The NBFC (Non-Banking Finance Company) sector has grown in size and complexity over the years. As the NBFC industry matures and achieves scale, its Information Technology /Information Security (IT/IS) framework, Business continuity planning (BCP), Disaster Recovery (DR) Management, IT audit, etc. must be benchmarked to best practices. Accordingly, directions on IT Framework for the NBFC sector that are expected to enhance safety, security, efficiency in processes leading to benefits for NBFCs and their customers are released by RBI. NBFCs may have already implemented or may be implementing some of the requirements indicated below. NBFCs are therefore required to conduct a formal gap analysis between their current status and stipulations as laid out in the master directions on Information Technology Framework for the NBFC Sector and put in place a time-bound action plan to address the gap and comply with the guidelines. Such an analysis may be submitted to the Board of the company within six months of the issuance of these directions.
The focus of the proposed IT framework is on IT Governance, IT Policy, Information & Cyber Security, IT Operations, IS Audit, Business Continuity Planning and IT Services Outsourcing. The directions are categorized into two parts, those which are applicable to all NBFCs with asset size above Rs 500 crore (Section A) and for NBFCs with asset size below Rs. 500 crore (Section B).
IT Governance–IT Governance is an integral part of corporate governance. It involves leadership support, organizational structure and processes to ensure that the NBFC’s IT sustains and extends business strategies and objectives. Effective IT Governance is the responsibility of the Board of Directors and Executive Management. Well-defined roles and responsibilities of Board and Senior Management are critical, while implementing IT Governance. Clearly-defined roles enable effective project control. People, when they are aware of others’ expectations from them, are able to complete work on time, within budget and to the expected level of quality. IT Governance Stakeholders include: Board of Directors, IT Strategy Committees, CEOs, Business Executives, Chief Information Officers (CIOs), Chief Technology Officers (CTOs), IT Steering Committees (operating at an executive level and focusing on priority setting, resource allocation and project tracking), Chief Risk Officer and Risk Committees.
The basic principles of value delivery, IT Risk Management, IT resource management and performance management must form the basis of governance framework. IT Governance has a continuous life-cycle. It’s a process in which IT strategy drives the processes, using resources necessary to execute responsibilities. Given the criticality of the IT, NBFCs may follow relevant aspects of such prudential governance standards that have found acceptability in the finance industry.
1.1 IT Strategy Committee: NBFCs are required to form an IT Strategy Committee. The chairman of the committee shall be an independent director and CIO & CTO should be a part of the committee. The IT Strategy Committee should meet at an appropriate frequency but not more than six months should elapse between two meetings. The Committee shall work in partnership with other Board committees and Senior Management to provide input to them. It will also carry out review and amend the IT strategies in line with the corporate strategies, Board Policy reviews, cyber security arrangements and any other matter related to IT Governance. Its deliberations may be placed before the Board.
1.2 Roles and Responsibilities of IT Strategy Committee: Some of the roles and responsibilities include:
· Approving IT strategy and policy documents and ensuring that the management has put an effective strategic planning process in place;
· Ascertaining that management has implemented processes and practices that ensure that the IT delivers value to the business;
· Ensuring IT investments represent a balance of risks and benefits and that budgets are acceptable;
· Monitoring the method that management uses to determine the IT resources needed to achieve strategic goals and provide high-level direction for sourcing and use of IT resources;
· Ensuring proper balance of IT investments for sustaining NBFC’s growth and becoming aware about exposure towards IT risks and controls.
IT Policy: NBFCs may formulate a Board approved IT policy, in line with the objectives of their organisation comprising the following:
· An IT organizational structure commensurate with the size, scale and nature of business activities carried out by the NBFC;
· NBFCs may designate a senior executive as the Chief Information Officer (CIO) or in-Charge of IT operations whose responsibility is to ensure implementation of IT Policy to the operational level involving IT strategy, value delivery, risk management and IT resource management.
· To ensure technical competence at senior/middle level management of NBFC, periodic assessment of the IT training requirements should be formulated to ensure that sufficient, competent and capable human resources are available.
· The NBFCs which are currently not using IPv6 platform should migrate to the same as per National Telecom Policy issued by the Government of India in 2012. (As per Circular DNBS(Inf.).CC.No 309/24.01.022/2012-13 November 08, 2012)
Information and cyber security : Information Security–Information is an asset to all NBFCs and Information Security (IS) refers to the protection of these assets in order to achieve organizational goals. The IS Policy must provide for a IS framework with the following basic tenets:
· Identification and Classification of Information Assets. NBFCs shall maintain detailed inventory of Information Asset with distinct and clear identification of the asset.
· Segregation of functions: There should be segregation of the duties of the Security Officer/Group (both physical security as well as cyber security) dealing exclusively with information systems security and the Information Technology division which actually implements the computer systems. The information security function should be adequately resourced in terms of the number of staff, level of skill and tools or techniques like risk assessment, security architecture, vulnerability assessment, forensic assessment, etc. Further, there should be a clear segregation of responsibilities relating to system administration, database administration and transaction processing.
· Role based Access Control – Access to information should be based on well-defined user roles (system administrator, user manager, application owner etc.), NBFCs shall avoid dependence on one or few persons for a particular job. There should be clear delegation of authority for right to upgrade/change user profiles and permissions and also key business parameters (eg. interest rates) which should be documented.
· Personnel Security – A few authorized application owners/users may have intimate knowledge of financial institution processes and they pose potential threat to systems and data. NBFC should have a process of appropriate check and balance in this regard. Personnel with privileged access like system administrator, cyber security personnel, etc should be subject to rigorous background check and screening.
· Physical Security – The confidentiality, integrity, and availability of information can be impaired through physical access and damage or destruction to physical components. NBFCs need to create a secured environment for physical security of IS Assets such as secure location of critical data, restricted access to sensitive areas like data center etc.
· Maker-checker is one of the important principles of authorization in the information systems of financial entities. For each transaction, there must be at least two individuals necessary for its completion as this will reduce the risk of error and will ensure reliability of information.
· Incident Management – The IS Policy should define what constitutes an incident. NBFCs shall develop and implement processes for preventing, detecting, analysing and responding to information security incidents.
· Trails- NBFCs shall ensure that audit trails exist for IT assets satisfying its business requirements including regulatory and legal requirements, facilitating audit, serving as forensic evidence when required and assisting in dispute resolution. If an employee, for instance, attempts to access an unauthorized section, this improper activity should be recorded in the audit trail.
· Public Key Infrastructure (PKI) – NBFCs may increase the usage of PKI to ensure confidentiality of data, access control, data integrity, authentication and nonrepudiation.
IS Audit: The objective of the IS Audit is to provide an insight on the effectiveness of controls that are in place to ensure confidentiality, integrity and availability of the organization’s IT infrastructure. IS Audit shall identify risks and methods to mitigate risk arising out of IT infrastructure such as server architecture, local and wide area networks, physical and information security, telecommunications etc. IS Audit should form an integral part of Internal Audit system of the NBFC. While designing the IS framework, NBFCs shall refer to guidance issued by Professional bodies like ISACA, IIA, ICAI in this regard. ICAI has published “Standard on Internal Audit (SIA) 14: Internal Audit in an Information Technology Environment” on the subject. NBFCs shall adopt an IS Audit framework duly approved by their Board. Further, NBFCs shall have adequately skilled personnel in Audit Committee who can understand the results of the IS Audit.
IT Services outsourcing: Outsourcing of IT related business process can provide an NBFC the opportunity to realise valuable strategic and economic benefits. However, prior to commencement of any outsourcing arrangement, careful consideration of risks, threats of contractual arrangements and regulatory compliance obligations must take place. Companies usually outsource their IT related business process to a third party vendor because of higher efficiency, inadequate resources and lack of specialized knowledge.
Recommendations for NBFCs with asset size below Rs 500 crore
It is recommended that smaller NBFCs may start with developing basic IT systems mainly for maintaining the database. NBFCs having asset size below Rs 500 crore shall have a Board approved Information Technology policy/Information system policy. This policy may be designed considering the undermentioned basic standards and the same shall be put in place by September 30, 2018. The IT systems shall have:
· Basic security aspects such as physical/ logical access controls and well defined password policy;
· A well-defined user role;
· A Maker-checker concept to reduce the risk of error and misuse and to ensure reliability of data/information;
· Information Security and Cyber Security;
· Requirements as regards Mobile Financial Services, Social Media and Digital Signature Certificates as indicated in para 3.18, 3.10 & 3.11 above;
· System generated reports for Top Management summarising financial position including operating and non-operating revenues and expenses, cost benefit analysis of segments/verticals, cost of funds, etc.;
· Adequacy to file regulatory returns to RBI (COSMOS Returns);
· A BCP policy duly approved by the Board ensuring regular oversight of the Board by way of periodic reports (at least once every year);
· Arrangement for backup of data with periodic testing. PHD
Noida, 8th June 2017: The final day of the league stages at the 68th Junior National Basketball Championship threw no major surprises. The Punjab boys continued to dominate outclassing the defending champs Tamil Nadu. Role players Mandeep Singh (20 points) and Gurwinder Singh (18 points) stepped up to lead the charge for Punjab. 6-foot 10-inch Punjab centre Princepal Singh held the fort in the middle and put up 12 points. Despite Tamil Nadu staying within reach for the first three quarters, the fourth period was a one-sided affair with Punjab outscoring TN 32 to 7 on their way to a 68-45 win.
The Rajasthan boys handed Chhattisgarh their fourth straight loss, knocking them out of the tournament. Chhattisgarh’s Salim Ali fought hard with his 25 points, but he had little support. Rajasthan’s Rajeev led all scorers with 28 points and helped to cement his team’s place in the quarterfinals tomorrow where they will face Chandigarh.
The Punjab girls pulled off a close win against Rajasthan, who fell to a 71-69 defeat. Forward Rajandeep was on fire with 30 points in the game. She was ably supported by Punjab centre Aakarshan who put up 14 points. Despite Rajasthan’s 31 points fourth quarter, Punjab held on to a slim lead to clinch a decisive victory, placing them in the quarterfinals tomorrow against defending champions Karnataka.
Later in the day, the Chhattisgarh girls ran past the defending champions Karnataka in a surprisingly one-sided game. Chhattigarh led from start to finish, behind Gulabsha Ali’s 26 points and forward Megha Singh’s 20 points. The fourth quarter was the icing on the cake for Chhattisgarh, as they clamped down on the defensive end, not allowing Karnataka to score even a single point. Chhattisgarh ended the game up 30 points to seal a 75-45 win.
The undefeated teams in girls’ Group B squared off to decide the pool toppers today evening. Tamil Nadu and Maharashtra were evenly matched, until an explosion of offense in the third quarter pushed Tamil Nadu ahead. TN’s Pushpa had a game-high 36 points, helping her team to a 91-78 win, finishing the league stages with a perfect record. TN forward Avanti (16 points) and point guard Nishanthi (13 points) also contributed.
Both the UP teams won their qualifying matches against the Madhya Pradesh teams to decide their pre-quarterfinal opponent tomorrow. The UP girls have chosen to face Rajasthan in their pre-quarterfinal game, while the boys will play against Haryana.
The teams are grouped into two levels –Level 1 features the top 10 teams from the previous championship divided into two groups of five teams each (Group A and B), while Level 2 features the remaining teams divided into four groups (Group C, D, E, F).
In the league stages, all the teams play each of the other teams in their group once. The top three teams from each of the groups in Level 1 advance directly to the quarterfinals, while the fourth placed teams play pre-quarterfinal games against the top two teams from Level 2.
Over the years, this Championship has provided a platform for the country’s best players in the U18 category to showcase their talents. This allows selectors to identify and shortlist the most promising players and coaches to parachute into national team training camps with an eye towards participation in international events.
Britain’s ruling party Conservative Party in-spite of garnering the largest force in parliament, still is short its majority in Thursday’s general election.
Home Secretary Amber Rudd has held on in Hastings and Rye by just 300 votes.Labour has unseated the Conservatives in Canterbury which has been Tory since 1918. Jeremy Corbyn: “Politics has changed and politics isn’t going back into the box that it was in before”. Ben Gummer, the author of the Conservative manifesto, has lost his Ipswich seat to the Labour Party.Nick Clegg has lost his Sheffield Hallam seat to the Labour Party. Vince Cable returns to Parliament after unseating the Conservatives in Twickenham.The SNP’s Tasmina Ahmed-Sheikh has lost her seat to the Scottish Conservatives. SNP’s deputy leader, Angus Robertson, has lost his seat to the Scottish Conservatives. The SNP’s John Nicholson has lost his seat to Jo Swinson of the Liberal Democrats.Esther McVey returns to Parliament after being elected in George Osborne’s former seat of Tatton
Mostly all the ballots have been counted, 646 of the 650 seats have been decided.The ruling conservative won 315, the opposition Labour Party won 261. Regional the Scottish National Party secured 35 seats and the Liberal Democrats have 12.Nicola Sturgeon admits to ‘disappointing losses’ and vows to ‘reflect’ on the issue of a second referendum.
The Conservatives suffered a sharp drop from their pre-election total of 330 seats. Majority stands in parliament with number 326 seats are needed .
This is the third British election with no clear winner since the end of World War Two.The Conservative Party will now consider whether to form a coalition.
The party’s poor performance is expected to heighten criticism of Prime Minister Theresa May for her decision to call a snap general election.
Theresa May faced pressure to resign on Friday after losing her parliamentary majority, plunging the country into uncertainty as Brexit talks loom.
May called the snap election in April in an attempt to extend her majority and strengthen her position, but her gamble backfired spectacularly after she failed to win enough seats to form a Conservative government.
Sterling sank against the dollar and the euro as investors questioned who was now going to control the Brexit process.
EU Economy Commissioner Pierre Moscovici said May had “lost her bet”, while the timetable for Brexit talks, due to begin in 10 days time, has been thrown into disarray, raising suggestions that it could be extended.
She also faced pressure to quit from inside and outside her party after a troubled campaign overshadowed by two terror attacks, although British media quoted party sources saying she had “no intention” of doing so.
The result is also likely to have an impact on Britain’s negotiations to leave the European Union.
The UN’s children agency is warning that the fight for the Islamic State group’s stronghold of Raqqa in northern Syria is threatening the lives of more than 40,000 children. In a statement Friday, it says the violence has resulted in massive displacement in and around the city, with some 80,000 children now internally displaced and living in temporary shelters and camps. US-backed Syrian forces launched their attack on Raqqa earlier this week and US-led coalition airstrikes have intensified. “An estimated 40,000 children remain trapped in extremely dangerous conditions in Raqqa. Many are caught in the crossfire,” said UNICEF regional director Geert Cappelaere. He called on all parties to provide safe passage to those wishing to leave the city.
The German foreign minister has announced extra aid to improve conditions at refugee camps. He warned of growing instability and urged warring parties to overcome their differences and support the UN-backed government.
German Foreign Minister Sigmar Gabriel on Wednesday made a surprise visit to Libya to announce a new tranche of aid to the conflict-ridden country.
Berlin will provide 3.5 million euros ($3.9 million) to Libyan authorities to improve conditions at refugee camps in the North African country, Gabriel said. The money is expected to complement relief funds provided by Germany aimed at easing Europe’s migration crisis.
“It is, therefore, our goal, together with the Libyans, to resist the instability that has arisen from the absence of established structures,” Gabriel said. “Concrete progress is urgently needed.”
Since the closure of the so-called Balkan route at the beginning of 2016, more people have tried to cross the Mediterranean Sea and reach Europe, often leaving from Libya.
Nearly 70,000 migrants, many of them fleeing conflict and extreme poverty in the Middle East and Africa, have made the perilous journey so far this year, of which 80 percent arrived in Italy, according to data provided by the International Organization for Migration (IOM).
European authorities have attempted to impede irregular migration to the bloc by warning would-be migrants about the dangers of the route across the Mediterranean. More than 1,600 migrants have died in 2017 attempting the voyage, IOM reported.
HOW DID EUROPE’S REFUGEE CRISIS START?
Fleeing war and poverty
In late 2014, with the war in Syria approaching its fourth year and Islamic State making gains in the north of the country, the exodus of Syrians intensified. At the same time, others were fleeing violence and poverty in countries such as Iraq, Afghanistan, Eritrea, Somalia, Niger and Kosovo.
Calls to overcome rivalry
Gabriel called on rival Libyan authorities to overcome their differences through dialogue. Libya has three rival governments, of which only one is recognized by the United Nations as the legitimate government.
Germany’s Gabriel said conflicting parties should abide by UN-brokered agreements signed in 2015, which effectively established the Government of National Accord led by Prime Minister Fayez al-Sarraj.
Libya plunged into chaos in 2011, when anti-government protesters demanded dictator Moammar Gadhafi to step down, prompting a brutal crackdown by regime forces. NATO responded by leading an operation against the government.
Within two weeks of Gadhafi’s assassination at the hands of Libyan rebels, NATO ended its intervention.
Since then, warring parties have attempted to claim power in the North African country, leading to instability and the eventual rise of the so-called Islamic State (IS) militant group in 2014. media agencies -dw.com
Tens of thousands of children in central Democratic Republic of Congo are missing out on school amid violence between militia fighters and security forces and attacks against civilians, the UN children’s fund (UNICEF) said on Friday. Hundreds of people have been killed and more than a million displaced in Congo’s Greater Kasai region since fighting broke out last August between a local militia and government forces. The violence has kept at least 150,000 children in the region out of the classroom, while more than 600 primary and secondary schools have been damaged by attacks, UNICEF said. Ethnic violence in Congo, Africa’s second-largest country, has spread and worsened since December when President Joseph Kabila refused to step down at the end of his mandate.Media agencies
Ethiopia – This week, the UN Migration Agency (IOM) assisted 80 newly arrived Somali refugees with emergency transportation from the Ethiopia-Somalia border entry point to Kobe refugee camp in Dolo Ado, in the Somali region of Ethiopia. This latest assistance brings the total number of Somali refugees helped in the border region to 5,397 thus far in 2017. Over 50 per cent of the new arrivals are female while over 90 per cent are under the age of 18.
The latest movement is part of IOM’s emergency transportation assistance provided to newly arriving refugees across Ethiopia, including Somali, South Sudanese and Eritrean nationals. Since September 2016, over 95,000 refugees have been assisted with safe and dignified emergency transport in the Somali, Gambella and Tigray Regions of Ethiopia.
In addition to the severe drought impacting Somalia, the continuing conflict in the country contributed to a surge in new refugee arrivals to Ethiopia in 2017.
Some 2,855 individuals arrived in January alone, with arrivals surpassing the 2017 planning figure of 3,000 individuals by mid-February.
While new arrivals have declined since March, humanitarian agencies anticipate a likely increase in new arrivals during the coming months, given the forecast of significantly below-average April to June rains and the ongoing conflict in Somalia.
Sixty-year-old Kula Ali arrived on the Ethiopian border with his wife and seven children. “We left Somalia and crossed the border because of the drought,” he explained. “It took us two days by minibus to get to the border. We had to pay a big amount and the vehicle was full of people and we only brought a small amount of food and water with us,” Kula Ali said of the exhausting journey.
IOM’s transportation and relocation assistance ensures refugees can access life-saving services in the camps including food, WASH, health, and protection assistance. IOM, in coordination with ARRA, UNHCR and humanitarian partners, is engaged in logistical planning on routing, safety, security, and ensuring the protection needs of refugees are considered during transport. Prior to travel, IOM conducts pre-departure medical screening (PDMS) to ensure refugees are fit for the journey to the camps.
Medical escort assistance is provided to pregnant/lactating women, unaccompanied children, people with disabilities, the elderly and those with chronic medical conditions.
Joséph Nyangaga, IOM Dolo Ado Sub-Office Head, stated that “IOM is scaling up its efforts alongside the drought-stricken Ethiopia-Somalia border to continue transporting Somali refugees in a safe and humane way to refugee camps, where they are provided with lifesaving services.”
Thus in lieu of such developments the Ethiopia’s government is warning it will run out of emergency food aid starting next month as the number of drought victims in the East African country has reached 7.8 million. Ethiopia’s disaster relief chief Mitiku Kassa told The Associated Press that the country needs more than $1 billion for emergency food assistance. Seasonal rains have been critically small and local cattle are dying. The number of drought victims has risen by two million people in the past four months. The risk of an acute food and nutritional disaster is “very high,”‘ the disaster relief chief said.
Along with the drought, Ethiopia also faces an outbreak of what authorities call acute watery diarrhea, though critics have said the government should call it cholera instead. Media agencies
China will offer support and assistance for Myanmar’s follow-up efforts after a military plane crashed off the Southeast Asian country’s southern coast with 122 people on board, state media said. China, as a friendly neighbour, shares Myanmar’s sorrow over the incident, President Xi Jinping told his counterpart U Htin Kyaw in a condolence message, state news agency Xinhua said late on Friday. “Xi mourned the dead and extended sincere sympathy to the government and people of Myanmar, especially the families of the victims,” the agency added.
The aircraft, a Chinese-made Y-8-200F transport plane, lost contact 29 minutes after takeoff on Wednesday, while at a height of 18,000 feet (5,485 metres), about 43 miles (70 km) west of the coastal town of Dawei, the Myanmar military has said Media agencies
On the eve of crucial meeting of GST Council scheduled to be held tomorrow at New Delhi for approval of GST rules and rate slabs, the Confederation of All India Traders (CAIT) has strongly pitched for an interim period from 1st July,2017 to 31st March,2018 during which no penal action should be taken against traders for any procedural lapses. The preparedness at the level of small businesses is at a very low stage and about 60% of traders across Country have yet to adopt digital technology for GST compliance and as such interim period will give ample opportunity to the traders to understand GST Law, Rules & Regulations in its true spirit and also compliance related issues which we may occur from time to time during GST operation in the Country. Of course, CAIT is not averse for taking action against any habitual offender-said Mr. Praveen Khandelwal, Secretary General of CAIT today.
The CAIT has already submitted its representation to Prime Minister and Finance Minister urging for declaration of an interim period.
CAIT National President Mr. B.C.Bhartia said that there are strong overlaps with the needs of millions of consumers all through the country as far as fitment of GST rates are concerned.It has, however, perhaps inadvertently resulted in bracketing items pertaining to either mass consumption or similar to raw material items, daily use products, health or food items in slabs which are higher than where they should be placed. This may augur well for revenues but may fly contrary to the Government’s larger public policy and objective of enlarging the scope of tax net in the Country. In absence of any direct inter-action with the trading community, several confusions are being occured due to unauthorised or misleading propaganda about GST.
With job creation perhaps being the single most important contemporary challenge infront of the Government, it’s only prudent that the legitimate concerns of the 5.7 cr strong trading community in India be looked at and addressed. Infact, there are genuine livelihood concerns involved which should be taken care of before a tectonic policy shift such as the transition to the GST regime can be actualized.
I am also pasting below the complete version of the article as ET could not carry the table that is an important part of the article because their op-ed page format does not permit tables. Hope you will enjoy reading it and as always your feedback is most welcome.
GDP GROWTH: ‘Mirror, Mirror on the Wall’
Having just returned from a week in Italy meeting investors, academics and officials, I find the gulf between the foreigners’ perception of India’s economic story and that of domestic commentators like Mr. Palaniappan Chidambaram (PC,Indian Express, 4thJune) most perplexing. Could it be that PC and his ilk are focusing excessively on the here and now, while foreign investors and domestic stock markets are looking more at what is unfolding and not the past?
For the record, GDP growth in Q4 declined to 6.1% and GVA (which is GDP minus taxes) growth fell correspondingly to 5.6%. It is perhaps worth noting that in Q-4 of 2013-14, UPA’s final year and with PC as finance minister, economic growth was lower with GDP at 5.8% and GVA at 5.3%! It is also patently wrong to assert (Mihir Sharma inBusiness Standard, 5thJune) that NDA inherited an economy on the rise. Quite the contrary. Quarterly GVA growth rate in 2012-13, the penultimate year of UPA, ranged between 4.1% (Q-4) and 6.2% (Q-2) with GVA growth averaging merely 4.8%. Yes, it did improve in the first three quarters of 2013-14 but then plummeted to 5.3% in the last quarter. These represented a major decline from an average of 8.3% during 2003-2011 and is certainly not indicative of an economy in robust health.
Admittedly, GVA growth rate in 2016-17 (FY17) at 6.7% is a full 1.2% lower than in the previous year at 7.9% in 2015-16 (FY16). It should, however, be pointed out economic growth in FY 17 was still higher than in the last two years of the UPA. Also it is quite dishonest to attribute all of this 1.2% decline to demonetization because it is clear that economic slowdown had started in the first half of FY16 with quarterly growth rates sliding down to 7.2% from 8.7% in the last quarter of the previous year. Therefore, demonetization’s impact can at best be seen as a decline of 0.5% in GVA growth. This is well below PC’s forecast of a decline of between 1-1.5% of GDP. Sorry PC, but no cause for self congratulation on this account. In fact those who forecast a 2% decline in GDP growth or an economy being pushed into an unending recession, should honestly recant. Not that it matters to Mr. Modi who, with an approval rating of more than 80%, sits pretty for 2109 elections.
It is quite ironic to see PC and others going on about the irrationality of demonetization. It has the approval of more than 65% of the population and won UP hands down for Mr. Modi. Quite clearly, for the large majority of Indians and economists (thankfully not included in PC’s list of his tutors), a 0.5% decline in GVA growth rate for one quarter, has been well worth the cost for: strongly signaling zero tolerance for black money; reducing the role of cash in the economy; accelerating the formalization of the tax evading informal economy; and promoting digitization. 18 lakh bank accounts are reported to have received an average of Rs3.3 crore in dubious deposits. This has brought Rs 5.4 lakh crore of ‘undeclared income’ in the cross hairs of tax authorities. A fiscal windfall gain may still happen, stubborn, irrational denial notwithstanding.
Hard data (see table below), reveals that many leading indicators of economic activity in Q-4 of FY17, the worst performing quarter under Modi, are in better shape than in 2013, the last year of UPA II.
The story in short is that with leading indicators pointing to a cyclical turnaround and having taken many necessary steps to usher in better governance and bringing about structural reforms like GST and Bankruptcy Law, Modi can now expect the economy to be on path of sustained and rapid economic growth. Moreover, by implementing important measures to ensure greater inclusion and improving delivery of public services, including far better targeting of subsidies, Modi has also pre-empted any attempt to castigate him for ignoring the welfare of those who have remained excluded from the benefits of growth thus far. He has learnt from Vajpayee’s experience and ensured that when India shines again, it will do so for all.
There are two items with substantial negative growth in the table. These are capital goods and cement output. When seen in conjunction with the sharp decline in the construction sector, these point towards the crucial weakness point to a lack of response from domestic investors so far. Credit off take from commercial banks for industry has been declining in past few quarters. This can have serious fall outs if not corrected. Real estate prices and demand have both taken a significant hit with ‘cash driven speculative demand’ turning turtle as a consequence of demonetization. Modi must urgently address this weakness, even if he gets no help from NITI Ayog, which has hitherto maintained an inexplicable silence on this issue.
Therefore, the most critical task at hand is to boost construction and especially the affordable housing sector. Gadkari is doing his bit by ramping up highway construction, which is soon likely to achieve a record 30 kms a day. The PMO must focus far more sharply on speeding up affordable housing programs and take it up in a mission mode. With inflation and inflationary expectations now seemingly well under control, RBI should also contribute by bringing down the real cost of borrowing. This will stoke up private demand for housing, which with its extensive multiplier effects, has the potential to trigger an upward swing in the domestic investment cycle. A long period of sustainable and inclusive growth would then ensue proving the Cassandras wrong.