Nationalization of banks in comparison to Covid effects

Nationalization of Banks in Comparison to Covid Effects on the Indian Economy

By Banking No Comments

Nationalization of Banks in Comparison to Covid Effects

If there are two things that have grabbed the political attention of the masses in India, it has to be the odious covid-19 pandemic that ravaged the already battered economy and the nationalization of the public assets. Public assets, time and again have been a touchy subject for the masses of India.

This is especially is true given the widespread notion or belief that government assets are invariably and emphatically public assets. The government assets have been the talk of the town for two specific reasons.

First is the selling off of the public’s property and heavy corporatization of the banking sector and secondly, the government’s close relations with the Ambani-Adani. With outrage pouring in from the masses the idea has become a contentious issue of debate.

nationalization
Government’s inspiration

  1. But what exactly inspired the government’s decision for disinvestment in the economy? The answer to the question lies in the arrival of the pandemic which severely affected and crippled the finances of the government.
  2. With the need for robust public finance and expenditure in the economy, lower expenditure and finances spelled trouble for the battered economy. Thus, in order to finance the needs of the economy, the government innovatively thought of disinvestment of the public assets on which it could cash on.
  3. But is disinvestment such a bad though Afterall? It is to be noted that privatization might actually ramp up the efficiency of the asset which had been reductant under the government’s rule. With higher NPAs in the public banking sector, the introduction of healthy competition can lead to the revamping of the banking sector. What more pertinent reason for such a disinvestment spree can be?
  4. covid
  5. Given, the circumstances of the pandemic which the banking sector weathered, NPAs were reported to surge. Mortarium on payments and easy lending had put immense pressure on the banking sector.
  6. Though many banks did reduce their NPA ratio, that was merely due to the act of writing off of the loans from the financial books. As a matter of fact, RBI’s Financial Stability Report of 2020 effectively and emphatically foresaw a huge surge in the Gross NPA ratio of the banking sector.
  7. This was projected to be at a significant 13.5 percent for the month of September for the financial year 2021. The NPAs were projected to heavily surge from 7.5 percent in September 2020.
  8. What made the Indian banking industry suffer the wrath of the covid more than the other countries was due to India’s despicable legacy of bad debt even before the COVID-19.
  9. nationalization
  10. Thus, one can strongly argue that as the odious variants of the virus despicably assailed the country which had pervasive and floundering health sector, the already battered pre-pandemic financial infrastructure, cracked and worsened
  11. The aforementioned situation is even more exacerbated for the public sector, which is inefficient even under normal circumstances.
  12. Thus, the government’s solemn decision to privatize certain banks and cash on them has some merit to it. With increased efficiency and losses, one can effectively expect the better performance of the sector in the economy which is in the nascent stage of recovery.
  13. However, taking an ill view of the banking sector too can be a biased opinion. With strict, increased monitoring, the immense increase in market capitalization in the stock market, and the introduction of stimulus packages, there is hope that green shoots for the sector and the economy are a possibility.
  14. This can be effectively corroborated by the fact that throughout 2020-21, SCBs’ RoE and RoA sustained a positive rise of an impressive 6% in March 2021 on their CRAR.
  15. nationalization
  16. In fact, the GNPA and NNPA ratios too displayed signs of stability over a period of time, which spells good for the economy. As aforementioned, last year, the moratorium on compound interest, which was sanctioned by the RBI, had a despicable effect on the bank’s finances.
  17. But it is to be noted that contrary to the earlier inferences, banks are now much better equipped to manage profitability.
  18. Their resilience in terms of higher recoveries and as higher capital buffers too has been improved. Thus, one can maintain that the moratorium and the pandemic did have a silver lining for the banking sector.
  19. Thus, in totality, disinvestment, which has been a petulant topic for the public, can be a step in the right direction for the industry. Given the immense importance of the banking sector in the economy, which drives the demand and the investment, its timely resolution is the need of the hour.
  20. If this required extreme means, one should brace themselves for the inevitable. Thus, one should not be much abrasive or unappreciative of the scheme the government is concocting for the banking sector. As for the future, one can only be patient to witness what the scheme will offer for the industry and how will impact the economy in the long run.
the unilateral appointment of arbitrator

Can an Arbitrator Be Appointed Unilaterally by One Party if Permitted in Contract?

By arbitrator No Comments

Understanding The Unilateral Appointment of Arbitrator

The whispers, arbitrariness, and confusion surrounding the topic of unilaterally appointing an arbitrator have been put to rest by the Delhi high court. The Court has emphatically and effectively stated that no party is allowed or could specifically be permitted to unilaterally appoint an Arbitrator. The aforementioned judgment is based on the rationale that such an attempt to appoint an arbitrator will significantly defeat the purpose of unbiased adjudication in the state of a dispute between the parties.

unilateral appointment of arbitrator in India

Though it is to be noted here that there was quite a huge accommodating stance by the disputing parties which were largely in the favor of the same, the recent court’s dismissal comes as a disheartening note for the petitioners. This can be corroborated by the fact that the crux of the petitions was emphatically and largely seeking for the appointment of Arbitrators for adjudication of disputes between the parties.

The case was being attended by the single-judge bench of Justice Suresh Kumar Kait. It was comprehensively noted here that dismissal was based on the principle of unbiased adjudication of disputes between the parties. This was enshrined in the Act and hence it can’t be compromised under any circumstances.

According to the petitioner firm, it has been conjured that a license agreement along with a supplementary agreement was entered between the respondent of shops that were under question and the petitioner. The agreement was strategically renewable every five years at the option of the specific petitioner.

unilateral appointment of arbitrator

The petition that was submitted maintained that after the change of name of the petitioner/firm from M/S Virender Kumar & Co. to M/S Sital Dass Sons, it was guaranteed an additional space. This additional space was guaranteed adjacent to shopping in the same shopping arcade.

This was effectively granted by the respondent to M/S Sital Dass Sons vide supplementary agreement. Here, it is to be noted that it also had included the terms of the original license agreement which were to be strategically and effectively read with the other agreement. Here, M/S Sital Dass Sons through its partners had informed the respondent about their preference of operating under two different names.
Given the smooth transition and agreement in the initial phases, on the ground, reality stuck hard.

According to the petitioners, it was found that in reality, the internal fittings of the aforementioned shopping arcade were disappointing as it was nearly 40 years old. What infuriated the petitioners was also the fact that there was an urgent and important need for repair and that it was no longer viable or financially profitable to continue with the shopping arcade. This was led by the respondent to vide a notice revoking the license in respect of the shops.

Here, it was contested by the petitioners that they were in exclusive possession of shops that were under consideration. The had further retreated that the notice hadn’t mentioned any violation of the conditions and terms of the license or lease agreement by petitioners.

This further brought to the fore the argument that petitioners had the right to carry on business at the hours suited to them. Thus, in its entirety, it was argued that the respondent on its will couldn’t have terminated the license or lease agreement.

The curious case of illegal eviction Additionally, it matters that had been also brought to the notice of the Court was that against illegal eviction of petitioners. They had emphatically and effectively preferred a civil suit CS(Comm)) 237/2020 before the Court for declaration and permanent injunction against the respondents. This was disposed of vide order on 21.07.2020 as not maintainable in view of the Arbitration clause between the parties.

Here, it is to be noted that the bench had stated that the arbitration agreement between the invocation of arbitration and the parties was not disputed by the respondents. Hence, in the entirety of the issue, the petitions under consideration deserved to be allowed.

However, as aforementioned that had led to the dismissal of the contention of petitioners to appoint Arbitrator of their choice. This was significantly done as no party could be permitted to unilaterally appoint an Arbitrator in the process of a dispute as this will quite unilaterally defeat the purpose of the Arbitration and Conciliation Act.

Here, it is worthy of mentioning that the Court had relied on the decision of the Supreme Court in Perkins Eastman Architects DPS v. HSCC (India) Ltd., 2019 SCC OnLine SC 1517. It was wherein it had been significantly and emphatically stated that in cases where one specific party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity.

This exclusivity will be determined or charted by the course for dispute resolution. Naturally, it was implied that the person who has any specific interest in the decision of dispute or outcome must not have the exclusive power to appoint a sole arbitrator of choice.

It is to be noted that the aforementioned decision was timely and ardently followed by the Coordinate Benches of this Court in VSK Technologies Private Ltd. v. Delhi Jal Board and the aforementioned Proddatur Cable Tv Digi Services v. Siti Cable Network Limited 2020 SCC OnLIne Del 350.

appointment of arbitrator

Hence, here the High Court had effectively appointed the sole arbitrator to adjudicate the dispute between the parties.
Adding to the above argument about the unilateral appointment of arbitrator, the court also positively envisioned that the fee of the arbitrator shall be effectively governed by the fourth schedule. The fourth schedule of the Arbitration and Conciliation Act, 1996 will help govern the fee of the arbitrator. Consequently, it was noted that the Arbitrator shall ensure compliance with Section 12 of the Arbitration and Conciliation Act, 1996. This should be effectively carried out before commencing the arbitration. This is all about the unilateral appointment of arbitrator.

wage gap

What if the wage gap means everyone earns less?

By Economy, Labour & Employment No Comments

What if the wage gap means everyone earns less?

Wage Gap Pay transparency has been a contentious issue for managers around the world. Companies, including Starbucks, whole foods, and many more have been scrutinizing the raging problems by touting their pay transparency policies as an effective means of ensuring fairness in the workplace.

wage gap

It is no news that pay transparency is a touchy topic for employees, especially when gender and race are involved. Thus, conscious steps to avoid such irregularities have gained top priority for many top-notch firms. But, as it odiously turns out in many cases, pay transparency doesn’t necessarily ensure or effectively increase workers’ wages.

Such a revelation comes as a piece of disturbing news for the employees as more than 10 European Union countries and 20 US states have enacted wage transparency laws that emphatically seek to give workers more bargaining power in the workspace.

This is ensured by making it mandatory for the firm to disclose employee salaries. Given, the law had been enacted for increasing the wage of the workers or to provide them with an instrument to bargain, it has been found out, that strategically opening your pay books for others to scrutinize and read has actually led to 2 to 3 percent less cash in workers’ pockets. This is especially true for the workers in the US private sector.

how does the wage gap work

wage gap

So one might ask what has led such discrepancies to seep into the welfare policymaking? It is to be noted that rather than empowering the workers, these laws have encouraged companies to set lower salaries for their workers in order to preserve their profits and to highly prevent any expensive renegotiations that might come through.

In earlier times, proximity between workers did the work that wage efficiency laws are trying to achieve at the moment. It is to be noted that the workers with comparable similar jobs in the same locations effectively earned around similar amounts.

In contrast, the pay for the same work was different given the varied geographical locations of the work. Thus, given the proximity between the workers, it helped them immensely to talk to one another about their wages. This, unlike today, helped the workers to re-negotiate and thus create opportunities for themselves to increase their odds of earning more.

One might argue, that such a strategy was much more effective than the wage transparency laws to re-negotiate one’s offer for his or her services.

This is due to a pertinent and a threatening fact that though the legal landscape has shifted positively towards the welfare of the workers in recent years through the inculcation of transparency, on the other hand, laws, and policies that had always protected the workers’ ability to discuss their compensation with their colleagues without fear of repercussions have also gained popularity in recent years.

But this still doesn’t concretely or statistically prove that workers in their workspace earn less due to transparency wars. Such a riddle can be resolved by studying how the labor market adjusts itself depending on pay transparency. This can be done by thoroughly analyzing and scrutinizing shifts in wages after transparency laws took effect.

According to the American Community Survey, which analyzed 4 million people living in the states with new transparency laws that were enacted between 2000 and 2016, found that a year after the transparency laws were passed, wages had effectively dropped by 2.2 percent.

What is more interesting is the fact that after three years of enactment of laws the wages had declined by 2.6 percent. Thus, one can state that the wages, after the enactment of the law, have shown a downward trend that indirectly or directly affected the wages and the bargaining power of the employees in the market.

The ultimate reason that such laws push wages lower is the fact that managers who are required to disclose salaries can credibly state unsettling facts about low-profit margins and unwillingness to give a raised pay to everyone if the concerned person is given the same. This effectively and strategically allows the profit-mongering employers to set overall salaries much lower.

what is the gender pay gap

This usually leads to lower bargain power of the employees which in turn leads to lower pay for all in a certain workspace. This allows employers to set overall salaries lower and hold firm on initial offers when employees are hired—which tends to give companies an advantage in salary negotiations.

It is also worthy of noting here that salaries are not always, monotonously handled in the same way at all companies. This is especially true when the company might not hold the law true for large superstar employees who bring exceptional talent to the table.

Thus, one might actually not have as much bargaining power as he or she might think so. This is also due to the fact that the law is not absolute in nature that guarantees the right to re-negotiate your worth.

Thus, in totality, one can argue that though the law is helping gain pay equity in the workspace, the same is being achieved at the expense of workers’ purchasing power and adequate pay. Thus, can we still appreciate the wage transparency laws in place? Hard to say when your pockets are comparatively less filled now.

universal basic income

Universal Basic Income – UBI’s Time Has Come

By UBI No Comments

Universal basic income: UBI’s time has come

Many might vehemently argue that universal basic income should be a reality throughout. Though such a basic income model is much operated and hyped in the socialistic culture, the capitalistic economy seems to deny such rights to its citizens quite vehemently.

Though one can state that the combined advantages of anarchism and socialism can make the world of universal basic income come true, such a theory is yet to be tested to confirm its validity.

universal basic income
The topic of universal basic income has garnered much attention in recent times due to the pandemic. This was due to the fact that major societal and income inequality have to the fore which has made the society reconsider the aspect.

Secondly, the automation and the rising concern that technology can potentially widen such inequalities or not has also led many to reconsider the debatable topic of income inequality.

But why is there a high need for such debate during the odious pandemic? it is to be noted that, inequality used to persist even before the arrival of the pandemic. but given that economic woes were worsened during the same, inequality is now at an all-time high.

universal basic income india

This leads to a pertinent conclusion that fiscal policy mitigating the same should be concocted as inequality has a high potential of becoming a serious social evil. Secondly, the need for the same also is at an all-time high because it seems abundantly clear that the economic growth is quite likely to be sustainably lower than over the past 50 years.

It is no news that economics is interlinked with the real world in a real sense. Here the economic growth is determined by the population growth and the productivity growth of labor. The latest consensus shows that the population growth has been slowing in emerging economies like China and India.

This implies the fact that now the emerging economies too are joining the west in a declining fertility ratio. This can be corroborated by the fact that there is a piece of considerable anecdotal evidence that empathically shows that many young couples are now increasingly choosing to have one child while many others are simply choosing not to. Thus, it can be argued that the economic growth in the future will be much lower than what it was in the previous years unless productivity growth is rapid.

universal basic income pros and cons
AI technology: a way of efficient work in future

  1. Though population graphics might show a grim picture which might hinder economic growth and hence the universal basic income, it is to be noted that penetration of several technologies will effectively help generate step increases in productivity.

2. AI integration is possible through deeper penetration of smartphones into much lower-income populations which can help provide impetus to the efficiency of the labor. On the other hand, corporates too can take full advantage of AI as blockchain technology is efficiently making transactions more efficient.

3. The AI penetration is being complemented with productivity-enhancing technologies that in their recent discovery and usage are acting as a booster of productivity in the current scenario. These technologies include rampant usage of the internet, personal computers, and mobile phones, which are become the norm of the day.

4. But is internet penetration really contributing to rising efficiency and productivity in the market? The answer to the question is affirmative, as on average, the population is already three times more productive than each individual was back in 1961.

5. Though productivity might have been enhanced by the incessant usage of technology and automation, it is to be noted that efficiency usually tapers off quite frequently over a period of time.

6. A major hindrance in such productivity has been the pandemic. the pandemic can be emphatically blamed for the economic slump and the falling productivity that will hinder the acceptance of the universal basic income model.

7. Talking about the current scenario, with falling productivity and falling population rate, falling economic growth is inevitable. Thus, if the growth is going to be sub-2.63% about half the time, as compared to almost 30% of the time in the past, recessions will be much more frequent in the future compared to the last 50 years.

8. It is no news, that during recessions, growth not only slows down but people also lose their jobs, companies fail, and inequality sets in. Thus, public policy needs to address the odious situation Clearly, public policy needs to recognize this and plan for the implementation of UBI, which garners more importance due to such recessionary discrepancies of the future.

9. Thus, if the recessions and slowing economies have to set in, the government should work towards ensuring the future of the citizens with a universal basic income plan to keep them afloat.

10. Though, it should be agreed that implementing such a strategy will require both sensible planning of existing benefits and much higher taxes to emphatically and strategically ensure that sustainable government surpluses exist. But is the government ready to tax the rich and bring about a change in the corporate world?

11. Here, it is also to be noted that raising corporate taxes or taxes on the rich too can contribute to the recessionary forces. Therefore, whatever might be the way, the government will have to risk something or the other.

12. What comes in handy is the fact which methods’ benefits outweigh their costs. While one might argue that there are many models to raise taxes, the best way to do perhaps is the one that does not harm growth.

13. Thus, will the government prove itself efficient enough to make the UBI a reality? It is something the government in collaboration with the central bank will have to figure out.

pca framework

Tightening the screws: what the RBI’s new PCA framework means for large NBFCs

By Banking No Comments

Tightening the screws: what the RBI’s new PCA framework means for large NBFCs

RBI and PCA are on their newer pursuit of correcting the discrepancies in the Indian financial sector. Only now, RBI is after the NBFCs in the financial sector which are usually overlooked and underappreciated. The last prompt corrective action initiated by the RBI was against the cooperative banks in the financial year 2002.

In the financial year 2021, we will effectively witness India’s central bank releasing a comprehensive prompt corrective action framework for the non-banking finance companies with the aim to strategically align the regulation governing the country’s shadow lenders with that of the commercial banks.

pca framework for nbfc
It is to be noted that according to the RBI, the new framework will come into effect from October 1, 2022.
Having mentioned, that the last prompt corrective action was taken in the financial year 2002, what has led the RBI to initiate another this time around?

The prime reason for the same is the burgeoning importance of the NBFCs as a legitimate source of funds that has garnered prominence and popularity markedly in the Indian financial ecosystem.

Given the arduous nature of bank loans that consumers encounter, several shadow lenders have managed to entice people into its gambit of lending leading to faster expansion of operations in the financing world. One can also state that it has been also possible due to the lower regulatory constraints than were imposed on the NBFCs, which made lending a profitable and easy business.

Another reason for a successful model of NBC’s lending is also the fact that NBFCs also take on riskier loans compared to Commercial banks which make them tantalizing enough for the borrowers. Thus, one can strongly state that banks adverse nature towards risky borrowers has led to its slow burial as a lender in the financing world.

Additionally, it is to be noted that it is emphatically and strategically no lowhat is pca frameworknger uncommon for NBFCs to tie up with banks and effectively engage in practices of co-lending.

This model works upon the framework where two entities lend collaboratively based on pre-determined disbursement ratios. Here, it is worthy of mentioning that such ratios usually encounter NBFCs often lending the smaller proportion of a loan.

This leads to a humungous exposure of banks to high risk which consequently is much less appreciated and unwarranted for its financial health. Thus, given the aforementioned arguments, one can conjure that the NBFCs have been expanding at a warp rate in the economy.

So much so, that its collaboration on risker loans with banks is indirectly also affecting the financial health and balance sheets of the banking sector. Given, the already battered and odious condition of the banking sector, such discrepancies need to be rectified.

Though all the aforementioned warnings seem risker enough, these don’t even come close to NBFCs’ latest love affair with the digital lending platforms. Lately, according to an interesting turn of events, NBFCs have also established partnerships with digital lenders in the market.

pca in banking

This can be seen as tapping into the pool of unstable lenders in the market, which at best can be described as the genesis of financial problems in the banking and financial sector in India. Digital lending platforms are usually incapable of lending on their own, this is due to their regulatory constraints. Thus, given its regulatory and financial curtailments, such lending platforms usually enable NBFCs to effectively expand their borrower bases beyond physical channels.

Thus, given the immensely burgeoning inter-connectedness of NBFCs within the financial ecosystem in India, the central bank is duly seeking to reduce risky behaviors in the economy.

This is also the need of the hour due to the fact that India is still struggling with the handling of the pandemic, and any financial fallout will spell doom for the economy. Thus, to emphatically ensure that India’s shadow lenders’ balance sheets remain strongly resilient, we will witness the initiation of prompt corrective action against them.

Given the elaborate discussion of the inherent faulty nature of the NBFC’s; lending system what has prompted the RBI to go after the NBFCs in the middle of the pandemic? it is to be noted that lending risks in the NBFC sector were made abundantly clear in recent years.

This has been due to the collapse of Dewan Housing Finance Ltd, IL&FS, Anil Ambani controlled Reliance Capital, and Srei Group. one cannot deny the fact that the collapse of one NBFC leads to a ripple effect on the economy, thus such contagion effects need to be curtailed before they infect the wider ecosystem.

Talking about the PCA mandate, it has been put in place by the RBI “to further strengthen the supervisory tools” that are increasingly relevant to the NBFC sector. According to the RBI, the NBFC’s financial health will be monitored on three bases asset quality, capital, and leverage. Thus, certain specific thresholds have been laid by the apex bank, which if NBFC breaches, will lead to the initiation of action against it.

Based on the immediate and specific nature and severity of the breach, the RBI will suitably force the NBFC to halt their certain expansions, limit the disbursal of loans to certain risky lenders, suspend their dividend distribution or raise capital or expedite recoveries. Quite evidently, the RBI might also seek to merge two entities as a resolution, if the financial health comes across as too risky.

As far as NBFCs go compared to commercial banks, the reasons to worry are meager as the majority of mid or large NBFCs have comfortable capitalization levels. For those, that might have risker balance sheets, plenty of time has been provided to strengthen their balance sheets. Thus, when it comes to NBFCs odds of any major corrective action are way less compared to the commercial banks.

taxation laws

Tax in 2021, and What’s Likely in 2022

By tax No Comments

Taxation Laws, and What’s The Tax Likely to Be in 2022

The topic that has been much debated has been the taxation laws around the world. A central theme pertaining to the tax policies of the current dispensation is on the agenda which will be addressed diligently to contain ambiguities in the income-tax laws.

This is necessary and welcomed as such ambiguity has many a time contend tax disputes between parties which are seldom appreciable. To this end, two amendments in the financial year 2021 hold great and significant prominence.

This has brought many changes at the administrative front, where the government has effectively worked to completely revamp the conditions and the procedure to comprehensively re-assess a taxpayer’s income.

This has led the government to also significantly alter the time limits for the initiation of reassessment. This has apparently been changed to a longer period amounting to 10 years available only in limited circumstances.

Thus, given the conscious approach by the government to deliberately clear the clouds of uncertainty from over the tax laws, one can strongly expect increased certainty for the taxpaying community in India in the near future.

income tax lawsIt is to be noted that retrospective tax in India was bid farewell in the recent past which was brought in due to the Supreme Court’s judgment in a landmark case. This had led the government in August to bring legislation into effect which had emphatically and effectively exempted indirect transfer of shares pursuant to transactions undertaken prior to May 28, 2012, from taxation.

  1. Though many had argued that India could have spared itself of the litigation drama in India or at international tribunals, sometimes, it requires a hard pill to be swallowed before a lesson is learned and embraced. Here, it is to be noted that there are still seeds of discontent in India as the move was a larger policy statement that India is still not in favor of.

2. India is a diverse country, well such an aspect might be quite appreciable for the tourism sector, however same cannot be stated for the 5ax laws in India, facing indenumerable changes. With any changes in the law that has been witnessed in India, especially in terms of the tax laws.

3. Thus, as a matter of fact, divergence in interpretation is quite common. With the aforementioned ordeal of India to progressively keep changing tax laws, the judiciary was required incessantly and repeatedly to step in to address such odious, unpredictable aspects.

4. Taking such an aspect into consideration, the government has considerably has altered the reassessment process that has emphatically changed from April 1, 2021; however, it can be witnessed that the revenue sector hasn’t registered much growth on the subject.

5. This is especially true as the department is not persistently and diligently following the laid-out process. As a consequence, many taxpayers have been found approaching the High Courts, with mixed results. But what ultimately is leading the taxpayers to approach the high courts so often?

  1. tax laws in indiaIt is to be noted that faceless assessment usually led taxpayers to approach the courts. This is due to the pertinent fact of natural justice which materializes due to the lack of an opportunity of being heard. This leads to an untimely and unwarranted load on the courts which are dealing with heightened and newer nuances due to the abolition of dividend distribution tax, in the financial year 2020.

This has invariably been replaced with withholding tax. The newer nuances that the court has to deal with now are due to various disputes that are now arising between the taxpayers and the Revenue over the applicability of the Most Favored Nation clause.

Though the aforementioned cases prove to be a burden, it is to be noted that non-residents too continue to face various issues. Nonresidents are usually seen tackling varied interpretational issues that emphatically and strategically arise due to India’s unilateral measure to tax the digital economy.

This has been achieved by the government through the enactment of the equalization levy. In addition to the aforementioned equalization law, there has been an incredible proliferation of similar unilateral measures by the countries.

But is India the only country that is revaluating its stance on tax laws? A deeper introspection shows that the world is altering its stance after multiple rounds of engagements and discussions on the international level. 136 countries reportedly have effectively signed the OECD framework which will potentially challenge and change the existing cross-border payment system.

It is to be noted the signatories make up more than 90% of the global GDP. What forms as an interesting facet or observation of such a cross-border transaction alteration is the fact that it will increasingly affect the income of the multi-national enterprises which will get taxed.

The two-pillar approach will considerably help the world order to move away from taxation based on physical presence which considerably helped the companies to evade taxes to a major inclusive approach where the MNEs will not be able to use jurisdictions merely for tax arbitrage.

Thus, one can state that the upcoming world order on the tax laws will help dissuade countries from the race to the bottom in offering low tax rates. Such an approach has been followed by the emerging countries to attract investments in their economy for development and growth.

retrospective tax

Given that implementation and ideation have been initiated in the financial year 2021, one can clearly argue that 2021 has been a dress rehearsal for the tax laws of the future. Thus, if 2021 was a successful trailer, 2022 will quite likely be a successful film as the countries will be seen negotiating and implementing the idea that they had so diligently concocted in the financial year 2020.

labor law in india

Suspension of Labor Law in India in The Wake of Covid 19

By Banking No Comments

Suspension of Labor laws During Covid 19 Pandemic

In its pursuit to provide impetus to the faltering and battered economy, in Covid, several States in India had effectively brought about an ordinance to exempt compliance from certain labor laws amidst the pandemic. Such suspension was brought about to emphatically provide more flexibility to employers and businesses.

This flexibility was provided in order to help curb the effects of the Covid – 19 induced lockdowns that had weighed heavily on the industries and businesses. It is to be noted that labor codes or laws significantly provide much-needed social security measures for workers. Though one might argue that these measures effectively assist in boosting the economy, concerns regarding the protection of the rights of the Indian labor force, too surface which need to be paid attention to.

what is labor law
In a series of events, the state of UP was seen promulgating the ordinance namely the ‘Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020’. This particular ordinance had effectively led to the exemption from compliance to the majority of the labor law in India for an extensive period of three years.

Similar steps were also seen to be taken by other states which had positively issued notifications to grant certain exemptions under the factories act of 1948 and Industrial Disputes Act of 1947. This period had also seen an extension in working hours for a period of exhaustive three months.

As aforementioned, UP saw the biggest suspension of adherence to the labor law in India, which was made possible through the suspension of the majority of the key labor law in India and rules in the states. But it is to be strongly noted that not all labor laws were suspended during the unprecedented times.

employment law

Barring certain provisions relating to security and safety of workers under the Factories Act, 1948 child labor, the Building, and Other Construction Workers, Maternity Benefit Act, equal remuneration act, Employee’s Compensation Act, and the Bonded Labour System (Abolition) Act, 1976; all other laws were suspended in the State.

Thus, given the nature of the laws that were exempt from being suspended, it can effectively see that even amongst the chaos and mayhem in the economy, the health and the welfare of the workers were not forgotten or taken for granted.

With the crippled financial standing of the urban and rural workers, protection of the rights and welfare of the labor class should be a top priority for the government, which, one can argue, is committed to.

suspension of labor laws
But given the aforementioned description of suspension of certain labor law in India, this gives rise to an inquisitive query, will not the suspension of laws for the welfare of the labor affect the wellbeing of the workers in the state? It is to be noted that the suspension of laws comes with certain requirements and rules that need to be adhered to.

For example, businesses and industries are stringently required to keep the record of the workers including all the details like names and other intimate details of all employed workers shall. This shall be done electronically on the attendance register, such as prescribed in Section 62 of the Factories Act, 1948.

On the other hand, the industries have been strictly instructed to pay workers fairly, where no one will be paid less than minimum wage as prescribed by the UP Government.

In fact, to maintain the availability of funds to the workers through the harrowing times of the Covid 19, the wages of the workers shall be effective within the time frame limit that has been prescribed under Section 5 of the Payment of Wages Act, 1936.

One might even state that the government has taken staunch and solemn steps for digital inclusivity by stating that the wages to the workers will be paid only in their bank accounts.

On the other hand, as aforementioned, the safety and the security of the workers will be intact as the provisions under the Factories Act, 1948 and the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act of 1996 which strongly relate to safety and security of workers, will remain applicable.

Thus, to rest the debate about the compromise of the welfare of the workers, the government has given serious thought to the repercussions and effects of the ordinance that it has promulgated.

Given the harrowing, odious toll on health that the pandemic has initiated, the government has made it stringently mandatory that the workers shall not be allowed or required to work for more than eleven hours per day.

Thus, in totality, the Ordinance by the state governments had made the key labor law in India strongly relating to workers and those concerning the industrial dispute, trade unions, occupational safety, contract workers, etc. defunct for a considerable period of time.

The rationale behind the suspension of laws has been that it is a pertinent need of the hour. This is increasingly needed in order to give concessions to ongoing and new industrial businesses, establishments and factories.

Though this certain move heavily tries to revive the economy through the revival of businesses and industries, it cannot be denied that it has attracted widespread criticism on the ground that the promulgation of the Ordinance leads to infringing of the rights of the workers.

labour law compliance
What remains now is to be seen and scrutinized is how the reality of the implementation of such laws plays out in the economy. It will also be interesting to witness whether such an ordinance will be challenged in the Indian courts. Since the precedent has been set, it can be anticipated that other States are likely to follow in a similar direction to suspend/relax labor law in India in order to attract investment.

asset monetization

Putting Asset Monetization on The Track

By Other No Comments

Asset Monetization and Positioning on The Track

The pandemic has worsened the government’s finances to survive the arduous times of the public health care crisis in India. This has led the government monetization to run a fiscal deficit that might not materialize well for the fiscal health of the economy.

The government, in order to provide impetus to the economy, has unveiled a constructive, expansionary budget that will help raise funds. In addition to an expansionary budget, it has been witnessed that an asset monetization scheme too will contribute to replenishing the empty coffers of the government.

It is to be noted that NITI Aayog is effectively and intensely pushing the ministries to considerably accelerate the Union government’s asset monetization plans. This is being pursued to credibly and diligently achieve the current fiscal’s target that has been set by the government at the amount of Rs 88,190 crore.

asset monetization plan

Given India’s recent finance history, such a humongous fiscal deficit target set by the government is a delineating behavior from the precedent practices of the fiscal health of the economy.

Various ministries are being monitored to implement the crucial program by the Cabinet Secretary to emphatically ensure that part of the monetization plan is swiftly implemented and the targets are hit. If the monetization plan or the procedure is to be broken down, it entails the creation of new sources of revenue by substantially and efficiently unlocking the value or potential of the investments that are made by the government in public assets.

asset monetization policy

These are primarily focused on the public sector undertakings, which have not been yielding substantial or appropriate returns and are in desperate need of revamping in order to realize their utility and potential in the economy.

Thus, the government, in the recent budget, has come forward to unlock the lost potential and underutilization of such assets to raise revenues and thus replenish the emptying financial coffers of the government.

It is no news that government-regulated investments are usually seen as inefficient. Thus, in order to counter such a discrepancy, the government has invited the private sector to increase participation in the brownfield projects.

The plan has been efficiently concocted to make the aforementioned assets value-accretive, through substantial and efficient operation.

But what role do the ministries play in such a scheme of events devised by the government? It is to be noted that various brownfield assets that have been chosen include roads and the power sector where the concerned ministries are in charge.

Thus, these ministries are being forced or motivated by the government to complete their targets, as the petroleum, Railways, sports, and mining industries seem to be behind schedule. As a matter of fact, the railway ministry has been accused of being the biggest “laggard” after a change of guard. However the same cannot be maintained for all the industries in the market.

This is due to the impressionable and appreciable role that has been played by the Real Estate Investment Trusts and Infrastructure Investment Trusts or InvITs in the road and power projects.

In addition to the aforementioned real estate investment funds and the infrastructure investment trusts, public-private partnerships (PPPs) are also being highly preferred as the modes for asset monetization. This case can be scrutinized in the railways which account for humungous 25% of the Rs 6 lakh crore of assets that have been identified to be monetized.

According to the reports, it has been conjured that such PPPs will effectively help redevelop 400 railway stations around the countries. Other tasks at hand of PPP also include 90 passenger trains that need to run, leasing of the track on dedicated freight corridors, etc.

In the PPO agreement, in the specific case of the passenger trains, there is a model concession agreement that is in place to strategically operate these trains for a period of 35 years. This is being effectively achieved in return for an upfront payment.

In order to incentivize the private players, the private partner has been enticed with offers stating that the concerned parties have the right to collect fares and avail of the Railways’ maintenance infrastructure. Though, given the great incentive that is being provided by the government, the Railways is still falling behind in meeting the target that has been set for it at Rs 17,810 crore this fiscal.

This has led to a strategic revision in the policy and the terms that are being formulated to attract more participation from private players in the market.
One might ask what is the use of increased incentives, given the fact that private players will apparently witness spectacular profits which will definitely guarantee their participation? It is to be noted that undivided attention of the private players is needed for the Asset monetization plan.

The plan will effectively take off only when and if the private sector is on board. Thus, the delays which might come with expected profits, cannot be afforded. Therefore utmost transparency needs to be ensured for such participation. There must be a balance between risk and reward, between private and public interests.

It is to be noted that the ambitious, innovative project of the government will be seriously fraught with difficulties if the various projects that are cornered, have the participation of a few private parties.

Thus, in totality, it can be stated that the government’s incentives and undivided participation of the private players in the market are critical for the success of the asset monetization plan drafted by the government.

 

Also, Read Intellectual Property Rights

what are gig workers

Protect Gig Workers, But Don’t Disrupt Gig Economy

By Other No Comments

Protecting Gig Workers and Gig Economy

Everyone knows that the odious tussle between the employers and the gig workers has reached the courts. A response has been demanded by the apex court from the Centre to a PIL that was effectively filed by the Indian Federation of App-Based Transport Workers (IFAT).

The IFAT has strongly put on the table its demand which effectively includes much-needed pension, health insurance, social security benefits, pension, and cash transfers amounting to Rs 1,175 per day. These have been demanded for the app-based drivers and Rs 675 per day effectively for others.

gig workersThe timeline for such cash transfers has been provided till December 31. The association has also argued that the cash transfers can also effectively continue till the pandemic subsidies to support its workers, who have been hard hit by the arduous pandemic.

Do the demands of IFAT end here? It is to be noted that there is more to the story. In fact, most importantly, the IFAT wants gig workers to be recognized as unorganized workers. This should be done as per the Unorganized Workers’ Social Welfare Security Act of 2008.

Tipping scale in favor of the gig workers.

  1. Globalization has integrated economies around the world, so much so that Westernization has found its huge impact on the policies and laws in the eastern and developing countries like India. Precisely due to this reason, given the dramatic turn of events in some Western economies, the scales appear to be tipped in favor of the gig workers in the Indian economy.
  2. To quote an example, in a turn of recent events in the UK, the Supreme Court had emphatically upheld an earlier ruling by the employment tribunal. This ruling had stated that the 25 drivers who had effectively filed a case against Uber were employees and not mere contractors.
  3. But what was the impact of the same, you might ask? It is to be noted that this landmark decision by the supreme court had earned the drivers a minimum wage, pension, and holiday pay.
  4. Thus, one can argue quite well that the welfare of the workers was upheld in the UK. Given that UK, a western country, that upholds the moral of capitalization, held the judgment in favor of the workers, India, being a welfare economy, is all the more required to abide by the rules of welfare and prosperity.
  5. In fact, the topic of the welfare of workers has taken the European Union by storm as a draft proposal to make companies like Instacart, Uber, and Amazon effectively categorize their gig workforce as employees.
  6. This will positively lead the corporate giants to provide the workers more benefits, which is especially the need of the hour given the financial standing of many workers in the economy has been crippled by the onset of the pandemic.
    But has the welfare trend caught upon all the western nations?
  7. Apparently not. Platform companies in the US have been successfully able to stall such welfare legislation, but AB5 in California has been vehemently and emphatically aiming at reclassifying the gig workers as employees.
  8. Thus, one can pliantly state that the tide is turning. The turning tide in the US can be guaranteed by the fact that it is being seconded by the US labor secretary Marty Walsh, who has been working towards recognizing the workers as employees.
  9. The main reason given for the same is that the humungous profits being accrued by the corporates In America should be trickled down to the workers as well.
  10. This has led to the blockade of the Trump era rule of classifying gig workers as of individual contractors in America. Thus, America might emphatically encounter a paradigm policy shift for the gig workers.gig economy in india

Upsetting news for the economics of aggregators

  • Though, one can argue that the legislation will be a welcomed step for the gig workers, can the same be stated for the employers? Apparently not. In Fact, the legislation might come as a piece of upsetting news for the economics of aggregators.
  • This is mainly due to the fact that such legislation will lead to higher operating costs and will definitely pressure the profit margins of the corporates. Given that the corporates love profits, the introduction of such legislation is sure to upset many money-mongering entrepreneurs and CEOs.
  • The operating cost is anticipated to shoot up mainly due to the fact that permanent employees can be twice as expensive as contract hires. Though, given the propensity of enactment of such legislation, the Platform employers will effectively try to point out the strength of their model.
  • This strength of the model lies in the fact that it provides an ability to the corporates to use the services of large numbers of workers. Thus, this leads to timely payment for a specific task for many workers in the economy, and this way they are emphatically and efficiently paying for the specified job done during the defined period.gig economy workers
  1. Thus, this ensures productivity and efficiency of the gig workers in the economy and subsequently keeps the costs down. Given the aforementioned argument, is the legislation the need of the hour?
  2. While one cannot deny the arguments being put forward by the corporate workers, it cannot be forgotten that a big section of gig economy workers belongs to the more vulnerable sections of society.
  3. Thus, they have a higher need for a stable income and much more than subsistence wages. Given the remunerations that are being paid to the workers are not enough to sustain the pandemic or the livelihood of the workers.
  4. Also, /another problem that poses itself in such a scenario is that such informal contractual agreements don’t hold up well in a court of law.
  5. Thus, even though employers might insist and assert that flexibility in the workplace is a humungous advantage but the truth lies in the fact that in a country like India, workers strongly prefer to be employed with one company in return for assured benefits. Thus, will the scale tip in favor of the gig workers? Guess, we’ll have to scrutinize as the matter unfolds.

 


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new rbi norms

New RBI Norms For Asset Classification & Loans

By Banking No Comments

New RBI Norms For Asset Classification may Increase NBFC’s Bad Loan Pile

rbi guidelines for nbfc

As per the new RBI norms, in a turn of dramatic events, the bad loans of India can be acerbated to an excruciating degree. According to the reports, non-banking financial companies (NBFCs) may witness the rise of bad loans after March 2022. This mainly comes after the Reserve Bank of India recently clarified an up-gradation of non-performing assets.

The Case Of RBI and NBFC’s

According to the recent recommendations, the Central bank has come forward with the agenda that the loan accounts that are classified as NPAs may be upgraded to ‘standard’ assets.

Though, it is to be noted here that it will be only if the entire interest and principal are paid by the borrower.

non banking financial services

Also, according to the notification, this will also apply to both banks and NBFCs. It is worthy of mentioning here that most of the NBFCs use to upgrade gross stage-3 loans to gross stage-2 loans.

Thus, one can emphatically state that the rule that has been pronounced on the up-gradation of bad loans will certainly lead to a rise in NPAs reported by some NBFCs.

On the other hand, it is no news that ambiguity in the banking sector leading to inefficiency is a persistent matter, and the latest announcement aggravates just that.

One can effectively argue that there could be some ambiguity with regard to the classification of such accounts that strategically are part of the dues that may have been cleared.

The crux of the new legislation states that NPAs currently classified as stage-2 but now could be classified as stage 3 NPAs also.

Therefore, as a matter of fact, this could lead to an increase in provisioning against such accounts.

NBFCs in India follow the Ind-AS guidelines, under which delinquent loans are classified as gross stage-1 (loans overdue by up to 30 days), gross stage-2 (loans overdue between 31 and 89 days), and gross stage-3 (loans overdue for over 90 days).

There is no categorization of standard and non-performing loans for NBFCs under this system.

asset classification norms
In a report on Monday, Kotak Institutional Equities (KIE) said as market practice, all NBFCs have preferred to have a uniform definition for non-performing loans and gross stage-3 or 90 days past due (dpd) loans.

“However, NBFCs may choose to have parallel reporting under Ind-AS and regulatory filings to RBI. Our preliminary discussion with market participants suggests that NBFCs may not go for parallel reporting and continue the current practice (uniform definition for non-performing loans and gross stage-3).

Hence, gross stage-3 loans will likely increase,” KIE said.
Some analysts are of the view that while bad loans may rise, the regulatory clarification may not have a significant impact on provisioning.

Prakash Agarwal, director and head – financial institutions, India Ratings, and Research, said non-banks will report higher NPAs, especially in small-ticket unsecured loan asset classes. “However this is unlikely to have a significant impact on the provisions for the NBFCs and hence P&L (profit and loss) may not get impacted much,” he said.

On the other hand, Agarwal expects that the co-lending market could get a push from the new norms on asset classification.

“This would give a fillip to co- lending as the norms of banks and NBFCs will be aligned. This was one of the important issues that were a cause of challenge for co-lending,” he said.

 


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