Business Today 21-Apr-19

THE ECONOMIC ENVIRONMENT often plays a major role in determining electoral outcomes. Many leaders come to power because of their economic promises, while others lose because they fail to solve economic problems. In 1971, Indira Gandhi quickly figured out that Garibi Hatao – Remove Poverty – was a powerful promise to get voters to rally behind her and get back seats that the Congress had lost in previous elections. Equally, she could not keep her promise. The fact that the economy deteriorated sharply and people were beginning to feel the pinch of it, made her government extremely unpopular by the end of that term. Even if she had not imposed Emergency in 1975, she was beginning to lose favour with large swathes of the electorate. In 2004, Atal Bihari Vajpayee,…

RAHUL GANDHI, President of the Indian National Congress, has said if voted to power, his party will introduce a scheme called NYAY that will assure minimum annual income of ₹72,000 to poorest 20 percent of India’s households. Gandhi’s promise means setting aside ₹3.6 lakh crore to provide ₹6,000 a month to each to the country’s five crore poor families every year. The Congress says it is sound economics, and it will adhere to fiscal discipline, which means the amount, about 1.7 percent of the ₹210 lakh crore GDP (projection for 2019/20 in the Interim Budget) will have to be taken from the government’s existing resources. This would require a major shift in current expenditure priorities as the Budget allocation for all central sector schemes and projects for 2019/20 was ₹8.6…

AFTER CREATING a regulatory framework for the fintech community, especially payments banks and peer-to-peer lenders, well in advance, the Reserve Bank of India (RBI) will soon introduce a regulatory sandbox. A regulatory sandbox would benefit fintech companies by way of reduced time to launch innovative products at a lower cost, Governor Shaktikanta Das had recently said. Currently, there are regulatory issues that block banks from directly opening core banking solutions to test various innovative products offered by the fintech community. In the sandbox set-up, a bank can allow testing with dozens of fintechs. Globally, there are quite a few countries that have a regulatory sandbox. This is a progressive step and will encourage innovation but the RBI will have to keep a sharp watch on the entire digital banking space for any technology…

THE SEBI’S CONSULTATION paper on differential voting rights (DVRs) for unlisted firms strikes the right balance between promoters’ interests and those of minority shareholders. Allowing start-up founders to hold superior voting rights (SR shares) will help them raise funds without losing control over the company. One SR share can have a maximum of 10 votes. If approved as proposed, the new age companies can list themselves on stock exchanges provided promoters have held SR shares for at least a year. The paper also calls for diluting the need to have a three-year-record of distributing profits to issue shares with DVRs. Meanwhile, the mandate to have a sunset clause of five years after listing and treating DVR shares as ordinary shares on crucial matters such as appointment and removal of independent…

THE WITHDRAWAL of Sterling Biotech Ltd’s insolvency proceedings and the manner in which it has been done has raised many eyebrows, including that of the National Company Law Tribunal (NCLT), which has asked the government to look into the case. But the larger question that Sterling Biotech has raised is the possible misuse of a provision of the Insolvency and Bankruptcy Code that allows the Committee of Creditors (CoC) to withdraw insolvency proceedings against a debtor if 90 percent of the CoC agrees. This provision, say many, including the regulator and government authorities, may be misused by unscrupulous promoters to game the system in collusion with lenders as was alleged in the Sterling Biotech case; despite the promoters absconding from the country, the lenders not only with-drew insolvency proceedings but…

FOR THE SECOND YEAR in a row the Narendra Modi government met its disinvestment target. Days before the end of 2018/19, the Power Finance Corporation (PFC), a public sector enterprise, bailed out the government by acquiring 52.63 percent shares in Rural Electrification Corporation (REC), yet another state-owned power infrastructure finance company, for ₹14,500 crore. The total value of disinvestment proceeds for the whole year has touched ₹83,523.14 crore – much more than the ₹80,000 budgetary target. It will definitely help the government stick to its fiscal commitments; and perhaps is the only motive driving the government’s now familiar pattern of meeting disinvestment targets through a mix of initial public offers, buyback of government shares by PSEs, exchange-traded-funds, and the sale of stake the government holds through the mutual fund Specified…