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Finance ministry officials to brief parliamentary panel on Ponzi scheme bill

Senior finance ministry officials will brief a parliamentary committee later this week on a Bill to ban ponzi schemes. The Banning of Unregulated Deposit Schemes Bill, 2018, which proposes to ban unregulated deposits and has a 10-year jail term provision, was introduced in the Lok Sabha in July during Parliament’s Monsoon Session. The Bill was later referred to the Parliament’s Standing Committee on Finance on the ground that it requires thorough deliberations.

Officials of department of Financial Services will brief the panel on the Banning of Unregulated Deposit Schemes Bill, 2018, according to a Lok Sabha bulletin. The Bill seeks to put in place a mechanism by which the depositors can be repaid without delay by attaching the assets of the defaulting establishments, as per its statement of objects and reasons.

Non-banking entities are allowed to raise deposits from the public under various laws enacted by the central as well as state governments. It prescribes monetary penalty and jail term, which could be extended up to 10 years, for duping gullible depositors.

The monetary penalty could be as high as Rs 50 crore. The government has proposed these stringent provisions in wake of several ponzi schemes where gullible investors, mostly poor people, were defrauded of amounts running into thousands of crores of rupees.

Generally, ponzi schemes are illegal money pooling activities wherein investors are lured with promises of high returns on investments in a short period. The Bill also proposes setting up of competent authorities by state governments to ensure repayment of deposits in the event of default by a deposit taking establishment.

Companies or institutions running unregulated schemes exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings. The Bill is aimed at tackling the menace of illicit deposit taking activities in the country.

Preventive vigilance better governance tool for public institutions, says RBI Governor Urjit Patel

RBI Governor Urjit Patel said Thursday that preventive vigilance can be used as an effective tool of governance in public sector institutions, arguing that punitive vigilance may not yield the desired result. Patel was speaking at a conference at the Central Vigilance Commission (CVC) here on ‘Preventive Vigilance – The Key Tool of Good Governance at Public Sector Institutions’.

Patel said ‘preventive vigilance is aimed at reducing the occurrence of a lapse (violation of a law, a norm, or, broadly speaking, a governance requirement), while punitive vigilance seeks to deterring the occurrence of a lapse. He said that punitive vigilance is difficult in a public sector institution for several reasons, adding the rewards are low to start with, thereby limiting the possibility of downward revisions.

Given this constraint, Patel said disciplinary actions that limit the chances of career progression are often the preferred punishment. “However, this has the misfortune of demotivating employees beyond the point of their career when punitive vigilance action is undertaken. This could, in principle, be dealt with a ‘golden handshake’; however, the insurance that public sector jobs offer is often a key attractive feature of these jobs given the lack of significant upside financial rewards,” he said. Also, detective vigilance too is rendered somewhat ineffective, he said.

Put simply, detection does not lead to punitive outcomes so that investment in detective vigilance does not guarantee the desired reduction in incidence of lapses, even though it might help in some cases arrest the slide and contain with remedial measures, Patel argued. As a result preventive vigilance takes centre-stage and becomes a key effective tool of governance in a public sector institution, the RBI chief said, while elaborating on various aspects of vigilance. “In other words, while not taking away from the need to engage in some detective and punitive vigilance, preventive vigilance is conceptually likely to be the most effective governance mechanism at public sector institutions,” Patel stressed.

Referring to vigilance mechanism at the Reserve Bank, he said the overall responsibility for vigilance work at the central bank vests with the Central Vigilance Cell, which exercises its jurisdiction over all employees of the Bank and coordinates the activities of the 49-branch vigilance units. The Cell maintains liaison with the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI). “The focus of the Cell is to have a comprehensive preventive vigilance setup supported by an audit framework so that vigilance issues are minimised and to sensitise our employees to various aspects of vigilance administration,” Patel said.

Giving a fact sheet about the RBI, he said over the last four years, the percentage of vigilance cases against RBI employees’ vis-à-vis the total staff strength of the Bank stood on average at 0.004 per cent. Further, in terms of complaint cases received against RBI/RBI employees over this same period, the percentage that required punitive vigilance action stood on average at 0.081 per cent.

Rural demand to pick up on MSP hikes, farm loan waivers: report

Rural demand is expected to pick up in the coming months driven by MSP hike, farm loan waivers and rise in rural spend in the run up to 2019 general elections, says a report. According to a Bank of America Merrill Lynch (BofAML) research report, rural demand is on an uptrend and investors should invest in consumption driven stocks while making their equity investments. “We expect rural demand to pick up through end-2019 on the back of pricing power on a not-so-good harvest, MSP hikes and farm loan waivers,” BofAML said.

Owing to patchy monsoon, the growth in production is expected to be lower than that of cropping. However, hike in minimum support prices (MSPs) is expected to drive up farm prices. Income from horticulture is also expected to go up this fiscal. As per the report, April-August fruits and vegetable price inflation is up 5.6 per cent, in contrast to the drop of 2.1 per cent last year.?

BofAML estimates that farmer income will climb 14.6 per cent during the autumn Kharif harvest from 11.6 per cent in the summer Rabi harvest. It further added that rural strain has led to the emergence of farmer movements in several states like Haryana, Gujarat and Maharashtra and this further means that government will increase its rural spend in the coming months.

“We expect all political parties to raise rural spend as we approach general elections. In general, political uncertainty supports rural demand as the bulk of the electorate lives in rural India,” it said. As per the report, rising farm loan waivers will also push up rural income as general elections approach. “We expect farm loan waivers to rise to USD 40 billion by then from USD 25 billion so far this financial year,” it noted. The report however cautioned that “farm loan waivers support rural consumption, although they may eventually hurt rural credit culture”.


Stable outlook across infrastructure sector for h2 fy19, says India ratings and research

India Ratings and Research (Ind-Ra) Thursday said it has maintained a stable outlook across the infrastructure sector with the exception of coal-based thermal power, which continues with its negative outlook for the remaining part of FY19. “The agency has maintained a stable outlook on the overall transport infrastructure sector including toll roads, annuity roads, hybrid annuity model (HAM) projects and airports. An increase in traffic volumes and inflation-led toll, driven by steady economic growth, could elevate revenue growth by about 9 per cent y-o-y for toll road projects,” it said in a statement.

The outlook on airports reflects limited upward rating movements; although the agency expects continued growth in passenger volumes despite capacity constraints, it said. While HAM projects have enabled revival of private participation, there is some pressure on the financial closure front, as lenders, especially public sector banks, are going slow on financing these projects on account of lack of appetite and lending freeze on many of these lenders, the statement said.

For toll roads, Ind-Ra said it expects revenue to grow at around 9 per cent year-on-year in FY19, supported by toll rate growth of about 4.2 per cent. The agency believe that there will be sufficient flexibility for mature roads to manoeuvre moderate downturns in traffic growth, while speculative-grade assets’ coverages hinge on double-digit traffic growth. Regarding annuity roads, National Highways Authority of India has demonstrated its stable payment track record across the Ind-Ra rated projects over the years, it said.

For coal-based thermal power, non-pit head plants are facing irregular coal supply, leading to a high risk of declaring availability lower-than-required/normative level, Ind-Ra said. Also, competition in short-term market is likely to intensify if there are delays in addressing these issues and absence of long-term power purchase agreements, it added.

At under 10% of GDP, household debt is not alarming: report

At a low under 10 per cent of GDP, the household debt in the country is not increasing and there is no cause for any concerns over it, says a report. “There has been of late a lot of brouhaha over the increasing household leverage in the country. However, such fears are largely unsubstantiated by hard facts which is only 9-10 per cent,” SBI Research said Thursday. Though it is true that the household savings rate has declined to 30 per cent in FY17 from a peak of 36.8 per cent in FY08, it is wrong to conclude that this has led to a surge in household debt,” it added.

The household debt is low and stagnant during the past few years hovering around in the range of 9-10 per cent of GDP, it said. The report explained that the problem in the household debt composition is of debt structure, pointing out that non-institutional sources like landlords, money lenders and friends and relatives still play an important role in financing household debt.

Credit from institutional sources accounted for only 3.72 per cent of the overall household debt to GDP of 9.89 per cent, while the rest 6.17 per cent came from the non-institutional sources, it said. In what can be seen as a positive news, it said the real debt for households is stagnant. In FY18, household financial liabilities increased to 5.63 per cent from 3.33 per cent, suggesting partly the large scale opening of the Jan-Dhan accounts thus changing financial behavior of households. “This will clearly mean a decline in household debt from non-institutional sources in the coming years,” it concludes.

Industry, government should jointly strategies for economic growth, says FICCI

The federation of chambers of commerce and industry (Ficci) has called for a joint meeting between the industries and the government to chalk out a strategy balancing expenditure, and boosting economic growth.

Ficci president Rashesh Shah indicated that the economy is on a recovery path with reforms measures, while Indian rupee is weakening and inflationary pressure going up while rising oil prices are again posing a high risk to India’s economic growth trajectory.

Also, next year is important as the Loksabha polls are scheduled. “Under such circumstances,it is necessary to hold a joint meeting between the industries and government to chalk out strategy for meeting the situation on the economic front,” Shah said.

Shah was in the city to mark the centenary year celebrations of thecity-based the Federation of Gujarat Industries (earlier known as the federation of gujarat mills and industries).

He said the rising crude prices coupled with weaker rupee with cascading impact on inflation pose a big challenge for the Indian macro picture and ironically, there is little that can be done in the short-term.

Shahhowever,observed that the devalued rupee has benefited exporting units from the country, and hopes that the rupee and petroleum fuel would soon stabilise.

“Unless swift action is taken to address the situation, the economic growth will head towards a speed-breaker. Amongst the most immediate actions that can be taken by the government is to bring down the excise duty on fuel,” Shah added.

He lamented that demonetisation and GST have affected the small and medium scale units leading to the closure of large number of them while big units managed to escape the impact.

He also admitted that agriculture growth has to be 12 per cent in order to double farmers’ income by 2022. Currently, it is at 4 per cent, while there are 25 crore farmers whose income is much less at present.

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