Board Independence

This article has been written by Sonali Srivastava. Sonali is currently a third-year student in National Law University Odisha.

India, see concentrated shareholdings in companies majorly.  The fact that directors are under direct influence of controlling shareholders leads to scams and prevent any foreign investments in company.  To prevent increased skepticism about independence of directors and to increase credibility and reputation of Indian Companies in International Market lead to enhancement of corporate governance norm in Clause 49 of listing agreement, SEBI LODR Regulations and in Companies Act 2013. Section 149 of Companies Act, defines the role, responsibilities and liabilities of Independent Directors. Clause 49, requirement that public listed companies board should at least consists of one third of independent director and if chairman of board is executive or promoter or any person related to him, than half of the board must consist of independent Director.

Insider model shows controlling shareholders directly influence the election of Independent Director. Recent changes lead to establishment of Nomination and remuneration committee which is going to appoint all directors now. The interesting condition put forth is that majority in nomination committee will be Independent directors. Functions of committee are to set criteria for determining qualifications required to be a director, identify and recommend deserving candidate and also to evaluate director.  This is a major step towards strengthening of board independence concept in India.

However some shortcomings in the new regime for independent director appointment is that again controlling shareholders will only appoint the members which give rise to same concern regarding board independence.  If we suppose that there is no influence of controlling shareholder, eventually the names nominated by the committee will be finalized by the majority again.  Therefore it can say that independence is peripheral and reforms failed to provide solution for the agency problems existing in Indian Companies.

Moreover, whole appointment and removal game is in hand of majority as it requires three fourth majority to take any decision in this respect.  As we seen movement from shareholder to stakeholder theory, independent director might confront conflict of interest between controlling shareholder and other stakeholders or minority shareholder. For enforcement of stakeholder’s interest, no right or remedy has been provided to them in recent reforms. This in a way again hinder the growth as it give independent director indirect discretion to his choice as to whose interest he has to protect.

Talking about the liabilities of Independent Director as provided in Companies Act, 2013, it suggest that monitoring the affairs of the company is regarded as primary function of independent director.  The shareholders has been given power to bring restraint order like injunction order and right to claim damages/ compensation from director for breaching of his duties  and for criminal breach, punishment like imprisonment and other penalties are imposed.

 Companies Act, provides for Class Action under Section 254 for all fraudulent and wrongful activities committed by directors.  It also laid to establishment of National Company law Tribunal for effective and speedy disposal of cases. Various reforms done shows greater liabilities and burden is imposed on shoulder of Independent Director by way of severe penalties. No reforms provide potential solution regarding agency problem and other difficulties which will be raised during implementation of these norms.

No doubt reforms bring higher penalty and stringent laws to regulate corporate governance in India. However such norms may in a way will take away deserving candidates capable of regulating board Independence in Companies. In order to achieve Ultimate motive of regulations, I suggest we should adopt such a voting which exclude such shareholders having interest in transaction and thereby solving agency problem to an extent. So although board independence plays a significant role in corporate governance, yet much is required to learn about the concept.

The December book bucket

court-room-genius                    Learning the law.jpg                     legal-eagles

Corporate Social Responsibility

This article has been written by Sonali Srivastava. Sonali is currently a third-year student in National Law University Odisha.

Corporate Social Responsibility is seen as an initiative taken by the companies whereby they take responsibility of and accountability for their activities. The effects company have on environment and society around it is the basic concern with which corporate social responsibility deal. Somehow in india the term CSR is highly misunderstood among companies. Some companies think that it is merely a regulation with which they have to comply, however the perspective behind CSR is the wider impact which company have on its surrounding .

The ‘Triple Bottom Line” model, emphasis on three responsibility of firm which comes on it wityh the type of activities it carry out. They are: social, economic and environmental. These responsibilities are necessary to ensure economic prosperity, environmental quality and social justice.[1]

We can see corporate social responsibility is integral part of corporate governance which bring a change as it shift the idea with which a firm works i.e. from shareholder’s theory to stakeholder’s theory.  Basically actions of the firm which are not for their profit maximization but have good impact on society and environment can be called as Corporate social responsibility. Today according to certain survey conducted in Indian Companies, we came across certain drivers and barriers of CSR in India. The most prominent driver for CSR is seen to be Philanthrophy, however others being image building, employee morale amd ethics. The survey report suggests that this may be attributed to an enabling corporate environment that is more conscious of the implications of involvement of business in CSR activities with specific reference to the Indian context.[2] However talking about the challenges faced by CSR are like Lack of community participation in CSR activities, Need for capacity building of the local, non-governmental organizations, sues of transparency.   It seems unless the poverty is eliminated from the society, the growth of economy can never be achieve in full fledged manner. Here comes the role of corporations and their corporate social responsibility which they need to play honestly and have tactful implement of their policies which they made for community welfare.

However previously we saw corporate social responsibility as voluntarty step taken by corporations for betterment of society . however now, with the massive efforts of Mr. Sachin Pilot and other parliamentary members, CSR has gained importance in New Companies Act, 2013.[3]  Section 135 of Companies Act determines Corporate Social Responsibitly. Certain new additions to CSR provision are:

  • Constitute a CSR committee of Board which shall consist of minimum three directors, out of which one shall be independent director.
  • The committee shall formulate and recommend CSR Policy which indicates company’s activity as specified in Schedule VII and also amount recommend for the same.
  • At least 2% of the average net profit of the immediately preceding three financial years of the company shall be used for spending in accordance with the CSR Policy.
  • According to the approach “Comply or Explain”, Board should explain the reason for not spending such amount if it fails to do so.
  • The company shall give preference to its local area from where it operates, for CSR activities.

Earlier the corporate self regulation was seen as the only and dominant aim of corporation in their area of Corporate Conduct. However the laws now address the issues relating to stakeholders and protection of their interest as one of the main aims which the corporation has to fulfill as part of their corporate conduct.

They is also one more view to Corporate Social Responsibility which is generally called as negative aspect of it. It is said that under CSR company must not carry out any activity which has negative impact on its stakeholders and community. Now it is seen that Indian companies are more focused on positive aspect of CSR which says only to do philanthropy and companies keep doing it in order to compensate for the disastrous impact which their activities have on society. Noted Indian philanthropist Rohini Nilekani has called the provision an “outsourcing of governance” that is taking the failure of the state and the corporate and trying to create a model out of it[4]. In India, there are less chances of CSR existing smoothly with profit making goals of company. It is diversity of stakeholder interests that make it difficult for companies and boards to measure performance and Corporations in India have concentrated shareholding so still board members are puppet in hand of promoters or majority shareholders. The CSR provisions show the responsibility of board to manage CSR policies. Now this shows that there is risk of promoters serving their own self interest in the name of CSR policies.

However, the challenge for the companies is to determine a strong and innovative CSR strategy which should deliver high performance in ethical, environmental and social areas and meet all the stakeholders‟ objectives. It can be said, extensive research and studies need to be done in order to make CSR more effective and innovative.

[1] Grahame F. Thompson, Global Corporate Citizenship: What Does it Mean?, 9Competition & Change 131–152, 131-152 (2005).

[2] A Review of Corporate Social Responsibility in India by Bimal Arora and Ravi Purnik

[3]Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”, Lord Holme and Richard Watts, available at:

[4] See Corporate Social Responsibility in India: No Clear Definition, but Plenty of Debate, KNOWLEDGE@WHARTON (Aug. 2, 2011).

The December book bucket

court-room-genius                    Learning the law.jpg                     legal-eagles

Role of Lawyers in Capital Market Transactions

This article has been written by Piyush Bajaj. Piyush is currently a BCom LLB student at Amity Law School, Noida.

Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions.Capital markets help channelize surplus funds from savers to institutions which then invest them into productive use. Generally, this market trades mostly in long-term securities.Capital market consists of primary markets and secondary markets. Primary markets deal with trade of new issues of stocks and other securities, whereas secondary market deals with the exchange of existing or previously-issued securities. Another important division in the capital market is based on the nature of security traded, i.e. stock market and bond market.


The capital market transactions are made while trading in the capital market securities. Stocks and bonds are the two types of securities where the capital market investments are done. Capital market transactions are monitored by the financial regulatory bodies. A typical capital market includes the trading of securities.
This is also the ideal market place for the companies and governments to raise funds. There are financial regulatory bodies in every country that monitor and regulate the capital market transactions to protect the investors from being cheated. U.S. Securities and Exchange Commission, Australian Securities and Investments Commission, Canadian Securities Administrators, Financial Services Authority (UK) and Securities and Exchange Board of India are some of the major financial regulators that regulate the capital market transactions in their respective countries.

The investment in the capital market can be done either in the new issues or in the existing securities. The primary capital market controls the new issue transactions while the secondary capital market takes care of the trading of the existing securities.
The corporations, banks or governments release stocks and bonds in the capital market to raise the long-term funds. The individual investors, companies, agencies and corporations can invest in these stocks and bonds either by purchasing or selling them. The trading of stocks and bonds in the capital is not easy for the novice and not even for the seasoned investors. It’s difficult to predict the trends of a capital market.

Every investor wants to play safe with their investments. There are financial advisers available to guide the investors telling them where to invest and where not to. There are stock brokers also who are experienced and eligible to guide people with stock and bond investments.

The capital market transactions are done by the brokers who are registered with the exchange to carry out the trading on behalf of their clients. Any individual cannot just walk in the stock exchange and invest on the stocks or bonds. He must have to go through the brokers to make any kind of transaction in the capital market.


A government raising money on the primary markets

When a government wants to raise long term finance it will often sell bonds to the capital markets. In the 20th and early 21st century, many governments would use investment banks to organize the sale of their bonds. The leading bank would underwrite the bonds, and would often head up a syndicate of brokers, some of whom might be based in other investment banks. The syndicate would then sell to various investors. For developing countries, a multilateral development bank would sometimes provide an additional layer of underwriting, resulting in risk being shared between the investment bank, the multilateral organization, and the end investors. However, since 1997 it has been increasingly common for governments of the larger nations to bypass investment banks by making their bonds directly available for purchase over the Internet. Many governments now sell most of their bonds by computerized auction. Typically large volumes are put up for sale in one go; a government may only hold a small number of auctions each year. Some governments will also sell a continuous stream of bonds through other channels. The biggest single seller of debt is the US Government; there are usually several transactions for such sales every second,which corresponds to the continuous updating of the US real time debt clock.

Trading on the secondary markets

Most capital market transactions take place on the secondary market. On the primary market, each security can be sold only once, and the process to create batches of new shares or bonds is often lengthy due to regulatory requirements. On the secondary markets, there is no limit on the number of times a security can be traded, and the process is usually very quick. With the rise of strategies such as high-frequency trading, a single security could in theory be traded thousands of times within a single hour. Transactions on the secondary market don’t directly help raise finance, but they do make it easier for companies and governments to raise finance on the primary market, as investors know if they want to get their money back in a hurry, they will usually be easily able to re-sell their securities. Sometimes however secondary capital market transactions can have a negative effect on the primary borrowers – for example, if a large proportion of investors try to sell their bonds, this can push up the yields for future issues from the same entity. An extreme example occurred shortly after Bill Clinton began his first term as President of the United States; Clinton was forced to abandon some of the spending increases he’d promised in his election campaign due to pressure from the bond markets. In the 21st century, several governments have tried to lock in as much as possible of their borrowing into long dated bonds, so they are less vulnerable to pressure from the markets. Following the financial crisis of 2007–08, the introduction of Quantitative easing further reduced the ability of private actors to push up the yields of government bonds, at least for countries with a Central bank able to engage in substantial Open market operations.


“There are lots of laws which regulate the trading of loans and debts,like whether they are public or privately traded. Lawyers also get involved in creating the product: the packaging of loans and selling of the interests in them.”

Lawyers are key players in the transactional processes which permeate the world of capital markets. They advise debt and equity issuers and the investment banks which structures and sells the financial instruments. The role of lawyers includes advising on legal and regulatory matters, drafting documents, negotiating contracts, and working with bankers to obtain approval from various external parties such as regulators, listing agencies and rating agencies. Some transactions are straightforward (‘cookie cutter’) deals because some parties are frequently active in the market and use standard documents. Some transactions are bespoke and more complex. Junior lawyers cut their teeth on cookie-cutter deals, but as lawyers gain more experience they (hopefully) work on more specialized deals.

Legal and regulatory advice: In equity capital markets an IPO is transformatory for a company. It requires hours of lawyers’ time to ensure the company is ready to list on an exchange and take the company’s board through every step in the process. A first-time borrower in the debt capital markets also requires a lot of lawyer time to prepare it for the new transaction. Much of this type of activity is cross-border, which means considerable time need to be spent working out how various regulations fit together and liaising with local lawyers. For example, it is not unusual for a UK firm to lead on the IPO of a Kazakh company, listed in the EU, with offerings in other jurisdictions, including in the USA. And there’s nothing cookie-cutter about all that.

When it comes to drafting documents, there are key clauses to get right, and in many cases huge volumes of documents to prepare and amend. While swap confirmations and other derivatives contracts are often short (although complex), most capital markets transactions are just the opposite. The selling document for securities (a prospectus) can range from 15 pages to more than 500, and the contractual documents are not far behind. Securitization probably tops the charts for most documentation and therefore worst hours! At university, the longer the essay the more likely you were to stay up all night, nothing much changes in a law firm.

Negotiating contracts is a big part of the job. There are a lot of contracts which need to be signed off by a lot of parties and every contract is of great importance to every party. As such, negotiations can be protracted. Issuers want the best terms; investment banks need the clauses to be acceptable to their internal credit committees, and in the case of securities, they want terms that make the product optimal for selling. Investors are usually not involved in the negotiations; however, if they don’t like the way the instruments are structured, they won’t buy them!

Regulatory and other approvals are a necessary step. They range from simple listing approvals for frequent bond issuers, to more time-consuming activities like a first listing approval of a securitization of Russian credit card loans on the London Stock Exchange. Ratings agencies also require legal advice when determining a product’s rating.

Long hours, complex contracts, demanding clients – What is the attraction? The opportunity to work with a client on a huge transaction; the sense of teamwork involved when grafting alongside people from banks, client companies and other law firms; the fun of negotiation and the buzz of finally creating a transaction that complies with all the different laws and regulations and which an investor will still want to buy.

The December book bucket

court-room-genius                    Learning the law.jpg                     legal-eagles

Balance of Payments: The Weak Link Of Indian Economy

This article has been written by S. Mahavir Prasad Sahu. An aspiring CA and young IPCC student, Mahavir loves to discuss Tax and Finance.

Balance of Payment is one of the oldest and most important statistical statements for any Country. It is a Systematic record of all economic transaction between the resident of one country and the resident of the rest of the world in a year.

Balance Of Trade:  Balance of trade may be defined as the difference between the value of goods sold to foreigner by the residents and firms of the home country and the value of goods purchased by them from foreigners. If value of exports of goods is equal to the value of imports of goods, we say that there is a balance of trade deficit. But if the former exceeds the latter, i.e., if value of exports of goods is more than the value of imports of goods, we say there is surplus balance of trade.

Balance of Current Account:   Balance of current account is a broader concept than the balance of trade. It includes balance of services and balance of unilateral transfers (i.e., unrequited transfer) besides including balance of trade. Balance of service records all the services exported and imported by the country in a year. Unlike goods which are visible and tangible, services are invisible and are not tangible. The services transaction basically include : (i) Transportation, banking and insurance receipt and payments from and to the foreign countries, (ii) Tourism, travel services and tourist purchases of goods and services received from foreign visitor to home country and paid out in foreign country by home country citizens, (iii) Expense of  diplomatic and military personnel from overseas as well as receipts from similar personnel from overseas who are stationed in the home country, and (iv) interest, profits, dividends and royalties received and paid from and to the foreigners. Balance of service is the sum of all invisible service receipt and payments which could be zero, positive or negative. Balance of unrequited transfers includes all gifts, donation, grants and reparation, receipt and payments to foreign countries.

Balance of Payment on Capital Account:

Balance of payment on capital account includes balance of private direct investments, private portfolio investment and government loans to foreign governments. Balance of capital account basically deals with debts and claims of the country in question or we say it deals with borrowing or lending of the country in question.

Balance of Payments:

Overall balance of payment is the sum of balance of current account and balance of capital account. It includes all the international monetary transaction of the reporting country vis-a-vis the rest of the world. The balance of payments must always balance in a book keeping sense. This is because for any surplus (or deficit) in the overall balance of payments there must be a corresponding debit (or credit) entry in the net changes in external reserves. In other words, if there is a surplus it adds to external reserves of the country and if there is deficit, it reduces down the external reserves of the country.

Trends In Balance Of Payments Of India:

A country, like India, which is on the path of development generally experience a deficit in balance of payments situation. This is because such a country requires imported machines, technology and capital equipments in order to successfully launch and carry out the programme of industrialisation. Also, since initially it has only primary goods to offer as exports, it generally has an unfavourable balance of payments situation. As pace of development picks up it has to have ‘maintenance imports’ although it has now more sophisticated goods to offer for exports. But the situation remains the same i.e. deficit balance of payment.

This has exactly happened in India. Over the period of planning India’s balance of payment has generally remained unfavourable. However, deficit in balance of payments sharply increased after the fifth plan. During the whole of the fifth plan India experienced surplus in the balance of payment due to a sharp increase in the export surplus on account of invisible remittance.(Money sent by foreign worker to his home country) From 1979-80 onwards, India started experiencing very adverse balance of payments. This happened because growing trade deficits, which till then were offset by net receipts could not be made good by them.

The Sixth Plan characterise balance of payments position as ‘acute’.

The balance of payments continued to be under strain during seventh Plan. In early 1990-91, the already poor BOP position worsened because of Gulf War. In 1992-93, many important changes such as a new system of exchange rate management, liberalisation of import licensing and tariff reduction were introduced. India saw a remarkable turnaround from a foreign exchange constrained control regime to a more open, market driven and liberalised economy (Free Economy). The trade liberalisation and a shift to a market determined exchange rate regime have had a significant positive impact on the country’s BOP.

Recent Trend and Eleventh Plan:

We had a surplus for three successive years from 2001 to 2004. Buoyant invisible flows, particularly private transfer comprising remittance, along with software services exports, have been instrumental in creating sustaining surplus for India for the above period. However, since 2003-04 trade deficit has widened sharply, particularly in 2004-06, because of higher outgo on import of petroleum, oil and lubricants. As a result, current account surpluses have once again turned into deficit inspite of the fact that invisible flows have continued to swell. In the eleventh plan exports were projected to grow at about 20percent per year in US Dollar terms, the imports were projected to grow at 23 per cent, current account deficit could range between 1.2 per cent to 2per cent.

The 2008 Global finance crisis and subsequent slowdown in the world of economy has clearly demonstrated that tremor originating in one corner of the world can quickly reach the other parts among others via the trade channel. Mirroring the global trend, India’s exports which also had robust growth of 30.1 per cent in the five post crisis years(2009-10).

Foreign Exchange, Laws and Rights:

India’s foreign exchange reserves comprise exchange assets (FCA), gold, special drawing rights (SDRs) and reserve tranche position (RTP) in the International Monetary Fund(IMF). When there is volatility in exchange rate, the reserve bank of India (RBI) intervenes to smoothen it. This results in increase or decrease in the level of foreign exchange reserves depending upon the type of intervention. Exchange Market Intervention’ by RBI means the sale of rupee vis-a-vis on or more currencies. If there is too much demand for foreign currency (say Dollar), it will appreciate too much and Indian rupee will depreciate. At this point RBI intervenes by releasing the dollars (from its reserve) in the market to stabilize the exchange rate. If there is too less demand for foreign currency, it will depreciate and rupee will appreciate too much. At his point, the central bank will intervene by purchasing dollars from the market to stabilize the rate. 

Special drawing Rights:

The special drawing rights were created in 1969 by the IMF, to supplement a shortfall to preferred foreign exchange reserve assets, namely gold and the US Dollar. SDA, neither a currency, nor a claim on the IMF, Rather it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members, and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external position. The SDR today is redefined as a basket of currencies, consisting of the euro, Japanese Yen, pound sterling, and US Dollars. The Primary means of financing the international Monetary Fund is through members’ quotas. Each member of the IMF is assigned a quota, a part of which is payable in SDRs or specified usable currencies and part in the member’s own currency. The difference between a member’s quota and the IMFs holdings of its currency is a country’s Reserve Tranche Position (TRP). It is accounted among a country’s foreign exchange reserves.

Current Situation and Conclusion:

During Manmohan Singh’s regime as PM of India has seen both the fall from grace to absolute darkness to reaching a surplus balance of payments situation. For it the due credit has to go to Former PM Dr. Manmohan Singh who was one of the best economic brains of the country. The main reason behind the rise foreign trade in India is diversification of trade. Earlier, Europe and USA used to be main partners of India’s International trade. Now, Asia and ASEAN (Association of South East Asian Nations) have become India’s major trade partners. This has helped India weather the global crisis emanating from Europe and America.

India’s Balance of payments has been in check for a while but the ever changing trade scenario and IMF’s Ignorance to developing nation has India in a precarious situation. If India is to become a Developed nation one day, than the Balance of payment situation has to be absolute surplus (Surplus shouldn’t include foreign debt). But the ever fluctuating rupee and its fringe demand has left the most with one question, Will We be Able to Achieve an Absolute Surplus situation? Will we be able to achieve the goal in the next 5 years, or we still be waiting? Do let me know your thoughts.


 IMF Balance of Payments Manual, Chapter 2 “Overview of the Framework”, Paragraph 2.15 [1]


The November book bucket

court-room-genius                    Learning the law.jpg                     legal-eagles

First Impressions!

This article has been written by Amrit K.N. Pradhan. Amrit is a student at Rajiv Gandhi National University of Law, Patiala.

I was only able to open my brains out after getting on track to appear for my CLAT (2015) examinations. It involved multi-various way of preparations. Mine was largely based on getting hooked-on to The Hindu and two dozen of Non-fiction books. Getting into a National Law University was next step on the ladder.

Divulging views are like an alarm clock; they take you out of your ‘comfort zone’. At the same time, it also offers you the option of waking up to the world or setting it on snooze mode. Similar is the strands of views of people on the initiative of ‘Demonetization’ lead by PM Modi to dismiss Rs.500(introduced in 1997) and Rs. 1000 (introduced in 2000) as legal tenderIn its place, new form of Rs. 500 and Rs. 2000 notes will be issued as legal tender.

Initially, there will surely be hindrances in the economy in the ‘very short-term’ as duly acknowledged by the PM. But short-term pain will also result in long-term gain for the Indian economy.

The quirky press conference addressed by PM Modi was out-of-the-blue. It was ‘nothing like anything’ of the previous PR events organized under his helm at the Race Course Road. This major ‘surprise’ was, however, an impressive way of starting his helm at the newly named Lok Kalyan Marg.

It caught majority of public off-guard and set them on a whirlwind late-night emergency tour across the ATMs till late into the morning. It also set cat-among-the-pigeons of bullion traders in the informal market (similar would be the case of diamond traders in Surat who do their daily deals majorly in hard cash form.), informal securities market (dabba traders), our nearby kirana stores among others. The I-T Department was also quick on its feet by raiding these informal ‘black money’ handlers into the early hours of next morning (Nov.9).

This step surely will prima facie in the short-term take out wipe out ‘black-money’ of the economy for a temporary period. Other major benefits to be accrued of such a major ‘brave policy’ initiative is mentioned ahead.

Economic Front

The palpable change which has occurred with the change in regime at the Centre is in the ‘visibility quotient’ of Leader of the fastest major economy in the world. Remember the Madison Square Garden event, a first of many International diasporic events organized to strike a chord with the Indians residing abroad. Not only strike a chord, but also hope they would return to avail the ‘transforming era’ in the country and ultimately serve their motherland.

This ‘Demonetisation’ surprise was his eccentric way of trying to turn black money into white. Not only black money into white, to help the Indian economy reach its full potential when private investment is at an all-time low since the 1991 Reforms. The Government however commendably has plugged in this gap by increasing its role in the market by way of public investment.

The inability of banks to advance loans to the private sector due to previous advances turning bad (known as ‘Non-Profitable Assets.) has been a major clog in attracting private investment.

Public investment, however, has a limited scope in the future. Limited scope due to the Centre’s aim of maintaining a 3 per cent Current Account Deficit (CAD = value of Exports – value of Imports into the country.) in near future. The latest statistics of the Reserve Bank of India (RBI) show a positive picture and room for the government to pump in more investment in the economy. In April-June quarter of FY17, India’s CAD was0.1 per cent in deficitcompared to 1.2 per cent in the last quarter of FY16.

Cashless Economy

Under the previous regime of RBI commander-in-chief Dr. Raghuram Rajan the policy of issuing license to payment banks was introduced. It allows users to deposit up to Rs. 1 lac in these accounts and earn interest. It however, does not allow these ‘payment banks’ to forward loans to customers.

This step was a complementary step in equation with Jan Dhan Yojana of the Central Government which allowed opening bank accounts for free for rural consumers.

‘Creative Destruction’ (Regards – Schumpeter)

The likes of PayTM, Mobikwik, Freecharge (now-owned by e-commerce major Snapdeal) will be delighted with the step (first signs visible of their delight when one of these companies acknowledged the PM through newspaper adverts). This ‘brave act’ by Modi will mean the ‘creative destruction’ of black money will be achieved (even if marginally) through the innovative e-wallets of various payment banks, albeit in the short-term. But surely setting up the platform to eradicate in the long-term.

It is calculated among anonymous sources that around Rs. 30,000 crores of daily trade occur in the economy in form of ‘black money’. In the long-term, it will need other transformations in the economy in form of easing accounting standards, tax structure (GST will surely help.) et al.

A good start, but a long way to go. (Meanwhile, Snapdeal has come up with an innovative way around COD or cash-on delivery users by offering ‘Wallet on Delivery’, wherein those customers availing this facility will pay through their wallet on delivery of their consignment.)


The November book bucket

court-room-genius                    Learning the law.jpg                     legal-eagles

GST on the way, Labor Reforms on the Anvil!

This article has been written by Amrit K.N. Pradhan. Amrit is a student at Rajiv Gandhi National University of Law, Patiala.

“Precaution is better than cure” – Johann Wolfgang von Goethe.

I have probably heard this fable more than ever in my lifetime, it looks like the trend will continue. It certainly puts my parents and my sister on the brink. I apologise to them.

Changing tracks…

Since the inception of NDA-II under the reigns of PM Modi the business environment has certainly made headway. The World Bank Group’s “Ease of doing Business” (an index which measures the regulations and protections offered by a country.)deserves a healthy share of the pie. The fable has been so much in vogue that now a provincial version of it has been ‘manufactured’.

The first major instance, where NDA-II tried to make its mark in promoting a conducive business environment was by introducing The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015. The bill created five special categories which were exempted from taking consent from 80% of land owners (70% in case of PPP.), a tumultuous process. They were defence, rural infrastructure, affordable housing, industrial corridors and infrastructure projects including public private partnerships where the government is the owner of the land.

The process was a certain hindrance in fast-tracking business investments and projects in the country. The Government in power passed the muster easily in Lok Sabha but same was not the case in the Rajya Sabha, where it did not have a majority like it had in Lok Sabha. It passed ordinances under Article 123 of the Indian Constitution several no. of times, in the meantime they tried to garner the required votes to pass the bill. Unfortunately for Indian economy and business environment, the time gained through promulgation of ordinances garnered zero returns.

Remember, your debut class in economics where one of the first things you learned or noticed that Land, Labour and Capital are the basic factors of production. So, NDA-II also noticed the basic need to make the land acquisition process easier and quicker to have an able base to setup businesses in the country and take the country on the path of “Development and Job Creation” (a plank on which PM Modi won the Elections 2014.). But, it failed.

Next basic thing is Labour. You can criticize them for skipping it prima facie. For a moment, if I tell you it was a wise political move to not to escape the bad impression in the eyes of the general public which LARR Bill had created and jump on easing the capital flow. Then, I am sure the criticism would be repudiated.

The Government eased the capital flows by making it easier for sectoral firms to utilize and attract foreign investment through FDI. SEBI chipped in by easing the regulation environment for FIIs or Foreign Institutional Investors. GST was part of easing the Capital flow, it faced hurdles but ultimately it passed the muster. Fingers crossed! by April 1, 2017 hopefully we will contribute to the governance process by paying our fair share legally under the GST or Goods and Services Tax.

Looks like the script of ‘one single nation, one single tax’ will be played around with to account for four slabs of 6%, 12%, 18% and 26%. I am on the cusp of reading and learning through Emeritus Fellow of Merton College, Oxford economist Vijay Joshi’s latest writing, India’s Long Road – The Search for Prosperity. It has gone quarter of way in appreciating the current reign of PM Modi. However, it also points out frailties in Labour, divestment of governmental stakes in PSUs, vicious tax evasion and India’s reticence in joining the free-trade agreements currently being negotiated throughout the world are some of the lucid pointers which needs quick appraisal for the current government to grow at a rate near to 8% to fulfil the promises of “Economic Development and Job creation”.

First of those suggested by Vijay Joshi, who has been the Special Advisor to Ministry of Finance as well as Governor, Reserve Bank of India is planning to be dealt with by Team Modi & Co. The work had begun when the current government took over in May, 2014 to amalgamate and cull down the various Acts into as few and updated as possible. As per sources, they have been trimmed into four Labour Codes underlining Labour, Industrial Relations, Social Security plus Industrial and Safety Welfare.

The Labour Code underwrites Minimum Wage Act, 1948 as the parameter for wages. The Industrial Code restricts formation of a trade union. Social Security amalgamates 6 acts into one code, Industrial Safety and Welfare does the same with three underlying acts.

This should up the ante of India in World Bank’s Ease of Doing Business Index 2017. Rankings apart, on the ground applicability of the law will be crucial to ‘Ease of Doing Business’.