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BSC August 2019 Current Affairs

RBI’s new circular on bad loans: The Reserve Bank of India's (RBI) new circular for resolution of stressed assets is propelled by provisioning requirements and gives more freedom to bankers in taking decisions. Two months after the Supreme Court struck down its Feb 12 circular, the RBI on Jun 7 came out with a revised framework for resolving stressed assets wherein lenders have been given a 30-day period on whether to label an account as a non performing asset (NPA). The new norms provide a framework for early recognition, reporting and time-bound resolution of stressed assets. The only thing is that now banks have more delegation power and there will be board-level resolution policy. And the discretion on whether anyone would like to take the case to insolvency and bankruptcy proceedings or settle it outside that is now with the banks. The latest directions from the RBI retain the basic spirit of the Feb 12 circular as these mandate higher provisioning, bankruptcy options as well as do not allow any other resolution methods outside the new norms. The Supreme Court struck down the Feb 12 circular for resolving bad loans under which a company could be labeled as an NPA if it missed repayment even by a day, and banks were to find a resolution within 180 days or else the case had to be sent to bankruptcy courts. The new circular has also relaxed several other provisions, including norms related to consent of lenders, and offers more freedom to lenders in implementing the asset resolution plan. According to these new norms, lenders should review accounts within 30 days of default and initiate a resolution plan under the new prudential framework for resolution of stressed assets" before the default. The central bank also changed its earlier norm of 100 per cent mandatory approval from creditors for a resolution plan a 1 has allowed approval of 75 per cent of creditors, The RBI circular would be applicable to all borrowers with exposure of 2,000cr and above to banks and financial institutions with immediate effect. The previous circular had directed banks and lenders to refer any defaulting loan account of over 2,000cr to the bankruptcy court under the Insolvency and Bankruptcy Code (IBC) if it s not resolved within 180 days of default, Though the judgment was a setback for the central bank, several defaulting power projects got a temporary reprieve. Several companies from the power and shipping sectors had challenged the Feb 12 circular, arguing that the time given by the RBI was not enough.

June 6 Monetary Policy: On Jun 6, in its second bi-monthly monetary policy statement of 2019-20, RBI reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points (0.25 per cent) to 5.75 percent from 6.0 percent with immediate effect. Consequently, the reverse repo rate stands adjusted to 5.50 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent. Repo rate has slipped to the lowest level since Jul 2010. This is the lowest in nine years. The Monetary Policy Committee (MPC) unanimously voted 6-0 for a rate cut, the second since its inception in Oct 2016. It also decided to change the stance of monetary policy from neutral to accommodative. This means it sees scope to accommodate growth concerns by supporting efforts to boost demand and reinvigorate private investment. To promote digital transactions, the RBI has decided to abolish charges levied by the central bank for transactions processed in the RTGS and NEFT systems. The RBI will set up a committee to review the charges for usage of ATMs. Draft guidelines for on-tap licensing of small finance banks will be issued soon. To broaden and deepen the financial markets, a forex trading platform for retail participants will be set up to make more transactions more transparent. Of course, the rate cut comes after official data last month showed that the
country's GDP grew 5.8 per cent in the quarter ended Mar 31. Will interest rate cut spur growth? If so, why is growth declining in advanced countries which have ultra-low interest rate? Actually, the ultra-low interest rate is one of the reasons for the global financial crisis of 2007- 08 and the rising debt of those countries. Even the RBI had reduced the repo rate by 25 basis points each in its Feb and April policy reviews. But it did not spur growth. Rather growth has declined. It is not only private but also public investment that should be given importance to enhance growth. The major concern today is the lack of purchasing power of people which is exacerbated by lack of jobs; and health and education have become too costlier. The Indian economy is still grappling to get extricated from the quagmire of downturn, the slowdown triggered by the draconian demonetization and the hasty implementation of the Goods and Services Tax (GST). Only fiscal stimulus and job creation can spur growth, not interest cut. It is not growth but inflationary expectation that is the main fulcrum in deciding the interest rate. If inflationary expectation is high, interest rate needs to be hiked. If inflationary expectation is low, interest rate may be reduced to spur growth. But now, the inflationary expectation is not low as the central bank has raised its consumer inflation estimate to 3-3.1 per cent from 2.9-3 percent in first six months of current fiscal.

Audit Firms face bad times in India: Is India suffering an epidemic of audit failures? The Big 4 - PWC, EY, Deloitte and KPMG-are each facing investigation or regulatory sanctions. It's been 10 years since the Satyam Computer Ltd fraud but the IL&FS Ltd investigations suggest auditors haven't learnt any lessons in the past decade. Resignations, deficiencies, failures – they all point to a crisis of credibility facing Indian auditors. To a large extent, certain things have to be looked at by the auditor to find out some information which may not be found out today. Auditor's reports must throw some indication about what is likely to happen. The way it has been handled over the years needs to be taken care of. The standard of Auditing 570 has been revised. Now the consequences are inevitable. Global accounting giants operating in India in association with local firms may have to make greater disclosures. The disclosures could
relate to the flow of funds between the foreign and the local firm and details of existing structures. The rules to be framed in this respect will be enforced by the National Financial Reporting Authority, a new regulator recently set up for accounting and auditing firms. The big four global consulting and accounting firms are present in India through their network firms. SR Batliboi is EY's network firm performing the audit function in India, Deloitte Haskins and Sells is part of Deloitte's network; BSR and Co is part of KPMG's network and Price Waterhouse is part of PwC's network. In Feb, the Supreme Court had asked the govt to look into the matter through a three-member expert committee, after receiving petitions from Indian auditors challenging the way these global firms operate in the Indian audit space through their network firms affiliated with the Institute of Chartered Accountants of India (ICAI). The committee is expected to submit its report to the govt soon. The govt will submit it to the Supreme Court and follow the court's instructions. The court had noted that there is "compliance by multinational audit firms only in form and not in substance; by having got registered partnership firms with the Indian partners the real beneficiaries of transacting the business of chartered accountancy remain the companies of the foreign entities. The partnership firms are merely a face to defy the law." The court had also red-flagged global auditing firms investing in chartered-accountancy firms in violation of existing foreign direct investment (FDI) policy by using a circuitous route of interest free loans to partners. ICAI is also of the view that these firms should adhere to advertisement guidelines, not share fees with the global company, comply with FDI rules and even local firms be allowed to operate in the home countries of these global firms as part of the reciprocity agreements'.

US withdraws GSP benefits from India: The US terminated the privileges that India enjoys under the Generalized System of Preference (GSP), starting 5 Jun 2019. The GSP, implemented since 1974, is the largest and oldest US trade preference scheme and it allows duty-free imports for thousands of products from designated beneficiary countries. The move followed after criticism by the Trump administration that India was preventing equitable and reasonable access to its market. The Trump administration has made a series of demands such as softening of price caps on medical equipment, removal of certifications for dairy product exports, and changes to the e-commerce policy. The GSP scheme was adopted by the US under the provisions of Resolution 21 of the Second United Nations Conference on Trade and Development (UNCTAD). It allows the developed countries to adopt a "generalized, non reciprocal, non-discriminatory system of preferences in favour of the developing countries, including special measures in favour of the least developed nations. This special and preferential treatment to developing countries is an exception to the Most Favoured Nation (MFN). India was the largest beneficiary of the programme in 2017 with USD 5.7bn in exports to the US that were given duty-free entry into the US. USA is one of the top trading partners of India, amounting to about 16 percent of total Indian exports. It is clear that the impact of GSP withdrawal on Indian exports to the USA will be significant and felt across many sectors. In retaliation to the withdrawal, New Delhi has decided to impose retaliatory tariffs on 29 US products. India should instead try to negotiate to restore the GSP benefits, although given the fact that it is a unilateral benefit that has been extended to India, India may have to offer resolution on some of the concerns raised by the US. The meeting between Prime Minister Narendra Modi and President Trump at the upcoming G20 meetings will give both sides the opportunity to sit down and talk and work out how best not to escalate the present tensions in bilateral trade relations. Further, the govt needs to extend support to the sectors that will be most affected by the withdrawal. As a long-term measure, it would make sense for India to follow a path that does not make it overtly reliant on such schemes from a developed country but instead to use any such benefits to improve the competitiveness of its products. The GSP has, since its inception, been used as a tool by the US to effect economic and policy changes in the beneficiary countries. In 1992, the GSP scheme was used by the US to exert pressure on India to extend patent protection to chemical and pharmaceutical products. Even in the current situation, the Indian govt has pointed out that the GSP benefits cannot be used by the US to advance its trade interests.

Modi’s new Cabinet: The composition of the new Cabinet shows that Prime Minister Narendra Modi has ensured a regional balance, with a focus on states where BJP did well in the Lok Sabha polls. Uttar Pradesh (UP), the most populous state, is represented by eight ministers apart from Modi himself, from east, west, Bundelkhand and Awadh regions. BJP won 62 seats in UP, and the Cabinet reflects that. From western UP, the party gave berths to four MPs. Three states - Maharashtra, Haryana and Jharkhand – are scheduled to go to polls later this year. Together the three states have got 11 ministerial berths. From Maharashtra, there are seven faces. While five are from BJP, one each is from the Shiv Sena and the Republican Party of India (RPI). From Jharkhand, the party chose former chief minister Arjun Munda for representation in the Cabinet. From Haryana, three out of 10 party MPs have got ministerial berths. BJP's focus in Haryana is on non-Jat voters. Rajasthan, Gujarat, Himachal, Delhi and Uttarakhand recorded 100 per cent results for the BJP, with the party winning all the seats in these states. Rajasthan and Gujarat have been given three ministerial positions each while Uttarakhand, Delhi and Himachal have got one each. In Bihar, NDA won 39 out of 40 seats. There are six ministers from the state, including Lok Janshakti Party's (LJP) Ram Vilas Paswan. From southern India, BJP has given ministerial positions to six leaders. In Karnataka, where BJP did exceedingly well, the party has given positions to four leaders. One position has gone to Kerala and Telangana each. From West Bengal, Babul Supriyo and Debasree Chaudhary have been inducted as ministers of state. From Odisha, Dharmendra Pradhan and Pratap Sarangi have been included. In Narendra Modi's Council of Ministers, 23 States and Union Territories are represented in the council. Compared to the previous council, there may be fewer graduates but there are now much richer ministers. The median wealth of the Modi-led council is 5.6cr, significantly higher than in 2014 2.5cr), and much higher than that of the 2019 election winners (4cr). Pratap Chandra Sarangi, the BJP Minister of State for Animal Husbandry and Micro Small and Medium enterprises, now famous for his austerity (he declared wealth of 13.4 lakh), is an exception. Ministers such as Harsimrat Kaur Badal (who has a net worth of 1.2bn) are the norm. Only six out of 58 ministers are women and of these, only three hold cabinet posts. However, in terms of representation from the most marginalized caste groups, this council is one of the most diverse in history. Even though it decreased slightly from 2014, taken together, the share of ministers belonging to either Scheduled Castes or Scheduled Tribes is the second highest since 1952.

Draft National Education Policy:  The Draft National Education Policy 2019 is finally out after four years. The Kasturirangan Committee has come up with a progressive and ground-breaking document supported by relevant research. Drawing from early important policy documents, the draft policy has touched upon every aspect of education from school to university level, apart from vocational, adult and professional education. The draft policy has made a paradigm shift. It has suggested a complete overhaul of all sectors of education. Starting from school education, for the first time an official document is accepting the severe learning crisis in school education. The document recommends that children of the age of 3-18 will be covered in school education instead of current 6-14 years of age, which in turn will need amendment in the Right to Education. This recommendation is in line with research findings that almost 90 per cent of brain development of a child takes place before the age of six. The policy believes that part of the  learning crisis in schools is because of late admission of the children in school. To overcome this challenge, the policy recommends huge expansion and strengthening of facilities for early childcare and education. The concept of school complexes, which has been taken from the Education Commission of 1964-66, will be reintroduced for effective management and governance of schools and, at the same time, to end the isolation of a large number of schools which are located at far off places with low enrolment. Accreditation, which was till date only used for higher-education institutes, will be introduced in school education in a pre-devised format to help build quality schools across the country. For higher education again, a lot of innovative and novel ideas have been strongly recommended. The policy envisions that by 2035 Gross Enrolment Ratio at higher education should be 50 per cent, as compared to the current 25 per cent. This of course is a daunting task. The concept of affiliating universities will be a thing of the past and in the future. All higher-education institutions will become autonomous and self-governing entities. The draft policy has come down heavily on sub-standard teacher education colleges, of which 90 percent are private colleges who have been selling degrees on a price and has recommended their immediate shutdown. A bold and innovative step for both school and higher education has been taken that no promotions or entitlement will be given on the basis of seniority. Rather, merit will be the criterion. The policy for the first time has underscored the need for symbiosis between professional and liberal education in India. For the implementation of the document, the recommendations are that the govt needs to spend 20 percent from the current 10 per cent of total public investment to really expand and revitalize public education system.

SCO Summit in Bishkek: Although the shadow of Pakistan followed him to the Bishkek summit of the Shanghai Cooperation Organization (SCO), Prime Minister(PM) Narendra Modi had bigger fish to fry at the forum -- that is constructing Eurasia. The SCO brings together two of the world's great powers (China and Russia) and four central Asian nations (Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan) with India and Pakistan. It was launched by China and Russia nearly two decades ago. With India trying to boycott Pakistan internationally, Pakistan Prime Minister Imran Khan wrote a letter to his Indian counterpart offering dialogue at the sidelines of the summit. The question everyone had was: will both the countries have a dialogue? Both the leaders did exchange pleasantries, but Modi made it clear that he was in no mood to revive talks without any major steps from Pakistan on shutting down its terror factories. China made it clear before the summit that Pakistan should not be targeted on terrorism at the SCO. Right from the beginning, when India became a member of the organization, there have been speculations that India became a member only because Russia wanted to balance China's growing dominance. The effort was negated by China by bringing Pakistan in. The changing dynamics of the "Alliance of the East" have caught the attention of many experts. Once known to be a Chinese-dominated organization, today SCO is coming in alignment with Russia and other Central Asian countries. India's entry strikes a balance in the evolving Asian architecture. The four Central Asian nations add to the power of Eurasia. With India and Pakistan, both trying to add the South Asian factor, the dynamics of the SCO are still unknown. The SCO has become an important venue for the member states to have a dialogue. But, it is unclear if this grouping will continue to be referred to as China's achievement or pave the way for the new Eurasian order. With three powerful countries Russia, China and India under one umbrella, SCO did manage to send a powerful message to the US on Donald Trump's new aligning policies. The three countries will also meet on the sidelines of the G-20 summit in Japan later. On the regional front, PM's bilateral engagement with the host nation Kyrgyzstan underlined the new political commitment to realize the full potential of India's relations with the Central Asian republics. The Bishkek summit also revealed India's deepening challenges with Afghanistan and Pakistan. While India continues to emphasize an "Afghan-owned and Afghan-led" peace process, Kabul has become increasingly marginal as major powers negotiate with the Taliban. On a positive note, the forum strongly endorsed India's concerns on cross-border terrorism.

Azim Premji retires: Although he is one of the richest persons on the planet, 73-year-old Azim Premji is a self-proclaimed 'scrooge'. He's rather detached from the billions he has accumulated during his 53-year stint at Wipro Ltd. Come July, Premji will bid adieu to his illustrious corporate career to pursue full-time philanthropy, towards which he has already pledged an eye popping $21bn or two-thirds of his wealth. Premji's entrepreneurial streak and business acumen were discovered at a tender age of 21, when he took over the family business following the untimely demise of his father in 1966. He was probably unprepared for the task, but that opportunity eventually saw him evolving into an accidental but highly successful businessman, and Wipro, from a mere $2mn entity into an $11bn business. While he nurtured the company (then making vegetable oil) with all he had, what turned around its fortunes was Premji's bet on information technology. In 1980, just when the world was embarking on computerization, Wipro caught the ITF bug early by foraying into the production of personal computers. Gradually, Wipro expanded into IT services and a decade later emerged as the country's first entity to receive an ISO certification. Yet, Premji neither ignored nor gave up on its traditional consumer business. In fact, it continued to excel here, with some of its brands like Santoor soaps and Wipro baby care products raking in handsome revenue. This prompted the unstoppable Premji to further diversify Wipro into other businesses like energy, launching compact fluorescent lamps, and medical devices in partnership with GE Healthcare. But, the journey was not without its ups and downs. Just when the going was getting good for the IT business, with the TCS Infosys-Wipro-Satyam quartet jostling for contracts to crack into the $1bn revenue club, Premji had to weather a storm of senior-level exits. Several key executives like K Natarajan, A Soota, Ravanan and Subroto Bagchi quit the company, either to start new ventures (like Mindtree) or to join competitors, The biggest blow came from the exit of Vivek Paul, creating a leadership vacuum and compelling Premji to get into the driver's seat as Wipro's CEO, But, the IT czar managed to steady the ship and has built a robust second rung management to handle tough times. Premji's son, Rishad Premji, will now take over the mantle as executive chairman for five years, while CEO Abidali Z Neemuchwala will double up as its MD. The transition may have been in the making for nearly a decade, but the timing will be challenging for the new captain at the helm. Recently, HCL Technologies dethroned Wipro as the third largest Indian IT services firm, while the gap between its other formidable peers TCS and Infosys is widening rapidly. Wipro is not only growing slower than others but has also given bleak growth projections.

 Girish Karnad dies:  Girish Karnad, who has died aged 81, was India's foremost playwright as well as a successful film director and popular actor, appearing in arthouse films as well as hit Bollywood movies such as Ek Tha Tiger. But it is for his plays that he will be remembered. Karnad knew that to express his vision to a wider audience he had to move into cinema. His screenwriting and acting debut,Samskara (1970). based on his friend UR Ananthamurthy's novel about the limitations of caste, won the first Golden Lotus award, the national prize for Kannada cinema. His directoral debut (with the theatre director BV Karanth), the award-winning Vamsha Vriksha (1971), took his fascination with tradition versus modernity deeper by following the trials of an educated family for 20 years. Many of the films Karnad made in his 35-year career as a director won national awards. Among them are Kaadu (1973); Tabbaliyu Neenade Magane (titled Godhuli in Hindi, 1977); Utsav (1984), in which a courtesan's relationship with a poor Brahmin man causes chaos; and Kanooru Heggadithi (1999), on the limited position of women in rural India. On television he appeared in the first series of Malgudi Days (1987) and in the children's science fiction series Indradhanush (1989). Born in Matheran, east of Mumbai, Girish was the third of four children of middle-class parents Raghunath Karnad, a doctor, and Krishnabhai, a nurse. When Girish was 14, the family moved to Dharwad in Karnataka where he became fascinated by the ancient traditions of Yakshagana theatre. He graduated in maths and statistics from Karnataka University and then went to Oxford University as a Rhodes scholar for an MA in philosophy, politics and economics. He was elected president of the Oxford Union in 1962. After his return to India in 1963 and the success of his first plays, he was offered a job at the Oxford University Press in Madras, where he met Saraswathy Ganapathy, a doctor and director of healthcare projects. They married soon after. As well as his creative work, Karnad served as director of the Film and Television Institute of India (1974-75), and chair of Sangeet Natak Akademi (1988-93). From 2000 to 2003, he was director of the Nehru Centre, the cultural wing of the high commission of India in London. In 2002 his play Bali – the Sacrifice was staged at the Leicester Haymarket theatre. A secularist who condemned the rise of nationalism in India, he took advantage of his position to campaign for the rights of the LGBT community, women, Dalits and religious minorities. His final work, Rakshasa-Tangadi, was published last year, and he is due to appear in four films this year. He was awarded the Padma Shri in 1974 and the Padma Bhushan in 1992. In 1998, he received the Jnanpith.

The Dhoni Insignia row: India wicketkeeper MS Dhoni sported an army badge on his wicket- keeping gloves to show his respect for the Indian Army. But his gesture later sparked a controversy as the International Cricket Council (ICC) objected to the symbol on the former India captain's gloves. The ICC later turned down Board of Control for Cricket in India's (BCCI) request to allow Dhoni to wear an army crest on his wicket-keeping gloves. However, there is nothing aggressive or hostile in the intent over wearing a talisman, and it is no different from what players wear around their necks, and often kiss for luck when they begin to bat or bowl. Clearly, the ICC has not figured out that Dhoni is an officer in the Territorial Army with the rank of Colonel and his right to wear the insignia given to him is within his rights. Moreover, if the ICC can parade its symbol around, how can there be any law stopping Dhoni from wearing the “Balidaan Badge" on his gloves as a tribute to the fighting men and women in our land? To capitulate now and give in to the ICC not only rubs egg on the face of the all-so-powerful BCCI, but is also a huge insult to our armed forces, in general, and the paramilitary, in particular. The ICC is hiding under the rules which say: "equipment and clothing regulations do not permit the display of messages that relate to political, religious or racial activities or causes during an international match”. The insignia has no overt military message. There is no wordage, nothing that anyone can be offended by unless they wish to create trouble only for the sake of creating trouble. It's not a religious symbol or in any other way inflammatory to earn an objection. Sports stars often wear sport logos for commercial considerations or sponsorships. Sometimes they appear with a black arm band as a mark of condolence or protest against something or some event. It is just a subtle statement. And this one is a patriotic sentiment too. One also recalls that in a recent series, the entire Indian team had worn combat colour caps, a la army fatigues style. Similarly, wearing of the Balidaan symbol of para commandos too is a positive expression of patriotism. However, the ICC's statement was: "The regulations for ICC events do not permit any individual message or logo to be displayed on any items of clothing or equipment. In addition to this, the logo also breaches the regulations in relation to what is permitted on wicketkeeper gloves." If any sporting authority allows people to wear their nationalism literally on their sleeve, it won't be able to stop any kind of symbolising from any country. It is the prerogative of the sporting authority to only allow commercial sponsor logos. If Dhoni feels such a deep need to profess his abiding love for the army, he could just dedicate India's tournament win to them in his speech when the time comes.


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