burden can be partially alleviated.
Moreover, lowering of corporate-tax rate will widen the tax net and gradually increase revenues.
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Recent measures to stimulate exports and the housing sector, together with steps taken on the
consumption side, demonstrate GoI’s commitment to growth.
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The writer is chairman, India, EY
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TAKING CARE OF EXPENDITURE

Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Capital Market & SEBI
What is expense ratio?
Expense ratio, as the name suggests, is that part of a mutual fund scheme that takes care of
expenses related to managing the fund. It is used to meet the administrative, management and
other operating expenses of the scheme. Fund houses have to pay salaries to fund managers,
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commissions to distributors and other marketing costs. As per Securities and Exchange Board of
India (SEBI) regulations, all the expenses incurred while managing a particular scheme have to
be borne out of the scheme only.
How much is the expense ratio?
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As part of its measures to ensure that fund houses do not charge exorbitant amount or
percentage as expense ratio, the capital markets regulator has capped expense ratio limit.
Last year, the board of the regulator capped the maximum total expense ratio or TER at 2.25%
for open-ended equity schemes, some of which were earlier charging 2.75%.
S.
Though the cut looked marginal in terms of overall cap, the benefits are believed to be
significant as the regulator has also laid down various slabs based on the assets of the scheme
with the TER going down as the assets rise.
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For instance, if the assets under management (AUM) of a particular scheme is in excess of Rs.
50,000 crore then the TER has been capped at 1.05%. Earlier, any scheme with an AUM of
more than Rs. 300 crore could charge 1.75%. So, for large schemes, the expense ratio was
brought down by almost 70 basis points.
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According to SEBI's own estimates, the reduction in TER would lead to investors saving around
Rs. 1,300-1,500 crore in commissions.
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Is the expense ratio standardised?
No. As a fund house has to put in more efforts and money to increase the overall penetration
level of mutual funds to the far corners of the country, the regulator has allowed a higher TER for
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garnering flows from beyond the top cities of the country.
While lowering the cap for maximum TER, the SEBI allowed for an extra 30 basis points for
retail flows from beyond the top 30 cities.
More importantly, it has been mandated that the additional expense will not be allowed for flows
from corporates and institutions and will be limited only to retail flows.
Incidentally, all mutual fund houses, industry body Association of Mutual Funds in India (AMFI),
along with SEBI have been putting in a lot of effort to channelise more household savings from
far-flung towns into the stock markets through the mutual funds’ route.
For a scheme whose total assets exceed Rs. 50,000 crore, the total expense ratio is
capped at 1.05%
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SEEKING TO SECURE: ON LINKING AADHAAR-GST

REGISTRATION
Ever since the Centre and the States passed the landmark legislation in 2016 adopting a single
countrywide Goods and Services Tax (GST), the federal council that is tasked with overseeing
all the regulatory aspects of the indirect tax has had its hands full. From recommending the rates
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that could apply to various products and services, to deciding on what could be tax exempted,
the GST Council has had the onerous task of laying out the policy framework for administering
the tax in a manner that benefits all stakeholders – the governments, the consumers and the
suppliers along the value chain. Given the complexity of the legacy taxes that GST subsumed
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and replaced and the teething troubles of operating a new tax system, ensuring optimal
outcomes has proved an abiding challenge. A significant concern relates to the loopholes that
unscrupulous operators have sought to exploit, whereby revenue that ought to have accrued to
the Centre and the States has leaked while allowing these elements to derive illicit profits. And
the scale of some has been breathtaking. Earlier this month, the Directorate General of GST
Intelligence and the Directorate General of Revenue Intelligence conducted a pan-India joint
S.
operation, which saw about 1,200 officers simultaneously conducting searches at 336 different
locations. In the process they unearthed a network of exporters and their suppliers who had
connived to claim fraudulent refunds of Integrated GST, with more than 470 crore of input tax
credit availed being based on non-existent entities or suppliers with fictitious addresses. A
further 450 crore of IGST refund is also under review.
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It is against the backdrop of such cases, and the fact that frauds totalling up to a staggering
45,682 crore have been detected since the roll-out of the tax in July 2017, that the GST Council
has decided “in principle” to recommend linking Aadhaar with registration of taxpayers. In its
37th meeting in Goa on Friday, the council also agreed to appraise the possibility of making the
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biometrics-based unique identifier mandatory for claiming refunds. Already the GST Network —
the information technology backbone on which the whole tax system runs — has made it
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mandatory for new dealers registering under the composition scheme for small businesses to
either authenticate their Aadhaar or submit to physical verification of their business, starting
January 2020. The council too needs to follow the network’s lead and move swiftly to
recommend mandatory linking for refunds, especially since that has proved to be the main
source of most frauds. In a becalmed economy, neither the Centre nor States can afford to
forego even a rupee of revenue that is due to the public coffers.
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Source : www.livemint.com Date : 2019-09-23
OPINION
Friday’s big tax cuts should enhance business competitiveness, help revive investment and
stimulate growth. The fiscal deficit, though, should not be allowed to spin out of control
On Friday, finance minister Nirmala Sitharaman left corporate India and stock markets giddy
with excitement over a powerful fiscal stimulus worth 1.45 trillion in tax cuts. In a single stroke,
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the basic rate of corporate tax for companies that do not avail of exemptions was slashed to
22%, even below the 25% that India Inc. has long lobbied for. To attract new investment, a
special low rate of 15% will apply to new manufacturers. Other levies were lightened, too. The
bonanza’s surprise sent stock indices and hopes of an economic upturn soaring. If the package
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galvanizes industry, it could well reverse the economy’s growth downtrend in the near term. At a
broader level, the move signals a shift in New Delhi’s fiscal stance away from its “glide path".
Given the poor tax collections so far this year, it’s now clear that the deficit target of the Union
budget—set at 3.3% of gross domestic product (GDP)—will be overshot by a fair margin. This,
however, has been judged necessary to get growth back on an incline. Loosening government
finances, after all, is a textbook response to a cyclical downturn. Deficit reduction can wait for
better times.
S.
For large corporations, a reduction in the effective tax burden, which includes a surcharge, from
some 34% to about 25% spells more than improved profitability. Better prospects for higher
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returns-on-investment would turn them more attractive to global investors, which should ease
their access to capital. Extra profits could be used to reward shareholders, plough back into
business, or cut the prices of products in a bid to sharpen an edge in either domestic or foreign
markets. In general, taxes closer to levels that prevail in competing economies should enhance
the global competitiveness of Indian businesses, which in turn ought to give a fillip to domestic
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investment and exports.
The thing with fiscal stimulation, though, is that it cannot be done over and over again without
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posing macroeconomic risks. Such a stimulus is best administered as a one-off shot. Once the
job is done and growth picks up, the fiscal deficit would need rapid reduction. If the government
spends vastly more than it earns for a sustained period, say, for more than a year or two, then
other macroeconomic variables could go badly out of whack. Inflation could surge, for example,
as happened in the second term of the Manmohan Singh government. The Narendra Modi
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dispensation has largely resisted the temptation. Not just that, it has admirably tasked the
Reserve Bank of India (RBI) with keeping the rise of retail prices capped under 6% a year. While
it is true that a little extra inflation right now may help India Inc., that upper limit must not be
violated in the months ahead. To help RBI with this, the Centre would be well advised not to let
its deficit expand beyond 4% of GDP. If tax revenues do not pick up strongly enough, it should
consider getting more aggressive with disinvestment than planned. With so many budget
assumptions now revised, other numbers may turn into moving targets as well. In this scenario,
it needs all the flexibility it can summon. As a fiscal enabler, it could consider amending the
Fiscal Responsibility and Budget Management Act right away to permit sharper deviations from
the glide path towards 3% of GDP. Once animal spirits roar back, it will be easier to achieve this
figure.
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R. KRISHNAMURTHY
Human hand holding money sack in hands vector illustration isolated on plain background.
The initial enthusiasm of market analysts to the bank merger announcement is giving way to
wariness and scepticism. There is a feeling that the potential benefits would take several years
to show up and, meanwhile, the turbulence in the banks could take a toll on the real economy.
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The merger move demonstrates once again the lackadaisical approach of policy planners in
implementing sensible banking reforms in Public Sector Banks (PSBs), first mooted by the
Narasimham Committee more than a quarter century ago. While the committee had cautioned
against merging weak banks, the government has ended doing precisely that. The consolidation
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should have been a gradual and calibrated exercise resulting in a smaller number of well-
capitalised and professionally managed PSBs with a sound governance structure. Instead, what
has come is a shotgun ‘reform’ decision at a time when PSBs are in deep malaise.
A key concern about merging the ten PSBs into four in one stroke is a lack of clear articulation of
the rationale behind bringing disparate and weak banks together, some of whom were still under
S.
the Reserve Bank of India’s Prompt Corrective Action (PCA). Further, such merger
announcements generally trigger confusion, anxiety and insecurity in staff, leading to a
slowdown in business. When decades-old brands are suddenly obliterated, there is widespread
dismay. Poor communication within PSBs exacerbates the challenges. The smooth manner in
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which SBI merged five of its associate banks (ABs) in 2017 is not a relevant example in this
regard. SBI had managed the ABs over the years with its own senior team, and all associates
had already been functioning on common technology platform. In fact, left to its own, SBI would
have preferred a gradual acquisition. The merger was forced upon it in the worst year of its
history.
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The efficiency gains from the mergers for large PSBs would be largely illusory in the absence of
a sound management with a vision for the future. The post-merger scale economies that large
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international banks seek to achieve with ruthless measures are not feasible in India. Our
objective should be to create bigger PSBs that can mirror the efficiency parameters of leading
private sector banks here. The chief goal should be to reverse the decline in the PSBs’ Return
on Equity (RoE) after investing considerable sums in bringing them on a common technology
platform, and introducing better risk management measures. The merged entities should
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become agile and capable of meeting the challenges in retail and mass market segments from
private players and open banking sources.
To smoothen the merger process, six measures may be worth considering. First, it needs to be
ensured that there is no leadership vacuum in the anchor banks. Mergers require strong skills in
thought leadership, results leadership and people leadership. The technical skills needed for
integration planning, transforming business support functions and value build-up have to be
cultivated. There is a strong need to revamp Human Resources (HR) practices and culturally
integrate the expanded workforce through sustained training initiatives.
It is vital to give the current heads of anchor banks a three-year term, or a tenure that lasts till
the incumbents reach the age of 62 years, to avoid uncertainties in managing the
transformation, and to enable the chiefs develop a second line. It is equally important that the
top leadership comes from within the banks based on performance. The practice over the years
of shuffling senior executives from one PSB to another has done more harm than good.
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Second, there is a need to recruit professionals from the market in key areas of technology, HR
and risk management, in all of which PSBs are grossly under-equipped. Such recruitments
should obviously be at market pay, which is the norm in joint ventures promoted by PSBs such
as SBI.
Third, PSBs should not be found wanting when it comes to recruitment and training of front-line
staff. There is a fear that the ‘merger wave’ may sink fresh hiring. While there will be
rationalisation of headcount due to voluntary exits spurred by relocation and other compulsions,
many staff members moved across their former banks may be less than suitable for the new
roles. A buoyant exercise of recruitment and training is vital.
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Fourth, the government should actively plan steps to offset a possible slow expansion in bank
credit in the near term. There is a decelerating trend in loan approvals by PSBs, as brought out
in the last RBI report on Trend and Progress of Banking. More risk aversion on the part of
bankers, coupled with their internal preoccupations, could further slacken credit growth. Loan
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melas and directed lending measures would not be the ideal solution. Instead Non-Banking
Financial Institutions (NBFCs), which have a better understanding of the market needs, need to
be tapped to ensure better credit flow. In terms of size, NBFCs are about 15% of the combined
balance sheet of all banks. They should be enabled to step in more actively to fill the gap in
funding Small and Medium-sized Enterprises, which are facing real issues as regards credit
availability.
S.
Here, it may be good to consider expanding the scope of the partial credit guarantee scheme
announced in this year’s budget to cover all NBFCs treated as Asset Finance Companies,
instead of restricting it to the top-tier NBFCs, which any way have access to multiple sources.
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The proposed six-month guarantee could also be raised to two years to build a sustained
momentum.
Further, the Credit Guarantee Fund Trust for Micro and Small Enterprises managed by SIDBI
may be revamped to assist more NBFCs. Drawings by NBFCs constitute just 7% of the
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disbursements made so far, and smaller firms are not even aware of this option.
Fifth, the government should resolve the tangles in the ownership of the merging PSBs in
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insurance, asset management and other ventures. Some ventures involve foreign partners, and
some are market-listed. The anchor banks should be free to take the best course that would
optimise the value of such investments.
Lastly, the government should consider converting a few ‘weak’ PSBs outside the merger into
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regional banks. This was one of the recommendations of the Narasimham Committee. Banks
such as Bank of Maharashtra and Punjab and Sind Bank that have spread manpower, network,
and resources thin could be turned into vibrant regional institutions to serve agriculture, trade
and commerce.
While such consolidation can result in handsome productivity gains, what matters is the quality
of execution by a stable and committed leadership, aided by a shrewd and benign ownership.
R. Krishnamurthy is the former Managing Director and CEO of SBI Life Insurance. He was
Officer on Special Duty at the Dept. of Economic Affairs, Ministry of Finance

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THE ATTACK ON AGROECOLOGY

Relevant for: Indian Economy | Topic: Agriculture Issues and related constraints
Agroecology is recognised worldwide as a system that enhances fertile landscapes, increases

yields, restores soil health and biodiversity, promotes climate resilience and improves farmers’
well-being. Its practices are supported by many agricultural scientists, the Food and Agriculture
Organization, the Intergovernmental Panel on Climate Change, farmers’ groups and several
NGOs. It is therefore surprising that the National Academy of Agricultural Sciences, based on a
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brainstorming session that included industry representatives, sent a letter to Prime Minister
Narendra Modi opposing Zero Budget Natural Farming (ZBNF). ZBNF, developed and
publicised by agro-scientist Subhash Palekar, has been adopted by Andhra Pradesh.
Farming in India, as in most other countries, is largely under the control of powerful lobbies with
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vested interests and connections to deep pockets. These include fossil fuel, fertilizer and seed
companies as well as scientists with funding connections to agribusiness. These lobbies
perceive large-scale transitions to agroecology as a substantial threat to their influence on
farming systems. If India, a large developing country, shifts to sustainable farming methods, they
would all have to look elsewhere for support. The battlelines are drawn and when natural
farming, still a small player in the margins, starts to move towards the centre, shrill voices in
opposition are likely to get louder.
S.
In Britain, when public hearings were held in the early 2000s to discuss genetically modified
(GM) crops, corporations threatened to pull grants from scientists on the committees if they
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voted against GM. When individual scientists in Europe and the University of California
published articles describing how GM foods and crops affected the health of human beings and
insects adversely, they were personally attacked and vilified. When glyphosate trials against
Monsanto were recently decided in favour of litigants who accused the company of causing
cancer, some voices called to have only scientists on such juries, thus opposing the central
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tenet of “a jury of one’s peers”.
What hangs in the balance while these battles are being fought is the threat to food systems and
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biodiversity. As a result of industrial farming, friendly insects are no longer part of the agricultural
landscape, water pollution is rampant, depleted soils are commonplace and plunging
groundwater tables have become the norm. The opportunity cost incurred from investing only in
industrial methods of agriculture is one that has been borne largely by the farming community
and the natural systems.
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That scientific enquiry and scientists are part of a paradigm of belief systems has been
established, at least since Thomas Kuhn’s Structure of Scientific Revolutions. Support from
corporations for research has become part of “normal” science. The problems with this
normalisation in medicine, pharmaceuticals and university research have been described in
numerous studies. Assessment of an issue by scientists does not by itself guarantee its
legitimacy or truth.
The current battle on ZBNF is between those powerfully entrenched and new voices of state and
civil society. Mr. Palekar’s words too have been jarring on some topics. Quarrels among the
powerful in one camp or another have become a clash of egos, where substantive matters are
lost in semantics and jargon, often taken out of context. There are many successful
agroecology-based methods in India, so mudslinging among groups can also be a distraction.
The most prominent voice for ZBNF is Mr. Palekar’s and the developing experiment is showing
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success largely because farmers are supporting it. The practice may not be all zero budget, may
not be fully successful everywhere and will need to be adapted to India’s various agroecological
zones. The funds for the Andhra model (16,500 crore) are reportedly going mostly to train
farmers. This is small in comparison with huge subsidies for the Green Revolution and the
numerous lobbies it has spawned. So, while the enemy is being made out to be Mr. Palekar and
his methods, this is a red herring. The real attack is on agroecology, for the threat it poses to
entrenched institutions.
We presently have a subsidy-based agricultural system where farm inputs are firmly in the
hands of corporations and their elite networks. Agroecology-based farming is not regressive, but
rather a technology of the future with a traditional idiom. Farmers appear to be listening to and
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following Mr. Palekar. If policymakers ignore the posturing and stay focussed on improving soil
health and quality of life for farmers, while observing and supporting successes, farmers may
even double their incomes and India’s food security could sow new beginnings.
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Sujatha Byravan is a scientist who studies science, technology and development policy
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Source : www.livemint.com Date : 2019-09-25
WHY THE BROAD TRAJECTORY OF ALL TAXES IN

INDIA IS DOWNWARDS
The focus this year should be on growth rather than the impact of a fiscal stimulus on our deficit
Last Friday, finance minister Nirmala Sitharaman announced the single biggest corporate tax
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rate cut in Indian history, by bringing down the effective tax rate to about 25% for all domestic
companies. For new manufacturing companies set up after 1 October, the rate is down to
15%—among the lowest in major economies.
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These cuts, and changes to rescind the levy of a surcharge on capital gains tax, will cost the
exchequer over 1.45 trillion. The real loss may be lower, since the new rate applies only to
companies that claim no other tax benefits provided under other provisions of the Income-Tax
Act. Any spur to economic activity may also improve indirect tax collections after a lag. But one
must note the uncanny similarity between the gross revenue-loss figure and the capital and
dividend transfers announced by the Reserve Bank of India (RBI) a month ago.
S.
The 1.76 trillion RBI “bonanza" was widely seen as some kind of favour to the government
resulting from executive arm-twisting of the central bank, but the net receipts this year will—after
deducting the interim dividend already paid last year—amount to just 1.48 trillion. Almost the
entire “bonanza" has been put to good use to revive animal spirits in the economy. This is
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commendable.
The second point worth making is that the overall trajectory of all taxes—direct and indirect—will
be downward in the foreseeable future. Reason 1: Growth has to be domestically led when
protectionism is growing globally, which makes tax spurs as important as factor market reforms.
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Reason 2: When the corporate tax rate is 25% at the top end, it does not make much sense to
retain the personal tax rate at 30%-plus, including surcharges. While the finance minister has
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said there is no plan to reduce personal tax rates any time soon, it’s likely to happen at some
point.
The personal tax rate structure is skewed—with the rates being 5%, 20%, and 30%. If the top
rate is retained at 30%, the logical bottom rate should be 10%, and not 5%. The gap between
the first slab and the second is 15%, while that between the second and top slabs is 10%. This
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is illogical and needs modification. Assuming that the bottom slab is not raised, it is the 20% and
30% slabs that will need reduction to 15% and 25%. In the alternative, the base for each bracket
needs raising, which too results in lower taxes. One can assume that when resources permit,
everybody’s personal tax outgo will fall.
A stronger reason for expecting tax rates to come down further is the goods and services tax
(GST), which impacts small and proprietary businesses adversely. If one is forced to declare a
higher turnover to the GST Network, showing personal incomes at low or below taxable limits
will be difficult to defend. GST pressure forces proprietary and small businesses to show higher
personal incomes. To address this large constituency, which is upset over this double-pressure
from GST and income tax, personal taxes in general have to come down.
The announcement of the big corporate tax cut also signals a key government realization: that if
animal spirits are to be ignited, the exchequer has to be willing to take a fiscal risk. India cannot
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afford growth to fall below 5%, as it will directly impact jobs and incomes. India’s fiscal ayatollahs
are already wringing their hands in despair about how the massive tax cut will impact the budget
deficit, but this is as wrong-headed as the huge interest rate blunders committed by the
Monetary Policy Committee (MPC) after demonetization. The MPC targeted non-existent
inflation when growth was flagging. It would be equally wrong for today’s fiscal fundamentalists
to talk about the rising trend in the deficit as some kind of Frankenstein’s monster.
There is little chance of the fiscal deficit coming down without a revival of growth.
Mathematically, the deficit is the numerator while gross domestic product is the denominator; a
shrinking rate of growth will make the fiscal deficit worse, not better. The time to worry about the
fiscal deficit would be next year, or even the year after. This year, our only priority should be to
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get growth up.
Some economists have said—not unreasonably—that the corporate tax cut will address the
supply side of growth, but not the demand side. They are right. Logically, a demand side
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stimulus is also called for. This may be difficult this year. But in the next fiscal, it should be
possible to increase rural demand by enhancing the PM Kisan Samman by another 6,000 per
annum, thus adding 85,000 crore to rural incomes, in addition to what is available under the
MGNREGA make-work scheme. GST tax cuts could take place if growth begins to show an
uptick in indirect tax collections by the second half of this year.
S.
Even otherwise, a supply side stimulus like a corporate tax cut can also be used as a demand
side stimulus. For that, enlightened companies will have to use the extra money to cut prices
and innovate, rather than just swallow it by paying their shareholders higher dividends. The
assumption that only the government can provide a demand stimulus is wrong. India Inc should
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do its bit, now that the government has responded to its cries for help.
R. Jagannathan is editorial director, ‘Swarajya’ magazine

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KASHMIR’S SAFFRON CROP GETS GI TAG

Relevant for: Indian Economy | Topic: Issues relating to Intellectual Property Rights (IPRs)
Kashmir’s famed saffron has finally been granted the Geographic Indication (GI) tag, which is
likely to boost its market and ensure quality control. Officials said the final meeting regarding the
tag was held on September 23 in New Delhi.
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Page 104
A HUNDRED SMALL STEPS

Relevant for: Indian Economy | Topic: Public Distribution System: Objectives, Functioning, Limitations &
Revamping

All Rights Reserved
The writer works on digital identity with Omidyar Network.
m
The writer works at Omidyar Network India, an investment firm focussed on social impact
through equity investments and grants, with an emphasis on technology.
On Independence Day this year, Prime Minister Narendra Modi called for national integration
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through several “one nation” initiatives such as a singular mobility card, tax regime and
electricity grid. One such initiative, “One Nation, One Ration Card”, is meant to enable a resident
from, say, Darbhanga, to access her food rations in Patna or Mumbai. The Ministry for Food and
Public Distribution has commenced pilots between Maharashtra-Gujarat and Andhra-Telangana,
and has committed to a national rollout by June 30, 2020.
S.
The Economic Survey 2017 estimated that over nine million Indians change their state every
year. For them, the “One Nation, One Ration Card” is a gamechanger because it makes their
rations “portable”, allowing them to pick up foodgrains from any ration shop in the country. It also
benefits nonmigrants by allowing them to transact at better-performing shops locally. This local
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“choice effect” is extremely popular in Andhra Pradesh, which has introduced such portability
within the state since October 2015. A study by researchers at the Indian School of Business
(ISB) found that over 25 per cent of Public Distribution System (PDS) beneficiaries in the state
now use portability.
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However, we must approach this bold vision with utmost caution because PDS is a crucial
lifeline for many of the 800 million Indians it reaches. It provides them with at least 5 kg of grain
per person per month, equivalent to 25 per cent of an individual’s recommended calorie intake.
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Even well-intentioned changes that shock the system can therefore have potentially catastrophic
outcomes for some. In 2017, it was reported that a 11-year old Dalit girl named Santoshi Kumari
from Jharkhand died when her family was unable to access rations in the aftermath of large-
scale revisions in the beneficiary list. Over 18 starvation deaths have been reported in the state
since September 2017. Such tragedies must be prevented at all costs and we should therefore
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be cautious while restructuring the program.
We believe that three considerations are important to keep in mind while thinking about the “One
Nation, One Ration Card” initiative. First, fundamental processes related to the PDS need to be
redesigned to empower every individual. The State of Aadhaar Survey 2017-18 found that
nearly 6.5 per cent of PDS beneficiaries in Rajasthan were denied ration because the
shopowner claimed to be out of food grain. This translates to over 3.5 million people in
Rajasthan alone. A beneficiary has no mechanism to question whether the shop owner is telling
the truth or diverting rations. Portability and biometrics will not solve this problem completely.
Portability in Andhra Pradesh does well because it exists in an environment of accountability of

ration shops. The state government collects feedback in real time through a mobile-based
system. The central government should use this opportunity to make PDS more user-centric. It
should track denial of service on a real-time basis through mobile-based surveys. It should
commission research on the experiences of particularly vulnerable groups such as the elderly,
Page 105
migrants, disabled and tribals to modify the process where needed. It should enable
beneficiaries to track the amount of food at nearby ration shops using their
mobile phones.
Second, the operational backbone of the PDS needs to be restructured to promote portability.
States should be brought together on a national platform that is based on the same technical
standards and can therefore “speak” to each other (what technologists call “interoperability”), so
that portability works seamlessly across states. The system should be based on what
technologists call “open APIs” so that states can customise the user interface to their local
needs, and add features and additional entitlements as they deem fit. The system should enable
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real time tracking of inventories and rapid response to low stock situations.
Thirdly, while leveraging the power of Aadhaar for PDS, the government should actively address
privacy and exclusion risks that the use of Aadhaar and a centralised PDS platform can lead to.
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In early 2018, the UIDAI introduced privacy protecting features such as virtual ID and
tokenisation. However, few actually use them. The government should enable every section of
society to understand and use these features through both online and offline methods. The
government should also acknowledge that authentication failures will happen in any biometric
system. Studies by ISB in multiple states point to a 1-3 per cent failure rate, potentially affecting
8-24 million people at a national scale. To prevent denial of service, the government should
S.
ensure availability of non-biometric means of authentication (such as OTP or PIN), as well as
manual overrides.
In conclusion, we suggest that the central government adopt a patient path of “a hundred small
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steps” while implementing this vision. It should start by encouraging all states to roll out within-
state portability. This will also increase their operational and technical capacity. In the meantime,
it should work on a national technical platform that works for all states. Such a gradual rollout will
prevent transition glitches that show up as harmless statistics in reports, but are a matter of life
and death for millions in our country. We owe this to Santoshi, and to many others like her.
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The writers work at Omidyar Network India, an investment firm focussed on social impact
through equity investments and grants, with an emphasis on technology
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Page 106
Source : www.prsindia.org Date : 2019-09-26
THE TAXATION LAWS (AMENDMENT) ORDINANCE,

2019
● The Taxation Laws (Amendment) Ordinance, 2019 was promulgated on September 20,
2019. The Ordinance amends the Income Tax Act, 1961, and the Finance (No. 2) Act,
2019. The Ordinance provides domestic companies with an option to opt for lower tax
m
rates, provided they do not claim certain deductions. It also amends certain provisions
regarding levy of surcharge on income from capital gains.
Income tax rate for domestic companies: Currently, domestic companies with annual
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●
turnover of up to Rs 400 crore pay income tax at the rate of 25%. For other domestic
companies, the tax rate is 30%. The Ordinance provides domestic companies with an
option to pay income tax at the rate of 22%, provided they do not claim certain
deductions under the Income Tax Act. These include deductions provided for: (i)
newly established units in Special Economic Zones, (ii) investment in new plant or
S.
machinery in notified backward areas, (iii) expenditure on scientific research,
agriculture extension, and skill development projects, (iv) depreciation of new plant
or machinery (in certain cases), and (v) various other provisions in the Income Tax
Act (under Chapter VI-A, except the deductions provided for employment of new
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employees).
● Income tax rate for new domestic manufacturing companies: The Ordinance provides
new domestic manufacturing companies with an option to pay income tax at the rate
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of 15%, provided they do not claim certain deductions under the Act (as specified
above). New
manufacturing companies include companies which will be set up and registered
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after September 30, 2019, and will start manufacturing before April 1, 2023. These will
not include companies: (i) formed by splitting up or reconstruction of an existing
business, (ii) engaged in any business other than manufacturing, and (iii) using any
plant or machinery previously used in India (except under certain specified
conditions).
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● Applicability of new tax rates: Companies can choose to opt for the new tax rate (15%
or 22%, whichever is applicable) starting the financial year 2019-20 (i.e. assessment
year 2020-21). Once a company has exercised this option, the chosen provision will
apply for all the subsequent years.
● Surcharge on tax payable at new rates: Currently, domestic companies with income
between one crore rupees and Rs 10 crore are required to pay a 7% surcharge on
tax. Those with an income of more than Rs 10 crore are required to pay a 12%
surcharge on tax. The Ordinance provides that companies opting for the new tax
rates (15% or 22%, whichever is applicable) are required to pay a 10% surcharge on
the tax payable by them under the respective provisions.
Page 107
● Minimum Alternate Tax (MAT): The Ordinance reduces the MAT rate from 18.5% to
15% with effect from the financial year 2019-20. MAT rate is the minimum percentage
of profit that a company is required to pay as tax, in case its tax liability falls below
this threshold after claiming deductions under the Act. The Ordinance specifies that
MAT will not apply to the domestic companies opting to pay tax at the new rates.
● Surcharge on capital gains: Tax and surcharge are levied on capital gains arising
from transfer of securities in certain cases. These include: (i) capital gains to foreign
institutional investors from securities (other than the units purchased in foreign
m
currency), and (ii) capital gains to individuals, body of individuals, and association of
persons from certain short-term and long-term securities liable to securities
transaction tax (i.e., equity shares in companies and units of equity oriented funds
and business trusts).
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● In these cases, surcharge is applicable at the rate of: (i) 10% of tax, for income between Rs
50 lakh and one crore rupees, (ii) 15% of tax, for income between one crore rupees and two
crore rupees, (iii) 25% of tax, for income between two crore rupees and five crore rupees,
and (iv) 37% of tax, for income more than five crore rupees. The Ordinance allows
deduction of capital gains (as specified above) from the total income when the total income
S.
exceeds two crore rupees. Further, in such cases, after deducting capital gains, if the
revised total income is less than or equal to two crore rupees, surcharge will be levied at a
flat rate of 15% of tax.
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● Tax on buy-back of shares: Buy-back of shares refers to a company purchasing its
own shares. When such purchase generates income for the company (because of an
increased share price in comparison to the original issue price), the company is
required to pay 20% tax on the income so generated. The Ordinance exempts certain
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listed companies from this requirement. These are companies which made a public
announcement regarding buy-back of shares before July 5, 2019 (as per the
provisions of the Securities and Exchange Board of India (Buy-back of Securities)
ac
Regulations, 2018).
DISCLAIMER: This document is being furnished to you for your information. You may choose to reproduce or
redistribute this report for non-commercial purposes in part or in full to any other person with due
cr
acknowledgment of PRS Legislative Research (“PRS”). The opinions expressed herein are entirely those of
the author(s). PRS makes every effort to use reliable and comprehensive information, but PRS does not
represent that the contents of the report are accurate or complete. PRS is an independent, not-for-profit
group. This document has been prepared without regard to the objectives or opinions of those who may
receive it.
END
Page 108
INSTITUTIONS WEAKENED, ECONOMY CRIPPLED

Illustration and Painting
Nobel laureate Oliver Williamson pondered over an important question, around 25 years ago:
“Why are the ambitions of economic development practitioners and reformers so often
disappointed?” According to him, “one answer is that development policymakers and reformers
m
are congenital optimists. Another answer is that good plans are regularly defeated by those who
occupy strategic positions. An intermediate answer is that institutions are important, yet are
persistently neglected in the planning process.”
The question and all the three answers assume relevance in the context of India’s recent
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economic performance. The slowdown in GDP growth rate has been dissected, digressed and
disowned by analysts, commentators and policymakers. However, the diagnosis is far from
complete and the growth engine is running out of fuel. Both the demand- and supply-side factors
have been central in all the analyses, but the crucial role of institutions in shaping the outcomes
of both the factors in this episode of slowdown has been neglected. This has resulted in a series
of banal policy measures for reviving growth.
S.
A market-centred economic model necessitates creating and sustaining credible institutions that
further the efficiency of market mechanism. Given the possibility of ‘market failures’, such
institutions assume a larger role in the economy in shaping expectations and decisions.
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Journalist Henry Hazlitt grouped the pillars of market economy into private property, free
markets, competition, division and combination of labour and social cooperation. Institutions are
needed to strengthen these foundational pillars are a prerequisite for markets to work.
The credibility of three such important institutions — the Reserve Bank of India (RBI); the
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Central Statistical Organisation (CSO); and the Planning Commission/NITI Aayog — has taken a
beating in recent times.
ac
The RBI, which was clamouring for more autonomy, has been systematically brought under the
ambit of the Central government. Starting from the sidelining of the central bank on the important
issue of currency demonetisation, the attempt has been to steadily erode the central bank’s
independence. A three-pronged strategy resulted in this — first, the RBI was bypassed on
matters relating to currency; second, its role as regulator of the banking sector was questioned
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when banks faltered; and, finally, its reserves were siphoned. The net result has been that the
RBI has been reduced into an institution which presides over a limited space of monetary policy,
that is, inflation targeting.
It is also interesting to note that the only major policy tool available in the RBI’s armoury is
cutting repo rates, which the central bank did four times this year. The last time the RBI made so
many back-to-back cuts was after the global financial crisis over a decade ago, when most
major central banks were desperate to revive economic growth. However, rate cuts alone could
not help India’s economy this time, as banks, saddled with bad debt, were slow to reduce
lending rates. This provides a classic case of an institution’s weakening, leading to questions on
its role and credibility.
Markets, which work on information and expectations, rely on official data to arrive at decisions.
In an era of ‘big data’, we find that India’s official data procuring and publishing agency has been
crippled. Often we find that the official series, ranging from national accounts to unemployment,
Page 109
has been smothered with repeated revisions and change of data definitions. When data that
needs ‘approval’ before release, as in the case of the unemployment data, questions are bound
to arise on the credibility of the numbers. The veracity of the data is to be tested by researchers
and the public who consume the data and not by ‘approving agencies’. It is altogether another
matter that had we had admitted that the rate of unemployment was high, perhaps more private
investment could have come due the expectations of finding labour at lower wages. Such a
possibility was shut out by an attitude of denial on the part of the government.
NITI Aayog presents the case of an institution that lost its character in the process of
transformation. By abolishing the erstwhile Planning Commission and transforming it into the
NITI Aayog, the government lost the space for mid-term appraisals of plans and policies. Course
m
correction and taking stock of the economy have now become routine exercises, with uncritical
acceptance due to a lack of well-researched documents.
As another Nobel laureate, Douglass North, opined: “Institutions are the rules of the game in a
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society or, more formally, are the humanly devised constraints that shape human interaction.”
Institutions are formed to reduce uncertainty in human exchange. Together with the technology
employed, they determine the costs of transacting (and producing). While the formal rules can
be changed overnight, as has been practised by the present government, the informal norms
change only gradually. S.
In this context, it is useful to focus on understanding and reforming the forces that keep bad
institutions in place, especially political institutions and the distribution of political power. This
requires understanding the complex relationship between political institutions and the political
equilibrium. Sometimes, changing the political institutions may be insufficient, or even
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counterproductive, in leading to better economic outcomes as has been the case in India in
recent times. The use of high-quality academic information, which the present establishment
lacks, is valuable both to think about these issues and generate better policy advice.
M. Suresh Babu is a Professor at IIT-Madras

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END

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