Hyderabad: With the stand-off over the Reserve Bank of India’s autonomy reaching its fever pitch, economists advised caution as the showdown between them on a host of issues, including a proposal to dip into the central bank’s reserves, could impact the economy.
“The standoff is over three issues — namely the government’s a proposal to wean away RBI’s regulatory powers over payments bank and the central bank’s approach towards bad loans and easy lending to MSMEs,” said Subhanil Chowdhury, assistant professor at Institute of Development Studies.
The other issues which reported have driven wedge between the Mint Road and the North Block are the government’s proposal to dip into RBI reserves to fund its fiscal deficit.
Unconfirmed reports suggest that the government has already invoked the never-used clause in Section 7 of the RBI Act to begin consultations with Reserve Bank.
The clause empowers the central government to order the RBI to take specific action on the issues that it considers to be of public interest.
While the difference of opinion between the Reserve Bank and the finance ministry officials is not new, the invocation of mandatory clause in the RBI Act hints at hardening of positions by both the authorities and complete breakdown of communications.
“Section 7 of the RBI Act was never used by any government in around 70 years. It was not used during economic stress in 1990s, or during the global recession in the aftermath of Lehman Brothers collapse or when US Fed’s tapper tantrums hit the economy badly in 2013. So the invocation of Section 7 by the government makes one wonder how bad is the economy,” he explained.
Chowdhury said the invocation of Section 7 appears to be a step taken by the government in panic as the economic indicators like stocks, current account deficit and rupee are not favourably placed in the election season.
“We should have never gotten to this point,” said Ananth Narayan, associate professor (finance) at SP Jain Institute of Management and Research in an interview to Bloomberg. He said the government may be trying using RBI’s reserves to fund fiscal deficit. “Rather than taking on long-term reforms, the government thinking of short-term steps. The entire ecosystem that was supposed to keep the system safe does not come out looking good.”
Even while counselling caution to Reserve Bank on regulatory steps, Mr Chowdhury said the government should not undermine institutions like RBI.
“If the government wants to create another regulator for payments banks or issue directions on how to operate, it indicates the government’s lack of faith in the RBI’s ability. If the government itself does not trust the RBI, how could it expect people have faith in it.”
Jaitley was told of Urjit Patel’s decision to quit only minutes in advance
New Delhi : Monday was supposed to be a good day for the government. It announced the Cabinet’s decision to raise the Centre’s contribution to the National Pension Scheme for its employees, and was expecting the UK’s decision on extradition of fugitive liquor baron Vijay Mallya. But things changed after 5 pm when Reserve Bank of India Governor Urjit Patel’s resignation hit the RBI website.
Highly-placed sources in the government say that none of the senior ministers had any inkling of Patel’s resignation. Even Finance Minister Arun Jaitley came to know about it minutes before Patel quit.
The government will soon form a panel to search for a new RBI governor, an official said. RBI’s deputy governors, former government officials and top bankers and economists could be considered.
“The government acknowledges with deep sense of appreciation the services rendered by Dr Urjit Patel to this country both in his capacity as the Governor and the Deputy Governor of The RBI. It was a pleasure for me to deal with him and benefit from his scholarship. I wish Dr Patel all the very best and many more years of public service,” Jaitley tweeted, around an hour after Patel quit. Moments later, Prime Minister Narendra Modi tweeted.
While Patel cited ‘personal reasons’ for his exit, former officials who’ve worked alongside him and current officials involved with the events of the past few months acknowledge that the reasons were different.
“He did not thank the government in his statement, did he?” asked an official, when contacted by Business Standard. “We all know what has been happening in the past few months.”
Sources in the government say the resignation is all the more surprising after the last board meeting, which was a cordial affair by all accounts, and a resolution was reached on two contentious issues.
The central bank decided to refer the issue of RBI’s excess capital to a committee. The constituents of the committee and its terms of reference are still being discussed by the government and the RBI. The RBI also referred its prompt corrective action norms to its Board of Financial Supervision. The next Board Meeting is scheduled for December 14.
“It is sad and unfortunate,” said a former secretary to the government, who did not wish to be named as he still works with the government in another capacity. “I thought they could resolve their differences. (Former RBI governor) Raghuram Rajan had informed the Prime Minister and the Finance Minister that he will not seek an extension, as per convention. It is one thing to feel uncomfortable with an individual, and have a conflict with him. It is another to have him been pressured through the RBI board which has all your nominees. He must have felt that this creates a perpetual state of conflict and hence his position becomes untenable.”
Government’s contribution under NPS to be raised to 14% from 10%, entire 60% of withdrawals to be tax-free
New Delhi: The Union Cabinet on Monday approved a few changes in the National Pension System (NPS) under which the mandatory contribution by the central government for its employees covered under NPS Tier-I will be hiked from the existing 10 percent to 14 percent.
The tax exemption limit for lump sum withdrawal on exit has been enhanced to 60 percent. With this, the entire withdrawal will now be exempt from income tax. At present, 40 percent of the total accumulated corpus utilized for purchase of annuity is already tax exempted. Out of 60 percent of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40 percent is tax exempt and balance 20 percent is taxable.
The Cabinet also decided that contribution by the government employees under Tier-II of NPS will now be covered under Section 80 C for deduction up to Rs. 1.50 lakh for the purpose of income tax at par with the other schemes such as General Provident Fund, Contributory Provident Fund, Employees Provident Fund and Public Provident Fund provided that there is a lock-in period of 3 years.
Under NPS account, two sub – accounts – Tier I and II are provided. Tier I account is mandatory and the subscriber has option to opt for Tier II account opening and operation. Tier – II account is a voluntary savings facility available as an add – on to any Tier – 1 account holder. Subscribers will be free to withdraw their savings from this account whenever they wish.
The proposed changes to NPS would be made applicable immediately once time critical decisions are taken in consultation with the other concerned Ministries / Departments, an official release said.
Huawei CFO seeks bail on health concerns; Canada wants her in jail
Toronto/Beijing: A top executive of China`s Huawei Technologies Co Ltd argued that she should be released on bail while awaiting an extradition hearing, citing fears for her health while incarcerated in Canada along with other factors, court documents showed.
Huawei Chief Financial Officer Meng Wanzhou is fighting to be released on bail after she was arrested on December 1 in Vancouver at the request of the United States.
Meng, 46, faces U.S. accusations that she misled multinational banks about Huawei`s control of a company operating in Iran. This deception put the banks at risk of violating U.S. sanctions and incurring severe penalties, court documents said.
China has criticized her detention and demanded her immediate release. The arrest has roiled global markets as investors worried it could torpedo attempts to thaw trade tensions between Washington and Beijing.
In a sworn affidavit, Meng, the daughter of Huawei`s founder, said she is innocent of the allegations and will contest them at trial in the United States if she is surrendered there.
Meng said she was taken to a hospital for treatment for hypertension after being detained. She cited hypertension as a factor in a bail application seeking her release pending an extradition hearing. She also said she has longstanding ties to Vancouver dating back at least 15 years, as well as significant property holdings in the city.
Her family also sought leave to remain in Vancouver if she was granted bail, according to the court documents, with her husband saying he plans to bring the couple`s daughter to Vancouver to attend school during the proceedings.
Earlier on Sunday, China`s foreign ministry summoned the U.S. ambassador to lodge a “strong protest” over the arrest, and said the United States should withdraw its arrest warrant.
Chinese Vice Foreign Minister Le Yucheng told U.S. ambassador Terry Branstad that the United States had made an “unreasonable demand” on Canada to detain Meng while she was passing through Vancouver, China`s Foreign Ministry said.
“The actions of the U.S. seriously violated the lawful and legitimate rights of the Chinese citizen, and by their nature were extremely nasty,” Le told Branstad. He made similar comments to Canada`s ambassador the night before.