News & Events
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1.Norms for competitive capital markets
The Securities and Exchange Board of India’s discussion paper proposing new and liberal ownership rules for stock exchanges, clearing corporations and depositories makes eminent sense. This will bring in greater competition in a sector where profit margins are, at present, liberal. The new rules abandon the fiction that unassociated individuals would suddenly be caught by the urge to form a stock exchange and serendipitously meet and jointly form an exchange in which each holds 5% stake at the most, or 15%, in the case of an institution. It allows resident promoters to hold 100% stake in stock exchanges to begin with, but have to bring the stake down t 51% or 26%, in 10 years.
Allowing new entrants to start with concentrated ownership — just as in private banks and insurance companies — and achieve distributed ownership (like in banks) over time would bring in fresh capital and technology in the sector and give promoters skin in the game It would drive mergers and acquisitions of existing entities and encourage fintechs to enter this space. More competition will lower costs, improve services for investors, foster innovation and help develop different segment. Four companies own and operate America’s 13 exchanges. With fintech players foraying into the space in mature markets, deploying blockchain technology to overhaul the trading processes and supervisory mechanisms, Sebi’s case to encourage these firms to set up market infrastructure institutions (MIIs) in India is valid. And easier entry norms will help.
Most jurisdictions see MIIs as commercial entities that have to be economically viable while in India these first-level regulators are seen as public utilities. Strengthening the governance of MIIs to ensure better supervision and accountability is a must.
2.Court review of farm laws welcome
One proposal from the Centre in the course of discussions with the agitating farmers is for the farmers to challenge in the Supreme Court the constitutional propriety of the farm laws. This proposal is welcome. There is little dispute that the validity or otherwise of the policy on farm trade and production underlying the new laws is the government’s business and not the court’s. However, whether the Centre has the right to frame laws on trade in farm produce, given that agriculture is in the State List of subjects, is a question that the Supreme Court is best placed to answer.
The government relies on Entry 33, Clause b of the Concurrent List, to assume the authority to make the laws in dispute. Entry 33 (b) is foodstuffs, including edible oilseeds and oils. A petition before the court challenges introduction, in 1954, of Entry 33 in the Concurrent List, because it infringes on the states’ right to frame laws on, under Entry 14 of the State List, agriculture, and, under Entry 26, trade and commerce within the state. However, Entry 26 is qualified by the phrase, subject to Entry 33 of the Concurrent List. Whether trade in farm produce other than oilseeds, raw cotton, raw jute and cattle fodder, all of which are specifically mentioned in Entry 33, falls in the Concurrent List depends on whether foodstuffs can mean raw produce such as rice and wheat. The Supreme Court is best placed to pronounce on this, and it should be asked to.
There is another matter of constitutional propriety in the farm laws. This pertains to the exclusion of disputes under the laws from the ambit of the courts, intended as they are to be resolved by committees of civil servants. The farmers should take up the Centre’s offer to put these questions before the court while leaving the aspect of policy choice to the government. The Centre has the duty to form policy to end mindless production of unwanted grain. Whether it is best discharged by the new laws, or crop diversification policy should be added, is not for the court to decide.
- Toughest budget: FM has to lay a road map for recovering from the vast damage of last year
Finance minister Nirmala Sitharaman will present the government’s annual Budget in three weeks. It is unlikely that any FM has had to deal with a more challenging and uncertain economic environment in living memory. In addition to the challenges posed by the pandemic-triggered compression in the national output that has been forecast for 2020-21, the government has also got to weave in the recommendations of the 15th Finance Commission.
Two main aspects of the Budget will be carefully scrutinised. First is the fiscal policy the Budget charts out through taxation and spending measures. Second is the overall policy road map which needs to be spelt out to boost sentiments. The big question looming in the background is, how bad has the economic damage been? The last few months have given cause for cheer as there are signs that the compression in GDP may be in the range of 7-8%, a level lower than forecast earlier. But the danger is that the real extent of damage is not yet visible.
The first cut of GDP data is a relatively inaccurate description of what happened to smaller firms and the informal sector. Moreover, the government has suspended the operations of the Insolvency and Bankruptcy Code for a year till end-March. This suggests that fiscal policy needs to be flexible enough to deal with what comes after the support system is withdrawn. Within fiscal policy, the government has little room to manoeuvre the direct tax framework right now. Significant changes were made to the corporate taxes towards the end of 2019. They haven’t had the time or occasion to make an impact. This leaves the FM with mainly the spending to influence the economic trajectory.
A look at the government’s data suggests that there’s been no real fiscal stimulus if the last Budget’s proposals are used as a yardstick. There will be one required after the existing support system is withdrawn. Also, the revival so far has not really translated into durable job expansion. CMIE’s unemployment data showed that it increased to 9.1% in December from 6.5% the previous month as more people returned looking for work. Any fiscal stimulus will have to dovetail the monetary policy. Here, the Budget needs to provide visibility on the flexible inflation targeting framework which ends in March. Overall it needs to be a mix of stimulus through spending and clear messaging on the economic road map.
- Don’t chicken out: Bird flu calls for careful inspections and coordination, not careless canards
The last couple of decades have seen outbreaks of avian influenza, or bird flu, in several countries. In India the first outbreak of 2005-06 saw a million birds culled, but it was confined mostly to Maharashtra and Madhya Pradesh. Since then the virus has resurfaced with varying epicentres. What is a special cause of worry this time around is the spread, with Gujarat, Haryana, HP, Kerala, MP, Rajasthan and UP having confirmed it already while Chhattisgarh, Delhi and Maharashtra await test results.
Given that the proximity of commercially reared birds to wild or migratory ones is what spreads bird flu, the question of safe and hygienic food production raised by Covid-19 is revisited. Except, the great blessing is that bird flu virus strains rarely jump species. The few cases where humans have been infected involve either direct contact with live birds or infected surfaces. Indeed no human case has been reported in the current outbreak. Of course even as all infected birds are destroyed, it must be ensured that the personnel involved in the exercise have utmost protections.
Birds don’t just travel on land. So just stopping imports at their borders is not going to protect states. Better disease surveillance leading better coordination will serve everybody much better. The number of birds that will eventually have to be culled will have a commensurate economic cost. This should not be willfully and cruelly multiplied – such as by Rajasthan BJP MLA Madan Dilawar connecting chicken biryani to a conspiracy to spread bird flu. Misinformation has already taken a brutal toll on several sectors of the economy during the pandemic. This should not happen again. Well cooked chicken and eggs don’t carry the virus. Canards that they do hurt the poultry industry and eateries, beyond bird flu itself.