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WEDNESDAY, AUGUST 28, 2019
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What has helped thespread of TikTok?
TikTok, the app promoted by China’s ByteDance, is the Twitter of videos. It is easy to use and the app’s features allow anybody to make short videos, the 15-second ones being the most popular format, and post them online or share them through various other apps. With social media being full of people who are keen to share their personal lives and opinions on any issue, the app allows them to mix music from existing compositions or film songs in their videos. The videos can also be adjusted to introduce a slow-motion effect or a ramped-up one. One can also look for entertaining videos, watch and share them.
What’s at the heart ofits popularity in India?
It’s a video app with no text. This takes away the fear of being judged for writing poor English, a big factor that prevents people from posting their comments on platforms such as Facebook and Twitter. This is the reason the app is so popular in small towns and among the lower strata of society, where people suffer because of the lack of English language skills. The mobile-driven app, unlike Facebook and Twitter that only show content from people one is following, delivers videos to a user based on what they have posted or watched. TikTok enables people to make money from their videos, facilitating higher engagement.
Why has the video appcourted controversy?
There are two factors behind the controversies TikTok finds itself in India: its popularity surge in quick time and private data going to a Chinese firm. A public interest litigation filed against ByteDance this year accused it of spreading violence, pornography and blasphemy via its app. Arguably, there’s a social bias in some of the rage against TikTok videos made by people from the lower strata. There’s ambiguity over who owns the content on TikTok: ByteDance claims rights over it, while also claiming it is an intermediary.
How has the parentcompany responded?
ByteDance said it would store data belonging to Indians on servers kept in India. It has promised to set up data centres for this by the end of next year. In April, it promised to invest $1 billion in India over three years and also quadruple its headcount to 1,000 by December. It has partnered bodies such as the government-run Indian Institute of Mass Communication to train people on aspects such as safe and responsible use of the internet, fighting misinformation online and how to ensure a positive online environment.
What are ByteDance’sinvestments in India?
ByteDance invested $25 million in news aggregator DailyHunt in 2016. The firm launched its live-streaming app Vigo Video in 2017. It launched TikTok in India the same year.
1
mintprimer
TikTok was one of the most downloaded apps in the world last year. Teenagers to homemakers are using the app, which is hugely popular in India, to make funny 15-second videos and share them on social media. Mint looks at why the app is never far from controversy.
TikTok’s 15-second videos a rage, but govt isn’t amused
What keeps TikTok ticking
15
TikTok, currently engaged in a dispute with ShareChat over content owner-ship, claims that it’s bringing millions online. The app also defends its record on safety, citing its steps to control online abuse.
Number of Indian languages the app
supports.
6 mnTotal videos pulled down for violating
guidelines.
200 mn 120 mnThe number of users in
the country.
The number of monthly active users in India.
Safety features in the app
Beyond 2 hours, the app asks for password, thus allowing parents greater control.
TikTok has an India-specific grievance officer for users.
Videos are screened as they are posted, enabling removal even before they are reported.
ByteDance is working on features to allow parents greater control over their children’s online habits.
QUICK EDIT
The great charm of an ATMcard is the sense of freedom itaffords. With it, you can with-draw cash anytime, from anycash-dispensing machine. Youcan do it as many times asneeded, subject to your bank’sdaily withdrawal limit. You canmake electronic payments. Butthe rise in ATM frauds hasIndian banks worried. Amongthe several tricks employed bycrooks, the most common isskimming. They install a deviceon ATMs to copy card data. Thisdata is then used to make fakecards for cash withdrawals.
As per a news report, theDelhi state-level bankers’ com-mittee has suggested steps toprevent ATM frauds. One of theproposals is to insist on a 6-12hour gap between successivewithdrawals. But such a movewill defeat the very idea of anATM card and inconveniencecustomers. Many ATM userskeep unearthly work hours.Also, medical emergenciesstrike unannounced. In suchsituations, functional ATMs area huge relief. Instead, bankscould introduce one-time pass-words—sent to mobilephones—for cash withdrawals.Banks could also keep theirmachines under better surveil-lance to ensure nobody plants adata-stealing bug.
Don’t jinx ATMs
2
3
4 5
BY DHIRENDRA TRIPATHI
MINT METRICby Bibek Debroy
For most, one government job is enough.
But our man from Bihar was tough.
Three jobs at once
The system reduced to a dunce,
For years, no one called his bluff.
HASSAN ROUHANIIRANIAN PRESIDENT ON RELATIONS WITH US
We are interested in solving problems in a reasonable way, but we’re not interested in taking photos. The key to changing the relationship is in Washington’s hands.
QUOTE OF THE DAY
AFP
MOSCOW
An unmanned spacecraft carryingRussia’s first humanoid robot tobe sent into orbit successfully
docked at the International Space Sta-tion (ISS) on Tuesday, following a failedattempt over the weekend, said Mos-cow’s space agency.
The life-size robot called Fedor copieshuman movements and can help astro-nauts carry out tasks remotely.
“Contact confirmed, capture con-
firmed,” a Nasa commentatorannounced, while a statement on thewebsite of Russian space agency Roscos-mos also said the Soyuz MS-14 craft had
managed to dock. On Nasa TV, whichbroadcast the event, the commentatorpraised the vessel’s “flawless approachto the ISS”. “Second time was a charm...the crew is up to seven,” he said, refer-ring to the six humans already aboardthe space station. The craft blasted off onThursday from a Russian spaceport insouthern Kazakhstan and Fedor is due tostay on ISS until 7 September, learningto assist astronauts there.
“Let’s go. Let’s go,” the robot washeard saying during the launch, repeat-ing the phrase used by the first man inspace Yuri Gagarin.
Capsule carrying Russian humanoid docks at ISS
The life-size robot called Fedor copies
human movements and can help
astronauts carry out tasks remotely.
MINT CURATORm
REUTERS
PARAS JAIN/MINT
PEANUTS by Charles M. Schulz
AFTER-HOURS WITH THE BOSSWHO Sangeeta PrasadCEO and managing director, Mahindra Lifespaces Developers Ltd
Armed with a degree in electrical engineering from Jadavpur University and an MBA from
IIM Lucknow, Sangeeta Prasad started her career at Tata Steel. In 2008, she joined
Mahindra Lifespaces as chief operating officer of Mahindra World City Developers Ltd. In
2013, she was promoted as CEO of the integrated cities and industrial clusters unit. Last
year, she took over as CEO and MD of Mahindra Group company that builds residences
under the ‘Mahindra Lifespaces’ and ‘Happinest’. Here’s how she unwinds outside office.
PLAYI like to start my day with yoga. Fitness for me
transcends physical workout. I believe in
‘athletics of the mind’ and enjoy solving puzzles.
I’m also passionate about nature and wildlife.
EATI prefer wholesome
yet tasty cuisine.
One of my
favourite dishes to
cook is a nice,
steaming pot of
chicken stew. I enjoy continental cuisine for its
focus on ingredients like olive oil, wine, herbs
and minimal spices.
LOUNGEOne of the best
ways to unwind
is with a good
book. Charles
Dickens,
D.H. Lawrence,
Rabindranath
Tagore and
Yuval Noah
Harari captivate me. Shawshank
Redemption, Cold Mountain,
Hidden Figures and Highway are
some of my all-time favourite films.
I enjoy both Indian and Western
music. —BIDYA SAPAM/MINT
Lananh Nguyen & Alexandra Harris
NEW YORK
Libor is dying, warn global regulators, and there’s noth-ing banks can do to stop it.
Their only choice is to prepare for the end.That’s where Jason Granet comes in. Plucked from Gold-
man Sachs Group Inc.’s asset-management unit last year, henow leads a group of bankers and lawyers working day in andday out to ready the lender for the fateful day—still morethan two years away—when the world’s most important ref-erence rate is set to be phased out.
The major Wall Street banks—not to mention insurers,money managers, law firms and advisory businesses—are allmobilizing employees around the globe in anticipation ofLibor’s demise. The benchmark’s key role in financial mar-kets—at last count it underpins more than $350 trillion ofmortgages, loans and derivatives across various currencies—means they’re being pulled from all corners of the industry.For Granet, the objective is clear: ensure that what many sayis one of the most significant and complex transitions in thehistory of modern finance goes off without a hitch at Gold-man Sachs.
“My job completely changed,” saidGranet, who now reports to Beth Ham-mack in treasury operations after spendingthe bulk of his almost 20-year career at thebank overseeing money-market funds.“It’s an international, complex intellectualchallenge.”
For decades, the London InterBankOffered Rate (Libor) was a convenient way to determine thecost of floating-rate debt around the world. It’s calculatedfrom a daily survey of more than 15 large banks that estimatethe price to borrow from each other without putting up col-lateral. But the trading behind those estimates has dried up,and coupled with the post-crisis discovery of rampantmanipulation, UK officials two years ago signalled an end toLibor, saying they’ll stop compelling banks to submit quotesafter 2021.
The decision has spurred global regulators to push aheadwith their own domestic funding-rate alternatives, andforced financial firms to figure how to extricate themselvesfrom a benchmark so thoroughly entwined in global mar-kets.
At a June roundtable, Goldman Sachs, JPMorgan Chase& Co., Wells Fargo & Co. and others discussed how they’reestablishing oversight committees, setting up joint steeringgroups and recruiting employees to build out their Libortransition capabilities. Consulting companies such as OliverWyman & Co. and Accenture Plc are advising clients on howto best manage the shift, while law firms such as Cadwalader,Wickersham & Taft have helped craft fallback language forcredit contracts that reference the benchmark.
When Wells Fargo’s Brian Grabenstein became the headof the lender’s Libor transition office last year, he quicklyrealized that he needed to staff up. He now has a team of adozen people coordinating meetings with the consumerbanking and wealth management groups, among others,and running committees focused on various aspects of thetransition—from legal documentation to communications.
He estimates that 200 people at the bank have worked atleast 10 hours on Libor over the past month.
“Up until not that long ago, this was not on a lot of people’sradar,” Grabenstein said. “I quickly realized it wasn’t just oneperson’s full-time role, but in fact it was going to be a numberof peoples’ full time jobs.’’
Along with colleague Readie Callahan, who heads com-munications strategy for the transition team, the pair havecrisscrossed the US in recent months, speaking with groupsof as many as 50 corporate customers at a time about theshift. Wells Fargo is still working on its strategy to informretail customers about the change, which will impact prod-ucts such as adjustable-rate mortgages.
“There’s a growing appreciation for how much work thereis to be done,” Grabenstein said.
BEYOND BANKS
It’s not just banks affected by Libor’s end.MetLife Inc., the biggest US life insurer,faces exposure through its $587 billioninvestment management portfolio. Ittapped Jason Manske, head of global deriv-atives and liquid markets, as transitionpoint man.
The firm was an early adopter of the secured overnightfinancing rate (SOFR)—a new benchmark developed by theFederal Reserve Bank of New York as a potential Liborreplacement—via its primary market issuance. It’s priced$2.5 billion of SOFR-linked notes since the reference rate’sdebut early last year, according to data compiled by Bloom-berg. Still, industry veterans are growing concerned aboutpotential risks to financial stability in the coming years,given the broader market’s slow embrace of products basedon alternative benchmarks. Many say the change is compa-rable in scope to the adoption of the Dodd-Frank reformsfollowing the 2008 financial crisis, while others liken the sit-uation to Y2K, which presented significant operational chal-lenges to Wall Street even if it ultimately proved benign.
Manske, who is a member of the New York Fed’s Alterna-tive Reference Rates Committee designed to smooth theshift to SOFR (pronounced ‘So-fur’), compares the transi-tion’s impact on financial markets to the adoption of the eurotwo decades ago.
For Goldman Sachs’s Granet, who grew up doing jigsaws,it’s one of the largest, most challenging puzzles he’s everfaced. BLOOMBERG
The major Wall Street banks aremobilizing staff inanticipation of Libor’s demise
FLIP SIDE
Wall Street prepares for Wall Street prepares for the end of a crucial era the end of a crucial era
AFP
Facebook working on new messaging app to take on Snapchat
bit.ly/2Lds805
IndiGo board accepts key Gangwal demand on change in policies
startups across food, fitnessand medical industries haveexpressed concerns over shar-ing proprietary informationwith Cure.Fit during acquisi-tion conversations. Thefounders did not want to be
identified because of the sensi-tivity of the matter.
“Several gym owners inMumbai, Bengaluru andHyderabad have said that theywere approached byCure.Fit—which offered to
Asit Ranjan Mishra
NEW DELHI
Finance minister Nir-mala Sitharaman onTuesday indicatedthat all options areopen for the govern-
ment to utilize the ReserveBank of India’s ₹1.76 trillionlargesse.
Accepting the recommen-dations of the Bimal Jalancommittee, the central boardof RBI on Monday decided totransfer ₹1.23 trillion of its sur-plus and ₹52,637 crore ofexcess provisions, in a relief forthe government struggling tomeet revenue targets in a slow-ing economy.
“I can’t talk about how toutilize it now. We will take acall and then let you know,”Sitharaman said in response toa question at a press confer-ence in Pune after attendingan interaction with traders,entrepreneurs and industryexperts.
The additional amount ofaround ₹58,000 crore that thegovernment will receive thisyear, above its budgeted₹90,000 crore as transfersfrom the central bank, could
be used either to provide fiscalstimulus to revive a saggingeconomy, reduce off-balancesheet borrowings or meet theexpected shortfall in revenuecollections.
Sitharaman on Fridayannounced a slew of measuresto boost confidence in theeconomy, but stopped short ofannouncing any fiscal stimu-lus. However, the minister said
she may announce moremeasures this week, includinga package for homebuyers.
On questions being raisedabout the large transfer of sur-plus to the government,Sitharaman said the Jalancommittee had eminentexperts and was constituted byRBI itself and not the govern-ment.
“They have had several sit-
tings and have come out with aformula based on which theamount has been arrived at.Any suggestion about thecredibility of the RBI, there-fore, seems a bit outlandish.They (the committee mem-bers) themselves (on Monday)have given an explanation thatfinancial stability, surplus to
TURN TO PAGE 7
FM says all options on the table for RBI funds
Any question on the central bank’s credibility is outlandish: Sitharaman
cited earlier. “In the event ofdeath or resignation of anindependent director, the pro-posed board size would havecome down to nine members,with five members represent-ing Bhatia’s IGE, four inde-pendent directors and onerepresentation from Gangwal,thus giving IGE a majority inthe board.”
Gangwal, however, skippedIndiGo’s AGM on Tuesday.Also absent from the AGM wasindependent director AnupamKhanna, who had questionedsome of chairman M. Damo-daran’s decisions related to theboard’s working. This led toseveral shareholders raisingquestions on the absence ofGangwal. A few shareholders
requested thepromoters to set-tle their differen-ces.
At the AGM,chief executiveofficer RonojoyDutta said RPTsbetween Bhatia’sIGE and Inter-Globe Aviation,
which runs IndiGo, nowamount to less than 1% of thecompany’s annual revenue.“Of the total revenue of about₹30,000 crore, the value ofRPTs is around ₹156 crore,which is less than 1% (of theyearly revenue),” Dutta said,adding that all RPTs have beenapproved by the audit com-mittee of the airline.
“I have been with the com-pany for 9-10 months and Ihaven’t found a single casewhere RPTs are not in the bestinterest of the company,” saidDutta.
TURN TO PAGE 5
Rhik Kundu
NEW DELHI
InterGlobe Aviation Ltd’sboard has agreed to makepolicy changes only when
all the proposed 10 directorsare present, a key demand byco-founder Rakesh Gangwal,said a person aware of theboard’s decision.
The issue of expanding theboard’s strength to 10 was putto vote at the annual generalmeeting (AGM) in New Delhion Tuesday.
Gangwal agreed to supportthe proposed changes at theAGM after some of hisdemands, including on boardexpansion and related-partyt r a n s a c t i o n s(RPTs), wereaccepted lastweek, endingmonths of publicw r a n g l i n g .Although theoutcome of thevoting wasn’tannounced onTuesday, Gang-wal’s decision to back the reso-lutions last week means theyare likely to sail through.
Gangwal had earlierobjected to the board expan-sion as he contended that inthe absence or resignation ofan independent director,co-founder Rahul Bhatia’sInterGlobe Enterprises Pvt.Ltd (IGE) would have an unfairadvantage in approving keypolicy changes since it has fivedirectors representing it.
“The issue was regardingpassage of policy changes inthe event of independentdirector/directors leaving thecompany,” said the person
The board agreed to make policy changes only
when all the 10 proposed
directors are present
DOMESTIC DEMAND CONTINUES DOMESTIC DEMAND CONTINUES TO REMAIN WEAKTO REMAIN WEAK uuP2P2
PLAINFACTS
1.37 BILLION AND COUNTING: 1.37 BILLION AND COUNTING: SEARCHING FOR A FIXSEARCHING FOR A FIX uuP8P8
HUL cuts Lifebuoy, Lux prices in latest sign of weak demand
For some packs, the price cuts are as steep as 20-30%. BLOOMBERG
ITC Ltd. In a conference call with
investors after its quarterlyearnings announcement lastmonth, the company’s topmanagement indicated thatprice reductions were under-way in its soaps portfolio, as itsought to pass on the rightvalue equation to shoppers,expecting commodity pricesto remain weak.
“I talked about looking atthe future outlook of com-modities and, given the bud-get changes, we have takencertain decisive actions froma pricing point of view. Youwill see that in July, both inLux and Lifebuoy,” SrinivasPhatak, chief financial officerand executive director(finance and informationtechnology) at HUL said in anearnings call in July. “Wehave taken price reductions
across the boardin the range ofabout 4% to 6%,whereas in thecase of certainpacks, you willalso see a steepreduction inprice.”
Beauty andpersonal caresegment thatcomprises per-
sonal wash, skin care, haircare, oral care, colour cosmet-ics and deodorants contrib-uted 46% to overall revenue,according to HUL’s 2018-19annual report.
Intensifying competition,the current demand environ-ment and low costs haveprompted these changes, ananalyst at a brokerage firmsaid. “Lifebouy and Lux arewitnessing stiff competitiveintensity in terms of marketshare loss in a benign com-modity environment,” HDFCSecurities analyst NaveenTrivedi wrote in a note lastmonth.
Trivedi added that this has
TURN TO PAGE 5
Suneera Tandon
NEW DELHI
Hindustan Unilever Ltd(HUL) has cut prices ofits Lux, Lifebuoy and
Dove soaps in the past month,passing on the benefit ofcheaper inputs, as India’slargest consumer goods com-pany aims to win customersamid stiff competition andweak demand.
“HUL does selective andjudicious price changesacross its portfolio in the nor-mal course of its business.Given that the commodityprices are expected to remainbenign for a certain timeperiod, we have taken pricereductions in the range of 4%to 6% in Lux and Lifebuoyportfolio, while it may behigher on certain packs inorder to pass onthe benefits tothe consumers,”a c o m p a n ys p o k e s p e r s o nsaid on Tuesday.
F o r s o m epacks, the pricecuts are as steepas 20-30%.
Lifebuoy andLux are amongthe highest sell-ing soap brands in India’s₹20,960 crore toilet soapmarket, according to researchfirm Euromonitor, and con-tribute significantly to HUL’sbeauty and personal care seg-ments. Lifebuoy is India’s big-gest selling soap brand interms of household penetra-tion, according to researcherKantar.
Within personal care, soapsare the biggest category,which means the bulk ofIndian households buy them.However, despite its marketleadership, the maker ofDove, Pears, Ayush and Luxsoaps faces stiff competitionfrom rivals including GodrejConsumer Products Ltd,Wipro Consumer Care and
HUL has reduced prices in the
range of 4-6% for Lux and
Lifebuoy soaps
C A F E ECO N O M I C S N I R A N J A N R A J A D H Y A K S H A
See Page 15
E X M AC H I N A R A H U L M A T T H A N
See Page 14
A RT H A N O M I C S R . J A G A N N A T H A N
See Page 14
The digital payments firm aims to create a payments mechanism solely for doctors to help them receive consultation fees through Paytm and make bulk purchases such as medical supplies. See Page 5
Paytm eyes healthcare payments space, seeks to add doctors
The current economic slowdown is muting production and leading to job losses, pushing both management and employees into a prolonged period of uncertainty in India’s technology capital. See Page 6
Firms in Bengaluru industrial hub brace for a gloomy festive season
NHAI is fully capable of raising debt and continuing to meet its road construction targets, Union minister for road transport and highways Nitin Gadkari said on Tuesday. See Page 6
NHAI capable of meeting its road construction target, says Gadkari
DON’T MISS
The board of CG Power and Industrial Solutions Ltd is considering a move to sell non-core assets, and is exploring fundraising avenues to deleverage the company and optimize its operations. See Page 3
CG Power plans to sell non-core assets, aims to raise fresh equity
The Securities and Exchange Board of India hinted it may tighten asset valuation norms, which guide mutual fund investments, to shield investors from risks of capital erosion in debt-oriented funds. See Page 7
Markets regulator may tighten asset valuation norms for MFs
Varsha Bansal
BENGALURU
Mukesh Bansal-ledhealth and fitnessstartup Cure.Fit
approached a food brand thatowns quick service restaurantsin Bengaluru with a proposalto acquire them almost a yearago.
Subsequently, the brand’sfounder met several top exec-utives from the Cure.Fit team,including Bansal, on threeoccasions. Convinced aboutCure.Fit’s intention to buy hisstartup, the founder shareddata on customer footfalls,unit economics and other per-formance metrics withCure.Fit—as is customary
before a purchase. But things didn’t turn out as
planned. The deal fell through.The founder, though vaguelyaware of Cure.Fit’s offlineambitions, dismissed it as asetback, part and parcel of cor-porate life. However, he laterdiscovered that Cure.Fit waslaunching its own quick ser-vice restaurants under theEat.Fit brand.
It wasn’t entirely unex-pected, however. He hadheard about the bitter experi-ence another founder had withCure.Fit.
“I had a warning signal fromanother founder, who wentthrough a similar experiencewith the firm,” he recalled.
These aren’t isolated inci-dents. At least six founders of
take over and promised largerevenue—requested for theirdatabase and after taking thatinformation, did not take thedeal forward,” said a personfrom the industry, who did notw a n t t o b enamed.
Earlier, thismonth, BookY o u r G a m e(BYG), a market-place to bookgyms and fitnesscentres, filed acase with theBengaluru citycivil court against Cure.Fit,accusing it of making an acqui-sition proposal and not follow-ing through. Consequently,Bengaluru-based BYG, whichwas in acquisition talks with
Cure.Fit, was granted a tempo-rary injunction forcingCure.Fit to refrain fromlaunching its new product,Gym.Fit.
Among other things, BYGalleged thatCure.Fit offeredto acquire thefirm for about ₹5crore (cash andstock) in June,but eventuallyrevoked the offerfollowing anexchange ofimportant data
and intellectual property. Thisdevelopment was firstreported by The Economic
Times on 17 August. Mint has
TURN TO PAGE 6
How much data to share? Startups face tough call in acquisition talks
At least 6 startups have expressed
concerns over sharing
information with Cure.Fit during
acquisition talksCure.Fit co-founder Mukesh Bansal. MINT
every five years and itsaccounting year (July-June) bealigned with the fiscal year thatends on 31 March.
“The committee recom-mends that the frameworkmay be periodically reviewedevery five years. Nevertheless,
for meeting all risks/losses pri-marily built up from retainedearnings, currently stands at6.8% and the Jalan committeerecommended it to be in the
range of 6.5-5.5%of the balancesheet.
In changingthe accountingperiod, the com-mittee said, RBIwould be able toprovide betterestimates of theprojected surplus
transfers to the governmentfor the financial year for bud-geting purposes. This changecould reduce the need forinterim dividends.
This move, the report said,
TURN TO PAGE 7
if there is a significant changein the RBI’s risks and operat-ing environment, an interme-diate review may be consid-ered,” the committee said in itsreport.
T h e J a l a npanel recom-mended a surplusdistribution pol-icy, which targetsthe level of real-ized equity to bemaintained byRBI within theoverall level of itseconomic capital, a statementby RBI said on Monday. Thecommittee defines economiccapital as a combination ofrealized equity and revalua-tion reserves.
RBI’s realized equity, whichis a form of contingency fund
Shayan Ghosh &
Gopika Gopakumar
MUMBAI
A Reserve Bank of Indiapanel, led by formergovernor Bimal Jalan,
has recommended that thecentral bank pay interim divi-dend to the government, apractice that started in2016-17, only under excep-tional circumstances.
All the recommendations ofthe panel, set up to study thecentral bank’s economic capi-tal framework, were acceptedby RBI’s central board onMonday, although the reportwas published on Tuesday.
The Jalan committee hasalso recommended that RBI’scapital framework be reviewed
Interim dividend in special cases: Jalan panel
Bimal Jalan. PRADEEP GAUR/MINT
Jalan committee has in its report
recommended a review of RBI’s
economic capital framework once every five years
COMPLETE COVERAGE: PAGES 4, 7, 10, 14 & 18
m MINT GRAPHITI
THE TRANSFER MECHANICSThe Reserve Bank of India transferred its entire ₹1.23 trillion profit for 2018-19 to the government as recommended by the Bimal Jalan committee on economic capital framework.
2010-11 2018-19
Source: RBI annual reports
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2010-11Data on RBI income is available only till 2017-18
2017-18
37,070
78,281
Income (in ₹ cr) Profit Transfer to govt (in � cr)
GOVT CAN cut borrowings if it uses the funds to plug a revenue shortfall and keep the deficit under control.
THE MONEY can also be used to finance new spending, like a stimulus package, to help lift growth.
THE WINDFALL may be pumped into banks, which should help reduce lending rates, say analysts.
SURPLUS CHOICES
0
20,000
40,000
60,000
80,000
1,00,000
1,20,000
1,40,000
1,60,000
1,80,000
�
PARAS JAIN/MINT
LIVEMINT.COM
NEW DELHI, MUMBAI, BENGALURU, KOLKATA, CHENNAI, AHMEDABAD, HYDERABAD, CHANDIGARH*, PUNE* VOL. 13 NO. 206 Rs 5.00 IN DELHI-NCR; Rs 6.00 OUTSIDE DELHI-NCR. PRICE WITH HINDUSTAN TIMES Rs 9.50 (FOR DELHI & NCR) 22 PAGES
WEDNESDAY, AUGUST 28, 2019
02 WEDNESDAY, 28 AUGUST 2019NEW DELHI
sector has not changed muchfrom last month with the latestreading of current accountdeficit (for January-March)giving a face-lift to the sector’sreport card.
Although the more recenttrade balance (as percent oftotal trade) data appears to beworrying, the trade deficitcould stabilize in the coming
months as weak globaldemand would limit rise incommodity prices, keepingIndia’s import bills in check.
The big threat right now isthe intensifying global slow-down, with an escalatingtrade-cum-currency conflictprompting fears of a globalrecession.
A recent Organization for
Economic Co-operation andDevelopment (OECD) reportprojects growth in real grossdomestic product (GDP) in theOECD countries could slowdown to 0.5% in the secondquarter of 2019, from 0.6% inthe previous quarter.
The raft of measuresannounced by finance minis-ter Nirmala Sitharaman on Fri-
day, including roll back ofenhanced super-rich tax onforeign and domestic equityinvestors. She also announceda package to address distress inthe auto sector, and upfrontinfusion of ₹70,000 crore topublic sector banks.
This has lifted market senti-ments, but it is perhaps thewindfall gains from RBI’s cof-
fer would mean that the gov-ernment does not any longerhave a pressing need to under-take bold structural reforms tofix India’s factor market prob-lems.
In that case, this transfermay at best be a pyrrhic victoryfor the government, and only atemporary booster dose for theeconomy.
DOMESTIC DEMAND REMAINS WEAKEight out of the 16 high-frequency economic indicators traced by the latest edition of Mint Macro Tracker were in red in July, for the third month in a row
SRIHARSHA DEVULAPALLI/MINT
fers that is likely to help thegovernment paper over itsweak finances and help it stickto the fiscal deficit targetswithout much creativeaccounting.
Yet, it is worth askingwhether the transfer willweaken RBI’s fire-fightingabilities in the event of a globalshock, and whether this trans-
m MINT MACRO TRACKER
Average five-year value ±10%
CONSUMER ECONOMY
Performance better than five-year average
Performance worse than five-year average
Performance in line with five-year average
Parameter value
EXTERNAL SECTOR
INDUSTRIAL SECTOR
This month, seven of the 16 indicators in the tracker are above the five-year trend (highlighted in green) and eight are below (red) while one maintained the trend (amber). This is better than the reading from six months ago but worse than what it was two years ago.
MACRO TRACKER SNAPSHOT
◀▶Now 6 months ago 1 year ago 2 years ago 3 years ago
EASE OF LIVING
▼▲
The average band is constructed as +/- 10% interval around the five-year mean. The upper and lower bounds are wider for series with more volatility. Source: CMIE, Bloomberg and Mint calculations
Lorem ipsum
Aug 2014 Jul 2019
Import cover (FX reserves in months)
8
10
12
14
10.5 1.0
Aug 2014 Jul 2019
Rupee vs dollar (% M-o-M)
-3
-1
1
3
Aug 2014 Mar 2019
-0.6
Current account balance (as % of GDP)
-3
-2
-1
0
Aug 2014 Jul 2019
Trade balance (as % of total trade)
-25
-20
-15
-10
-20.3
Aug 2014 Jul 2019
▲CPI (% Y-o-Y)
2
4
6
8
3.2 4.2
Aug 2014 Jul 2019
Core CPI (% Y-o-Y)
3
4
5
6
▼
Aug 2014 Jun 2019
Rural wages (% Y-o-Y)
2
4
5
6
4.0
Aug 2014 Jun 2019
▲8.6
Job outlook (% net response)
4
6
8
10
0.2
Aug 2014 Jun 2019
02
46
8
Core* growth (% Y-o-Y)
*8 core infrastructure industries
Aug 2014 Jun 2019
▲
5
10
15
11.1
Banks’ non-food credit (% Y-o-Y)
-5
0
5
10
Aug 2014 Jul 2019
1.6
Rail freight traffic (% Y-o-Y)
Aug 2014 Jul 2019
PMI manufacturing
48
50
52
54
56
52.5
-30
-10
10
30
50
-13.1
Tractor sales (% Y-o-Y) ▼
Aug 2014 Jul 2019
-16.8
▼
Aug 2014 Jul 2019
Two-wheeler sales (% Y-o-Y)
-20
0
20
40
6.2
▼
Aug 2014 Jun 2019
0
10
20
30
Domestic air passengers (% Y-o-Y)
-36.9
Passenger vehicle sales (% Y-o-Y) ▼
Aug 2014 Jul 2019
-15
0
15
30
-30
▼
▲
▼
◀▶ ▲
▲
▼▲
3
PLAINFACTS
CRICKET DASHBOARDm
1. PAKISTAN 283
2. ENGLAND 266
3. SOUTH AFRICA 262
4. INDIA 261
5. AUSTRALIA 261
6. NEW ZEALAND 254
7. AFGHANISTAN 241
8. SRI LANKA 227
9. WEST INDIES 224
10. BANGLADESH 220
1. ENGLAND 125
2. INDIA 122
3. NEW ZEALAND 112
4. AUSTRALIA 111
5. SOUTH AFRICA 110
6. PAKISTAN 97
7. BANGLADESH 86
8. SRI LANKA 82
9. WEST INDIES 76
10. AFGHANISTAN 59
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
INDIA
NEW ZEALAND
SOUTH AFRICA
ENGLAND
AUSTRALIA
SRI LANKA
PAKISTAN
WEST INDIES
BANGLADESH
ZIMBABWE
114
109
108
105
98
94
84
81
65
16
T20ODITEST
MEN’S TEAM RANKINGS
# Team Rating # Team Rating # Team Rating
T20ODITEST
MEN’S BATTING RANKINGS
# RatingPlayer # RatingPlayer # RatingPlayer
910
904
878
856
749
Virat KohliIND
Steve SmithAUS
Cheteshwar PujaraIND
Kane WilliamsonNZ
Henry NichollsNZ
1
2.
3.
4.
5.
895
863
827
820
817
Virat KohliIND
Rohit SharmaIND
Babar AzamPAK
Francois du PlessisSA
Ross TaylorNZ
1
2.
3.
4.
5.
896
825
815
782
718
Babar AzamPAK
Colin MunroNZ
Aaron FinchAUS
HazratullahAFG
Glenn MaxwellAUS
1
2.
3.
4.
5.
T20ODITEST
MEN’S BOWLING RANKINGS
# RatingPlayer # RatingPlayer # RatingPlayer
908
851
814
813
793
Pat CumminsAUS
James AndersonENG
Kagiso RabadaSA
Vernon PhilanderSA
Trent BoultNZ
1
2.
3.
4.
5.
797
740
694
693
683
Jasprit BumrahIND
Pat CumminsAUS
Trent BoultNZ
Kagiso RabadaSA
Imran TahirSA
1
2.
3.
4.
5.
780
710
706
702
672
Rashid KhanAFG
Adam ZampaAUS
Shadab KhanPAK
Imad WasimPAK
Adil RashidENG
1
2.
3.
4.
5.
SOURCE: ICCAll data as of 4pm, 27 August 2019
ces for the neighbouring villa-ges.
In contrast, the other half ofcensus towns are centredaround the manufacturing of asingle good.
Kumar argues that India’srural-urban transformationcannot be generalized sincedifferent settlements displaydifferences in terms ofemployment, agricultural sta-tus and proximity to cities. The
author suggests that theseareas need to be treated asurban centres and come underthe ambit of urban govern-ance.
Also read: Census Towns inUttar Pradesh: Understandingthe Transformation of RuralEconomy into Urban Economy(bit.ly/2ZwfCOq)
Snap Fact features new andinteresting reads from theworld of research.
$15 millionWhat is it? The prize money won by Northern Ireland golfer Rory Mcllroy, the winner of the Tour Championship 2019.Why is it important? This is his second win at the championship, his first being in 2016. Only Tiger Woods and Phil Mickelson have won it more than once. Mcllroy is also the first to win the championship in its new three-event format. Tell me more: Interestingly, he had criticized the new format as well as the prize money just a week earlier. The prize money had gone up to $15 mn from $10 mn last year. Mcllroy had said it was not about money, “it should be about the prestige of winning an event that you’ll be remembered for”.
Data and text compiled by Howindialives howindialives.com is a search engine for public data
NEWS IN NUMBERSm
$22 millionWhat is it? The amount offered by G7 countries to Brazil as aid to help fight the raging fires in the Amazon rainforests.Why is it important? The Brazilian government, headed by President Jair Bolsonaro, said it will reject the aid.Tell me more: Brazil has vowed to tackle it on its own and has deployed over 44,000 soldiers for firefighting. Bolsonaro also said France, which hosted the summit, was treating Brazil as if it was a colony.
AFP
CORRECTIONS AND CLARIFICATIONS
Mint welcomes comments, suggestions or complaints about errors.
Readers can alert the newsroom to any errors in the paper by emailing us, with your full name and address to [email protected].
It is our policy to promptlyrespond to all complaints. Readers dissatisfied with the response or concerned about Mint’s journalistic integrity may write directly to the editor by sending an email to [email protected]
Mint’s journalistic Code ofConduct that governs our newsroom is available at www.livemint.com
Nikita Kwatra
MUMBAI
The Indian economycontinued to slowdown in July, withmost indicators ofdomestic demand
still flashing red in June, thelatest edition of the MintMacro Tracker shows.
The tracker, launched lastOctober, provides a monthlystate-of-the-economy reportbased on trends across 16 high-frequency economic indica-tors.
July was the third month ina row that exactly half of the 16indicators were in red (belowthe five-yearaverage trend).Of the remaining,seven were ingreen (above thefive-year averagetrend), while onem a i n t a i n e dtrend.
The consumereconomy contin-ues to remain the weakestspot, with all four consumereconomy indicators—passen-ger vehicle sales, tractor sales,two-wheeler sales, and domes-tic air passenger growth—flashing red for the sixth suc-cessive month.
Within the consumer econ-omy, the slowdown has beenmost pronounced in the auto-mobile sector, where demanddropped sharply in the after-math of the non-bankingfinancial company (NBFC) cri-sis.
According to an Edelweissreport on April-June corpo-rate earnings issued earlierthis month, auto companieswitnessed a 7% revenue
decline in the first quarter offiscal 2020.
The report also highlightedweak performance of fast mov-ing consumer goods (FMCG)companies, indicating abroader consumption slow-down.
The weakness in demand isalso evident from the ease ofliving indicators. Inflationcontinues to remain muted,and rural wage growth contin-ues to remain anaemic. Unsur-prisingly, members of theReserve Bank of India’s (RBI’s)monetary policy committee(MPC) expressed graver con-cerns about growth than aboutinflation in their deliberationsahead of the policy rate cut in
A u g u s t , t h erecently releasedminutes of themeeting shows.
The industrialsector report cardfor July shows amixed picture,and appears a tadbetter comparedto the previous
month. Of the four industrialsector indicators, exactly twoare flashing green and two,red.
Rail freight traffic growthwas in the red (below five-yearaverage) for the second suc-cessive month in July whilecore sector growth fell to a50-month low of 0.2% growthas per the latest reading ofJune.
But the purchasing manag-ers’ index (PMI) for July turnedgreen (it was flashing amberearlier) even as non-foodcredit growth remained in thegreen category (above fiveyear average) for the 15thstraight month.
The picture on the external
It is worth asking whether RBI’s
₹1.76 tn transfer will weaken its
firefighting abilities in case of
a global shock
Sneha Alexander
MUMBAI
Across India, villages aregetting urbanized. Onemeasure of this comes
from the census. Between2001 and 2011, the number ofcensus towns increased from1,362 to 3,894.
Census towns areareas that are notdefined as a town bystate governmentsbut have urbancharacteristics (a minimumpopulation of 5,000, at least75% of the male main workingpopulation in the townengaged in non-agriculturalactivities, and a populationdensity of at least 400 personsper square kilometre)
In a new paper published inthe Economic and PoliticalWeekly, Prem Kumar explores
the factors driving this urbani-zation by focusing on theemergence of census townsacross India and especially inUttar Pradesh.
Between 1981-2001, thenumber of census towns inUttar Pradesh increased from26 to 267.
Kumar suggests that theemergence of census towns is
a result of people inrural areas shiftingfrom agriculture tonon-agriculturalsectors such as con-
struction, trade and manufac-turing.
In Uttar Pradesh, aroundhalf of the census towns aresmall (less than 5 sq. km),located at the outskirts ofmajor cities and do not special-ize in any commodity.
These towns have emergedas a result of increased ruraldemand and acts as marketpla-
How census towns drive India’s urbanization
The towns identified in census 2011 are important for rural-urban
linkages and should be treated as urban centres, shows a study.
SNAP FACT
m
MINT
DEALS WEDNESDAY, 28 AUGUST 2019NEW DELHI 03
In Indonesia, e-commerce leader Lazada has justover a quarter of the market. In Brazil, Merca-doLibre, the leader, has barely one-fifth. How-
ever, in India, a comparable market, we instead have a duopoly. As a result, a considerable amount of energy, innovation and funding has moved into creating many different flavours of e-commerce—such as vertical commerce (Myn-tra, Nykaa), grocery (Big Basket), micro-delivery (Milkbasket), social commerce (Meesho) and now, content commerce (LBB).
It is interesting to see the above as a move fromconvenience-led commerce, where you know what you want and want to get it fast and cheap, to discovery-led commerce, wherein you don’t even know that you wanted it. At the heart of discovery-led commerce or content commerce—as seen in the rise of Qyuki, POPxo, LBB and now, BulBul—is smart curation tailored to fit the audi-ence and the content genre.
Blume-backed LBB is a terrific example of this content+curation commerce. Come for the con-tent, stay for the curated store. Content helps you acquire customers at a lower cost compared to a pure e-commerce site, and the curated shopfront spurs visitors to explore less-known brands that they otherwise never would. LBB has also been supported by Google through its Sand Hill initia-tive. Through this programme, the firm gained access to mentorship from Google’s in-house Android/machine learning experts.
The ecosystem would benefit from more start-ups rethinking discovery and content-led com-merce, such as a content-first affiliate revenue model (think Wirecutter) or building a con-tent+services model (like MyUpchar) or an influ-encer-led commerce model (Ruhnn), or even a marketplace or B2B business serving these seg-ments.
Reverse Pitch is like a normal investors pitch, but with the roles reversed. That means the startup
doesn’t present its business to investors but investors and companies pitch their business concept,
challenges and the like to startups.
REVERSE PITCH
“The ecosystem would benefit from startups rethinking content-led models.”
SAJITH PAIDirector at Blume Ventures
Varsha Bansal
BENGALURU
Bike taxi startup Rapidohas raised around ₹400crore in a round led by
WestBridge Capital. Newinvestors, Alibaba’s BAceCapital and Shunwei Capital,have also participated in theround, along with existinginvestor Nexus Venture Part-ners, shows regulatory filingswith the ministry of corporateaffairs, sourced fromPaper.vc.
The investment reiteratesthe trend of investor interestin the mobility space.
Founded by Rishikesh S.R.,Pavan Guntupalli and AravindSanka in 2015, Rapido oper-ates in 13 cities. The firm hadraised $10 million in January ina round led by Nexus and Inte-grated Capital.
Mint reported on 13 Augustthat Rapido is in talks to raise$50 million in a round led byWestBridge.
The investment comes at atime when mobility startupshave been garnering stronginvestor interest. Micromobility firms, such asBounce and Vogo, are also inthe process of raising funds.
Rapido raises funds in fresh round led by WestBridge
Swaraj Singh Dhanjal
MUMBAI
The board of Gautam Tha-par-promoted CG Powerand Industrial SolutionsLtd is considering sellingnon-core assets and
exploring various fundraising ave-nues to deleverage the companyand optimize its operations, thecompany said in a filing to stockexchanges on Tuesday.
CG Power’s stock crashed 20%,the maximum permissible dailylimit for the stock, on 20 Augustafter its board disclosed that it hasfound “suspect” transactions thathave led to significant understate-ment of the company’s liabilitiesand advances to related and unre-lated parties.
CG Power’s stock has crashed80% since January to ₹9.05 apieceon Tuesday.
The company is now controlledby several lenders, who invoked thepledged shareholding of promotersearlier this year.
As on 30 June, Thapar’s AvanthaGroup had a negligible stake in thecompany, while private sector len-der Yes Bank held a 12.79% stake.Other major shareholders includeHDFC Mutual Fund, Aditya BirlaSun Life Asset Management,Franklin Templeton and LifeInsurance Corp. of India.
In an investor presentation pub-lished on Tuesday, the board said itis evaluating divestments of non-core assets, including the sale of theKanjurmarg land and CG House,where its headquarter is located.The board is also considering otherfundraising avenues, including anequity raise for bridging cash flowgaps and meeting working capitalrequirements to avoid business dis-
Instamojo disburses ₹110 crore in small loans to MSMEs within a year
bit.ly/30DXTpR
CG Power to sell non-core assets, raise fresh equityFirm weighs sale of Kanjurmarg land and CG House, where its headquarter is located
Gautam Thapar, chairman, CG Power and Industrial Solutions. HT
ruption, it said.It is also reviewing its interna-
tional operations which spanEurope and South-East Asia (SEA).
“Belgium: Focus existing highmargin, fast growing product seg-ments like systems and servicesbusiness, transformers for solarsector. Hungary:Evaluate increase inpenetration in themarket by leverag-ing the existingunutilized capacityand entry barriers.Indonesia: Con-sider expansion tonew SEA markets such as Vietnamand Philippines and increase reve-nue share from systems and servi-ces business,” the company said.
The board also plans to work onimproving the company’s operat-
ing metrics and plans to injectliquidity into the businesses toachieve full utilization of its manu-facturing capacity. It will also focuson bringing down overall directand overhead costs.
The company has also madechanges to its board with Narayan
Seshadri appointed as an inde-pendent director and erstwhileindependent director Sudhir Mat-hur now redesignated as a whole-time executive director.
Following the discovery of “sus-
pect” transactions, the FY18 con-solidated liability of the companyhas increased from ₹6,405 crore to₹7,976 crore, CG Power said.
FY18 consolidated receivablesbalance from various subsidiaries,promoter affiliate companies, andconnected parties has increased
from ₹131 crore to₹2,657 crore afterthe impact of theidentified transac-tions, the companysaid.
“ A d e t a i l e dreview will beundertaken to
assess the recoverability fromrelated parties and the resultant networth impact. In parallel, a detaileddeleveraging plan has been drawnup to avoid any disruption in thebusiness,” it added.
LIQUIDITY INFUSION
BOARD plans to work on improving the firm’s operating metrics and inject liquidity into the biz
IT is also reviewing its international operations, which span Europe and South-East Asia
NARAYAN Seshadri appointed independent director as part of changes made to the board
Aravind Sanka, co-founder,
Rapido.
04 WEDNESDAY, 28 AUGUST 2019NEW DELHI MARK TO MARKET
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Mark to Market writers do not have positions in the companies they have discussed here
productivity in the cotton season(2018-19).
It is not surprising that spin-ning mills are weighed down byhigh raw cotton prices. Adding tothis is the impact of tight liquidity
match the targeted ₹6.63 trillion forthis fiscal year, as far as the govern-ment’s share goes.
Arvind Chari, head of fixed incomeand alternatives at asset managerQuantum Advisors Pvt. Ltd, said:“The fact that there was no fiscal stim-ulus announced last week by thefinance minister in her packages was
R. Sree Ram
Vodafone Idea Ltd may beIndia’s largest telecom com-pany by subscriber base, but
it also happens to be the smallest interms of revenue market shareamong private sector operators.
In the June quarter, VodafoneIdea was the only company to post asequential decline in revenues,while competitors Bharti Airtel Ltdand Reliance Jio Infocomm Ltdreported notable expansion. This isbased on quarterly revenue datafrom the Telecom RegulatoryAuthority of India (Trai) compiledby SBICAP Securities Ltd.
Based on adjusted gross reve-nues, including receipts from long-distance services, Vodafone Idea’smarket share dropped from 32.1% inthe quarter ended March 2019 to27.8% last quarter. Two years ago,
Centre’s directive on BOT model for roads likely to see few takers
At Vodafone Idea, revenue market share and cash are depleting fast
Oil rises as hopes grow for US-China trade breakthrough
bit.ly/30DfQ7W
SHORT TAKESm
the combined market share ofVodafone India and Idea Cellularstood at 42.5%.
SBICAP Securities estimatesVodafone Idea’s revenue marketshare to stabilize at around 20% inthe medium term, with Reliance Jioseeing further gains bythe end of FY20. Atthe end of the Junequarter, Reliance Jio’srevenue market sharestood at 31.5%.
While Bharti Air-tel’s market share wassimilar, according toTrai numbers, analystssaid Jio achieved clearmarket leadership in the June quar-ter. Airtel’s numbers reported toTrai may need some adjustments,they added.
What’s more, the hit from thereduction in interconnection usagecharges to zero in a few months will
make things worse for the incum-bents.
The drop in Vodafone Idea’s mar-ket share and operating perform-ance comes at a time when its bal-ance sheet is fast deteriorating. Ananalysis of its debt and repayment
schedules, based onthe latest annual reportby Kotak InstitutionalEquities, shows thatthe company may fallshort of funds in abouta year from now.
“Our analysis ofVodafone Idea’s debtand deferred spectrumrepayment schedules,
basis the company’s FY2019 annualreport, suggests a need for anotherround of equity infusion as early as2Q/3QFY21E unless—(a) there is aquick and steep recovery in ARPUor (b) fiber sale closes and fetchesupwards of ₹10,000 crore or (c)some of the debt due for repaymentis refinanced or (d) capex creditincreases by a sum materiallyhigher than the ₹6,000 crore weassume in our math,” analysts atKotak said in a note to clients. ARPUis average revenue per user.
Of course, asset sales can takeVodafone Idea only so far. What isrequired is revenue and marketshare stabilization, but the trajecto-ries have been disappointing tillnow. With Reliance Jio armed withmore resources after its recentdeleveraging moves, analysts areworried that it is unlikely to relenton tariffs.
In June quarter, Voda Idea was the only firm to post asequential declinein revenues; Airtel and Jio reported
notable gains
Vatsala Kamat
The roads sector, whichwas on an overdrive forthe last five years, seems
to have hit a speed breaker.The Prime Minister’s Office(PMO) rapped the ministry ofroad transport and highwayssaying that the present roadcontracts “have become finan-cially unviable”.
The PMO said the hybridannuity model (HAM) andEPC (engineering, procure-ment, construction) mode ofcontracts entail heavy invest-ment from the government,which is unsustainable.Hence, it suggests the tradi-tional build-operate-transfer(BOT) model to be adopted forfuture road con-tracts.
But analystssaid that theappetite for BOTprojects will beweak. RajeshwarBurla, vice presi-dent and associ-ate head (corpo-rate ratings) atIcra Ltd, said: “Road develop-ers have become risk averse.Many developers’ balancesheets cannot support hugeequity investments towardsBOT projects.”
He added that with thetransportation sector under-
going change with alternativemodes of transport (freightcorridor, inland waterways),forecasting traffic is extremelychallenging.
Note that between FY10 andFY14, the share of BOT pro-jects was nearly 93% of thetotal awards. It is now down to
less than 10%.In BOT pro-
jects, land acquisi-t i o n d e l a y s ,related litigationsand cost overrunsdragged manycompanies intothe red. Cash-strapped develop-ers then shied
away from the sector.To save the situation and put
road construction on a warfooting, the National High-ways Authority of India cameup with HAM. The govern-ment’s commitment to 40% ofthe equity brought developers
Between FY10 and FY14, share of BOT projects
was nearly 93% of the total awards. It is now down to
less than 10%
Harsha Jethmalani
In line with the recommendationsof the Bimal Jalan Committee, theReserve Bank of India (RBI) willtransfer ₹1.76 trillion to the gov-ernment this fiscal year.
Since the government has shown acommitment to fiscal consolidation,economists expectexcess money to belargely reserved tomeet the expectedshortfall in tax reve-nues.
Of course, some ofthese funds may alsobe used to recapitalizepublic sector banks, which the gov-ernment last week decided to dis-burse upfront.
This means, given the inadequategoods and services tax (GST) collec-tions, concerns over fiscal deteriora-tion may have been allayed to someextent for now. However, what thisalso means is that the legroom for
major stimulus measures from hereon remains limited.
As per estimates by AnubhutiSahay, senior economist at StandardChartered Bank, overall, the govern-ment is likely to receive additionalrevenue inflows of around ₹60,000crore. “This is likely to assuage wor-ries about fiscal slippage—we esti-mate that the FY20 fiscal deficit tar-
get faced a slippage risk of 0.5% ofGDP on ambitious tax targets. Asmost of the excess revenue is likely tobe used to contain any fiscal slippagein FY20, room for fiscal stimulusremains limited, in our view,” she saidin a report on 27 August.
Bonds rallied in early trade onTuesday, adding to the gains on Mon-
day, in response to the government’sfiscally prudent announcements lastFriday. However, as the day pro-gressed, bonds erased earlier gains.As a result, benchmark 10-year yieldsclosed at 6.53%, which was lowercompared to 6.57% on Friday.
Economists at Kotak InstitutionalEquities said in a Tuesday morningnote to its clients: “While the initial
reading could be posi-tive for GSecs, fiscalslippage risks will con-tinue to weigh onyields.” Their view isthat “fiscal slippagerisks remain given ourestimated shortfall ofaround ₹1.5 trillion in
goods and services tax (GST) reve-nues. If direct taxes disappoint, too,fiscal pressures will intensify (amidslowing growth)”. GSecs stands forgovernment securities.
Although GST collections crossedthe ₹1 trillion-mark in July for thethird month in a row, economists saidthe pace of growth is insufficient to
RBI bonanza allays fiscal concerns, but room for stimulus stays limited
FISC IN FOCUS
FISCAL SLIPPAGE issues have receded to some extent courtesy surplus funds transfer by RBI
WITH THE consolidated fiscal deficit staying high, there is limited scope for a further stimulus
ECONOMISTS see this windfall gain only as a short-term positive for bond yields
comforting for the bond market. Wedo hope that the government usesthis windfall to balance the fiscal forthis year instead of using it toannounce some spending pro-gramme. Total government relatedfiscal spending is already estimated at8.5-9% of GDP. We don’t need a stim-ulus.”
Fiscal woes fixed?
Source: Union budget, JM Financial Institutional Securities
FY14
5
4
3
2
1
0FY20FY19 (Revised
Estimates)
Fiscal deficit as a % of GDP
The government is expected to use the surplus from RBI to meet its FY20 gross fiscal deficit-to-GDP target of 3.3%.
Budget Estimates
Actual fiscal deficit
4.8
3.3
4.5
NAVEEN KUMAR SAINI/MINT
back into the fray. New-agecompanies such as SadbhavEngineering Ltd, Dilip Build-con Ltd and Ashoka BuildconLtd have order books of aboutthree times their annual reve-nues.
However, an economicslowdown, delays in financialclosure and slow growth in tolltraffic have jeopardized thecash flows of road developers.
Interest cost to salesincreased from 9.8% in Q4FY19 to 16.2% in Q1 FY20.Interest cover, fell from 3.8times in Q4 FY19 to 1.4 timesfor the sample 20 mid-sizedcompanies (bit.ly/2U92fmh).
Order flows were weak dueto the general election in thefirst six months of 2019. Now,if the sector gets caught in apolicy logjam, the ambitiousroad construction commit-ment of Prime Minister Nar-endra Modi’s governmentmight take a hit.
Road to nowhere
Source: Icra
HAM: Hybrid annuity model
Cost break-up
(in %)
The National Highways Authority of India is in a logjam as land acquisition and construction costs are high, thereby threatening the financial viability of projects.
Construction works
Grant including HAM
Annuity payment
Debt servicing
Land acquisition
4
35
1615
30
NAVEEN KUMAR SAINI/MINT
Taking a hit
Source: Telecom Regulatory Authority of India, SBICAP Securities Q2 FY19 Q3 Q4 Q1 FY20
Vodafone Idea has lost considerable revenue market share in the last one year, primarily to Reliance Jio Infocomm.
*Including national long-distance service receipts
Adjusted gross revenue market share* (in %)
Reliance Jio Vodafone Idea
26.2
32.8
29.831.6 31.6 32.1 31.5
27.8
SATISH KUMAR/MINT
faced by small and medium mills,which make up for a major por-tion of installed capacity.
Data from Capitaline on 39spinning mills shows that netrevenue in the June quarter con-
Vatsala Kamat
Looks like yarn mills arecaught in a web of weaken-ing demand and high raw
material prices. For a countrythat exports nearly one-third ofthe yarn it spins, the 34.6% year-on-year drop in exports betweenApril and June does not bodewell for mills. The domestic mar-ket was not encouraging either.Although there was positive off-take in April and May, prices inJune fell 4% year-on-year.
To the dismay of industry andanalysts, the robust demandtrend seen in the first threemonths of 2019 did not sustain.According to rating agency Icra
Ltd, several factors explain thefall in India’s cotton yarn exports.This includes high price of cottonand yarn from Indian mills, duty-free access provided by China toPakistan for import of yarn, con-tinued competitive pressuresfrom nations, such as Vietnam,and higher raw cotton fibreimports by China, which is keep-ing its cotton availability situa-tion comfortable for yarn mills.
At the root of the problem ishigh cotton prices. Internationalcotton price has plunged 28.3%in the past one year. In contrast,domestic prices have been firmduring the period. Cotton futureshave been steadily rising in thelast seven trading sessions onspeculation of lower output and
tracted by about 7.4% from theyear-ago period. The averageEbitda (earnings before interest,tax, depreciation and amortiza-tion) as a percentage of sales alsocontracted by about 50 basispoints, though many mills havebeen struggling.
With several global tensionspersisting, especially betweenthe two strong contenders in cot-ton textiles—the US and China—the outlook for India’s yarnexports in FY20 looks bleak.Reports from textile associationsin India suggest stock pile-upsand production cuts by spinningmills in recent months.
This may have a cascadingeffect on the financial health ofdomestic mills, more so, if the
problem persists. Jayanta Roy,senior vice-president and grouphead (corporate sector ratings) atIcra, said: “Based on the emerg-ing trends, we have revised thecredit outlook on the Indian cot-ton spinning industry to ‘nega-tive,’ as the profitability and debtcoverage metrics are expected tomoderate from the current lev-els. The impact is likely to bemore pronounced for leveragedcompanies.”
Given the tight liquidity sce-nario, a sudden change in yarnoutlook is unlikely. One can onlyhope for a drop in domestic cot-ton prices with the onset of thenew season. This could ease thepressure on spinning mills in thenear term.
Spinning mills wedged between drop in yarn demand, high cotton pricesLosing strength
Source: CapitalineData is average of 39 spinning mills
Q1 FY19 Q1 FY20
Cotton yarn spinning mills are facing challenges of falling revenue and profitability.
Earnings before interest, tax, depreciation and amortization margin
(in %)
-10
-5
0
5
10
15
10.82
-7.36
11.26
0.13
Year-on-year change in revenue
SATISH KUMAR/MINT
EM bond investors not this defensive since Lehman
With the US and China’s trade war appearing totake a new turn every day, emerging market(EM) investors are getting more cautious. Byone measure, they are the most defensive theyhave been in more than a decade. High-gradedollar bonds in developing nations havereturned 3% this month, while junk-ratedsecurities in EMs have lost 2.7%, according toJPMorgan Chase and Co.’s indices.
The last time the outperformance of high-grade dollar bonds was so big was in October2008, the month after Lehman Brothers col-lapsed. It was a different story earlier in theyear as investors piled into riskier countries ina hunt for higher yields. Now, there’s a flight tosafety as trade tensions worsen the global eco-nomic outlook. Chile, the highest-rated sover-eign in Latin America, has the best-performingEurobonds in EMs this month. BLOOMBERG
Central banks’ love of gold seen bolstering demand
A major gold-buying spree by central banks islikely to persist in the coming years, accordingto Australia and New Zealand Banking GroupLtd (ANZ), which flagged the potential for fur-ther purchases by nations including China. “Inthe current environment, where uncertainty inemerging-market currencies is high, we seegood reason for countries like Russia, Turkey,Kazakhstan and China to continue to diversifytheir portfolios,” ANZ said in a note. Net buy-ing by the sector is likely to stay above 650 ton-nes, it said.
Central-bank accumulation of bullion hasemerged as an increasingly important trend inthe global market, offering additional supportfor prices. Authorities have been adding toreserves as growth slows, trade and geopoliti-cal tensions rise, and some nations seek todiversify away from the dollar. Official pur-chases now account for about 10% of world-wide consumption, said ANZ. Central banksadded 374.1 tonnes in the first six months, tak-ing total bullion demand to a three-year high,said the World Gold Council. BLOOMBERG
Export slump: Germany on the brink of a recession
A collapse in exports pushed Europe’s largesteconomy to the brink of recession in the sec-ond quarter. In a sign that an increasingly hos-tile trade war between the US and China is atleast partially to blame for Germany’s deepen-ing manufacturing malaise, shipments abroaddeclined 1.3%, the most in more than six years.That led to a contraction in total economic out-put—the second over the past year.
Weaker global trade and upheaval in theauto industry are dragging Germany’s econ-omy deeper into trouble, with repercussionsfor the broader euro-area economy. Plungingbusiness confidence and warnings from someof the country’s biggest companies are addingto concerns about the outlook and piling pres-sure on German chancellor Angela Merkel toprovide fiscal stimulus. Collateral damagefrom a US-inflicted trade conflict could soonintensify. President Donald Trump threatenedto impose tariffs on European car imports ear-lier this month and labelled the EuropeanUnion “worse than China”. BLOOMBERG
Source: International Monetary Fund, People’s Bank of China, Bloomberg
Central banks are likely to increase their gold reserves, says ANZ.
More buying?
31 Aug 2018 31 Jul 2019
(in million ounces)
71.35
64.25
59.24
58
60
62
64
66
68
70
72
74IMF Russian reserve gold holdings
China gold reserves
62.26
SATISH KUMAR/MINT
Source: JPMorgan, Bloomberg
Emerging market bond traders are the most defensive they’ve been since 2008.
Caution reigns
1 Oct 2008 23 Aug 2019
Outperformance of EM investment-grade Eurobonds vs high-yield Eurobonds (in percentage points)
8.8
5.6
-4
-2
0
2
4
6
8
10
SATISH KUMAR/MINT
CORPORATE WEDNESDAY, 28 AUGUST 2019NEW DELHI 05
prompted the company toslash prices and rework strat-egy for the two brands thatcould launch new products inthe near term.
During the quarter endedJune 30, the company rolledout Lux Botanicals and PearsNaturale nationwide, in linewith the popularity of the nat-urals category among shop-pers.
HUL’s soap price cut comesat a time when demand forpackaged consumer goodsremains subdued.
In its April-June update,research firm Nielsen notedthat non-food categories suchas salty snacks, biscuits, spi-ces, toilet soaps and packagedtea led the slowdown duringthe quarter.
HUL has been witnessingmodest demand in its beautyand personal care segmenttoo.
The company said that inthe June quarter, sales in itsbeauty and personal careportfolio grew at a modest 4%,trailing growth in other seg-ments such as foods andrefreshments, and home care.“Within beauty and personalcare, personal products’ per-formance was steady, whilepersonal wash witnessed amuted delivery, particularlyin the popular segment,” saidthe company.
In personal wash, thedemand for the popular seg-ment was soft, while that forpremium brands remainedsteady, HUL said in its inves-tor presentation for the quar-ter.
Edelweiss analyst AbneeshRoy noted that HUL’s move is“the right strategy in our view,considering soaps volumesare soft and palm oil pricescontinues to remain lower onyear-on-year basis, althoughhave picked up lately”.
The move will help HULgain market share from unor-ganized and some of thesmaller players, Roy said onTuesday.
Interestingly, even as thecompany cut prices of soaps,it increased prices of facewashes by 4-14% across Pears,Dove, Ponds and Fair &Lovely brands in July, accord-ing to a 27 August report byKotak Institutional Equities.
FROM PAGE 1
HUL reduces Lifebuoy, Lux prices in the latest sign of weak demand
CCD founder’s suicide: Police to probe exact cause
bit.ly/2MFXyiO
Stent makers fail to convince panel on differential pricing
Govt-led panel met firms this month to re-examine if all drug-eluting stents were equal
take off in India”. In 2017,Paytm had invested in QorQl,an online healthcare startup,to offer doctors appointmentson its app.
Recently, it expanded itseducation business with a fullbouquet of services acrosspayments, commerce, finan-cial and academic products.
In FY20, it plans to cross₹20,000 crore in gross mer-chandise value for its educa-tion business. Sharma said theplan to get into the payments
Deepti Chaudhary
BENGALURU
Digital payments com-pany Paytm, valued atabout $15 billion, is set
to enter the healthcare pay-ments space to widen its cus-tomer base.
Last month, Paytm had saidit was expanding its educa-tional services from fee pay-ments, application forms andcareer counselling, to educa-tion insurance, loans and jobapplications.
The firm now aims to createa payments mechanism solelyfor doctors to help themreceive consultation feesusing Paytm to and make bulkpurchases such as medicalsupplies.
“We want to be a categorycreator of payments. Doctors
don’t accept digital paymentsas they often visit multiplehospitals in a week and thereis no reconciliation methodfor all the payments. There iscomplexity involved in han-dling such payments. So, weare bringing the simplest ofQR codes, which are replacea-ble and usable at multiple pla-ces,” said Paytm founder VijayShekhar Sharma.
“Now, these doctors alsowant to use this money digi-tally. We will launch tools tohelp them do that. Last week,we launched wholesale debitsso they (doctors) can makebulk payments using the samePaytm,” he added.
Paytm is also evaluating thebusiness of connectingpatients and doctors on a plat-form. Sharma, however, is notsure if it will go down thatpath as “this model is yet to
side of education and doctorsis a natural progression ofPaytm’s business.
“Our focus has been clini-cally high frequency, whichincludes top-ups, grocerystores, and milk shops such asMother Dairy. That was thefirst focus. Thencame the large-ticket focus. So,we got into edu-cation, which is alarge ticket, nothigh frequency;and now, doc-t o r s , ” s a i dSharma.
T h e r e a r eabout 14 million merchantsusing Paytm services and thecompany plans to increase thebase to 24 million this fiscalyear. Paytm records 800-900million transactions a month.
Experts said there are a lot
of digital payment firms and,therefore, the cost of acquir-ing customers is going up.Paytm had a head-start, butGoogle Pay, Amazon Pay,BHIM, PhonePe and What-sApp’s payments offerings arechallenging its near-monop-
oly status.“Paytm has to
create more usecases for its cus-tomers and getmore people onits platform. It’snot just aboutdoctors. It coulds o o n c r e a t esomething for
handy men such as carpen-ters. This seems to be theright way to go forward,” saidHarish H.V., managing part-ner, ECube, an environmen-tal, social and governancefund.
Paytm eyes healthcare payments space, seeks to add doctors to widen user base
Paytm founder Vijay Shekhar Sharma. PRADEEP GAUR/MINT
Firm aims to create a paymentsmechanism solely
for doctors to help them receive consultation fees
using Paytm
according to the state’s law-yers.
Roughly 2,500 lawsuitshave been brought by states,counties and municipalities
according to the US Centersfor Disease Control and Pre-vention. Since 2000, some6,000 Oklahomans have diedfrom opioid overdoses,
The government-led committee said that firms have failed to present adequate clinical evidence of superiority in
terms of safety and benefit of their stents over currently available drug-eluting stents. REUTERS
Teena Thacker
NEW DELHI
Premium coronary stentsmay remain out of reachfor Indian patients, withstent manufacturers fail-ing to convince an expert
panel that their products are spe-cial enough to be kept out of pricecontrol.
Domestic and multinationalmanufacturers have failed toimpress the government-led com-mittee for a second time about thetherapeutical superiority of theirstents, two people aware of thematter said, requesting anonymity.Two years ago advanced stent man-ufacturers had withdrawn theirproducts after India capped pricesto benefit patients.
The committee, which met stentmakers several times this month tore-examine if all drug-elutingstents (DES) were equal, or if a newcategory is required, could not bepersuaded, the people said.
“Committee members found ‘nogrounds’ for a new category,” thefirst person said, adding that thefirms did not “present adequateclinical evidence of superiority interms of safety and benefit of theirstents over currently availableDES”.
The second person confirmedthe development. “While incase of drugs, efficacy canbe ascertained easily, instents, the same formula isnot applicable. Also, manu-facturers have failed topresent enough data to val-idate therapeutic superior-ity. Hence, their request tocreate a separate category of DESwith superior features outside pricecontrol is unlikely to find favourwith the committee,” he added.
On 21 December 2016, stentswere included under Schedule 1drugs. Subsequently, the NationalPharmaceutical Pricing Authority(NPPA) capped prices of bare metal
stents and DES on 13 February,2017. Stent prices were slashed byup to 80%, pushing MNC stentmakers to withdraw their productsfrom the Indian market.
In November 2017, two months
after the price cap was announced,US-based Abbott Laboratories saidit would not introduce its lateststent, Xience Sierra, in India. It alsoreceived permission to withdraw itspremium Xience Alpine metallicstents, as well as its dissolvingstents. Boston Scientific also with-drew its high-end Synergy stents
from the market.According to the people cited
above, since then, NPPA has beenreceiving representations fromMNC stent makers seeking a newsub-category of stents within DES
to include ‘new generation’ stentswith added features.
Hence, in August, the committeeof experts headed by Balram Bhar-gava, director general of IndianCouncil of Medical Research(ICMR), invited stent makers torepresent their case, which was fur-ther reviewed by a panel of experts,
including cardiologists. Multinational stent makers such
as Boston Scientific Corp., Med-tronic, and Abbott Laboratoriesrepresented their case before thecommittee.
Vapi-based Indian stentmaker Meril Life SciencesPvt. Ltd, which claims tomake advanced stents, alsomet the committee. MerilLife Sciences has held backthe launch of its naturallydissolving stents.
In January 2018, the thenNPPA chairman Bhupendra Singhhad also asked Union health secre-tary Preeti Sudan to call an urgentmeeting of the cardiac stents corecommittee to reconsider andreview the issue. However, a gov-ernment committee had decidedagainst creating such a category inFebruary 2018.
THE CASE SO FAR
THE NPPA capped prices of bare metal stents and drug-eluting stents on 13 February 2017
STENT prices were slashed by up to 80%, pushing MNCs to withdraw their products from India
NPPA has received representations regarding a new sub-category of stents with added features
IN August, the panel invited stent makers to represent their case, which was further reviewed
Lifebuoy and Lux are among
the top selling soap brands in
India’s toilet soap market.
deaths and addictions causedby their actions,” Hunter said.
The trial came after Okla-homa had resolved claimsagainst OxyContin maker Pur-due Pharma Lp in March for
$270 million andTeva in May for$85 million, leav-ing J&J as thelone defendant.
The verdictcame as two Ohiocounties preparefor a scheduledOctober trialbefore a federal
judge in Cleveland. About2,000 lawsuits out of some2,500 filed nationwide areconsolidated in the case inCleveland. REUTERS
activities had created a publicnuisance.
“You can’t sue your way outof the opioid abuse crisis,”Sabrina Strong, a lawyer forJ&J, said at a news conferenceafter the verdict.“Everyone mustcome together toaddress this. ButJ&J did not causethe opioid crisis.”
The case wasbrought by Okla-homa attorneygeneral MikeHunter, whoalleged that J&J’s marketingpractices helped fuel the opi-oid epidemic by flooding themarket with painkillers.
“J&J will finally be heldaccountable for thousands of
ing addiction treatment andprevention programmes.
Balkman said in his writtenruling that the award coveredonly one year of addressing thecrisis because Oklahoma didnot demonstrate the time andcosts needed beyond that.
Lance Lang, a 36-year-oldrecovering user of opioidsturned activist in OklahomaCity, said it was “short sighted”for the judge to have onlyordered funding for a year.“There’s going to be peoplestruggling with this for years,”he said in an interview.
J&J said it will ask that theaward be put on hold duringan appeal process that couldstretch into 2021. The com-pany also said Oklahoma failedto show that its products and
nationally seeking to holddrugmakers responsible foropioid abuse nationwide.Oklahoma’s case was the firstto go to trial. Some drugmak-ers have chosen to settle cases.
In holding J&J liable after aseven-week, non-jury trial,Judge Thad Balkman of Cleve-land County District Court inNorman, Oklahoma, said thestate proved that J&J’s mis-leading marketing and promo-tion of its Duragesic andNucynta painkillers created apublic nuisance.
“The opioid crisis is animminent danger and menaceto Oklahomans,” Balkmansaid.
Oklahoma wanted J&J tohelp it address the epidemicfor the next 30 years by fund-
“The expectation was thiswas going to be a $1.5 billion to$2 billion fine,” said JaredHolz, healthcare strategist forJefferies & Co. “$572 million isa much lower number thanhad been feared.”
J&J said it would appeal thedecision.
Shares of J&J were up 2% inextended trading following thedecision, after an initial gain ofmore than 5%. Other drugmak-ers that sell opioid painkillersand are defending against sim-ilar lawsuits also rose after-hours, including Teva Phar-maceutical Industries Ltd up2.6%, and Endo InternationalPlc, up 1.4% higher.
Opioids were involved inalmost 400,000 overdosedeaths from 1999 to 2017,
Heide Brandes &
Nate Raymond
NORMAN/BOSTON
An Oklahoma judge onMonday ordered John-son & Johnson (J&J) to
pay $572.1 million to the statefor its part in fuelling an opioidepidemic by deceptively mar-keting addictive painkillers, asum that was substantially lessthan investors had expected,driving up J&J’s shares.
The state’s attorney generalhad filed the lawsuit, seeking$17 billion to address theimpact of the drug crisis onOklahoma. It had been consid-ered a bellwether for other liti-gation nationwide over theopioid epidemic.
J&J liable for $572 million in Oklahoma opioid epidemic trial, shares jump
J&J said it will ask that the award be put on hold during an appeal
process that could stretch into 2021. REUTERS
Shares of J&J rose as the sum of
$572.1 million was substantially less
than what investors had
expected
Rahul Bhatia, co-founder, InterGlobe Enterprises.
Gangwal had earlieraccused Bhatia of violatingcorporate governance norms,questioned RPTs with IGE andsought more independentdirectors on the board.
On 8 July, Gangwal wrote tomarkets regulator Securitiesand Exchange Board of Indiaseeking its intervention oncorporate governance issues.
Gangwal, in his letter,flagged concernsabout certainRPTs and said thes h a r e h o l d e r s ’agreement pro-vides co-pro-moter Bhatia withunusual control-ling rights overIndiGo. Bhatiahas denied theallegations.
Gangwal and his associateshold nearly 37% in InterGlobeAviation, while Bhatia’s IGEowns around 38%.
Although the two groupsown roughly similar stakes, aninitial agreement gave specialrights to Bhatia’s IGE Group.
Bhatia has maintained thatthere is no evidence to sub-stantiate Gangwal’s allega-tions on RPTs.
The disagreement betweenthe promoters led to Gangwal
FROM PAGE 1 opposing the special resolu-tion at the AGM to increaseboard members to 10, unlessanother resolution was passedby the board to prevent theIGE Group from attainingmore power and until a newpolicy on RPTs was adopted bythe company.
Meanwhile, Dutta expectsthe airline’s capacity to grow at30% a year over the next fewyears.
“We expect that half of thatgrowth will goi n t e r n a t i o n a l ,h a l f w i l l g odomestic,” Duttatold shareholdersof the company,adding that hewas optimisticabout the airline’si n t e r n a t i o n a loperations.
The airline is looking atinducting wide-body aircraftas well as Airbus A321XLR forits international operations.
IndiGo currently has a fleetof Airbus A320neo, A320ceoand A321 planes as well as ATRturboprop aircraft that con-nect domestic and nearbyinternational destinations.
On Tuesday, IndiGo’sshares fell 1.85% to ₹1,649 onthe BSE, while the benchmarkSensex gained 0.39% to37,641.27 points.
IndiGo board accepts key Gangwal demand
Gangwal skipped IndiGo’s AGM on
Tuesday. Also absent was
independent director
Anupam Khanna
BLOOMBERG RAMESH PATHANIA/MINT
06 WEDNESDAY, 28 AUGUST 2019NEW DELHI CORPORATE
process involves high-leveldata sharing and not all dealsgo through.”
Cure.Fit’s series of acquisi-tions started with two bou-tique fitness brands—Cult, in2016, and The Tribe, in 2017—
Sharan Poovanna
BENGALURU
Bengaluru’s PeenyaIndustrial Area has seen30% decline in businesswith job losses beingreported across compa-
nies operating in the area even asthe festive season sets in, employ-ers and trade union leaders said.
“We keep our doors open for fil-ing paperwork, but no productionis really taking place,” said Lata Gir-ish, director, Fortifori Plastics Pvt.Ltd, a former president of the Pee-nya Industries Association.
Over a million people work at thesmall and medium establishmentsin Peenya, one of India’s largestindustrial hubs. Describing theprevailing conditions as “pathetic”,Girish said many people in thelabour-intensive units have lostjobs since the beginning of the year.The industrial area in the northernpart of Bengaluru houses manufac-turing units of auto components,textiles, machine tools and engi-neering, and packaging solutions.It is spread over 40 square miles.
Kannada news daily Prajavani
had first reported on the develop-ment.
Companies in Peenya have beentrying to reduce overtime costs,besides shutting down the unitsduring weekends.
The slowdown in automobilesales and plummeting investorconfidence, among others, haveforced the Prime Minister Naren-
Can TikTok ask ShareChat to remove third-party content?
bit.ly/2Nw8Oy9
Firms in Bengaluru industrial hub gear for a gloomy festival season
Peenya Industrial Area has seen a 30% fall in business with job losses reported across firms in the zone
Tanya Thomas
MUMBAI
The National HighwaysAuthority of India(NHAI) is fully capable of
raising debt and continuing tomeet its road construction tar-gets, Union minister for roadtransport and highways NitinGadkari said on Tuesday.
“NHAI is an AAA-rated orga-nization and we can raiseenough debt to keep buildingroads,” Gadkari said.
A recent note from thePrime Minister’s Office (PMO)had suggested that the NHAIre-evaluate its ability to putequity into road constructionand turn into an asset manage-ment company instead.
“What the PMO has said inits note are only suggestions.It’s not as big as the media ismaking it out to be. The NHAIhas always been able to meet itsfund-raising targets.”
He said the NHAI is in talkswith the State Bank of India toraise up to ₹50,000 crore,referring to the authority’splans to meet part of its₹75,000 crore target for thefiscal by securitizing future tollrevenue on its high-traffic
trust and to bid out new pro-jects under the build-operate-transfer model where the gov-ernment’s capital commitmentwould be minimal”.
A recent report by SBICapsSecurities said toll collectionhas grown at a very modestpace of 6% per km (from ₹55lakh/hectare in FY13 to ₹80lakh/hectare now) for NHAI’soperating roads. “Revenue col-lection barely covers the inter-est servicing cost of these pro-jects, let alone project returns.Thus, there is a rising concernon debt servicing. NHAI’s out-standing debt of ₹1.8 trillioncould entail interest servicingof ₹12,000 crore-14,000 crore,which compares with ₹10,000crore of NHAI’s toll collectionsduring the year,” it pointedout.
Despite this, Gadkariinsisted that the essential mod-els through which roads will bebuilt in India will stay the same.
“We have to look at thefinancial viability of everyproject, but the NHAI hasraised enough capital to keepconstruction going.”
Gadkari was speaking on thesidelines of a conferencehosted by the IMC Chamber ofCommerce and Industry.
NHAI can raise debt to build roads: Gadkari
NHAI is an AAA-rated organization and can raise enough debt to
keep building roads, says transport minister Nitin Gadkari. PTI
Maruti Suzuki sheds around 3,000 jobs as slowdown bites
Maruti’s permanent workers have remained untouched by the
manpower restructuring exercise. PRADEEP GAUR/MINT
Malyaban Ghosh
NEW DELHI
Maruti Suzuki India Ltdsaid on Tuesday that ithas not renewed the
job contracts of around 3,000temporary workers in recentmonths amid a sharp slowdownin sales, though permanentworkers have remaineduntouched by the manpowerrestructuring exercise.
R.C. Bhargava, chairman ofIndia’s largest carmaker, ishopeful automobile demandwill rebound following a seriesof steps announced by the gov-ernment.
Contractual workers giveflexibility to the operations ofthe company, Bhargava said atMaruti’s annual general meet-ing.
India’s automotive sector isin the midst of an unprece-dented slowdown, with passen-ger vehicle sales falling themost in nearly 19 years in July.This underscores weak con-sumer sentiment,uncertain eco-nomic conditions,higher ownershipcosts, farm dis-tress and a creditsqueeze. This wasthe ninth straightdrop in passengervehicle sales.
Sales of com-mercial vehicles as well as two-wheelers have also remainedweak, forcing automakersacross segments to lay off work-ers and temporarily suspendproduction to keep costs incheck.
Bhargava said Maruti has noplan to fire any of its 16,050strong permanent workforce inthe near future. He said stepsannounced by finance ministerNirmala Sitharaman on Fridayto boost the economy will go along way in reviving demand inthe domestic market.
“Some of the measuresannounced by the governmentare very good and faster availa-bility of GST (goods and servi-ces tax) refunds will fuel furthergrowth. Also, the assurancefrom government that bankerswill not attract punitive meas-ures for bona fide commercialdecisions will help,” Bhargavasaid in response to a share-holder’s query.
Last week, Sitharamanannounced a slew of steps suchas mandating government
agencies and departments toreplace older vehicles, increas-ing depreciation on new vehi-cles for commercial fleet ser-vice providers, urging banks tomake automobile loanscheaper and increase creditavailability for non-bankingfinancial companies.
The finance minister alsoassured buyers and manufac-turers that vehicles compliantwith Bharat Stage (BS) IV emis-sion norms registered before 31March 2020 will be able to runfor the entire registrationperiod or the life of the vehicle.India will shift to BS VI normsfrom 1 April. Automakers havealso been urging the govern-ment to reduce the GST rate onvehicles to 18% from 28%.
“Unfortunately, what hashappened in the last fewmonths is that suddenly a num-ber of factors have combined toincrease the final cost the cus-tomer has to bear to buy a car,”Bhargava said. “The new safetyregulations, which include air-bags, ABS (anti-lock braking
system) and morestringent crashtest norms havebeen imple-mented in thecurrent financialyear.”
Meanwhile, inline with the Cen-tre’s approach topromote electric
mobility, the Suzuki MotorCorp. unit has begun testing itsfirst electric vehicle based onthe Wagon R hatchback model.Maruti will, however, continueto invest in developing vehiclesequipped with compressednatural gas (CNG) and hybridpowertrains until electric vehi-cles become affordable.
The recent start of supply ofthe Baleno hatchback toToyota’s Indian unit as part of across-badging agreement hasalso helped maintain decentutilization levels in the manu-facturing capacities of MarutiSuzuki, at a time of weakdemand.
“The advancement of elec-tric technology is not as rapid aswe hoped and what this seemsto indicate is that for an individ-ual customer or a low-cost caruser, availability of an afforda-ble electric vehicle is not likelyin the next few years. That isunfortunately the reality of thissituation,” Bhargava said.“Meanwhile CNG and hybridcars are the way forward.”
R.C. Bhargava is hopeful
automobile demand will
rebound after the govt announced a
series of steps
roads. It is also intalks to raise ther e m a i n i n g₹25,000 crore byissuing bonds toLife InsuranceCorp. of India.
In a letter dated17 August, Nrip-endra Misra, prin-cipal secretary to the PrimeMinister, wrote to the ministryof road transport and highwayssecretary Sanjeev Ranjan, toimprove the operational per-formance of NHAI. The letter
said the NHAIwas “totally log-jammed by anunplanned andexcessive expan-sion of roads andit is mandated topay much highercosts for landacquisition and
construction. The note sug-gested aggressively monetiz-ing NHAI’s road assets basethrough the toll-operate-transfer auctions or through aninfrastructure investment
NHAI is in talks with SBI to raise up to ₹50,000 cr and with LIC to raise ₹25,000 cr
to meet its fiscal target
SHORT TAKESm
Representatives of the textile sector said the inability to innovate has also resulted in losing out orders and business.
dra Modi-led National DemocraticAlliance (NDA) to roll back severalmeasures announced in the bud-get. Employers andunions said this was toolittle, too late, and wouldtake long to show results.
“There are dark daysahead and no signs to sug-gest that things will getbetter,” M.M. Giri, presi-dent, Peenya IndustriesAssociation, said. Giri added thatthere was also labour shortage insome industries that were doingwell. Representatives of the textilesector said that the inability to
innovate with the times has alsoresulted in losing out orders andbusiness. This cannot be attributed
to the overall economic slowdown,they added.
Several provisions in the budgethad badly hit automobile sales andits supply chain, including compo-
nent makers who operate out ofindustrial estates.
Members of the industries asso-
ciation had met finance ministerNirmala Sitharaman last week tovoice their concerns. However,trade unions were not very hopeful.“Capital utilization is very low and
industry houses want incentivesthat are unlikely to solve any prob-lem for employees,” MeenakshiSundaram, state general secretary,Centre of Indian Trade Unions,said.
Desperate measures by factoryworkers to save their jobs wouldmake them more vulnerable toexploitation by employers, whichinclude low wages, unhealthy workenvironment, sexual harassment(more in textile sector) and furtherdilution of labour rights, she added.
Factory owners said that thebusinesses are yet to recover fromthe impact of demonetization andhigh tax slabs under the goods andservices tax (GST), and the currenteconomic slowdown is forcingindustries to sack employees tolimit losses.
Contract workers are the mostvulnerable, and their loss adds tothe unemployment numbers in astate where agricultural activity hasbeen hit due to floods anddroughts. The weak rural economyhas forced many people to migrate
to urban areas in search oflivelihood. The Indianeconomy grew just 6.8%in 2018-19, a five-year low.Unemployment, mean-while, is at a 45-year highas pointed out in a studyby the National SampleSurvey Office. Data from
the Periodic Labour Force Surveyshows that unemployment in Kar-nataka stands at 4.8% for peopleabove 15 years of age, which isbelow the national average of 6%.
SLOWDOWN BLUES
FIRMS in the hub are cutting overtime costs, besides shutting down units during weekends
SOME provisions in the budget had badly hit auto parts makers that operate out of Peenya
OVER 1 million peoplework at the small and medium firms in Peenya, one of India’s largest industrial hubs
KARNATAKA’S jobs rate stands at 4.8%, which is lower than the national average average of 6%
Ankit Nagori, co-founder of
Cure.Fit.
business and possibly look at adeal. Then, suddenly a conflictof interest arises because theylaunch a similar product.”
Investors said that acquisi-tion talks falling through is
common. Theyadded, however,that most deals donot go through asa result of some-thing unusualthat is discoveredduring due dili-gence.
Lawyers Mint
spoke to say thatto avoid any data leakage,startups can have a contract,wherein the term sheet clearlystates that the data acquiredduring the process of diligencehas to be kept either confiden-tial or deleted if the dealdoesn’t go through.
person familiar with the firm’sstrategy. “This also leads toseveral deals falling through.”
Several industry stakehold-ers Mint spoke to believe thatsince Cure.Fit’s businessmodel is con-stantly evolving,an acquisitionc o n v e r s a t i o ncould turn into aconflict of inter-est at any point.
“For instance,when a gym istalking to them(Cure.Fit), theynever really look at it as a con-flict of interest,” said anotherstartup entrepreneur, request-ing anonymity. “They havesaid in the past that they arenot looking at aggregation—and that whatever informationthey need is to understand the
that have now become its fit-ness centres in Bengaluru. Thecompany also acquired yogachain a1000yoga and Benga-luru-based health food deliv-ery firm Kristys Kitchen tolaunch its food business in2017.
Earlier this year, Cure.Fitacquired health beveragebrand Rejoov. In April,Cure.Fit also launched anincubator programme forstartups engaged in creatinghealthy snacks and beverages.The idea is to invest $5 millionacross 8-10 startups in the nexttwo years as it looks to co-cre-ate products as well, Cure.Fitco-founder Ankit Nagori toldMint during a telephonicinteraction in April.
“The company talks to atleast one firm every week forpotential acquisitions,” said a
pany.The concerns over Cure.Fit
are similar. While the firm islooking to create an overallhealth and fitness ecosystemby making several acquisi-tions, it is talking to manymore startups than it plans toacquire.
“Most discussions, whetheracquisitions, partnerships orinvestor meetings, alwaysinvolve a certain amount ofhigh-level data exchange,” aCure.Fit spokesperson said,while declining to commenton any specific acquisition.“Only once both parties aresatisfied with preliminaryaspects does any potentialtransaction proceed for cus-tomary succeeding steps.Hence, we deny any allega-tions of data sharing and reit-erate that all deal-making
reviewed a copy of the order.The next hearing is on 11 Sep-tember.
Cure.Fit and BYG declinedto comment on the case as it issub judice.
Cure.Fit has been one of thefastest growing startups inIndia and most of this growthhas been accelerated by a slewof acquisitions of early-stagecompanies.
To be sure, prolific acquir-ers tend to become unpopularfor not following through ontheir proposal in many cases.For instance, when Flipkartwas on an acquisition spree in2015, it had discussions withseveral more companies thanit planned to acquire. Thismade entrepreneurs wary ofsharing data with the com-
FROM PAGE 1
Startups face tough call over sharing data in acquisition talks
Cure.Fit has been talking to many
more firms than it plans to acquire inits bid to set up a health and fitness
ecosystem
SBI says it does not need capital infusion from government
Mumbai: State Bank of India(SBI) on Tuesday said it is well-capitalized and that it may notrequire any fresh funds from thegovernment this fiscal year.
“We are not looking at anyrecapitalization right now as wehave been able to raise (capital)from markets. We have alsoannounced our programme forboth tier I and tier II bonds,” saidmanaging director Arijit Basu. OnFriday, finance minister NirmalaSitharaman had announced an immediate infusion of ₹70,000crore into state-run banks to boost liquidity. PTI
DHFL seeks board’s approval toraise funds through share sale
New Delhi: Debt-ridden Dewan Housing Finance Corp.Ltd (DHFL) on Tuesday said it plans to raise funds throughequity share sale or other means as part of the debt resolu-tion plan of the company. The DHFL board is scheduled tohold the meeting on 30 August, in which the proposal willbe placed, the firm said in a regulatory filing.
The fund mop-up can also be through any other permis-sible mode or a combination of prospectus/placement doc-ument or letter of offer or any other permissible offer, itadded. Separately, DHFL also informed that it has defaultedto the tune of ₹14.13 crore towards interest payments onbonds issued by the company. PTI
Amazon deal will boost payments portfolio, says Kishore Biyani
Mumbai: Future Group founder Kishore Biyani has said globale-commerce giant Amazon’s investment in the firm is not just to
raise money but also to become apart of the ecosystem.The deal isaimed at enhancing the paymentsportfolio of both the companies,he added.
The firm had recently saidAmazon is picking up a 49% stakein Future Coupons, the promoterentity of Future Retail, with anoption to acquire the entire stakelater. “We had subscription war-rants of our company and we hadto raise money, so the deal wasstruck,” said Biyani. PTI
S.KUMAR/MINT
ANIRUDDHA CHOWDHURY/MINT
MINT
MARKETS AND FINANCE WEDNESDAY, 28 AUGUST 2019NEW DELHI 07
AUM as compared to an aver-age net redemption in theseschemes of around 19%. A cer-tain element of self-disciplineby the industry could haveaverted such a situation, saidTyagi.
“These defaults led to a cas-cading effect with significantredemption pressures in debtmutual fund schemes, more soin liquid schemes. Within justtwo months, September and
Tyagi said the events of thepast one year, exposed the faultlines in the industry andshowed that a credit event ineven one issuer could have acontagion effect leading toliquidity risks across the mar-ket.
According to a Sebi study ofliquid schemes, in 20% of theinstances in the past year, theaverage holding in liquidinstruments was less than 5% of
Siddhartha Singh &
Anirban Nag
NEW DELHI/MUMBAI
The Reserve Bank ofIndia’s record ₹1.76 tril-lion ($24.4 billion) pay-out to the governmentwill give authorities more
fiscal options, including possibly reducing its borrowing or boostingspending to spur economic growth.
The RBI’s board approved thetransfer on Monday, which includesa dividend of ₹1.23 trillion and around ₹52,640 crore from its sur-plus capital, according to a state-ment. The dividend payment includes ₹28,000 crore already transferred in February.
The transfer—which rivals thestimulus that some Group of 20 nations pumped into their econo-mies during the global financial cri-sis—comes amid a slowdown in India’s growth to a five-year low, depressed consumer spending andreports of tens of thousands of job losses in the auto industry.
Finance minister Nirmala Sithar-aman last week announced variousmeasures to spur growth, includinghastening the capital infusion into state-run lenders. At the same time,she’s trying to stick to a narrower fiscal deficit goal of 3.3% of gross domestic product for this year. Thefinance ministry is keen to use the transfer to cut its budgeted borrow-ings rather than fund a stimulus package, though it’s yet to make a final decision on how to spend the amount, people with knowledge of
central bank’s capital framework. Its recommendation, accepted by RBI’s board on Monday, was that the central bank should hold real-ized equity of between 5.5% to 6.5%of its balance sheet, compared withthe current 6.8%. The board decided to maintain the realized equity level at 5.5%, the central banksaid.
The combined payout farexceeds the government’s bud-geted estimate of ₹90,000 crore asdividend from RBI this year.
WHAT ECONOMISTS SAY
The RBI’s transfer of ₹1.76 trillion tothe government should offset any revenue shortfall from lower tax buoyancy amid slower growth thisyear, allowing more room to boost spending. It will also make it easierfor the government to meet its bud-get deficit target of 3.3% of GDP forfiscal 2020.
Samiran Chakraborty and BaqarM. Zaidi, analysts at Citigroup Inc. said the government had two options: it can immediately spend part of the amount to stimulate theeconomy or it can wait for some clarity to emerge on the potential revenue shortfall before spending the money. Since the government has shown “stellar resolve” in main-taining” fiscal targets, “our bias is tothink that the government will fol-low the latter approach,” they wrotein a note. Sitharaman said last weekthe government will immediately inject ₹70,000 crore of fresh capitalinto state-run banks to spur lend-ing. BLOOMBERG
Now, Uber users in India can call safety helpline to flag issues
bit.ly/2U9Foa4
₹1.76 tn bonus from central bank gives Centre options on budgetThe govt is keen to use the transfer to cut its budgeted borrowings rather than fund a stimulus package
mist at Edelweiss Securities,said the money could be usedto bridge the expected taxshortfalls or boost sector-spe-cific expenditure.
“That said, this bonanzaappears one-time and does notnecessarily bode well in themedium term from a fiscalstandpoint. With the expan-sion of RBI’s balance sheet
ahead, the maintenance ofcontingent risk buffer at 5.5%of RBI balance sheet, asaccepted by the RBI board,would mean RBI’s net incomewill have to be adjustedaccordingly before transfer-ring as a dividend to the gov-ernment, implying possiblylower dividends for the gov-ernment,” she added.
meet any emergency and con-tingency have all been fac-tored in by the committeewhile arriving at the formula,”she added.
The surplus transfer alsocreated a political row, withthe Congress attacking thegovernment on the issue andSitharaman hitting back thatthe party’s previous “chor”(thief) jibe had backfired.
Indira Rajaraman, an econ-omist and former member ofthe RBI board, said about ₹1trillion surplus transfer by RBIthis year, which amounts to0.5% of GDP, is a very largetransfer.
“I have no quarrel with thecalculations of the report.However, if the expectationgoing forward from the gov-ernment remains that non-taxrevenue worth 0.5% of GDPwill come from the RBI everyyear, that would amount to fis-cal dependence on the RBI,which is not a good thing,” sheadded.
Madhavi Arora, lead econo-
FROM PAGE 1
‘All options open for RBI funds’
On questions being raised about the large transfer of surplus to
the government, Sitharaman said the Jalan committee had
eminent experts and was set up by RBI itself. PRADEEP GAUR/MINT
Merrill Lynch, said in a reporton Tuesday that it will likely beused to recapitalize state-runbanks by ₹70,000 crore, asannounced by finance minis-ter Nirmala Sitharaman on Fri-day, with the balance trans-ferred to the government, asalready budgeted.
“This, in turn, should help toreduce lending rates,” he said,
adding that using excess RBIcapital to recapitalize publicsector banks should be liquidi-ty- and fiscal deficit-neutral.
Sengupta said the ministryof finance will infuse capitalinto state-run banks withexcess RBI capital and thebanks, in turn, will park it in agovernment account with RBI.
would also bring about greatercohesiveness in the monetarypolicy projections and reportspublished by RBI, whichmostly use the fiscal year as thebase. RBI agreed to transfer₹1.76 trillion to the govern-ment this fiscal, the centralbank said after a board meet-ing on Monday. The transferincludes ₹1.23 trillion of sur-plus for 2018-19 and ₹52,637crore of excess provisionsidentified as per the revisedeconomic capital frameworkadopted at the meeting, RBIsaid in a statement on Monday.
The additional amount of₹58,000 crore that the gov-ernment will receive this yearabove its budgeted ₹90,000crore as transfers from thecentral bank could also beused to provide fiscal stimulusor reduce off-balance sheetborrowings.
Indranil Sengupta, Indiaeconomist at Bank of America
FROM PAGE 1
RBI can pay interim dividend to govt in exceptional cases: panel
If he were the chief executive officer (CEO) of a corporation,Shaktikanta Das would be an investor darling. His first full-yearresults, and Das is already returning more money than the
entire dividend his two predecessors could muster between themin the previous three years. That’s just the kind of performanceactivist hedge funds like to see.
But Das isn’t a corporate CEO. He’s the chief of India’s centralbank, and the record ₹1.76 trillion ($24.4 billion) he’s going todeposit in the government’s account is bound to revive a debateabout the threat to the monetary authority’s independence.
While that controversy is real, it can wait for another day. I viewthe bumper dividend as Das lending his spare umbrella to a gov-ernment that has long lived in denial of the gathering clouds,believing gross domestic product (GDP) numbers that are toosunny to be trustworthy. Now that bad news is suddenly pouringdown on the economy, it finds itself without shelter. The centralbank is coming to its rescue, and without running any immediaterisk of exposure to its own credibility.
That’s my benign interpretation. Consider the more sinisterone. As recently as last month, the government was anticipatinga ₹90,000 crore payment from the Reserve Bank of India (RBI),which was already 80% more than in the previous year. For it toend up with almost double1 the budgeted amount smacks of pres-sure. If this had really been a shakedown, though, the outcomecould easily have been a lot more shocking.
One of the reasons behind previous RBI governor Urjit Patel’ssurprise resignation last December was a campaign by a topfinance ministry bureaucrat to raid as much as ₹3.6 trillion of theRBI’s capital by taking even some of its revaluation reserves. Such
a move would have left the institutionat the mercy of an occasional capitalinjection from the government, crimp-ing its operational freedom.
Thankfully, the final decision wentto a committee. On its advice, the com-promise now being implemented willleave the revaluation reserves intact.Only the coupons and profit on salesthat the RBI has actually realized on its
assets—foreign bonds, Indian government securities and gold—will be shared more liberally with the government. And that’sonly after topping up contingency reserves so they don’t fallbelow 5.5% to 6.5% of the central bank’s assets.
These are separate from revaluation reserves and, in the RBI’sown words, are there to provide protection against the proverbialrainy day. By choosing to drive contingency reserves of 6.8%down to the lower end of the safe range, Das has eked out an extra₹52,600 crore. It’s money finance minister Nirmala Sitharamanbadly needs. Private investment slumped long ago. Now evenconsumer spending on everything from cars to cookies is threat-ened. The government’s tax collections are falling badly behindits rosy targets, leaving fiscal pump-priming impossible.
The extra money can buy time to halt the slide into a full-blowncrisis and must not be wasted on a thoughtless carnival of newgovernment spending.
New Delhi should overhaul its 2017 goods and services tax, andnot just slash tax rates in a panic and repent when already tepidcollections falter. Recapitalizing banks with an immediate infu-sion of ₹70,000 crore is a fine idea, but the snail’s pace at whichcorporate bankruptcies are getting resolved—outside and insidethe court system—is destroying value for lenders. Also crying outfor attention is the shambolic real estate market, which is infect-ing balance sheets of developers, financiers, households andinvestors.
Das has already gone for the smallest capital buffer possible. Ifthe RBI’s assets increase next year while income on them doesn’trise proportionately, he will have to replenish equity. Any pres-sure from the government to maintain the lofty dividend willthen be viewed by investors as an attack on the RBI’s credibility.
The RBI governor’s spare umbrella may give the Indian bondmarket a modicum of hope today. Still, any optimism will fadequickly if the government leaves him shivering in the rain tomor-row.
1RBI’s financial year runs from 1 July through 30 June, whilethe Indian government’s fiscal year ends on 31 March. Hence,the ₹28,000 crore of interim dividend the RBI gave in Februarywas part of the ₹50,000 crore the government booked for FY19.Against the FY20 target of ₹90,000 crore, New Delhi is receiv-ing ₹1.48 trillion, though it may get another helping later.
BLOOMBERG
The extra money must not be wasted on a thoughtless carnival of new govt spending
the cap of overall sectoral lim-its; minimum holding of 20% inliquid instruments by liquidschemes; restrictions on invest-ments in debt instruments withstructured obligations andcredit enhancements; dispens-ing of valuation of debt andmoney market instrumentsbased on amortization; provi-sion for graded exit load in liq-uid schemes; and restriction oninvestments in unlisted equi-ties, non-convertible deben-tures (NCDs) and commercialpapers (CPs).
Tyagi said while making aninvestment, the AMC must takeinto account their mandate andorganizational structure.“Mutual funds do not have riskcapital and essentially passthrough vehicles wherein NAVought to reflect the correctvalue of assets held at any time.This is an important aspectwhich mutual funds shouldkeep in mind while makingdebt investments.”
October 2018, the AUM of alldebt-oriented schemes as awhole fell by 18% and that ofmoney market schemes felleven more, by 25%. This wasdespite the fact that the totalexposure of all mutual fundschemes to the stressed securi-ties was only around 1% of thetotal AUM of all debt-orientedschemes,” Tyagi said, whileaddressing the Amfi meet.
“While it has been around ayear since the defaults started,the AUM of open-ended debtschemes is yet to reach theAUM levels seen at the end ofAugust 2018. Such instances donot reflect well on the industrypractices,” he added.
Tyagi said the events led Sebito undertake a review of therisk management framework ofdebt funds, especially liquidfunds, and prudential normsgoverning investments in debtand money market instru-ments.
Subsequently, Sebi lowered
process and address possibleloopholes and misuse of theprovisions.”
Mutual funds currently haveat least ₹24.5 trillion of assetsunder management (AUM)with around 850 million inves-tor folios.
“Based on the review, it hasbeen decided to take certainmeasures, including thoserelating to the waterfallapproach for valuation of non-traded money market and debtsecurities, flexibility for valua-tion agencies to ensure fairpricing of securities, while con-tinuing to have the finalresponsibility on the AMC forfair valuation, norms relating tovaluation of inter-schemetransfers, disallowing the use ofown trades for valuation, etc.,”Tyagi added.
Over the past year, creditdefaults by several entities hadan adverse impact across thefinancial sector, includingmutual funds.
Anirudh Laskar
MUMBAI
Market regulator, theSecurities andExchange Board of
India (Sebi), on Tuesday hintedthat it may tighten existingasset valuation norms, whichguide mutual fund invest-ments, to shield investors fromrisks of capital erosion in debt-oriented mutual funds and toprotect asset managementcompanies (AMCs) fromunwarranted redemption pres-sure.
In a meeting between Sebiand MF industry body, theAssociation of Mutual Funds inIndia, or Amfi, Sebi chairmanAjay Tyagi said: “Sebi hasreviewed the existing valuationprovisions to make them morereflective of the realizablevalue, to bring in uniformityand consistency in approach,increase robustness of the
Sebi may tighten asset valuation norms for mutual funds
Sebi’s move will shield investors from capital erosion risks and
protect AMCs from unwarranted redemption pressure. MINT
The central bank pays dividends to the government every year, based on the profits from its investments and
printing of notes and coins. ANIRUDDHA CHOWDHURY /MINT
E X P E R TV I E WA N D Y M U K H E R J E E
RBI’S SURPLUS CAN
BUY CENTRE TIME
TO HALT THE SLIDE
Respond to this column at
the matter said.Sitharaman said the ministry
hasn’t yet decided on the end-use ofthe money from the RBI. A decisionwill be communicated when it’s made, she said.
The government could cut itsplanned borrow-ings if it uses the funds to plug a rev-enue shortfall in itsbudget, helping Sitharaman keep the deficit under control. Or it coulduse the money to finance new spending, like a stimu-lus package, to help lift growth that’s decelerated to 5.8% in the three months to March.
Sonal Varma and AurodeepNandi, economists at Nomura Holdings Inc., estimate India has a
tax revenue shortfall of ₹1 trillion, or0.5% of GDP.
“Gains from excess RBI divi-dends are likely to be utilized to bridge the revenue shortfall ratherthan engage in stimulus measures,”they said in a report.
Bonds rallied initially on thenews of RBI payout, but erased gains at close as a closer analysis proved that the payout isn’t that big.The yield on the benchmark 10-year note rose five basis points to6.53% after dropping as low as
6.35% earlier.The central bank pays dividends
to the government every year, based on the profits from its invest-ments and printing of notes and coins. A snapshot of its balance sheet is due later this week, when
the central bankwill release itsannual report.
Over the pastcouple of years,the finance minis-try has been seek-ing higher payoutsfrom the RBI,
arguing the central bank is holdingmore capital than it needs. It was a source of contention between the government and the former gover-nor Urjit Patel, who quit in Decem-ber. A panel, led by former governorBimal Jalan, was set up to study the
FIXING THE GAPS IN BUDGET
THE transfer includes a dividend of ₹1.23 tn and around ₹52,640 cr from its surplus capital, a note said
THE transfer comes amid a slowdown in growth to a 5-year low, depressed consumer spending and job losses
THE govt could cut its planned borrowings if it uses the funds to plug a revenue shortfall in its budget
Union finance minister Nirmala Sitharaman. RAMESH PATHANIA/MINT
Suvashree Ghosh &
Anto Antony
MUMBAI
Deutsche Bank AG’s onlyretail banking fran-chise outside Europe is
getting more investment,amid cost cuts and restructur-ing taking place elsewhere atthe German lender.
After receiving a €470 mil-lion ($520 million) capitalinjection earlier this year,Deutsche Bank’s Indian opera-tion is set to hire about 140people and boost its retailbanking and wealth manage-ment operations.
“The India franchise is giventhe mandate to expand, as thisis a growth market and every-one has high expectationsfrom this country,” said AmitBhatia, the bank’s India head
of private and commercial cli-ents. “Plans are on for aggres-sive growth, and we have beenassured that capital is notgoing to be a concern,” Bhatiaadded in a recent interview.
The ambitions for Indiareflect Deutsche Bank’s widerfocus on retail banking andwealth management as it pur-sues the sweeping restructur-ing unveiled by chief executiveofficer Christian Sewing ear-lier this year, involving the lossof 18,000 jobs and a plan to cutcosts by about a quarter.
In India, Deutsche Bank hasreceived approval to add 120employees in retail bankingplus 19 relationship managersfor its local wealth business, itsbiggest bout of hiring in thecountry in several years, aspokesperson for the lendersaid. BLOOMBERG
Deutsche Bank set to add 140 jobs in India
08 WEDNESDAY, 28 AUGUST 2019
NEW DELHI
childbirths per woman fell from 3.4 in themid-90s to 2.2 by 2015, according to theNational Family Health Survey (NFHS).The NFHS data also shows that 24 stateshave already reached the replacement fer-tility rate of 2.1 (adequate to replace popu-lation from one generation to the nextwithout a change in the overall number).India’s population concern is largelyrestricted to five states: Bihar, Uttar Pra-desh, Jharkhand, Rajasthan and MadhyaPradesh. Whether a nationwide law isrequired to address the concerns of thesefive states is the central question.
“Even in states like Uttar Pradesh andBihar, fertility rates have to be loweredthrough non-coercive means, which haveworked in other states,” says economistJean Dreze. “The use of coercive measuresduring the Emergency (1975-77) actuallyslowed down the decline in fertility ratesand generated a backlash against malesterilization,” he added.
As India moves forward, the biggerworry may be the emerging north-southdivide, says K.S. James, director of Inter-national Institute of Population Sciences,Mumbai, an autonomous body under theministry of health and family welfare.“States like Bihar, Uttar Pradesh, Chhat-tisgarh and Madhya Pradesh which con-stitute 40% of India’s population are stillwitnessing high population growth,higher fertility and high infant mortalityrates… while southern states are ageing.This heterogeneity across states will havepolitical implications in terms of (recon-figuring) Parliament seats as well asresource allocation (a richer south payingfor the well-being of a populous north).”
THE TWO-CHILD NORM
According to a study on the two-childnorm (Nirmala Buch, Economic and
Political Weekly, 2005) which was adoptedby several Indian states like Rajasthan,Haryana and Bihar, the move led to a spiketo sex-selective and unsafe abortions.Since the state-level laws linked the abilityto contest Panchayat or local body elec-tions with family size, the study found thatmen divorced their wives to run for elec-tions and families put children up foradoption to avoid disqualification.
The takeaway: there is no shortcut toright-sizing a country’s population. Andcoercive laws can sometimes be counter-productive. “There is no evidence whatso-ever to show that larger family sizes aredue to reasons other than those deter-
mined by social and economic circum-stances, including poverty, lack of basicservices, and governance,” reads a brief-ing note prepared by the Delhi-basedthink-tank Population Foundation ofIndia (PFI).
The note titled People before numberscites the example of Sri Lanka which stabi-lized fertility rates by simply increasingthe age at marriage and ensuring adequateeducation for girls. Success stories fromwithin India (Kerala, Tamil Nadu andAndhra Pradesh) and from Indonesia andBangladesh (predominantly Muslimcountries) also show the central impor-tance of investing in education andhealthcare access to advance populationstabilization, PFI said.
Beyond its well-documented distor-tionary effects, India will also find it hard toannounce a nationally mandated two-child policy since it is a signatory to theCairo declaration in 1994, which gives cou-ples the “right to decide freely and respon-sibly the number and spacing of their chil-
No doubt India has a population problem, but any strategy to change fertility rates should be carefully thought out
1.37 BN AND COUNTING
SEARCHING FOR A FIX
REPORTAGE | TALKING POINTS | IDEAS | INSIGHT | THE BOTTOMLINE
mint
SHORTSTORY
On 15 August, Prime Minister Modi flagged the challenge of
‘population explosion’, bringing the focus back on population
control. Keeping family size small is an act of patriotism, he said.
WHAT
With such a forceful message, things could move swiftly, say insiders. Some feel the Centre
could bring in a new law for population control as early as
November.
AND
There is no shortcut to right-sizing a country’s
population. And coercive laws can sometimes be
counter-productive, leading to age composition imbalance.
BUT
Sayantan Bera
NEW DELHI
Standing in the dusty, perenniallywater-starved belt of Banda inthe Bundelkhand region ShivPrasad Varma gets stumped bythe easiest of questions. All one
has to do is enquire about the number ofchildren he has fathered. “Thelabhar (acartful),” he says initially. Then, he takes agood minute to count. “One, two... fivegirls... three boys,” he finally says. “Isn’tthat a cartful?”
His undernourished children drop inand out of school. Varma’s 16-year-old sonmigrates in search of jobs, but oftenescapes from worksites to make his wayback home, unable to cope with the grind-ing workload at faraway factories. Varma,a 45-year-old daily wage labourer, doesn’tremember being counselled about the vir-tues of raising a small family. But by thetime his son gets married, things may be infor some dramatic change.
Though India’s family planning pro-gramme is one of the oldest in the world(dating back to 1951), the forced steriliza-tion campaign of the mid-1970s ensuredany mention of “population” would take abackseat, at least at the national level. That40-year spell was broken on 15 Augustwhen Prime Minister Narendra Modiflagged the challenge of “populationexplosion”. Keeping family size small is anact of patriotism, he said.
With such a forceful message from thevery top, things could move swiftly, sayinsiders. Rakesh Sinha, a member of theupper house of Parliament from the rulingBharatiya Janata Party (BJP), says the Cen-tre could enact a new law as early asNovember, which is when Parliament isexpected to convene for the winter ses-sion.
What that new law may contain hasalready become a matter of feverishdebate. While details are sketchy, con-cerns are plenty. Broadly, they fall undertwo categories: will it involve coercivemeasures? And will the measures inten-tionally or incidentally target Muslims,who tend to have a higher fertility rate,mostly because they are poorer than theaverage Indian.
There is a third, more esoteric concerntoo, which demographers like SrinivasGoli, a population studies professor atJawaharlal Nehru University, point out,citing the examples of Iran and China. Anylarge-scale “unnatural intervention”, evenif purely incentive-based, can dramati-cally change the future age profile of apopulation, Goli says.
In Iran, in a short span between the late-1980s and early 2000s, the average num-ber of children born to a woman in herlifetime plummeted from seven to lessthan three. While population growth ratefell steeply, the share of Iran’s populationin the working age band also fell. Simplyput, for every 1,000 people, demogra-phers suggest that at least 550 must be ofworking age, in order to educate theyoung (below 15) and take care of the old(above 60). Any intervention whichdoesn’t pay attention to this delicate agecomposition balance is “ignorant andfoolish”, says Goli.
However, with India projected tobecome the most populous country in theworld by 2027 (currently at 1.37 billion),it’s hard to argue against the fact thatsomething must be done. Roughly 163million Indians still lack access to cleanwater and close to 40% of children belowfive are stunted. India’s burgeoning head-count compounds the problem. But in itsurgency to solve a 70-year-old problem,new and avoidable ones could be createdfor a government that will take office 30years in the future. “Fertility changes can-not be (rapidly) reversed,” warns Goli.
GENESIS OF THE IDEA
I found a restlessness in society… acrossregion, religion and
ideology,” says Sinha.According to Sinha, whointroduced a privatemember bill in the RajyaSabha in July seekingpopulation controlmeasures, “the massesare experiencing a bur-den (due to) lack ofresources”. “In 2015,Mohan Bhagwat (head ofthe Rashtriya Sawamsewak Sangh or RSS,the ideological parent of the BJP) made itvery clear that population growth shouldbe in proportion to available resources…and that we are not interested in any com-munal discourse,” says Sinha.
Sinha’s private member bill, titled “Pop-
ulation Regulation Bill, 2019”, proposes acarrot-and-stick strategy to ensure thatfamilies follow a two-child norm. Parentswho stick to less than two children andundergo a sterilization surgery will receiveincentives like cheaper healthcare, subsi-dized loans, and free education for chil-dren, among a host of other benefits.
On the contrary, those with more thantwo children will see a reduction in gov-ernment subsidies and reduced benefitsfrom the food subsidy scheme. Moreover,they will be barred from contesting inlocal or national elections. The bill alsoproposes that no serving governmentemployee should have more than twochildren. Sinha calls the bill “non-coer-cive” and “welfare-centric”. “What weneed today is a region-religion blind two-child law.”
Though Sinha insists that both his billand Modi’s renewed emphasis on popula-tion control have nothing do with religion,a 21 July cover story in the RSS mouth-piece Organiser, which came out justweeks before Modi’s speech, lays downthe deep fears harboured by India’s reli-gious right. The essay titled Out of propor-tion in the issue terms the increase in theshare of minority Muslim population inIndia, from 9.8% in 1951 to 14.2% in 2011, asinimical to the national interest. “Theanticipated fallout of this situation seemsso dangerous that no Hindu PM can cometo power after 2030. Once a Muslimbecomes a PM of India, the existence ofHindus shall be in grave danger.”
Data, however, negates such fears.According to a 13 June Mint analysis, ifcurrent growth trends persist, Hindus willstill be 81% of India’s population and Mus-
lims no more than 17%even in 2061. Even in theunlikely scenario thatMuslims grow at theirbest decadal growth rateever, and Hindus at theirworst, it will take morethan five decades forMuslims to account for39% of India’s popula-tion. The chance of Mus-lims numerically over-
taking Hindus is next to nil.
THE CURRENT STATUS
The facts are these: India’s populationgrowth is already slowing down. And
the rate of decline in growth is highestamong Muslims. The average number of
India’s population concern is
largely restricted to Bihar, UP,
Jharkhand, Rajasthan and MP.
Whether a nationwide law is
required is the central
question
dren”. Following the Cairo declaration,India announced a National PopulationPolicy in 2000 which focused on improv-ing the quality of life, degree of women’sempowerment, and expanding the availa-ble basket of contraceptive choices.
Even the Delhibureaucracy had largelycome around to the con-clusion that impositionand fiat will simply notwork. At the Delhilaunch of the UN’s 2019State of the World Popu-lation Report in April thisyear, S.K. Sikdar, head ofthe family planning divi-sion at the health minis-try, made a crucial observation. “We havelearned from the China experience and weare not after targets… we do not talk aboutone-, two-child norms. We speak aboutreproductive rights… population controlis not our agenda at all. We are talkingabout population management.”
Despite repeated requests, Sikdar wasnot available for a comment.
CLOSING THE GAP
India’s desired fertility rate is 1.8 as perNFHS-4 (2015-16), which means that a
large percentage of people already desirefewer children, says Poonam Muttreja,executive director at the PFI. “In a situa-tion where there is a 13% unmet need forfamily planning, which means eitherwomen do not have access to services orwomen do not have the agency to negoti-ate inside families, the Prime Minister’sstatement becomes very important. Peo-ple will listen to him—mothers-in-law andmen perhaps will be more responsible inensuring that women do not end up havingmore children than they want,”she says.
The NFHS figures show deep genderlacunas which any attempt to tackle thepopulation puzzle will have to address.Over 40% of women in the 20-49 age bandstill get married before the legal minimumage of 18 years. When it comes to percep-tions, the survey results show that close to40% of men believe that “contraception isa women’s business and a man should notworry about it”. Ironically, half of thesemen also thought that “women who usecontraception may become promiscu-ous”. The fallout: less than 6% of marriedwomen reported the use of condoms (bytheir partner) for family planning.
“For 30 years, India did not introducenew spacing methods while our popula-tion was getting younger. The failure ofnot delivering on temporary contracep-tion services (like injectables and implants)forced women to pay a heavy price. A 2015study estimated that 15.6 million Indian
married women usedabortion in a year as aproxy for contracep-tion,” says Muttreja.
The final piece in thisjigsaw is funds. India hasbeen spending a mere4% of its annual budgetunder the NationalHealth Mission on familyplanning, which is justover ₹1,000 crore. Mut-
terja adds that most of the family planningbudget is spent on sterilization and untilrecently women would be herded intocamps where many died. “If men could getpregnant, we would not have neglectedthe options available for family planningto such an extent.”
In its urgency to solve a
70-year-old problem, new
and avoidable ones could
be created for a government
that will take office 30 years
in the future
India is projected to become the
most populous country in the
world by 2027. HEMANSHI KAMANI/HT
POPULATION WOES
As India's population increases, the age profile is also shifting. For every 1,000 people, at least 550 must be of working age in order to educate the young (below 15) and take care of the old (above 60)
Source: K.S. James and Srinivas Goli (2016)
Number of people in mn
Child population (0-14)
Working age population (15-59)
Old age population (60+)Share of total population (in %)
182(40.4%)
245(54.4%)
24(5.2%)
1960
2020
2060
140(10.2%)
361(26.7%)
282(17.5%)
983(59.7%)
879(63.0%)
387(22.8%)
SANTOSH SHARMA/MINT
10 WEDNESDAY, 28 AUGUST 2019NEW DELHI
EXCLUSIVE FROM
The three-and-a-half year old fight for RBI’s so-called excesscapital has finally ended amicably. The Bimal Jalan panelhas recommended a formula for calculating RBI reserves,
by which the RBI board found the central bank’s reserves to beextra by just ₹52,637 crore and has accordingly transferred it tothe government. All’s well that ends well and one hopes thisaccursed topic won’t be raised for some years now.
Accursed because, the issue in its wake soured relationsbetween RBI and government for more than two years, led to theresignation of one RBI governor and one deputy governor, andmay have even been partly responsible for the transfer of afinance secretary out of his ministry.
The tug-of-war between government and RBI began in theeconomic survey of 2015-16 when chief economic advisor ArvindSubramanian wrote a chapter comparing RBI’s reserves with thatof other central banks around the world and complained thatRBI’s reserves of around ₹10 trillion is way too high for its bal-ance-sheet of around ₹31 trillion. Hence, he argued, RBI shouldtake out some ₹4 trillion from its reserves and use it , say, to capi-talize public sector banks which will help them lend more and inturn help economic growth.
For those who don’t care about technical issues like RBI’sreserves, here’s a backgrounder: RBI like all companies makesprofits and by law has to transfer the year’s profits to its owner,the government, after providing for contingencies. Over the past25 years, the RBI has squirreled away a little every year and col-lected a kitty of about ₹3 trillion as its contingency reserves.
Separately, it has revaluation reserves. What are these: TheRBI often buys dollars from the market, in times of huge inflows(which can suddenly make the rupee strong and hence make ourexports uncompetitive); it buys gold (like all central banks do, sothat other countries have the confidence that RBI has some realassets in a crisis) and it also buys Indian government bonds some-times to push more rupees into the economy. Now, every year,like all banks and companies, RBI accountants compare the cur-rent price of these assets versus the price at which they were pur-chased and the excess, if any, is accounted in a “revaluation”reserve.
In February 2016, when Arvind Subramanian was accusingRBI of the excess reserves in his Survey, the RBI’s ₹10 trillionreserves comprised ₹3 trillion of contingency reserves and ₹7 tril-lion of revaluation reserves (all numbers are approximate).Former governors of RBI, economists and accountants whounderstand these issues argued against Subramanian sayingrevaluation reserves are not realized profits and hence should notbe used to say the RBI is over-capitalized. The balance ₹3 trillionof contingency reserves amounted to about 8% of the RBI’s bal-ance sheet and these are needed during financial crises, for len-der-of-the-last resort responsibilities, and for use in case of, say,cyber security or other operational risks.
The government was not convinced and in 2018, upped its anteon demanding excess reserves from RBI. Deputy governor ViralAcharya publicly decried this demand as an attack on RBI’s
average 6.5% as contingency reserve. Emerging market centralbanks are found to have an average contingency reserve of 6.86%.
RBI board accepted Jalan’s recommendations on Monday anddecided that for now reserves amounting to 5.5% of the balancesheet will do.
Consequently the excess (6.8%-5.5%=1.3% of balance sheet) wasconsidered excess and transferred to the government. Thisworked out to an amount of ₹52,637 crores.
The sagacity of the Jalan committee deserves praise. Facedwith the slowdown and pressured by election promises, the gov-ernment would have liked a larger transfer.
But RBI board members, and former governors kept theirheads down, worked out the international standard and stuck toit. Kudos also to the government for accepting that a manna of ₹4trillion promised by the former CEA was not acceptable to the sixwise men in the committee.
In the end, it may have been just a face saving formula. The RBIboard didn’t want the government to lose face with zero capitaltransfer and hence agreed to accept the lower end of the bandrecommended by the panel. Nor did the panel want RBI’s actualor perceived autonomy to be diminished.
Also, all transfer of dividend from RBI is actually just printingof notes, and printing a large amount of notes (say ₹4 trillion)would have amounted to monetization of the deficit, would havebeen inflationary and attracted suspicion and criticism frominternational markets and rating agencies.
The paltry amount of 52,637 crore satisfied all sides and argu-ments, and has also left the bond and equity markets a trifle happysince the government has a little more money to spend.
All’s well that ends well. But in this hour of happiness, it isworth remembering the stout defence of their institution put upby the former RBI governor and his deputy governor.
RESERVE BANK OF INDIA SURPLUS CAPITAL TRANSFER: ALL’S WELL THAT ENDS WELL
Brijeshwar Singh, former
chairman, NHAI.
ing all that. On the ground, it mighttake some time because there is no loadfor the truckers. That is the reality.
As you are telling us that it isgoing to take at least till the sec-ond half of FY21 before recovery,what are the resale prices ofcommercial vehicles at themoment? What are the trendsacross segments and geograph-ies? Where do you see the mostpain?Srinivasaraghavan: The expecta-
tion is that actually resale prices couldstart improving because with theuncertainty around BS VI, people whohave let us say BS III vehicles for exam-ple, would like to step up to BS IV. Sorather than buy a new vehi-cle that is uncertain in termsof what it brings in terms oftechnology, people mightwell look at buying more ofthe BS IV vehicles. So, oneview is that new vehicle pri-ces could actually firm up inthe near term. That is aview. People could arguewith that, but that is a viewthat I am hearing increas-ingly from some quarters.
Is tight financing an issue asmuch as lack of demand? Ifdemand is there then the financewill come isn’t it? Sridhar: I don’t think so. Both are
there today; unfortunately the com-mercial vehicle slowdown, economicslowdown is combined with the liquid-ity issue. But for us, liquidity we areshifting to off balance sheet. If you see,all the NBFCs have now dependence onoff balance sheet, partial credit guaran-tee scheme is there, normal portfoliosale….
Is that working for you?Sridhar: Started now. So, banks are
responding and every NBFC is goingthrough that. So a lot of money is likelyto come. So, on the off balance sheetmoney is going to come, but thedemand for the new vehicle is slow;that is the reality. Where there is noeconomic activity, so the load is less, sothe freight rates are down. At this pointof time there is no motivation for thetrucker to go and buy new vehicles.
We just had a conversation witha former National HighwaysAuthority of India (NHAI) chair-man and this was on the basis ofa very strong letter written bythe Prime Ministers’ Office(PMO) to the roads ministry andthe NHAI saying that increas-ingly the road construction isbecoming unviable. The netresult we got is that road con-struction is slowing down. Whendo you see this demand pickingup? If such a big infrastructureindustry, which uses largetrucks, is saying that road con-struction will slow down, what isyour estimate? Do we see a
pickup by end of theyear?
Srinivasaraghavan:It will take a brave man tohazard a guess. I am notone. However, look at itthis way. There is alreadyenough uncertainty sur-rounding the BS VI roll-out on 1 April. I don’tknow if that is going to bepushed back but if that isindeed going to happen
then there is a lot of uncertainty. So toexpect any major revival to happenbefore H2 of FY21 will be very riskybecause BS VI has to roll out, three-sixmonths will go with people trying tofigure it out what this new animal is. Soif we have to see any kind of revival, theearliest for my money would be H2 ofnext year. I don’t honestly see anythinghappening before that.
Is this Srinivasaraghavan’s cau-tion or would others share theestimate?Sridhar: Srinivasaraghavan is very
cautious. So he is sharing his percep-tion. As we rightly said, the boosters aregoing to be the sentiment. The issue iswhenever there is a transition as big asthis BS VI, the industry goes into a littlebit of a confusion whether to buy todayor postpone. Depreciation also isMarch phenomenon.
So do we rush and buy today or canwe go on and do it in the last week ofMarch? All these things are announcedand the stock market will be discount-
Latha Venkatesh & Sonia Shenoy
CNBC-TV18
About 15% higher deprecia-tion benefits will notimpact 70% of the market,say T.T. Srinivasaragha-van, managing director,
Sundaram Finance, and R. Sridhar,executive vice chairman and chiefexecutive officer of Indostar CapitalFinance. Edited excerpts of an inter-view:
A depreciation benefit that hasbeen given to vehicles. It is moreuseful for commercial vehicles(CVs). There is also a diktat tobanks that they should lowertheir lending rates towards repo.Together has life alreadychanged or do you see it chang-ing dramatically for you?Srinivasaraghavan: I don’t think it
is going to change dramatically. Depre-ciation is basically bringing forward ofa marginal benefit. To me, this is moreabout a demand slowdown. It was madeout to be a big supply side issue in termsof financing. I do not think that is thecase anymore. It is a demand relatedissue as we have talked about in thepast. The axle load norms, whichkicked in last year, had a big part to playin that and now with the BS VI confu-sion, I do not think these things aregoing to achieve anything dramatic.
On the margin, there will be somebuying on the margin, there will besome pre-buying as people are callingit, so I don’t want to overstate this case.
Also, as we said, this is the cycle interms of the CV industry and the cycleis playing out. So I don’t believe weshould expect magic to happenbecause of these things. Certainly, it isa sentiment booster. The announce-ments that have come from the financeminister are great sentiment boostersand, to the extent thathelps, it is great.
Will any of thesea n n o u n c e m e n t sstimulate demand orare these at best justsentiment positive?Sridhar: Two things as
you rightly said. The own-ership is 70% with smallroad transport operatorswho are not taxpayers andthey are not impacted bythe depreciation benefit. These depre-ciation benefits have come and gone inthe past also but what is happeningtoday is that economy is also slowing.So freight rates have fallen. So wherethere is a need for one truck, there are10 people queueing up there. So that isthe actual slowdown problem.
Whatever be the boost which yougive, unless the gross domestic product(GDP) improves because the truckersare transporting industrial and agricul-tural produce, if that is slowing down.Naturally it will be there.
Every three-four years we see this. Inmy career of 30 years, I have seen manycycles like this which keep coming andgoing. However, unfortunately todaythere is also a liquidity issue, which isplaying with the non-banking financialcompanies (NBFCs), which are majorfinancers of commercial vehicles. Soyou are unable to make out whether itis really a demand side issue or is it aris-ing out of liquidity, but it actually isdemand.
So in the transition period wherethere is BS IV confusion, there is a pos-sibility of these guys going and lookingat used vehicles for the time being, maybe next one year or 18 months wherethe prices of used vehicles are going tobe better – resale price, but the senti-ment of the new vehicle always catchesup with the used vehicles. This time itcould be slightly different.
There are three things that haveresulted in improving the effi-ciency of a truck because ofwhich a new truck buying maybe– the growth rate may drop.There is of course axle loadincrease by 20%, better speedsbecause of GST and also you havethis dedicated freight corridorwhich is starting in 2021 as well.Do you think all of this puttogether will slow down thegrowth rate of purchasing ofnew trucks?Srinivasaraghavan: You can add
one more element to that which is thetrucks have gotten much bigger overthe years. So, in terms of actual capac-ity, trucking capacity, in the last 5 yearsthere has been a really huge growth.Therefore, that is also something that isgoing to play on new vehicle growthrate. I have said this before on yourshow, I think longer term to expectgrowth in the high teens is being unre-alistic.
I think what we can and should hopefor is steady high single digit growth. Ifyou look at the world market, maturemarkets, so those are the kind of num-bers that you see. So the days when wehad 25-30% growth, I think should beput aside because longer term as yousaid, the freight corridor coming in,turnaround times coming downbecause check-posts are gone, betterroads, all of these are going to meanthat growth rates are not going to be
high teens, 20, and thosedays to my mind havegone.
If we have consistent,steady growth of let ussay 8-10% over the nextfew years, then that issomething we should behappy with.At this point in timepeople are talkingabout contraction,what is a realistic
number for this year?Srinivasaraghavan: This year I
think there are two elements. If youremember, H1 last year was runawaygrowth. I think CVs registered a 50%growth coming off a low base. So thiscomparison is not really on all force. InH2, the base effect will kick in and thenegative will not look so terrible. So, Ithink percentages can be misleadingsometimes. I am just looking at a longsecular trend. Let us forget about theshort term percentage movement, I amsaying secular movement is 8-10% on asteady basis I think will be very good forthis industry.
What is your approximate timefor a turnaround. I know we arejust crystal gazing, but what isyour number?Sridhar: I am always very positive.
So, I do hope that this is a bellwetherindustry for the economy. So this needsto move on. So the government will doeverything to push this.
‘Major revival in auto sector is unlikely before fiscal 2021’
Auto slowdown is a demand-related issue. Last year’s axle load norms
and now this BS-VI confusion has a big role to play, says Sriniv-
asaraghavan
Sadly, a liquidity issue is also play-ing with NBFCs.
NBFCs are major financers of CVs. So it’s hard to tell if it is a demand
side or a liquidity issue, says Sridhar
E X P E R TV I E WL A T H A V E N K A T E S H
Respond to this column at
autonomy. Many former RBI governors and economists agreed with him,
the government did not. It issued directions to RBI governorunder the never-used section 7 of RBI demanding why the cen-tral bank should not transfer excess reserves. For these and otherreasons, governor Patel resigned. The image of both RBI and gov-ernment took a beating in national and international markets.
Finally, in a bid to soothe tempers and repair ravaged reputa-tion, the government appointed a panel headed by former RBIgovernor Bimal Jalan and comprising former RBI deputy gover-nor Rakesh Mohan (vice-chairman of the committee), RBI boarddirectors Bharat Doshi (an acclaimed chartered accountant) and
Sudhir Mankad (retired IAS officer),serving RBI deputy governor N.S.Vishwanathan and then finance secre-tary S.C. Garg.
After overcoming some dissent fromone member (S.C. Garg), the Jalanpanel submitted a “unanimous” reportlast week, since Garg had ceased to beboth finance secretary and hencemember of the panel. The Jalan com-
mittee rejected the old Subramanian argument that revaluationreserves should be included while calculating a central bank’sbalance sheet.
Per Jalan panel, at about ₹3 trillion, RBI’s contingencyreserves are only 6.8% of its balance-sheet of about ₹40 trillionThe panel recommended that keeping in mind internationalstandards, it would like the RBI’s contingency reserves to be5.5%-6.5% of its balance sheet.
RBI’s research wing CAFRAL had published a paper earlierthis year which pointed out that globally central banks keep an
RBI board didn’t want the government to lose face with zero capital transfer
T.T. Srinivasaraghavan (left), managing director, Sundaram Finance, and
R. Sridhar, executive vice-chairman and CEO, Indostar Capital Finance.
InvIT when the market is in adepressed mood. Probably not.You try and monetize yourassets or put them into InvITwhen you are in a bit of anupswing. When you are stillwaiting for private sectorinvestment to come up, it’s amatter of good timing. I do notthink it’s the right time to do allthis. Yes, there is a case for halt-ing uneconomical (pro-jects)...maybe you can post-pone investment. But the prob-lem is that the lead time forbuilding a road is so long and, ifthe economy goes into anotherswing, then you will be behindthe curve. So, the government has to bal-ance it out. Moving in the infra-structure space with its long
lead time requiresa lot of advanceplanning. I think
the problem has arisen becausethe problem in governmentaccounts’ is contingent liabili-ties really aren’t factored in.
NHAI knows pretty wellwhat it owes to the market interms of bonds. It’s a specula-tive figure what it owes to theprivate sector interms of arbitra-tion awards. It’s aspeculative figureas to what it willowe tomorrowwhen the freshawards come in,and that figure isvery a large figure.
S o , N H A Idoesn’t have anaccounting sys-tem by which you are providingfor contingent liabilities. Yes,suddenly you may find contin-gent liabilities become a hugeoverhang, We are not discount-ing anything, we are taking it atface value.
There is a huge mismatchbecause NHAI is an authority, itdoesn’t do mercantile kind ofaccounting. It does cashaccounting. So, provisioningfor contingent liabilities is littlepoor.
That is another issue. I amnot even looking at con-tingent liability. Let meread out some numbers. Iwant to know whether allthis is going to slowdownroad construction. Actualdebt of the NHAI grewfour times in the last fiveyears to ₹1.78 trillion inFY19 from ₹40,000 crorein FY14. These are hardnumbers. The PMO letter
says land acquisition costhave gone through theroof. Power secretarysaid the cost of construct-ing a one-kilometre roadis ₹25 crore and thereturn on it is ₹1 crore. If Iput all these numberstogether it looks like,incrementally, road con-struction is becomingunviable. So, what is thetakeaway for us as citi-zens and investors?Should we see a completeslowdown in road con-struction?The cost of construction has
a major fraction in land acquisi-tion cost, which is mandated bylaw, and you are paying up tothree times the market value ofthe land. Does this amount to asubsidiary to the land owner?Yes, it does. Is it a distorting fac-tor in the market process?
Yes it is, but once you launcha subsidiary it is very difficult towithdraw it, so we are probablystuck with it. If you look at thepure construction componentof the roads, that has not goneup ahead of the rate of inflationof the raw material cost.
There is no great unforeseenexpenditure there. The over-hang cost of land acquisitionhas gone through the roof, butthe construction componentcost did not go up dispropor-tionately.
You would have to slow-down if you have run out ofmoney, but I think contingentliabilities are a substantial sum,you quoted a figure of ₹1.5 tril-lion as hard liabilities of NHAI.The contingent liabilities in thenext few years are going to bemore than double that amount.
So yes, you should be wor-ried about thefinancial health ofthe organization.If you have to trimy o u r s a l e sbecause it’s a lowwind situation;you will have to doit and as the econ-omy picks up youhave to startagain.T h e P M O ’ s
observations are largelyrelated to in-principleapprovals, while projectslike Bharatmala werealready approved, sodespite having highercost you think some ofthese projects will still gothrough?I think Bharatmala and all
projects going through youneed very hard look at what isthe rate of return on capital andmaybe you should be workingthe rate of return on the con-struction cost and subtractingabout two-thirds of the acquisi-tion cost because that is a socialcost and then you should bereally concentrating in hightraffic density corridors.
Bharatmala is a very ambi-tious programme. It may takeup to 20 years to fulfil based onmy projections of the rate ofgrowth of traffic going forward.
Latha Venkatesh &
Sonia Shenoy
CNBC-TV18
Don’t see economic sensein monetizing assetswhen valuations are
depressed, says formerNational Highways Authorityof India chairman BrijeshwarSingh. Edited excerpts:
What do you make of theletter from the PrimeMinisters’ Office to theroads ministry and theNHAI?The first thing I would like to
say is infrastructure has longlead times. It’s not somethingwhich goes up and down likethe market. It goes throughmuch longer cycles and, one ofthe basic driver of traffic, whichis private sector investment togross domestic product (GDP),and you look at that ratio, 10years ago, the private sectorinvestment was 4.5% of GDP. Ithas fallen to 1.5% today. So, con-sequently, the growth in trafficis confined to these few high-density traffic corridors. It’s notnecessary for the NHAI or thegovernment to concentrateonly on market viable roads.
There are other objectives—political, social inclusion, hori-zontal equality. You may wantto go into those things, but yougot to fund them.NHAI had a finan-cial model, whichwas cess-driven. If youremained only cess-driven, youwould be able to do very fewroads.
So, the government is tryingto expand. It is now in a con-traction mode, as the letter says– maybe you can take a breakfrom road construction for afew years, maybe you can pickup only those that have still gotunfulfilled traffic demands. Ithas taken 10 years for privatesector investments to comedown. It may take 10 years for itto ramp up again. Therefore,you will have to watch how theeconomy is performing, howtraffic is moving and it’s verydifficult to predict which corri-dors are going to see high trafficdensity.
So, sometimes, you got to beahead of the curve, sometimesif you are too conservative, youjust fall behind the curve andyou create a logjam. So, it’s amixture of social and economicimperatives; government takesa political call on this.
The biggest issue is fund-ing; private sector partic-ipation has fallen quite abit, there is hardly anymoney coming in fromlenders. So, the sugges-tions by the PMO that theNHAI must aggressivelymonetize its existingassets either through tolloperate transfer (TOT) orthrough an Infrastruc-ture Investment Trust(InvIT), will these remainmere suggestions?These look a bit short-term
to me because, would you wantto go in for monetization or
No sense in monetizing road assets in a depressed market, says Singh
‘Infrastructure has long lead times. It’s not
something which goes up and down like the market. It
goes through much longer
cycles.’
INTERVIEW
12 WEDNESDAY, 28 AUGUST 2019NEW DELHI PERSONAL FINANCE
Is it a wise idea to opt for repo-linked loan?
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How much tax do you pay on your equity investments?Equity as an asset class is an important portion of an investor's portfolio. However, tax rules vary for different types of equity instruments. For example, capital gains tax is based on the period of holding. So for stocks and equity-oriented mutual funds, long-term is defined as more than 1 year, but for Ulips this parameter doesn’t apply. Taxes reduce the overall returns that you can get from a product. Given that different equity assets attract different tax rules, an investor must take a careful look at the suitability of an investment in terms of taxes too. Here's a look at what the various taxes are.
For further details on taxation, go to bit.ly/2pOeeH9Source: EY, Mint research
TAX
10%
Dividend distribution tax
20.56%
Short-term capital gains tax
15.6%
Long-term capital gains tax
10.4%
Listed stocks
Maturity proceeds are exempt for life
insurance policies where premium payable
does not exceed of capital sum
assured (20% if policy is issued prior to
1 April 2012)
Unit-linked insurance plans (Ulips)
Securities transaction tax (STT): 0.001%
Securities transaction tax (STT): Delivery: (buyer and
seller pay); Intraday: (seller pays)
0.1% 0.025%
Dividend distribution tax
12.94%
Short-term capital gains tax
15.6%
Long-term capital gains tax
10.4%
Equity-oriented mutual funds (>65% in equities)
(Long-term: More than one year)
(Long-term: More than one year)
SANTOSH SHARMA/MINT
ladder. “A company with lowerexpenses may have less strain onits profit margin and may there-fore not resort to firings,” said Sen.
But stepping cautiously in yourworkplace goes hand in hand withkeeping your finances in order,just in case you get the pink slipdespite best efforts. To begin with,start building an emergency cor-pus if you don’t have it in placealready. Financial planners sayyou should have at least sixmonths of your expenses in anemergency fund. “Start by invest-ing a part of your salary everymonth in an ultra-short term orliquid fund,” said Lovaii Navlakhi,founder and chief executive offi-cer, International Money MattersPvt. Ltd, a financial planning firm.It will also help you tide over anyemergency.
To be prepared for a medicalemergency, however, review yourhealth insurance. Now is also agood time to get yourself addi-tional health insurance if you’vebeen banking on the policy pro-vided by your employer.
If you’ve been laid off, don’t losehope. “Start networking with job
Tips to navigate the rough seas of the economic slowdown
Being disciplined about your investments as well as spending is the key to ride out the economic storm
Sunita Abraham
I nvestment benchmarksserve as meaningful refer-
ence points that help inves-tors draw comparisons oftheir funds’ or stocks’ per-formance. Similarly, inlending, a benchmark rateserves as a transparent ref-erence rate used by finan-cial intermediaries such asbanks to determine theprice at which they offerloans to customers.
A benchmark rate, typi-cally, reflects the cost ofborrowing funds for thelending institution. Theinterest rate at which banksare willing to lend will be ata spread to the benchmarkrate, say benchmark rateplus 2%. Banks in India haveso far been using internalbenchmarks, which have
meant that the benefit ofpolicy rate cuts don’t reachthe borrowers completely.
In December 2018, RBIdirected banks to use exter-nal benchmarks. A numberof banks such as SBI andBank of Baroda havelaunched home loan prod-ucts linked to RBI’s reporate. The banks will charge aspread above the repo ratebut the net interest rate willmove in sync with the reporate. This is expected toimprove the transmission ofRBI rate cuts.
How external benchmarks can improve rate cut transmission
E X P E N S EA C C O U N TM O N I K A H A L A N
Indian home loans float only in one direction—up. SuccessiveReserve Bank of India (RBI) governors have tried to use a mixof benchmarks, moral-suation and nudges to get the banks to
be fair to a set of borrowers who now account for a large part ofthe banks’ loan books, but loan rates have remained sticky athigher levels. As borrowers, we know the pain of having a loanthat gets very quickly revised upwards when the policy rate rises,but stays high when the policy rates fall. Banks have managed tomanage all benchmarks tried out every few years by RBI. TheBPLR, base rate and the MCLR are the various benchmarks (readabout these here: bit.ly/2NyuE3U) tried out over the past. Eachtime a new benchmark was introduced, RBI expected banks topass on the rate cuts, but each time it failed.
It has taken the finance minister of an aspiring $5 trillion econ-omy to announce, as a part of a pick-me-up package for the econ-omy, that all banks will now have to use either a third-partybenchmark or a repo rate-linked benchmark to price their loans.It takes an FM to fix a fair benchmark in Indian banking. A bench-mark is a very important number in the financial sector becausethe entire industry deals in things that are invisible. When we buya car, we can see it, experience its speed, mileage and comfort.When we buy a home loan or a mutual fund, the product is invisi-ble; its performance has to be compared with something else forus to make meaning out of it. A benchmark is that number thatprovides that bar or threshold that helps us make sense of ourproducts—to see if they are doing well or are fair. In a mutual
fund, the benchmark must reflect thechoice of stocks or bonds in a particu-lar fund. A small-cap fund, for exam-ple, must have a benchmark that ismade up of small-cap stocks. To com-pare a small-cap fund with the broad-market index will mis-represent theperformance of the fund, both up anddown. A benchmark for a floatinghome loan must be such that it movesup and down as the policy rate moves
up and down. But banks have misused the freedom to fix theirown benchmarks and have short-changed retail borrowers fordecades. One brave bank that tried a MIBOR (or the MumbaiInterbank Offer Rate—a third-party benchmark not controlledby a single bank) linked loan in 2005 has not survived to tell thestory of being fair to bank customers. You can read more aboutthis here: bit.ly/2ZqecVJ.
Is it fair to force banks to lend against a benchmark they cannotcontrol? Isn’t this against the free-market principle and won’tbanks face difficulties in managing their assets and liabilities?The answer to all of these is: no. It is not unfair. A better regulatorwould have solved this years ago rather than giving in to thebanks threat of failure when faced with a consumer-friendly andbank fees-unfriendly proposal. The free market argument fallsflat on its face on many counts and the biggest reason is that theregulator’s job is itself conflicted. What hat is RBI going to wear—the manager of public debt, the regulator of banks or the protec-tor of systemic risk who ensures that banks don’t fail? RBI’s tradi-tional focus on preventing bank failure has not allowed it to lookat its role as a protector of customer interests. RBI would rate a“poor” on the report card under the head—protection of retailcustomers. It is yet to action its charter of consumer rights and tomake banks accountable for third-party products sales, to namejust two. So, no, it is not unfair to ask for a fair marketplace for aset of consumers whose voices are individually too weak to beheard in the ivory tower on Mint Street.
Though it is not the job of the finance minister to tinker withbenchmarks or the finer details linked to markets, for us as con-sumers of products in an oligopolistic marketplace called bank-ing, it is good news that loans may finally float down. But I won’tcelebrate too soon—but would look carefully at the fine printwhen banks begin to offer the repo-linked loans to see where thecatch is. Maybe RBI will have to fix a window within which bankshave to get their loans to react to repo rate changes, or banks willreset the loan rates once in a year.
Monika Halan is consulting editor at Mint and writes on house-hold finance, policy and regulation
Each time a new benchmark was introduced, RBI expected banks to pass on the cuts but it failed
Disha Sanghvi
There is grim news allaround. From automanufacturers to bis-cuit makers, severalindustries have started
feeling the pain in terms of fallingsales and rising lay-offs. The grossdomestic product (GDP) numberis down to 5.8%, for the Marchquarter. Stock markets are alsoreeling with the Nifty falling by 7%in July and redemptions fromequity mutual funds increasing by4.96% in the month, according tovarious reports.
Recognizing the need of thehour, finance minister NirmalaSitharaman on 23 August soughtto give a booster shot to the econ-omy by announcing withdrawal ofenhanced surcharge on foreignportfolio investors (FPIs), simplifi-cation of the goods and servicestax (GST) structure, certain relaxa-tions for the auto industry, andtransmission of rate cuts to the endconsumer, among other measures.However, can that be a quick-fixsolution? “The problem has builtover three years after demonetiza-tion leading to a fall in demand andjob loss, especiallyamong SMEs. Banksneed more capitaland NBFCs are facingcredibility issues. Itwill take at least twoto three years forthings to get back tonormal,” said MadanSabnavis, chief econ-omist, CARE Ratings.
While it’s normalto feel insecure in times like these,the important thing is to create adefence mechanism instead. Wegive you some tips to ride throughthis phase smoothly.
SAVE THAT JOB
Job cuts are inevitable during aneconomic slowdown and there’snobody you can blame. However,you can take some steps to reduce
the chances of losing your job. It’simportant to up your game so thatyour work gets noticed. DeepaliSen, certified financial plannerand founder partner of SrujanFinancial Advisers LLP, a financialplanning firm, said, “Improveyour skill set, both technical andsoft, to increase your credibility
within the organiza-tion.”
Having a positiveattitude and goodinterpersonal skillscould come handy.Showing your will-ingness to help thecompany tide overthis period will bodewell if you are in asenior position.
“Understand the position of yourcompany and the thought processof the management. Usually, themanagement welcomes employ-ees who are willing to help duringrough times and try and retainthem,” said Suresh Sadagopan,founder, Ladder7 Financial advi-sories. Coming up with cost-cut-ting ideas can also help if you aresenior enough in the hierarchy
Improve your skill set, both
technical and soft, to increase your credibility
within the organization
consultants and industry veteransto find new openings. Though fewin number, there would still besome openings,” said Sen.
CURB YOUR SPENDS
One cannot emphasize enough onhow important it is to keep a checkon your spending pattern, espe-cially during a slowdown. Cutunwanted expendi-ture, delay spendsthat are not urgentand, if possible, try toreduce essentialexpenses as well.“Take measures suchas finding a tenant forthe house that’s beenlying vacant andinvest any amount ofsurplus that you may have,” saidSen.
Also, try and steer clear of debt.Typically, the Reserve Bank ofIndia (RBI) cuts interest rates toboost spending in the economyduring a slowdown, which couldpush you towards taking loans ifyou are dealing with a crunch. “AsRBI cuts rates in a bid to drive con-sumption, banks are passing on
the rate cuts to customers. Thismeans that all loans, includingpersonal loans, have become lessexpensive. It can be tempting tosplurge but don’t go overboard,”said Navin Chandani, chief busi-ness officer, Bankbazaar. Sen saidbehavioural lifestyle changes arethe most difficult to reverse. WhileEMIs could help you in themoment, they could derail yourfinances in the long run.
However, all this doesn’t meanyou deprive yourself. “You areanyway feeling despondent and itis at times like these that spendingon something perks you up. Butremember to keep everything inmoderation,” said Navlakhi.
DON’T EXIT INVESTMENTS
In the current scenario, the valueof your stocks and returns fromyour mutual funds may haveplummetted, but does that meanyou panic and exit? Not really.
Each time the thought ofredeeming your investmentsstrikes you, remind yourself ofyour goals. “If you looked at one-year returns in a small-cap indexfund in January 2018 whichshowed a return of over 50% andput all your available money there,you are now staring at a loss of over
40%,” said Navlakhi.But small-cap invest-ment, typically, yieldsgood results in thelong run. “Know whatyou’re getting into.That way, short-termvolatility won’t dis-turb you,” added Nav-lakhi.
If liquidity isn’t aproblem, don’t stop those SIPs.However, Sen said, you can con-sider diverting your existing SIPsfrom long-terms goals to short-term funds if you think your emer-gency corpus needs a boost.
An economic slowdown couldbe a delicate situation to deal withbut taking necessary measures willhelp you sail through the roughwaters.
Cut unwanted expenditure,
delay spends that are not urgent
and try to reduce essential
expenses as well
WHY INDIAN BANKS
NEED A PUSH AND
NOT A NUDGE
Respond to this column at
ISTOCK
ISTOCK
The Mint Globetrotter Index compares the cost of 25 essential travel spends for 50 cities across five regions. The analysis, published on 15 May, can be seen on www.livemint.com/globetrotter2019. Every Wednesday, in this space, we will list these 25 spends for a city and compare it with Delhi.
GLOBETROTTER CITIES VIENNA
Coke/Pepsi (0.33 litre)
Milk (regular, 1 litre)
White bread (500 gm)
Local cheese (1 kg)
Apples (1 kg)
Bananas (1 kg)
Oranges (1 kg)
Water (1.5 litre)
Wine (mid-range)
Local beer (0.5 litre)
Cigarettes (Marlboro, pack of 20)
216
82
140
921
171
136
164
48
482
77
434
Price multiple (times)
Price in Vienna (�)
35
RANK(out of 50)
MintGlobetrotter
Index 2019ranking
Overall price multiple
to Delhi (times)
2.34
SHOPPING
Inexpensive meal
3-course meal(mid-range restaurant)
McMeal
Local beer(0.5 litre draught)
Cappuccino (regular)
803
3,615
562
321
258
Price multiple (times)
Price in Vienna (�)
250
1,200
250
120
124
Price in Delhi (�)
RESTAURANT
Movie ticket (1 seat)
Jeans (Levi's 501 or similar)
Summer dress (Zara, H&M or similar)
Nike running shoes (mid-range)
803
5,868
2,738
9,710
300
2,485
2,737
3,949
Price multiple (times) Vienna (�)Price in Delhi (�)
LEISURE
Hotel tariff (per day)
Airbnb (per day)
One-way ticket (local transport)
Taxi fare (base fare + 5 km)
Petrol (1 litre)
13,572
5,209
193
789
101
3,408
2,446
30
115
73
Price multiple (times)
Price in Vienna (�)
Price in Delhi (�)
STAY & TRANSPORTATION
32
49
30
301
124
53
59
29
700
103
300
Price in Delhi (�)
1. All data from www.numbeo.com, barring two exceptions (given below). 2. City-specific price data as of 19 August, 2019. Globetrotter ranking as of 19 April 2019. 3. For hotel tariffs, we considered three-star hotels on Hotels.com and Expedia.com. We searched for two guests, stay of 1-2 June, and sorted the top seven listings by guest rating, and took their average. 4. Airbnb tariffs sourced from Airdna.co (the analytics arm of Airbnb). Tariff shows average for studio apartment or one-room apartment for city.
Source: howindialives.com
3.2
3.0
2.2
2.7
2.1
2.7
2.4
1.0
2.5
6.7
1.7
4.7
3.1
1.4
2.6
2.8
1.7
0.7
0.7
1.4
4.0
2.1
6.4
6.9
1.4
SANTOSH SHARMA/MINT
PERSONAL FINANCE WEDNESDAY, 28 AUGUST 2019NEW DELHI 13
Should you rush to create a private trust for the benefit of your family?
bit.ly/2KZXYys
PREMIUM (R; INCLUDING
18% GST)
PRE-EXISTING DISEASE
EXCLUSION
LIMIT ON ROOM RENT
NO-CLAIM BONUS
WELLNESS PROGRAMME
RESTORE BENEFIT
CLAIMS SETTLEMENT
CLAIM COMPLAINTS TOTAL PREMIUM
Maximum score 15.00 15.00 5.00 2.50 2.50 25.00 5.00 100.00
A-rated health plans for you
MEDICLAIM RATINGS
How do you buy a health insurance plan? If you settle with the plan
your agent sells or are happy knowing you have bought the cheapest
plan, there is a bit of unlearning and a lot of learning in store for you. To
give you a ready comparison, we designed Mint SecureNow Mediclaim
Ratings (MSMR). The full ratings can be seen here: www.livemint.com/
mintmediratings2018. Here, only the A-rated plans have been shown. For
the policies that scored B and C, see the link mentioned. For family floater
plans, there are four sum insureds (₹5 lakh, ₹10 lakh, ₹20 lakh and ₹50
lakh) and two age categories—eldest insured is 30 years old or 45 years
old. For the first category of eldest person being 30, the cover is for three
people, two adults and one child. For the 45-years category, the cover is
for two adults and two children. For individual plans, the sum assured are
₹5 lakh, ₹10 lakh, ₹20 lakh and ₹50 lakh. In each of these, the ages are 30,
45, 60 and 75 years. By Deepti Bhaskaran
Sum assured
R50 lakh
Individual policies
Individual policies
SCORE
SCORE
PRODUCT NAME
PRODUCT NAME
INSURANCE COMPANY
INSURANCE COMPANY
The criteria scores may not total to a 100 because of rounding off the decimals. Data as of 31 July 2017. SANTOSH SHARMA/MINT
30.00
No. of people covered
Age
1
60 years
Age
75 years
37,611
60,857
56,809
51,029
66,331
62,344
64,821
82,316
61,858
84,587
PREMIUM (R; INCLUDING
18% GST)
91,656
126,665
134,760
182,960
135,523
11.25
7.5
7.5
3.75
11.25
7.5
7.5
11.25
3.75
11.25
LIMIT ON ROOM RENT
13.5
13.5
13.5
13.5
13.5
15
15
15
15
15
15
15
15
15
15
CO-PAY
5
5
5
5
0
3.75
5
5
5
5
5
5
5
3.75
3.75
DISEASE-WISE CAPPING
0
5
5
5
5
2.5
2.5
0
0
2.5
2.5
0
2.5
2.5
0
DISEASE-WISE WAITING
3.75
3.75
3.75
3.75
0
2.5
0
2.5
2.5
2.5
2.5
2.5
2.5
2.5
2.5
WELLNESS
3
0
0
0
3
12.5
12.5
12.5
12.5
12.5
12.5
12.5
12.5
12.5
12.5
CLAIMS SETTLEMENT
12.5
12.5
12.5
12.5
12.5
5
5
2.5
5
2.5
5
5
2.5
2.5
5
CLAIM COMPLAINTS
5
2.5
5
5
2.5
82.5
77.5
75
73.75
73.75
72.5
70
66.25
65
65
TOTAL
77.88
74
70.25
67.38
65.38
30
30
30
30
22.5
22.5
22.5
15
22.5
15
PREMIUM
25
25
18.75
12.5
18.75
PRE-EXISTING DISEASE
EXCLUSION
10.13
6.75
6.75
10.13
10.13
1
1
2
2
3
3
4
4
5
5
6
7
8
9
10
ICICI Lombard Gen. Ins.
Apollo Munich Health Ins.
Max Bupa Health Ins.
HDFC Ergo Gen. Ins.
Magma HDI Gen. Ins.
Apollo Munich Health Ins.
Royal Sundaram Gen. Ins.
Manipal Cigna Health Ins.
Aditya Birla Health Ins.
Bajaj Allianz Gen. Ins.
ICICI Lombard Gen. Ins.
Max Bupa Health Ins.
Royal Sundaram Gen. Ins.
Bajaj Allianz Gen. Ins.
Manipal Cigna Health Ins.
Complete Health Ins. (iHealth)
Easy Health Exclusive
Health Companion
Health Suraksha Gold - Regain ECB
OneHealth - Premium
Optima Restore
Lifeline - Supreme
ProHealth Ins. (Preferred Plan)
Activ Assure - Diamond
Health Care Supreme
Complete Health Ins. (iHealth)
Health Companion
Lifeline - Supreme
Health Care Supreme
ProHealth Ins. (Preferred Plan)
Maximum score 15.00 15.00 5.00 2.50 2.50 25.00 5.00 100.0030.00 30.00
Sunita Abraham
In order to accumulate a cor-pus to meet a financial goal,you would typically put
aside a certain sum of moneyperiodically, say monthly orannually, into financial prod-ucts that meet your risk andreturn preference. The suminvested earns returns thatalso contribute to that corpus.
So how do you decide howmuch this periodic investmentneeds to be? Excel providesyou an easy way to calculatethe periodic savings requiredto reach a desired sum ofmoney. The information thatis required to make the calcu-lation is the target value at theend, the rate of returnexpected and the period avail-able to accumulate the funds.
Let’s say you want to accu-mulate a corpus of ₹15 lakh
Sunita Abraham
The Reserve Bank ofIndia’s decision totransfer ₹1.76 tril-lion to the govern-ment has seen
mixed reactions from econo-mists and market experts. Themove is expected to ease therevenue shortfall that the gov-ernment faces and help fill thefiscal deficit gap. “It alleviatesthe risk of widespread fiscalslippage,” said Shubhada Rao,chief economist at Yes BankLtd, echoing the sentiments ofmost market participants.
The transfer includes a sur-plus of ₹1.23 trillion for FY19,of which ₹28,000 crore hasalready been transferred to thegovernment; the balance willbe transferred in this financialyear. An additional amount of₹52,637 crore from the contin-gency reserve maintained byRBI is also being transferred tothe government.
We explore the implicationsof this move and how it willtranslate into outcomes, if any,for retail investors. The gov-ernment had alreadyaccounted for a dividend of₹90,000 crore from RBI in thebudget presented in July 2019.The marginally higher divi-dend received is positive forgovernment finances. Theexcess capital of ₹52,637 crorereturned to the government isthe additional amount that willnow be available to the gov-ernment which will, to a largeextent, bridge the revenue gapthat was seen in the budget.
The transfer is also expectedto add to the surplus liquidityin the system. “The govern-ment is currently running aWays and Means Advance ofaround ₹1 trillion against theexpected fund transfer fromRBI. The net liquidity situa-tion which is already in surpluschanges only by around₹50,000 crore because of thistransfer,” said Arvind Chari,head, fixed income and alter-natives, Quantum AdvisorsPvt. Ltd. The excess liquidity,along with the additional ratecut expected from RBI will
the government taking anymeasure that will be fiscallyimprudent. The government’sfocus on infrastructure spend-ing will continue and that willgive a fillip to the investmentcycle,” he said.
Borrowers may see somebenefits too. “Since liquidity isin surplus, you will see lendingrates being cut by banks as theweighted average cost ofincremental borrowings comedown. You may also seeanother round of rate cuts byRBI if inflation stays below thetarget level,” said Chari. “Low-ering of rates of interest onpersonal consumption loans isindicated,” said Rao. “WithRBI’s policy stance shifting toaccommodative since June2019, the positive liquidity sit-uation will imply better trans-mission of lower rates to bor-rowers,” she added.
The move is unlikely tostoke inflationary pressures inthe economy either onaccount of the monetization ofthe reserves or from the stimu-lus that the government mayprovide to the economy.While there will be someimprovement in consumptionexpenditure from the govern-ment, I don’t think it will fuelinflation,” said Rao. “Theamount is not significant froma monetization point in thecurrent economic conditionand given the size of RBI’s bal-ance sheet. If it had been ₹2-3lakh crore it would have beenworrisome from an inflationpoint of view,” said Chari.
RBI bonanza sets stage for lower bond yields
The central bank’s move may result in lower interest rates for retail loans
over a period of seven years,and you want to make amonthly investment in a prod-uct that is expected to earn areturn of 12% per annum. Youwill need to use the PMT func-tion in Excel to make this cal-culation. Here are the steps todo this.
Step 1: Openan Excel work-sheet and put thei n f o r m a t i o nrequired to makethe calculation—corpus required( ₹ 1 5 l a k h ) ,months to thegoal since it’s amonthly contri-bution (84) and the expectedrate of return (12%).
Step 2: Open the PMT func-tion in Excel. For this, selectthe “Formulas tab” and choose“Financial” from the functionlibrary. You will find PMT in
the options available. Step 3: Click on PMT and a
box will open where you willhave to provide the functionarguments. The first is rate.Enter the rate of returndivided by 12 because the indi-vidual intends to makemonthly contribution to the
corpus. In theexample taken, itwill come to 0.01(12% divided by12). The nexti n f o r m a t i o nrequired is NPERwhich is the timeavailable inmonths in thiscase. Enter 84
(12x7). Next go to FV and enterthe future value of the corpusi.e. the goal amount. In thiscase, it is 1500000. UnderTYPE, enter 1 to indicate thatthe investment will be made atthe beginning of each month.
Note that the numbers will nottake commas or units. Once allthe information has been putin, select “OK”. Excel will cal-culate the PMT. The value willhave a negative sign before itto indicate cash outflow.
Step 4: In this example, thefunction will return a value of11365.44. This is the monthlyamount, earning a return of12% per annum, that will helpyou accumulate ₹15 lakh at theend of seven years.
You can play around withthe data to understand theimpact on the periodic savingsrequired when there is achange in any of the factors.For example, if you take alower return of 10%, then themonthly savings required goesup to ₹12,299. If the periodavailable goes up by one year—eight years—then the periodicsavings comes down to₹9,286.40 and so on.
calculate the amount you need to save periodically to reach a goal
TOHOW
Excel provides an easy way to
calculate the periodic savings
required to reach a desired sum of
money
her name. Can she do this? —Name withheld on request
We assume that the propertiestogether with the house are abso-lutely owned by your father. In sucha scenario, your father can transferthe property to whomsoever hedesires during his lifetime videinstruments like deed of transfer orgift or a Will. In the event that he diesintestate (i.e. without leaving a Will),the applicable laws of successionrelating to the religion of thedeceased will apply, i.e., Hindu Suc-
cession Act, 1956 or Indian Succes-sion Act, 1925 or any other, as thecase may be, and his properties willdevolve upon his heirs as per the rel-evant provisions of the applicablelaws. We assume that your father is aHindu and if he dies intestate, thenhis property will devolve upon hiswidow and all daughters, includingthe adopted daughter, in equalshares if she is adopted under theprovisions of the Hindu Adoptionsand Maintenance Act, 1956 or undera valid decree of a court of competentjurisdiction.
Aradhana Bhansali is partner,Rajani Associates. Queries and viewsat [email protected]
mASK MINT
L E G A L
keep yields low in the short-term money markets andinvestors are likely to see sub-dued returns on their moneyparked in this space. “Thelonger end of the yield curve,10-year and above, is pricing inthe possibility that the govern-ment may increase fiscal defi-cit by providing an economicstimulus, though the govern-ment has rightfully stayedaway fromdoing it so far.If additionalfunds areu s e d t obridge reve-nue gaps, itm a y g i v ecomfort tot h e b o n dmarkets andl o n g - t e n o ryields willalso comedown,” saidChari. Inves-tors in long-term bondsa n d b o n dfunds will seesome tacticalgains.
The abilityof the govern-ment to give adequate stimu-lus to a flagging economy hasbeen hindered by its tight fis-cal situation. But with thiswindfall, there may be greaterexpectation from equity mar-kets. “The government willhave some flexibility in front-loading some consumptionexpenditure and, therefore,
growth,” said Rao. “Themoney in the hands of the gov-ernment has improved its abil-ity to push cash transfers andother measures for the ruraleconomy, which will bringback consumption.”
Equity markets will takeheart from the stability thatcomes to the fiscal situationeven if there are no direct ben-efits in the form of economic
s t i m u l u soffered by thegovernment.“The equitymarket willwait for somevisibility ofhow the gov-e r n m e n texpects to usethese fundsbefore react-ing to it,” saidD e e p a kShenoy, CEOand founder,CapitalMindW e a l t h .“While man-aging the fis-cal situation isof primaryimportance,the govern-
ment cannot avoid providingsome relief to the sluggisheconomy,” he added.
Shyam Sekhar, chief ideatorand founder, iThought, toodoes not see the governmentresort to measures to boostconsumption even thoughthey now have greater fiscalmanoeuvrability. “I don’t see
The governmentshould use this
fund transfer to bridge the shortfall in reve-nues. This will calm the fears of an expansion in fiscal deficit
Arvind ChariHead, fixed income and alternatives, Quantum Advisors
‘‘
Aradhana Bhansali
I want to create a private trustfor a minor. I mainly wish toinvest in mutual funds fromthe trust. What should Iinclude in the trust deed?
—Neel ShahYou can create a private trust
under the provisions of the IndianTrusts Act, 1882, where you can bethe settlor and/or the trustee for thebenefit of the minor child, who is theultimate beneficiary. You can pro-vide for all such events where youwish your child becomes entitled tosome funds or liquidate the trustassets with certain capping. Underthe provisions of the Act, a privatetrust can invest in mutual funds,shares, and so on, as desired by you.
My mother died about 15 yearsago and she is survived bythree daughters. Our fatherremarried a widowed woman,who already had a daughterfrom her previous marriagewho was adopted by my fatherthereafter. The stepmotherkeeps threatening us that shewould throw us out of thehouse and would trick ourfather into transferring thehouse and other properties in
Private trust created for the benefit of a minor child can invest in mutual funds
ISTOCK
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14 WEDNESDAY, 28 AUGUST 2019NEW DELHI VIEWS
MY VIEW | ARTHANOMICS
MY VIEW | EX MACHINA
In Book II of Plato’s The Republic, a ques-tion is posed to Socrates about the Ring ofGyges, a mythical device that renders the
wearer invisible. He is asked whether it’spossible for anyone who has this ring toresist the temptation of killing, robbing, rap-ing or generally breaking the law when all hehas to do is just put it on and then freely com-mit all those crimes without the risk of beingdetected. Inherent in the question is the pre-sumption that the reason we obey laws is thefear of being caught and that if we find a wayto be perfectly anonymous, nothing will stopus from violating laws that no-one can knowwe have broken.
Today’s messaging applications have end-to-end encryption baked into their design.This technology guarantees that all conver-sations between users on the platform willforever remain anonymous, making it asclose a technology to the Ring of Gyges as wehave ever had. As these platforms are usedby virtually everyone, messages sentthrough them spread with greater velocity
There is, however, another side to this story. In a complex economy like India, it makes no sense for the gover-nor and the finance ministry to act like they are on different planets. Informal consultations between the bank and the government have always been part of the architecture of monetary policy, and if this back-room channel had bro-ken down after the change in govern-ment in 2014, it is not exactly a crime for the government to demand formal con-sultations on monetary and prudential policies. So, the first argument is not quite valid.
The second perspective is to see thereturn of excess capital as indirect encouragement to the exchequer to blow up an unearned bonanza on popu-list schemes, or even to use it to plug the fiscal deficit with no effort on its part whatsoever. This argument is at least partly valid, for there is no formal understanding on what this money is to be used for. ₹1.76 trillion looks like money for jam even after banks are recapitalized with ₹70,000 crore upfront, and some additional resources are used to rescue worthwhile non-bank financial companies (NBFCs) through the purchase of some of their toxic assets. This can be done either indirectly through banks, or by setting up a specific toxic assets fund. As long as the money is used only for stabilizing and cleaning up the financial system, RBI’s large transfers are kosher, even warranted. But if the money is used to bankroll the next freebie, even one that is socially-justifiable like the Ujjwala scheme, it would be wrong.
But the third way of analysing the large payout is probably the best. If RBI today has to dig deep into its excess reserves to pay dividends to the govern-ment, it is actually a form of compensat-ing the economy for its mindless policy failures over the last few years. These policy failures include, first, its inability to flag a bad loans crisis during the United Progressive Alliance years. Former governor Raghuram Rajan had
himself admitted that most of the toxic assets were generated in the over-exu-berant years of 2006-08, with the prob-lem snowballing under his watch and that of his successor. RBI was also lax in detecting systemic fraud, as had hap-pened with the Punjab National Bank in the Nirav Modi-Mehul Choksi scandal.
The bigger area of failure is clearly monetary policy. There is little doubt that the Monetary Policy Committee (MPC), under the tutelage of the previ-ous governor, consistently overplayed the inflation threat and maintained policy rates at very high real levels, thus worsening instability in the financial system. If rates had been cut faster and earlier, not only would banks have been able to write off their bad loans more quickly, but corporates would have been able to raise more money from both markets and private lenders to pay off their costlier loans. A falling rate regime brings banks higher treasury profits and sends stocks higher.
It is difficult to estimate how much damage RBI and the MPC did to growth and revival prospects through these twin policy failures, but it would be a fair guess that gross domestic product could have been impacted by up to 1% in each of the last three years. In other words, while the fiscal side was deflat-ing the economy with the introduction of the goods and services tax and higher levels of tax compliance, RBI worsened the situation with its own pro-cyclical policies even as a slowdown was visible.
From today’s vantage point of observing the medium-term impact of RBI’s actions on the economy, we can safely say that its policies were direc-tionally wrong. The transfer of excess reserves to the government—which will ultimately filter back to strengthen the economy through higher bank credit expansion, higher government spending and improved private con-sumption—is the least it can do to combat the slowdown it was complicit in accentuating. It will be better than a mere mea culpa.
The decision of the central board ofthe Reserve Bank of India (RBI) totransfer ₹1.76 trillion of excess
reserves this fiscal year to the govern-ment is the right one, even though we will see critics tut-tutting all the way. The decision can be analysed from three perspectives: one, RBI under gov-ernor Shaktikanta Das has succumbed to government pressure, and thus com-promised its independence. Two, one can fret about whether this bonanza will be blown up on populist freebies. The third way is to look at it as RBI’s way of compensating the economy for its own missteps over the last three years.
Let’s take the first point, that the executive has browbeaten the central bank into handing over its excess cash. On the face of it, this may seem true, for the whole process was precipitated by the previous finance minister, the late Arun Jaitley, demanding compulsory consultations under Section 7 of the RBI Act last year. This was accompanied by the government appointing some noisy critics to the central bank’s board, which demanded accountability from the RBI’s executive management. This led to the departure of the previous governor, Urjit Patel last December, andDas replaced him fairly quickly. If you put two and two together, there is little doubt that government pressure was important in getting RBI to see the light on several issues.
The return of excess capital is RBI’s indirect mea culpa
The transfer of reserves is the least RBI can do to combat the slowdown its high rates aggravated
R. JAGANNATHANis editorial director, ‘Swarajya’ magazine
The transfer of ₹1.76 trillion by theReserve Bank of India (RBI) fromits coffers to the government doesseveral important things. For one,it settles an argument over howmuch money RBI needs to keep for
itself; the central bank says it has gone along with the recommendations of an expert panel headed by former RBI governor Bimal Jalan. For another, it fills the central exchequer with funds enough to either slash the Centre’s fiscal deficit—perhaps even bring it below its budget target for the year—or step up state expendi-ture to meet specific goals and stimulate eco-nomic activity. The money could well be used for a judicious mix of ends, the details of which would be for the government to work out. One way or another, it would be good for an econ-omy that needs all the help it can get. But will the transfer be at the cost of a central bank left less robust than before? That’s a question that cannot be answered without a look at what RBI needs its reserves to guard against—for the sake of macroprudential stability.
One point to note is that ₹1.23 trillion of the transfer sum is simply RBI’s “surplus”, the profits it made last fiscal year on interest earned, its investments in securities, and various market transactions. Its owner, the government, has a clear claim on these. RBI’s overall war chest, its “revaluation and contin-gency reserves”, had nearly ₹9.2 trillion at the end of 2017-18, a chunk of it deployable in mar-ket operations to keep the Indian economy sta-ble. The Jalan Committee was set up to suggest a formula for how much money is adequate for that purpose. The deliberations are now done, and RBI has said that after meeting the pro-posed adequacy conditions, ₹52,637 crore of
“excess provisions” could be turned over to the government. While all this broadly means that RBI has opted to keep the very least it would need as firepower, the war chest itself has not suffered any significant depletion, as some had feared it would.
India’s central bank seems well equipped with resources to fight economic instability that could be wreaked by a financial crisis of the 2008-09 Great Recession’s proportions. With the reserves it has, similar bouts of capital flight would easily be dealt with. The likeli-hood of another such event is low, but rising, given the uncertainties that prevail across the world over how the US face-off with China over trade will play out. But what if there is a black swan event that shakes the world up? An escalation of trade hostilities could trigger a currency war, and if the dollar-based global economic order were to come apart, few can say what the consequences would be. Such an economic blowout is very unlikely at this junc-ture, but its impact would be so large that no scenario planner can ignore it altogether, and certainly not a central bank. If RBI’s reserves are to be kept to a minimal limit, it would need to be especially watchful of global risks. In any war-like situation, strategy often matters more than the size of one’s arsenal. To safeguard our economy, the government could project India as a neutral safe haven of sorts. The country could also stake a claim to those parts of global supply chains that are getting unhinged by the Sino-US straining of business relations. Plus, if world currencies were to slide, RBI could let the rupee decline as well, aiding our ability to stake that claim. A strong rupee serves our nationalistic ego well. What serves the econ-omy, though, is not an ego, but an edge.
An RBI war chest that
could see off a crisis
Even after the excess reserves RBI has agreed to transfer, it has enough firepower to tackle
an external economic shock, but a global blowout would still need to be guarded against
OUR VIEW
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What’s inside
MONEY MATTERS
ECONOMY & POLITICSCORPORATE NEWS
VIEWS
The Reserve Bank of India’sannual report for 2008-09
released on Thursday offersan early look at the state ofhousehold finances in India.
Investments by householdsin shares, debentures andmutual funds collapsed in avolatile year. Householdsavings in tradable financialproducts dropped fromRs89,134 crore in 2007-08 toa modest Rs19,349 crore in2008-09. As a percentage ofIndia’s gross domesticproduct (GDP), they fell from1.9% of GDP to 0.4% of GDP.
Interestingly, other avenuesof financial savings did not
benefit. Money pulled outof the capital market didnot flow into cash, bankdeposits, insurance andprovident funds.
Anecdotal evidence doesnot suggest that this moneywent into physical assets suchas gold and real estate either.We wonder: Are householdsavings dropping as aproportion of GDP? If yes,this is not good news.
There is some good news.Household debt has droppedfrom 4.3% of GDP in 2006-07to 3.1% of GDP in 2008-09.So family balance sheets arein better shape.
Tata Steel fell to a surprise net loss in the June quarteron a slowdown in demand in Europe and the US. Thesteel maker on Thursday said its consolidated April-Junenet loss after minority interest and share of profits ofassociates was Rs2,209 crore. Shares of Tata Steelended down 5.1% at Rs436.40. >P4
The hungerstrike by staff ofthe NationalAviation Co. ofIndia Ltd endedon Thursday, al-
though they said theywould continue protests inother ways. >P7
***The labourministry has saida pilots’ union at Jet Air-ways can’t go on strike asair transport is a publicutility service. >P10
LEADING THE NEWS
The Reserve Bank of India’sannual report on Thursdayreiterated the central bank’sconcerns about the “emerg-ing risk” of high inflation asa result of mounting gov-ernment borrowing and adeficient monsoon. >P11
***Infosys Technologies andWipro may have to wait atleast two more months tosecure the land promisedto them by the West Bengalgovernment at an IT town-ship being developed 30kmoutside Kolkata. >P5
BIG Pictures’ first own pro-duction Sikandar had a dis-appointing opening at thecinemas. But it has the teamand resources to strike it big,says Ashish Saksena. >P6
***Posco said it will start con-struction of its $12 billionproject in Orissa early nextyear. >P7
ShamnadBasheer saysthat ratherthan issuingguidelines on the controver-sial section 3(d) of the pat-ents Act at this stage, thegovernment should wait forcourts to interpret it. >P23
QUICK EDIT
State of household finances
Sebi is considering a planto extend the bankingchannel for subscription toinitial share sales to highnetworth individuals andinstitutions, in additionto retail investors. >P4
***KPMG’s WilbertH.A. Kannekenson the direct taxcode and the re-cent actions tak-en by G-20 ontax havens. >P11
Mint is also available for Rs5.50 with Hindustan Times under a combo offer
Q&A: Harley-Davidson’sPrakash on his India ride >7
MARKETING:How the slowdown hasaffected consumption patterns >20-21
WSJ:Dollar now cheaper to borrowcompared with yen >18
STAKE DEAL
Bharti, MTN closeto an agreement
Governmentto auction 3Gspectrum innext 3 months
Sops galore innew foreigntrade policy
Centre approvesrestricted retailsale of Tamiflu
BY COSTAS PARIS ,
SE YOUNG LEE &
ROBB M . STEWART
The Wall Street Journal·························SINGAPORE
Bharti Airtel Ltd andSouth Africa’s MTNGroup Ltd are close to
an agreement, people familiarwith the matter say.
However, there is no cer-tainty MTN shareholders willback the deal.
“The concern is that MTNholders may insist on a higheroffer by Bharti. If they are con-vinced by the management, wewill have an agreement bymid-September,” said a personfamiliar with the situation. “Itwill become more clear in thenext few days. The offer may
TURN TO PAGE 2®
Shareholders of theSouth African firm willhave to approve thedeal; Indian companymay sweeten its offer
BY SHAUVIK GHOSH
[email protected]·························NEW DELHI
India will auction spectrumfor high-speed wireless serv-
ices, popularly called 3G(third-generation) services, inthe next three months, minis-ter for communications andinformation technology (IT) A.Raja said.
He added that the govern-ment expects to raise Rs25,000crore from the auctions. Thisyear’s Union Budget an-nounced in July had estimatedthat the government couldearn around Rs35,000 crorefrom the auction.
Companies that win the auc-tion but do not have a licenceto offer telecom services in In-dia will have to acquire onewithin three months by payinga fee that is yet to be decidedby the government.
Raja’s announcement fol-lows a decision by the so-called empowered group ofministers, or eGoM, that wasset up to address the conten-tious and controversial issue ofpricing the spectrum to auc-tion as many as four slots ineach of India’s 22 phone ser-
TURN TO PAGE 4®
BY A SIT RANJAN M ISHRA &
SANGEETA S INGH
·························NEW DELHI
An unprecedented contrac-tion in exports that has al-
ready continued for 10 succes-sive months was the backdropagainst which commerce andindustry minister Anand Shar-ma on Thursday presented anew foreign trade policy whose
TURN TO BACK PAGE ®
BY RADHIEKA PANDEYA
[email protected]·························NEW DELHI
India has decided to allow re-stricted retail sale of the an-
tiviral drug Oseltamivir—Ro-che’s Tamiflu and its genericversions—from the secondweek of September even as thecountry braces for a fresh waveof swine flu or H1N1 infectionswith the onset of winter.
The rapid spread of the dis-
TURN TO BACK PAGE ®
MTN’S STAND
Contours of the dealmay change: NhlekoBY SHAUVIK GHOSH
[email protected]·······················NEW DELHI
The contours of the dealbetween Bharti Airtel
Ltd and MTN Group Ltd willsee a change by sometimenext month, said the group’sJohannesburg-based tele-com operator’s CEOPhuthuma Nhleko.
“The contours that wereannounced on 25 May mayvery well change,” Nhlekosaid during a webcast of thetelco’s interim half yearearnings conference.
“Whatever strategic ob-jectives that are there (instriking the deal) have to bebalanced out by value for
the shareholders,” he add-ed.
On 25 May, MTN Groupand Bharti Airtel announcedthat they had restarted ne-
TURN TO PAGE 2®
Maximizing shareholder value:MTN CEO Phuthuma Nhleko.
HANNELORE FOERSTER/BLOOMBERG
PRADEEP GAUR/MINT
A government’s horizon of decision-making is rendered
short, like a T20 match. In contrast, a central bank
plays a Test match, trying to win each session but
importantly also survive it so as to have a chance to win
the next session.
VIR AL ACHARYA
is a partner at Trilegal and
author of ‘Privacy 3.0 :Unlocking
Our Data Driven Future’
This answer resonates with one of therecurring themes of this column, that tech-nology rarely ever has an inherent morality,but readily takes on that of the persondeploying it. In the hands of bad people,even the best technology is easily subverted.However, when technology that allows us tobe the worst version of ourselves is placed inthe hands of those with a strong moral code,they will never use it for evil ends.
Just because some technologies allowpeople to hide behind it and commit crimesdoes not mean that the technology should bebanned outright. For all those who misusemessaging platforms, there are an equalnumber of people who rely on it to releasethemselves from inhibitions created by theecosystem they live in.
What is clear to me is that stripping awayanonymity entirely will never ever be useful.Like-minded people will find each other,regardless of whether they are operating onplatforms such as Facebook that strictlyenforce real-name policies or on platformslike 8chan that enforce a radical form of ano-nymity. Just because a few have takenadvantage of online anonymity for nefariouspurposes does not mean that everyone elseshould be denied the many benefits that itprovides.
they are afflicted with, be it something asmundane as hair loss or as serious as a sexu-ally transmitted disease or cancer. It givesthose who think they might be sufferingfrom mental health issues a means by whichthey can figure out what is happening tothem, which allows them to quietly get help
when needed. It lets youngwomen, who think theymight be pregnant, safelyaccess reproductive healthservices or seek counsel-ling. It allows those caughtin abusive relationships away in which to ask forhelp, be it advice on how toget out of their current sit-uation or which divorcelawyer to contact.
Socrates answered thequestion on the Ring ofGyges by stating that jus-tice has nothing to do with
the social construct described in the ques-tion. Anyone who abuses the power of theRing of Gyges is nothing more than a slave ofhis appetites. It is the man who possesses thering and chooses not to use it for nefariouspurposes who remains rationally in controland, therefore, stays happy.
mously responding to persons outside theirtribe.
However, just as anonymity allows wrong-doers to hide in plain sight, it provides muchneeded protection to those who need theiridentity masked. It gives confidence to peo-ple whose voices would otherwise have beensuppressed, includingminorities and marginal-ized sections of society,allowing them to expresstheir views publicly with-out fear of being targeted.It gives whistle-blowers,who otherwise face the riskof organizational recrimi-nation, the courage toshine light on informationthat their employers wouldotherwise keep suppressedto serve their own ends. Itenables political protest,ensuring that views, nomatter how inconvenient they are to thegovernment, can be expressed without fearof reprisal.
Anonymity has an equally important roleto play in the more mundane aspects of nor-mal life. It gives people the confidence toseek help from others about the diseases
and reach more people than has ever beenpossible before. This has resulted in thewidespread proliferation of provocativecontent, giving rise to concerns around theconsequences this could have on society.
The rise of fake news is being attributed tothe anonymity messaging platforms pro-vide. It is being argued that because usersknow they can’t be identified and that theirmessages can’t be traced back to them, theyhave no compunctions in breaking the law.It is, therefore, being suggested that theseplatforms be stripped of the anonymity theyoffer so that no one can hide behind a fakeidentity any more. This, it is believed, willprevent the spread of malicious lies andalternative facts and all the ancillary conse-quences that will follow.
There is no doubt that anonymity pro-vides a shield behind which evil can hide. Itallows the proliferation of extremist propa-ganda and facilitates child pornography. Itcontributes to harassment, as the restraintthat moderates social interactions when har-assers meet their victims face-to-face is dis-inhibited when they know they can’t beidentified. Most visibly, it emboldens trolls,most of whom are otherwise incapable ofmaking cogent arguments but are remarka-bly quick to unleash vitriol when anony-
End-to-end encryption must be retained at all costRAHUL MATTHAN
Stripping away
anonymity
because a few
have used it for
vile purposes
is not a valid
justification
VIEWS WEDNESDAY, 28 AUGUST 2019
NEW DELHI 15
India radically overhauled its indirect tax sys-tem more than two years ago with the intro-duction of the goods and services tax (GST). Itnow has an opportunity to do the same withthe direct tax system. A new framework fordirect taxes could also provide space for lower
indirect taxes that can boost economic activity.The task force on the direct tax code (DTC) sub-
mitted its final report to finance minister Nirmala Sitharaman earlier this month. That is almost exactly a decade after a draft DTC was released for public debate in August 2009. The proposed new code will replace the Income-tax Act of 1961 that has been mangled beyond repair by frequent revi-sions.
The original GST design was based on sound economic principles derived from the theory of optimal taxation. Two core principles stand out. First, the tax is, in effect, imposed on final con-sumption goods rather than intermediate goods. Second, it sought to impose a uniform tax rate on most consumption goods, assuming a fully non-linear income tax is available to the government to maintain equity.
The second principle of a flawless GST was compromised during the complex federal bargain needed to introduce the new indirect tax regime. The flaws in GST version 1.0 have been obvious for some time now, but a growing number of people are now thankfully recognizing the problem. This newspaper had warned in an October 2016 edito-rial that India was then moving to a flawed GST (bit.ly/2zpYe3w), even though it was superior to the older tax system.
The core principles of the proposed DTC can begleaned from the September 2018 report by the task force, which is available in the public domain. It says that the direct tax system is designed to improve the efficiency, equity and effectiveness of the tax system. A good tax system thus has to pro-mote rather than hinder economic activity, aid economic equality rather than inequality, and be easy rather than complicated to administer.
Some of the most potent recommendations in the September 2018 report of the task force have to do with capital taxation. In a classic paper published in 1976, Anthony Atkinson and Joseph Stiglitz showed that the optimal tax on capital should be zero, though Stiglitz has of late refuted this result. International experience shows that zero tax on capital is clearly impractical, but there is a good case for lower corporate taxes to bring down the general cost of capital in India.
The task force, too, has argued that the high taxcost on return on equity inhibits private sector investment. Also, the current tax treatment of equity capital versus debt capital has been an incen-tive for excess leverage. “Our recommendation of sharp reduction in the corporate tax rate has the
potential to substantially reduce the tax cost on equity and eliminate the bias in favour of debt. This will enable revival of private sector investment and reduce bankruptcy risk.” A lower tax on capital could increase inequality. The task force has sought to counter it with the reintroduction of a wealth tax.
Here is a bit more about the issue of income inequality. Global tax reforms over the past few decades have sought to flatten the marginal tax rate schedules. In other words, there is now a nar-rower gap between the lowest and top marginal tax rates. However, some strands of optimal tax theory suggest that tax rates should generally be higher in societies with greater income inequality. India’s finance minister has already increased the top marginal tax rate through a surcharge in the July 2019 budget.
One of the most under-appreciated public policylessons is to be found on page 17 of the September 2018 report submitted by the task force on direct taxes. It is the principle that policymakers have to think of the tax system as a whole, rather than obsessively focus on each part separately. What matters is how it all adds up. This was the funda-
mental flaw in the GST negotiations. The idea that each tax has to be progressive—that milk and Mer-cedes cannot be taxed at the same rate—has led to a complicated GST that is now resulting in subopti-mal revenue. The government should think of the progressive element of the tax system as a whole.
One issue related to this is the distribution of revenues from income versus consumption taxes. The former tend to be progressive, while the latter tend to be regressive. Before the 1991 reforms, India had an immensely regressive tax system because of the overwhelming dependence on indi-rect taxes. Direct taxes then contributed less than one-fifth of total tax revenue. That has now changed. The two types of taxes have approxi-mately equal weights in government revenues. Direct taxes have to keep growing in importance as labour and capital incomes rise.
A new DTC will thus be important in a distribu-tional sense as well. Higher direct tax collections can create space for a massive restructuring of the GST—with a maximum three slabs and a far lower standard rate. That will help economic growth, as well as make the tax system more progressive.
It’s time for a direct tax regime that’s growth-focused and fair
A more efficient direct tax system can create space for a lower and less complicated GST that could boost economy activity
There are three negative supply shocksthat could trigger a global recession by2020. All of them reflect political fac-
tors affecting international relations, twoinvolve China, and the US is at the centre ofeach. Moreover, none of them is amenable tothe traditional tools of countercyclical mac-roeconomic policy.
The first potential shock stems from theSino-American trade and currency war,which escalated earlier this month when USPresident Donald Trump’s administrationthreatened additional tariffs on Chineseexports, and formally labeled China a cur-rency manipulator. The second concernsthe slow-brewing cold war between the USand China over technology. In a rivalry thathas all the hallmarks of a “Thucydides Trap,”China and America are vying for dominanceover the industries of the future: ArtificialIntelligence (AI), robotics, 5G, and so forth.
The third major risk concerns oil supplies.Although oil prices have fallen in recentweeks, and a recession triggered by a trade,
THEIR VIEW
MY VIEW | CAFE ECONOMICS
NIRANJAN RAJADHYAKSHAis a member of the academic board of the
Meghnad Desai Academy of Economics
NOURIEL ROUBINI Brexit: leaving the European Union will sad-dle the UK with a permanent negative sup-ply shock, and thus permanently lowerpotential growth.
Such shocks cannot be reversed throughmonetary or fiscal policymaking. Althoughthey can be managed in the short term,attempts to accommodate them perma-nently would eventually lead to both infla-tion and inflation expectations rising wellabove central banks’ targets. In the 1970s,central banks accommodated two major oilshocks. The result was persistently risinginflation and its expectations, unsustainablefiscal deficits and public-debt accumulation.
Finally, there is an important differencebetween the 2008 global financial crisis andthe negative supply shocks that could hit theglobal economy today. Because the formerwas mostly a large negative aggregatedemand shock that depressed growth andinflation, it was appropriately met with mon-etary and fiscal stimulus. But this time, theworld would be confronting sustained nega-tive supply shocks that would require a verydifferent kind of policy response over themedium term. Trying to undo the damagethrough never-ending monetary and fiscalstimulus will not be a sensible option.
©2019/PROJECT SYNDICATE
is that private consumption has remainedstrong. Should the price of imported goodsrise further as a result of any of these nega-tive supply shocks, real (inflation-adjusted)disposable household income growth wouldtake a hit, as would consumer confidence,likely tipping the global economy into a
recession.Given the potential for a
negative aggregatedemand shock in the shortrun, central banks are rightto ease policy rates. But fis-cal policymakers shouldalso be preparing a similarshort-term response. Asharp decline in growthand aggregate demandwould call for countercycli-cal fiscal easing to preventthe recession from becom-ing too severe.
In the medium term,though, the optimal response would not beto accommodate the negative supply shocks,but rather to adjust to them without furthereasing. After all, the negative supply shocksfrom a trade and technology war would bemore or less permanent, as would the reduc-tion in potential growth. The same applies to
by tightening monetary policy. Today, how-ever, major central banks such as the USFederal Reserve are already pursuing mone-tary-policy easing, because inflation and itsexpectations remain low. Any inflationarypressure from an oil shock will be seen bycentral banks as merely a price-level effect,rather than as a persistentincrease in inflation.
Over time, negative sup-ply shocks tend also tobecome temporary nega-tive demand shocks thatreduce both growth andinflation, by depressingconsumption and capitalexpenditures. Indeed,under current conditions,US and global corporatecapital spending isseverely depressed, owingto uncertainties about thelikelihood, severity, andpersistence of the three potential shocks.
In fact, with firms in the US, Europe,China, and other parts of Asia having reinedin capital expenditures, the global tech,manufacturing, and industrial sector isalready in a recession. The only reason whythat hasn’t yet translated into a global slump
currency and tech war would depress energydemand and drive prices lower, America’sconfrontation with Iran could have theopposite effect. Should that conflict escalateinto a military conflict, global oil pricescould spike and bring on a recession, as hap-pened during previous West Asia conflagra-tions in 1973, 1979 and 1990.
All three of these potential shocks wouldhave a stagflationary effect, increasing theprice of imported consumer goods, interme-diate inputs, technological components, andenergy, while reducing output by disruptingglobal supply chains. Worse, the Sino-Amer-ican conflict is already fueling a broaderprocess of deglobalization, because coun-tries and firms can no longer count on thelong-term stability of these integrated valuechains. As trade in goods, services, capital,labour, information and technology getsincreasingly balkanized, global productioncosts will rise across all industries.
It is easy to imagine how today’s situationcould lead to a full-scale implosion of theopen global trading system. The question,then, is whether monetary and fiscal policy-makers are prepared for a sustained—oreven permanent—negative supply shock.
Following the stagflationary shocks of the1970s, monetary policymakers responded
The anatomy of the coming recession and our options
Trying to undo
the damage
through
monetary and
fiscal stimulus
will not be a
sensible option
ISTOCKPHOTO
is professor of economics at
the Stern School of Business,
New York University
G L O B A L V O I C E S
F or a proverbial world-on-fire moment, it’s hard to beat the flames consumingthe ecologically crucial Amazon rain forest, augmenting planet-cooking proc-
esses that hardly need the help. Meanwhile, in Biarritz, France, President Trumpsignalled the extent of US concern about the threat by missing a Group of Sevenmeeting on climate and biodiversity Monday, leaving an empty chair alongside theheads of the six other leading economies. The attempts to explain Trump’s absenceonly reinforced the impression that he is fiddling while Brazil burns. A spokes-woman suggested he was tied up in talks with German Chancellor Angela Merkeland Indian Prime Minister Narendra Modi, both of whom attended the discussionin question. Trump later told reporters he would join the meeting “in a little while”,appearing either unaware of or uninterested in the fact that it had already takenplace.
In another gesture reminiscent of his US counterpart, Bolsonaro responded toG7 host Emmanuel Macron’s misgivings about the fires by insulting the FrenchPresident’s wife. The Trump administration, for its part, complained that Macronwas fomenting discord by focusing the summit on such “niche issues” as globalwarming... It was not Macron but Trump who laid the foundation for this diplomaticdysfunction.
San Francisco Chronicle
Trump convenes a Group of One
U S President Donald Trump ordered US companies to “immediately start look-ing for an alternative to China” on Twitter on Friday. The tweet shocked the
US business community and caused strong dissatisfaction. On Sunday, Trump saidhe had “no plans right now” to use the International Emergency Economic PowersAct to force businesses to leave China. “Actually we’re getting along very well withChina right now. We’re talking,” The New York Times on Sunday quoted him assaying. The US government has been constantly raising contradictory voices onthe trade war and China-US relations. Thanks to reckless US moves, the trade warhas continuously escalated between the two sides. The US backed off its threat toorder companies out of China, yet the worsening trend in Beijing-Washington tieshas not changed.
China was not affected by Trump’s remarks because Beijing has already madefull psychological preparations for further deterioration of the trade war and hasbeen making various material preparations to cope with the situation. China hasa huge market. Domestic demand has long been the biggest driving force for thecountry’s economic development.
Global Times, China
China unfazed by swaying US policies
F ood production driven by science is about to enter an era of rapid innovation.Synthetic meat composed from stem cells in cattle, and made with remarkable
precision, is about to hit supermarket shelves. It will lead to dramatic changes inhuman diets, while being immensely challenging for the farming and agrifoodindustry—which in Ireland is at the heart of the economy. Separately, there is ademand that sustainability be at the core of the food industry to reduce its largecarbon footprint, especially in beef production. Yet it has to gear up to be able tofeed a world population of 10 billion. Advanced gene editing and synthetic biologyin food production are already happening in the laboratory.
The immense food safety challenges are obvious; regulatory authorities have tocontend with a new frontier. Risk assessment needs to innovate to determine theimpact of new technologies. All too often in the past risk analysis and regulationdid not keep up with food innovation. Instances of fraud and adulteration, anddelays in tackling new forms of food poisoning outbreaks often resulted... Crisprtechnology has generated a genetically-modified plant capable of capturing 30%more carbon in the soil... This new reality means Irish society has to have a conver-sation about the moral case for lifting what is arguably an unduly restrictive govern-ment policy on the use of GM organisms in food.
The Irish Times
Food of the future
I nternational efforts are entering a crucial stage for setting rules on whethermachines should be allowed to make decisions on their own to take human lives.
A panel of experts recently met in Geneva to discuss regulations of robotic weaponsand worked out a report of their three-year discussions. They presented a set ofguidelines saying, among other things, that international humanitarian law shouldbe applied to the conduct of robot weapons and that humans should be responsiblefor their use. Those conclusions were rightly reached. The panel, however, failedto agree there should be legally binding regulations, for example, in the form of aconvention... They should deepen their discussions even further toward the goalof setting effective and concrete regulation systems.
There is a deep rift of opinions between countries that are developing similarweapons, including the US and Russia, and countries calling for a ban treaty, includ-ing those in Latin America and Africa. Nations in both camps mostly agree thereshould be human involvement in the use of robot weapons, but when it comes tothe extent of that “involvement,” they remain widely apart in their understanding...We cannot just go along easily with an argument in favour of robotic weapons. Tostart with, we should realize a total ban on the use of fully autonomous weapons,which operate independently of humans.
The Asahi Shimbun, Japan
Talks needed to regulate robotic weapons
16 WEDNESDAY, 28 AUGUST 2019NEW DELHI POLICY
SHORT TAKESm
Shubhada Rao
India’s economic growth momentum has been slipping for the last three-to-four quarters. Not only did gross domestic product (GDP) growth fall to a 20-quarter low of 5.8% in the
fourth quarter of FY19, leading indicators point towards further weakening of growth momentum towards 5.5% in the first quarter of FY20. Given this subdued backdrop, the finance minister’s recent announcement of a comprehensive set of steps for economic revival, is a welcome step.
This timely policy intervention should start breaking the vicious circle of subdued sentiment leading to weak economic growth, and vice versa.
However, disparate signs of weakness seen in pockets in late2018, especially in the rural parts of the country, coupled with tightening of financial conditions for non-banking financial companies (NBFCs) and housing finance companies (HFCs), have become pervasive and, more worryingly, sectors such as automobiles, real estate and fast moving consumer goods (FMCG) are showing telltale signs of distress.
Trying to stimulate the economy without compromising onthe medium-term objective of fiscal consolidation and inflation targeting ought to be seen as a courageous and commendable move. The best way out under the current circumstance would be to opt for a coordinated and calibrated policy approach to ease flow of funds, while redefining priorities and composition.
To start off, the immediate impact on sentiment and domestic demand can be hadthrough monetary easing. While theReserve bank of India (RBI) hasdelivered a cumulative of 110 basispoints (bps) of rate cuts sinceFebruary 2019, persistence ofnegative gap in both output andinflation provides room for up to 40bps of additional monetary easing inthe near future.
This ought to be accompanied by enhanced transmission. While surplus liquidity has started to aid monetary transmission, the RBI could enhance the same by explicitly promising to keep liquidity in a surplus state at 0.5-1% of NDTL (net demand and time liabilities) as long as there is a negative inflation gap. Faster recalibration of loans to the repo rate/external benchmark by the banking system could further propel monetary policy transmission.
From the NBFC perspective, efforts to unlock growth capitalcan get broad-based further via: (i) rating-based eligibility of NBFC securities at a somewhat higher haircut to provide incremental liquidity coverage ratio comfort to banks to enhance their lending capacity; and (ii) broadening of commercial paper market by allowing all foreign portfolio investors to invest in the same.
On the tax front, the government could look at rolling out therecommendations of the Direct Tax Code committee (which recently submitted its report) to boost disposable income of households and corporates. In addition, the Goods and Services Tax (GST) Council could look at further simplifying the indirect tax architecture by moving to a three-tier slab of 6%, 12% and 18%, while expanding its ambit to cover all goods and services. India’s exports-to-GDP ratio fell to 12.4% in March 2019 from 17.2% in March 2014. Foreign trade policy needs to focus on products having high comparative advantage, such as gems, textiles, footwear, chemicals and metals. This needs to get accompanied by promoting ease of exporting via active use of digitization and streamlining of documentary process, while maintaining a fairly valued currency.
Thrust on consumption and exports is bound to create incentives for investment revival. In the meanwhile, structural reforms in factor markets of land and labour could get pushed to reinvigorate sentiment and uplift long-term growth.
Shubhada Rao is chief economist at Yes Bank
How to find the way out of the ongoing economic slowdown
Asit Ranjan Mishra
NEW DELHI
On Friday, the Unionfinance ministry called apress briefing at NewDelhi’s National MediaCentre on short notice,
where finance minister Nirmala Sithara-man presented the first instalment of thegovernment’s plan of action to revive theeconomy and build investor confidence,in a 32-slide PowerPoint presentation.
Beyond the measures announced inthe press conference and their effective-ness, it was an acknowledgment by thegovernment that the Indian economyhas entered its worst phase since the2008 global financial crisis and, hence,needs urgent attention.
While the quarterly gross domesticproduct (GDP) data suggests that theeconomy slowed to a five-year low of5.8% in the March quarter, indicating thestructural aspect of the slowdown, a slewof high-frequency indicators have beenpointing towards a sharp cyclical slow-down in demand, both in rural and urbanIndia, complicating policy choices . Pas-senger vehicle sales contracted for theninth consecutive month in July, whilerural wages show no signs of a recovery.
HOW WE REACHED HERERural growth had remained high duringthe 2004-12 period, propelling overalleconomic growth. The problem startedwith the reversal of rural growth in2013-14. Global food prices came down,while the Reserve Bank of India (RBI) stillmaintained a restrictive monetary policy.
After 2014, the Mahatma GandhiNational Rural Employment GuaranteeScheme (MGNREGS), which assures 100days of manual work a year to at least onemember of every village household,became resource-driven rather thandemand-driven.
Less focus on MGNREGS, especiallyduring the two drought years of 2014-15and 2015-16, worsened the rural demandsituation and dampened rural growth.While growth was slowing, two back-to-back structural changes, the withdrawalof high-value banknotes and the imple-mentation of goods and services tax, gavea body blow to the unorganized andorganized sectors, respectively.
While the Modi government inheritedmany of its current problems, including
the mounting non-performing assets(NPAs) of public sector banks, it has to befaulted for not diagnosing the problemsproperly and adding to the woes throughdemonetization and the flawed imple-mentation of GST.
In an interview with Mint earlier thismonth, Arvind Virmani, former chiefeconomic adviser in the finance minis-try, said one may think government doesgood things by catching black money
operators and driving them into jail, butit has effects on the economy. “I don’tbelieve a purely danda (stick) typeapproach can ever be sustained in Indiabecause corruption is endemic in the sys-tem,” he added.
THE WAY AHEADAfter Sitharaman announced the pack-age, Kerala finance minister ThomasIsaac tweeted: “Mini budget announce-
ments will not provide much neededstimulus to reverse the slowdown. Crisisis not because of decline in ease of doingbusiness or sops for automakers. Bankrecapitalisation had already beenannounced. What is required is a largefiscal spending package.”
While the clamour for a fiscal stimuluswith additional government expenditurehas been growing, with industry lobbyAssocham suggesting a ₹1 trillion fiscal
package, the Narendra Modi govern-ment has been fiscally conservative andreluctant to roll out a stimulus packagelike the Congress government did in2008 after the global financial crisis.
Pronab Sen, former chief statistician ofIndia, said there is space for fiscal stimu-lus. “The question is how you go about it.On the expenditure side, the govern-ment can get more bang for the buck outof a little bit of reallocation from projects,which are relatively long gestation, toprojects which can turned aroundquickly,” he added.
The RBI’s ₹1.76 trillion bounty afteraccepting the recommendations of theBimal Jalan panel comes as a shot in thearm for the government. However, ana-lysts believe given the precarious reve-nue situation with questionable budgetmath, any temptation to use this towardsa ‘fiscal stimulus’ risks regenerating wor-ries around the quality and effectivenesstowards meeting the deficit targets of3.3% of GDP. “From a budget standpoint,the extra ‘windfall’ owing to the Jalancommittee is ₹58,000 crore. Given theexpected revenue shortfall in a slowingeconomy and, especially vis-à-vis theaggressive assumptions in the budget, itwould be prudent to keep this amount inorder to meet the budget numbers morecredibly,” said Suyash Choudhary, headof fixed income, IDFC AMC.
What the govt can do to bring the economy back on the fast track
Govt has been fiscally conservative and reluctant to roll out a stimulus
2
4
6
8
10
12
14GDP
5.8
7.2
3.63.9
6
10.1
PFCE GFCF
GDP: Gross domestic product; PFCE: Private final consumption expenditure,GFCF: Gross fixed capital formation
Source: Ministry of statistics and programme implementation, commerce ministry,Society of Indian Automobile Manufacturers
(year-on-year in %)
-10
-5
0
5
10
15
20
25
0
1
2
3
4
5
6
7
8
9
Apr 2018
Jul 2018 Jul 2019
Jul 2018 Jul 2019
Jun 2019
Apr 2018 Jul 2019
4.5
5.17
290,960
200,790
2
2.25
-30.9
m MINT GRAPHITI
Growth worries
Decline in passengervehicle sales
IIP
Exports
Q1 FY18 Q4 FY19
190,000
210,000
230,000
250,000
270,000
290,000
310,000Number of vehicles sold
Rate of decline (year-on-year in %)
-2.6
0
5
-5
-10
-15
-20
-25
-30
-35
(year-on-year in %)
(year-on-year in %)
(in units)
While a 5.8% GDP growth in the March quarter indicates the structural aspect of the slowdown, a slew of high-frequency indicators have been pointing towards a sharp cyclical slowdown in demand, both in rural and urban India.
I am not saying we maintain a
Panglossian countenance and smile
away every difficulty. But, in any real
economy, the mood is very important.SHAKTIKANTA DAS
RBI GOVERNOR
Current global trade imbroglios are posing an unprecedented
degree of ‘known unknown risk’ to the existing economic order.
P O L I C Y 1 0 1
Thrust on consumption and exports is bound to create incentives for investment
Ranen Banerjee
The Indian economy was in the uptick and all was goinghunky-dory, even a year ago. From the InternationalMonetary Fund (IMF) to the Reserve Bank of India (RBI),
the growth projections for the economy were all above 7%. What has gone wrong suddenly that we are struggling to clock even 6% growth in FY20? Every day, the news headlines now are about job losses in sectors as diverse as automobiles, financial services and biscuits. The reasons are an accumulation of both supply and demand issues that have been aggravated by global factors and local shocks.
Technology is evolving every day and so is the business ecosystem. Automation, robotics, 3D printing and artificial intelligence are no more making headlines only in futuristic journals and magazines. Their adoption has gone up significantly, not only in the developed world but also in India. Our general education system that is accessible to the masses is not able to train our youth beyond routine and clerical work capabilities. The routine and clerical work, which led to the BPO boom and creation of a large number of jobs in the services sector, has come under the threat of extinction. We do not need a human to check whether the ledger entries are correct, do a medical transcription, provide voice support services, etc. Assembly lines can be handled by robots better than humans. We have been talking about these threats for several years now, but it has now come to really bite us. Thus, we need radical
thinking on this front andincremental changes will not work.Unfortunately, we do not have timeon our side, since the demographicdividend upside for us as a countrywill close in 15-20 years.
On the spending and savings habit,we all know that the householdsavings rate has come down fromover 23.5% in 2010-11 to just above
17% in 2017-18 and, possibly, further lower by now. Banks were struggling with non-performing assets and industry demand for credit was low. This led to pushing of personal loans that clocked around 15% annual growth rate over 2015-2019. Private consumption’s share in gross domestic product (GDP) grew to over 55%, driven by the rising middle class population and easy credit. These factors contributed to the lower household savings rate.
Impact was felt on growth rates that were already sliding in FY17 and FY18 due to disruptions caused by demonetisation and the introduction of goods and services tax (GST). In addition, we had the Insolvency and Bankruptcy Code (IBC) kicking in, which led to corporates looking at deleveraging balance sheets rather than looking to borrow for capital investments. The micro, small and medium enterprises (MSME) sector, especially in the unorganized sector, which provides employment to almost 40% of the workforce, also reeled under the GST shocks, contributing to the downward cycle. The trade wars, slowdown in Europe and impending recession fears in the US have further added to the gloom.
The finance minister has announced several measures to ease working capital and credit availability to MSMEs. The market sentiment busting super-rich capital gains tax has been withdrawn. Measures to boost credit demand for housing and automobile sectors have also been announced. While these measures will certainly help, we need the booster dose of investments by the government first as a spark plug for reigniting the economic engine. Private investment and demand pick-up is going to be an uphill task without a fiscal pill. A slight slippage on the fiscal front in the immediate term towards capital investments must be given serious consideration.
Ranen Banerjee is leader–public finance and economics at PwC India.
Confidence crisis in the economy needs a spark from the govt
The government has also announced measures to boost credit
demand for housing and automobile sectors.
We need the booster dose of investments for reigniting the economic engine
MINT BLOOMBERG
PARAS JAIN/MINT
Delhi’s Feroz Shah Kotla to be renamed as Arun Jaitley Stadium
New Delhi: The Delhi and Dis-trict Cricket Association (DDCA)on Tuesday decided to renameFeroz Shah Kotla Stadium asArun Jaitley Stadium in memoryof the former Union ministerwho passed away on 24 August.
The renaming ceremony willbe held on 12 September in the
presence of home minister Amit Shah and sports minister KirenRijiju. Jaitley, during his tenure at DDCA, is credited with renovat-ing the stadium into a modern facility. PTI
Govt looks to develop electronic component manufacturing base
New Delhi: The government is now working on policies todevelop an electronic components manufacturing base in the
PRADEEP GAUR/MINT
country and encourage exports, secretary in the ministry of elec-tronics and IT Ajay Prakash Sawhney said on Tuesday. With a spurtin electronics manufacturing, the government is increasingly try-ing to bring supply chain in the country, he added.
“From near assembly, we are right now moving in that directionseriously with policies to bringing sub-assemblies..., componentmanufacturing in India,” Sawhney said at the Digital GovernanceTech Summit. PTI
Centre to take up plan to relax FDI norms in single brand retail today
New Delhi: The Union cabinet on Wednesday will consider eas-ing foreign direct investment (FDI) norms in several sectors,including single-brand retail and digital media, said people famil-iar with the matter. Rules would also be eased is coal mining. The
Centre may also approve 100%FDI in contract manufacturing.
Finance minister NirmalaSitharaman in her budgetspeech in July had said that thegovernment would examinesuggestions for further openingup of FDI in aviation, media andinsurance sectors. PTI
PTI
Pakistan plans to ban its airspace for all India flights
Islamabad: Pakistan is once again mulling a complete banon the use of the country’s airspace by Indian flights, a seniorminister said on Tuesday, weeks after the Indian governmentrevoked Jammu and Kashmir’s special status.
Minister of science and technology Fawad Chaudhry saidthe decisions to close the airspace with India and to ban theuse of Pakistan’s land routes for India’s trade with Afghani-stan were taken at a cabinet meeting chaired by Prime Minis-ter Imran Khan. PTI
AFP
India to restore 5 mn hectares of degraded land by 2030: Javadekar
New Delhi: India will restore 5million hectares of its degradedland by 2030, said Union envi-ronment minister Prakash Java-dekar, ahead of a forthcomingglobal conference on land deser-tification. He also said that 29%of the country’s total geographi-cal area is degraded.
India will be hosting the Conference of Parties 14 of the UnitedNations Convention to Combat Desertification from 2-13 Septem-ber, in which 200 countries have confirmed participation. PTI
China says it hopes US can create conditions for trade talks
Beijing: China’s foreign ministry reiterated on Tuesday that it hadnot heard of any recent phone call between the US and China ontrade, ministry spokesman Geng Shuang said at a news briefing.
He also said that they hope Washington can stop its wrongactions and create conditions for talks. REUTERS
RAMESH PATHANIA/MINT
POLITICS WEDNESDAY, 28 AUGUST 2019NEW DELHI 17
Sharan Poovana
BENGALURU
The allocation of portfo-lios to 17 members in theB.S. Yediyurappa cabi-net in Karnataka hasopened up a can of
worms for the Bharatiya JanataParty (BJP) government in thestate.
Supporters of various leaders inthe state protested against the for-mation of the ministry on Tuesday.People loyal to K.S. Eshwarappaand B. Sreeramulu took to thestreets to protest the ‘injustice’meted out to their leaders and com-munity. Leaders such as R. Ashokand C.T. Ravi subtly expressedtheir displeasure over portfolioallocations, an exercise in whichthe national leadership, particu-larly BJP chief and Union homeminister Amit Shah, is seen to havetaken decisions unilaterally.
V. Srinivas Prasad, the BJPmember of Parliament from Cha-marajanagar, questioned the deci-sion to have three deputies forYediyurappa but stopped short ofcriticizing the leadership. Mostleaders are wary of attracting thewrath of the party’s national lead-ership by expressing dissent pub-licly. This is very different from adecade ago when legislators heldthe party and government to ran-som to get what they wanted.
There is a lot of discontentabout the decision to name C.N.Ashwathnarayan and Laxman Sav-adi as two of the three deputy chiefministers. Ashwathnarayan is afirst-time minister. Savadi lost
PM Modi meets Sindhu, calls her ‘India’s pride’
bit.ly/2MFNwh
M
Portfolio allocation brings rift in Karnataka government to fore
Supporters of some legislators take to streets to protest against ‘injustice’ meted out to leaders, communities
on the feasibility of variousdevelopment projects thatPrime Minister NarendraModi’s administration is set tolay out in the region, as part ofits reintegration initiative.
At the same time, the Centrehas been taking a closer look atthe political detentions acrossJ&K in the last three weeks. Anofficial familiar with the mattersaid the Centre is “deciding on
what to do with the detainees”before 31 October.
“Over the last one week,there is significant improve-ment in attendance of teachingstaff (in primary and middleschools), we are making ourbest efforts to improve attend-ance of students and it is gradu-ally improving,” the J&Kadministration said on Tues-day. It also confirmed that high
Delhi govt announces waiver of water dues
Delhi chief minister
Arvind Kejriwal.. PTI
Pretika Khanna
NEW DELHI
In a bid to clean records ofconsumers and make thempay their pending bills,
Delhi chief minister ArvindKejriwal on Tuesdayannounced a one-time waiverof water arrears. Through thescheme, Kejriwal said all cate-gories of houses will receive anexemption from late fee pay-ments, while their pendingbills will also be waived eitherpartly or fully based on thehousing category.
The announcement, whichcomes ahead of the assemblyelections in the national capi-tal early next year, is valid forarrears untilMarch 2019, andis likely to give aboost of ₹600crore to the stateg o v e r n m e n tthrough recoveryof a portion of thewater arrears.
Kejriwal saidthere are about1.35 million water consumersin Delhi who have run uparrears.
Addressing a press confer-ence, Kejriwal who is also thechairman of the Delhi JalBoard, said the governmenthas updated its payment sys-tems and water metres, whichwill ensure that all arrears are
cleared and those taking thereadings will also be locationtagged.
“Today, we are announcinga scheme to waive arrears to
clean up Delhi JalBoard’s books.Some of thesearrears are due toconsumers, butsome are also dueto incorrect bill-ing,” said Kejri-wal, who is alsoA a m A a d m iParty’s national
convener. Consumers willhave to install functional watermeters by November to be eli-gible for the scheme.
House tax categories of E, F,G and H will get waiver forentire amount, while catego-ries A and B will get 25%waiver, C will get 50% and D toget a 75% waiver.
The decision is valid for arrears until March 2019
and is likely to give a boost of
₹600 crore to the state government
PTI
NEW DELHI
The Supreme Court onTuesday allowed The
Wire, a news portal, andits scribes, to withdraw theirappeal challenging a Gujarathigh court order in the defa-mation case filed by Unionhome minister Amit Shah’sson Jay Shah for publishing anews report on his businessactivities.
The apex court also saidthat the trial against the newsportal will be expeditiouslycompleted by the competentcourt.
Though the bench headedby Justice Arun Mishraallowed the withdrawal ofappeals pending in the apexcourt for around one-and-a-half years, it expressedanguish over the way journal-ism was being practised in thecountry.
Responding to seniorcounsel Kapil Sibal, appearingfor The Wire, the bench alsocomprising justices M.R.Shah and B.R. Gavai said it hasbecome a fashion to serve anotice and then even before itcan be answered, articles arepublished within five to sixhours.
The Wire issued a pressstatement: “Circumstanceshave arisen as per which webelieve it is best if we makeuse of the opportunity to jus-tify everything we have statedin our article at the trial. Weare therefore withdrawing.We believe the fight for mediafreedom will have to beadvanced at all levels. Ourarticle was factual, based notonly on records, but on factsadmitted by Jay Amit Shah.Though it is still very muchour belief that neither a crimi-nal case nor an injunction islegally justifiable, we intendto face trial in Gujarat, securein the knowledge that consti-tutionally mandated rights ofthe media will eventually pre-vail.”
SC lets portal withdraw plea in case filed by Amit Shah’s son
from Athani assembly constitu-ency in 2018, a seat that is nowvacant as Mahesh Kumatahalli,formerly with the Congress, hasbeen disqualified along with 16others for colluding with the BJPand bringing down the coalitiongovernment of the Congress andthe Janata Dal (Secular) or JD(S),led by H.D. Kumaraswamy. Thetwo leaders had played an impor-tant role in shielding the rebelswho toppled the Congress-JD(S)government and people see theirelevation as the BJP’s grooming ofthe second rung of leaders toreduce its dependence on the76-year-old Lingayat strongman,Yediyurappa.
Savadi was forced to resign asminister in 2012 after he, C.C.Patil, who has been named minesand geology minister, and KrishnaPalemar were caught watchingporn inside the Karnataka legisla-tive assembly.
Savadi’s elevation, in particular,has turned into one of the biggestsore points for influential familiesin Belagavi district in north Karna-taka. He was pushed to end thedominance of Umesh Katti and theJarkiholis in the region,according to a seniornational BJP leader.
“We have no say at all.Everything is beingdecided by them (thecentral leadership),” saidone BJP legislator, askingnot to be named. Thisindicates how Shah and PrimeMinister Narendra Modi areincreasingly tightening their gripto centralise powers in the party.
Shah’s decision to do away with
traditional considerations such asseniority, influence, and casteequations in the allocation ofberths shows the confidence with
which the BJP at the Centre isoperating, according to analysts.
Yediyurappa, who wielded con-siderably more influence about adecade ago, now finds himself at
the mercy of a leadership that isunwilling to entertain threats, oreven suggestions, from the localleadership.
The BJP central leadership’s actof thrusting its decision on Yedi-yurappa is also an indication ofmistrust of a leader who has dam-aged the party’s prospects in the
past at the hint of being sidelined,according to political analysts andparty leaders.
Senior Congress leader Siddara-maiah said that Yediyur-appa was “unwanted” bythe BJP and that the dis-sent within the party willimplode and send theflood ravaged state backto the polls.
The BJP only named 17cabinet members in its
first list to accommodate the dis-qualified legislators who haveapproached the Supreme Court tooverturn the disqualification andallow them to contest the bypolls.
CENTRAL ROLE IN SOUTHERN PLOT
THERE is a lot of discontent about naming Savadi and Ashwathnarayan as two deputy CMs
SAVADI’S elevation has turned into one of the biggest sore points for influential families in Belagavi
ACCORDING to a BJPleader, it is the party’s central leadership which is calling the shots in the state
SENIOR Congress leader Siddaramaiah said Yediyurappa was ‘unwanted’by the BJP
The BJP central leadership’s act of thrusting its decision on Yediyurappa is also an indication of mistrust of a
leader who has damaged the party’s prospects in the past at the hint of being sidelined. ARIJIT SEN/HINDUSTAN TIMES)
Shaswati Das
NEW DELHI
As Kashmir entered thethird week of a clamp-down, the Union home
ministry on Tuesday took stockof how the region would pro-ceed politically and administra-tively, with the Jammu andKashmir Reorganization Actset to take effect on 31 October.
While the region has beengrappling with a curfew, a com-munication shutdown and aheavy security blanket sinceArticle 370 was read down, theCentre has now started prepar-ing for administrative changeswhen the Reorganization Acttakes effect in the two Unionterritories of Jammu and Kash-mir, and Ladakh.
The Union territory ofJammu and Kashmir will havea lieutenant governor and a107-member assembly, whichwill be enhanced to 114 after a
delimitation exercise. Twenty-four seats of the assembly willcontinue to remain vacant asthe seats fall under Pakistan-occupied Kashmir (PoK).
The meeting, chaired byhome secretary A.K. Bhalla,was also attended by additionalsecretary (Jammu and Kashmirdivision) Gyanesh Kumar.
“A meeting was held withvarious departments to assessthe implementation of centralschemes in Jammu and Kash-mir, and the steps to be taken toensure normalcy is restored,”said a senior home ministryofficial, seeking anonymity.
Meanwhile, minister ofminority affairs Mukhtar AbbasNaqvi said a team from hisdepartment is on a two-day visitto Srinagar to assess the groundreality for the Centre to startdevelopment of the region.
He said another team willsoon visit Jammu, Leh and Kar-gil to assess the situation andundertake a preliminary study
schools will reopen onWednesday in some parts ofthe valley where curfew hasbeen eased. Nearly 4,000 peo-ple have been detained acrossJ&K, including former statechief ministers Omar Abdullahand Mehbooba Mufti. Around150 detainees have beenbooked under the Public SafetyAct, while the rest under otherstate laws.
“Many of these detainees,including members of the Hur-riyat Conference, have beenkept out of the state. It is yet tobe decided on how they will behandled,” said the official citedabove. Local media reportsfrom the valley said that even asthe curfew remains stringentlyimposed and communication isblocked, the ongoing situationhas led to a shortage of medici-nes and other essential sup-plies. However, this has beenvehemently denied, with thehome ministry terming them as“baseless”.
Home ministry takes stock of bifurcation plans in J&K
Centre has started preparing for administrative changes when
the J&K Reorganization Act takes effect from 31 October. PTI
ity. Before resigning, Kumar, in
a scathing letter to the topleadership, had alleged that anumber of senior leaders,including Oraon and formerUnion minister Subodh KantSahay, were only seeking “tograb political posts for per-
sonal benefits and have madeevery attempt to bypass thesystems that have been put inplace to benefit the party”.
“It is one versus anotherand, given the situation in thestate unit, including the recentfights at the party office, therivalries between the old
guard and young leaders couldintensify,” a senior partyleader said.
The two factions within theJharkhand Congress hadcome to blows earlier thismonth over its poor perform-ance in the LokSabha elections.The police had tointervene to bringthe situation undercontrol.
Similar differen-ces were witnessedin the Congress’sHaryana unit withparty veteran Bhu-pinder SinghHooda revoltingagainst the partyleadership. Thestate unit has split into two fac-tions, one comprising Hooda’ssupporters, who are demand-ing a change in the state lead-ership, and the other support-ing state Congress chief AshokTanwar. In fact, a change ofguard in the state organization
seems inevitable.Three-time Delhi chief min-
ister and Congress state unitpresident Sheila Dikshit’sdeath in July could also exposethe fault lines in the party’sDelhi unit in the run up to the
assembly pollsscheduled for earlynext year. Gandhiwill have to walk atight rope whenshe announces thename of Dikshit’ssuccessor. Thereare three workingpresidents in theDelhi unit of theCongress. Theparty is looking toappoint a full-timechief soon and a
meeting was held on Tuesdayto deliberate on the issue.
The challenges will onlybecome more pronounced ifGandhi fails to unite the fac-tions before the polls as theCongress is not in power in anyof these states.
INTERNAL FISSURES
RIVALRIES between old guard and the new may intensify in Jharkhand and Haryana, say leaders
SONIA Gandhi will have to walk a tight rope when she announces party’s Delhi unit chief
Anuja
NEW DELHI
Weeks after takingover as the Con-gress president,
Sonia Gandhi’s key challengewill be to deal with factional-ism in poll-bound Jharkhandand Haryana, while addressingthe leadership vacuum inDelhi. Though Gandhi haswasted no time in devisingelection strategies for thethree states, new appoint-ments and election-relatedcommittees may not beenough to contain the risingrebellion in its ranks.
For instance, while Ram-eshwar Oraon was named theJharkhand Congress chief onMonday evening to fill theposition after Ajoy Kumar’sresignation earlier this month,the differences could onlydeepen the crisis ahead of theelections, said a section of stateleaders, requesting anonym-
Congress faces leadership challenge in poll-bound states
Congress president Sonia Gandhi’s key challenge will be to deal
with factionalism in Jharkhand and Haryana, while addressing the
leadership vacuum in Delhi. PTI
RIFT WIDENS IN KARNATAKA RIFT WIDENS IN KARNATAKA GOVT OVER NEW CABINETGOVT OVER NEW CABINET uuP17P17
DELHI GOVT ANNOUNCES DELHI GOVT ANNOUNCES WAIVER OF WATER DUESWAIVER OF WATER DUES uuP17P17
Elizabeth Roche
NEW DELHI
The present-day IndianArmy is not the same as itwas in 1962 and ended up
losing a war to China, armyvice-chief designate M.M. Nar-avane said on Tuesday, addingthat if the Chinese Army trans-gressed the Line of Actual Con-trol (LAC) 100 times, Indiantroops have done so on twice asmany occasions.
According to a PTI report,Naravane, the General OfficerCommanding-in-Chief, East-ern Command, said: “TheDoklam standoff gave a clearsignal that the Indian ArmedForces are no pushovers.”
When former chief of airforce, Arup Raha, asked about
Antitrust watchdog CCI to assess media, broadcasting sector
bit.ly/2MEdcLS
Anuja
NEW DELHI
A day after the ReserveBank of India (RBI)said it will transfer₹1.76 trillion to theCentre, the political
slugfest over the slowing Indianeconomy gained momentum onTuesday with the Congress accus-ing the Bharatiya Janata Party(BJP)-led government of being“clueless” about the crisis and“stealing money” from the centralbank.
The BJP was quick to hit backsaying that the attempts to build anarrative around “stealing” wasrejected by the people in the 2019Lok Sabha elections.
Former Congress presidentRahul Gandhi took to Twitter toaccuse Prime Minister NarendraModi and Union finance ministerNirmala Sitharaman of being“clueless about how to solve theirself created economic disaster”.
“Stealing from RBI won’twork—it’s like stealing a Band-Aidfrom the dispensary & sticking iton a gunshot wound. #RBILo-oted,” Gandhi said on the micro-blogging site.
After a board meeting in Mum-bai on Monday, the central bankhad said the transfer to the gov-ernment will include ₹1.23 trillionof surplus for 2018-19, and ₹52,637
given by RBI will be catastrophic.“The government has done it
out of sheer desperation. Its follieshave brought the Indian economyto ruin,” Sharma said at a pressbriefing.
Sharma also demanded that theCentre brings out a white paper onthe state of the Indian economywithin a week.
The allegation levelled by theCongress were echoed by theCommunist Party of India (Marx-ist), or CPM, with party generalsecretary Sitaram Yechury accus-ing the Union government of“mercilessly” attacking the liveli-hood of the masses and the econ-omy.
“Since 2014, the Modi govern-ment has appropriated 99% of theRBI’s profits every year to fund itspropaganda campaigns. It has nowsiphoned off ₹1.76 lakh croresostensibly to recapitalise bankswhich have been looted by Modi’scronies,” the CPM leader postedon Twitter.
Another Opposition leader,Asaduddin Owaisi of the All IndiaMajlis-e-Ittehadul Muslimeen(AIMIM), said the central govern-ment was the first one to take 99%of RBI’s profit. Owaisi claimed onTuesday that the Modi-led gov-ernment at the Centre was seekingto divert people’s attentiontowards emotional issues ratherthan more pressing problems suchas lack of jobs.
POLITICAL SLUGFEST
PM & FM are clueless about how to solve their self created economic disaster. Stealing from RBI won’t work—it’s like stealing a band-aid from the dispensary and sticking it on a gunshot wound.
RAHUL
GANDHI,
CONGRESS
LEADER
Whenever Rahul Gandhi accuses about things like stealing, I am reminded of the time when he tried to create a narrative about theft and the people of the country rejected his party.
NIRMALA
SITHARAMAN,
UNION FINANCE
MINISTER
Since 2014, Modi govt has appropriated 99% of RBI’s profits every year to fund its propa-ganda campaigns. It has now siphoned off ₹1.76 trillion ostensi-bly to recapitalize banks which have been looted by Modi’s cronies.
SITARAM
YECHURY,
CPM GENERAL
SECRETARY
SC extends ex-FM’s protection against ED arrest till today
nology in India, and is amongseveral famous scientists whoshare their names with themoon’s impact craters.
The Working Group forPlanetary System Nomencla-ture of the International Astro-
nomical Union (IAU)—theglobal authority for namingplanetary features in the solarsystem— had named the craterafter Professor Mitra in 1970,seven years after his death.
The announcement also
Doklam proved Armed Forces are no pushovers: Army vice-chief designate
Govt clueless about economic crisis, stealing from RBI: Cong
BJP hits back, says attempts to build a narrative around ‘stealing’ was rejected by people in 2019 LS polls
Smriti Z. Irani@smritiiraniThank you Team @pmbjpbppi @man-sukhmandviya for mak-ing menstrual hygiene products affordable for scores of Indian women.It’s one of your greatest contribution towards women’s health.
TWITTERVERSE
Sanjay Jha@JhaSanjayThe budget had a gap-ing hole of ₹1.7 Lakh cr , different from the Eco-nomic Survey. Very mysterious. It has been squared up. Modus operandi: #RBILoot
Siddaramaiah@siddaramaiahMr @BSYBJP, you took 3 days to take the oath, 26 days to have the council of ministers, 6 days to distribute port-folios. How many more days you need to start the governance?
Japnam K. Bindra
NEW DELHI
The Supreme Court onTuesday extended till 28August the interim pro-
tection against arrest by theEnforcement Directorate (ED)granted to Congress leaderand former finance minister P.Chidambaram on 23 August inthe INX Media money laun-dering case.
An apex court bench headedby Justice R. Banumathi andcomprising Justice A.S.Bopanna began hearing thearguments made by Chidam-baram through senior coun-sels Kapil Sibal and AbhishekManu Singhvi at noon.
Chidambaram’s lawyersfiled two applications beforethe Supreme Court on Tues-day. One application soughtdirections from the apex courtto seek transcripts of the ques-tioning done by the ED on 19December and 1and 21 January forthis case. The sec-ond applicationchallenges the 25August order ofthe CBI court forthe extension ofremand.
Singhvi con-tended before thedivision bench that the ques-tions put forth to Chidam-baram were repetitive. He alsoargued that just because Chi-dambaram was not telling theED what it wanted to hear doesnot make him evasive. Chi-dambaram had been presentand answered questionswhenever he was summonedfor questioning during theinvestigation by the ED.
Singhvi pressed for thequestions and answers to betold to the court to determinewhether Chidambaram wasactually evasive or is beingsimply accused of evasiveness.
“I have answered all thequestions put to me. But theonly question they are askingis, ‘Do you have an overseasbank account?’ and so forth,”Singhvi said on behalf of Chi-
dambaram. It isfor this reason theapplication fortranscript of theinterrogation hasbeen filed and is anecessity in thiscase to prove thatC h i d a m b a r a mwas not evasive.
Cit ing thethree tests for denying bail - 1)Non cooperation 2) Tamper-ing of evidence 3) Risk of flee-ing, Singhvi argued that noneof them were present in thiscase hence bail should not bedenied.
Singhvi also argued that thePrevention of Money Laun-dering Act was amended in2009 whereas the allegationsin the case are of 2007-2008.
One of the pleas by Chidambaram sought directions from the Supreme
Court for the transcripts of the
quizzing by ED
crore of excess provisions identi-fied under the revised economiccapital framework adopted at themeeting.
S i t h a r a m a nresponded toGandhi’s allega-tions by sayingthat the earliern a r r a t i v e o f“ t h e f t ” w a srejected by thepeople, in reference to the hugemandate the BJP-led NationalDemocratic Alliance got in the LokSabha elections.
“What does this show? Heshould at least make such allega-tions after speaking to the former
finance ministers of his own party.He is now an expert in calling peo-ple thief, so what can one say onthis?” Sitharaman said at a press
conference in Pune. The Congress, which has been
trying to highlight the economiccrisis and joblosses as its keypolitical narrativein the run-up tothe assembly elec-tions in Maha-rashtra, Haryana,and Jharkhand,scheduled for
later this year, upped the ante withformer Union minister AnandSharma saying that the govern-ment’s decision to take the surplus
OPPOSITION CORNERS GOVT
CONGRESS has been highlighting the economic crisis and job losses as its key political narrative
IT demanded the Centre bring out a white paper on the state of the Indian economy in a week
OTHER parties such as CPM and AIMIM also criticized the Centre’s move to take the surplus from RBI
P. Chidambaram’s lawyers
filed two applications before
the top court on Tuesday. PTI
Srishti Choudhary
NEW DELHI
India’s planned manned mis-sion may still be three yearsaway, but the name of an
Indian physicist has long beeninscribed on the moon’s sur-face—the 92-km wide impactcrater named Mitra!
And, Chandrayaan-2, abouttwo weeks away from attempt-ing the soft landing of itslander and rover on the southpole, has now captured ‘Mitra’as it sailed past the moon’snorth polar region dotted withimpact craters.
Mitra is named after Bengaliphysicist Professor SisirKumar Mitra, who had pio-neered the use of radio tech-
came at a time when India’sspace programme was justbeginning to take shape withthe establishment of theIndian Space Research Orga-nisation in 1969. Set up nearly100 years ago, IAU is theworld’s largest body repre-senting astronomers frommore than 100 countries.
The second set of imagestaken on 23 August by thespacecraft’s Terrain MappingCamera-2, also include theimages of impact craters(John) ‘Jackson’, a Scottishastronomer; (Ernst) ‘Mach’, anAustrian physicist and philos-opher; and (Sergei) ‘Korolev’,the father of the space pro-gramme of the erstwhileUSSR.
Dr Vikram Sarabhai, father
of India’s space programme,American astronomer DanielKirkwood and German physi-cist Arnold Sommerfeld alsofigure in the naming of lunarfeatures for theircontribution toscience.
Mitra was adoyen of science,who led researchin ionosphere—the upper regionof the atmos-phere and radio-physics. He wasthe first to introduce radiocommunication in India, andbegan transmitting radio pro-grammes from his laboratoryat the University College ofScience, Calcutta, in 1926.
“It was for the first time, that
an amateur radio station wasbroadcasting regular pro-grammes in India, until theIndian Broadcasting Companywas formed in 1927, which was
later designateda s A l l I n d i aRadio”, said apaper publishedin peer-reviewedjournal CurrentScience.
H i s b o o k ,Upper Atmospherepublished in 1947is still considered
a Bible for research workers inthe field of ionosphere. In the1950s, he advocated spaceresearch in India and high alti-tude rocket research pro-grammes. He was awardedPadma Bhushan in 1962.
Chandrayaan-2 captures crater ‘Mitra’ named after Bengali physicist
Prof Sisir Kumar Mitra had
pioneered the study of
ionosphere and the use of radio
technology
An image of the lunar surface captured by Chandrayaan-2.
The Union home ministry took stock of how J&K would proceed politically and administratively.
See Page 17
Govt takes stock of J&K bifurcation
Interim Congress president Sonia Gandhi faces leadership issues in poll-bound states.
See Page 17
Leadership crisis in Congress
Pakistan is once again planning a complete ban on use of the country’s airspace by Indian flights.
See Page 16
Pakistan considers closure of airspace
DON’T MISS
Govt has said that the Indian economy is in its worst phase since 2008, and hence, needs urgent attention. See Page 16
Bringing economy back on track
Prime Minister Narendra Modi offers tributes to Arun Jaitley at the former finance minister’s
residence in New Delhi on Tuesday. Later, in a tweet, the PM said ‘destiny took Arun Ji away from us
too soon but the good work he has done for India will remain immortal’. TWITTER@NARENDRAMODI
PM MODI PAYS TRIBUTE TO JAITLEY
the lessons from the 1962 con-flict and measures taken to rec-tify the problems, Naravanesaid: “We are no longer thearmy of 1962. If China saysdon’t forget his-tory, we also haveto tell them thesame thing.”
He said Chinaw a s c a u g h tunprepared dur-ing the 2017Doklam standoff.The reference wasto a 73-day-longmilitary face off, seen as themost serious in decades, onBhutan’s Doklam plateau.“They thought that they wouldget away by being a regionalbully...but we stood up to thebully,” Naravane said at aninteraction on ‘Defending our
Borders’ at the Bharat Cham-ber of Commerce in Kolkata.The Indian Armed Forces arecapable of taking on any adver-sary, he added.
Naravane alsosaid that reportssuggesting thatChina has some ofits troops at ornear the scene oft h e D o k l a mstandoff was “nottotally incorrect”.“There have beendevelopments on
either side...which have beenthroughout the year, year onyear. They have made two newbarracks, we have also madetwo new barracks. They havemaintained their roads, wehave also maintained ourroads.”
We are no longer the Army of 1962. If
China says don’t forget history, we also have to tell
them same thing, said MM Naravane
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