In the wake of over Rs 13,000 crores fraud perpetrated by Nirav Modi and Mehul Choksi on Punjab National Bank [PNB] – second largest public sector bank [PSB] – the Reserve Bank of India [RBI] has barred banks from issuing letters of undertaking [LoUs] and letters of comfort [LoCs] with immediate effect. However, it has allowed banks to continue to issue letters of credit [LCs] and bank guarantees [BGs]. The decision has caused consternation in industry circles who argue that this move will cause a big disruption in trade financing [as LoUs/LoCs currently account for about US$ 20-40 billion worth of outstanding finance] and raise credit costs for importers. In a country ridden with a flood of scams, it is...
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DBT fertilizer – this is not what doctor ordered!
The Cabinet has approved direct benefit transfer [DBT] of fertilizer subsidy. However, the subsidy will continue to be routed through fertilizer manufacturers. They will receive 100% of the subsidy amount after fertilizer is delivered to the farmer and his identity viz. Aadhaar [and other details such as plot size, crop, nutrient use] is captured on the electronic point of sale [e-PoS] machine. At present, manufacturers sell urea at the maximum retail price [MRP] controlled by union government at a low level and get subsidy reimbursement on unit-specific basis under the new pricing scheme [NPS]. On the other hand, manufacturers of non-urea fertilizers viz. DAP/MOP/SSP/complexes theoretically are given ‘uniform’ subsidy [on per nutrient basis] under the nutrient based scheme [NBS]. However,...
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Rejuvenating Indian soils – shun flawed policies
According to a 10 year study “The Indian Nitrogen Assessment” carried out by the Indian Nitrogen Group [ING] for Down To Earth [DTE] – a New Delhi-based environment and health magazine – Nitrogen-based fertilizers like urea, which have been instrumental in increasing crop yields in India, are now turning into potent destroyers by polluting land and water, affecting people’s health and leading to climate change. The study says that “agriculture is the main source of nitrogen pollution in India; further cereals like rice and wheat accounting for maximum cropped area pollute the most”. In the past five decades, every Indian farmer has, on an average, used up over 6,000 kg of urea or 120 kg annually. Only 33 per cent...
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Power projects – flirtation with public money
In the midst of public sector banks [PSBs] losing lakhs of crore due to the so called non-performing assets [NPAs] – a sophisticated nomenclature for sheer loot of public money by dubious businessmen/industrialists acting in collusion with pliable politicians and bureaucrats – one comes across reports of the ‘government nudging bankers to take criminal action against independent power producers [IPPs] that have inflated project costs’. The diktat is a follow-up to the new power minister RK Singh last year hinting at the government’s intent to investigate ‘whether private developers gold-plated project costs’. He had suspicion that IPPs inflated project costs to raise a higher amount of debt to cover their equity component—a practice called ‘gold-plating’. This has far reaching ramifications. Let...
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Stopping fertilizer subsidy misuse – Aadhaar authentication alone won’t help
In the Union Budget for 2018-19, the finance minister, Arun Jaitely has made a provision of Rs 70,080 crore for fertilizer subsidy which is just about Rs 5000 crore higher than the revised estimate [RE] for 2017-18 at Rs 65,000 crore and almost the same as the budget estimate [BE] of Rs 70,000 crore for that year. The international price of crude oil during the ensuing year is projected to be 15-20% higher. Considering that the international prices of urea as also raw materials/feedstock [natural gas, phosphoric acid, ammonia, sulfur] also increase in tandem and India is heavily dependent on their imports, the requirement for subsidy would be higher. Add to this carry forward of over Rs 30,000 crore from...
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Scam tainted PSBs – is privatization the way forward?
In the wake of Punjab National Bank [PNB] mega scam in which it has lost a mammoth Rs 13,000 crore [about US$ 2 billion] and bunch of other public sector banks [PSBs] related scams, commentators have resurrected the idea of privatizing PSBs. The NDA-government under the then, prime minister Vajpayee [1998-2004] had mooted union government relinquishing majority control [it implies lowering of its share holding to less than 50%] in PSBs initially and eventually to 33%. Recently, a committee set up by the Reserve Bank of India [RBI] under P Nayak also recommended reducing its share to below 50% and housing the residual shares in a holding company. But, finance minister, Arun Jaitely even while expressing serious concern over proliferating...
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Guaranteeing 50% profit to farmers – much ado about nothing
In its 2014 poll manifesto, BJP had promised to guarantee farmers a price equal to 1.5 times the cost of production. However, finance minister, Arun Jaitely made the announcement in the budget speech for 2018-19. The minimum support prices [MSPs] determined on the basis of this formula will be applicable to crop production starting ensuing kharif season [April-September, 2018]. Later, replying to the debate in the parliament, Jaitely clarified that the production cost would be taken as ‘A2+FL’. A2 costs basically cover all paid-out expenses, both in cash and in kind, incurred by farmers on seeds, fertilizers, chemicals, hired labor, fuel, irrigation etc whereas FL is the imputed value of unpaid family labor. Under the extant dispensation, the Commission for...
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Fight against corruption – targeting crusader is unconscionable
After taking charge, in his very first Independence Day address on August 15, 2014, prime minister, Modi declared himself as ‘Pradhan Sewak’ – a colloquial term for principal servant. Coining yet another term ‘chowkidar’ [security guard], Modi roared that all of country’s resources – physical and monetary – belong to the people and that he was duty bound to protect these resources. In the same breath, he vowed to bring back all the resources that were looted by corrupt politicians, bureaucrats and industrialists and re-deploy for welfare of the poor. A cursory glance at the actions taken by his government during the last 45 months or so, would show that he has walked the talk. Be it demonetization, Goods and...
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Taxing discounts – a conundrum
Giving discounts on sale of products – purportedly with a view to lure customers and boost sales – has been an age-old phenomenon. Most of the companies operating under competitive market environments take recourse to this practice. With the advent of e-commerce however, and players in this segment [especially those with deep pockets either of their own or supported by MNCs in case of domestic players] in a hurry to capture a good chunk of the retail market in shortest possible time frame, are offering substantial discounts which in some cases could be 50% of the maximum retail price [MRP] or even more. Until hitherto, these were allowed to be deducted as business expenses leading to corresponding reduction in the...
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NPAs – will the patient survive surgery?
Replying to the debate on President’s address during the opening of the budget session of the parliament, prime minister, Modi squarely blamed the erstwhile UPA dispensation led by Congress for the most serious problem of NPAs [non-performing assets] of the banks – mostly public sector banks [PSBs]. What Modi was alluding to was that there had been massive proliferation of loans given by the banks on the directions of the ruling political establishment to favored industrialists and businessmen without conducting due diligence, assessing the viability of the projects/businesses and seeking mortgages. During 2008-2014, loans worth Rs 3500,000 crore were given. A big slice of these loans turned in to NPAs. Yet, these were kept under cover even as a host...
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