The Parliamentary Standing Committee on Finance has come down heavily on the ministry of Corporate Affairs (MCA) for lagging behind in executing crucial projects required for addressing investor grievances and for failing to formulate recruitment guidelines that could cover the shortfall in specialised posts that remain vacant in the Serious Fraud Investigation Office (SFIO), the investigative arm of MCA. The Parliamentary committee, incidentally, is headed by former corporate affairs minister M Veerappa Moily under whose tenure most of the reforms within MCA were initiated. The House panel has representations from across political parties. Its members from Lok Sabha include S.S. Ahluwalia and Kirit Somaiya from the BJP, Saugata Roy (TMC), Bhartruhari Mahtab (BJD) and former Prime Minister Manmohan Singh (Congress) from the Rajya Sabha as some of its members. Taking a serious view of the acute shortage of officers (more than 50 per cent posts vacant) in the Serious Fraud Investigation Office (SFIO), the house panel lamented MCA for its "lackadaisical approach" in realising the full potential of SFIO in unravelling corporate frauds. It said that the three-month deadline to MCA for finalising the recruitment rules for SFIO was missed by the ministry. The Parliamentary panel noted: "The technological capability of SFIO also seems to be falling behind the curve. The Early Warning System, which was propounded as panacea for all corporate frauds at the time of its launch by the ministry, has been dumped by it for want of encouraging results." The panel expressed its unhappiness with the lack of progress shown by the specialised units within the SFIO. "The computer forensics lab set up in Market Research and Analysis Unit (MRAU) of SFIO is yet to show tangible results by way of timely identification and detection of high-tech corporate frauds." Responding to the panels suggestion on recruitment for SFIO, the MCA said that the terms of deputation offered in SFIO were not as attractive as offered by other premier Investigation Agencies like CBI, IB, Enforcement Directorate, NIA and SEBI. "As a result, there is no motivation for officers from various organizations to opt for deputation to SFIO. This issue has now been taken up with the 7th Pay Commission and a strong case has been made out for raising the deputation allowance," it said. Not satisfied with the response, the panel told MCA to finalise the recruitment rules immediately without further delay so that SFIO could have a permanent cadre of officials and lack of manpower would no longer be an issue for its under-performance. The committee noted that MCA in their 'Action Taken Replies' remained silent on the mechanism regarding accountability in case of delays in finalising cases. "The ministry should install a system in this regard and be firm in fixing responsibility where there are delays in finalising cases," the committee told MCA. The Parliamentary committee also pulled up MCA for delaying the setting up of the Investor Education and Protection Fund (IEPF) Authority as required under the new Companies Act. The Parliamentary panel wants the redressal of all investors grievances under IEPF as a single-window system. In its report on demand for grants 2014-15 for MCA, the House panel said that creation of IEPF Authority has taken an "unduly long time". Panel noted that excluding investor grievances from the mandate of IEPF Authority will do “no justice” to the investors' fraternity. The proposed IEPF Authority would be responsible for administration of investor education and protection funds, undertaking investor awareness, refund of unclaimed amounts, distribution of disgorged money and reimbursement of legal expenses under class action suits. "The Ministry should include all investor-related activities including redressal of investor grievances under the ambit of the Authority as it will act as a single window for all investor problems," the report said. The report was submitted to Parliament on Saturday. The house panel urged MCA that the Indian Institute of Corporate Affairs (IICA) should redefine itself rather than just being a training institution. "Considering the amount of investments which has gone into creating such massive infrastructure of the Institute, much more needs to be done," it noted. IICA should not limit its scope by merely becoming a training institution for the probationers of the Indian Corporate Law Service and other officials of MCA, it said rather It should rather redefine its role and pro-actively position itself in the market as a leading research-based institute, which can serve the growing needs of Indian industry in the area of corporate law and practice," it added. ashish.sinha@businessworld.in
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A proposed bill to check fraudulent multi-level marketing (MLM) or ponzi schemes has been put on hold by the Indian government. The Finance Ministry had started the process to amend Prize Chits and Money Circulation Schemes (Banning) Act, 1978 to check the menace of ponzi schemes which continue to defraud investors of their hard-earned money. The Ministry informed a recent meeting of representatives of central revenue intelligence and law enforcement agencies that the amendment bill "has been put on hold for the time being", official sources said. It was also informed that an inter-ministerial group (IMG) formed under Additional Secretary, Department of Economic Affairs, is looking into all aspects including the amendment of the Act, they said. A ponzi scheme is a swindle in which quick return on an investment is offered. Major such scams being probed by the Central Bureau of Investigation (CBI), Income Tax and other investigating agencies include those relating to Rose Valley and Saradha chit fund wherein investors lost about INR 15,000 crore and INR 2,500 crore respectively on false promise of good returns. The Finance Ministry had earlier obtained comments from the industry on the amendments to the Act for a framework for regulation of MLM and pyramid marketing companies, the sources said. It had also written to Indian Embassies and High Commissions of select countries to gather relevant legal and regulatory framework, and industry practises for direct selling and MLM or ponzi schemes, they said. Sources said a Cabinet note will be prepared for the Bill's introduction in Parliament after getting IMG's recommendations and after considering other legal and regulatory issues. Meanwhile, a new set of standard operating procedures (SOP) is being formulated by the government for central and state law enforcement agencies for probing ponzi schemes. The issue of ponzi schemes and ways to check them is regularly being discussed in meetings of Economic Intelligence Council, headed by Finance Minister Arun Jaitley, on intelligence sharing and financial crimes, they said. (PTI)
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Indian food regulator may end up with egg of its face when it finds that the product it has banned has been given OK nod in much evolved and advanced regulatory systems, says Joe C Mathew If there has been one very positive outcome of the Maggi instant noodle ban, it was the revelation that India lacks adequate number of food testing laboratories and, the ones that are functional, need serious quality upgradation. Extensive media coverage highlighted the gaps that exist, and the on-going government efforts to strengthen India’s food regulatory system. However, very few took a critical view on how respective governments over the last decade or so, spoiled the country’s chance to develop a quality food and drug testing and regulatory system in the country as the problem with India’s food and drug regulatory system was known for umpteen number of years now. The most ambitious attempt to overhaul the country’s food and drug testing and regulatory capabilities happened in 2003, when the central government launched a World Bank funded Food and Drugs Capacity building project with exactly the same vision. To be fair, the archaic Prevention of Food Adulteration (PFA) Act got repealed during this time, drug laws got amended, and the FDA Bhawan, which houses the Food Safety and Standards Authority of India (FSSAI) and the Central Drug Standard Control Organisation (CDSCO) was built. Modernisation of testing laboratories and augmentation of regulatory checks also happened during this period. The project got completed in 2009. The World Bank must have assessed it to be a moderately unsatisfactory project, but the Magi episode points out that it was worse. Joe C MathewThe government’s failed attempt to link all state drug regulatory authorities through a common e-platform even after it was first mooted in 2003 is perhaps a glaring example of how implementation fails to achieve the desired effect. The first issue was the delay in getting the States shift to a single digital platform. The compatibility issues created problems with real time data transfer. Data upgradation - be it number of samples picked up, new products approved, or prosecutions taken – are all mission imperfect even to this day. What is consistent is the promise to deliver. If the latest reports are to be trusted, the government is once again trying to revamp the drug and food regulatory system and increasing its manpower multiple folds. New divisions to regulate emerging sectors such as medical devices are also in the works. It would be worth looking at the operational problems highlighted by the World Bank in 2009 while embarking upon new programmes. To quote the report: “The food and drugs sector being in the Concurrent List of the Indian Constitution, both the Centre and the States have independent authority to pass legislations. This division of responsibilities between the Centre and the States in legislation and implementation of food and drug regulation in a large country like India with varied state capacities and commitment was a major challenge throughout the project”. The World Bank analysis makes it further clear. “The Concurrent nature of the food and drugs sector was one factor which led to a lack of interest and commitment in some states to a project mandated by the centre. States were particularly slow in addressing human resource issues which were at the heart of achieving effective oversight and regulation in the food and drug sectors”. It also points out that during implementation it turned out that the design was too ambitious in assuming that the complexity of multiple Center-State interactions can be managed centrally and advises that with the benefit of hindsight, one might have chosen a more focused design with only a few States selected for capacity building along with the Center and more decentralized implementation. Since the problems that turned the World Bank project “moderately unsatisfactory” remain the same, it would be prudent for the government to realise that mere efforts and shifting deadlines will not improve the country’s food and drug regulatory infrastructure. More work has to be done, otherwise, Indian food regulator may end up with egg of its face when it finds that the product it has banned has been given OK nod in much evolved and advanced regulatory systems in other parts of the world.
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The proposed Rs 20,000-crore National Investment and Infrastructure Fund will function as a sovereign wealth fund like Singapore's Temasek and operate at "arm's length" from the government, Minister of State for Finance Jayant Sinha said on Friday. To be operational by the year end, NIIF will primarily focus on fund infusion in infrastructure projects -- greenfield, brownfield and the stalled ones. "It will be a commercially oriented enterprise and will be located in Mumbai and operate at arm's length from government," Sinha said. "We will be hiring the best talent in the world for this institution so that they can assess and evaluate a variety of investment opportunities using the most sophisticated valuation techniques," he added. The government, he said, will ensure that NIIF operates like sovereign wealth funds such as Temasek (of Singapore) and the Green Investment Bank in the UK. Government's equity in the project will be capped at 49 per cent, he said, adding that the remaining portion will held by large business groups as well as provident fund, endowment and sovereign wealth funds. Several countries have shown interest in the fund, he said. NIIF will have a dual role of equity capital infusion in projects as well as getting the due diligence done for investment in infrastructure projects and have investors available for them, Sinha said. "We have obviously discussed this with the New Development Bank and we see them as a very valuable partner in being able to invest in these kind of projects. The dual mission is to have a pipeline of projects and attract co-investor as well. We think the NDB could be a co-investor," he said. The New Development Bank, founded by the BRICS nations, is expected to roll out its operations by April 2016. Sinha said smart cities would be an important area of investment for NIIF. The Fund will be regulated by market regulator Sebi. The decision to set up the fund was taken at the meeting of the Cabinet headed by Prime Minister Narendra Modi earlier in the week. The NIIF is being established with an aim to maximise "economic impact" mainly through infrastructure development in commercially viable projects. The planned capital expenditure in the first quarter of current fiscal grew 38 per cent to Rs 31,051 crore from Rs 22,552 crore in the same period last fiscal. (PTI)
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Raghuram RajanReserve Bank Governor Raghuram Rajan on Friday (31 July) said Rs 25,000 crore of capital infusion planned by the government in public sector banks this fiscal is "adequate and a good beginning". While Finance Minister Arun Jaitley had in Budget for 2015-16 provided Rs 7,940 crore towards recapitalisation of PSU banks, he on Friday (31 July) sought Parliament nod for another Rs 12,010 crore in the first supplementary demand for grants. Another Rs 5,000 crore will be provided in subsequent supplementary demand through the year totaling Rs 25,000 crore of capital infusion. "Allocation for first-year recapitalisation is adequate," Rajan said when asked to comment on the infusion plan. "It's a good beginning," he said after his customary meeting with Jaitley ahead of the third bi-monthly monetary policy on August 4. High levels of non-performing assets in state-run banks have made it hard for the government of Prime Minister Narendra Modi to revive investment or accelerate growth in Asia's third largest economy. State-run banks have amassed bad loans at a faster pace than their privately owned peers, raising concerns about their ability to meet tougher global regulatory capital requirements. This month, credit rating agency Fitch said the capital needs of state-run banks were likely to increase substantially each year until 2018/19. Last month, Morgan Stanley said the government would need to inject $15 billion across all state banks "urgently" to achieve a common equity Tier-1 ratio of around 10 per cent. It was not immediately clear where the extra money would come from. After initial hesitation, Jaitley agreed with a plea by the Reserve Bank of India to provide more capital to banks. The country's top six banks — State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI will get 40 per cent of the total amount that the government plans to spend this fiscal year, it added. All banks will get financial support from the government, 20 per cent of the fund allocation will be tied to performance. After the announcement, shares of State Bank of India rose as much as 6.3 per cent, while shares of Bank of Baroda were up 5 per cent. The Finance Ministry, in a statement, said public sector banks (PSBs) as of now are "adequately capitalised", but would need Rs 1,80,000 crore extra capital over the next four years (up to FY19). Of this, the government plans to provide Rs 70,000 crore through budgetary support -- Rs 25,000 crore each in current and next fiscals and Rs 10,000 crore each in 2017-18 and 2018-19. Banks would be required to raise the remaining amount of Rs 1.1 lakh crore from the market, the statement said. RBI Deputy Governor R Gandhi said the decision to infuse Rs 70,000 crore over the next four years was a welcome move by the government. As for the Rs 1.1 lakh crore required to be tapped by banks over the next four years, he said there was enough appetite in the market for that. Banking Shares SurgeBanking shares mainly public sector undertakings (PSU) were trading higher by up to 5 per cent on the bourses after the Finance Minister Arun Jaitley said that the government will infuse capital in public sector banks in the next three to six months. Union Bank of India (up 5 per cent at Rs 158), Punjab National Bank (4 per cent at Rs 144), Bank of Baroda (3.7 per cent at Rs 152), Syndicate Bank (3 per cent at Rs 108) and Oriental Bank of Commerce (3 per cent at Rs 189) have rallied between 3-5 per cent, while Allahabad Bank, Canara Bank, IDBI Bank, Bank of India and State Bank of India (SBI) were up 1-2 per cent on the National Stock Exchange (NSE). At 0945 hours, CNX PSU Bank index was up 2% compared to 0.30 per cent rise in the CNX Nifty. The finance ministry estimates that banks will have to raise about $17 billion from the market over four years to meet total funding requirements of about $28 billion beyond projected profits. Minister of state for finance Jayant Sinha told reporters the additional capital infusion for the banks would help meet regulatory requirements as well as growth needs. The government could provide more capital to the banks, if needed. "We have a robust recapitalisation plan in place," he said.
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NITI Aayog plans to hire a Chief Economist to conduct research on India's economic policy issues as well as to build contacts with outside institutions.In an advertisement posted on its website, the National Institute for Transforming India (NITI) Aayog said that it wants to hire Chief Economist by any of the three methods —promotion, deputation and direct recruitment.The post may also be filled for a short-term contract period.The Chief Economist will be entrusted with the tasks of conducting research on contemporary and futuristic economic policy issues on India and its states; conducting workshops and help built research culture within NITI Aayog and promote contact with outside scholars and institutions of distinctions.On the salary component, NITI Aayog said the pay scale will be decided at the time of selection, depending upon the qualification and experience of the person selected.NITI Aayog has been on a hiring spree. It has also invited applications for the post of Officers on Special Duty (OSDs) as well as engaging young professionals in the past.(PTI)
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Planning to inject $11 billion of capital into debt-laden state banks over the next four years, Finance Minister Arun Jaitley on Friday (31 July) sought Parliament's approval to boost budget spending by $4 billion in the current fiscal year. High levels of non-performing assets in state-run banks have made it hard for the government of Prime Minister Narendra Modi to revive investment or accelerate growth in Asia's third largest economy. After initial hesitation, Jaitley agreed with a plea by the Reserve Bank of India to provide more capital to banks. Jaitley plans to provide Rs 25,000 crore ($3.90 billion) each in the current and next fiscal year, while Rs 20,000 crore would be provided during 2017/18 and 2018/19, the finance ministry said in a statement. Having allocated $1.24 billion for the state banks in its February budget, the finance ministry aims to inject an extra $1.9 billion, if parliament approves. Later, it will seek an additional $50 billion rupees for capital infusion into banks. The country's top six banks — State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI will get $1.6 billion, the ministry said. That represents 40 per cent of the total $4 billion that the government plans to spend this fiscal year, it added. All banks will get financial support from the government, 20 per cent of the fund allocation will be tied to performance. After the announcement, shares of State Bank of India rose as much as 6.3 per cent, while shares of Bank of Baroda were up 5 per cent. CAPITAL NEEDSState lenders account for more than 70 per cent of all outstanding bank loans, and they need support to meet Basel III regulatory requirements. The finance ministry estimates that banks will have to raise about $17 billion from the market over four years to meet total funding requirements of about $28 billion beyond projected profits. Minister of state for finance Jayant Sinha told reporters the additional capital infusion for the banks would help meet regulatory requirements as well as growth needs. The government could provide more capital to the banks, if needed. "We have a robust recapitalisation plan in place," he said. State-run banks have amassed bad loans at a faster pace than their privately owned peers, raising concerns about their ability to meet tougher global regulatory capital requirements. While there will be relief at the moves to recapitalise India's banks, UR Bhatt, managing director at investment firm Dalton Capital in Mumbai, said there would be some disappointment that the capital infusion was not bigger. "Most of these public sector banks are not even able to grow their balance sheet because of lack of capital... to grow their way out of trouble they need capital," Bhatt said. This month, credit rating agency Fitch said the capital needs of state-run banks were likely to increase substantially each year until 2018/19. Last month Morgan Stanley said the government would need to inject $15 billion across all state banks "urgently" to achieve a common equity Tier-1 ratio of around 10 per cent. It was not immediately clear where the extra money would come from. Sinha said higher tax collections and savings from the fall in international crude oil prices put the government in a "comfortable position" to meet its fiscal deficit target. The government has a budgeted fiscal deficit target of 3.9 per cent of gross domestic product this fiscal year. Its original spending target was Rs 17.77 trillion ($277 billion).(Reuters)
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Sectors like insurance, pension, retail and pharmaceuticals will benefit from introduction of composite cap in the FDI policy which came into effect from July 30. In all these sectors, foreign portfolio investors can invest up to 49 per cent under automatic route. The government today notified changes in the foreign direct investment (FDI) policy under which there will be a composite cap on overseas investment in various sectors, except in banking and defence segments. The other sectors which will be benefited from this concept include scientific journals, facsimile edition of foreign news papers, tea plantation and mining and mineral separation of titanium. At present, 100 per cent foreign investment under government approval route is permitted in these sectors, except insurance and pension, where the cap is 49 per cent. However in case of FDI, a foreign investor is required to obtain government approval above 26 per cent, though there is no such restriction on portfolio investments. The press note further said that portfolio investment up to 49 per cent, subject to the sectoral ceiling, will not need government approval, if they do not result in transfer of ownership or control from Indian citizens to non-Indian entities. Under the modified norms, all types of direct and indirect overseas investments, whether portfolio or FDI, will be subject to a composite foreign investment cap for that particular sector. "There will not no sub-limits of portfolio investment and other kinds of foreign investments in commodity exchanges, credit information companies, infrastructure companies in securities market and power exchanges," the press note issued by the Department of Industrial Policy and Promotion said. However, in private sector banking, it said, there will a sub-limit of 49 per cent on portfolio investment within the overall foreign investment limit of 74 per cent. Similarly, in case of defence sector, the portfolio investment has been capped at 24 per cent under the automatic route. The private sector banks such as HDFC bank, ICICI Bank, Yes Bank and Kotak Mahindra bank have space for more portfolio investments as the current FII investment in these banks are 32.45 per cent, 40.25 per cent, 44 per cent and 35.32 per cent respectively as on June 15. The the press note further said that funds flow through debt instruments like Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs) will not be treated as foreign investment till they are converted into equity. It clarified that the equity holding by a person resident outside India resulting from conversion of debt instrument will be reckoned as foreign investment. The Cabinet had earlier in July approved introduction of concept of composite caps with a view to simplify FDI policy and attract foreign investments.
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Defence Minister Manohar Parrikar on Thursday (30 July) informed the Upper House that the Centre has withdrawn the multi-billion dollar tender for the 126 Medium Multi Role Combat Aircrafts (MMRCA), for which Rafale was shortlisted in 2012. "The Request for Proposal (RFP) issued earlier for the procurement of 126 MMRCA has been withdrawn. In the multi-vendor procurement case, the Rafale aircraft met all the performance characteristics stipulated in the RFP during the evaluation conducted by the Indian Air Force," Parrikar said in a written reply to Rajya Sabha. The move comes just months after the Defence Minister indicated that the over USD 20 billion MMRCA tender has virtually been scrapped after the government decided to purchase 36 Rafales under a government-to-government contract. The talks for the 36 Rafales have already commenced, the Minister said. Defence sources said that a letter was sent out to the six vendors shortlisted for the RFP, which was then the biggest aviation contract globally. The RFP for the procurement of 126 MMRCA, at a then estimated cost of Rs 42,000 crores, was issued in 2007 to six vendors - Russia's MIG-35 (RAC MiG), Swedish JAS-39 (Gripen), Dassault Rafale (France), American F-16 Falcon (Lockheed Martin), Boeing's F/A-18 Super Hornet and Eurofighter Typhoon (made by a consortium of British, German, Spanish and Italian firms). Under the terms of purchase, the first 18 MMRCA aircrafts were supposed to come in a 'fly away' condition while the remaining 108 manufactured under Transfer of Technology. While initially the tender was valued at about $10 billion for 126 aircraft, the current price is estimated to be over $20 billion. Prime Minister Narendra Modi had in April announced purchase of 36 Rafale fighter aircrafts in fly-away condition from the French government directly, sidestepping the grueling three-year negotiations for the MMRCA tender.(PTI)
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Consensus continues to elude the joint committee of Parliament on land bill. This was primarily the reason why the key meeting on the bill, scheduled for Thursday (30 July), has been deferred. The next meeting when the committee will take up the bill clause by clause, will be held on Monday. A non-BJP member of the 30-member committee told Businessworld that the panel head was still trying to arrive at some sort of understanding with the Opposition members on the panel. After the committee chairman S S Ahluwalia had called up Opposition members on Wednesday, Congress’s K V Thomas told Businessworld that his party was for “the middle ground”, as opposed to the Left and the Trinamool which are for total withdrawal of the bill. The BJP’s current predicament is due to its ally Shiv Sena’s belligerent stance that has moved amendments on the bill. Sena’s Anandrao Adsul had also attended a strategy session at the residence of NCP supremo Sharad Pawar that was attended by other Opposition party representatives. BJP can take heart from the fact that ally LJP has vowed to support it, while TDP also might go with it. The NDA commands support of 14 members on the joint committee – 11 of the BJP, and one each of the Telugu Desam Party, Lok Jan Shakti Party and the Shiv Sena.
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