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Public Finance Public Accountability Collective (PFPAC) Weekly Digest (23 August - 29 August 2016)​

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All politics in the Information Age is a media war. No, you’re missing the genius of it. It’ll all be played out in the world of images. There’ll be this incredible political consensus that we need to escape the confinement and rigidity of conforming, of the dead fluorescent world of the office and the balance sheet, of having to wear a tie, but the corporations will be able to represent consumption-patterns as the way to break out - use this type of calculator, listen to this type of music, wear this type of shoe because everyone else is wearing conformist shoes. It’ll be this era of incredible prosperity and conformity and mass-demographics in which all the symbols and rhetoric will involve revolution and crisis and bold forward-looking individuals who dare to march to their own drummer by allying themselves with brands that invest heavily in the image of rebellion. This mass PR campaign extolling the individual will solidify enormous markets of people whose innate conviction that they are solitary, peerless, non-communal, will be massaged at every turn. The pale king offers us plenty by way of nightmarish existences. 

The Week Gone By

Nationally, 

Naked Truth laid bare.....This isn't any alternative Debonair or Playboy centrefold, but scenes in the Haryana Assembly, where this Jain Muni stripped to the basics the knowhow of politics, sex ratio, Pakistan, blah blah blah....The shit just hit the fan, so don't look up to him. If natural sciences are composed of electrons, protons and neutrons, then the political surely is filled with morons. An old one, but still evergreen. 


Ah!, why don't we have participatory medals in the Olympics? Probably the rest of the world would then find it very hard to match up to Indian performance. STF launched, the S isn't 'special', but 'sports' to help India for the next three games. Well kudos to the winners and ones who just missed the podium. Vijay Goel scored a selfie goal shamefacedly. 

Kashmir on the boil, and India looking for alternatives to handling the out-of-hand situation there (hereherehere and here). 

Mallya Mallya and Mallya. The King of Times could actually have a special newspaper dedicated to him everyday. Great topicality awaits scores of PhDs on him. 

Manohar Parrikar says Scorpene leaks not worrying, though some concerns remain. Its a storm from within a teacupIn a bid to prevent further publication of the information regarding the leaked documents pertaining to Indian Navy’s six Scorpene submarines, French shipbuilder DCNS has threatened to move court.

InterNationally, 

Trump just made his worst tweet yet. Check out tweet reactions/discussions. And, now he's talking of immediate deportations after being sworn in. But, he softened a bit, didn't he? 

What is the Clinton Foundation up to really? 

Hacking the Hackers. Everything you wanted to know about Shadow Brokers and their attack on NSA. 

Turkey’s incursion into Syria is deepening tensions between two major U.S.-backed groups, potentially setting up a conflict that could undermine Washington’s efforts to eradicate the Islamic State’s presence in Syria. Hornet's Nest

Public Finance Public Accountability Collective (PFPAC) Weekly Digest (23 August - 29 August 2016)​ 

Banking in Distress

So, we have a hawkish incoming Governor of the RBI, and not a dovish one. India Inc is alarmed by Urjit Patel, who has already begun to spook investors, stocks and even currency for that matter. Two main agendas are to keep him busy initially, viz. liquidity stance, which is likely to continue of the current stance, where the liquidity deficit is being bridged towards neutrality and call rate kept close to the repo rate; and redemption of FCNR-B deposits, despite assurances from the RBI of pumping in enough liquidity. Rangarajan to Patel: Why the RBI matters the most to Aam Aadmi? 

+ The RBI cautioned lenders against borrowers trying to circumvent the cut-off aggregate sanctioned credit limit (ASCL) criteria by borrowing through dummy or fictitious group companies and said banks should apply their due-diligence while deciding the normally permitted lending limit (NPLL) for a single borrower. The central bank also mandated an additional risk weight of 75 per cent over and above the applicable risk weight for the exposure to the specified borrower. The framework will come into effect from the financial year 2017-18.

+ RBI's move to allow banks to issue masala bonds will remove obstacles for lenders in accessing additional tier I (AT1) and tier II bond capital and also widen the investors pool, says Fitch. The RBI's proposal to allow banks to issue 'masala bonds' - rupee-denominated bonds issued in offshore capital markets - would ultimately deepen the market for AT1 and tier II bond issuance.

+ State Bank of India (SBI) and ICICI banks are "Too Big to Fail". The Reserve Bank of India has identified these banks as domestic systemically important banks (D-SIBs) in 2016 and has also retained their bucketing structure from last year. The D-SIB framework requires the RBI to disclose the names of banks designated as D-SIBs every year in August starting 2015. SIBs create an expectation of government support for these banks at the time of distress, and thus enjoy certain advantages in the funding markets.

+ With an aim to reduce risk in banking sector, RBI has proposed to limit exposure of a bank to a business group to up to 25 per cent of its capital, down from the existing 55 per cent. "The Large Exposure (LE) limit in respect of each counter-party and group of connected counterparties, under normal circumstances, will be capped at 20 per cent and 25 per cent, respectively of the eligible capital base," RBI said in a Draft Large Exposures (LE) Framework.

+ Reserve Bank Deputy Governor S S Mundra said public sector banks should be given “governance autonomy”, releasing them from multi-institutional oversights and overlapping controls. While the immediate and overriding priority is to complete the clean-up of public sector banks’ balance sheets which is underway, simultaneously, process has to continue to bestow greater “governance autonomy” to these banks, Mundra said.

+ Inflation targeting, NPA clean up, and greater stability on currency front for the incoming governor at the RBI is forcing people to temper their expectations. 


+ The law on bankruptcy envisages creating a complementary ecosystem including insolvency professionals, information utilities and a bankruptcy regulator. Jaitley asked for immediate action on setting up the Insolvency and Bankruptcy Board of India (IBBI), which is the regulator, and notifying rules and regulations relating to insolvency professionals and insolvency professional agencies.

Multilateral Development Banks

Doubts, skepticisms, cynicisms are for a fresh lease of life (US + Japan need a rethinking on their stand on AIIB) just in case the AIIB was considered to be anything apart from a vehicle of Chinese geo-political-economic ambitions. But the Chinese have vociferously denied these allegations and called for a complementary role the AIIB would play in infrastructural makeover. And Myanmar happens to be just the perfect laboratory to test out these contrarian overshoots. Going further south east, Vietnam is in talks with AIIB to attract investments for infrastructure sector, while securing the target of maintaining sustainable public debt. 

+ On to the appointments spectrum of AIIB: Three Singaporeans are set to join high-level positions. The Asian Infrastructure Investment Bank (AIIB) will review more than 30 new membership applications beginning in September, and the bank may have as many as 90 members by early 2017, outstripping the membership numbers of U.S. and Japan-led Asian Development Bank (ADB). Interestingly, the macro principles of the Bank are coming out in the clear, as it is initiating cooperation with private capital on pension and commercial insurance projects, aiming to foster the role of private capital in public affairs. The bank is also working on developing new financial instruments to build a more flexible and efficient investment system. Why the AIIB needs resident directors? Check out the consequences part of this article deliberating on Public Information Interim Policy (PIIP) thats allegedly generated significant concern among civil society groups, including those engaging on environmental issues. This was because of their sense of not having adequate input into this policy. A resident board could help alleviate that. Finally, this has led civil society groups to express more general concern about less than adequate communication, which could be mitigated with a resident board that would open more access to management, as many ADB board members do for civil society. In many ways than expected, the Chinese-led development bank is careful in its cooperation with critics, for safeguarding reputational damage initially clouds. 

+ Whats with Canada, if it wants to rush into a trade deal with China to wipe off a huge trade deficit? Nothing, excepting the fact that China plays by its own rules, and approaches international trade law with an attitude without hesitating to impose trade barriers to tip the scales in its favour. AIIB stands to embrace Canada. On the other side of the globe, what would India lose if stands true to its isolationist stance on One Belt One Road? Well a lot more than staying enthralled to its stone-age infrastructure. 

+ BRICS Bank (NDB) has continuously shown learning impediments, and has made no attempt to learn about the potentially negative social and environmental impacts of its financing.. The ‘green’ first batch of loans backed by RMB3 billion in ‘green’ bonds with a 3.07% nominal interest rate have done little to appease observers who criticise the bank’s governance. Green groups remain concerned by the lack of transparency on how loans will be allocated and monitoring environmental impacts. Since the bank began operations, no information has been published about its basic scope and institutional structure, something which would enable the public to assess and strengthen its sustainability policies. Moving on from the Bank, Jaitley has suggested that the BRICS countries should set up a task force comprising officials and experts to discuss and then set up an appropriate mechanism where these nations can have arbitral centres of their own to cut reliance on redressal centres in developed nations whose awards at times tend to be loaded against developing countries.  

+ The World Bank Executive Directors under the Chair of its Dean, Merza Hasan on 23rd august '16 expressed unanimous support for an open, merit-based and transparent selection, with nominations open to all member countries and transparent consideration of all candidates by the Board. The Executive Directors also confirmed that the Selection Principles approved by the Board in 2011 continue to be valid and should apply to the next Presidential selection. The principles were followed to conduct an open and transparent process in 2012, which resulted in the appointment of Dr. Kim back then, and now for a second term. 

+ The World Bank retreats on indigenous rights by adopting a new policy framework

+ The World Bank has sanctioned Rs 980 crore to dredge the Brahmaputra as an initiative to develop waterways to Bangladesh and to other South East Asian countries in a bid to boost trade and industry in the Northeast. 

+ A dismal scenario painted for the RBI by the IMF raising question marks over the ability of the Reserve Bank of India (RBI) to target inflation through monetary measures, saying the size of the formal financial sector is small in India and may undermine the effectiveness of interest rate changes on aggregate demand.

Policy and Macroeconomic Indicators

“There are many arguments for and against the change in financial year and these revolve around issues of budget and cash management by the government, seasonality of government revenue and expenditure, impact of monsoon on budget forecasting, working season, timelines involved in the legislative cycle of passage of Budget by Parliament, international comparability of fiscal statistics, aligning government’s financial year with year for tax assessment and corporate accounting purposes,” the government noted.

+ With the micro, small and medium enterprises (MSMEs) facing acute shortage of credit availability, the Reserve Bank of India is planning a number of steps to improve the situation including setting up a movable credit registry, accreditation of credit counsellors for small entrepreneurs and creating Electronic Bill Factoring Exchanges for faster payment of bills. As against the MSMEs’ demand of Rs 26 lakh crore of loans, credit availability is only Rs 11.10 lakh crore with majority of such enterprises depending upon informal sources of financing. Amid a major decline in credit growth in the economy this year, micro, small and medium sector players are among the worst hit as banks continue to practice caution in lending to the industrial sector. However, there may be some respite in the offing as Nirmala Sitharaman, the Minister of State for Industry and Commerce, is not only calling for a cut in interest rates but is also set to ask the finance ministry to nudge the banks to look at SME funding afresh and address their issues including fund requirement. 

+ Sugar is largely traded on leading agri-commodity bourse National Commodity and Derivatives Exchange (NCDEX). The exchange has already raised the margin amount to be deposited by both sellers and buyers on its platform. To check prices, the government recently imposed an export duty of 20 per cent on sugar as part of its efforts to curb outbound shipments and boost domestic supply. So, it probably is a good decision to ban sugar futures trading

+ The monsoons have been good, and the concomitant optimism has started to border the adventurous already. India is expected to clock a GDP growth of nearly 8 per cent this fiscal on the back of good monsoon rains, Economic Affairs Secretary Shaktikanta Das said.  

+ Outgoing RBI Governor Raghuram Rajan on Friday rejected granting any leeway in norms for activities of 'national importance' like funding of infrastructure, saying that the Reserve Bank cannot compromise systemic stability and government should "subsidise" such works. Rajan said while RBI is a liberaliser, it has to be careful "not to relax prudential regulations simply because an entity or activity is deemed of national importance" and cited infrastructure as a case in point. The case for 'mini bangs', not a 'big bang' of reforms.

+ Last month, the Lok Sabha passed a comprehensive Benami Transactions (Prohibition) Amendment Bill, 2015, with the intent of bringing unaccounted money into the system, as well as seizing benami property and prosecuting those indulging in such activities. The three-fold objective - amending the definition of benami transactions, establishing adjudicating authorities and setting up an Appellate Tribunal to deal with benami transactions, and specifying the penalty for entering into such transactions - is indeed laudable. What does this amendment mean for the real estate industry, especially the residential markets? As with all other regulations, viz. Real Estate (Regulation and Development) Act and Land Acquisition Rehabilitation and Resettlement (Amendment) Bill 2015, aimed at increasing transparency and professionalism in the industry, the Benami Transactions Bill is a further step in the same direction. Talking of real estate, with global investors committing over $2 billion in the Indian real estate sector, credit rating agency ICRA said developers would be able to acquire new projects and ensure healthy launch pipeline.  

Currency

Here is China's goal. Come October, SDRs will include the Renminbi, which will be part of melded currency that also includes dollars, euros, pound sterling, yen and renminbi. Each of these currencies is assigned a relative weighting, which along with currency fluctuations determines how many SDRs a particular currency can buy. When a currency is rising relative to others, it is worth more SDRs that when it is falling - the arithmetic is as simple as that. Moreover, rarely if ever currencies follow dramatically different paths. Since IMF issues SDRs in limited quantities, any impact on the world's monetary system is at most at nominal. If the US creates trillions of dollars, these dollars may be worth fewer SDRs to the extent that other currencies aren't being printed at a comparable rate. But right now, it does not matter - the dollar will still be the king of the trade, and that is true with or without the renminbi included in the basket. This can change only if SDR can develop a raison d’être that trumps the dollar. China has set out on the course to shift the world currency order from being unipolar or bipolar to multipolar. In the prevailing circumstances, the prospect of the emergence of a single world currency for the smooth conduct of international trade and financial affairs appears feasible only in the long run and not in the near future. This will remain so until the major international trading partners and stakeholders in global financial transactions come together to give Keynes’ proposal a push, which is not an immediate priority in any country’s scheme of things. Until the time a single world currency makes an appearance on the horizon of the international economy, SDR (special drawing rights) will have to do its best to serve the purpose of integrating the global economy, involving production and exchange. In any case, the world economy deserves a single robust and dynamic global currency. But how long it will take to become a reality is anyone’s guess.

Taxation

The PM’s clarion call that the GST will end “tax terrorism” will be realised only if a “consumer first” strategy with a strong dose of technology is made central to the implementation plan. Otherwise, “one country, one tax, one market” could remain an unrealised dream. The Delhi Assembly passed a resolution to ratify the Constitution (122nd Amendment) Bill. Dy CM, Manish Sisodia called the Bill a step in the right direction, but admitted to concerns over its implementation. Not just Delhi, 9 states have ratified the Bill. Eager to meet the April 1 target to roll out the GST, the government may advance Winter Session of Parliament by a fortnight to get supporting legislations passed, leaving sufficient time for implementation of the new indirect tax regime. An early Winter Session would help get the Central GST (CGST) and Integrated GST (IGST) legislations, that will pave way for the Goods and Services Tax (GST), to be approved within November or latest by early December, government officials said.

+ This ain't my comment, but came across this somewhere in the cyberspace, simple, simplistic, but captures the general moodThose who are indulging in Black money transaction are mostly by the Business persons and the so called Politicians and it is they who are going to suffer if such limitations and banning of cash deals is imposed by CBDT. Let us see whether this measure will be approved by Govt. because the Political parties are all indulging in black money and that was the reason they do not want to divulge the source of Funds and now let us how it functions or works. Well, the comment is related to a proposal to ban cash deals over Rs. 3 lacs by the Central Board of Direct Taxes (CBDT). 

Corporate Scan

Shares of Monsanto India slipped over 2 per cent after the company's parent firm said it has withdrawn application seeking approval for the next generation genetically modified (GM) cotton seeds in India because of regulatory uncertainties. Vandana Shiva: Its time for Monsanto to quit India. Monsanto’s withdrawal threat is empty. Indian law does not allow a patent on seed, and Roundup Ready crops are not approved for cultivation.

+ Welspun India shares crash after US retailer ends contract. 

+ In 2009, GE was returning to its heavy-industry roots and navigating the global financial crisis, shedding much of its bloated finance arm, GE Capital. That winnowing went on for years as billions of dollars in assets were sold, passing a milestone this summer when GE Capital was removed from the US government’s short list of financial institutions deemed “too big to fail”. Today, one of San Ramon’s most important projects is to build a computer operating system, but on an industrial scale—a Microsoft Windows or Google Android for factories and industrial equipment. The project is central to GE’s drive to become what Immelt, chief executive of General Electric says will be a “top 10 software company” by 2020. GE gears up to take on the Silicon Valley giants

+ At a time when investors are gradually tightening their purse strings on venture capital-backed e-commerce firms and tech startups - from $2.91 billion in September quarter of 2015 to $1.52 billion in December quarter to $1.40 billion in March quarter of 2016 and to $583 million in June quarter of the ongoing year - the investee companies are having to take a hard look at their growth oriented businesses. And it is the employees who are having to bear the brunt. Since August 2015, eight of the poster-boys of the country’s e-commerce and technology ventures have reportedly trimmed close to 3,000 jobs because of reasons such as organisational restructuring, non-performance, scaling down of operations. 

Infrastructure

The story of SAUNI: pipe and water dream in parched Saurashtra. SAUNI stands for Saurashtra Narmada Avtaran Irrigation. The project rests on the estimate that Narmada floodwaters will be available for 100 days every monsoon. If that happens, SAUNI will get 1 MAFT (million acre feet). Officials say 1 MAFT can fill Saurashtra’s largest dam, Shetrunji, thrice over. Work on Sardar Sarovar’s gates is likely to be completed by September 2018, raising the height of the dam and increasing its storage capacity. But officials insist there will still be water for SAUNI. N K Jadav, Secretary (Water Resources) of SSNNL, says average annual overflow in the last 18 years has been 3 MAFT. The dam historically overflows every monsoon; it has overflowed twice so far this year. MoS (Independent Charge) Water Resources, Nanu Vanani, says the main Narmada canal passes downstream dams like Panam, Kadana and Dharoi, and floodwaters of rivers like Mahi and Sabarmati too can be channelled towards Saurashtra to feed the SAUNI network.


+ CCEA gives nod to 9 railway projects worth Rs. 24, 000 crore. Whats pretty interesting is the fact that all these projects are going to be entirely financed by the LIC of India

+ Gadkari said that the Centre is working on a proposal to form subsidiaries under the 12 major ports in India which will invest in developing inland waterways across the country. According to the plan, the ministry will unveil a policy which will enable all government run ports to form companies under their umbrella with a focus on such development. “This Act will be simple to understand, transparent and business friendly. Under this itself, we are proposing to abolish TAMP. (Tariff Authority for Major Ports), which will be tabled in the next Parliament session,” Gadkari said. 

+ Facing shortfall in freight loading, Railways today rationalised coal tariff by reducing the rate for long-distance transportation and increasing it for short distance while imposing Rs 55 per ton coal terminal surcharge at loading and unloading for distance beyond 100 km. And the justification for this move is its "revenue neutral" argument. 

+ Tata Power said most operations other than CGPL have done better and reported strong performance. Whatever other plants have achieved, Tata Power's Q1 profits have tanked 76% on one-time loss, and its revenue is down by 5%.  

+ Non-coal mining is stuck in a limbo. With the January 11, 2017, deadline looming large, the Centre is burning midnight oil to clear 288-odd non-coal mining proposals that are stuck at various levels. The  288 cases are unique as the proposals were in process either with the state government or the Centre even before January 2015, when the new mining law came into effect. Under the old law, the firms were granted mining leases (MLs) by the states on a discretionary basis. The new law introduced a new way of granting MLs — through auction.


Activism 

Thanks for this blistering article/feature Anuradha."So long as they incorporate (or act in the form of a trust), businesses will now be free to trade in or exploit slaves, employ mercenary armies to do dirty work for despots, perform genocides or operate torture prisons for a despot's political opponents, or engage in piracy - all without civil liability to victims" is the resounding echo unless challenged. Just wanted to bring to notice of the first of such appeals: Kiobel v. Royal Dutch Petroleumwhere for the first time any appellate court rejected corporate liability under international law, and only the second time that any court has done so (the first was in a district court decision issued last week). Numerous courts have found that corporations are subject to the same liability as persons. The Kiobel decision is based on a radical misunderstanding of international law; the International Court of Justice has ruled that international law respects the corporate form, and this would be impossible without allowing corporate liability. Though, IFC is not strictly a corporation, the extension of the UN Privileges and Immunities Act doesn't force a nuanced opinion on how far overlapping the procedures of treating it on par with corporations go.

+ Martyrs have the right to be humans. But in doing so, Irom Sharmila has been exposed to the fickle nature of public opinion. A change in the means towards the same end can make you unpopular. It’s a paradox. For 16 long years, Irom Sharmila was fighting one fight. Now she has to fight two. The first struggle was an individual’s rebellion. The second one is a collective struggle. The second might prove to be harder than the first.

+ Political parties, mass movements and even the RSS are technically NGOs, that is, registered societies that are not part of the government. Over time, differences have blurred in this cauldron, in which some flourish, some feel harassed. The reasons for this should be studied and dealt with efficiently. Jaya Jaitly on suspicion and red tape. 

+ AOL deserves punishment, as the expert committee found out that the Yamuna flood plains were 'completely' destroyed, not just 'destroyed. Thanks Leo for the H/T. 

Audit

Gujarat government has failed to properly implementation of 'Swarnim Jayanti Mukhya Mantri Shaheri Vikas Yojana' (SJMMVY) (Golden Jubilee Chief Minister Urban Development Scheme) at many places in the state, said latest report of the Comptroller and Auditor General of India (CAG). 

+ From the states/UTs, Nearly 60% of the rape survivors in Uttar Pradesh since 2010 were minors, the Comptroller and Auditor General (CAG) said on Tuesday in a report highly critical of the Uttar Pradesh state government’s failure to curb crime against women; Controversy over the advertising expenditure of the Aam Aadmi Party government rocked the Delhi Assembly, as the BJP alleged that the administration was "hiding a CAG report" for the year 2015-16 as it had failed to place it in the House during its ongoing session, despite getting a copy of it well in advance; (CAG) has flagged irregularities in expenditure incurred by the Chandigarh police on recruitment without Parliamentary approval and unauthorised retention of departmental receipts outside the Consolidated Fund of India; and the Travancore royal family came out against an audit report by former Comptroller and Auditor General Vinod Rai over alleged theft of gold valuables from the Sree Padmanabha Swamy shrine here, saying it was never consulted in its preparation. 

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Weekly Digest (Economics, Finance and Banking) 2 August - 8 August 2016 GST SPECIAL

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Capital tends to liberate itself from dependence on the human contribution. That’s why essentially alltechnology is substitutive (imitative). The fraction of the global population capable of making any contribution of non-near-zero value today is no greater than 20% (Damned lies statistics!!). Politics fills the gap with bureaucratic bloat and other make-work, welfare, a variety of protectionisms, macroeconomic junky-stimulus … and the gulf it needs to fill yawns open further every year. Sunny-side up (old-style) liberalism promotes 'The Process' (which is great). If it seriously expects to maintain the narrative that there is a continuous historical trend in which (dysgenically deteriorating) human populations will always find a useful place, it is deeply in denial. Massive swathes of the core industrial infrastructure are already close to laborless. The proletariat was a phase. Socialists have nothing correct and interesting to say on this (like most) issues; they have …