Banking News Dated 26 September 2017

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Banking News: September 26, 2017

Wishing you all
a very happy Durgapuja


Banking News Dated 25 September 2017

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Banking News: September 25, 2017

State Bank of India Launches Management Institute in Kolkata

State Bank of India Launches
Management Institute in Kolkata

The Business Line
Published on September 25, 2017

At present, SBI has six training institutes across the country.

Kolkata, September 23: The country's largest lender, State Bank of India unveiled its sixth apex management training facility in Kolkata today. Named as State Bank Institute of Management (SBIM), the facility was launched by SBI chairman Arundhati Bhattacharya, a statement by the bank said.


Banking News Dated 22 September 2017

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Banking News: September 22, 2017

Financial inclusion providing the entire range of banking services: Arundhati Bhattacharya

Financial inclusion providing the entire range
of banking services: Arundhati Bhattacharya

The Press Trust of India
Published on September 21, 2017

India has taken a series of steps to ensure the common man has access to financial services, SBI chairman Arundhati Bhattacharya said as she called for collaboration among the government, the banking system and the technology providers to make it successful.

New York, September 21 (PTI):  India has taken a series of steps to ensure the common man has access to financial services, SBI chairman Arundhati Bhattacharya said as she called for collaboration among the government, the banking system and the technology providers to make it successful.

“Financial inclusion as we see it today is not only providing the entire range of banking services, but also insuring that we provide opportunities for investment, insurance and pension products to every single Indian, no matter how small or how remote,” Bhattacharya said in her address at the Bloomberg Global Business Forum yesterday.


Banking News Dated 21 September 2017

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Banking News: September 21, 2017

AIBOC urges RBI Governor to rein in mis-selling of Insurance, MF Products in banks

AIBOC urges RBI Governor to rein in
mis-selling of Insurance, MF Products in banks

Vinson Kurian
The Business Line
Published on September 21, 2017

Thiruvananthapuram, September 20:  The All India Bank Officers’ Confederation has urged the Reserve Bank Governor to take urgent steps to stop the menace of forced cross-selling of third party products in public sector banks.

The regulator should go beyond the token gesture of issuing a circular and act decisively, according to DT Franco, General Secretary of the confederation.

Individual Incentives:

Business priorities have come to concentrate heavily on cross-selling of insurance and mutual fund products, ensuring greater individual incentives than core businesses that contribute most to banks’ profits.

With the passage of time, the system of incentivising has led to banks drifting away from their core businesses, Franco said in a letter to the Governor.

Aggressive cross-selling has led to forced selling and, in turn, to mis-selling. Hardly any interest is shown in renewal premiums anymore.

What seems to promote this unethical mis-selling business is the hefty commission paid to the banker who colludes with superiors to ‘close a particular deal,’ Franco said.

The commission received by the respective banks (by virtue of being institutional agents) is meagre as the major portion is taken by the bosses themselves.

Paid In Kind, Too:

In a sale made by a branch level officer, the commission is largely shared by him, his branch head, regional managers, deputy general managers and links to the very top.

Commissions are not only paid in cash, but also in kind in the form of foreign tours, gala parties and cocktail dinners.

However, mis-selling is not limited to public sector banks alone, it also exists in private sector banks, Franco said.

He recalled that cross-selling was introduced to accelerate profit by diversifying activities based on a bank’s network and customer base without associated risk.

The platform could be leveraged to ensure customer loyalty and inter-dependency with a sustained relationship to ensure sustained growth.

Thus, the concept was seen as an attempt to offer a one-point financial planning solution to customers and bind them to suitable products in line with their requirements and interest.

Brand Image Erodes:

But customers are coerced into buying insurance policies at the behest of bank staff, who are only complying with the diktats of their superiors.

Such a rat race to earn more and more incentives is actually taking a toll on the bank's reputation and eroding its brand image. More so when the economy needs more credit offtake in rural and semi-urban areas.

When customers were motivated to go for mutual fund products rather than bank fixed deposits, even personal accident policies have been renewed without the express consent of customers.

Insurance has been made compulsory for the sanction of every loan, just like Form 16s or IT returns. Being a corporate agent, a banker focuses on the sale of products, but with limited knowledge.

He hardly makes a full disclosure about the products and assesses the risk appetite of the customers.

'Conditional' Services:

Clauses in fine print are never explained to the customers. In many cases, it is seen that on maturity of in-force policies, the customer receives much less than what he had originally invested.

While the core businesses of the bank earns it more than 95 per cent of the total profits, the latter channelises almost 60 per cent of the workforce towards cross-selling for a paltry contribution of five per cent.

Many of the banks have even started making services conditional to their clientele; i.e. a savings bank account can be opened only if the customer agrees to purchase an insurance product.

Sanctioning of a personal loan without opting for a life insurance product has become rare. Even farmers are forced to subscribe to insurance policies as collateral for sanction of tractor loans in times of agrarian distress and farmer suicides.

SBI to hire merchant banker
for Sale of Non-core Assets

Alekh Archana, The Mint
Published on September 21, 2017

SBI, as part of its non-core asset sale, may pare stake in stock exchanges, depositories, credit rating agencies to grow its capital-base

Mumbai, September 20:  The State Bank of India (SBI) has started the process for selling some of its investments which are not critical to its core business in an attempt to shore up its capital base, two people aware of the development said.

SBI has stakes in stock exchanges, depositories, clearing and warehousing corporations, and credit rating agencies. As a first step, the bank plans to hire a merchant banker to assist in the process.

In June, SBI raised Rs15,000 crore through a qualified institutional placement (QIP or sales to financial institutions), nudging up its capital adequacy ratio (a measure that looks at a bank’s capital in proportion to its loans, accounting for risk) to 13.31% as on 30 June, from 12.85% as on 1 April.

“Once a merchant banker is on board, we will look at which assets we can monetise, whether fully or partially. Since these are not fire sales, we want to have some kind of a timetable. From November, we should be able to go to the market,” said the first person, an SBI executive, on condition of anonymity.

In the past, SBI executives have said that monetising non-core assets was one possible way of raising capital. This is in line with the government’s thinking that banks should sell non-core investments to improve capital adequacy ratio.

A spokesperson for SBI said that as mentioned by the bank’s chairman Arundhati Bhattacharya “on various platforms”, SBI would exit, wholly or partially, its investments in “non-core assets”. “There is a plan in place and we would do the transaction at an appropriate time. However we would not like to comment on an individual company or transaction,” the spokesperson added.

SBI is divesting 8% in joint venture SBI Life Insurance Co. Ltd’s initial public offering (IPO), which opened for subscription on Wednesday.

The lender has sought bids from merchant bankers who will help it identify interested parties to buy stakes in the identified strategic investments, a tender on the bank’s website said. While the names of these assets were not disclosed in the tender, SBI stated that it had invested in stock exchanges, depositories, clearing and warehousing corporations, and credit rating agencies.

“A number of such strategic investments have been made at the time of formation of these investee companies to help them raise capital and credibility required at the initial stage,” it said.

SBI held 5.19% in the National Stock Exchange Ltd and 3.52% in Metropolitan Stock Exchange of India Ltd at the end of June. In July 2016, SBI sold a 5% shareholding in NSE for Rs911 crore.

SBI is also a shareholder in Smera Ratings Ltd, which is promoted by the Small Industries Development Bank of India. The country’s largest lender also holds 21.20% in Clearing Corp. of India Ltd (CCIL), according to the latter’s fiscal 2017 annual report. Recently, IDBI Bank sold 2.5% stake in CCIL, a clearing and settlement platform, for an undisclosed amount.

While SBI is not keen on exiting its investment in Asset Reconstruction Company (India) Ltd and SBI Global Factors Ltd at this point of time, the stake sale in UTI Asset Management Co. Ltd will be contingent on the listing plans of the fund house, the second person said on condition of anonymity. SBI holds over 18% in UTI AMC.

UTI AMC is almost ready for an IPO, as per its managing director Leo Puri, Press Trust of India reported on 13 July. According to Udit Kariwala, senior analyst at India Ratings, while the current capital base of SBI is fairly adequate, the bank requires capital as it is poised to grow and also to meet provisioning requirements as some of its loans age.

“Since SBI has already done QIP and it may not go for another round of fundraising this year which may dilute government’s stake. Hence, sale of non-core assets is a viable option,” he added.

Investors should pay up for
inclusion efforts:  Arundhati Bhattacharya

Hannah Levitt (Bloomberg)
The Mint
Published on September 21, 2017

SBI Chairman Arundhati Bhattacharya says investors should pay a premium to own financial institutions that work toward stable and inclusive growth

New York, September 20 Bloomberg): Investors should pay a premium to own financial institutions that work toward stable, inclusive growth, State Bank of India chairman Arundhati Bhattacharya said.

“There needs to be a rethinking from the point of view of investors as to what they are going to give a premium on and what they’re going to discount,” Bhattacharya said Wednesday at the Bloomberg Global Business Forum in New York.

The Indian government owns 57% of SBI and requires it to pursue so-called inclusion initiatives that target poor or underserved communities. Some bank investors see those requirements as a profit drain. Yet the State Bank of India, India’s largest lender by assets, has developed platforms to meet those needs that reduced the cost of transactions to “probably the lowest anywhere in the world,” Bhattacharya said.

In one example, the bank offers a fingerprint-identification system that allows people without an address to gain access to the banking system. Those sorts of initiatives helped the State Bank of India open 107 million accounts that now hold $3 billion, and Bhattacharya expects they’ll be the source of transactions totalling $18 billion this year. About 97% of these accounts had no balance when they were opened, Bhattacharya said.

Package soon to boost economy;
no cuts in fuel rates: Arun Jaitley

The Economic Times
Published on September 21, 2017

New Delhi, September 20: Finance minister Arun Jaitley said steps to lift the slowing economy will be taken after these are endorsed by Prime Minister Narendra Modi.

“We have taken note of all the economic indicators available,” Jaitley told reporters in the Capital on Wednesday. “The government will take any additional moves which are necessary.”

He declined to provide details, saying the measures would be unveiled only after consultation with the prime minister.

The last quarter's dismal figures prompted economists to pare estimates for the fiscal year ending March 2018.

Experts have called for measures to stimulate the economy after GDP growth slumped to a three year low of 5.7% in the April-June quarter.

“We have taken note of all the indications which are coming and over the last two days I have had a series of discussions with some of my ministerial colleagues, secretaries and other experts within the government,” he said. Jaitley said the Modi government was a proactive one, indicating that measures could be coming soon.

“In terms of our own reforms agenda and reacting to situations as and when the situation demands we have been taking appropriate actions and we have been consistently moving on the reforms agenda,” he said.

While disruptions due to the rollout of the goods and services tax (GST) on July 1 and the lingering impact of demonetisation are seen as the main reasons for the economic dislocation, some experts said the decline had set in a year ago and is more structural in nature.

GDP growth has slowed from 7.9% in April-June 2016 to 7.5%, 7%, 6.1% in subsequent quarters on the way to 5.7% in the last one. Jaitley said inflation was still within the statutorily fixed monetary policy target of 4% (with a two percentage point window on either side).

Retail inflation hit a five-month high of 3.36% in August.

“During the monsoon period, vegetable prices generally go up. This is the spike period. When it is 3.36% in the spike period, it is under control as per the traditional Indian standard," he said. The Reserve Bank of India is set to make its next monetary policy announcement on October 4 amid calls for a cut in interest rates to help stimulate growth.

Spike in Fuel Prices

With regard to high fuel prices amid low global crude rates, Jaitley said the government needs revenue to support public spending without which growth will suffer. Those political parties seeking a cut in taxes on fuel should first ask their state governments to do so.

States levy a high amount of sales tax or value added tax (VAT) on fuel, he said, without referring to the Rs 11.77 per litre hike in excise duty on petrol and Rs 13.47 per litre increase on diesel between November 2014 and January 2016, which took away gains arising from plummeting international oil rates. The VAT rate on petroleum varies from 38% to 48%. Petroleum products aren’t covered by GST.

Jaitley, however, said that fuel prices will settle down soon.

“You should remember that the government needs revenue to run,” he said. “How will you build highways? The government has increased public spending on infrastructure...  Whatever (GDP) growth is there, it is fuelled by public spending and FDI (foreign direct investment). If public spending is slashed, it will mean cutting down expenditure on social sector scheme.”

That’s all the more important as there is hardly any private investment, he said, responding to questions from reporters after the weekly Cabinet meeting on whether the government would consider cutting excise duty on fuel. Petrol prices have risen by Rs 7.44 per litre since early July to Rs 70.52 a litre in Delhi, the highest in three years. Diesel rates have gone up by Rs 5.35 to Rs 58.79 a litre in Delhi.

“You have to consider many factors. (Due to) the hurricane in the US, the refining capacity has been impacted to a large extent. Due to this there is demand-supply mismatch, there is a temporary spike,” he said, explaining the recent price rise.

Of the tax that central government collects on petroleum products, 42% goes to the states, Jaitley said.

“Then Congress and CPM (state) governments should say they don't need taxes from that,” he said. “You should remember, when oil prices used to be reviewed on fortnightly basis two years ago, governments in Delhi, Haryana, Punjab and Himachal Pradesh used to increase the VAT with the same quantum with which petrol prices used to be reduced in the review.” The government abolished the 15-year-old practice of fortnightly price revision in June and moved to daily changes in petrol and diesel in line with international oil

GSTN Issues

Asked about issues besetting the GST Network (GSTN), Jaitley asked businesses to avoid a last-minute rush for tax filing. He said GSTN has the capacity to handle 1,00,000 returns per hour, which translates to 2.4 million returns a day. “Today is the last day to pay taxes for August. Till last night, about 25% people had filed the return and paid their taxes. So, 75% waited for the last day,” he said.

Jaitley said the GSTN worked smoothly until Tuesday night, but when 75% of businesses throng the portal on a single day, the system will get clogged.

“Therefore, I would appeal to everybody, it is in their interest (to file returns early),” he said. Since businesses have a broad idea about the taxes to be paid, they should start filing returns by the 14th or 15th of the next month, Jaitley added. To ease the compliance burden, the GST Council has allowed businesses to file initial tax returns with the GSTR-3B form for the first six months of GST rollout until December.

SBI Life Insurance raises
Rs 2,226 crore from 69 anchor investors

The Moneycontrol  News
Published on September 20, 2017

Mumbai, September 20:  SBI Life Insurance Company has garnered nearly 27 percent of IPO amount from anchor investors on Tuesday, the day before issue opening. The country's largest private life insurance company raised Rs 2,226 crore from 69 anchor investors, which include big PE firms and mutual fund houses like BlackRock Global, Axis Mutual Fund, HSBC Global, Monetary Authority of Singapore, Kuwait Investment Authority, Baron Emerging Markets Mauritius etc

The company through its merchant bankers informed exchanges that under anchor investors portion in the public issue of SBI Life Insurance Company, 3.18 crore equity shares have been subscribed on Tuesday by 69 anchor investors. The insurer raised this money at higher end of price band of Rs 685-700 per share. The USD 1.3 billion initial public offering of SBI Life has opened for subscription today.

India's largest private life insurer will close its public issue on September 22. The 12-crore shares IPO of SBI Life comprises of an offer for sale of up to 8 crore equity shares by country's largest lender State Bank of India and up to 4 crore shares by BNP Paribas Cardif SA.

The issue includes a reservation of up to 20 lakh shares for purchase by eligible employees who will get those shares at a discount of Rs 68 per share to final IPO price; and a reservation of up to 1.2 crore shares for purchase by shareholders of State Bank of India. The offer will constitute up to 12 percent of post-offer paid-up equity share capital.

The life insurer is looking to raise Rs 8,083-8,260 crore through the issue, at a price band of Rs 685-700 per share (after a discount of Rs 68 per share to eligible employees). Bids can be made for a minimum of 21 equity shares and in multiples of 21 shares thereafter. The IPO by size is expected to be the largest in life insurance space in India and it would be the second life insurance company to list on bourses. ICICI Prudential Life Insurance was the first to tap capital market, in September 2016.

Equity shares are proposed to be listed on BSE and National Stock Exchange of India. The book running lead managers to the offer are JM Financial Institutional Securities, Axis Capital, BNP Paribas, Citigroup Global Markets India, Deutsche Equities India, ICICI Securities, Kotak Mahindra Capital Company and SBI Capital Markets.

Cheque books, IFSC of 6 subsidiary banks of
SBI to be invalid; what you should do now

The Financial Express
Published on September 21, 2017

The country's largest lender in a tweet announced, "All the erstwhile associate banks of SBI and the Bharatiya Mahila Bank users need to upgrade their cheque books."

Mumbai, September 20:  The State Bank of India (SBI) on Wednesday has asked the customers of its subsidiary banks to apply for new SBI cheque books ‘as soon as possible’. Customers holding an account in the subsidiary banks of SBI will soon not only have to get a new cheque book, but also an Indian Financial System (IFS) code. The country’s largest lender in a tweet announced, “All the erstwhile associate banks of SBI and the Bharatiya Mahila Bank users need to upgrade their cheque books.” Apart from Bharatiya Mahila Bank, the accounts holders of State Bank of Patiala, State Bank of Raipur, State Bank of Travancore, State Bank of Bikaner and Jaipur, State Bank of Hyderabad will have upgrade their the new cheque books and IFS codes, reported NDTV.

The old cheque books and IFS codes of these six banks will not be valid after September 30, stated SBI. Users can avail the new cheque books via internet and mobile banking, ATM or by visiting the home branch, reported NDTV.

Rajnish Kumar, the bank’s managing director (national banking group) was quoted by PTI as saying, “We have received feedback from our customers on the issue and we are reviewing those,” he added, “The bank will take into account those and make an informed decision.” Kumar hinted there could be changes in the policy of minimum balance issue, especially for students and senior citizens with an account with the SBI. “We will internally debate whether any moderation for certain categories of customers like senior citizens and students needs to be done anywhere. The charges are never cast in iron,” he said.

What is P2P lending and why
RBI has decided to regulate it

Beena Parmar
The Moneycontrol News
Published on September 20, 2017

The government on Wednesday said that peer-to-peer lending (P2P) platforms would be treated as non-banking financial companies (NBFCs) and regulated by the Reserve Bank of India (RBI).

Mumbai, September 20:  Peer-to-peer lending (P2P) platforms would be treated as non-banking financial companies (NBFCs) and regulated by the Reserve Bank of India (RBI), the Government said in a notification on Wednesday.

The central bank will soon release the final guidelines for these platforms.

What is P2P lending?

P2P lending is a crowd-funding model (largely online) where people looking to invest their money with people who want to borrow can do so. The concept is centered around savers getting higher interest by lending their money instead of saving and borrowers get comparatively lower interest rates.

Borrowers are either individuals or small businesses. But unlike a traditional savings account, one can lose money if the borrower defaults.

Regulation in India

Till April 2016, there were around 30 start-up P2P lending companies in India. Although nascent in India and not significant in value yet, the potential benefits that P2P lending promises to various stakeholders (to the borrowers, lenders, agencies etc.) and its associated risks to the financial system are too important to be ignored, according to RBI.

Global cumulative lending through P2P platforms at the end of Q4 of 2015, had reached 4.4 billion GBP (approximately Rs 38,300 crore) from 2.2 million GBP (about Rs 19 crore) in 2012.

At present, it is partially or fully regulated in Australia, Argentina, Canada (Ontario), New Zealand, United Kingdom, France, Germany, Italy and USA while it is banned in Israel and Japan. China has the largest P2P market in the world, with hundreds of platforms offering diverse services, but the sector is not regulated currently.

How does it work?

Firstly, decide on how much you wish to lend, and for how long. The investors’ funds could be tied up for up to 5 years, so it’s important to be comfortable with this timescale. Remember, you are lending to those wishing to borrow, and 1-5 year loans are the norm.

Some companies offer the option to withdraw your funds during the loan term. There may be a cost for doing this and you'll have to wait until another lender comes in to replace you, but it is there should you need it. Ideally though, you want to avoid doing this, as you’ll lose out on the great rate of return.

Operation model in India

P2P lending platforms are largely tech companies registered under the Companies Act. Once the borrowers and lenders register themselves on the website, due diligence is carried out by the platform and those found acceptable are allowed to participate in lending/borrowing activity.

The companies often follow a reverse auction model in which the lenders bid for a borrower’s loan proposal and the borrower has the freedom to either accept or reject the offer.

Some platforms provide several additional services like credit assessment, recovery etc. In most cases, the platform moderates the interaction between the borrower and the lender.

Documentation and checks

P2P platforms leverage metrics such as credit scores and social media activity to link borrowers and lenders at favourable interest rates. At present, such platforms have very low regulatory restrictions because they merely act as intermediaries between borrower, lender, and partner bank.

The documentation for the lending and borrowing arrangement is facilitated by the P2P platform. The lender transfers money from his/her bank account to borrower’s bank account. The platform facilitates collection of post-dated cheques from the borrower in the name of the lender as a proxy for repayment of the loan.

The P2P forum, in general, also helps in the recovery process and as part of this, follows up for repayments and if need be, employs recovery agents too.

The regulatory concerns in such cases would relate to KYC (know-your-customer) and recovery practices. Since all payments are through bank accounts, the KYC exercise can be deemed to have been carried out by the banks concerned. Though these platforms claim to follow soft recovery practices, the possibility of use of coercive methods cannot be ruled out.

The new technology, of trust
Blockchain links directly with customer and supplier

Yuthika Bhargava, The Hindu
Published on September 21, 2017

What is blockchain?

Blockchain is the backbone technology on which bitcoins run. Simply put, it is a digital public ledger that records every transaction. Once a transaction is entered in the blockchain, it cannot be erased or modified. Blockchain removes the need for using a trusted third party such as a bank to make a transaction by directly connecting the customers and suppliers. Each transaction is recorded to the ledger after verification by the network participants, mainly a chain of computers, called nodes. Blockchain today may be compared to what the Internet was in the early 1990s. While we have witnessed how the ‘Internet of Information’ has changed our society over the past two decades, we are now entering a phase where blockchain may do the same by ushering in a new paradigm comprising ‘Internet of Trust’ and ‘Internet of Value’, as per a Deloitte and Assocham study.

Where did it originate?

While the origin of the technology is not clear, it is widely believed that a person or group of people by the pseudonym Satoshi Nakamoto, who invented bitcoins, released the technology to support cryptocurrency.

What are the use cases?

Bitcoin is just one of the applications for the technology, whose use is being tested across industries. It is witnessing a lot of traction within India, in sectors such as banking and insurance. In most of these industries, players are coming together to form a consortium to realise the benefits of blockchain at an industry level.

For example, in India, there is a consortium ‘BankChain’ which has about 27 banks from India (including State Bank of India or SBI and ICICI) and the Middle East as its members. The consortium is exploring using usage of Blockchain technology to make business safer, faster and cheaper.

The Institute for Development and Research in Banking Technology (IDRBT), an arm of the Reserve Bank of India (RBI), is developing a model platform for blockchain technology.

What are the benefits?

The benefits of using blockchain will vary from case to case. However, according to a Deloitte and Assocham report on the issue, blockchain becomes a good fit when there is a lot of data that is shared across multiple parties with no trust mechanism among the participants.

Financial players are the first movers to capitalise on this technology. As per a study by the World Economic Forum, “With over 90 central banks engaged in Blockchain discussion globally, over 2,500 patents filed over the last three years and 80% of the banks predicted to initiate Blockchain and distributed ledger technology (DLT) projects by 2017, the Blockchain technology is on its course to become the new normal in the world of financial services.” Non-financial players too have been paying attention to and looking for ways to leverage the opportunities that blockchain offers, the report adds, pointing out that the front runners among them are retail, travel, health care, telecommunications and public sector industries. “The major use cases applicable to these industries are focused on the decentralized data storage, data immutability, and distributed ownership features of Blockchain,” it says.

Blockchain is expected to improve the efficiency of a transaction by eliminating the middlemen, while also reducing the cost of all transactions. It is also likely to increase transparency. and bring down fraud as every transaction would be recorded and distributed on a public ledger.

What is happening in India?

A high-level committee, which consists of officials from the Ministries of Finance, Home Affairs and IT as well as SEBI, the RBI, SBI, and NITI Aayog, is currently deliberating on whether or not cryptocurrencies should be banned in India. However, the discussions till now are learnt to be in support of encouraging the use of blockchain technology.

Google Tez:
Here is all that it can do for you, from sending money
to friends to getting payment in your bank account

Sudhir Chowdhary
The Financial Express
Published on September 21, 2017

Send money to friends, get payments directly in your bank account, or pay the auto driver— Google’s new digital payment app does it all and much more.

The Internet is fast becoming part of daily life for many Indians, but when it comes to making payments in the real world, we still prefer to pay by cash. Google wants to change this through its new payments app, called Tez.

A simple and secure way to pay for online and offline purchases, Tez is a free payments and commerce app built on top of the Unified Payments Interface (UPI) standard.

The best part: It is multilingual. Let us take a look at some of its key features and what we can do with this new Google app.

Make cash-like payments: One of the most powerful aspects of cash is that it enables you to pay others without exchanging sensitive personal information. Cash Mode enables just that by letting you pay another Tez user nearby without having to share personal details like your bank account or phone number. This is ideal for paying the vegetable vendor or auto driver. Bring two phones near each other, hit pay or request, enter your UPI PIN and the payment goes instantly from one bank account to another. Cash Mode is built using Google’s proprietary AQR (Audio QR) technology, which is similar to QR codes but more convenient and more secure. And unlike NFC, it works on almost any smartphone in India, whether Android or iOS.

Phone number based: The payments app uses your phone’s contact list so there’s no need to add people as beneficiaries or remember bank account numbers. So sending money to your family across the country, paying your landlord, or splitting a bill with a friend is simple and fast. Further, your transaction history with each person or business is grouped together like a conversation—just as chat apps group your messages together. This experience feels natural and enables richer, more engaging interactions.

Money in your bank: Tez works with all 55 banks on UPI. Google’s multiple payment service provider partnership with NPCI and four top banks—Axis Bank, HDFC Bank, ICICI Bank and soon with State Bank of India—means you can use Tez to transact with other UPI apps like Bhim or even check out online using your Tez UPI ID. It doesn’t cost you anything to use Tez, and your money stays in your bank so you continue to earn interest.

Boon for small business owner: Small business owners can use Tez to accept payments directly into their individual savings or current accounts (subject to regulatory limits). Merchants with individual current accounts can receive up to `50,000 per month with UPI with no fees.

Your money is secure:  Tez Shield uses multiple signals to help detect spam, fraud, prevent hacking, and to verify and protect the identity of every user. Your account is safeguarded with security options including phone security method such as passcode or fingerprint and a Google PIN code.

Made for India first:  Tez works on most smartphones (with apps for both Android and iOS) and Android supports English, Hindi, Bengali, Gujarati, Kannada, Marathi, Tamil, and Telugu with more coming soon.

In the next few months, Google will work with its partners to add more ways to pay on Tez (for example, credit cards and wallets) and more places to pay. And select phones from manufacturer partners such as Lava, Micromax, Nokia Mobile and Panasonic will come with Tez, making it even easier to get started.

Demonetisation: Here is why note ban, as an
economic case, does not stand up to scrutiny

Basant Potnuru
The Financial Express
Published on September 21, 2017

Expected long-term benefits such as growth in tax revenue, decrease in corruption and digitisation are not convincing or foreseen as of now

Since 99% of demonetised currency is back with the banks, the government faces a difficult question, if the move was at all worth? To answer that, we have to revisit the objectives set and critically analyse the effects of demonetisation policy. The government’s articulation of demonetisation listed the following objectives:

•   To evict the fake currency notes of Rs 1,000 and Rs 500;
•   To get rid of black wealth held in cash;
•   To bring back all the money to banking accounting;
•   To identify undisclosed income through income tax (IT) raids;
•   To use the opportunity to promote digital payments.

Against these targets, only 7.62 lakh pieces of fake currency notes worth Rs 41 crore had returned to the banking system and Rs 16,000 crore (1% of Rs 15.44 lakh crore of demonetised currency) did not come to the banks. This ruled out any significant special dividend to the government and RBI, as was anticipated. As a positive consequence of demonetisation, the tax authorities discovered an undisclosed income of Rs 17,526 crore and seized Rs 1,003 crore through searches and surveys so far. This number, however, is not impressive compared to the identification of undisclosed income and seizure of gold and cash during the pre-demonetisation years. For example, in 2011-12, Rs 906 crore worth of cash and jewellery was seized and Rs 10,649 crore of undisclosed income identified. This can reasonably be projected to a possibility of what has been achieved in the year 2016-17, that is Rs 1,003 crore of cash and gold seizure and a detection of Rs 17,526 crore of undisclosed income.

The Pradhan Mantri Garib Kalyan Yojana (PMGKY), which provided an opportunity to unaccounted cash holders to come clean, too did not produce results as anticipated. Only Rs2,300 crore was collected against the IT department’s target of Rs1 lakh crore. Together, all these direct monetary benefits accrued from demonetisation accumulate to about Rs 35,000 crore only.

Although demonetisation has successfully mobilised all the money, including that of small savers such as housewives, traders and businessmen, into the banking system, these funds with banks are expected to be used for productive purposes by lending at cheaper rates of interest. Most of these funds, however, were short-term savings and were expected to be withdrawn quickly rather than of any use for long-term lending purposes by banks. The black money holders laundered money into deposits up to the limit of Rs 2.5 lakh in several bank accounts—either relatives or otherwise—and such deposits too were expected to be dried-up quickly.

The Economic Survey estimated that demonetisation added 5.4 lakh new taxpayers in the financial year 2016-17. However, the average income quoted by these new taxpayers is Rs 2.7 lakh, which would mean they were required to pay tax for an income of Rs 20,000 only, as income up to Rs 2.5 lakh is granted exemption. Also, most these new taxpayers may not continue to stay in the tax-net, as next year they are not required to deposit whole of their cash collected or accumulated through the year.

Demonetisation came as a big bonanza for digital payment platforms. In terms of total volume of digital transactions from all service providers, it rose from 671 million in November 2016 to 957 million in December 2016, but dropped to 862 million in July 2017. In terms of value, the transactions spiked to Rs 1,044,055 billion in December 2016, but dropped to the pre-demonetisation levels of `107,481 billion in July 2017.

Thus, if the slowdown in the economy post-demonetisation by 1-2% of GDP growth rate constituting a loss of income of Rs 1-2 lakh crore, plus the new currency printing (Rs 7,965 crore) and transportation (Rs 16,000 crore as on December 6, 2016) costs, caused inconvenience and loss of lives, etc, are considered, then demonetisation, as an economic case, does not stand the scrutiny. Clearly, the costs outweighed the benefits. Expected long-term benefits such as growth in tax revenue, digitisation and decrease in corruption are not convincing or foreseen now, as much as the dreams sold by the experts and the government in the beginning. What needs to be done to curtail black money is to fix the demand for black money that comes from political parties, real-estate business, government-private sector nexus, rather than stressing too much on to curtail the supply of black money through cash-less measures.

Basant Potnuru is Associate Professor of

Source: Internet News papers and Anupsen articles

Banking News Dated 20 September 2017

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Banking News: September 20, 2017
SBI Life's $1.3 billion IPO opens September 20

SBI Life's $1.3 billion IPO opens September 20

The Moneycontrol News
Published on September 19, 2017

The IPO, which has a price band of Rs 685 to Rs 700 per share for its Rs 8400 crore initial public offering (IPO), is expected to be the largest in the insurance space as of today.

Mumbai, September 19:  On September 20, the capital market will see India's first billion-dollar initial public offering (IPO) since 2010. SBI Life Insurance, a subsidiary of the country's largest lender SBI, will hit the market on to raise up to Rs 8,400 crore.

The initial share sale offer will open on September 20 and close on September 22, SBI said in a regulatory filing to the stock exchanges last week.

The IPO, which has a price band of Rs 685 to Rs 700 per share, is expected to be the largest in the insurance space as on Tuesday.

The insurer is a joint venture between State Bank of India (SBI) and BNP Cardif which will dilute 8 percent and 4 percent, respectively.

HDFC Securities in a report said that the insurer's profit after tax increased at a CAGR of 8.24 percent from Rs 8,148.67 million in FY15 to Rs 9,546.53 million in FY17 and was Rs 3,134.48 million for the three months ended June 30, 2017. It turned profitable within the first five years of its operations and has declared dividends every year since FY12.

This IPO includes an initial public offer of up to 120 million equity shares of face value of Rs 10 each through an offer for sale by State Bank of India and BNP Paribas Cardif where each will be selling up to 80 million equity shares and up to 40 million equity shares, respectively.

The book-running lead managers to the offer are JM Financial Institutional Securities Limited, Axis Capital Limited, BNP Paribas, Citigroup Global Markets India Private Limited, Deutsche Equities India Private Limited, ICICI Securities Limited, Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited.

In FY17, SBI Life's embedded value was Rs 16,537.9 crore as of March 31, 2017. Their value of new business was Rs 1,037 crore while annualised premium equivalent stood at Rs 6727 crore for FY17.

At present, ICICI Prudential Life Insurance is the only insurance company to be listed on the Indian stock exchanges. It made a debut last year with a Rs 6000 crore IPO.

Another insurance IPO, ICICI Lombard General Insurance company's Rs 5,700-crore initial public offering has been oversubscribed 2.94 times on Tuesday (the final day), as per data available on exchanges. The IPO received bids for over 18.13 crore equity shares against issue size of 6.16 crore shares (excluding anchor investors' portion).

Is India’s stock market headed
 for another 2008-like crash?

The Financial Express
Published on September 20, 2017

The key Indian indices -- Sensex and Nifty -- have been on a continuous rising streak since the beginning of 2017. We take a look at the factors weighing on Indian stock markets.

The key Indian indices— Sensex and Nifty — have been on a continuous rising streak since the beginning of 2017. So far in 2017, domestic investors have bought stocks worth more than $7.2 billion, compared with foreign portfolio investors (FPIs) who have run up a tab of $6.67 billion. In 2016, FPIs bought stocks worth $2.9 billion while home-grown wholesale investors spent $5.6 billion. The benchmark index of National Stock Exchange – Nifty 50 and Bombay Stock Exchange – Sensex have returned 21-24% so far in this year. The broader Nifty 50 index hit an all-new lifetime high of 10,178.95 points in the early morning trade today.

But these stellar returns may be a sign of depression or a stock market crash like it happened in the year 2008 as the 30-share barometer Sensex tumbled 27% over the month of September nine years back to 9,748.08 points from 13,417.91 points. The net profits for the Nifty set of companies fell around 11% year-on-year in the first quarter of FY 2018 which disappointed the Street. We take a look at the factors weighing on Indian stock markets.

Warning sign!

Indian equities have been rallying since January 2017 even as economic growth had slumped to its weakest since the year 2014 and lower-than-expected corporate earnings in the first quarter of FY 2018. Michael Patra, a member of the Reserve Bank of India’s rate-setting panel, described these conditions as “frothy and bubbly” in the minutes of last month’s meeting. “The combination of high valuations in equity and fixed-income markets, an appreciating currency and the persistence of a liquidity overhang in the money market is a perfect recipe for a financial imbalance,” Michael Patra added.

Despite the earnings decay, the Nifty’s estimated price-earnings ratio is almost two standard deviations above the 10-year mean, Bloomberg reported. This means the valuation of Nifty measured in terms of price-earnings ratio is exceptionally higher than its 10-year long-term average. The last time the ratio was that high, at the start of the global financial crisis in 2008, the gauge had its worst annual decline on record.

Cautious brokerages

Brokerages have been expressing caution the Indian market is overvalued, trading at close to 20 times one-year forward earnings, well above its long-term historical valuations of around 15 times. Moreover, they have also flagged the downwards revisions to earnings estimates. “There is a clear and present risk to the earnings turnaround in FY19 as consumption, which has been the sole driver of growth, will not likely be strong enough due to weak fiscal push and job growth. The capex cycle remains nascent and limited to pockets of infrastructure,” Macquarie wrote in a report.

GDP slowdown

India’s GDP growth disappointed for the second straight quarter, slowing down to a mere 5.7% in April-June and pitting the country behind China on the list of world’s fastest-growing major economies. The 5.7% fiscal first-quarter GDP growth, of an economy desperately trying to recover from the shocking impact of demonetisation, was much lower than the 7.9% seen in the same quarter a year ago. It even slowed down from 6.1% in the preceding quarter.

India in ‘Urgent Need of Fiscal Push’,
Says SBI’s Chief Economic Adviser

Mahima Kapoor
The Bloomberg News
Published on September 19, 2017

Mumbai, September 19 (Bloomberg):  The government needs to go on a spending spree, without disturbing the borrowing math, to bolster India’s economic growth, according to Soumya Kanti Ghosh, chief economic adviser of State Bank of India.

Given the growth slowdown, India needs the government to use fiscal policy as a “rev-up tool”, Ghosh said in a report on Tuesday. At this stage, a reduction in spending to meet the fiscal deficit target will not be “prudent” given the lack of other growth drivers, he added.

The government has set a fiscal deficit target of 3.2 percent of GDP for the year to Marc 2018. The Fiscal Responsibility and Budget Management Committee allows for a deviation of 0.5 percent in the face of “far-reaching structural reforms in the economy with fiscal implications”. With growth slowdown ahead of the Goods and Services Tax implementation in the April-June quarter, the government should use this escape clause, Ghosh suggested.

‘We believe the government should consciously expand the spending and fiscal deficit, without disturbing the borrowing maths’ the SBI Ecowrap report added.

India’s gross domestic product in the April-June quarter slipped to a three-year low, growing at 5.7 percent. SBI believes that the slowdown is not transient in nature, with a sustained decline since the second quarter of 2017, the report said. This, accompanied by a demand slowdown and languishing private investment has left the ball in the government's court, the report said.

A fiscal push, where the government raises its expenditure on the economy to spur growth, runs the risk of pushing up inflation and interest rates, as was the case in 2009. That’s unlikely to happen now, given stable inflation and excess liquidity in the India’s banking sector, the report explained.

The government’s borrowing, however, needs to remain in check to ensure that it doesn’t crowd out private borrowings and curtail private investments any further.

While the government has managed to limit borrowings over the last few years, with Rs 3.4 lakh crore budgeted for fiscal 2018, states such as Maharashtra, Punjab, Uttar Pradesh and Karnataka have announced farm loan waivers worth Rs 88,200 crore. This could push total borrowings by states to 5.3 lakh crore, credit rating agency ICRA said in a note in July.

So how can the government increase spending without exceeding its borrowing target?

Ghosh has two suggestions.

1. The government can increase the amount of public sector buybacks and switches – a tool it already has been using to move towards its target for the current fiscal year.

2. It can increase its short-term borrowing while reducing long-term borrowing. With the banking system flush with liquidity, the cost of total borrowing and net borrowing will remain in check.

In this backdrop, he is cautious against focussing on further rating upgrades at this stage.

“Honestly, let’s not chase the rating upgrade mirage. Remember India has had a solitary net rating upgrade in the last 25 years!” Ghosh wrote in the report.

Indian economy in urgent need of
a fiscal push to shore up growth

Moneylife Digital Team
The Moneylife Online
Published on September 19, 2017

Mumbai, September 19: India is currently undergoing a slowdown with gross domestic product (GDP) growth rate being affected beginning second quarter of FY2017. The continued fall in GDP since Q2FY17 has raised the spectre of whether growth slowdown is currently temporary. This along with a slowdown in demand, languishing capital formation shows that the Indian economy is in urgent need of a fiscal push now to shore up growth, says a research report.

In the report, State Bank of India (SBI), says, "We certainly believe that we are in a slowdown mode since Q2FY17 and any slowdown that has been prolonged till Q1FY18 is technically not short-term in nature or even transient. While it is true that the economy has undergone too many structural breaks since November 2016, and that may have precipitated a transient slowdown, it will be unfair if we only call it transient. A slowdown in demand has only aggravated the situation. Private sector capital formation is also languishing as resolution of stressed assets is yet to happen. This situation demands that the Government steps in and uses the fiscal policy as a tool to rev up the economy."

Except during the global crisis period and the ensuing years, India has been majorly pro-cyclical in its fiscal policy stance. In order to analyse the fiscal targets in the new economic and political landscape the Fiscal Responsibility and Budget Management (FRBM) Review Committee was constituted which has recommended 3% fiscal deficit for the next three years. The Committee has also provided for ‘Escape Clauses’, for deviations up to 0.5% of GDP, from the stipulated fiscal deficit target.

Among the triggers for taking recourse to these Escape Clauses, the Committee has included 'far-reaching structural reforms in the economy with unanticipated fiscal implications' as one of the factors. This provides some space for counter-cyclicality. Government has pegged the fiscal deficit for FY2018 at 3.2% of GDP and remains committed to achieve 3% in the following year, but it should not get straitjacketed in the fiscal consolidation agenda so that the development goals are compromised.

According to SBI, using fiscal policy as a policy tool always opens up a Pandora’s Box as India walked that path in 2009 and the experience was not memorable. "The common argument is that fiscal deficit pushes up interest rates and inflation. However, we should not mix up issues. The increase in inflation was driven by a staggering 38% increase in minimum support prices (MSPs) in FY2009, followed by 27% in FY11 for foodgrains. Currently, the increase in MSP prices is well reasoned and this does not contribute to any threat to inflation. Secondly, the possible increase in interest rates is because of the crowding out of private sector borrowings by the Government. However, with the current excess liquidity in the banking system this is hardly a threat," it added.

he public administration sub-segment expanded by 9.5% in first quarter driven by a 25% jump in real Government revenue expenditure net of interest payments. SBI says, "This was also partially reflected in the jump in fiscal deficit to 92.4% of the budgetary estimates for FY2018 at July-end (Rs5.05 lakh crore) as against 73.7% in the corresponding period last fiscal. We are very much apprehensive that this might force the Government to cut expenditures so as to meet its year end fiscal deficit target of 3.2%. If this happens, growth that is already weak will really suffer. The question is can we afford to slip on growth again?"

"We believe, with uncertainty regarding goods and services tax (GST) implementation and monetary policy support to growth not forthcoming it will not be prudent on the part of Government to reduce spending as other growth drivers are missing. There is no harm if the Government pushes capital expenditure ahead rather than shoring up the revenue mobilisation numbers. Any cutback in expenditure at this point will be majorly deflationary when private investment is unlikely to be forthcoming unless resolution starts happening in Q4FY2018. Hence countercyclical fiscal policy is the need of the hour," the report concludes.

Amid slowdown worries, top ministers
brainstorm on ways to boost growth

Arup Roychoudhury & Subhayan Chakraborty
The Business Standard
Published on September 20, 2017

Blueprint on economic revival to be submitted to PM

New Delhi, September 20: The government has swung into action to draw up a blueprint to revive the economy after gross domestic product (GDP) growth slipped to its lowest level under the Narendra Modi government, on the back of a slowdown due to demonetisation and the introduction of the goods and service tax (GST).

On Tuesday, Union Finance Minister Arun Jaitley chaired a high-level meeting with Commerce Minister Suresh Prabhu, Railway and Coal Minister Piyush Goyal, NITI Aayog Vice-Chairman Rajiv Kumar, and senior officials from the finance, commerce and rail ministries to discuss the state of the economy and ways to boost growth.

Officials said this meeting marked the beginning of the process to prepare the 2018-19 Union Budget, expected to be tabled on February 1. More such meetings are expected with various economic and infrastructure ministries before officials take to Modi a detailed presentation on the state of the economy and ways to revive it.

Meanwhile, P K Mishra, additional principal secretary to the PM, would hold separate meetings with ministries and discuss ways to revive investment and activity and create jobs in their respective sectors, senior government sources told Business Standard. Modi was expected to meet Jaitley and other officials on Tuesday. That meeting was, however, postponed. Sources said that the Prime Minister’s Office has told North Block to hold consultations with key ministries to prepare a detailed analysis of the Centre’s revenues, the fiscal situation, as well as measures needed to revive investment and economic growth. 

“There will be a meeting with the Prime Minister at a later date, which has not yet been decided,” said an official aware of the developments.

The flurry of activity shows that the top rungs of the government are concerned about the economy and are looking for solutions to arrest the slide in GDP growth.  This comes in the backdrop of April-June economic growth dropping to its lowest under the current administration at 5.7 per cent of GDP and petrol and diesel prices rising to a near three-year high in spite of low crude oil prices and the stable rupee.

All these meetings are focused on the recent GDP numbers, Centre’s fiscal health, GST, impact of the GST and demonetisation on the small and medium sectors, exports, investment, big-ticket infrastructure projects, rural economy, and creating jobs for the millions who join the workforce every year. On Friday last week, Chief Economic Advisor Arvind Subramanian briefed Modi on the economy. The policymakers are also said to have discussed the fiscal space that the Centre has to provide stimulus in the form of higher spending. Apart from ministers and Rajiv Kumar, the meeting was attended by Finance Secretary Ashok Lavasa, Commerce Secretary Rita Teaotia, Economic Affairs Secretary Subhash Garg, Revenue Secretary Hasmukh Adhia, and Rail Board Chairman Ashwani Lohani.

Exports were another issue that was discussed, sources said. Despite August exports jumping 10.3 per cent year-on-year and the country completing 12 straight months of export growth, exporters and economists alike are sure that coming months would prove to be the real challenge for merchandise exports. That is largely because tax refund issues in the GST regime remain two months down the line, exporters are complaining of shrinking liquidity, and the rupee is expected to climb in the coming months.

India lagged China in terms of GDP growth for the second consecutive quarter. The Chinese economy expanded 6.9 per cent in each quarter.  GDP growth is down from 7.9 per cent in April-June 2016-17. Growth in manufacturing declined to 1.2 per cent in April-June from 5.3 per cent in January-March. Mining and quarrying contracted 0.7 per cent during the quarter after growing 6.4 per cent in the previous quarter. Agriculture growth lost pace at 2.3 per cent against 5.2 per cent in the previous quarter, and 6.9 per cent in October-December of 2016-17. This was despite crop production growing, even as livestock could not keep pace.

The fiscal deficit data available so far, April-July, show that the difference between expenditure and revenue stands at Rs 5.05 lakh crore, about 92 per cent of the full-year budgeted estimate of Rs 5.46 lakh crore, on the back of massive frontloading of expenditure as the Finance Bill 2017 was passed before the beginning of the financial year. Meanwhile, the Confederation of Indian Industry (CII) said in a statement that many sectors had rebounded after a temporary slowdown following the introduction of the GST.

The CII is confident that positive developments in the global economy and the upcoming festival season as well as government capital expenditure will contribute to growth. "Care must be taken that public capital expenditure, including by state governments, remains elevated," it said. Lowering interest rates by as much as 100 basis points could inject a huge growth impulse, the CII said. The RBI will hold its monetary review next month.

What caused the hike in fuel prices
and how Modi govt can put a lid on it

The BS Web Team
The Business Standard
Published on September 20, 2017

Can Pradhan and Jaitley solve the govt's fuel price hike problem?

New Delhi, September 19: Petroleum Minister Dharmendra Pradhan is under intense political pressure, wrote A K Bhattacharya in a Business Standard column on Monday, adding that Pradhan "is being asked to reduce retail prices of petrol and diesel, which have now risen to the levels that prevailed a little more than three years ago. In May 2014, the monthly average price of the Indian basket of crude oil was almost double of what it is today".

Pradhan, for his part, on Monday said that fuel prices could come down by Diwali, which is next month. The comments come amid criticism by Opposition parties over a sharp rise in oil prices since the implementation of the daily rate revision mechanism recently.

However, notwithstanding his remarks on Monday, Pradhan, who was recently elevated to the Cabinet rank and given additional charge of the Ministry of Skill Development and Entrepreneurship, made it clear that the government would not ask state-run oil marketing companies to absorb the price rise in petrol and diesel and stick with market-driven pricing.

"The government has no business to interfere in the day-to-day affairs of companies. We have linked product prices to the market and will stick to that," said Pradhan after reports emerged that Bharat Petroleum Corporation (BPC), Hindustan Petroleum Corporation (HPC) and Indian Oil Corporation (IOC) might be asked to absorb the recent hike in global crude oil prices.

Taxes, not crude oil, responsible for fuel price hikes

Even as the recent hike in the prices of petrol and diesel were being attributed to fluctuating market price of crude oil, industry body Assocham dismissed it and said a sharp hike in taxes in the form of excise and sales tax or VAT by the Centre and states distorted the path of reforms, despite the pricing regime being linked to market-determined rates.

At a time when retail fuel prices are at a three-year high, consumers believe the concept of market-determined rates has been tampered with by frequent tax hikes. "Consumers cannot be faulted because the reforms cannot be one-way. If the exchequer got a windfall on drop in crude prices by (way of) additional taxes, the same must be reduced commensurately," said Assocham Secretary General DS Rawat.

Besides Assocham, Bhattacharya also attributed "the tax on petroleum products raised between July 2014 and January 2016" as "the real cause of the current discomfort".

"... While raising tax rates, Pradhan and (finance minister) Jaitley should have figured out their strategy in the event of oil prices going up and triggering popular unrest. As it turns out, crude oil prices have gone up, but reducing taxes for both the Centre and states is a difficult task because of revenue and deficit implications," Bhattacharya wrote.

Bringing petrol and diesel within the GST ambit?

Last week, Pradhan had said he had requested the Ministry of Finance to bring petroleum products within the ambit of the Goods and Services Tax (GST), a move that Bhattacharya describes as "comforting", in the interest of consumers. 

Justifying the move, Pradhan said there had to be a "uniform tax mechanism" all over the country.

As reported earlier, the petroleum ministry's push for including crude oil, natural gas, petrol, diesel and aviation turbine fuel within the ambit of GST could bring benefits to the industry, as well as customers, at a time of rising retail prices.

Oil refiners and marketers are set to take a hit of Rs 25,000 crore a year because of the exclusion of five petroleum products from GST. IOC, HPC and BPC are likely to bear a loss of about Rs 5,000 crore in this financial year.

"If this is passed on to consumers, prices might increase by another 60 paise per litre, if the government allows them to do that," Dhaval Joshi, an analyst with Emkay Global Financial Services, told Business Standard.

Pratik Jain of PwC said bringing fuel under GST would establish uniformity of prices but it was too early to say whether prices would decline. "That depends on the rate of GST. The total incidence of taxes on most petroleum products is much higher and I doubt if the GST rate can be around 18 per cent," he said.

GST to the rescue?

Going ahead with Pradhan's suggestion could well work out for the government. "Including petrol and diesel in GST is a way out, but this is a long-term solution," wrote Bhattacharya. "Both GST and enforcing cost-plus pricing for oil companies could be a way out of the Chakravyuha to avoid economic as well as political consequences of the price rise," he concluded.

States could play spoilsport

Apart from central excise, state VAT is added to fuel pricing. As each state has its own tax structure, prices vary from one to another. States are not keen on including fuel in GST because they have flexibility in altering these taxes, a lever they will lose under GST. Losing revenue on this account might not be a deal-breaker because states are assured of compensation from the Centre for the first five years.

"States were not willing to include petroleum products in the GST regime because they wanted control over a major source of tax revenue," said Debasish Mishra, partner, Deloitte Touche Tohmatsu India. He added that this was leading to a continued distortion in taxes imposed by each state.

Abhishek Rastogi, partner, Khaitan & Co, said, "The inclusion of petroleum products in the GST is a necessity. The states should not worry about compensation as there are corresponding provisions."

India's petrol and diesel prices among Southeast Asia's costliest

Indian fuel prices in the beginning of September were significantly higher than those prevailing in neighbouring nations and the wider Southeast Asian region, The Wire had reported.

Petrol and diesel were on September 1 selling at Rs 69.26 and Rs 57.13 a litre, respectively -- much higher than what prevailed on the same day in Southeast Asian nations like Malaysia and Indonesia and neighbouring countries like Pakistan, Nepal, Sri Lanka, and Bhutan.

The difference between the petrol and diesel prices in India and Malaysia is mind-boggling. Petrol price of Rs 32.19 a litre in Malaysia was less than half of that in India on the same day. The diesel price in the Southeast Asian country, at Rs 31.59 a litre, was 44 per cent lower than that in India. On the same day, petrol and diesel were available in Indonesia at prices 41 per cent and 24 per cent lower than India, respectively.

The difference in auto fuel prices in India and countries within the subcontinent is also no less surprising. For example, the same day, petrol was available at Rs 42.14 a litre at retail fuel outlets in Pakistan, a price nearly 40 per cent lower than that in India. Similarly, diesel in Pakistan was cheaper by 17 per cent.

Economic issues will have a
decisive say in 2019 general elections

Amit Kapoor (IANS)
The IANS News Service
Published on September 19, 2017

New Delhi, September 19: It is becoming really hard to be optimistic about the Indian economy. As T.N. Ninan pointed out last week, it has been six years since the economy breached the seven per cent growth rate mark. There have been repeated forecasts in these last six years of regaining those glory days of 2003-11, when India managed to grow at an annual rate of 8.4 percent.

But in every quarter, there existed a convenient transitory phenomenon to explain away the poor growth statistics. Initially, it was the sluggish world economy with a couple of drought years in between and of late, it has been the after effects of demonetisation and the hastily implemented Goods and Services Tax (GST).

Whatever the reasons, the numbers that have been emerging in the last two weeks are quite damning for the short-term prospects of the economy. In Q1 of 2017-18, GDP grew at 5.7 per cent, making it the fifth consecutive quarter in which growth rates have fallen. The country's industrial activity as measured by the Index of Industrial Activity (IIP) has merely expanded by 1.7 per cent between April and July as against 6.5 per cent over the same period last year. The weakness on the industrial front is undeniable.

Inflation figures have also not been promising. Contrary to the warnings a few months ago of a deflationary trend across the economy, the Consumer Price Index (CPI) grew by 3.36 per cent in August after rising by 2.36 per cent in July. Therefore, after three months of a fall in inflation numbers before July, the prices are back to their usual trend of moving northward. This eliminates all possibility of RBI making any further rate cuts in its next policy review. So, the monetary route of giving the economy a boost is all but closed.

Anyhow, the problems of the economy are such that they cannot be merely addressed through the monetary route. There are four engines that usually drive growth in an economy and currently all are sputtering on fumes. These are: private investment, private consumption, exports and government expenditure.

Private investment has taken the worst hit over the last few years, especially since the problem of bad loans with banks started spiralling out of control. Gross fixed capital formation as a percentage of GDP has consistently fallen from its peak of 34.31 per cent in 2011-12 to 29.55 in 2015-16. Since banks are wary to lend out fresh loans on account of their rising non-performing assets (NPAs), these figures are not expected to see any upturn any time soon.

To add to the misery, private consumption trends are also not helping. Growth has been merely 6.7 per cent this quarter over Q1 of last year -- a six quarter low. This just might be a short-term blip as people might have postponed spending due the implementation of GST, but being complacent and waiting for consumption to pick up is obviously not the best way forward.

Exports, which had been the leading driver in India's "beyond-seven" growth years, growing at rates of 20 per cent and 16 per cent in 2009-10 and 2010-11 respectively, have fallen to single digit growth rates since. In fact, in 2014-15 exports fell by 5.3 per cent. However, recent reports show that it has grown by a little over 10 per cent over the last year. However, as Swaminathan Aiyer pointed out recently, it will still not suffice for India's growth aspirations as no country has achieved a growth rate of over 7 per cent or more unless its exports had grown over 15 per cent annually.

Finally, and most important of all government expenditure, which has been the saving grace until now seems to be running out of steam. Government spending has grown sharply since the first quarter of last year and has even increased by double digits post-demonetisation peaking at around 17 per cent last quarter. This has been a major factor in propping up whatever little growth the economy has witnessed. However, in the process the government had already exhausted 92.4 per cent of its annual target of fiscal deficit. To meet the 3.2 per cent target, it will be forced to cut expenditure. Therefore, the fiscal route of reviving the economy also seems to be closing along with the monetary one unless the government decides to breach the fiscal target, which will damage its hard-earned credibility and is ill-advised.

So, what can the government do to move closer to the oft-promised seven per cent growth reality? It is clear that the problem is not transitory. It seems more structural in nature and needs a structural solution. The problem of NPAs cannot be over-emphasised. Bad loans have become the Achilles' heel for the government that it has been unable to remedy. Private investment has been held up because of it and it is undeniably a vital driver of economic growth. Government investment alone cannot push higher growth as is slowly becoming evident.

Therefore, recapitalisation of banks should be the topmost priority on the government's agenda and it should brainstorm ways of doing so. Disinvestments can be a source of revenue for the same and since the stock markets are on a high, it just might be a viable option. There are no easy answers on the best way to revive the economy, but whichever path the government chooses will have a lot of say in determining the future of the Indian economy and the magnitude of an even bigger problem which hardly anyone is discussing yet: that of growing unemployment. More importantly, for the government, all of these cumulative issues will have a lot of say in determining the 2019 election outcomes. One can only hope for the best.

Bringing back growth

The Business Line
Published on September 19, 2017

Addressing pain points and taking expedient
steps to boost sentiment may just work

The Centre needs to get its act together on the economy to prevent big slippages in growth as well as to keep inflationary risks well under control. Economic growth had eased to its slowest in 13 quarters in the April-June quarter of the current fiscal year and full year growth is expected to be around 7 per cent. Much of the slowdown in the second half of the last fiscal year and the first quarter of the current fiscal is a result of the shock demonetisation announced on November 8. Growth in the current quarter and perhaps even the next is expected to be impacted by the implementation of GST on July 1. Both demonetisation and the GST implementation were disruptive moves, but the Government needs to be more proactive in relieving the pain caused by them. What should concern the Government is that there is some despondency settling in — businesses continue to remain slow, save recovery in sales of automobiles.

High frequency data point to several risks to India’s growth. The index of industrial production for July was up 1.2 per cent and that’s mostly because mining output and electricity generation have been rising. Manufacturing sector growth remains insipid, expanding only 0.1 per cent on a year-on-year basis in July. Inflationary pressures are returning — and not just on account of fruits and vegetables alone. Petroleum product prices too are responsible for the higher reading of both consumer price index and wholesale price index. The wholesale price index for July shows petrol and diesel inflation climbed 24.6 per cent and 20.3 per cent, respectively. To compound the economy’s woes, exports have not been doing too well, even though growth has picked up in exports headed to the US and Europe. Gems and jewellery exports fell almost 26 per cent in August, compared to a year ago. Bank credit growth to industry has also been poor for several months now, a clear indicator that private investment has not yet picked up.

The onset of the festival-wedding season normally boosts demand, particularly for consumer durables. Likewise, a good monsoon may prove beneficial for agricultural output. But these alone are not enough to get growth well over 7 per cent, a pre-requisite for job creation. In the short term, consumer and investor sentiments need to improve, and that can happen if the Government effects some feel-good policies. Lowering taxes on petroleum products could be one such move. However, for more stable and rapid growth, the Government needs to address glitches arising out of implementation of GST. It also needs to address the problems of farmers, who are bearing the brunt of price volatility in particular, rather than take knee-jerk decisions on imports and exports. In short, the Centre needs to demonstrate that it is still very much in charge of the economy.

Faltering Growth: Will Modi’s
Fiscal Push Do the Trick?

T K Jayaraman, The Wire Online
Published on September 19, 2017

Growing buzz indicates that next year’s budget will come with a fiscal stimulus package. However, better governance is what is the need of the hour.

The recent news that India’s economic growth rates over the last four consecutive quarters have been declining is disturbing for policymakers. The economy is seeing a swelling of foreign exchange reserves, which is raising the value of the rupee and hurting exports. As exports fall, India’s trade deficit is widening which comes with rising inflationary potential. These are challenges to the Reserve Bank of India, which is committed to keep the annual inflation below 4%. Furthermore, all these developments are against the background of falling consumption demand and investment by the private sector.

Economic growth

GDP grew at 5.7% on a year-on-year basis during the second quarter (April- June) of the year, as compared to 6.1% in the previous quarter (January –March). It is also the weakest growth since the first quarter of 2014. The falling growth rate for each quarter is attributed to a decrease in domestic consumption as well as external spending on Indian goods and services. As regards manufacturing and agriculture, the growth figures reveal a further slowdown too, with a third consecutive quarter of decline.

It is now agreed that demonetisation resulted in the large-scale disruption of economic activities in urban and rural India for a while.

Though the introduction of the goods and services tax (GST) in July was smooth and acknowledged as “good and simple tax,” it contributed its own mite to the prevailing uncertainties. Till date there have been many revisions (about 32 notifications, modifications and corrigenda) with resultant changes in tax rates on 98 goods and more to come.

All of this took a toll on investor confidence.

Further, rapidly increasing excess capacity (with Indian manufacturing plants running at about 74% of capacity October-December) and resultant job losses, and poor credit growth reflecting the worsening climate of confidence during April-June, were by no means considered favourable.

Table 1: GDP growth rates

Month, Year
GDP growth % (year on year)

Source: RBI

Table 2: Inflation





Source: RBI

Inflation is now raising its ugly head after being benevolently low thanks to world oil prices. Consumer price index rose by 3.36% year-on-year basis in August. That was above market expectations of 3.2%. The trend is indisputable. It was a 2.36% rise in July. That is also the highest inflation rate since March 2017, which was due to rapid rise in food prices.

The latest RBI estimate of inflation is 2-3.5% in the first half of this fiscal year (April to September) and at 3.5-4.5% in the second half (October to March 2018). Indications are, the RBI, which is more concerned with mandated inflation target of 4%, may not consider any cuts in its policy rate.

In the midst of all this troubling news we have good tidings: plentiful foreign reserves. India is one of the three Asian countries to have benefited from the rapid inflow of capital, comprising foreign direct investment and institutional capital on a 12-month basis. Now the reserves stand at a record level of $400 billion. The country can, therefore, withstand the impact of any headwinds. It can pay for its rising imports, and it can face any outflow of funds at ease, in case the US Federal Reserve raises its interest rate reversing the capital flows to Asia.

The rising reserves have been causing its own headaches for the RBI. Cries by exporters to stabilise nominal exchange rate have already been responded to by the RBI purchasing foreign exchange from the business houses. These purchases are now adding to money supply in the economy, which is already experiencing excess liquidity with banks unable to step up lending.

Controlling money supply in the presence of growing capital inflows can be simultaneously dealt with massive sterilised interventions; but they are not always successful in economies which have accepted a floating exchange rate regime along with perfect capital mobility.

The problem of trilemma faced by such economies would not spare India either. One cannot simultaneously achieve all the three objectives: (i) perfect capital mobility, (ii) full control over monetary policy and (iii) a stable exchange rate. A country can achieve only two of them.

And policymakers in the government know this.

The latest indications are that the government is considering a more aggressive fiscal push in its 2018 Budget. The government is keen to use this to meet the vacuum “created by subdued private sector investment and to overcome the problems created by a banking sector which is now grappling with rising non-performing assets”.

Implications of expansionary fiscal policy

Fiscal policy is a blunt tool, with its attendant delays right from inviting tenders, processing and approval to implementation. The gestation period of each project depends on all these delays, besides their uncertain returns. No project has ever been quick yielding.

Further, the current commitments including agriculture loan waivers have already overburdened state treasuries. New, fresh initiatives would add to overall fiscal deficit to a new high level. Former chief economic adviser Shankar Acharya has issued a warning: with uncertainty over the revenue outcome post-GST, net revenue collection would be being lower both for the Centre and states in fiscal year 2018, and hence “the combined fiscal deficit of the Centre and the states would be around 7% of GDP”.

The government may feel confident that the excess liquidity would help to finance public sector deficits by issuing special bonds and would not raise interest rate. Further it may feel confident, it would not crowd-out but only crowd-in private investment.

Table 3: Indian’s twin deficits and impact
on debt and foreign reserves

Budget balance (%of GDP)
Trade balance (% of GDP)
Current A/C (% of GDP)
Govt debt (% of GDP)
Foreign reserves (US$ billion)
Overall BoP balance
Source: ADB key indicators (Sept 2017)

But past experiences here indicate contrary things.

Budget deficits (government expenditures over revenue) raise aggregate demand and disturb the equilibrium. Irrespective of whether funded by borrowing or printing money, budget deficits would raise the price level, given aggregate supply. Further, budget deficits lead to government bidding resources away from the private sector. Furthermore, they make borrowings by private sector more costly. All these give rise to fanning inflationary potential given the short run supply.

Every budget deficit also brings its own twin, whether formally invited or not. The twin brother is trade deficit, which accompanies budget deficit. Excess domestic demand created by public expenditure spills over into external sector, resulting in excess imports over exports. The balance of trade worsens. If net receipts from services such as tourism and unrequited transfers including grants and remittances are not sufficient to cover, it would deteriorate into current account deficits.

One can take comfort from the fact that the present record level of foreign reserves can cover the current account deficits and overall balance of payment deficit, provided the present trend in capital transfers would continue.

According to the RBI, the indications for expansionary monetary or aggressive fiscal policies are not supportive by any means.

The N.K. Singh Committee on Fiscal Discipline has recommended reducing the fiscal deficit and domestic debt-to-GDP ratio to 2.5% and 38.7% by fiscal year 2022-23 from 3.5% and 49.4% in 2016-17.

The central bank can always be relied upon expert policy advice on the efficacy of fiscal policy and its limits in each circumstance. So, we return to the eternal problem of effective fiscal and monetary policy coordination. Would government sit down and listen to RBI?

Presently, what is needed is not any additional fiscal push but simply better governance. It will restore confidence. The present display of earnestness to implement reforms, structural and labour, which have been initiated, should be carried through to logical conclusion.

With due apologies to James Carville, a campaign strategist during Bill Clinton’s successful 1992 campaign days, we borrow his oft-quoted words and adapt to our purpose to say: “it is governance, stupid.”

T K Jayaraman is a research professor under International Collaborative Partner programme at University of Tunku Abdul Rahman, Kampar, Perak, Malaysia.

State Bank of Mauritius may become
first to open local subsidiary

Joel Rebello
The Economic Times
Published on September 20, 2017

Mumbai, September 19:  State Bank of Mauritius (SBM) is likely to become the first foreign bank to open a wholly-owned subsidiary almost four years after the Reserve Bank of India (RBI) allowed overseas lenders to open local units in India.

SBM is awaiting a final approval from RBI and has laid out an ambitious business plan for what will be the largest market for the government-owned lender from the island nation.

“We have identified 25 to 30 SME and retail clusters and our distribution is targeted around that. We expect to start 30 to 40 branches within five years in tune with the different branch formats allowed by the RBI,” said Siby Sebastian, India CEO at SBM.

SBM has already registered a local subsidiary, called SBM (India) Ltd, which will manage the local branches in the country. SBM has operations in Madagascar and Seychelles besides Mauritius. Earlier this year, it completed the acquisition of Fidelity Bank in Kenya as part of its expansion in Africa.

Through India, SBM plans to tap the India-Africa trade corridor and also the huge opportunity it sees in the consumer and SME sections.

“I think we are at the bottom of the downside and the economy will only expand from here, so this is the right time to invest in India. We are already seeing a pick-up in economic growth post the June quarter in the residential and consumer side. The fact that a lot of people who were earlier not in the formal financial system are also coming in along with increased distribution capabilities of private sector banks, NBFC’s and fintech lending platforms will expand the market especially in SME and retail banking,” Sebastian said.

A local subsidiary will require SBM to appoint a local board with at least half the members from India. Former IndusInd Bank executive J Moses Harding, who is an advisor to the chairman and board of directors of SBM Holdings, the holding company of the bank, is likely to join the India board.

SBM opened its first India branch in Mumbai in November 1994 but has never done retail banking in India. It has three other branches in Chennai, Hyderabad and its suburb Ramachandrapuram.

It has just started building a mortgage book in the country and will also commence lending to SMEs starting next month. But at around Rs 1,000 crore, the bank’s loan book size is very tiny.

Sebastian said capital will not be an issue. “We are well capitalized as a foreign bank at present and we might need another Rs 20 crore to make the Rs 500 crore capital mandated by RBI for a local unit and we will get it when required. We will be transferring the branch capital into the subsidiary,” he said.

DBS Bank, Singapore’s largest lender, is the other bank with an in-principle approval from RBI to start a local subsidiary in India and is likely to follow SBM in opening a local unit.

Profit-push puts public sector
bank staff under pressure

K Ram Kumar
The Business Line
Published on September 19, 2017

Expense curbs and stiff recovery, credit
targets among steps taken at branch level

Mumbai, September 18:  The pressure to get their banks out of the bad loans quagmire and back into profitability is bringing forth varied responses, ranging from well-meaning to knee-jerk, from senior public sector bank officials handling field formations.

Be it telling branch heads and officers not to tarry in the workplace beyond office hours (aimed at curtailing operational expenses and ensuring work-life balance) to threat of salary stoppage, all appears to be par for the course during the current stressful times for bankers as well as their banks.

The regional head of Bank of Baroda’s Mehsana (Gujarat) region recently asked heads of all branches under his watch to ensure optimum utilisation of all staff members during working hours and avoid late sitting.

Probably believing in the dictum ‘a penny spared is a penny earned’, the senior official advised branch heads to curtail operational expenses.

Don’ts list

In this regard, a ‘don’ts’ list has been prescribed — lights, air-conditioners, fans and other electrical devices should be monitored to save electricity.

ACs should invariably be switched off latest by 5.30 pm; all computers (except Enterprise PC) should be shut down at close of office hours. Besides, when not in use, monitors of computers should be turned off.

“We advise branches to ensure that the work should not be stretched till late evening, except during an emergency situation. We have observed that some of the branch heads are habitual in late sitting…and insisting that all officers sit late.

Monitoring staff

“Late sitting beyond working hours not only affects physical and the mental condition of the staff member but also worsen qualitative aspects….They should monitor working of each staff member on a regular basis and take necessary measures/follow-up for completion of work by close of office hours,” said the official in a communication to branches.

This advise from the senior official comes in the backdrop of Bank of Baroda changing the work timing of administrative offices (such as head office, corporate office, zonal office, regional office, SME loan factories, and specialised mortgage stores) to 9 am to 4 pm with effect from September 18. This change is aimed at providing more support to the operational units during business hours.

Late last month, UCO Bank’s Kolkata zonal manager shot off a letter to the personnel services department in the head office seeking stoppage of salary for August of all staff members of select (11) branches in his zone till further instructions due to their non-performance in almost all the key business parameters. However, the decision was rescinded later.

“Large loans are usually sanctioned by banks’ headquarters and disbursed through branches. When a large loan goes bad the branch staff end up bearing the cross. At a time when there is a slowdown in the economy, ambitious recovery and credit (retail and MSME loan) growth targets have been set.

“It is really stressful to either head or work in a bank branch,” lamented a senior public sector bank official.

All you wanted to know about...
VoLTE (Voice over Long Term Evolution)

Bavadharini K S
The Business Line
Published on September 19, 2017

Indian telecom players are battling tooth and nail to retain their competitive position in the market and VoLTE (Voice over Long Term Evolution) is their new mantra. It promises faster, better and wider data connectivity. India is witnessing a VoLTE revolution thanks to the competition stirred up by Reliance Jio.

What is it?

VoLTE is a technology update to the LTE protocol used by mobile phone networks. Under LTE, the infrastructure of telecom players only allows transmission of data while voice calls are routed to their older 2G or 3G networks. This is why, under LTE, you cannot access your 4G data services while on a call. This leads to problems such as slow internet speeds and poor voice clarity.

VoLTE allows voice calls to be ‘packaged’ and carried through LTE networks. This would mean 4G data accessibility even during calls. VoLTE is an Internet Protocol Multimedia Subsystem (IMS) specification which enables a variety of services to operate seamlessly on the network rather than having to switch to different applications for voice or video. In India, mobile phones and telecom operators have adapted to LTE networks, faster than to 3G and are preparing to launch VoLTE services. But not all players may be able to immediately implement this mainly due to costs and complexity in infrastructure.

Why is it important?

If VoLTE becomes a reality, it could enable call quality that is much superior to the previous networks. Apart from high definition voice quality, it can also provide improved coverage. Your network would pick up 2G or 3G signals when VoLTE is unavailable, ensuring you are always connected with both voice and data. You may also be able to place video calls directly from your number which may render applications such as Skype or Viber redundant. Since VoLTE counts voice calls as data usage, your billing will be in terms of data consumption rather than minutes of usage.

VoLTE can also extend or save your battery life. In the present scenario, your network has to switch from 4G to 3G every time you place a call. This constant switching and searching for a network takes a toll on your mobile battery.

On the downside, this service might be limited to mobile phones that are equipped with software to allow VoLTE function. There might be call drops in the initial stages of implementation.

In India, Jio was the first player to offer VoLTE services, followed by Airtel, which has recently launched its VoLTE services in Mumbai. Others are likely to roll out VoLTE services soon. However, it would take few years before the full benefits of VoLTE are reflected, as India is in the nascent stages of VoLTE penetration and incumbents are still dependent on revenue from voice. If you’re just rejoicing at the free voice calls, be aware that VoLTE could put an end to this trend as operators may have to tweak their pricing plans accordingly.

Why should I care?

2G was once considered a fast network, but as our data usage gallops, leap-frogging to 4G can fetch us faster connectivity as well as a wider menu of services. Once on VoLTE, you could receive a new set Rich Communication Services (RCS) which include video calling, file transfer, real time language translation and voice mail services. Although you cannot make calls when your data plan is turned off, some telecom players may let you fall back on 3G services to make calls.

The bottomline

VoLTE may be superfast, but whether it allows you to make a voice call in a fast moving train or in the subway still remains to be seen.

Cryptic Currency

Mohan R Lavi
The Business Line
Published on September 20, 2017

India can’t turn its back on bitcoin

Developments on cryptocurrencies in general and the bitcoin in particular make headlines every now and then. They are becoming the latest rage in town and the increase in their prices reportedly gives a return on investment that no investment can match. That said, the bitcoin is also used for dubious purposes such as trafficking drugs and arms due to lack of regulation.

At present, bitcoin is valued around ₹2,35,000, much lesser from the greater than ₹300,000-levels it had seen a couple of years ago. India is not exactly a laggard as far as bitcoins are concerned; India-specific bitcoin exchanges have come up and a few restaurants across the country accept the coins as payment.

Some countries have laws in place to prevent money laundering and fraud in bitcoins. Japan has recognised it as a legal currency (the ‘inventor’ bitcoin, Satushi Nakamoto, has a Japanese connection) after applying anti-money laundering rules and capital requirements to the cryptocurrency. Capital requirements will help buffer bitcoin exchanges against speculative activity. Accounting standards are also being developed for reporting bitcoin transactions.

The new normal in India is to compare whatever we are doing with what is happening in China. Recently, Chinese authorities have ordered Beijing-based cryptocurrency exchanges to cease trading and immediately notify users of their closure, signalling a widening crackdown by authorities on the industry to contain financial risks. Exchanges were also told to stop allowing new user registrations.

GST on bitcoins

India can use GST as a tool to curb the frenzy over bitcoins by taxing their supply. Section 7 of the CGST Act defines ‘supply’ as all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. The definition is comprehensive enough to include trading in cryptocurrencies. GST demands a certain level of transparency which will ensure that only really serious players will trade in bitcoins.

Levy of GST on supply of bitcoins and income tax on the profits made on bitcoins is certain to curb their use purely for the purposes of speculation- which seems to be the main purpose behind doing anything in bitcoins today. If the indiscrete generation and supply of bitcoins is not curbed at an early stage, it could spread its tentacles to various parts of the economy.

There are two types of cryptocurrencies: fiat and non-fiat. Non-fiat currencies are largely in existence today while the fiat ones are blessed by Governments. In the past, the RBI has been ambivalent in its thoughts on cryptocurrencies. It has been reported that the RBI is working on a project to develop fiat crypto currencies. They have even thought of a name for it: Lakshmi. This is a welcome measure as the RBI can be extremely prudent in policies regarding cryptocurrencies.

At this stage, it appears that all it would take to regulate cryptocurrencies in India would be for the RBI, CBDT and GST Council to sit across the table and talk to each other. If this is not done at the earliest, they may be forced to sit down a few years down the line and decide on an action that is bound to be as controversial as it was when it was last done — demonetise crypto currencies.

Why the weak spin on
demonetisation is still going strong

Vivek Kaul
The Bangalore Mirror
Published on September 20, 2017

On August 30, 2017, the Reserve Bank of India (RBI), published its much-anticipated Annual Report. Up until last year, only journalists who covered the banking beat, economists and analysts, kept track of the RBI Annual Report.

But this year, many more people were interested. This was primarily because the Annual Report would finally reveal what portion of the demonetised Rs 500 and Rs 1,000 notes, made it back to the banks.

And why was this of interest? After demonetisation had been announced, many people including government ministers and several leading economists, had hoped that a large portion of the demonetised notes won’t come back to the banks. This was because those who had black money in the form of cash wouldn’t want to deposit it into banks, and reveal who they are to the government. In the process, a lot of black money held in the form of cash would be destroyed.

But nothing of that sort happened. The RBI Annual Report revealed that Rs 15.28 lakh crore of the Rs 15.44 lakh crore that was demonetised, made it back into the banks. This meant that nearly 99 per cent of demonetised notes made it back to the banks, and almost no black money was destroyed. Other than not achieving its major goal of destroying black money, demonetisation has also hurt India’s economic growth in general and manufacturing and industrial growth in particular, very badly.

After this, the government as expected has been offering multiple reasons in favour demonetisation. In a press release the ministry of finance offered this reason: “The fact that bulk of specified bank notes (SBNs) have come back to the Banking system shows that the banking system and the RBI were able to effectively respond to the challenge of collecting such a large number of SBNs in a limited time.”

What does this even mean? If paper money is made useless overnight, it is bound to come back to the banks. Where else will it go? Another reason offered to show demonetisation as a success is that Rs 3 lakh crore of the Rs 15.28 lakh crore that has come back is black money. No explanations have been offered on how the Rs 3 lakh crore number was arrived on.

But even if we assume that it is black money, the holders of this black money aren’t exactly waiting to hand it over to the government. They have access to chartered accountants as well as lawyers and are ready for a long-drawn battle, if needed.

The weak government spin on demonetisation has continued. The question is why? The answer lies in the fact that a section of the population is still buying this spin on the social media. As Evan Davis writes in Post Truth: “In social media, our disposition to believe things is something a form of bonding. Not only do we tend to reside in echo chambers online, but we actively enjoy becoming closer to our friends by sharing views and agreeing with them. The act of consenting to someone else’s beliefs, and have them consent to ours, is satisfying; and because it is so, it stops us questioning the nonsense that others post.”

This is one explanation for the rather weak defence of demonetisation that is still being put out by the government. Then there is the problem of the narrative, or the prevailing interpretation of a pattern of events. There is a section of population which really wants to believe that demonetisation worked. It’s their narrative.

As Evans writes: “Like-minded groups of individuals share a narrative about many things… These narratives are sometimes true, sometimes not, but they are often like stereotypes… Once embedded in our minds though, they can easily gain excessive traction and trample over truth as willing believers put too much weight on propositions that conform to their narrative without looking for evidence in support of them.”

And that explains why the weak spin on demonetisation is still going strong.

(Vivek Kaul is the author of India’s Big Government
—The Intrusive State and How It is Hurting Us).

End of the informal economy

T K Arun
The Times of India
Published on September 20, 2017

All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind. Those famous words were not, of course, intended as a description of the impact of the goods and services tax (GST) on India’s unorganised sector.

But they would do just as well. GST will put paid to India’s informal sector, drawing most of it into the formal universe and killing off much of what is left behind. This change will erode the flexibility the economy derives from informality and has serious implications for India’s political economy.

As Sure as Death

Not paying taxes is the holy creed of the unorganised sector, although paying off the rare taxman or the more frequent inspector of labour/factories is accepted as part of the real conditions of life. The small producer supplies parts to other small producers, finished goods for export and to distributors for sale to consumers and parts and services to large firms.

Small producer provide big credit to large producers, by way of accepting delayed payment for his supplies. He pays minimal wages to employees, makes prompt payment to his own suppliers, pays protection money to the local neta-babu-police nexus and exorbitant rate of interest to those who lend him his working capital in a hardscrabble world where banks and their loans linked to the policy rate set by the Reserve Bank of India are the stuff of dreams and fairy tales.

Fierce competition with others of their ilk does not leave them the luxury of paying taxes or honestly for the power they consume. More than 90 per cent of India’s workers find employment in the unorganised sector.

The Central Statistics Office defines the organised sector in manufacturing as enterprises that employ 10 or more workers, if the enterprise uses power, or 20 or more workers, without use of electricity. The rest are unorganised, naturally.

The National Commission for Enterprises in the Unorganised Sector defined the unorganised sector as the totality of all unincorporated suppliers of goods or services with less than 10 total workers.

These definitions matter less than the sector’s role in cushioning the impact of regulation on the economy.

Large companies can sidestep laws on minimum wage and working conditions by outsourcing much of the work to small informal firms beyond the scrutiny of the state.

A garment maker, for example, can be fully compliant with all laws by limiting its direct workforce to a small team that designs clothes, specifies the fabric and the time schedule, and performs quality control on what is delivered by tailors and seamstresses toiling away in much smaller units or even at home, located in the informal universe.

If the garment maker grows bigger and starts supplying to global buyers whose customers are squeamish about wearing stuff made by child labour or in hazardous conditions, they then start worrying about fixed-term contracts and labour flexibility — while also renting large spaces to house the workers.

Contract workers have replaced regular workers in routine jobs such as cleaning, maintenance and running small errands in most offices. Guards are almost entirely sourced from contractors. These contract workers are on the rolls of informal sector firms that pay them a pittance, whatever they receive for their services from the organised sector businesses that buy those services.

Contagious Transparency

What the big companies that deploy contract workers gain is not so much any saving on cost — they pay all the statutory dues, albeit to the labour supplier — as freedom from carrying on its rolls a large workforce with a growing wage bill.

The informal sector, in other words, is a source of flexibility that the hypocrisy of first-rate labour standards in a combination of third-rate capacity to enforce norms and a bounty of unskilled manpower denies Indian producers.

It also serves as a sink for underemployed labour, refuge for the struggling self-employed and transit home for tiny hobby-horses of daring villagers progressing to urbanising and modernising nodes of a global division of labour.

The defining feature of the informal economy is its inscrutability, that it is beyond official ken. GST is poised to rip apart that concealing veil. In the GST regime, there is a compulsion for all units to be registered with the GST Network and to file returns and upload invoices. If they do not, no one will buy from them.

A bank branch that used to buy its copier paper from a stationer’s next door will shun him now, unless he can provide an invoice with GST — the bank needs it to claim input tax credit. The stationer, small as he is, would source his paper from someone who, in turn, would give him an invoice with GST, to reduce his tax outgo. This is the beauty of the tax: it has a built-in incentive to comply.

Compliance with GST means revealing input purchases and sales. That reveals income as well, to the beady eyes of the taxman, who could then open up claimed expenses and verify them. If the GST-paying small producer shows huge interest expenses, the audit trail would lead to the lender, often a member of the neta-babu tribe, and his sources of income. Informality, RIP.

Source: Internet News papers and Anupsen articles