Daily Hindu Editorials

For Offline Reading   =>  Click here 👉The conduct of the board of ICICI Bank raises questions about corporate governance👈 The board of ICICI Bank has finally acted on the allegations of misconduct against its CEO and managing director, Chanda Kochhar. It had earlier maintained that she was on annual personal leave; now, she will stay away from the office till the completion of an inquiry into the charges levelled against her by a whistle-blower. Rather than allow the controversy to fester, the board of ICICI Bank, an institution that often sought to hold a mirror up to the inefficiencies of public sector banks, should have acted earlier. Till the inquiry is complete the bank will be steered by a new chief operating officer, Sandeep Bakhshi. The official version is that he will report to Ms. Kochhar, who herself took the decision to go on leave till the end of the inquiry — but this is at best a face-saving cover for a board that was reluctant to act since the contro...

👉The RBI’s inflation-targeting framework has reduced its flexibility to respond dynamically to other market-driven factors👈 Not so long ago, bi-monthly policy meetings of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) entailed nail-biting suspense for market participants, who watched it for cues to the future direction of interest rates. Rate hike decisions by the MPC, that too after a long pause, inevitably roiled the stock and bond markets. But the latest meeting saw the tables being turned. When the MPC decided to peg up its repo rate by 25 basis points, signalling a reversal from its cheap money policies of the last three years, traders and investors were unperturbed. The S&P BSE Sensex ended the day with a 275-point gain. The 10-year government security saw its yield rise by a mild 9 basis points. Commentators even congratulated the MPC for putting through a ‘dovish’ hike. If you are wondering about this non-reaction, blame Mr. Market for ...

👉A ‘bad bank’ is not a magic bullet; tackling NPAs requires other structural reforms as well👈 Union Minister Piyush Goyal, currently in charge of the Finance Ministry, has announced the formation of a committee to assess the idea of special asset reconstruction companies or asset management companies to take over bad loans from banks. The bankers’ panel has been given two weeks to revert. The idea of a ‘bad bank’ is not new. Chief Economic Adviser Arvind Subramanian had suggested the creation of a Public Sector Asset Rehabilitation Agency (PARA) to deal with what he described as India’s “festering twin balance sheet problem”. By this he meant over-leveraged corporates unable to service debt or invest afresh, and banks hit by non-performing assets (NPAs) cagey about fresh lending. This overhang hurts new investments and continues to dent India’s medium-term growth and job creation prospects. A professionally-run PARA, or the so-called ‘bad bank’, could assume custody of the larges...

👉It is now clear that the Indian economy is moving along a lower growth path👈 At the end of May the Central Statistics Office (CSO) released much-awaited estimates of national income for the final quarter of the 2017-18 financial year. The timing coincided with the completion of four years in office of the National Democratic Alliance (NDA) government. In a propaganda blitz, surging through the Net, the government embraced the GDP figures to declare that it has successfully “accelerated growth”. However, while this holds true for the past few quarters it does not when the past four years are taken into the reckoning. The facts are that the annual rate of growth since 2014 has first risen and then declined. By 2017-18 growth at 6.6% was less than the 6.9% it was in the final year of the second United Progressive Alliance (UPA) government. 👉Along which horizon? So how you see the growth performance of the economy under Prime Minister Narendra Modi depends on the horizon chos...

👉The escalating trade wars will hurt economic growth worldwide👈 Nobody wants to lose a trade war. The European Commission on Wednesday announced it would impose tariffs as high as 25% on imports worth $3.3 billion from the U.S. beginning July. A whole range of American goods, from motorbikes and jeans to peanut butter and orange juice, will now face higher taxes when sold in the European Union zone. The Commission is also mulling import duties on more American goods if the trade war with the U.S. intensifies. Europe is not alone in waging a battle against imports from the U.S.; China, Mexico and Canada have joined hands in response to President Donald Trump’s decision to impose tariffs on steel and aluminium imports. Last week, the U.S. imposed a 25% tax on steel and a 10% tax on aluminium imports from the EU, Mexico and Canada. The first salvo in this ongoing trade war, however, was fired by Mr. Trump in March this year, when he imposed tariffs on Chinese steel and aluminium to ...

👍YES 👉Many  policy initiatives have shown a clear productivity enhancing supply-side thrust The Indian economy has shown a strong V-shaped recovery driven largely by domestic growth impulses. If one considers nine consecutive quarters since the fourth quarter of 2015-16, Gross Domestic Product (GDP) growth fell quarter after quarter from a peak of 9% to a trough of 5.6% in the first quarter of 2017-18. As is widely recognised, this was due to demonetisation and the transitory adverse effects of the goods and services tax implementation. These eventually subsided and for the last three quarters, growth steadily recovered to 6.3%, 7.0% and 7.7% in the second, third and fourth quarters of 2017-18, respectively. This sharp recovery is based entirely on domestic factors as the contribution of net export growth to GDP has been zero or negative since the third quarter of 2016-17. From the demand side, two segments which have supported growth, particularly in the fourth quarter of ...

👉As inflationary trends harden, the RBI’s rate hike will quell uncertainty in the markets👈 At the end of an unusually long three-day meeting, the Monetary Policy Committee of the Reserve Bank of India opted for a hike in key interest rates by 25 basis points — the first such increase in four and a half years. This hike, the first during this NDA government’s tenure, was approved unanimously by the six-member committee, citing worries about hardening inflation trends and a firming up of growth recovery at home. Global uncertainties affecting emerging markets in particular have played a role as well — be it rising tensions over trade wars initiated by the Donald Trump administration or the strengthening dollar or further rate hikes by the Federal Reserve that could strengthen the exodus of global capital from emerging markets such as India. Already, between January and May, outflows from foreign portfolio investors have reached their highest level in 10 years, and by June 4, $6.7 b...

👉Why we need to go through the timeline of the uncalled-for drama at ICICI Bank👈 Finally, finally, the board of ICICI Bank has ordered a probe into allegations levelled against its CEO, Chanda Kochhar. Does this call for a celebration? No, it doesn’t. The probe comes rather late in the day. And the board is having to refer the matter to an outsider only because of its own inadequate response to the initial set of charges made nearly two years ago. These constitute lapses in governance at a bank that has been characterised as “systemically important” by the regulator. On May 30, the board of directors of ICICI Bank announced that it had ordered an inquiry by an outsider into allegations made by a whistle-blower. These allegations are not to be confused with the ones made by an investor, Arvind Gupta, in 2016. Mr. Gupta had then written to the Prime Minister, with copies to the Governor of the Reserve Bank of India and the Chairperson of the Securities and Exchange Board of Ind...

👉Both the Centre and States must bite the bullet to cut taxes on petrol and diesel👈 Last Wednesday, the public sector oil marketing companies cut the prices of petrol and diesel by one paisa a litre — the first reduction for a while in motor fuel prices that had been frozen for 19 days in the run-up to the Karnataka elections, only to creep up thereafter. Not surprisingly, the Centre, already under fire for persisting with high fuel taxes despite the rise in the global prices of crude in recent months, faced fresh flak over this cursory cut. The same day, the Kerala government approved a reduction in the sales tax on motor fuel products to effect a ₹1 cut in prices per litre in the State starting June 1. For the BJP-led government at the Centre, gearing up for several Assembly elections this year followed by the general election in 2019, the pressure to check pump-level fuel prices is intensifying. Several formulations are said to be under consideration to soften the blow to the ...

👉Q4 GDP growth is up, but with inflation risks. RBI will have to take a call on raising rates👈 Official data showing the GDP expanding at the fastest pace in seven quarters in the three months ended March 31, a brisk 7.7% at that, is reason for cheer. Given that this has been propelled largely by increases in manufacturing and construction activity is a basis for optimism given that the former contributes almost a fifth of quarterly gross value added (GVA) and the latter about 8%. The rebound in construction is all the more heartening since it is both a creator of direct and indirect jobs and a multiplier of overall output. In the fourth quarter, construction is estimated to have posted a robust 11.5% growth, almost a doubling in pace from the 6.6% in the third quarter, and compares favourably with the contraction of 3.9% seen in the demonetisation-hit year-earlier period. Two key groupings of services that together contributed more than 38% of fourth-quarter GVA — the first comp...

👉President Macri’s reformist credentials are on the line as Argentina faces economic crisis👈 Argentina is not alone among major emerging economies in trying to weather the current run on currencies due to the rallying U.S. dollar and rising interest rates. But with a history of recurrent defaults and devaluation of the peso, Buenos Aires has greater cause for concern. President Mauricio Macri, whose market-friendly image ensured Argentina’s return to the global capital markets in 2016 after a decade, has a special stake in ensuring that his reforms remain on track. Following a record sovereign debt issue that year, Argentina became the second Latin American state after Mexico to launch a 100-year maturity bond in 2017. The new optimistic narrative was based on the former businessman’s commitment to reducing the fiscal deficit, building on the prevailing reasonable ratio of public borrowing to GDP. Nevertheless, Mr. Macri’s poll promise to make Argentina a “normal country” has bee...

👉The proposed change to the Bankruptcy Code must treat homebuyers a step above lenders👈 Homebuyers parted of their money by real estate developers have some relief coming their way. The Union Cabinet has cleared an ordinance amending the Insolvency and Bankruptcy Code (IBC), a law which came into force in November 2016 to hasten the process of winding up failed businesses. While the government refused to divulge specific details of the amendment, the change to the law is expected to help offer better treatment to homebuyers when it comes to recovering their dues from bankrupt companies. A 14-member panel formed by the Ministry of Corporate Affairs had recommended last month that homebuyers should be treated as financial creditors during the bankruptcy resolution process. It is yet to be known whether homebuyers will be treated better or worse than banks and other financial lenders under the amended law. But there is a sound reason to treat them a step above these traditional lend...

👉The new bankruptcy code yields its first success, but many wrinkles remain👈 Good news has finally started to roll out of the refurbished bankruptcy courts. Tata Steel acquired 73% stake in the bankrupt firm Bhushan Steel for about ₹35,000 crore last week, making it the first major resolution of a bankruptcy case under the new Insolvency and Bankruptcy Code (IBC). Bhushan Steel was one among the 12 major accounts referred to the National Company Law Tribunal at the behest of the Reserve Bank of India last year to ease the burden of bad loans on banks. The proceeds from the acquisition will go towards settling almost two-thirds of the total outstanding liabilities of over ₹56,000 crore that Bhushan Steel owes banks. While it may be unwise to read too much into a single case, the Bhushan Steel resolution is nevertheless an encouraging sign for banks because they typically manage to recover only about 25% of their money from defaulters. In fact, between April 2014 and September 2017...

👉The 15th Finance Commission has to take a call on the degree of equalisation that’s feasible👈 In the context of the Terms of Reference (ToR) of the 15th Finance Commission (FFC), certain key aspects relate to (a) the mandate for using the 2011 population; (b) ‘whether revenue deficit grants’ be given at all; (c) the impact of the goods and services tax (GST) on the finances of the Centre and States; (d) the reference to ‘conditionalities’ on State borrowing; and (e) providing performance incentives in respect of some contentious indicators. 👉Shift from 1971 to 2011 The southern States apprehend that they stand to lose under the so-called ‘population criterion’ if the 2011 population replaces the use of 1971 figures. State populations change not only because of their differential population growth but also due to migration. Using 1971 population data implies consciously using information that would be 50 years out of date by 2020-21, the first year of the FFC’s recom...

👉Slide of the currency and a widening trade deficit present the RBI with a huge dilemma👈 India’s macroeconomic threats lie exposed as it grapples with the rupee’s slide. The currency sunk to a closing low of 68.07 against the U.S. dollar on Tuesday, its lowest level in 16 months, before recovering slightly the next day. The rupee, already one of the worst performing Asian currencies, has now weakened 6.2% in 2018. The rise in crude oil prices through this year, amidst rising geopolitical tensions in West Asia and dwindling global supply, have obviously hurt the rupee and the trade balance. Meanwhile, despite a depreciating currency, India’s merchandise exports are stumbling instead of gaining from the opportunity. April clocked a sharp decline in exports from employment-intensive sectors such as readymade garments and gems and jewellery, according to official data. The trade deficit has consequently widened to $13.7 billion in April, compared to $13.25 billion in the same month i...

👉Political alignments should not come in the way of defending the fiscal rights of States 👈 My fellow Finance Ministers in the States, I hope you will agree that the award of the Finance Commission is vital to State finances. Some of us who met initially at Thiruvananthapuram, Kerala, and later at Amaravati, Andhra Pradesh, are worried about the implications of the terms of reference (ToR) of the Finance Commission determined by the Union government. The issues related to inter se distribution of resources are what have drawn attention and made headlines. But the issues at stake are much larger. What the ToR challenge are the federal values enshrined in the Constitution and the modicum of fiscal autonomy State governments enjoy. I am writing this open letter just in case you have misunderstood that our concerns are limited to a change in the population base year, from 1971 to 2011, which would in fact affect not only the southern States in general but also other States where ...

👉Walmart’s controlling stake in Flipkart shows why the government must update policy👈 India’s e-commerce market, which accounts for less than a tenth of its overall retail opportunity, has just got a significant thumbs-up from American supermarket giant Walmart. It has announced a plan to buy a controlling stake of around 77% in home-grown e-commerce firm Flipkart for a sum of $16 billion. In the process, Walmart has pipped rival Amazon, which is just behind Flipkart when it comes to its share of the Indian e-commerce pie and has independently been vying to acquire the Bengaluru-based company. China’s Alibaba, with its investment in Paytm Mall, is vying to compete in the space as well, along with the likes of Snapdeal, which around this time last year was being linked to a much-speculated merger plan with Flipkart. But the big battle for Indians’ e-tail space, for now, will play out between two of America’s biggest companies. Not surprisingly, traditional retail players have resp...

💥 GST revenue increase suggests the indirect tax regime is overcoming teething problems 💥 Collections from the Goods and Services Tax crossed the ₹1 lakh crore mark in April, according to data released by the Finance Ministry on tax receipts that accrued in March but were payable in April. To be precise, the total revenue from the new indirect tax in April was ₹1,03,458 crore, the highest recorded in a single month since its implementation in July 2017. Finance Minister Arun Jaitley has called this a “landmark achievement” and a “confirmation of increased economic activity”. Separate data released last week suggest the number of registered tax-payers filing GST returns by the specified deadline has risen from 57% for July to nearly 63% for March. And since many had consistently failed to meet the deadline in the initial months of confusion over the online returns filing system, it is heartening to note that by the final month of the financial year, they had caught up on their pas...