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Punish The Fraudulent Promoters

Akhilesh Bhargava

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A key initiative of banks, struggling to resolve the huge NPA crisis, is to take the defaulting companies to the insolvency court i.e. the NCLT. The first step that the NCLT takes, upon admitting any bankruptcy plea, is to appoint an Insolvency Professional (IP), who supersedes the board of directors of the company. Upon such appointment by the NCLT, the IP is now in charge of the company, and he immediately takes charge of its business, assets/liabilities and its entire state of affairs. In other words, the promoter/board of directors is dismissed and the company is now put under the supervision/management of an IP, whose responsibility is to serve the interests of the company and its various stakeholders, including creditors, lenders and the shareholders.

The IP thereafter examines the viability of the company’s operations and whether, it should be liquidated, or it should be restructured/revived, including by changing the management of the company. As we are seeing in the cases before the NCLT, many companies are found to be viable, but need a change of management, which is happening under the auspices of the NCLT. These have included companies like Bhushan Steel, Electro Steel, Binani Cement, Alok Industries etc., where instead of liquidating/dissolving the company, it has been found prudent to revive the company by takeover of management, as is happening in the case of Bhushan Steel being taken over by Tata Steel.    

But such takeover of a defaulter company by a new management does not mean that the NPA and the huge loss incurred by banks and other creditors is a closed chapter. Merely in the case of Bhushan Steel’s takeover by Tata Steel, the loss to the lenders and the creditors is about Rs.25000 crores, which is a humongous sum of public money lost. Many creditors of Bhushan Steel who could be SMEs will perhaps go bankrupt, due to these losses suffered. The promoters of these companies need to be thoroughly investigated and severely punished, because in most cases, the companies have defaulted on their bank loans, due to criminal misconduct and malpractices of the promoters, which includes siphoning of money, misappropriation, frauds and misuse of funds. Such company promoters are often powerful/influential businesses, but their criminal and fraudulent acts cannot be allowed to go unpunished. So while a new management takes charge of a company, a parallel investigation must be conducted into its state of affairs, not just to punish the fraudsters, but to also seek to recover their illgotten booties, which truly belong to the company and the public that they cheated.

It is heartening to note that over a dozen companies which are undergoing bankruptcy resolution before the NCLT are being investigated by banks and other agencies, for fraudulent activities, which including siphoning and diversion of funds. Banks are undertaking forensic audits, to punish these wilful defaulters and to hopefully recover their funds from them. As a result of such investigation, the SFIO arrested Mr. Neeraj Singhal, the former promoter of Bhushan Steel, for alleged diversion of Rs.2000 crores, from loans taken from various banks. He did it through advances given to a web of bogus/shell companies. The SFIO is investigating various other companies and other arrests of company promoters are imminent. It is because of these dubious promoters and their complicit auditors that lakhs of crores of rupees of public money has been lost and they deserve appropriate punishment under the law.     

Explainers

What is Citizenship Amendment Bill and why is Assam opposing it?

Arti Ghargi

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Simply, the citizenship amendment bill allows illegal migrants from Afghanistan, Pakistan and Bangladesh who are non-muslim to be Indian citizens. 

 

Adding to the list of allies deserting the National Democratic Alliance is the coalition partner of BJP in one of the key north-eastern state: Assam Gana Parishad. On Tuesday, the party announced that it will no longer be a part of BJP-led NDA. Two days later, the ministers from the party also pulled out of the Assam Cabinet led by Chief Minister Sarbananda Sonwal.  The ministers who reigned are Agriculture Minister Atul Bora who is also the AGP president, Water Resources Minister Keshav Mahanta and Food and Civil Supplies Minister Phanibhushan Choudhury. The three ministers submitted their resignations to the Assam Chief Minister at the state secretariat along with 11 other MLAs.

Assam Gana Parishad breaking ties is expected to be a major setback for the BJP in north-east especially at a time when the party is pushing the North East democratic Alliance for deeper penetration in the region. But why has the Assam Gan Parishad after giving a stable government for three years in Assam decided to sever ties with the BJP? The reason is the Citizenship Amendment Bill. the Bill was introduced by the Modi government in Lok Sabha in 2016. This new bill seeks to amend the original Citizenship Act of 1955. The Citizenship Amendment bill was passed in lok sabha in the recent winter session. Now, before moving on to what is it about the amendment bill that made Assam Gana Parishad leave BJP, let us see what exactly is the Citizenship Act.

Citizenship

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This act describes and defines who are citizens of India and how can it be decided whether a person is a citizen of India or not. It also lays down the criteria one needs to fulfil in order to be an Indian citizen and under which circumstances the citizenship can be revoked.

The ambit of the act is wider, but we are focusing on the part which the government seeks to amend. which is citizenship by naturalisation. This part of the act deals with the citizenship of non-Indian person that comes with the time period he has spent in the country and the kind of service he has offered to the nation. The detailed description of the Citizenship act can be found on the Foreigners Division of Ministry of Home Affairs portal. In the same act, the schedule three provides criteria of eligibility for the citizenship by naturalization. There are total seven criteria for eligibility that one needs to fulfil in this case. For example, a person seeking citizenship in India should not belong to a country where Indians are not allowed to be a citizen by law or by culture. He should have renounced the citizenship of his country and has followed the legal procedure of the same and informed the country’s government about the same. he is of good character etc.

Citizenship

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Further, the act states: That the person seeking citizenship has either resided in India or been in the service of a Government in India or partly the one and partly the other, throughout the period of twelve months immediately preceding the date of the application and That during the fourteen years] immediately preceding the said period of twelve months, he has either resided in India or been in the service of a Government in India, or partly the one and partly the other, for periods amounting in the aggregate to not less than eleven years].

Now the new bill amends the Citizenship Act, 1955 to make illegal migrants who are Hindus, Sikhs, Buddhists, Jains, Parsis and Christians from Afghanistan, Bangladesh and Pakistan, eligible for citizenship.  Simply, illegal migrants from these three countries who are non-muslim can now be Indian citizens. The Citizenship Amendment Bill also relaxes the 11-year requirement mentioned in the original act to six years for non-muslim illegal migrants from these three countries. As the bill defines eligibility on the grounds of religion,  The experts argue that this is in violation of Article 14 of the Indian constitution that guarantees right to equality.

Citizenship

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The Illegal migrants may be imprisoned or deported under the Foreigners Act, 1946 and the Passport (Entry into India) Act, 1920.  these two Acts empower the central government to regulate the entry, exit and residence of foreigners within India.

However, according to the PIB notification of September 7, 2015; the Indian government ordered that the members of the six religions mentioned above be exempted from the provisions of these two acts. The notification further states that the illegal migrants who are minorities from Pakistan and Bangladesh be who have entered India before or on December 31, 2014, are exempted from the acts.

Citizenship

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Now, these are the two amendments that upset the Assam Gana Parishad. In Assam, too the bill is facing much resistance and causing a streak of protests as the state’s politics is based on Assamese sub-nationalism that takes pride in the region’s culture and language. The illegal migrants from Bangladesh whether Muslim and Non-muslim are viewed as outsiders to this culture. There is fear among the population that this Bengali-speaking illegal migrant if rises, can hurt the demographics of the state and can take over the linguistic and cultural identity. In terms of percentage, Assam has the country’s second highest  Muslim population after Jammu & Kashmir. Muslims, mostly ..  Bengali-speaking, comprise 34% of Assam’s little over 3 crore people. Assamese-speaking Muslims, who are minuscule in number support campaigns against migrants from all religious denominations.

Citizenship

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Thus, there had also been the demand for an updated NRC in the state. The Assam Accord which was signed in 1985, had marked mid-night of 24th March 1971 as the cut-off date for granting citizenship to people who have come illegally to India from Bangladesh. It was decided that people who are originally Bangladeshi and have been staying in India illegally should be detected and deported to Bangladesh.  Nearly 30 years later, a lot of key clauses are yet to be implemented by the government. This has been a major political issue in Assam. With the new Citizenship amendment bill amending the two key aspects of the Assam accord, there has been a state of discontent in Assam. Not only AGP that is opting out of the NDA, but more allied parties in the northeast may walk out of NDA over the same issue.

At a time when BJP’s longstanding alliance partners are deserting it, losing alliances in the northeast is definitely not a good sign for the party ahead of 2019.

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HOW WILL JAITLEY BALANCE THE FISCAL TARGETS?

Akhilesh Bhargava

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arun jaitley

The overall state of the government finances has been tough this year, despite the fact that the economy has been showing signs of a revival of its upward swing. The fiscal year started with the government estimating and promising in the budget that its fiscal deficit for the year will not exceed 3.3% of the GDP. In other words, the government expenditure for the year, will exceed its receipts by 6.24 lac crores and not any more. But with compulsions of populist spending in an election bound year and the need to recapitalise bankrupt banks, the government exceeded this spending target in the first nine months of the year itself. Even though it is evident that much more unbudgeted populist spending by the government is on the cards, yet the FM says that the government will make up its collections in the last quarter of the year and that its fiscal deficit target of 3.3% will be met as promised.

The government is walking a very tight rope and its desperation on the fiscal front shows. It has had an open slugfest with the Reserve Bank, with an eye on its huge reserves (which it denies), which ultimately led to the abrupt resignation of Dr. Urijit Patel and the immediate appointment of a more amenable governor, who has indicated his willingness to give an interim dividend of about Rs.40000 crores to the government by March 2019. Further, with the government’s ambitious disinvestment program being a failure in real terms, as was seen in the aborted sale of Air India, it has been raising money by making one  PSU buy another, as has happened in the case of Dredging Corporation of India, being bought from the government, by all the government owned ports. All profit making PSUs are expected to chip in an extra buck to help Mr. Jaitley balance the budget and meet his fiscal deficit target of 3.3%.

The real challenge for the government is on the tax collection front. The GST collection has failed to meet its monthly target of Rs.1 lac crores, for the third month, and its annual shortfall is expected to be in the region of Rs.70000 to Rs. 1 lac crores. While a deficit in GST collections was always expected, it is the now expected shortfall in the income tax collection, which present a worrisome situation to the government. While it was in September 2018, that Mr. Jaitley had expressed confidence that the direct tax collections will surpass its target of Rs.11.50 lac crores, it is now very evident that there will be a shortfall of about Rs.30000-40000 crores therein.

But the FM continues to maintain his commitment to meet the fiscal deficit target. With tax collections not upto the mark, the government will need to slowdown its revenue expenditure, which looks difficult, in an election year. While there is some slowdown in the expenditure of some social sector ministries, there are limitations to which the government will be able to slash administrative and revenue expenditure. While it is likely that subsidy payments will be postponed to the next year, the government is also likely to prune its infrastructure capital expenditure, which is not advisable. The most probate mode that the FM will resort to is to incur off budget expenses, such as incurring expenses but not paying the bills, delaying contractor payments and resorting to borrowings through PSUs, so as to window dress the fiscal deficit figure, as it did in FY 2017, as reported by the CAG in its latest report. Such manipulation in accounting is undesirable, but it has now become a routine government practice too. Why just blame the banks and the corporates.

 

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WILL THE BJP FOCUS ON GROWTH?

Akhilesh Bhargava

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World Bank

In its recent report on the world economy, the World Bank says that with an estimated growth rate of 7.3%, India will be fastest growing major economy in FY 2018-19. As per the World Bank, China’s growth rate will recede to 6.3% during this period. India’s GDP growth rate in FY 2017-18 was 6.7%, which shows a recovery in our economy. It further predicts that India’s growth rate will inch up to 7.5% in the next two years. Interestingly, while the Indian economy grew at a rate of 7.6% during the first half of this financial year, its growth is expected to fall to 6.8% during the second half, due to the impact of the crude oil price rise and the rising fiscal deficit, which restrains the government’s spending and investing ability.

While the World Bank predicts a gloomy year for the global economy, and says that most world economies stare at dark skies, it yet paints a bright picture for South Asia, and India in particular. It says that the growth outlook for the Indian economy is robust, on account of increased consumption and investment and that its economic slowdown was temporary, due to the impact of the onset of GST and demonetisation. It further estimates that due to the impact of these twin measures, there will be an increased shift of business from the informal sector, to the formal sector, which will further add to India’s economic growth. The uncertainty on the horizon, however could be due to an increase in interest rates, currency volatility and election uncertainty, which could reverse the direction of the ongoing reforms.

The Central Statistical Organisation (CSO), India’s official statistician, however pegs India’s economic growth during the current year, to be a tad lower at 7.2%, which it attributes to performance of the agricultural and the manufacturing sectors. The conservative CSO notes that overall growth has been slowing and could be dependent on the direction of the global crude oil prices, government spending and the outcome of the US-China trade war. Interestingly while the CSO pegs our growth rate at 7.2%, the RBI estimates it to be at 7.4% and the IMF estimates are in tandem with those of the World Bank at 7.3%. An elated government predicts that the disruption caused due to demonetisation and GST is fading away and that India’s growth rate in FY 2019, will be its fastest in three years.

The fact is that with a huge young population, brimming with expectations and aspirations, India will grow at a robust pace. The youth has consumption aspirations and is bound to spend. Experts estimate that except if the government blunders, which it did with the brutal demonetisation, due to which economic growth fell down to 5.7%, India’s normal growth rate should be 7%. And only if we grow at a pace of 8% plus should we feel elated and claim credit, which we are not at the moment.

India could have grown much faster in the past two years, but for the demonetisation blunder and the flamed GST introduction. The present challenges to growth are the SME sector which is in a mess, the need to revive the agricultural sector, the unresolved banking crisis, improved ease of doing business at the ground level and a durable and sustainable increase in new investment. Unfortunately the BJP led NDA government has been slow in recognising these challenges and like we are seeing in the case of the reliefs to the MSME sector and the GST amendments, the corrective measures have been too little and too far.

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