In cheque bounce cases, we need to find a balance so that malafide intent is punished while other, less serious offences are open to negotiation
Issuing of post-dated cheques or signing of irrevocable mandates to banks to debit the agreed Equated Monthly Installment (EMI) on a fixed date every month is a common practice when loans or goods purchased on credit are repaid on a regular basis. If the cheque or automatic electronic debit is dishonoured by the bank for want of funds/mandate and the debtor fails to clear the dues within 15 days of a written notice by the bank (to be given within 30 days of dishonour), the creditor can file a criminal complaint. This is because the debtor commits an offence punishable with up to two years in jail or fine up to two times the amount of the cheque issued or both. The criminal case can be dropped in case of a compromise or settlement. This is provided under Section 138 of the Negotiable Instruments Act, 1881. The objective of all this is to promote the efficiency of banking operations and to ensure credibility in transacting business through cheques. The 1881 Act was amended in 1989 to introduce a one-year jail term that was enhanced to two years in 2003. But the offence was made “compoundable”, meaning that the criminal proceedings can now be dropped if some compromise is reached between the two parties.
India, with its huge population, has problems that are unique to it and the overburdening of resources or institutions is one of them. So, it is not surprising then, that a total of 346 lakh court cases were pending in the country on October 29 this year. Out of this, there were over 251 lakh criminal and over 95 lakh civil cases, of which over 199 lakh criminal cases were more than a year old. A Public Interest Litigation (PIL) filed by the Indian Banks’ Association (IBA) in 2013 had highlighted that out of the pending 270 lakh court cases, about 40 lakh were cheque bounce cases, involving about Rs 1,200 crore. These cases, estimated to be about 20 per cent of the total caseload (2018), are clogging the already overburdened criminal courts. Do we have enough jails and judges to convict every offender? Shouldn’t we have a hierarchy or priority list of offences to be targetted by the prosecution and adjudicating systems? Should the debtors, who have already mortgaged movable and immovable properties, be further subjected to criminal liability?
The Government is considering decriminalising cheque bounce cases and some other “civil wrongs.” On June 8, the Finance Ministry sought stakeholder comments on its proposal to decriminalise 39 “minor economic offences” created under 19 Acts, including non-repayment of loans and dishonour of a cheque or automatic electronic debit for “improving the ease of doing business and helping unclog the court system and prisons.” However, the decriminalisation proposal has been opposed by the IBA, the Confederation of All-India Traders, the Finance Industry Development Council, the Federation of Industrial and Commercial Organisation and some Bar Councils.
The Bar Council of Delhi has highlighted the effect of the pandemic on lawyers in the country and how every advocate is facing a financial crisis. The Bar Councils of Maharashtra and Goa, too, have opposed the proposal to decriminalise Section 138 of the Negotiable Instruments Act. They contended that the offence of cheque bounce should not be termed as a “minor” infraction by the Government in its bid to decriminalise the same. For lawyers, decriminalisation clearly means an adverse impact on their livelihoods. For traders selling on credit, there is a genuine problem of having no security against customer default. Instalment purchase of goods on EMI is supported by post-dated cheques, and no one will accept cheques if their bouncing is decriminalised. Trade will be left at the mercy of civil litigation that takes several years for justice to be delivered. Even after the current stringent Section 138, more than 20 per cent of all pendency of cases across the country is only pertaining to cheque bounce.
The bankers’ opposition to decriminalisation can also be understood for cheque bounce against unsecured loans. However, there is absolutely no justification for continuing with this additional protection in case of secured loans. While sanctioning EMI-based loans, banks insist on mortgage of immovable property or shares, debentures, fixed deposits and so on. Or they obtain guarantees from employers for deduction from the borrowers’ salary. In such cases, cheque bounce should be considered for decriminalisation to begin with. Borrowers — distressed by the Coronavirus pandemic — have been provided some relief by way of moratorium and deferral of fresh applications for insolvency proceedings but the criminal liability under the Negotiable Instruments Act, 1881, as amended in 1989, 2003 and 2018, remains. Normally, for criminal liability to be pinned to a person, presence of mens rea, malafide intention is a must. However, in cheque bounce cases, malafide intention may or may not be there and need not be proved. A strict liability has been created without going into a cheque issuer’s intentions as a measure to build trust and credibility in cheque transactions.
The objective of amending Section 138 of the Negotiable Instruments Act in 1989 was to add credibility in transacting business through cheques. Current realities are so very different from 1989 when cheque bounce was first criminalised.
Provision of criminal liability — prosecution and imprisonment — on strict liability basis, without the need to prove malafide intention, is an identified deterrent for attracting new investment. It is in larger public interest to declog our criminal courts and jails.
In Kaushalya Devi Massand vs Roopkishore Khore case, the Supreme Court held that the offence committed under Section 138 of the Negotiable Instruments Act cloaks a civil wrong as a criminal act and the gravity of offence under Section 138 of the Act cannot be equated with a crime under the provisions of the Indian Penal Code or other criminal offences.
In Makwana Mangaldas Tulsidas vs. State of Gujarat and others case, the Supreme Court recently favoured decriminalisation of dishonour of small value cheques. The court suggested various ways to deal with the situation of overflowing cheque bounce cases pending adjudication across the country. The apex court suggested developing a mechanism for pre-litigation settlement in these cases.
The Centre, while decriminalising some defaults, has to balance the interests of lawyers, the business community and the welfare of the public at large, especially those who are not wilful defaulters. In cheque bounce cases, we need to find a balance so that malafide intent is punished while other, less serious offences are compounded. As the working of the SARFESAI Act (The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act) and the Insolvency and Bankruptcy Code (IBC) have shown, the cases of wilful defaults are very few and such offenders continue to dodge the law while a large number of non-wilful defaulters continue to suffer harassment in courts. Public policy is all about balancing conflicting requirements and expectations. Creditors would want to have as many solutions as possible and pursue all those remedies simultaneously. However, such an approach has a deleterious effect on business sentiment. It may end up having a chilling effect on potential borrowers and consumer demand. If fear of imprisonment and litigation charges along with a fine truly had a deterrent effect and resulted in timely payment of cheques, the courts would not have such a big pending caseload. And it is this huge backlog of cheque bounce cases that delays the trial of more serious crimes and at the same time erodes public faith in the judicial system.
Hence, decriminalisation of bounced cheques should be seriously pursued. Secured creditors have remedies available under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 and the IBC, 2016. Cases involving secured lenders should be decriminalised except for borrowers declared “wilful defaulters” or “fugitive economic offenders.” Even in cases involving unsecured creditors, the criminal cases should be continued against repeat offenders and a more lenient view may be taken of first-time defaults and offenders. There should be very clear articulation of legislative intent as to its retrospective or prospective operation. To eliminate a large pendency of court cases, retrospective application based on a differentiating criterion like secured/unsecured creditor and wilful/non-wilful defaulters would be necessary and desirable.
(The writer is former Special Secretary, Ministry of Commerce and Industry)
Micromax IN Note 1 costs Rs 10,999 for the 4GB RAM and 64GB storage option while the 4GB RAM and 128GB storage version will cost Rs 12,999. The colour options are white and green, with each variant having a different pattern on the back. The green one has radiating Xs on the back while the white one gets a matte finish on the back.
Micromax IN 1B comes at a price of Rs 6,999 for the 2GB RAM and 32GB storage option and Rs 7,999 for the variant with 4GB RAM and 64GB storage. It comes in three colour options.
Both the Micromax IN Note 1 and IN 1B will be available from Flipkart and Micromax’s online store.
Micromax IN Note 1, IN 1B Specifications
Micromax is betting high on the specifications of the new IN brand smartphones. And rightly so the set of specifications seems good, at least, in theory, to take on the popular smartphones from rival brands. Micromax is also placing a bet on Android software upgrades, which is why the company is promising two years of Android version upgrade. The software will be clean, which means you will not find unwanted bloatware on the phone, much like how Nokia and Motorola offer. The reason why Micromax is stressing on clean software is that the dominant brands such as Redmi and Realme are often criticised for shipping bloatware on their phones at the expense of low price for the phones.
The Micromax IN Note 1 comes with a 6.67-inch 1080p LCD with a punch-hole setup and an ultra-bright technology. Although Micromax is not revealing the brightness capacity of the display. The smartphone is powered by an octa-core MediaTek Helio G85 processor, which powers phones such as Realme Narzo 20. Micromax is giving up to 4GB of RAM and 128GB of storage on the IN Note 1 along with support for microSD card. There is a fingerprint sensor on the back of the phone, which seems ergonomically placed. For photography, the IN Note 1 has a 48MP main camera, a 5MP secondary camera, and two 2MP cameras on the back while the selfies are handled by a 13MP camera.
The IMF flags various challenges for the Indian economy but a temporary fall in GDP per capita as compared to Dhaka is certainly not among them
The International Monetary Fund’s (IMF’s) World Economic Outlook released recently caused a sensation after it highlighted that Bangladesh’s per capita Gross Domestic Product (GDP) could surpass that of India’s this year. Our economy is expected to contract by a little more than 10 per cent and our per capita GDP, too, is projected to decline to $1,877 as against $1,888 for Bangladesh. This naturally created a flutter as historically our per capita GDP has been higher than our neighbour’s and the current decline is an exceptional occurrence caused by the pandemic-induced lockdown. However, the report also suggests that we will overtake that tiny nation next year and India’s per capita GDP in Purchasing Power Parity (PPP) terms will stand at $6,284 while it will be $5,139 for Bangladesh.
Though overall GDP numbers can be a good measure of the economic performance of a country, the GDP PPP is a better indicator if someone is doing a per capita analysis. This is because PPP eliminates the differences in price levels between countries and also considers the impact of exchange rates. Hence, the GDP PPP is generally used to compare the living standard between countries. However, it is absurd to compare because the Indian economy is way bigger than Bangladesh’s. For instance, our forex reserves are more than $555 billion while its reserves are a puny $39 billion. Moreover, per capita income also involves another variable — the overall population — and is arrived at by dividing the total GDP by the total population. Bangladesh’s economy has been witnessing massive GDP growth since 2004 but even then this pace did not alter the relative positions of the two economies between 2004 and 2016. This was because India grew even faster than Bangladesh. But 2017 onwards, India’s growth rate slowed while Bangladesh’s growth accelerated. Over the same period, India’s population grew around 21 per cent while Bangladesh’s population was just under 18 per cent. And if mere per capita GDP is the criteria for economic supremacy, then Sri Lanka and Bhutan have done better compared to many larger nations.
Plus, a detailed analysis of the report reveals that long- term growth projections for India are better as compared to China. Projections for next year stand at 8.8 per cent for India and 8.2 per cent for China while the gap consistently increases from 2022 onwards. Also, inflation is a key factor in deciding the lifestyle and saving potential of the common man and India’s consumer price inflation is the least among South Asian countries.
So, if we compare ourselves to our Asian neighbours, then everything looks fine. But there are a few red flags which the report throws up. First, is the higher debt-GDP ratio of the country which is increasing on a year-on-year (YoY) basis. Debt as percentage of the GDP stood at 68.77 in 2015 and it is expected to cross 89 per cent this year. This is much higher than the 61.7 per cent debt level of China. A higher debt increases the interest payout and leaves fewer resources for productive purposes. Though there are various factors involved while determining the sovereign credit rating but for the sake of perspective, it is pertinent to highlight here that recently Moody’s downgraded India’s rating by one notch to BAA3, the November 2017 level. We can argue that many developed nations have a higher debt-GDP ratio, but then they have a formalised economy which gives their Governments the ability to raise resources quickly. Something which we don’t have.
Second, our GDP is declining and revenue as percentage of the GDP is decreasing, too. It stood at 20.23 per cent in 2018 and then it came down to 19.3 per cent in 2019. It is expected to decline further to 18.08 per cent this year. This is primarily coming from the Corporate Tax rate cut announced in 2019. Sadly, the objectives of the tax cut were not achieved. Even a Reserve Bank of India report released a few months ago highlighted the fact that the tax rate cut has not translated in increased investment. This decline in revenue will increase the reliance on non-tax revenue with major focus on disinvestment, which has its own complications.
Third, India’s Gross National Saving (GNS) has declined significantly from 31.06 per cent of the GDP in 2015 to 28.8 per cent in 2019 and is expected to fall further. In comparison, China’s GNS-GDP ratio is more than 40 per cent and domestic savings are necessary for capital formation in a developing economy like ours. Policy makers are facing major challenges in increasing consumption and savings, both of which are vital for the growth of the economy.
The IMF report highlights various challenges facing the Indian economy but a temporary decline in GDP per capita as compared to Bangladesh is certainly not among them. Indian policy-makers need to come out of their slumber and shed their complacent attitude to reviving the economic growth that we have lost due to the Coronavirus pandemic.
(The writer is a Chartered Accountant and an economic analyst)
This approach would be in keeping with the Centre’s focus on a Digital India where citizens are able to leverage their connectivity into better opportunities
Most nations imposed some form of shutdown to limit the spread of the Coronavirus. India’s lockdown, which involved a near cessation of all movement and economic activity, has been rated as one of the most stringent across the world. Not surprisingly, it had a severe impact on our economy.
A sector that was hit particularly hard is retail. This is due to several reasons. First, shops and warehouses were closed during the initial phases of the lockdown. This brought the operation of both physical and digital retailers to a standstill. Second, restrictions on inter-State movement of goods and the opening of only specific industries disrupted supply chains. For instance, the Centre recognised both medicines and processed foods as essential goods and allowed their sale. However, similar status was not granted to units which manufacture the packaging for medicines and processed foods. Hence, sellers of these goods found it difficult to operate. Third, the system of issuing passes and permits to personnel working for physical and digital retail was not well-implemented. It was unclear which authority would issue the passes and for how long they would remain valid. Further, personnel having to travel across districts were required to obtain separate passes from the authorities for each district. Fourth, the Ministry of Home Affairs issued an order directing all employers to ensure full payment of wages to all employees even if they were unable to work. As a result of the order, several migrant labourers returned to their towns and villages once restrictions on movement of persons were lifted. A survey of retailers selling their products online, conducted as part of the Esya Centre’s report on e-commerce, shows that nearly 60 per cent of such entities will be unable to recover losses suffered because of the lockdown. Given that people are likely to be wary of entering shops and stores even after lockdowns are eased, it is important to explore different avenues through which retail outlets can avoid further losses.
One such avenue is e-retail. A report by Global Trade and Regional Integration Unit of the World Bank highlights the utility of e-commerce in the post COVID normal. Not only can e-commerce help reduce the risk of new infections and preserve jobs, it can also increase the acceptance of prolonged social distancing measures among the population. Further, previous research has shown that there are numerous benefits for MSMEs that adopt e-commerce, in the form of better price discovery, access to new consumers, support with logistics and inventory management. It is in recognition of the above that several nations, such as the United Kingdom and New Zealand, have given preference to digital forms of retail both during and after the lockdown. However, India is one of the few countries that has not leveraged the numerous benefits that e-commerce brings, particularly during a lockdown.
Policy-making towards e-commerce, both before and during the lockdown, may have hindered the operation of e-commerce entities. Prior to the lockdown, legacy government rule-making on e-commerce presented several barriers to the growth of the sector. These included ever-changing FDI rules, unresolved issues of data localisation and source code disclosure as well as the over-regulation of platforms. During the lockdown, the Government failed to adopt a clear and consistent approach to policy formulation vis-a-vis retail. As an example, both physical and digital retailers were only allowed to sell essential goods in the initial phase of the lockdown. This continued till about mid-April, when the Government issued a notification which allowed e-retailers to deliver non-essential items from April 20. In conformity with this order, e-commerce firms began to make predations to resume their full scale of operations. However, on April 19, the Government withdrew its notification, seemingly under pressure from industry organisations that represented small and medium traders. Subsequently, relaxations regarding delivery of non-essential items were first given to physical outlets while e-retail continued to be limited to essential items for 8-10 days thereafter. The zonation framework introduced by the Government additionally preferred physical outlets in Red zones, as they could sell a wide range of merchandise while e-retail tasks were limited to essential goods.
As pointed out, e-commerce enjoys numerous advantages over physical retail, particularly in a situation where social distancing continues to be important. Hence, there is a need to provide a policy environment that fosters the uptake and adoption of e-commerce by both consumers and sellers. To achieve this, we recommend a five-step recovery process. The first steps are geared towards fostering an atmosphere of trust and credibility between the Government and market entities.
This can be achieved by holding regular consultations, opening avenues for feedback and providing sufficient notice before major changes. Further, policy actions should not skew competition between physical and digital business models. Instead, both models should be allowed to leverage their respective strengths. Finally, the Government must reassess what it seeks to achieve through its proposed e-commerce policy. In the current scenario, a policy framework governing e-retail or e-commerce in general, should look to assist small enterprises in capacity-building for a digitally enabled future through the provision of finance, skill development and underlying infrastructure. There is, therefore, a need to move away from legacy regulatory institutions, based on licensing and control, to an entity that actively participates in capacity-building and development of small and medium retailers in India. In this context, it is worthwhile to explore the role being played by digital economy development authorities in countries such as Malaysia and Vietnam, which actively promote the adoption of digital solutions and e-commerce for SMEs as well as consumers. This approach would be in keeping with the Government’s focus on a Digital India where citizens are able to leverage their connectivity into better opportunities and prospects.
(The writer is a research assistant at the Esya Centre)
A continued prosperity for nations will only be achieved by allowing and championing a global open market for trade, goods and digital services
It is festival time globally, and not just the religious and fun variety but also the vital festival of democracy or elections. It is for the first time in our lifetimes that festivities, mostly associated with huge crowds jostling to reach the ballot box or bedi (the pedestal on which the idols of deities are kept), are taking place in the shadow of a raging global pandemic. Forced departures from well-known rituals associated with festivals make these times a case study for future generations. Many would have seen a video on social media of an idol being immersed using mechanised trolleys, with least human intervention, in the recently-concluded Durga puja festivities. Now switch to the theatre of democracy in Bihar, where Assembly elections are being held. The common thread between the two festivals is, technology. Bihar, would perhaps be the first State in the country where technological interventions played a key role in the elections.
First, the Election Commission (EC) allowed online filing of nominations for candidates and many political parties chose to reach out to their constituents through virtual rallies and put up huge LED walls for public viewing. Given the absence of many veterans active in Bihar elections for at least three decades, most of the young scions of the colourful, vociferous and politically-influential families were suddenly catapulted to the centrestage of a new narrative. This young brigade of Biharis, technologically more versatile than their parents, sought votes on issues. Something hitherto unheard of in a State, known for its divisive caste and religious biases. It was surprising to see rival candidates promise lakhs of jobs to young voters in a State grappling with the problem of the jobless migrant labourers.
The most welcome aspect of this election has been the reliance on technology in a State which could well be a case study on the digital divide between India and Bharat. Many statisticians will point to a survey which revealed that more than half of Bihar’s women and around 40 per cent men have no access to mass media. This, when extrapolated over digital media, means a significant part of the population can either be completely insulated from the impact of technology or could be the next addressable unconnected millions, who need to be put on the information technology expressway of prosperity.
Now let’s jump across the Pacific to the US, which, too, is about to witness one of the fiercest and cacophonic elections on November 3 amid the Covid threat, deaths and economic destruction. The common binary binding Bihar elections, Durga Puja festivities and US elections is again, technology. After all, the new dominance game and the race to be a global superpower is now increasingly getting defined by your first tap on a smartphone, first digital payment/electronic transaction, first contact-free shopping for world-class brands from the comfort of your home and perhaps the first digital date after months of trying to understand each other’s typos and abbreviated texts.
Therefore, restrictions on digital applications, depending on the country of origin, to applying the same principles to hardware solutions in technical infrastructure, to forming an alliance of like-minded technology fraternity of nations were some of the key highlights in the election campaign of the two presidential candidates of the world’s richest democracy. What it also highlighted was the fact that increasingly, the physical restrictions (read policies) of trade and commerce dominating economic relations between a bunch of nations will now be enthusiastically copy-pasted in the digital arena to prevent loss of sovereign powers and dominance at the global high tables.
Covid has put the spotlight on public policy issues, which, till February, were still in advanced stages of intellectual discourses. It has challenged our ability to adapt and eventually recover from the disease. And the only sector which has truly helped this advancement is technology. It reacted quickly and ensured teachers, parents and children were handed online course materials for seamless academic learning and doctors were given online tools for initial digital health interventions for patients. It gave the Government effective platforms for interaction and empowered it to push critical policy goals. Technology enabled digital live darshans of beautiful but deserted pandals and online delivery of prasad for the religious, too. If the human race has been pushed ahead by three decades in one stroke by the lockdown and technology has taken centrestage, it is also time to think and refresh many global policy challenges and perhaps release an update. Policymakers have to realise that imposing strict restrictions, based purely on case-by-case models, and having a physical worldview of digital policy issues can be self-defeating in the long run. A continued prosperity for nations will only be achieved by allowing and championing a global open market for trade, goods and digital services. It must be kept in mind that the new normal for policy-making at sovereign-level negotiations must be dictated by a set of principles. This must be compulsory in all digital agreements between consumers and technology providers, governments and their counterparts across borders. A multi-lateral approach must be championed. It is time to click on the right button.
(The writer is a policy analyst)
This outbreak serves as a reminder for retailers to be more proactive in planning and resilient in their response to future disruptions
The Indian retail industry is a highly competitive, $800 billion market with a Compound Annual Growth Rate (CAGR) of 12 per cent. Out of that, the share of online retail is $32.7 billion with a CAGR of 31 per cent. Smartphone penetration, brand consciousness, demographics and policy support are the factors transforming and pushing this industry towards omnichannel retailing.
Omnichannel retailing is a fully-integrated approach to commerce, providing shoppers a unified experience across all channels or touchpoints, including online and offline. It offers consistent merchandise and seamless interaction between online and offline channels, thus combining the benefits of both. However, the pandemic and subsequent national and local lockdowns have greatly impacted both supply and demand. The supply side was hit by administrative restrictions and limited resources while demand, too, remained subdued due to job-losses, salary cuts and restrictive spending. In such a situation, an agile response is needed for swift operations, customer satisfaction and surviving in the post-Corona era.
Evolving consumer behaviour: Though retail has undergone many significant disruptions in the past, perhaps none has shifted consumer behaviour as rapidly as this contagion has. The changes are happening due to factors like challenges in personal situations, preferences towards local products, precautionary measures against the virus and rising digital awareness — a by-product of promotion of contactless transaction.
Even in the unlock stage, consumers are hesitating to visit stores and while exercising social distancing measures, many uninitiated customers are moving towards online retailing. For example, many senior citizens are opting for online grocery shopping as a precautionary measure. Use of services like contactless digital payments, social commerce and virtual consultation are also seeing a rise.
Many of these behavioural changes will continue even after the pandemic is over. McKinsey and Company cited this as “consumer behaviour shift.” For example, people will get used to the comfort of home delivery, ease of digital payments, varieties offered by online markets and so on. Retailers need to draw insights from these changes and rebuild the consumer confidence as the new normal continues.
Financial skills: Revenue is sharply dropping for many categories. Even though store profit has gone down, retailers need to pay rents, salaries and so on. Hence, at this point it is necessary for them to optimise cost and curtail the offerings to profitable items. In the long-term, as demand picks up, it would be prudent to invest in omnichannel fulfillment as means to financial resilience.
Accept the new normal: Social distancing, safety and hygiene procedures will be here for a while. The best way to go forward is to accept the new normal and the complexity it will bring to decision-making.
Consumer connect: Now more than ever, it is must for retailers to connect and communicate. Consumers will definitely like to know what a business is doing to ensure their safety, for delivery as well as in stores. Despite the pandemic, customers will need timely deliveries of their order. So, in case of item shortages or delayed fulfillment, it is necessary to explain the cause and convey the commitment.
Extra activity: First and foremost, retailers need to adapt to safety regulations, sanitisation procedures and regulatory directives at the country, State and municipal level in various phases of the unlocking. They need more dynamic inventory and logistics planning to meet the fluctuations both in demand and supply, plus a connect with employees regarding their health and financial well-being. This will prevent attrition and business continuity.
Infrastructure: The Indian online retail infrastructure is in an intermediate stage. The pandemic just exposed the flaws and inefficiency which were already there. Retailers should review the location of warehouses, delivery centres and their distributors to compute the risk of supply chain disruptions. The partnership with local grocery stores will help retailers to ensure timely contactless last mile delivery even during a crisis. Retailers also need to re-imagine in-store experience, considering customers’ safety and efficient operation with reduced staff while complying with social distancing norms.
Technology skills: Technology allows retailers to have relevant information and visibility throughout the supply chains, resulting in timely communication with all the stakeholders. Businesses will need secured, informative and intuitive shopping apps, which can balance for the lack of store visits. Also, Artificial Intelligence will continue to make a big impact in this sector to predict real-time consumer demand, optimise inventory and manage backorders, thus ensuring operational agility.
Also, Smart Mirrors and Augmented Reality can help build a store-like environment in the virtual world, ensuring safety. This way, retailers and associated stakeholders need to ramp up technological skills and infrastructure as they enter a post-pandemic era. As of today, India is among the top countries with the highest number of Covid cases and there is no end to the contagion in sight. Even the countries, where the outbreak seemed to be in control initially, are experiencing a second wave. This has caused supply and demand disruption and jolted the market ecosystem.
Hence, it is certain that retailers, that are an integral part of the demand-driven economy, need to be financially prudent, fast in their response to the new dynamics and ready to collaborate through the value chain to hthrive during this crisis and subsequent periods. As with many sectors, it is likely that retail will see a regime shift and consolidation. Smaller and financially-struggling businesses might face difficulty in surviving this crisis. At the same time, retailers with a unique value proposition will come out stronger. This outbreak serves as a reminder for retailers to be more proactive in planning and resilient in their response to unprecedented disruptions in future.
(The writers are Senior Research Scholars at the Indian Institute of Science, Bengaluru.)
With only a few details public and no dates set for resuming fights, there is no guarantee that this will succeed
The bid to take over the remaining assets and brand of Jet Airways by Dubai-based real estate entrepreneur Murari Jalan and American private equity firm Kalrock Capital has been accepted by the lenders. Even though they will have to accept a massive 90 per cent haircut on their outstandings from the airline, the fact that they will get something is a lot better than what they faced with Kingfisher. Former employees of the now grounded airline as well as other unsecured creditors, everyone from those who provided taxi and catering services to passengers with tickets for flights that never took off, are hoping that the new management will clear their dues as well. Unfortunately, while the new management might absorb some old employees and even executives, it does not hold any obligation to clear these unsecured dues. The new owners could clear some dues in order to build goodwill but of the estimated Rs 40,000 crore owed by Jet Airways to various creditors and employees at the time it suspended operations in April 2019, much of it will never be seen again.
This deal is being spoken about as a success of the Insolvency and Bankruptcy Code (IBC) that was introduced by the Government in 2016. Some even suspect that the Government pushed this deal through to highlight that the IBC can be a success as several other high-profile cases are stuck. That said, the proof of the pudding is in the eating and the proof of an airline is in the flying. With few details public, there are no firm dates on when this ‘new’ Jet Airways can fly again. As the aviation market globally is in the doldrums, one also questions whether this is a smart time to launch an airline when customer demand is less than half of what it was this time last year. Yes, it will be easier than it would have been in February to get slots and even lease new planes but the new management should not have misplaced optimism about “customer loyalty.” Restarting a brand, any brand, and particularly a service brand after a period of not operating is not easy and customers are extremely fickle. And with the likelihood of one, maybe even two airlines in India potentially falling victim to the pandemic, thanks to stretched balance sheets, things might actually get very difficult for the new ownership. That said, we wish them all the best and hope that they can succeed, and hope is a very powerful thing these days.
If the FD range gets embedded in the FRBM Act, it will give sanction to slippages. It will defeat the purpose of fixing a target, which is to obligate the Govt to keep expenses in check
The Finance Ministry is building pressure on the 15th Finance Commission (15th FC) to allow greater flexibility while fixing the fiscal deficit (FD). It wants to adopt a flexible, range-bound FD target instead of a fixed number. With this aim in mind, the Modi Government is reviewing the Fiscal Responsibility and Budget Management (FRBM) Act. The issue was discussed at the Economic Advisory Council (EAC) of the 15th FC, wherein the chairman, NK Singh, cited a similar practice followed by the Reserve Bank of India’s (RBI) with +/- two per cent inflation target while deciding its monetary policy. The immediate prompt for this is the sharp contraction in the Gross Domestic Product (GDP) by about 24 per cent in the first quarter of the current financial year (FY) and a corresponding steep reduction in tax collections even as the expenditure commitments are on the upswing (courtesy the two stimuli already given). As a result, on May 8, the Government raised its gross market borrowing target for the FY 2020-21 to Rs 12,00,000 crore, up from the Rs 7,80,000 crore provided for in the Budget on February 1.
Of this, the Government had already borrowed Rs 7,66,000 crore during the first half of the current FY and plans to borrow the remaining Rs 4,34,000 crore by January 2021. At Rs 12,00,000 crore, the borrowing limit is already set at about 5.8 per cent of the GDP — 2.3 per cent higher than the budgeted FD target of 3.5 per cent. With this and demand for yet another Stimulus III gaining ground, it is not surprising that the Finance Ministry is building pressure on the 15th FC. During the current year, we have an extraordinary situation, so one can understand the desperation. But it is important to recall here that in his budget speech for 2016-17, the then Finance Minister Arun Jaitley had announced the Government’s intent to review the FRBM Act (2003) with a view to make the target flexible (that the announcement was made following the year 2015-16, when it had achieved the FD target of 3.9 per cent, sounds a bit anomalous). He had set up a committee under NK Singh (it included among others, the then Chief Economic Adviser, Arvind Subramanian, and the then Deputy Governor, RBI, Urjit Patel) to examine the issue.
The committee recommended a “glide path” for the next six years, beginning 2017-18. It recommended a FD target of 2.5 per cent, revenue deficit 0.8 per cent, combined Centre-State debt ceiling of 60 per cent and a Central debt ceiling of 40 per cent for 2022-23. Further, it fixed three per cent FD to be achieved during 2018-19. It also allowed the Government to breach the target — by up to 0.5 per cent — in case of “far-reaching structural reforms with unanticipated fiscal implications.”
In the amendment to the FRBM Act vide Finance Bill 2018-19, even while retaining the “escape clause” to cover unanticipated events, the Government adopted the glide path of achieving three per cent FD by 2020-21 instead of 2018-19 mooted by the committee. Further, it set the debt limit of 40 per cent for the Centre to be reached by 2024-25 instead of the committee’s mandate of 2022-23.
This cherry-picking may be seen in the backdrop of the Government missing the FD target for 2017-18 by 0.3 per cent and seeing no hope of achieving three per cent during 2018-19 as recommended by the committee. While presenting Budget 2020-21, Sitharaman has already invoked the escape clause of the FRBM Act to relax the FD targets for FY 2019-20 from 3.3 per cent Budget Estimate (BE) to 3.8 per cent in the Revised Estimate (RE) and for FY 2020-21, from three per cent as per the glide path required under the Act to 3.5 per cent. The one big thing that she did last year was reducing the Corporate Tax rate, which meant a revenue loss of close to Rs 1,50,000 crore annually. The reform was far-reaching and structural but one wonders whether this was an event not anticipated by the Government.
Ironically, the above numbers do not give the true picture of the FD as a lot of expenses, despite being a liability of the sovereign Government, are kept off its balance sheet. These are deferred subsidy payments (DSPs) and extra-budgetary resources (EBRs), a nickname for borrowings by Public Sector Undertakings (PSUs) and other agencies of the Government on its behalf. Including these off-balance sheet items, the FD for 2017-18 and 2018-19 would be about 5.9 per cent and 5.7 per cent respectively. For 2019-20, including DSPs alone, FD would be 5.1 per cent. Add EBRs and the deficit will gallop. For 2020-21, the likely deficit of 5.8 per cent is exclusive of DSPs and EBRs.
There is a short provision in the Budget: Food subsidy about Rs 1,03,000 crore and fertiliser subsidy around Rs 80,000 crore. Plus, there will be a huge shortfall in proceeds from disinvestment by at least Rs 1,50,000 crore as big ticket sales such as Bharat Petroleum Corporation Limited (BPCL) and Life Insurance Corporation (LIC) are unlikely to go through during the current year. This adds up to two per cent, taking the total to 7.8 per cent. Including EBRs, the FD could touch 10 per cent. Already, under the existing dispensation of FD being a fixed number, the Government has a lot of leeway — explicit as well as not so explicit. On the explicit side, we have seen the fiscal consolidation glide path made fairly liberal to suit the budget math as also the revised FD being significantly higher than the target — yet going unpunished (for instance, during 2008-09, the actual FD was six per cent against the target of three per cent as per the FRBM Act, 2003). On the not so explicit side, DSPs and EBRs have been used to camouflage the true deficit.
If the FD range gets embedded in the FRBM Act, this will amount to giving legal sanction to slippages. It will defeat the very purpose of fixing a target which is to obligate the Government to keep the excess of its expenses over revenue within a specified limit. The moment the law itself prescribes a range, say of three per cent-3.5 per cent, even the most discerning Government will take the higher end of the range as the benchmark as from a legal standpoint, violation will happen only when the actual exceeds 3.5 per cent.
To put it differently, providing for a range is a more subtle and sophisticated way of embedding in the legislation a more relaxed target without catching the attention of the not so discerning eye.
The comparison with inflation targeting under the monetary policy to justify FDI range is not all fours. While, the FD target has a direct bearing on budgeting by the Centre (a swing of 0.1 per cent either way makes a difference of Rs 20,000 crore in its borrowing limit), inflation targeting by the RBI does not impact the finances of banks. For a proper comparison, we need to look at the RBI mandated “provisioning” for a loan that becomes an NPA. That is a fixed number, say 25 per cent (for an account remaining unpaid for up to one year), not a range.
It is argued that a range brings an element of predictability in knowing how far the Government can go in expanding its borrowing programme and the resultant impact on crucial parameters like bond yields, interest rate; hence helpful in boosting investor confidence. This is a frivolous argument. Whether it is one fixed number or a range, there is predictability in both the scenarios. The difference is notional as in a range, one looks at the upper end. Unpredictability arises when things such as DSPs/EBRs are done outside the FRBM framework; sadly, those are swept under the carpet.
Another argument in support of range is what some experts describe as reinforcing “counter-cyclical” objectives. Put simply, when the economy is on a downswing, then the Government needs to undertake major investment to rein in the slide and put the economy back on the growth trajectory. It is primarily to tackle extraordinary situations such as during the current year that a 0.5 per cent cushion is permitted as per the 2018-19 amendment to the FRBM Act.
The incorporation of FD range does not offer anything better than what is already there in the FRBM law, i.e. fixed number FD target plus escape clause, unless it is the intent of mandarins in the Finance Ministry to have both, namely range as well as the escape clause. That would be disingenuous. The 15th FC should refrain from going for a range-bound FD. The extant arrangement should continue with suitable increase in the permissible breach under the escape clause. All hidden slippages such as DSPs and EBRs should be prohibited.
(The writer is a policy analyst)
Since market conditions are volatile, an experienced fund manager should have the expertise to switch between both the strategies to satisfy investors
The science of stock market investing has long been a mystery for normal retail investors and there are numerous debates about which strategy is better. There are two divergent ideologies: Active and passive investment. The passive strategy, which is mainly followed by the legendary Warren Buffet, is a long-term one that mirrors a particular index where the returns are generated due to the natural upswing of stock markets, ignoring short-term setbacks and even sharp downturns. The simplest way of embarking on a passive approach is to buy an index fund that follows one of the major indices like the S&P 500, Dow Jones and BSE Sensex or Nifty in India. These index funds automatically adjust their portfolios to any new additions or deletions to the original index in the same proportion. Passive investment is for conservative and risk-averse people who are looking for low-risk investment and are not overly concerned with seeing rapid gains. The idea behind this is the classic value investing style, which looks at long-term benefits of holding on to undervalued stocks with huge future earning power.
Active investing, on the other hand, aims to generate above market returns by an in-depth research and analysis and using the knowledge and expertise to manoeuvre into or out of a particular stock, bond or any asset, taking full advantage of short-term price fluctuations. Since it does not necessarily mimic any index, it provides the flexibility of buying stocks which could be hidden gems. Since active investors are not stuck with index stocks, they are able to exit any sector or stocks when the risk becomes too high and can also hedge their bets using various techniques such as short sales or put options. However, all the research overheads and frequent buying and selling make active investment very expensive. It is also a highly risky affair since higher returns can only be expected when the going is good but things can go terribly wrong during market downturns and therefore, due to its volatile nature, the active investment strategy is better suited for people who are aggressive and risk-tolerant. In passive management, one rises and sinks with the ship whereas actively managed funds have the ability to provide greater opportunity for profit, albeit, increasing the risk. According to researchers who propagate the efficient market hypothesis (EMH), stock markets are efficient in nature and, therefore, actively managed funds cannot outperform them over a long period of time.
So does active portfolio management create value? The debate about the merit of active vs passive portfolio management is supported by numerous researches worldwide. In the mid-1960s, Eugene Fama adjusted the EMH and suggested three forms of informational efficiencies; the weak form, semi-strong and strong. This hypothesis suggests that investors cannot beat the markets by actively managing portfolios, as stock markets incorporate all the publicly available and privately-held information into price movements. Therefore, fund managers cannot beat the stock markets and generate higher returns on a long-term basis. This theory is supported by many researches. In 1966, Treynor and Mazuy studied the performance of 57 mutual funds and their sensitivity to market fluctuations and concluded that maybe, no investor, professional or amateur, can outguess the market. A similar study in 1968 by Jensen found that average mutual funds produced low returns. In a study to understand the importance of selecting a good fund manager, Dunn and Theiser in 1983 found that there is only a 50-50 chance that an active fund manager can produce better returns than the bourses. This was reiterated by the Nobel laureate, Sharpe, in 1991 who showed that active fund managers cannot give better returns than passive investment strategies, mainly due to active management being expensive.
That brings us to the question, can anyone predict the stock market movements and earn abnormal returns? Nobel laureate Samuelson quotes Aristotle in explaining this, “The whole is greater than the sum of its parts.” This means that an investor cannot do better than the bourses. Sharpe explains this on the basis of costs and says since both active and passive management generate equal returns before costs, active management loses as it is costlier, and therefore generates less after-cost returns.
Modern portfolio theory assumes that all market participants are rational in their investment behaviour and invest only in stocks at their fair value. However, in reality, the markets consist of various investors who are driven by different emotions, impulses, experiences, risk tolerance, timelines and legal constraints. Since efficient market hypothesis presumes that all available information is reflected in the stock process accurately and timely, no investor can earn abnormal returns. They can, of course, earn normal returns, which are the market returns. This assumption is used as an excuse by people who have faced losses during any meltdown, as they take a break in using their prudence, creativity and perception to invest. But there is always a gap between theory and practice. The question now arises: Are stock markets efficient? Do they reflect all available information accurately and timely? There is evidence that market efficiencies may be lower in emerging markets that can give a chance to active fund managers to find arbitrage opportunities. After the 2008 financial crisis, the developed world has focussed on emerging markets, which have risen as engines for global growth, driven by younger populations, higher consumption levels, modernisation of infrastructure and integration with the world economy. According to UNCTAD’s World Investment Report 2019, FDI flows to developing economies rose by two per cent to $706 billion in 2018. Developing Asia, already the largest recipient region of FDI flows, registered an increase of four per cent to $512 billion, with positive growth occurring in all sub-regions. China attracted $139 billion, an increase of four per cent. Flows to South-East Asia rose by three per cent to $149 billion, a record level. This increase is for the third consecutive year. FDI flows to Africa expanded by 11 per cent to $46 billion. Emerging markets, being informationally inefficient, may provide opportunities for excess returns and portfolio diversifications through market timing and stock selection.
A study by Kremnitzer shows that actively managed mutual funds outperformed passive ones. The researcher, using data from TD Ameritrade Research and the Standard and Poors NetAdvantage database on all existing US mutual funds and exchange traded funds (ETFs), dedicated to emerging markets, found that the before tax returns of actively-managed mutual funds yielded superior returns of approximately 2.87 per cent over passively managed ETFs. So, which investment style should be chosen? An apt strategy could be to combine both active and passive investment styles, depending on the stock market conditions. Active fund management could be especially beneficial when stock markets are volatile. Passive fund management is a better strategy where the stocks and markets are highly correlated and move together.
Ultimately, it comes down to personal priorities, timelines and goals. An experienced fund manager should have the expertise to switch.
(The writer is Associate Professor, Amity University, Noida)
The print medium has the responsibility of countering the socially and morally devastating effect of the deplorable fare that some channels are churning out
The character assassinations and defamatory campaigns, witnessed on some television channels by some anchors and reporters against individual film personalities and the Mumbai movie industry, have understandably been strongly condemned. While the public response has mainly been focussed on the campaign and its gross violation of the principles of fair play, there is a compelling need to examine the character of television itself as a medium and its impact on society.
As a medium, television combines unfolding visuals with verbal narratives, besides bringing distant events to the homes of viewers, giving them a feeling of being in the midst of an unfolding development or its aftermath, with all its sights and sounds. In contrast, radio, which provides only audio accounts, does not give the feeling of being there and seeing it all. Not surprisingly, television coverage attracts more people than radio reportage and provokes more intense public reaction than radio.
The question arises: What are the consequences of its impact? One frequently heard in the 1960s that television coverage brought the horrors of the Vietnamese War into American drawing rooms and was a major factor in triggering massive protest demonstrations and rioting, hastening the United States’ withdrawal from Vietnam. Why go so far? We are now witness to the investigations into the rape and murder of a 19-year-old girl in Hathras, Uttar Pradesh, in the aftermath of a nationwide uproar sparked principally by television reports.
Pieces in the print media — daily newspapers and magazines—have cost important people their perches. Newspaper reports have caused riots, violent demonstrations and general strikes, paralysing entire countries. This, however, was when newspapers and magazines constituted the dominant media. Now television has replaced them. This is the result not only of the pronounced edge that audio-visual reportage has over audio or print coverage, but of the fact that reports appear on television the same evening — or even earlier. An event has occurred, and by the time it is in newspapers the next morning, people already know the broad contours of what has happened.
There is, however, a fundamental difference in popular response to television and print medium coverage respectively. It lies in not just the actions they trigger but the mindsets they create. This, in turn, follows from a basic difference in the character of the two. Visual images constitute the USP of television. An image is recognised; the mental process involved in cognition. A printed word is first decoded from the combination of the letters that constitute it, and is then linked by a mental process —association — to an object or an image. The ability to associate is central to the process of rational thinking and the latter is the principal instrument in the formulation of systems of thought or critical examination of the import of events.
Cognition primarily involves visual identification. It is not an act of intelligence though it can lead to one when externally stimulated. Much depends on the nature of the stimulus. In Amusing Ourselves to Death: Public Discourse in the Age of Show Business, Neil Postman states that entertainment is “the supra-ideology of all discourse on television. No matter what is depicted and from what point of view, the overarching presumption is that it is there for our amusement and pleasure.” This is hardly surprising. A very large section of people wants entertainment. Hence programmes that entertain earn higher Target Rating Points (TRPs) than those that do not, and advertisers, who sustain media, also prefer these.
There are doubtless television channels that consciously try to tread a different path and come up with programmes that inform and promote socially and politically relevant discourse. But even their programmes have an ambience of entertainment as they are preceded, followed and punctuated by music and advertisements featuring visuals of attractive models and products in the most arresting possible settings. For example, the advertisement of a car or a motorbike often shows it in shining colours, driven by a beautiful model or her equally attractive male companion, through a picturesque landscape. People enjoy watching these, sometimes more than the programmes themselves.
This writer has no quarrel with entertainment. Life would be terribly boring without it. He also believes that each person is entitled to his/her brand of entertainment within the limits prescribed by law and a very liberal definition of decency. There is, however, a dark dimension to what is happening now. Viewers, who remain glued to television sets while some anchors, reporters and talking heads gloat over the travails of film personalities and berate them hour after hour, behave in the same manner as the crowds in ancient Rome’s Colosseum, who roared in delight as a gladiator killed another or a lion. By catering to them, the mindset that television engenders is that of wanting to be perennially and brutally entertained. The result is a progressive coarsening of sensibilities and erosion of the virtues of compassion, tolerance and a sense of fair-play.
This is the most detrimental effect of television as a medium that needs to be countered. The print media is a very different cup of tea. It is the outcome of the written culture. Alvin Gouldner states in The Dialectic of Ideology and Technology: The Origins, Grammar and Future of Ideology, that writing confers a permanence to statements that verbal articulation does not. He argues that it also confers a certain finality. A mistake made during a conversation may be corrected then and there. A printed word cannot be easily recalled for correction once widely circulated. One, therefore, carefully seeks to avoid mistakes, embarrassing statements and faulty arguments while writing. This contributes to the drafting of informed and reasoned texts.
Besides, while one can interrupt and resume a conversation, one cannot do so in a written text where one has to proceed from premise to conclusion, rationally and convincingly, step by step — a process that leads to rational articulation and critical thought.
Doubtless, written communication lacks the advantages that a speaker has at a lecture. He/she can convey a great deal through gestures, facial expressions and body movements; a listener/ viewer can also glean considerable information about the speaker and what he/she is saying and stands for. Equally, excessive focus on the speaker can distract attention from the substance of the speech. There is no such distraction when it comes to looking at a printed text. The reader can concentrate solely on the latter, absorbing its contents and reflecting on the same. Reading conduces to thought and thought spurs further thought. This fact, as well as the capacity for rational argumentation from premise to conclusion that the print medium promotes, has led to the rise of great systems of thought which have come to be known as ideologies.
That is another story. What is important now is the fact that the process of critical thinking can — and often does — mediate in a person’s internalisation of the information generated by the print medium. Given this and some other of its attributes, those associated with it have a responsibility in countering the socially and morally devastating effect of the kind of deplorable fare that some channels are churning out. The process must begin by making people aware.
(The writer is Consultant Editor, The Pioneer, and an author)
Lady Irwin College, established in the year 1932, is one of the oldest and most reputed institutions of higher education for women affiliated the University of Delhi. Leading the way to a sustainable future, the college is proud to have established a 218 kWp Solar Photovoltaic (SPV) rooftop plant on its premises, taking forward the Government of Delhi’s scheme for solarization of government buildings. The plant was inaugurated on 14th October’ 2020 by Hon’ble Chief Minister of Delhi, Shri Arvind Kejriwal. In his inaugural address, Shri Kejriwal thanked and congratulated Lady Irwin College for taking leadership role through this initiative of Delhi government. He said, “Lady Irwin’s initiative will not only motivate other institutions to go solar but would also contribute in making Delhi the solar capital of India.”
Emphasizing the college’s commitment towards sustainable development, Dr. Anupa Siddhu, Director, Lady Irwin College stated, “The founding members of the college have built a strong foundation based on core values of sustainability for achieving excellence in all spheres of life. Taking into consideration the effect of global warming, we felt it was time to shift our dependency from fossil fuels to renewable sources of energy. The addition of this solar plant will not only fulfill our electricity needs but also help us reduce our electricity cost.” She praised and thanked the Delhi government, IPGCL and NDMC for making such enabling schemes. Dr. Meenakshi Mital, Convener, SPV project, Lady Irwin College reported, “the solar roof top project was conceptualized about two years back and subsequently we planned to go with IPGCL under the RESCO model. M/s. Oakridge energy was the empanelled vendor of IPGCL who undertook our project. The plant has been put up on three major buildings of college. The solar plant will generate about 3 lakh units of power each year and contribute greatly in Delhi’s fight against pollution”. Dr. Puja Gupta, Convener, SPV project, Lady Irwin College said, “the college has always been sustainable in its true sense and this project is going to take that legacy forward”. Dr. Gupta further thanked the hon’ble chief minister Shri Arvind Kejriwal and NDMC Chair, Mr. Dharmendra fro gracing the occasion with their presence.
The project was in the pipeline since last year wherein several visits were made by the installer to check the feasibility and the PPA was signed earlier this year. Dr. Meenal Jain, Coordinator, SPV project, Lady Irwin College who has been associated with the project since its conception and was instrumental in getting it installed appreciated the director of Lady Irwin College to have taken this initiative. She further said, “This SPV plant will not only cut down the emissions generated through the use of conventional grid-power, it will also set an example for others to go green”. She thanked Oakridge Energy, their development partner, for meeting the timelines for installing the solar plant, even during the pandemic.
The SPV plant has been installed and commissioned by M/s Oakridge Energy Pvt. Ltd. under the aegis of IPGCL, and has been net-metered by NDMC. Mr. Shravan Sampath, CEO,
Oakridge Energy praised the Delhi government and NDMC for their support. He said, “PPA has been signed for 25 years with the college and the solar plant will have immense cost savings over these years.”
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