At present, the RBI has three deputy governors — B P Kanungo, M K Jain and Michael Debabrata Patra. New Delhi: A search panel headed by the cabinet secretary is scheduled to interview eight shortlisted candidates on July 23 for the post of RBI deputy governor, sources said. The post had fallen vacant after senior-most deputy governor N S Vishwanathan demitted office three months ahead of his extended tenure on March 31 on health grounds after serving the monetary authority for 39 years.

The Financial Sector Regulatory Appointment Search Committee (FSRASC) has a list of eight names who would be interviewed via video conference on July 23, the sources said.

The selected name from the interview will be sent to the Appointments Committee of the Cabinet headed by the Prime Minister for final approval, they added.

Besides the cabinet secretary, other members of FSRASC include the RBI Governor, financial services secretary and two independent members.

This vacancy of RBI deputy governor has been reserved for the central bank’s internal candidate, who would look after the key supervisory and regulatory functions at the Mint Road.

As per the RBI Act, the central bank should have four deputy governors — two from within the ranks, one commercial banker and another an economist to head the monetary policy department.

At present, the RBI has three deputy governors — B P Kanungo, M K Jain and Michael Debabrata Patra.

Earlier this year, the government extended Kanungo’s tenure by a year with effect from April 3, 2020.

Kanungo, whose term was to end on April 2, had taken charge as a deputy governor in April 2017.

The deputy governor appointments are made for an initial period of three years and the person is eligible for reappointment. The deputy governor gets a fixed salary of Rs 2.25 lakh per month plus allowances.

Source: indiatimes.com

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New Delhi: Commerce and industry minister Piyush Goyal on Saturday said the government is working on reforms in the mining sector and attracting foreign direct investment (FDI) in sectors where it is constrained at present.

“There are further reforms in mining and FDI in certain sectors where it is constrained. We will simplify processes and make it easier to do business here,” he said at the India Global Week event.

FDI into India rose 13% to a record $49.97 billion in FY20 from $44.36 billion a year earlier.

“A new industrial policy and forest policy are being planned. We are looking at banking sector and capital market reforms,” he said, adding that the government is working on 100% electrification of the railways.

“By 2030, we hope the railways will be net zero emission. The railways is bidding out £400 billion of projects in the public-private partnership (PPP) mode in the next 12 years,” he said.

As per the minister, the government is relooking all projects in terms of the post-Covid world and there would be cost cutting.

The costing of projects including the Mumbai-Ahmedabad bullet train have been impacted by the pandemic.

Growth revival
Goyal said there are a number of indicators where economic activity has shown quick ramp-up.

“We will be able to recoup very quickly. We will be able to bring the economy back to last year’s level in 3-4 months with rapid growth,” he said.

Explaining that there has been a 5-6% degrowth in world economy and similarly in India, he said the first quarter was “pretty bad considering the strict lockdown” but India has demonstrated the ability to bounce back and its resilience.

Trade pacts
India can do an immediate preferential trade agreement (PTA) with the UK and EU with the long term goal of a free trade agreement (FTA), Goyal said.

“We can come on terms for the first 25-50 items. We will negotiate with no preconceived notions, no red lines. An early harvest with the UK can be done if they are willing to,” Goyal said at the India Global Week event.

Stating that India can give many products to the UK such as textiles and leather, he said: “The UK can supply us with high quality cameras, automobiles and even spirits. I am coming for negotiation with an open mind”.

Similarly, India is in talks with the EU after years of stalemate and an early harvest PTA could be done in the short run with the long term goal of an FTA.

Goyal said India is committed to fair trade on the basis of reciprocity.

On the issue of India banning Chinese apps, he said it is a security concern and companies have been asked to furnish certain details.

Source: indiatimes.com

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New Delhi: Commerce and industry minister Piyush Goyal on Saturday asked the entertainment industry to self-regulate their programmes on over-the-top (OTT) platforms as many of them portray India poorly.

“I support creative expression (but) there is a lot of misinformation there and poor portrayal of India and Indian society,” Goyal said at the Ficci Frames e-event.

His statement assumes significance in the wake of the government’s proposal of an institutional self-regulatory model similar to traditional media, that was rejected by most online video streaming platforms.

“It can be a wake-up call but one can’t glorify issues through such programmes. There have to be limits to allow global content to resonate,” Goyal said, and added that “high cultural and traditional ethos and moral values” need to be maintained in the country.

Emphasising that many professions have been successful with self-regulation but many have also disappointed the country, he said: “Many countries have cultural depravity and children develop bad habits but there is discipline and moral upbringing in our country”.

The minister also said that investments are not flowing in cinema halls and theatres as films are being released on OTT platforms.

“It may initially get huge money but will kill cinema halls,” he said.

Trade reciprocity

Goyal also said that India will engage from a position of strength and if any country roadblocks Indian films to be shown there, then India will reciprocate and not allow their entertainment products to be showcased here.

“India will work with reciprocity and engage from a position of strength to get a fair deal for all our industries, including the film industry,” he said on the restrictive trade practices being put in place by countries such as China.

The minister said he would take up the issue of attracting film making in India but industry should be aware of the government’s fiscal constraints.

“We can simplify processes and work on a single-window with digital payments. We can take this up with I&B ministry,” he said.

While the government will reduce fee for MSMEs and startups when they apply for patents, Goyal asked industry to go for a minimum wage and social security for all those employed in the entertainment and film business or engage in the government’s various schemes as insurance, healthcare and social welfare for all stakeholders in the industry has been an “area of concern”.

Source: indiatimes.com

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The government can turn COVID-19 crisis into an opportunity by investing in healthcare, and it should also pursue making all the cities slum-free by 2023, according to economists. At the seventh economic conclave – organised by State Bank of India on Saturday, there was an unanimity among the economists on laying greater thrust on decentralisation in policy-making in the future, as a one size fits all approach may not work always.

India at present has the third highest number of COVID-19 cases after the US and Brazil, and has already lost over 22,000 people. “Its very concerning that a lot of this discussion of the Aatmanirbhar (Bharat) package or other packages are not talking at all about what investments are taking place in the health sector. How much are we spending on testing, basic information campaigns.

“This is a health induced crisis, you got to respond to that in order to respond to the economy,” Rohini Pande, who is associated with Yale University, said. India has historically under-invested in health and the increase is not very much right now as well, she said, stressing that we need to recognise that for economic recovery, humanitarian and health crisis are all interlinked.

“To change this crisis to an opportunity, let us invest in the health sector,” SBI’s chief economist S K Ghosh said, suggesting a plan to build a 500-bed hospital in 250 districts at a cost of Rs 60,000 crore over the next two years. Pande said frontline health workers are not paid, and we can immediately start paying them and expand their base, which will lead to better case spotting and also contact tracing.

Arjun Jayadev with Azim Premji University said concerns on the health infrastructure affect the broader economy as well and pointed out that the animal spirits can only be rekindled once the fear of health shock goes away. “Many migrant labourers may not want to return to the cities not just because they are not getting a good conducive environment to live, but they are bothered about their health condition as well,” he said.

The Indian economy runs on two gears – one which have access to expensive private healthcare and the others who don’t, Jayadev said, adding that universalisation of services should be a key theme while investing the money. “You’ve this horrific situation where 5 lakh die of TB, 1.5 lakh children die and we don’t bat an eyelid, except when the situation comes to us as COVID,” he added.

Rathin Roy in National Institute of Public Finance and Policy (NIPFP) suggested a radical change in output measurement where gains on agriculture, health, education and housing become the lead indicators of economic strength rather than focusing on automobile sales and FMCG good sales. Roy also proposed making a slum-free India as a policy objective by 2023.

“It is obvious from the migrant labour problem, it is obvious from the COVID situation that a slum free India (by) 2023 should be our objective. I do not see enough economists, enough policymakers, even mentioning a slum-free India,” he said. All the economists also seemed to agree that the Reserve Bank of India will have to monetise a part of the fiscal deficit this year due to the extreme strain on government finances, but did not offer a quantum or timeline.

Source: indiatimes.com

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Das further said the RBI’s focus now is to identify the vulnerability from a very incipient stage, and then engage with the management of a bank or financial entity to ensure that the problem does not become larger.Reserve Bank Governor Shaktikanta Das on Saturday advocated the creation of a ‘resolution corporation’ with legislative backing for resolution and revival of stressed financial firms.

The government in August 2017 had introduced the Financial Resolution and Deposit Insurance (FRDI) Bill in Parliament which, among other things, proposed setting up of a resolution corporation.

However, after a year, the government decided to withdraw the bill as there were concerns raised about the protection of depositors’ money if it was passed with the controversial “bail-in” clause, under which a bank’s liabilities could be cancelled/modified to shore up its finances.

“Going forward, we need the legislative backing to have some kind of a resolution corporation, which has to deal with resolution and revival of stressed financial firms,” Governor Das said at the 7th SBI Banking and Economics Conclave.

He said the regulator can issue early warning signals and flag the emerging risks.

“The regulator will continue to take necessary measures, continue to engage with the management of the bank or NBFCs to identify the vulnerabilities, but there has to be a legally-backed arrangement,” he noted.

The governor said setting up a resolution corporation was earlier part of the FRDI Bill which the government withdrew because there were certain issues which needed closer examination.

He further said the notification issued under Section 227 of the Insolvency and Bankruptcy Code (IBC) has given additional powers to the RBI to deal with non-banking financial companies (NBFCs) and housing finance companies (HFCs).

By using those powers, the RBI had appointed an administrator for Dewan Housing Finance (DHFL) and that has been referred to the National Company Law Tribunal (NCLT), he said.

DHFL, the third-largest pure-play mortgage player, is the first NBFC/HFC to face the corporate insolvency resolution process.

Das said the resolution of DHFL is on stream now.

“That is going on fairly well. We review it, we do monitor it from time to time,” he added.

The Reserve Bank Governor said as far as banks and other financial institutions are concerned, the approach traditionally has been to merge a failed bank with a larger lender.

“While that definitely protects the depositors’ interest but it also tends to pull down the balance sheet of the larger bank to which the smaller bank or the failed bank is merged,” he noted.

Giving the example of Yes Bank, Das said initially a market-based resolution was tried out for the lender where investors had shown interest. It was thought as the best way of going ahead with the process wherein a new investor would come in, put money and take it forward but it did not materialise, he said.

“We then, without adversely impacting the balance sheet of any participating bank, worked out this arrangement of public private partnerships,” the Governor said.

Under the bailout plan, Yes Bank had received around Rs 10,000 crore from eight financial institutions, including Rs 6,050 crore from SBI.

“The Yes Bank reconstruction scheme forged a unique public private partnership between leading financial entities of India, and it was implemented in a very quick time, which helped the bank’s revival, successfully safeguarded the interest of the bank’s depositors and ensured financial stability,” Das said.

With regard to the Punjab and Maharashtra Co-operative Bank, the RBI is engaged with all stakeholders to find out a workable solution as losses are very high, eroding deposits by more than 50 per cent, he added.

Das further said the RBI’s focus now is to identify the vulnerability from a very incipient stage, and then engage with the management of a bank or financial entity to ensure that the problem does not become larger.

“Having said that, I must say that a bigger responsibility lies with the banks and the financial entities themselves,” he emphasised.

He added that many banks, both in the public and private sectors, have improved their internal risk management systems and procedures, and are able to take pre-emptive action.

Source: indiatimes.com

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Economy showing signs of returning to normalcy, medium-term outlook remains uncertain: RBI Gov

COVID-19 CASES

WorldIndiaConfirmed820,916Deaths22,123Confirmed12,498,467Deaths560,209KOLKATA: The economic impact of the coronavirus pandemic may lead to higher non-performing assets and capital erosion of banks while the redemption pressure on non-banking finance companies (NBFCs) and mutual funds are emerging as crucial stress points in the financial system, Reserve Bank of India Governor Shaktikanta Das said.

Flagging off these risks, the governor said that RBI’s policy action would depend on how the crisis unfolds even as he observed that the medium-term outlook still remains uncertain and depends on the COVID-19 curve.

Building buffers and raising capital in such a situation becomes imperative to strengthen the internal defences of financial intermediaries against the risks and to ensure credit flow, the governor said, alluding that the shocks to the financial system turning out to be more frequent than a ‘once in a lifetime events’ to ‘once in a decade’.

“A recapitalisation plan for public sector banks and private banks has, therefore, become necessary,” Das said on Saturday at a virtual banking conclave organised by State Bank of India.

The global financial crisis of 2008-09 and the COVID-19 pandemic in 2020 have rocked the financial system within a span of a decade. The current crisis may leave a longer impact on Indian economy, which is predicted to contract in FY21 for the first time in four decades.

“It is still uncertain when supply chains will be restored fully; how long will it take for demand conditions to normalise; and what kind of durable effects the pandemic will leave behind on our potential growth,” the Governor said.

“Accordingly, the minimum capital requirements of banks, which are calibrated based on historical loss events, may no longer be considered sufficient enough to absorb the losses. Meeting the minimum capital requirement is necessary, but not a sufficient condition for financial stability,” Das said, asking banks to make risk management in tune with the emerging risks.

The gross non-performing assets (NPA) ratio and net NPA ratio of all banks stood at 8.3 percent and 2.9 percent in March 2020, compared to 9.1 percent and 3.7 percent a year back, with the regulator forcing banks to clean their balance sheet in a calibrated way since 2016.

The overall capital adequacy ratio for banks improved to 14.8 percent as in March 2020, compared to 14.3 percent a year ago. The CRAR of public sector banks had improved to 13 percent — with Rs 3.08 lakh crore capital infusion by the government since 2015-16 — from 12.2 percent over the same period.

The symptoms of weak banks are the poor asset quality, lack of profitability, loss of capital, excessive leverage, excessive risk exposure, poor conduct, and liquidity concerns.

These different symptoms often emerge together. “We are placing special emphasis on the assessment of business model, governance and assurance functions (compliance, risk management and internal audit functions), as these have been the areas of heightened supervisory concern,” the regulator said.

The regulator has advised all financial intermediaries to assess the impact of COVID-19 on their balance sheet, asset quality, liquidity, profitability and capital adequacy for the financial year 2020-21 and to work out possible mitigating measures. “The idea is to ensure continued credit supply to different sectors of the economy and maintain financial stability,” Das said.

Amid lockdown, RBI is enhancing off-site surveillance mechanism to ‘smell the distress’, so that pre-emptive actions can be taken if required. It is working towards strengthening the supervisory market intelligence capabilities, with the help of both personal and technological intelligence.

Meanwhile, mutual funds have emerged as major investors in market instruments issued by NBFCs, which is why the development of an adverse feedback loop and the associated systemic risk warrants timely and targeted policy interventions. Increasing share of bank lending to NBFCs and the continuing crunch in market-based financing faced by the NBFCs and Housing Finance Companies (HFCs) also need to be watched carefully, he said.

“The need of the hour is to restore confidence, preserve financial stability, revive growth and recover stronger. At the central bank, we strive to maintain the balance between preserving financial stability, maintaining banking system soundness and sustaining economic activity.”

In Video:
Economy showing signs of returning to normalcy, medium-term outlook remains uncertain: RBI Gov

Source: indiatimes.com

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COVID-19 CASES

WorldIndiaConfirmed820,916Deaths22,123Confirmed12,498,467Deaths560,209NEW DELHI: The Indian economy’s medium-term outlook remains uncertain even though the country has started re-opening after over two months of a nationwide lockdown, as demand and supply shocks due to the coronavirus still loom large, the central bank governor said on Saturday.

Policy responses by the central bank appear to have worked so far, but going forward the situation would need even more careful assessment, said Reserve Bank of India Governor Shaktikanta Das.

Source: indiatimes.com

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by Bhaskar Dutta

The recent Chinese aggression in the Galwan valley has understandably ignited our sense of outrage. Calls for retaliatory action have come from all quarters. There have been suggestions to destroy Chinese made consumer durables and to stop eating Chinese food. Unfortunately, while such knee-jerk actions may have their uses as symbolic gestures, they are practically useless as measures of reprisal.

Cutting off or reducing trade and similar economic actions can have a punitive effect only if the country adopting these measures has sufficient economic clout. The US economic embargo, for instance, has caused serious damage to the Iranian economy. The ground reality is very different insofar as Indo-China economic relations are concerned. Indian imports from China are less than 5% of total Chinese exports, while Indian exports to China constitute a miniscule fraction of total Chinese imports. Moreover, none of the items exported by India to China is of an essential or strategic nature. So, China can absorb the effects of any economic weapon employed by India without batting the proverbial eyelid.

In fact, the shoe may well be on the other foot. Consider a scenario in which China bans its exports to India. Over the years, China has become an increasingly important trading partner for India. In fact, China is now at the top of the list of countries exporting to India. China also occupies the third position in terms of destination for Indian exports.

We import a range of goods from consumer durables, automobile components to active pharmaceutical ingredients (API) from China. Any disruption in Chinese exports to India will have a differential impact on the Indian economy. For instance, any interruption in the supply of Chinese consumer durables will affect some Indian consumers. They will now have to pay higher prices for similar products imported from Korea or Japan. Of course, this is a “cost” for the Indian economy, but one that is borne by a small and relatively rich section of the population.

On the other hand, any sudden disruption in the import of raw materials and intermediate goods can have a significantly larger impact on the economy. Consider, for instance, the example of API. China supplies 70% of our API imports. Any break in the supply of APIs will result in a temporary reduction in the production of a number of essential drugs such as paracetamol and several antibiotics in common use. It will take some time before the supply chain is restored.

It is also very likely that there will be a rise in costs of production. So, the inevitable consequence of disruptions in the current pharmaceutical supply chain will be a rise in prices of many essential drugs, impacting a large section of the population.

This example actually has a more general significance since it highlights both the positive as well as negative aspects of self-reliance as a goal of national policy. A self-reliant economy is protected from any disruptions in supply chains arising out of external threats. If domestic production indeed displaces imports, it also creates jobs and possibly increases national income. That is the rationale for the recent call for “Atmanirbhar Bharat” and the earlier “Make in India” slogan.

However, goods are normally imported because they are either cheaper than their domestic counterparts or are of superior quality. So, an attempt to replace imports with domestically produced goods through artificial barriers such as tariffs or quantitative controls results in higher prices or goods of inferior quality in the domestic market. If the good is an intermediate good, this in turn affects the competitiveness of domestic producers in international markets. So, self-reliance does not come for free. As economists are fond of saying, “There is no free lunch.”

In practice, complete self-reliance is not even a practical objective for any country – no country can produce everything it consumes. A better option is to build an efficient, globally competitive economy. Our size will then ensure that we have economic bargaining power. Perhaps we should also develop, to the extent possible, alternative sources of supply of crucial inputs. That will surely act as insurance against any external blackmail.

Source: indiatimes.com

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Stating that the demand hit and job losses are real, Munjal said the prospect of job losses is “quite scary”, and can reach upwards of 20 per cent.Pitching for more fiscal support to revive the economy, Hero Enterprises Chairman Sunil Kant Munjal on Friday said the overall recovery in the economy may take 2-3 years even as some sectors could see a quicker recovery.

“The overall recovery in the economy will take between 2-3 years. But, we will see sectors come up very quickly. Some important sectors with large multiplier and large potential for employment, which are still struggling, and without support, they will actually not be able to fully recover in this time,” Munjal said.

He was speaking at a SBI-hosted virtual banking and economy conclave on the “impact of COVID-19 on business and economy”.

There is a need for “intervention”, some of it as structural and longer-term permanent requirement for the overall system and some for the present times, he said adding that “the government needs to be prepared not just to provide monetary support but at least two more doses of fiscal support, sectorally and may be even at some point of time picking individual entities (as well)”.

Munjal said the road to recovery is going to be “rocky” and uneven because there will be sectors that will not recover.

“That is one negative thing which is worrisome. Some companies will shut shops and will not even know why they did so and will not be able to recover and a large number of these companies will be small and medium-sized companies,” he said.

Munjal said some businesses will have a quick recovery partially because of the base effect and partially because of pent-up demand.

“We have seen it in motorcycle and bicycle segments, they have in fact upped their target twice within a month. We have seen it across different sectors,” he added.

Stating that the demand hit and job losses are real, Munjal said the prospect of job losses is “quite scary”, and can reach upwards of 20 per cent.

“I am not sure we have done enough thinking about the social fallout of that. This is something that we never experienced in our living memory. Small- and mid-sized companies are scared to bring people back. The motto is survival now, recovery sometime away, and then we will thrive,” Munjal said.

Source: indiatimes.com

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The first tranche provided credit to small businesses and support to shadow banks and electricity distribution companies.The stimulus package announced by the government following the COVID-19 outbreak has been able to preserve macroeconomic stability and it has not come at a huge cost, KKR India Partner and CEO Sanjay Nayar said on Friday.

Speaking at the India Global Week 2020, Nayar expressed hope that large private sector players would contribute to economic recovery along with the government.

“…there are some groups which are rapidly deleveraging, re-investing. I think it’s going to take both the hands to clap. You need the government to spend more, which they are doing through the infrastructure spend, and you also need large private sector to spend,” the India head of the global investment firm said.

The private sector has been shying away from making investments in the economy for the past four-five years, he said.

“While entrepreneurial spirit is intact and we see a lot of smaller business people capitalise on it, large private sector has to contribute as well,” he added.

There has been improvement in ease of doing business and further steps in this direction will attract more private capital, he noted.

He further said India has achieved macroeconomic stability not at the cost of a huge stimulus but a very well targeted stimulus.

The government had announced a Rs 20.97 lakh crore stimulus package in May in five tranches to revive the economy hit hard by the COVID-19 pandemic.

The first tranche provided credit to small businesses and support to shadow banks and electricity distribution companies.

The second tranche included free foodgrain to stranded migrant workers and credit to farmers, totalling Rs 3.10 lakh crore. Spending on agri infrastructure and other measures for agriculture and allied sectors in the third tranche totalled to Rs 1.5 lakh crore.

The fourth and fifth tranches dealt mostly with structural reforms, including relaxation of foreign direct investment (FDI) limit in defence, privatisation of six more airports, and fully opening up coal mining to the private sector.

Source: indiatimes.com

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