by admin | May 25, 2021 | Banking, Corporate, Corporate Governance, Corporate Reports, Economy, Markets, News
Mumbai : In a move to improve risk management post the global financial crisis, the RBI on Thursday said it has decided that corporate borrowers having exposure of Rs 50 crore and above will have to mandatorily obtain the 20-digit Legal Entity Identifier (LEI) from banks.
“It has been decided that the banks shall advise their existing large corporate borrowers having total exposures of Rs 50 crore and above to obtain LEI,” an RBI notification said.
The Reserve Bank also unveiled a schedule for implementing the LEI, saying borrowers with fund and non-fund exposure of Rs 1,000 crore and above will have to get the unique code by March 31, 2018. Borrowers having exposure between Rs 500 crore and Rs 1,000 crore have to get the LEI code by June 30, while those having between Rs 100 crore and Rs 500 crore by March 31, 2019.
Those with bank credit between Rs 50 crore and Rs 100 crore have time to obtain the LEI provision by December 2019.
A separate roadmap for borrowers having exposure between Rs 5 crore and up to Rs 50 crore would be issued in due course, the central bank said.
Those who do not obtain the LEI as “per the schedule are not to be granted renewal/enhancement of credit facilities”, it added.
The LEI is a 20-digit unique code to identify parties to financial transactions worldwide and helps improve the quality and accuracy of financial data systems for better risk management.
—IANS
by admin | May 25, 2021 | Corporate, Corporate Governance
By Quaid Najmi,
Mumbai : In what could be a bizarre situation, the Reserve Bank Of India (RBI) does not seem to have any official records to prove that it had authorised the issue of new currency notes in denominations of Rs 2,000 and Rs 200, after demonetisation, according to documents available through RTI.
“As per RTI replies provided by the RBI, the country’s central bank has apparently not published any Government Resolution (GR) or a circular till date to issue the new Rs 2,000 and recently, the Rs 200 currency notes,” says Mumbai-based RTI activist M.S. Roy.
A May 19, 2016 document — roughly around six months before demonetisation — shows that the RBI’s Central Board of Directors approved a proposal put forth by its Executive Director on May 18, 2016.
This (proposal) pertained to the new designs, dimensions and denominations of future Indian bank notes, and the Board resolved to forward it to the central government for approval, as per extracts of the minutes of that Board meeting.
Essentially, this was carrying forward an earlier such proposal made on July 08, 1993 to introduce a new family of Indian bank notes of Rs 10, Rs 20, Rs 50, Rs 100 and Rs 500 of reduced sizes.
This old proposal (July 08, 1993) was approved at an RBI Central Board Of Directors meeting on July 15, 1993 as per a memorandum dated August 3, 1993 sent from RBI’s Central Office, Mumbai, to the Chief Officer, Department Of Currency Manager (RBI Mumbai), which was signed by the then Executive Director, A P Aiyer.
As per that proposal (of July 8, 1993), these new Indian currency notes of reduced size were to incorporate several fresh and enhanced security features in order to check counterfeiting, according to the same August 3, 1993 memorandum (quoted above).
Roy had also filed a separate RTI query on February 27, 2017, asking for documentation about photographs of Mahatma Gandhi which are not being printed on the Re 1 notes, but were being printed on all currency notes of denominations ranging from Rs 5 to Rs 2,000.
In reply to this particular query, the RBI provided resolutions of its board meetings held on July 15, 1993, July 13, 1994 and May 19, 2016.
However, these resolutions talk about design features merely for Rs 10, Rs 20, Rs 50, Rs 100 and Rs 500, all of which bear the photographs of the Father of the Nation.
None of these RBI board resolutions make any references about design features or Mahatma Gandhi photographs for denominations of Rs 1,000, Rs 2,000 and now, the latest entrant to the Indian bank notes family, the Rs 200 currency note.
Hence, Roy said that if the RBI board resolutions never even discussed design features or Mahatma Gandhi photographs to be incorporated in Rs 1,000 notes (discontinued after demonetisation), Rs 2,000 denomination notes (introduced on November 8, 2016) and the subsequent Rs 200 notes (introduced in mid-2017), it clearly indicates that no official approval was granted.
He questioned that if no approval was granted for issuing these denominations, who authorised these denominations, their design, printing and distribution.
“If there has been no approval by the RBI Board, no supporting GR or any other known documentation in the public domain, then there is a big question mark about the legal validity and official (monetary) status of these notes — namely Rs.200 and Rs.2,000. The matter merits an independent investigation,” Roy said.
However, if such approvals do indeed exist, then the RBI and government must explain why these documents were not made available despite an RTI query or why they were not in the public domain.
(Quaid Najmi can be contacted at q.najmi@ians.in)
—IANS
by admin | May 25, 2021 | Banking, Corporate, Corporate finance, Corporate Governance, Corporate Reports, Economy, Finance, News, Politics
(Note Ban Series)
By Biswajit Choudhury,
New Delhi : While the immediate impact of demonetisation was seen in the long queues outside ATMs and felt through acute cash shortage, its anniversary is an appropriate vantage point to assess the less visible and generalised effect on the economy of what was easily the most disruptive measure post-Independence.
The difficulty in making a cost-benefit analysis is that the move was not purely economic, given the fact that the currency issuer Reserve Bank of India (RBI) had no role in the decision, as testified by former Governor Raghuram Rajan.
So demonetisation comes across more as a measure of political economy with the declared objective of curbing black money and countering counterfeiting and terror finance, and which appeared to have paid political dividend to Prime Minister Narendra Modi in the Uttar Pradesh elections this year.
Starting with the official figures, at the end of May, the Central Statistics Office announced that GDP during the fourth quarter, ending March this year, fell sharply to 6.1 per cent from seven per cent in the previous quarter, while growth for the year as a whole was also expected to decline correspondingly. India’s GDP during the past fiscal grew at 7.1 per cent, at a rate lower than the 8 per cent achieved in 2015-16.
In terms of gross value added (GVA), which excludes taxes but includes subsidies, the growth came in even lower at 5.6 percent over the GVA for 2015-16.
Chief Statistician T.C.A. Anant sought to downplay the impact of the note ban, saying he “would caution against reading a single number that comes out after an event as being reflective of consequences of the event”. At the time of releasing the previous quarter’s GDP, he had said that this was based on figures on industrial production and only on the advance filings of corporates.
The numbers, therefore, had not factored in the informal economy, which accounts for an estimated 45-50 per cent of output in the Indian economy and employs around 85 per cent of the country’s workforce. More importantly, this sector transacts entirely in cash and was the hardest hit by demonetisation, which withdrew 86 per cent of currency from circulation.
Former Chief Statistician Pronab Sen had said in March that once the informal sector numbers came in, the growth rate could go below 6.5 per cent, which turned out to be close to the actual figure.
At the same time, both the RBI and the International Monetary Fund (IMF) lowered India’s growth estimates for 2016-17 by up to 1 percent, citing the impact of demonetisation.
This was not too far from former Prime Minister Manmohan Singh’s prediction that the economy would be hit by around two per cent because of the note ban.
Rating agency ICRA said in a note earlier this year that “since the early estimates of quarterly GVA rely heavily on available data from the formal sector, which is expected to have weathered the note ban better than the informal sector, the third quarter (October-December) projected GVA growth of 6.6 per cent may not fully capture the impact of the note ban”.
In October, the IMF said in its latest World Economic Outlook that India’s economic growth for 2017 and 2018 will be slower than earlier projections. The report cited “lingering impact” of demonetisation and the goods and services tax (GST) for the expected slowdown during the current and the next year. The IMF projected India to grow at 6.7 per cent in 2017 and 7.4 per cent in 2018, which are 0.5 and 0.3 percentage points less than the projections earlier this year, respectively.
The World Bank too forecast that India’s GDP may slow from 8.6 per cent in 2015 to 7.0 per cent in 2017 because of disruptions by demonetisation and the GST.
Former RBI Governor Raghuram Rajan, who, on being asked by Modi for his informal opinion, had said the costs of such a measure would outweigh any long-term benefits, while there were less costly alternatives to achieve the stated goals of demonetisation.
“On the short-term costs of such a measure, monetary economists would say that you’d see an immediate impact on activity. People who used currency, things would shut down for them… there would be an unrecoverable effect on economic activity,” Rajan said here at the launch of his book “I Do What I Do”.
Citing the cost analysis by metrics of demonetisation done by JP Morgan, Rajan said the GDP took a hit of around 1.5 per cent, which translates to a sum of Rs 200,000 crore.
“On the benefit side you have Rs 10,000 crore coming in, but you need a lot more taxes than that to really benefit,” he said.
Coming back to the beginning, this is what Nobel winning economist Amartya Sen had to say of demonetisation: “It is a despotic action that has struck at the root of the economy based on trust. It undermines notes, it undermines bank accounts, it undermines the entire economy of trust. That is the essence in which it is despotic.”
With demonetisation also designed to enlarge the tax base, an ex-IRS official’s perspective on Modi’s likely motive is provided by former Director of Revenue Intelligence B.V. Kumar, who writes in his book, “Underground Economy”: “One reason could be that Modi has completed half his term and not a single initiative during his term has shown results which can be termed as ‘spectacular’ and ‘vote spinners’.”
Demonetisation, after one year, does not look as rosy as it was painted out to be by the image spinners in the government.
(Biswajit Choudhury can be reached at biswajit.c@ians.in)
(Editors: The above article is the second in the series of demonetisation stories leading up to November 8, the day note ban was imposed last year).
—IANS
by admin | May 25, 2021 | Banking, Corporate, Corporate Governance, Markets, News
New Delhi : At a time when customers are rushing to link all their bank accounts with Aadhaar, the Reserve Bank of India (RBI) has clarified that it never issued any such directions, it was the decision of the Indian government.
The apex bank further clarified that in applicable cases, linkage of Aadhaar number to bank account is mandatory under the Prevention of Money-laundering (Maintenance of Records) Second Amendment Rules, 2017.
In a response to a Right to Information (RTI) Act application filed by Moneylife India and carried by it on October 18, the RBI said: “The Government has issued a Gazette Notification GSR 538(E) dated 1 June 2017 regarding Prevention of Money laundering (Maintenance of Records) Second Amendment Rules, 2017, inter-alia, making furnishing of Aadhaar (for those individuals who are eligible to be enrolled for Aadhaar) and permanent number (PAN) mandatory for opening a bank account. It may be noted that Reserve Bank has not yet issued instruction in this regard”.
Clarifying its position, RBI in a statement on Saturday said: “…in applicable cases, linkage of Aadhaar number to bank account is mandatory under the Prevention of Money-laundering (Maintenance of Records) Second Amendment Rules, 2017 published in the Official Gazette on June 1, 2017. These Rules have statutory force and, as such, banks have to implement them without awaiting further instructions.”
The government has made it mandatory to link bank accounts with the 12-digit biometric identification number. The deadline to do it is December 31, 2017.
This linking of Aadhaar to bank accounts is a process over and above the Know Your Customer (KYC) norms already followed by the banks.
Finance Minister Arun Jaitley in August had said that 524 million Aadhaar numbers had been linked to 736.2 million bank accounts in India.
Banks accounts in India are already linked to the tax-related Permanent Account Number (PAN), which is mandatory.
The Finance Minister had outlined a “one billion-one billion-one billion vision” for the country.
“That is one billion unique Aadhaar numbers linked to one billion bank accounts and one billion mobile phones. Once that is done, all of India can become part of the financial and digital mainstream,” Jaitley had said.
The RTI query further asked whether RBI had Supreme Court’s permission to mandatorily link Aadhaar with bank accounts. In its reply RBI said it had not filed any such petition before the Supreme Court.
—IANS
by admin | May 25, 2021 | Employment, Opinions
By Amit Kapoor,
The lack of jobs is beginning to haunt the Modi government. The Reserve Bank of India’s recent Consumer Confidence Survey shows that public perception is also beginning to take account of the fact that there are no jobs available in the economy. According to the survey, 43.7 percent of responders felt that the employment situation had worsened as compared to 31.9 percent a year ago.
The official unemployment numbers, which hover at around five per cent, will never reflect the true picture since in a developing economy, where poverty is high and unemployment benefits are virtually non-existent, no one can afford to remain out of the workforce for long. They usually find employment doing odd jobs or in the agricultural sector.
However, job creation numbers do give a clearer picture. According to the Labour Bureau, the Indian economy was generating around 900,000 jobs in 2010 and 2011. Since then, the jobs created in the economy have consistently fallen, reaching around 135,000 in 2015 as opposed to the need for an annual generation of over 11,00,000 jobs. The situation has not improved since.
However, this is not a recent phenomenon. The Indian economy has never been good at creating jobs. As per popular estimates, including those of the RBI, India’s employment elasticity, which is a measure of the percentage in employment for a one percent change in economic growth, has been around 0.2 in the post-reform period. This implies that as the real GDP rises by 10 percent, employment will merely rise by two percent. To put things in perspective, International Labour Organisation (ILO ) estimates Brazil’s employment elasticity to be an impressive 0.9.
This long-term trend shows that there is a structural reason behind this problem. When an economy transitions from agricultural-led to a modern one, it undergoes three key transformations: Movement of labour out of agriculture into industry and then services, shift of workers from informal into the formal sector and finally a rapid pace of urbanisation as more industries are set up in the rural areas around cities.
India has missed the bus on all three of these fronts. Industrial development never took place in India and the economy became service-led right away. Employment in industry and services remains predominantly informal. Consequently, the pace of urbanisation has slowed in India.
Moreover, whatever industrial development has taken place in India has been either capital-intensive or skilled labour-intensive. India’s labour-capital ratio in a vast majority of industries has been lower than other countries at similar levels of development. The very opposite is needed for job creation in a developing economy. But why has the pace of development been so skewed for India? What is so different about India that made it deviate from the historical trend of structural transformation for economies around the world?
India’s notoriously rigid labour laws are the leading cause behind these anomalies. Labour falls under the concurrent list of the constitution, which implies that both the Centre and the states can form laws on it and neither has been miserly about this. When combined, each state ends up with over 200 different labour laws. These disincentivise firms from growing beyond a point. For instance, the Trade Unions Act of 1926 requires firms with seven or more workers to form trade unions. The Factories Act of 1948 mandates manufacturing units with 10 or more workers to have several working hour limits and work place conditionalities that become stricter with more workers.
The most burdensome of all is the Industrial Disputes Act (IDA) of 1947, which covers all industrial disputes and makes it almost impossible for firms with 100 or more workers to fire anyone. Establishments require permission from the labour department to lay anyone off and such permissions are rarely given even if the firm is unprofitable. Therefore, firms with six or less employees have the most labour flexibility.
As expansion of firms comes with high legislative costs in India, it is rational for them to remain small. This is why 84 per cent of manufacturing employment is restricted to micro and small enterprises in stark contrast with other developing countries (46 per cent for South Korea and Thailand, 27 per cent for Malaysia and 25 per cent for China).
India’s labour laws have inhibited the growth of manufacturing firms, which lose out on the gains they could have made from economies of scale and innovation. Due to these reasons India has not been able to undergo industrial development and is finding it difficult to gain from the rise in labour costs in China. India could have been the next manufacturing hub after China but since there is a sheer lack of capability; countries like Bangladesh and Vietnam have been thriving in labour-intensive sectors like textiles.
Labour reforms are, therefore, the antidote to India’s perpetual job crisis — but this is politically sensitive topic. The Modi government is in a unique position of being capable enough of pushing through such bold reforms since it has the numbers needed for this. However, considering how most of its attempts at reform have backfired, this will be the farthest thing on the government’s mind. A piecemeal attempt at labour reform with the Small Factories Bill, which aims to exempt factories with 40 workers from 14 labour laws, has been in limbo for the last two years.
However, on a positive note, some state governments are beginning to allow larger firms to retrench workers without seeking permission with their own amendments to IDA. Hopefully, it will not be too late before India manages to extricate itself from this mess of its own creation.
(Amit Kapoor is chair, Institute for Competitiveness, India. The views expressed are personal. He can be contacted at amit.kapoor@competitiveness.in. Chirag Yadav, senior researcher, Institute for Competitiveness, India has contributed to the article.)
—IANS
