The bold and big thinking of Indian leaders is pushing India to become a $30 trillion economy in the next 30 years.
In a short span of a year, the Indian economy has quickly expanded, from the timely action of the RBI to tame inflation to expanding consumption – India is skyrocketing towards growth and development.
Recently, India has emerged as one of the most powerful countries, since it surpassed the UK to become the 5th largest world economy. However, a question is still being asked whether India can put itself forward as a $30 trillion economy.
Certainly, India holds the potential to become a $30 trillion economy which is clear from the fact that the nominal GDP (GDP at the current rate) has taken a big swing in the April-June quarter, i.e., Rs 64.95 lakh crores, according to the June rupee-dollar exchange rate it stands at $823 billion.
Moreover, it is also claimed that India surpassed the UK’s GDP in March itself, which was $813 billion, while India GDP was $864 billion.
However, as per 2021 April’s GDP outlook report of the International Monetary Fund (IMF), India’s GDP ($3.18 trillion) was right behind UK’s GDP ($3.19 trillion) in 2021. Conversely, it has also been anticipated that India would become a $3.54 trillion economy by the end of 2022 if compared to the UK’s projected GDP which would be $3.38 trillion.
From the estimated data and India GDP growth, it can be seamlessly prognosticated that India will soon become a $3.54 trillion economy by the end of 2022 considering its present growth.
Although, in which year it can become a $30 trillion economy will depend on many factors.
With that, let’s see some facts, how the India GDP surpassed the GDP of the UK?
How India GDP Growth Has Surpassed the UK
The timing could not have been more auspicious when India emerged as the 5th largest world economy at midnight after the entire country celebrated Azadi ka Amrit Mahotsav, that’s its 75th Independence day. Moreover, after overtaking the UK, India is all set to skyrocket to be the third-largest world economy by 2029.
The path taken by India since 2014 reveals it is likely to get the tag of the third largest economy in 2029, a movement of seven places upward since 2014 when India was ranked 10th. India should surpass Germany in 2027 and Japan by 2029 at the current rate of growth (as per estimated figures).
From the estimated data, it can be safely projected that India has been moving in the right direction, and we can conclude that India GDP rank will surpass the world economic leaders in the coming years.
How India pipped the UK, our colonial rulers –
Due to pent-up demand, the consumption in the service sector is bouncing back, as consumers are stepping out and spending (as per 2019-2020 data). One of the major reasons for the increase in demand is the “ abundance of festivals” celebrated in India.
While the world is on the brink of recession, our economy is growing by 7%.
As per the Finance Secretary, the government is on the pathway to meet the fiscal deficit target of 6.4% (Rs. 16, 61,196 crores) in the current fiscal year ending in March 2023, while currently, it is Rs. 15, 91,089 crores as per revised estimates for 2021-22.
The Real Gross Fixed Capital Formation of the country is expected to grow by 6.8% (2021-22), previously it was -9.8 (2020-21).
Yet, with the commendable achievement of India, one aspect which can not be ignored is, that “the per capita income of India is low, as India ranked 144 positions out of 190 countries.”
It indicates a clear picture of poverty, income disparity, and our inability to account for inflation, wealth, or saving, therefore, even after achieving the milestone of being recognized as the “world’s fifth largest economy” the Indian economy is lagging behind in distinct aspects.
Whether India Will Be Able to Transform Itself Into a $30 Trillion Economy or Not | India GDP Growth
India GDP growth in the last 10 years, reflects a meritorious change, as it jumps to 8.9% in 2021 from 5.5% in 2012, especially after sinking as low as -6.6% in the previous year.
With the magnificent elevation in GDP of India, it can unequivocally be noticed that we are perfectly poised on the passageway to aspire to be a $30 trillion economy in the next 30 years. Though, it seems like a far-fetched dream, yet, beyond doubt it’s not rocket science as with our magical power of demographic dividend, youth power, and power of democracy – India can proudly establish itself as a $30 trillion economy.
Although, India encounters varied stumbling blocks to be finally crowned as a $30 trillion economy, such as –
The Economic Issues in India
1. Low Per Capita Income
Even after 75 years of Independence, India continues to be a developing country, whose one feature is low per capita income. However, in 2020-21 low per capita income has dropped to Rs 1.27 lakh from Rs 1.32 lakh in 2019-20, while in 2021-22 it is estimated to be 1.50 lakh.
Apart from this, the problem of unequal distribution of income exists in India, which is one of the significant contributors and obstacles to economic development.
Proposed solution –
Increase in farmers’ income – India’s 54.6% of the population works in the agriculture sector and historically, India has always kept prices of agricultural products low. However, due to the introduction of schemes like the Farm Acts, the Indian government can allow farmers to earn high profits. Therefore, with the increase in profit of farmers, they can provide support to the other economic sectors through their consumption. For instance, products like fertilizers, working attire, and tools are a necessity for farmers, especially if they are planning to expand their business. So, this increase in expenditure will generate more job opportunities.
Urbanizing India’s rural population – Urbanization drives growth, due to the prominent nature of the Indian agricultural population, moving certain farmers into rural areas could allow them to generate employment and increase agricultural productivity by minimizing the working of a number of farmers on the same land. Therefore, it will help in growing India’s medium-sized cities. Moreover, the Indian government can promote migration by providing incentives to farmers, including investment in infrastructure development and urban services. Further, the new urban population will generate a resurgence of the housing market and provide more lending opportunities to banks. This in return will result in more development and urbanization, thus, would create more international investment and manufacturing export opportunities.
2. Dependence on Agriculture
Over 54.6% of the population is dependent on agriculture to earn a livelihood, which only contributes 20.2% to the national income, reflecting low productivity. Fortunately, in the Union Budget 2022-23, Rs 1.24 lakh crores have been allocated to the Department of Agriculture, Cooperation, and Farmers’ Welfare.
The measures are taken by the government, such as financial and the introduction of policies, positively solve the problem of individuals working in the agriculture sector.
Proposed solution –
Technological advancement – Apart from increasing the farmers’ income and urbanizing India’s rural population (earlier mentioned points), the Indian government can emphasize on the introduction of technologies in agriculture. Since, technology can assist farmers in predicting the climate, decreasing water usage, increasing yield, and their net profit margins. That in return increases India GDP growth rate.
Digital Credit Policy – Though the Indian government has already launched several credit policies to ensure easy access to loans with fewer legal formalities, yet, farmers could not able to avail the benefits of credit. That could be solved by combining easy access to loans with a digital credit policy, under which loan filing would become much simpler.
3. High Population
Another factor, which is the stumbling block in economic development is heavy population pressure. Contemporary, India is the second most populous country, after China, yet, the per capita income of our country is low, which results in income disparity, and the inability to account for inflation, wealth, or saving.
Further, in order to take care of the well-being of the population of the country, the government has to allocate high funds to fulfill basic requirements like food, shelter, medicine, schooling, electricity, hygiene, and more.
Proposed solution –
India can put more emphasis on programs like “AI for Youth” under which youth will be trained to be future-ready for AI development. Therefore, will commence the trend of entrepreneurship and contribute to India GDP growth.
To create “future entrepreneurs” the government can put more emphasis on the improvement of the soft skills of a student which are core for all professionals, rather than emphasizing on traditional studying methods.
Preventing the migration of India’s youth to other countries (to search for better opportunities) can be done through the creation of better jobs in all sectors.
The Indian government could provide subsidiaries to scientists, engineers, and other students (youth) who persist in talents but lack financial support.
Females/ women should be prepared to lead the fields which are considered non-fit for them, that’s how we will have another Sarla Thukral, Mithali Raj, and more.
4. Existence of Under-employment And Chronic Unemployment
Unemployment of any kind is a curse of any economy, be it developed or developing, and being a developing country, India is also encountering similar problems. Therefore, due to the abundance of labor, it is challenging for the government to generate employment opportunities for the entire population.
In addition to that, due to a deficiency of capital, secondary and tertiary occupations are inadequate, which results in under-employment and chronic unemployment.
Proposed solution –
Unemployment is a constant problem in the Indian economy and the Indian government has introduced several schemes to minimize unemployment such as Atmanirbhar Bharat Rojgar Yojana, Pradhan Mantri Rojgar Protsahan Yojana, etc. However, India’s world-beating growth is not creating as many jobs, considering that India should put more emphasis on improving the education system and job training.
Even though the employment rate has increased, employers couldn’t hire due to a lack of skills in freshers. Therefore, there is a need to give importance to the soft skills of students.
The Indian government can invest in the establishment of more industries and infrastructure development projects to minimize under-employment.
Training in the workplace, youth employment services, and career education could be a great way to improve skills, create more entrepreneurs, and allow students to choose the right career.
5. Leisurely Improvement in Rate of Capital Formation
From the beginning, one thing that pertains is a deficiency of capital in India, though, in 2021-22, the Gross Fixed Capital Formation of the country is expected to grow by 6.8%. Therefore, reflecting positive growth, yet, considering the high population growth, India could use better measures to increase the rate of gross capital formation.
Proposed solution –
Saving and investment from household savings or government policy need to be increased by improving the money flow, that in return increases the private investment or fixed asset acquisition. Therefore, increase in gross fixed capital formation.
Resident enterprises in the country can be increased to increase the gross fixed capital formation. For instance, oil extraction occurs in open seas, so the associated fixed capital is allocated to the national territory, in which the relevant enterprises are resident.
The mentioned economic issues have many potential solutions (as mentioned above) and it is no doubt that with time India has made progress in many fields.
Certainly, from the 5 worst economies in the world to the world’s 5th largest economy, India has truly proven it’s worth and how its leaders have been working in all directions to tame the world to see India growing and expanding as a world power.
What Are The Strengths Of The Indian Economy?
India, the fastest growing economy has to realize the strengths of demographic dividend, youth power, and the power of democracy. It is no doubt, from the year 2014 to 2022, India has witnessed tremendous growth in distinct aspects – be it science and technology, innovation, agriculture, the service sector, or digitalization.
Under the leadership of Hon’ble PM Modi Ji, India has built a modern economy, lifted millions of individuals from poverty, become a space and nuclear power, and developed robust foreign policies.
Since 2014, India has come a long way, leaving a string of landmarks, which defines its journey. This section of the blog will trace the strengths of the Indian economy and India will become a $30 trillion economy.
1. Mixed Economy
The Indian economy is a perfect example of a mixed economy, which means private and public both sectors co-exist in India and function smoothly. On one hand, the public sector operates on heavy and fundamental industries, while on the other hand, private sectors have gained importance (due to liberalization).
That provides a model for a “public-private partnership” where both, private and public sectors can work together through the adequate contribution of financial resources, management expertise, technology, and other resources.
2. An Emerging Market
India has emerged as a vibrant economy, which contributes to the stable the India GDP growth rate, even amidst global downstream, India continues to show positive India GDP growth trends, especially with the introduction of policies such as an automatic route for FDI in India, including measures taken by the government to attract domestic and foreign investment such as –
Empowered Group of Secretaries (EGoS) Project Development Cells (PDCs)
Production Linked Incentive (PLI) Schemes
Make in India
Investment Clearance Cell (ICC)
One District One Product (ODOP) and more.
All the initiatives taken by the Indian government reflect the high prospect for growth.
3. Expansion in The Role of Agriculture
As mentioned, the largest part of our population is engaged in agriculture, which also contributes to the India GDP growth of the country. The introduction of the “green revolution” and other “bio-technological” improvements in agriculture has made Indian agriculture more efficient and has increased the surplus too.
Including that, government initiatives such as PM Fasal Bima Yojana (PMFBY) (provides insurance on naturally grown crops,) Paramparagat Krishi Vikas Yojana (PKVY), and National Project on Organic Farming schemes – have pushed our agriculture sector towards growth. Moreover, PM Modi Ji’s government has also been working to incorporate AI in agriculture, which will again be an immense step towards development.
4. Service Sector
Due to liberalization and economic reforms India’s service sectors are flourishing, especially with the introduction of schemes like Make in India, and Digital India Mission, including schemes to boost the “12 champion service sectors” that are IT & ITeS, Tourism, and Hospitality, Medical Value Travel, Transport and Logistics, Accounting and Finance, Audio Visual, Legal, Communication, Construction, and Related Engineering, Environmental, Financial and Education – India is truly making immense progression in the service sector.
The service sector is the largest sector in India, estimated to grow by 8.2%.in 2021-22, after a contraction of 8.4% the previous year.
5. Demographic Dividend
The human capital of India is young, which reflects that India is a proud owner of the maximum percentage of youth. The “youth” is not only highly motivated but also the greatest asset of a country, if skilled and trained adequately. And in order to provide diversified training to the youth, Hon’ble PM Modi Ji’s government has introduced schemes such as –
Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
Craftsman Training Scheme (CTS)
Pradhan Mantri Kaushal Kendras (PMKK)
Scheme for Higher Education Youth in Apprenticeship and Skills.
National Apprenticeship Promotion Scheme.
National Programme for Civil Services Capacity Building.
Green Skill Development Programme.
With the introduction of such programs and schemes, the Indian government is constantly taking measures to train and enhance the skills of youth, in order to create human capital to maximize the growth prospects of the country.
Moreover, the availability of maximum human capital in India attracts investment opportunities in India, hence, contributes India GDP growth.
6. High Purchase Price Parity (PPP)
Purchase Price Parity (PPP) refers to the rates of currency conversion, which tries to equalize the purchasing power of other currencies by obliterating the differences in price levels between countries.
The PPP of India stood at 23.14 in 2021, which reflects that India is one of the countries with the highest PPP. That means that the same product would cost less in India, than in other countries, for instance, the price of the same shoes would be high in the US, say $50 (3,982.53), however, would say Rs 2000 in India.
This opens up the possibility of exports to other countries, since raw materials are economical in India, thereby contributing to India GDP growth.
7. Rapid Growth of Urban Areas
Urbanization is one of the keys to improve the growth of the economy and under the leadership of Hon’ble Narendra Modi Ji several measures have been taken to provide distinct facilities in rural areas such as electricity, schools, employment, banks, and financial institutions, transportation facilities, and more.
Along with that, more scheme has been introduced with the purpose to ensure further development, such as –
Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
Shyama Prasad Mukherji Rurban Mission (SPMRM)
Aadarsh Gram Yojana (AGY) :- SAGY, VAGY & SPAGY.
Pradhan Mantri Adarsh Gram Yojana (PMAGY)
Pradhan Mantri Jan Vikas Karyakram (Center 60 : State 40)
Swaranjayanti Khand Utthan Yojana (100 % State
Digitalization in India, once a traditional country, is now a home of AI system designers and will soon become an AI hub, especially when the government is taking adequate measures to support digitization. India stands 4th in the largest producer of AI-relevant scholarly papers and has introduced initiatives like AI for Youth (commenced in 2020) to make the youth future ready for AI developments.
Apart from that, our hon’ble PM also talks about making work from home a reality, which will allow more women to participate in the workforce, ensure energy saving, and will allow youth to manage studies and work conveniently.
9. Science and Technology (AI)
India is among one of the top countries in the world and in order to be successful in science and technology, the Indian government has launched schemes like INSPIRE“Innovation in Science Pursuit for Inspired Research” or “Abdul Kalam Technology Innovation National Fellowship”, and other schemes with the purpose to encourage innovation in this sector.
It is no doubt that India is prosperously achieving success through launching Mission mars, or GSAT- 19.
10. Startup Hub
With the introduction of startup culture in India, India is becoming a startup hub, since due to schemes introduced by the Indian government, now startups are receiving concessions, subsidiaries, and more.
Some of the schemes are –
Pradhan Mantri Mudra Yojana.
Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTSME).
Financial Support to MSMEs in ZED Certification Scheme.
Credit Linked Capital Subsidy for Technology Upgradation (CLCSS).
Design Clinic for Design Expertise to MSMEs.
India has overthrown one of the cultural, technological, and scientific leaders by conquering the position of the world’s fifth-largest economy, thereby, reflecting an increase in India GDP growth.
India has always strived hard to adopt the best possible measures and strategies, which are in the interest of the economy as a whole and which have wider political and economic implications for the country and the world. From our track record, we envision the path of a $30 trillion economy, through a constant emphasis on fair and credible policies and measures that will eliminate unemployment issues, improve technological development and infrastructure, ensure adequate utilization of economic resources, and other aspects associated with economic development.
Moreover, under the guidance of our honorable Prime Minister Narendra Modi, India will soon become a $5 trillion economy and will head strategically on the path to becoming a $30 trillion economy.
Has a chatbox ever asked you to open a savings account? Does ever a computerized assistant resolve your queries in minutes?
In this blog, we will understand how Artificial Intelligence drives the Indian economy.
The world of AI is tremendously booming and it can be seamlessly seen that no industry or sector has remained untouched by its prevalence. And the world of finance and banking is also among those worlds which are also anchoring the power of kick-fast change in AI.
AI is intelligence demonstrated through machines, as opposed to natural intelligence present in humans and animals. It contains streamlined programs and procedures, including its ability to perform automated routine tasks, improve customer service, and assist businesses in achieving success, not only in the financial sector, but also in other sectors such as telecommunications, manufacturing, and more.
Therefore, taking the economy on the path of automation.
Undoubtedly, Artificial Intelligence has been evolving in India since 1950s, from the neonatal stage, when the idea of AI culture had coined to a complete boom state, where AI was intensively being used to store large data, VRs, ARs, and IoTs – India is taking every possible initiative to embed AI in every nook and corner of society.
India’s National Strategy for AI has been prepared by NITI Ayog (a premier policy think tank of the Indian Government through providing directional and policy inputs) to harness the power of AI in distinct fields. AI’s practical and effort approach can adequately address societal needs in distinct aspects of healthcare, agriculture, education, smart cities, infrastructure, smart mobility and transportation.
With the advent of the 21st century, due to its incredible advances in data processing, collection, and computation power, electronics has become ubiquitous in almost every sector, be it the manufacturing or the service sector. Further, AI is now deployed in distinct tasks and decision-making to allow better connectivity and productivity.
Basic Pillars Which Contribute To The Development of AI
Talent is the strongest pipeline for India to be successful and no doubt, India does have the resources for the same. Since India has the largest youth population in the world (around 66% of the population), and with the Indian government’s emphasis on continual training of a high-skilled workforce, India can soon become an AI hub.
Moreover, India produces twice as many master-level engineering graduates as the United States, which provides it a competitive edge over other countries. And India is moving in the right direction through the introduction of initiatives like AI for Youth (commenced in 2020) to make the youth ready for future AI developments.
Taking this initiative forward, “Responsible AI For Youth 2022” was created by the National E-governance Division, Ministry of Electronics and Information Technology, Government of India in collaboration with Intel. It is launched by the Ministry of Electronics and IT.
India has the largest AI research community in the world and since 2010, it stands 4th in the largest producer of AI-relevant scholarly papers. It provides an edge to India’s youth population to increase their outreach, especially with their counterparts in the United States.
A two-tier integrated approach is introduced to magnify the core and applied research in AI –
Centers of Research Excellence in Artificial Intelligence (CORES), it will emphasize on the core research of AI.
International Center for Transformational Artificial Intelligence (ICTAI), this tier will help in establishing an ecosystem for the application based technological development and deployment.
Since 2012, India ranks in the 10th position in the top 10 AI patent-producing countries, due to the immense increase in AI-driven inventions. Moreover, personal devices and computing, business, telecommunications, including life science are the four largest categories for AI patents in India.
Collectively, these are associated with over 70% of India’s AI patents and reflect that Indian innovators have emphasized on applying AI to traditional strengths. In the past two decades, India has come a long way in AI patenting, since, the benefit of using patents to protect their devices is reflected.
AI Companies and Investments
More than 50% of Indian companies applying AI to their products are active in business analytics, medicine, finance, sales, retail, and customer relations.
NASSCOM has predicted that by FY 2026, industrial and automotive, healthcare, retail and CPG and BFSI will contribute 60% of possible AI-driven value to India. Moreover, AI companies and investments are continually bouncing back, considering that private companies’ investment in India has witnessed steady growth from 2015 to 2019.
India is using market cloud computing as a proxy for AI chips to support its AI computing needs since it does not have the domestic manufacturing capacity to manufacture AI chips. Also, India is lagging behind in cloud computing, yet contemporary, cloud bared markets are growing because of the rising demand for computing power.
Be it talent, research, patents, investment in AI, or cloud computing – India has been moving in the right direction utilizing its population strength by introducing varied initiatives to promote AI in distinct fields.
In addition to that, the government has introduced “AIRAWAT”(AI Research, Analytics, And Knowledge Assimilation Platform) which is a cloud platform for big data analytics and assimilation, with the power-optimized AI computing infrastructure using advanced AI processing.
Apart from that, the Indian government has been investing in other schemes such as Digital India with the purpose to boost AI, IoT, big data, and robotics, including providing subsidies to startups under “Start-up India.”
From the given information, we can easily understand that the Indian government has been working on all aspects to make AI a reality in India, from establishing institutes to providing cloud support and AI research. This in return, is contributing to business growth through financial inclusions since, due to the development of AI in the financial services and sector, students can easily access the loan facility for education, training, or even to establish their business.
How AI is Helping The Financial Services | Contribution of AI in Financial Services To Boost Indian Economy | AI in Financial Services
The field of Artificial Intelligence has enormously evolved since the introduction of revolutionary techniques and algorithms using automated tools. This revolutionized growth of AI in financial services and sectors has significantly been an impetus for the Indian economy.
The majority of banks and financial institutions use and recognize the true benefits of Artificial Intelligence. They are using it to respond to their customers at a faster pace around the clock. Not only does AI help provide a better customer experience, but it also frees up the personnel, improves the security measures of the institutions, and ensures that they are moving in the right direction when it comes to technology.
Here are some of the ways Artificial Intelligence is helping in the financial services and sectors:
1. Risk Assessment and Management
Till now, fintech, banks, and other financial institutions were using human resources to assess and manage their risks. Whether it was loan eligibility checking, trading, or banking, human resources were the way to go.
But with the implementation of AI, these tasks have now become much easier to perform. With the advancement of data sciences and machine learning algorithms, Artificial Intelligence is becoming even smarter in risk assessment and management for financial institutions.
2. Process Automation
One of the best things about an AI is that it can do the same thing again and again without getting tired, in other words – automation. With the help of AI, financial institutions can automate repetitive and mundane tasks with ease and efficiency. This allows valuable human resources to focus on the other important tasks and projects.
3. Reducing Human Error
Humans tend to make mistakes regardless of how experienced or gifted they are. According to recent studies, more than 90% of cloud breaches and financial frauds are caused by human errors. There have been several cases where the loss of valuable data, capital, and resources has been caused by minor human errors.
With the implementation of artificial intelligence, these errors have dropped drastically. In other words, AI reduces human errors and saves valuable data and resources while preventing cyberattacks and frauds.
4. Better Customer Interaction
Virtual assistants (VAs) and chatbots can do what regular human resources can not, they can be available for customers 24/7 and offer relevant solutions. Thanks to the implementation of Artificial Intelligence, chatbots and VAs have become even smarter in their workings.
Of course, the customers of any financial institution still need human interaction to solve difficult problems. Still, thanks to the help of AI, virtual assistants can respond to customer’s needs with minimal effort.
5. Cyberattack and Fraud Detection and Prevention
Any financial institution, whether it is banks, insurance companies, or brokerage firms, they are always in danger of fraud and cyberattack. And it’s not just the business houses themselves, it’s also their customers who are prone to cyber crimes.
However, thanks to the implementation of AI, fraud, and cyberattacks are detected and prevented regularly keeping both the financial institution and its customer safe.
AI can successfully streamline compliance alert systems to near-perfection, considering that it is built to learn from compliance officers’ data, especially in today’s data-driven compliance environment, AI technology is tremendously improving the efficiency of complianceoperations by lowering expenses.
One of the best examples of “how AI helps in ensuring compliance” could be its usage in IT solutions to address the problem of wasting time and money every day.
Apart from that, Artificial Intelligence successfully automates the workflow, therefore, minimum time and human resources are necessary to support compliance operations. In addition to that, AI minimizes the possibility of human error which could occur due to the availability of a sheer volume of data.
7. Financial Inclusion
With AI and data analytics, financial products are seamlessly available to a large part of the population, even those with no formal bank account, payslip, or digital financial track record.
The access to small financial loans have now become feasible, since the entire process is automated and scalable. In addition to that, fintech companies have found a pathway to monetize the regulatory stumbling blocks which have kept traditional banks from lending money to the poor. With the introduction of AI, the idea of money lending has taken a new shape that’s “data available on customer’s mobile.” Therefore, creating a mobile digital credit score, a reality, which was once a dream.
Financial inclusion has established a new pathway, where a needy person can easily obtain a loan from the banks and financial institutions, thus pushing Indian youth on the path of “entrepreneurship” rather than seeking jobs. Therefore, fulfilling one more agenda of the Indian government that’s “employment generation.”
Such development has marked the emergence of new business models, with traditional banks parenting with fintech to provide digital credit score services, including the emergence of non-bank fintech in a digital lending space.
Apart from that, the use of AI is tremendously increasing to screen loans and select financial product sale recommendations. This is done based on historical data, therefore, eliminating the possibility of prejudice.
Benefiting youth with easy access to loans, AI has become a tool for maximizing the access of financial services to farmers using data and machine learning (major components of AI) algorithms to eliminate the possibility of fraud and allow seamless access of funds to credit-worthy farmers.
That can allow the government to limit farmers’ suicide in India, since easy access to loans and credit facilities will resolve farmers’ problems by ensuring direct access to equipment for irrigation, fertilizers, etc. Therefore, it will result in better cultivation and profit.
AI not only resolves credit and funds-associated issues for farmers, youth, or entrepreneurs, but it also provides financial services/ assistance to startups, MSMEs, and emerging tech companies.
With the introduction of AI, financial inclusion has become a reality, where everyone has access to financial services since it facilitates branchless banking that not only minimizes the cost of banking but also makes financial services accessible.
From AI-based chatbots resolving your query 24*7 to communicate through messaging apps, including educating customers about their financial health, AI has taken over the world.
India is the fastest growing economy with a significant contribution to the development of AI, considering that India has the finest AI research concentrated institutes such as IITs, IIITs, and IISc.
And let’s not forget, that India is home to a highly skilled workforce, which matches the distinct technological market and a large start-up ecosystem that adds to over 77,000 DPIIT-recognized startups accessing 655 districts of the country as of August 2022.
Realizing the potential, the Indian government is also taking the necessary initiatives to steer the country and position it among the top leaders in AI.
Moreover, as per a recent study, AI is estimated to boost India’s annual growth rate by 1.3% by 2035 and has the potential to add 1 trillion to the Indian economy in 2035.
From this data, we can conclude that AI plays an important role in the development of the Indian economy as a whole.
However, with tremendous growth, AI also brings “privacy and data protection issues” which are far from only one. Concerns range from threats to privacy to threats to human dignity and safety.
Artificial Intelligence – Issues
Artificial Intelligence is developing at a fast pace and it seems like it could grow so immensely that it would be challenging for humans to control it. Moreover, AI systems developed by humans are working in every possible intelligence they could, now humans are themselves threatened by its development.
Threat to Privacy
An AI program recognizes speech, understands natural language, and is capable of understanding every conversation via emails and telephone calls. Therefore, the amount of data stored in AI models could impose the risk of data security and privacy violations.
Proposed Solution –
The usage of “state of art encrypted methods” can be used to ensure data security and privacy violations.
The use of “low encrypted cloud software” must be avoided.
Threat to Human Dignity
AI has replaced humans in many industries, however, there is no doubt that in the near future, it will replace humans working in dignified positions such as nurses, surgeons, etc. Therefore, the functions performed by AI systems are a substitute for us (humans) that devalues and deteriorates human flourishing.
Proposed Solution –
Despite massive improvements in AI technology, any minor fault can impose major risk, especially in the case of the use of AI in hospitals. Therefore, the presence of a doctor is essential to avoid such situations.
Software engineers or developers should come up with a hybrid model, where AI technology could assist doctors/ surgeons/ or other practitioners, rather than completely taking over the work. This will prevent the devaluation of human flourishing.
Threat to Safety
AI systems are self-improving and advanced, which can become so mighty in comparison to humans that it could be challenging to prevent them from achieving their goals, which can result in unintentional consequences.
Therefore, AI applications, which are in direct contact with humans or are integrated into the human body, impose safety risks, since they can be misused and hacked.
Artificial intelligence is certainly a blessing, only if used for the right purpose and to minimize interference in human lives.
Proposed Solution –
Strong and unique passwords and two-factor authentication must be used to prevent hacking.
Search engines must be blocked from tracking.
Evict the unused applications and extensions.
Online browsing must be done through a secure VPN.
“India is all set to be an AI hub, with the right acquisition of talent (youth), research, patents, AI companies, investment, and cloud computing.”
From the introduction of metaverse to bitcoins/ cryptocurrency, indeed the world is on a rollercoaster ride of growth and development.
AI can change the financial services and sector completely, by allowing intelligent automation, labor and capital augmentation, and innovation diffusion which will help in ensuring technical feasibility, availability of structured data, regulatory barriers, and other benefits. Maybe someday, AI would be advanced enough to improve human relationships and resolve ethical issues.
India has emerged as the 3rd largest startup ecosystem globally, containing over 77,000 DPIIT-recognized startups across 656 districts of India as of 29th August 2022. As of September 2022, India had a total of 107 unicorns accounting for a valuation of $340.79 billion. The Indian unicorns (a term used to describe a privately owned startup company with a valuation of over $1 billion) are flourishing in a fast manner since these startups are not only developing or proposing innovative solutions and advanced technologies but are also contributing to the employment generation at a large scale.
Moreover, researchers have seen that AI has the potential to add 1 trillion dollars to the Indian economy in 2035. However, this is not the only factor responsible for economic growth. To know more on what are the factors that will lead to a $30 trillion economy, read it on our upcoming blog.
Financial activities of the Non-Banking Financial Companies (NBFCs) are regulated by Reserve Bank of India under the provisions of Chapter III B of the Reserve Bank of India Act, 1934. With the amendment of Section 45 IA of the Reserve Bank of India Act, 1934 in January 1997 and amendment of the National Housing Bank Act, 1987 in August 2019, in terms of Section 29 A of the National Housing Bank Act, 1987, all Non-Banking Financial Companies including Housing Finance Companies (HFCs) have to be mandatorily registered with the Reserve Bank of India.
Consistent with the policy of giving greater operational freedom to banks in the matter of credit disbursement and in the context of mandatory registration of NBFCs with the Reserve Bank of India (RBI), most of the aspects relating to financing of NBFCs by banks have also been progressively deregulated. However, in view of the sensitivities attached to financing of certain types of activities undertaken by NBFCs, restrictions on financing of such activities continue to be in force.
Gist of the Master Circular
This Master Circular consolidates instructions on the above matter issued up to January 04, 2022 by which more autonomy have been given to NBFCs registered with RBI and is summarized hereunder:
(a.) The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs has been withdrawn where NBFCs are engaged in principal business of asset financing, loan, factoring and investment activities. Accordingly, banks may extend need based working capital facilities and term loans to all NBFCs and engaged in infrastructure financing, equipment leasing, hire-purchase, loan, factoring and investment activities subject to provisions of para 8 of these guidelines.
(b.) Now, banks may also extend finance to NBFCs against second hand assets financed by them.
(c.) Banks may formulate suitable loan policy with the approval of their Boards of Directors within the existing/prudential guidelines and exposure norms prescribed by the Reserve Bank of India to extend various kinds of credit facilities to NBFCs.
Bank Finance to NBFCs not requiring registration
In terms of “Master Direction – Exemptions from the provisions of RBI Act, 1934” dated August 25, 2016, few categories of NBFCs are exempted from certain provisions of the RBI Act, 1934 including the need for registration with the RBI. Such NBFCs need not to register with the RBI and the banks may take their credit decisions on the basis of purpose of credit, nature , quality of underlying assets, repayment capacity of borrowers and risk perception, etc.
Activities not eligible for Bank Credit
(a.) The following activities undertaken by NBFCs are not eligible for bank credit:
(i) Bills discounted/rediscounted by NBFCs, except for rediscounting of bills discounted by NBFCs arising from sale of commercial vehicles and 2-wheeler and 3-wheeler vehicles subject to the following conditions:
the bills should have been drawn by the manufacturer on dealers only,
the bills should represent genuine sale transactions as may be ascertained from the chassis/engine number and
before rediscounting the bills, banks should satisfy themselves about the bonafides and track record of NBFCs which have discounted the bills.
(ii) Investments of NBFCs in any company/entity by way of shares, debentures, etc. However, need-based credit may be provided to Stock Broking Companies against shares and debentures held by them as stock-in-trade.
(iii) Unsecured loans/inter-corporate deposits by NBFCs to/in any company.
(iv) All types of loans and advances by NBFCs to their subsidiaries, group companies/entities.
(v) Finance to NBFCs for further lending to individuals for subscribing to Initial Public Offerings (IPOs) and for purchase of shares from secondary market.
(b.) Leased and Sub-Leased Assets
Banks can extend financial assistance to equipment leasing companies but they should not enter into lease agreements departmentally with such companies as well as other NBFCs engaged in equipment leasing.
Bank Finance to Factoring Companies
Banks can extend financial assistance to the Factoring Companies which comply with the following criteria with the restrictions mentioned at Paragraph 4.1 (i) and 4.1 (iv) above if:
(a) The companies qualify as Factoring Companies and carry out their business under the provisions of the Factoring Regulation Act, 2011 with notifications issued by RBI from time to time.
(b) They derive at least 50% of their income from factoring activity,
(c) The receivables purchased/financed, irrespective of whether on ‘with recourse’ or ‘without recourse’ basis, form at least 50% of the assets of the Factoring Company ;
(d) The assets/income referred to above would not include the assets/income relating to any bill discounting facility extended by the Factoring Company,
(e) Credit limits extended by the Factoring Companies is secured by hypothecation or assignment of receivables in their favour.
Bank Finance to NBFCs not permitted for:
Bridge loans/interim finance
Banks should not grant bridge loans of any nature or interim finance against capital/debenture issues and/or in the form of loans of a bridging nature pending raising of long-term funds from the market by way of capital, deposits, etc. to all categories of NBFCs.
Advances against collateral security of shares to NBFCs
Shares and debentures cannot be accepted as collateral securities for secured loans granted to NBFC borrowers for any purpose.
Restriction on guarantees for placement of funds with NBFCs
Banks not to execute guarantees covering inter-company deposits/loans thereby guaranteeing refund of all type of deposits/loans accepted by NBFCs/firms from other NBFCs/firms. However, banks are permitted to provide Partial Credit Enhancement (PCE) to bonds issued by NBFC-ND-SIs and Housing Finance Companies (HFCs) as per guidelines contained at para 2.4 of the Master Circular on Guarantees and co-acceptances dated November 09, 2021 as updated from time to time.
Prudential ceilings for exposure of banks to NBFCs
(b.) Banks’ exposures to a single NBFC (excluding gold loan companies) will be restricted to 20 percent of their eligible capital base (Tier-I capital). However, based on the risk perception, more stringent exposure limits in respect of certain categories of NBFCs may be considered by banks. Banks’ exposures to a group of connected NBFCs or group of connected counterparties having NBFCs in the group will be restricted to 25% of their Tier-I Capital.
(c.) The exposure of a bank to a single NBFC which is predominantly engaged in lending against collateral of gold jewellery (i.e., such loans comprising 50% or more of their financial assets), shall not exceed 7.5% of the bank’s capital funds (Tier-I plus Tier-II Capital). However, this exposure ceiling may go up to 12.5% of banks’ Capital Funds if the additional exposure is on account of funds already lent by such NBFCs to the infrastructure.
(d.) Banks may also consider fixing internal limits for their aggregate exposure to all NBFCs put together.
(e.) Banks should have an internal sub-limit on their aggregate exposures to all NBFCs, having gold loans to the extent of 50% or more of their total financial assets, taken together. This sub-limit should be within the internal limit fixed by the banks for their aggregate exposure to all NBFCs put together as prescribed in paragraph 7.4 above.
(f.) Infusion of eligible Capital Funds, after the published balance sheet date, may also be taken into account for computing exposure ceiling subject to obtaining an external auditor’s certificate on completion of the augmentation of capital and its onward submission to RBI (Department of Supervision) before reckoning the additions to Capital Funds.
Restrictions regarding investments made by banks in securities/instruments issued by NBFCs:
(a.) Banks not to invest in Zero Coupon Bonds (ZCBs) issued by NBFCs unless the issuer NBFC builds up sinking fund for all accrued interest and keeps it invested in Government bonds.
(b.) Banks are permitted to also invest in Non-Convertible Debentures (NCDs) with original or initial maturity up to 1-year issued by NBFCs. However, while investing in such instruments, banks should be guided by the extant prudential guidelines in force, ensuring the disclosure of the purpose for which the NCDs are being issued in the disclosure document and such purposes are eligible for bank finance.
In view of policy measures to build scale and enhance NBFC’s contribution in
Global Trade significantly, RBI has brought the master circular, efforts have been made to ease financing to needy borrowers through NBFCs while sensitivities attached to financing have simultaneously been taken care of. We hope this masterstroke would definitely accelerate the trade and economic activity as is expected by Government of India.
Please also refer to previous Master Circular DBR.BP.BC.No.5/21.04.172/2015-16 dated July 1, 2015 on the captioned subject.
For more details on the topic, you may refer to Master Circular no RBI/2021-22/149/ DOR.CRE.REC. No.77/21.04.172/2021-22 dated January 05, 2022 of RBI or access the author at https://www.sunilkumargupta.com/ to explore more on other related topics.
During speech at the conference on 18th November, 2021 on ‘Creating synergies for seamless credit flow and economic growth’, our Prime Minister said “Indian banks are strong enough to play a major role in imparting fresh energy to the country’s economy, for giving a big push and making India self-reliant. I consider this phase as a major milestone in the banking sector of India”.
On this great occasion I wish to congratulate the Hon’ble Prime Minister on behalf of the industry, for suggesting various measures to commercial banks for easing out loan delivery process for providing better opportunities to business enterprises and start-ups. Our country’s outlook is now to intensify and spread the economic activities by providing hassle free loans to entrepreneurs. In the post Covid scenario, RBI’s role has to play an important role for boosting up economic activities and encouraging the banks to sanction loans at easy terms.
Prime Minister reiterated that banks have sufficient liquidity and coupled with the fact that now there is no backlog for provisioning of NPAs as NPAs in public sector banks are at the lowest compared to the five years back and this has led to upgrading of outlook for the Indian Banks by the International agencies. The Prime Minister said apart from being a milestone, this phase is also a new starting point and called upon the banking sector to support the wealth creators and job creators. The Prime Minister empathetically said “It is the need of the hour for the banks of India to work proactively to bolster the wealth sheet of the country along with their balance sheets”.
PM urged bankers to identify the productive potential of citizens and go beyond the traditional banking when it comes to nourish their business intelligence and entrepreneurial dreams with quick release of loan funds. PM further stressed upon the need to do away with the feeling that lender is approver and customer is an applicant or receiver. Instead of waiting for the customers to come and seek loans, bankers have to come forward to analyse the credit appetite of both existing and potential customers and provide consultancy services with customized solutions and unified policies. In this way, banks have to adopt the model of partnership in which both partners share the benefits.
The Prime Minister said that due to recent implementation of various schemes, a huge pool of data is now available in the country. The Prime Minister emphasized that the banking sector must take advantage of this facility. He also listed the opportunities presented by the flagship schemes like PM Awas Yojana, Svamitva and Svanidhi and asked banks to participate and play their proactive role in these schemes.
Prime Minister said the scale at which corporates and startups are coming forward today is unprecedented and it is the opportune time to strengthen, fund, invest in India’s economic aspirations.
Reduction In NPA
He quoted detailed reports while saying that NPA ratio of public sector banks has now come down to the lowest during last 5 years and they are flushed with liquidity. PM quoted that public sector banks have recovered around 5 lakh crores of bad loans during last years but such news did not make headlines in core media due to illegitimate activities of some defaulters.
Need For Massive Credit Push
Inspite of the current Covid situation, it is assumed that economy will recover at growth rate of 8.7% to 10.5% during current fiscal. This study sounds good but a massive credit push is essential for businesses to remain operational without hindrance and to expand to new horizons.
Studies have also found that growth rate of non-food bank credit has increased to 6.8% in September, 2021 as compared to 5.1% during same period last year. Industrial loans however have seen the growth of only 2.5%. CARE ratings also hint that weekly average (net) liquidity surplus in banking system grew from Rs.4.5 lakh crores at the end of June, 2021 to around Rs.7.5 lakh crores as of September-end.
Time For Action To Contribute to Economy
Bank’s participation in the growth of nation’s economy is undeniable. Banks maintain strict protocols while sanctioning loans. This exercise makes entrepreneurs to wait for long period and delay the process for unwanted reasons. Bankers must overlook traditional methods to approve loans.
PM assures the banks with dependable words and announced to provide all possible help. It is however important for loan seekers to maintain all records and provide all necessary documents for faster disbursal of loan funds.
Make Loan Dispensation Process Easy And Time Bound
He also appreciated the proposal to set up the web-based project funding tracker. This proposal will make all ministries and banks to work in tandem. PM also suggested adding this proposal as an interface to Gati Shakti Portal. Faster loan disbursal process will also help to effectively cope with other big challenges of unemployment and fund crunch. Access https://www.rbi.org.in/ to read more information.
In view of the abovementioned facts, it may be safe to conclude that the Government is fully committed to support Indian economy by promoting businesses and providing easy availability of funds through banks. It becomes pertinent for banks to be proactive in considering genuine loan requests and make sure that the funds sanctioned are being used only for the said purpose. Misuse of bank funds may land customer and/or concerned authorities into trouble and may attract various penal actions.
Non-Banking Financial Companies (NBFCs) have been growing in size and have substantial interconnectedness with other segments of the financial system. Reserve Bank of India had introduced a PromptCorrective Action Framework (PCA) for Scheduled Commercial Banks in 2002 and the same has been reviewed from time to time based on the experience gained and developments in the banking system. Accordingly, RBI has now decided to put in place a PCA Framework for NBFCs to initiate and implement remedial measures in a timely manner so as to restore its financial health for strengthening the supervisory tools applicable to NBFCs.
The PCA Framework for NBFCs, as summarized hereunder, comes into effect from October 1, 2022 based on the financial position of NBFCs on or after March 31, 2022. The objective of the PCA Framework is to enable supervisory intervention at appropriate time and is intended to act as a tool for effective market discipline. The PCA Framework does not preclude the Reserve Bank of India from taking any action as it deems fit at any time in addition to the corrective actions prescribed in the framework.
A. The PCA framework is applicable to the following category of NBFCs:
(a) All Deposit Taking NBFCs [Excluding Government Companies] (NBFCs-D)
(b) All Non-Deposit Taking NBFCs in Middle, Upper and Top Layers 3 (NBFCs-ND),
[Including Investment and Credit Companies, Core Investment Companies (CICs), Infrastructure Debt Funds, Infrastructure Finance Companies, Micro Finance Institutions and Factors]; but [Excluding – (i) NBFCs not accepting/not intending to accept public funds 4; (ii) Government Companies, (iii) Primary Dealers and (iv) Housing Finance Companies].
B. For NBFCs-D and NBFCs-ND, Capital and Asset Quality would be the key areas for monitoring in PCA framework. For CICs, Capital, Leverage and Asset Quality would be the key areas for monitoring in PCA framework.
C. For NBFCs-D and NBFCs-ND, indicators to be tracked would be Capital to Risk Weighted Assets Ratio (CRAR), Tier-I Capital Ratio and Net NPA Ratio (NNPA). For CICs, indicators to be tracked would be Adjusted Net Worth/Aggregate Risk Weighted Assets, Leverage Ratio and NNPA.
D. A NBFC will generally be placed under PCA framework based on the audited Annual Financial Results and/or the Supervisory Assessment made by the RBI. However, the RBI may impose PCA on any NBFC during the course of a year (including migration from one threshold to another) in case the circumstances so warrant.
E. The Reserve Bank of India may issue a press release when a NBFC is placed under PCA as well as when PCA is withdrawn vis-à-vis a NBFC.
F. Breach of any risk threshold may result in invocation of PCA as detailed under:
For NBFCs-D and NBFCs-ND (excluding CICs):
Up to 300 bps below the regulatory minimum CRAR [currently, CRAR <15% but ≥12%]
More than 300 bps but up to 600 bps below regulatory minimum CRAR [currently, CRAR <12% but ≥9%]
More than 600 bps below regulatory minimum CRAR [currently, CRAR <9%
Tier I Capital Ratio
Up to 200 bps below the regulatory minimum Tier-I Capital Ratio [currently, Tier-I Capital Ratio <10% but ≥8%]
More than 200 bps but up to 400 bps below the regulatory minimum Tier-I Capital Ratio [currently, Tier-I Capital Ratio <8% but ≥6%]
More than 400 bps below the regulatory minimum Tier-I Capital Ratio [currently, Tier-I Capital Ratio <6%]
NNPA Ratio (including NPIs)
>6% but ≤ 9%
>9% but ≤12%
>9% but ≤12%
For Core Investment Companies (CICs)
Adjusted Net Worth/Aggregate Risk Weighted Assets
Up to 600 bps below the regulatory minimum ANW/RWA [currently, ANW/RWA <30% but ≥24%]
More than 600 bps but up to 1200 bps below regulatory minimum ANW/RWA [currently, ANW/RWA <24% but ≥18%]
More than 1200 bps below regulatory minimum ANW/RWA [currently, ANW/RWA <18%]
≥2.5 times but <3 times
≥ 3 times but <3.5 times
NNPA Ratio (including NPIs)
>6% but ≤ 9%
>9% but ≤12%
G. Exit from PCA and withdrawal of restrictions under PCA – Once a NBFC is placed under PCA, taking the NBFC out of PCA framework and/or withdrawal of restrictions imposed under the PCA framework will be considered: a) if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements one of which should be Annual Audited Financial Statement (subject to assessment by RBI), and b) based on supervisory comfort of the RBI including an assessment on sustainability of profitability of the NBFC.
H. The menu of corrective actions is as below:
Mandatory and Discretionary actions
Risk Threshold – 1
1. Restriction on dividend distribution/remittance of profits,
2. Promoters/shareholders to infuse equity and reduction in leverage,
3. Restriction on issue of guarantees or taking on other contingent liabilities on behalf of group companies (only for CICs)
Special Supervisory Actions
Credit Risk Related
Market Risk Related
Risk Threshold – 2
In addition to mandatory actions of threshold: Restriction on branch expansion
Risk Threshold – 3
In addition to mandatory actions of threshold 1 & 2,
1. Appropriate restrictions on capital expenditure other than for technological upgradation within board approved limits
2. Restrictions/reduction in variable operating costs
Common Menu for Selection of Discretionary Corrective Actions by the RBI are mentioned below:
1. Special Supervisory Actions
2. Strategy Related Actions
3. Governance Related Actions
4. Capital Related Actions
5. Credit Risk Related Actions
6. Market Risk Related Actions
7. HR Related Actions
8. Profitability Related Actions
9. Operations Related Actions
10. Any other specific action that the RBI may deem fit considering specific circumstances of the NBFC.
RBI would initiate suitable corrective actions including in particular mandatory and discretionary actions to check the wrong doings of the companies. Corrective measures are summarized in brief i.e. may conduct Special Supervisory Monitoring Meetings at quarterly or other identified frequency, special inspections/targeted scrutiny of the NBFC, restricted and need based regulatory/supervisory approvals, review short-term strategy, medium-term business plans, identify achievable targets and set concrete milestones for progress and achievement, may recommend to promoters/shareholders to remove and bring in new management/board, restriction in expansion of high risk-weighted assets, preparation of time bound plan and commitment for reduction of stock of NPAs, restrictions on branch expansion plans, PCAs would prove to be a milestone in the history of NBFCs and RBI will definitely have more control over NBFCs and would protect interest of the public funds at large.
For more details on the topic, you may refer to circular no RBI/2021-22/139DoS.CO.PPG. SEC.7/ 11.01.005/2021-22 dated Dec. 14, 2021 of RBI or access the author at: www.sunilkumargupta.com/ to explore more on other topics.
We congratulate our Hon’ble PM & FM for announcing the economic package in 5 parts to make India self-reliant i.e. #AatmaNirbharBharat and for better opportunities for post COVID 19. I am happy to share that some points from my blog published on 9th May, 2020 on various social media platforms and where the Government was tagged , also found place in the package like:
Release of pending payment of MSMEs from PSUs
Increasing the existing loan limit of MSME sector by 20%, without any additional collateral securities
Creation of a digital market for MSMEs
Ease and deferment of labour law: Now, all occupations have been opened for women and permitted to work at night with safeguards. Major State Governments are now working on relaxing or deferring the labour law applicability
The Indian Government has always been reviewing its policies in the best interest of the country. The focus should now be drawn on improving India’s performance in ease of doing business by reviewing and rationalizing its policies in Dealing with Construction Permits, Getting Electricity, Registering Property, Paying Taxes, Trading across Borders, Enforcing Contracts, Resolving Insolvency, Employing Workers and Contracting with the Government. The government has started working on ease of doing business relating to easy registration of property and fast disposal of commercial disputes for making India one of the easiest places to do business as a part of next phase of Ease of Doing Business Reforms
Ease of Corporate Law and IBC laws to enhance businesses and to believe in entrepreneurs
de-punitive and de-criminalisation of corporate and business laws: a) lower penalties for all defaults for Small Companies, One person Companies, Producer Companies & Start Ups. b) decriminalization of Companies Act violations involving minor technical and procedural defaults (shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM). c) majority of the compoundable offences sections to be shifted to internal adjudication mechanism (IAM) and powers of RD for compounding enhanced (58 sections to be dealt with under IAM as compared to 18 earlier). d) 7 compoundable offences altogether dropped and 5 to be dealt with under alternative framework
All these will enable businesses to complete their pending compliances without payment of any additional filing fees, thereby the entrepreneurs may focus on the growth of their businesses and simultaneously de-clog the criminal courts and NCLT
The whole world is struggling hard with the global lockdown during the pandemic COVID-19 and striving to regain its economies. The IMF World Economic Outlook came out with its interesting growth projections stating that the Euro Area is projected to have a de-growth in 2020 at minus 7.5% and projected growth of 4.7% in 2021. They have projected that India will have a better position by attaining 1.9% in 2020 and 7.4% in 2021 as against a contraction in the global economy. India has great opportunity to become a global manufacturing hub and to boost their MSME sector which is the lifeline of the country which eventually contributes 45% of the total manufacturing and 40% of the total exports and provides huge employment to all the skilled, semiskilled and unskilled youth of the country.
The pandemic COVID-19 had its origin in China and it has gradually spread its claws all over the world creating global economic destruction and resulting in Anti-Chinese sentiments in the system. Now businesses and manufacturers are looking for possible alternative locations to set up their manufacturing units. Various companies are planning to shift its manufacturing units from China to India, Vietnam, Thailand, Indonesia, Eastern Europe etc. India is being seen as a viable option to become a global manufacturing destination going forward. Countries like Japan are in talk with the Indian Government to set up their base in India. Market giants like Pegatron Corp., Google, Microsoft, Apple’s manufacturing partner Wistron Corporation are planning to move out of China and set up their manufacturing units in countries like India, Vietnam, Thailand, Indonesia etc. India is one of the good choices for these companies due to its young population, availability of abundant land, skilled labour, low tax rate for new manufacturing units and favorable business environment. As per the World Bank latest 2019 data, in ease of doing business, Thailand ranks at 21, followed by India at 63, Vietnam at 70 and Indonesia at 73. But is this all that is needed?
The entire world now is rethinking to develop their manufacturing niche in their own country or set up their manufacturing unit in any other country except China so as to avoid such devastating loss in the future. This is a brilliant opportunity for India to become the manufacturing hub of the world by pressing the reboot key to start afresh with new ideas and new goals in New India. Hence, it is important to justify why the businesses will shift to India and not to the other countries. Developing India as a manufacturing hub and an economic powerhouse is not like pressing the F5 key on the computer. Not only we have to attract the foreign companies to set up their manufacturing units in India, but also rejuvenate our MSME sector to grow and support our economy and the international manufacturing in India.
Let us now analyze whether doing business in India is really easy as compared to other nations. As per the World Bank study, there are majorly 12 indicators, whose aggregate score, giving equal weight to each indicator, determines the rankings of the countries in ease of doing business and they keep on changing on year to year basis.
*Source: The World Bank
India is one among the top 10 countries which has shown major improvement in 2019 vis-à-vis 2018. After climbing up the ladder, due to business-friendly policies of Modi Government, India is now at 63rd position out of 190 countries with DB Score of 71.0 out of 100 points. These are the 10 indicators of ease of doing business which is prepared by comparing the business regulation in 190 countries and are being considered by the businesses (domestic and international) before starting a new venture:
Way forward for better ranking by India
Starting a Business
This topic measures the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-size business to start up and formally operate in each economy’s largest business city.
136 out of 190 is not a good score, we need to at least reach a score within 50 as far as starting a business is concerned. Norms for starting a new business needs to be relaxed and should be made online in time bound manner. Due to the federal structure and the nature of businesses, they has to take several permissions from the Central and State Governments. Thus, a close coordination should be there between both the governments. Though the Ministry of Corporate Affairs has already implemented various steps like reduction of fees for incorporation of Company, introduction of SPICe, formation of a Company in 1 day, relaxation in the minimum paid-up capital requirement for ease of doing business, but we have to review various other compliances applicable for starting a new business and try to reduce the number of procedures, time and cost of the entire process.
Dealing with Construction Permits
It tracks the procedures, time and cost for obtaining the necessary licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining all requisite connections and permissions.
India was at the 52nd position in 2018 as against 27th in 2019. Although India has streamlined the process and improved its quality building controls, with faster and less expensive procedures to get construction permits in Delhi and Mumbai, but for better ranks it is advisable to encourage digitalisation and online approval for easy operation by each of the State Governments. For a better ranking post lockdown, India should now reduce/ minimise the number of procedures for getting the construction permits along with the time and cost of the process and build more effective quality control parameters.
This indicates procedures, time and cost required for a business to obtain a permanent electricity connection.
Though we have reached a score of 22 out of 190, but we need to improve the score further. Automated mechanism needs to be set up for supply of electricity connection. Further, more solar and hydro power plants, transmission lines needs to be set up all across the country so that there is no scarcity of supply of electricity. Our country needs to focus on reducing the time, cost and number of procedures for getting the electricity connections and emphasise on reliability of supply and transparency of tariff.
This is one of the primary steps for any new business to set up. It examines the steps, time, and cost involved in registering an undisputed property i.e. land and/ land along with building.
We are at 154th position out of 190 countries, hence we need significant improvement in getting property registered in the name of businesses because owning a land/ property for businesses is one of the most important and critical steps in setting up a new business, wherein there are some improvements. The Government needs to rationalise the land acquisition law and standardise online system of allotment of land by the industrial development authorities. It is also required to work on increasing the quality of land and administration process along with better transparency and reduce/ minimise the time taken, cost and number of procedures.
This topic covers two aspects of access to finance—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending.
The entire process of getting credit in India needs to be reviewed, relaxed, standardised and made online. The Government needs to strengthen the legal rights of all the parties in the contract as well as transparency in assessing the credit score and expand the scope of information collection and reported by credit bureau.
Protecting Minority Investors
It measures the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse.
The interests of the minority investors needs to be protected more strictly. Disclosures needs to clearly explain the facts, terms and risks involved, extent of directors’ liability and shareholders rights should be highlighted. Policies for corporate transparency, ownership and control measures needs to be reviewed and rationalised.
It records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as the administrative burden of paying taxes and contributions.
India has a rank of 115 out of 190, which shows that the Government needs to review its taxation policies and significantly work on getting a better score within top 50. The Government needs to encourage businesses and individuals to pay tax and rationalise their compliances and administrative burden of collection should be bare minimum. They need to work on increasing total tax and contributions received and reduce the tax rates. Computation, compliance, filing and refund of direct and indirect taxes should be made easy. The taxation system needs to be made uniform so that the taxpayers find it easy and just, to pay the taxes and the tax audit processes needs to be reviewed along with rationalising labour taxes and other mandatory contribution (other than tax on profit).
Trading across Borders
Doing Business records the time and cost associated with the logistical process of exporting and importing goods. It measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods.
India has implemented post clearance audits, integrating trade stakeholders in a single electronic platform, upgrading port infrastructures and enhancing electronic submission of documents in Delhi and Mumbai. The Government should now relax the existing laws regulating trade relations between India and other countries except the countries sharing land borders with India. While exporting or importing we have to reduce the time and cost for documentary compliance and border compliance.
It measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system.
Since India now ranks at 163rd position out of 190 countries as per the World Bank data, the Government needs to stress on putting extra efforts in its system to enforce contracts. India Government should now bring out effective steps to resolve commercial disputes and enforce contracts. The Government should reduce the time to enforce contracts i.e. from the date of filing of dispute till the date of passing the order at the first-instance court with a minimum cost and increase the quality of judicial processes.
These variables are used to calculate the recovery rate, which is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings.
After the Insolvency laws, India has made resolving insolvency in a much easier way by promoting existing reorganisation proceedings. Government now needs to work on the effective implementation of the law in line with the international laws. Focus needs to be also drawn in increasing the recovery rate and strengthening the insolvency framework.
Labour laws to avoid worker exploitation, discrimination of hiring and working policies and unfair dismissal practices vis-à-vis rational and flexible labour laws for the growth of business
Not considered in ranking in 2019
The employing workers indicator measures regulation in the areas of hiring, working hours, and redundancy. A country should have flexible labour regulations, which provides workers an opportunity to choose their jobs and work freely, thereby increasing the labour productivity. India should have easy hiring framework with flexible rules so as to reduce the rate of unemployment among youth and female workers.
Contracting with the Government
Efficiency in public procurement policy to ensure better use of taxpayer’s money
Not considered in ranking in 2019
The contracting with the government indicator captures the time and procedures to win a public procurement contract. The Indian Government should review and take effective steps to prepare a database which constitutes a repository of comparable data on how efficiently public procurement processes are carried out and which will act as a benchmark to analyze efficiency of the entire public procurement life cycle. The procurement process should be an open unrestricted and competitive public call.
We have seen that since the past few years, India is significantly improving its position in ease of doing business as per the World Bank ranking. Apart from ease of doing, the country has to take some bold steps to come out of COVID-19 setback and achieve its dream of becoming the most attractive manufacturing hub and in establishing new businesses.
a) The biggest challenge for us is to create a lucrative environment for the international businesses by relaxing the compliance procedures followed in the country. The Government shall start easing the punitive and criminality clauses from compliance, business, commercial and labour laws and trusting the businesses so that the investors/businesses can concentrate more on the growth of their business, rather than wasting time on the compliance burdens. Government should rely on the self-declarations being given by the businesses and give them a more work friendly environment. Maximum companies prior to investing in India will compare the entry procedures i.e. starting a business in India, getting lands, enforcing contracts, statutory compliances, penalty and prosecution clauses in compliance, business and labour laws with that prevailing in other countries. The India Government is now focusing on interacting with the businesses and stakeholders of various other countries to set up their manufacturing base in India but the Central and State Governments may set up specific workforce for interacting with the foreign and Indian entrepreneurs and frame guidelines for timely completion of the projects. The said workforce may be formed jointly by the industry experts, professionals and Government representatives;
b) As a matter of continuous endeavor of the Government to promote MSME, enough safeguards are already built in the MSME law which states that for every services/goods supplied by the MSME unit, the buyer needs to make payment as per the pre-set terms but not exceeding 45 days and in case of delay, interest is charged. The Government needs to implement this law strictly and ensure that the dues from the State/ Central Government, PSUs and big corporates are paid to the MSMEs immediately along with the applicable interest. As per the law, MSME registration is very simple through Udyog Aadhaar (https://www.msmeregistration.org), however still a lot of MSMEs are unregistered and not able to get all the benefits allowed to registered MSMEs. The Government needs to ensure that all the MSMEs get themselves registered through the website. The State Governments should also relax or defer the labour law applicability on MSME sector for few years;
c) The Reserve Bank of India (RBI) needs to pump in more funds in the system to fund the MSME sector. The total liquidity injected in the market by RBI values 3.2% of the GDP, which the Government needs to ensure that it flows into the MSME sector. In order to fight the financial crisis caused by the COVID-19, the MSME sector may be granted a moratorium period of 6 months instead of 3 months and immediate fresh business loan may be granted to those MSMEs who do not have any existing loan. The cash flows of the MSMEs may be maintained by enhancing the overdraft limit to 25% without any primary security or otherwise, with repayment schedule starting after 6 months from the date of granting the facility. Further, the Government should strictly implement the ‘Credit Guarantee Fund Scheme’ to make available collateral-free credit upto Rs 2 crore to the micro and small enterprise sector. The Government should also ensure that the banks approve the loan to the MSMEs and the purpose of bringing this scheme doesn’t get defeated. The Government should also relax the norms pertaining to non-performing assets of the MSMEs to release the burden from their shoulders. They should further assure the banks/ financial institutions that in case any loan turns bad in future, the sanctioning authority will not be held liable and they will not be booked by the criminal law;
d) The State Governments has to promote MSMEs in manufacturing and service sectors in B-class, C-class, small towns and villages and link them with digital platforms for procuring raw materials and selling their goods. Though we have a few digital platforms for selling of goods in MSME sector which are run by the Government, but we need such digital platforms which will be run and managed by the MSMEs only and which can be operated in the local language also for easy understanding by the MSMEs.
e) The country’s agriculture sector accounts for 17% contribution in the GDP and has a growth rate of 2.1%. Out of the 138 cr population, approx. 58% population of the country is engaged in the agriculture sector. Since agriculture sector is the prime sector employing the maximum population of India, the Government needs to focus on increasing the percentage of the contribution to GDP from this sector by allowing businesses to invest in this sector by way of PPP model. Accordingly, the businesses can invest at the initial stages i.e. funding the farmer for seeds, fertilizer, labour cost etc. and purchase the entire crop at a price not which is being fixed by the Government. In case of any natural calamity or unforeseen circumstances resulting in loss of crop, the farmers and businesses should get the minimum fixed amount from the insurance company. The businesses may adopt this as their business model. Currently the Government through banks, provides loans to the farmers and if due to some natural calamity or otherwise, the crops get affected, then as a result of various compulsions, the Government has to waive off the loans and it creates a habit of financial indiscipline in the country.
In this global crisis, each and every country is trying to start afresh and revive back its economic growth and become the new economic powerhouse. The Indian Government has always been reviewing its policies in the best interest of the country. The focus should now be drawn on improving India’s performance in ease of doing business by reviewing and rationalizing its policies in Dealing with Construction Permits, Getting Electricity, Registering Property, Paying Taxes, Trading across Borders, Enforcing Contracts, Resolving Insolvency, Employing Workers and Contracting with the Government. The existing punitive and criminality clauses from compliance, business, commercial and labour laws need to be reviewed and relaxed. Entrepreneurs and foreign businesses should be given a free hand to focus on the business growth and in turn aid in the economic growth of the country.
MSME sector is growing at 10%, which needs to be escalated by establishing MSME in small town and villages and connect them through digital platforms owned and run by the MSME sector in the local language also. The State Governments should relax or defer the labour law applicability on MSME sector and incentivise them link with their production for the next few years. The Government should strictly implement the ‘Credit Guarantee Fund Scheme’ to make available collateral-free credit upto Rs 2 crore to the MSME sector. They should also ensure that the banks approve the loan to the MSMEs and the purpose of bringing this scheme doesn’t get defeated. The Government shall also focus on developing the agricultural sector by allowing investment through farmer-business-government model where Government needs to allow investment by businesses and the minimum price should be controlled by the Government.
Do we actually know where will the world be after 6 months? As the Corona Virus pandemic gradually spreads its claws all over the world, we are trying hard, joining hands, trying to fight the destruction to make the mother earth sustainable. We are maintaining social distancing and lockdown to tackle the ill effects of the virus; the businesses have pressed the pause button and the whole economy is witnessing a downfall. The stock markets were the first in the line to get affected. The travel industry has been massively hit since there were restrictions in travel and gradually it has put a check in the domestic and international travel, although the supermarkets and the online groceries have witnessed a high demand due to the social distancing and the lockdown. Immediately after the outbreak, people had been piling groceries at their home. There has been a major drop in the air pollution post the lockdown and we could see the nature dancing in its own rhythm.
Although the lockdown resulted in a halt in the manufacturing and production chain all round the world, but it is likely that the countries like India, with cheap labour will climb the ladder and end up starting inhouse manufacturing and exports. According to Customs statistics, China’s foreign trade volume in 2019 stood at RMB31.54 trillion, up by 3.4% year-on-year (similarly hereinafter). Exports rose by 5% to RMB17.23 trillion and imports grew by 1.6% to RMB14.31 trillion. The trade surplus increased by 25.4% to RMB 2.92 trillion. In 2019, China’s foreign trade registered a momentum of improving quality amid overall stability. The People’s Republic of China shipped US$2.499 trillion worth of goods around the globe in 2019 along with its various other partner countries. As per the latest available data, it may be seen that approx. 60.2% of products were exported from China and bought by importers in: the United States (16.8% of the global total), Hong Kong (11.2%), Japan (5.7%), South Korea (4.4%), Vietnam (3.9%), Germany (3.2%), India (3.0%), Netherlands (3%), United Kingdom (2.5%), Taiwan (2.2%), Singapore (also 2.2%) and Malaysia (2.1%). With the closing down of the manufacturing and distribution units in China there has been a major drift and scarcity of the imported products and the small scale distribution channels. China posted a $295.8 billion trade surplus with the United States in 2019.
With the major halt in the exports by China, there is a sudden shortage of supply of various products like Phone system devices including smartphones, Computers, optical readers, Integrated circuits/micro assemblies, Processed petroleum oils, Solar power diodes/semi-conductors, Automobile parts/accessories, Lamps, lighting, illuminated signs, Computer parts, accessories, Models, puzzles, miscellaneous toys and TV receivers/monitors/projectors market all over the world.
What’s coming next?
In order to save the entrepreneurs and the industry in this crisis, the Indian Government has been taking certain steps to:
A. Prevent the opportunistic takeovers of the Indian businesses; and
B. Make a conducive environment to make India a global manufacturing hub
The above may be described in details.
A. Prevent the opportunistic takeovers of the Indian businesses:
Check post on the Foreign Direct Investment (FDI):
On April 18, 2020, the Department for Promotion of Industry and Internal Trade (DPIIT) issued its Press Note 3 of 2020 (PN 3 of 2020 Series) whereby they have reviewed the current Foreign Direct Investment (FDI) Policy and has brought in major changes in the policy in order to prevent opportunistic takeovers/acquisitions of the Indian companies due to the current COVID-19 pandemic. According to the release,
“A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government
route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.”
Countries sharing land borders with India are Pakistan, Bangladesh, China, Nepal Bhutan and Afganistan. Hence by this Press Note, the Department has allowed both direct and indirect investment in India by any entity or beneficial owner or citizen of that country ONLY by way of Government Approval. The Press Note further says that if there is any transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the aforesaid restriction/purview, such subsequent change in beneficial ownership will also require Government approval. The primary intent of the Department is to regulate any attempts by Chinese entities/ beneficial owners/citizens to take control of Indian entities which have been affected by COVID-19 lockdowns. Now, fresh infusion of funds by Chinese entities in existing investments in India would also require government approval. The Department is even putting the restrictions on the multi-layered structures, spread across various jurisdictions.
Subsequently, the Securities and Exchange Board of India (SEBI) has issued directives to the custodians for the FPI investments or beneficial interest information of investors coming from China as well as Hong Kong. It is now scanning the hubs such as the Cayman Islands, Singapore, Ireland and Luxembourg to track the direct and indirect investments from China and Hong Kong in the country.
It has been mentioned that the intent of the Department is to curb opportunistic takeovers/acquisitions of the Indian companies due to the current COVID-19 pandemic. Deep down it can be said that post the HDFC Ltd. disclosure on April, 11, 2020, that the China’s central bank People’s Bank of China (PBoC) has increased its stake in the Company from 0.8% to 1.01%, the Department and SEBI has been minutely watching the FDI movement in the country.
B.Make a conducive environment to make India a global manufacturing hub:
i. India the next manufacturing hub:
The effects of the recent lockdown in China were felt by many Japanese, Korean and other manufacturers which witnessed the supply of components for their factories grind to a halt since factories in China shuttered. Now, various companies are planning to shift its manufacturing units from China to the different other Asian states. Countries like Japan are in talk with the Indian Government to set up their base in India. Market giants like Google, Microsoft, Apple are even planning to move out of China and set up their manufacturing units in countries like Vietnam, Thailand etc.
India will be a very good choice for these companies due to its extremely cheap labour cost, maximum workforce base, favorable diversified weather conditions and huge area in the country.
ii. Self reliant:
As a result of the complete shut down of the economic activity, India along with other countries is expected to face a downfall in the GDP in the 1st quarter of the Financial Year 2020-21. Although from the second and third quarters, it is expected to witness a steady growth with the increase in in-house manufacturing and supply as per the market demand. There is ample opportunity for the SMEs in India to regularize the global supply chain disruption caused by the outbreak of the pandemic COVID-19. India has less dependence on China for the intermediate goods and with the added factor of cheap labour and lower manufacturing cost, the manufacturing sector will see a boom in its growth history. India can easily manufacture the various consumer products and export both the raw materials and the finished products in large scale.
iii. Employment Generation and Government support:
Although the sector wise production is expected to decrease in the recent times, but there is huge scope of employment generation in the coming days. The Indian Government has been reviewing its policies in order to combat this crisis and have even come up with its recent decisions on easing of Working Capital Financing, infusing liquidity in money markets, Greater access to MSF (Marginal Standing Facility), Permitting Banks to Deal in Offshore Non-Deliverable Rupee Derivative Markets (Offshore NDF Rupee Market) etc. Moreover, the RBI has already infused INR 280,000 crore, equivalent to 1.4% of Indian GDP, which along with the current tools announced by the RBI will result in liquidity injection of 3.2% of the GDP and is fully prepared to take ‘whatever tools are necessary—all instruments, conventional and unconventional are on the table’. Consequently, surplus liquidity in the banking system has increased sharply in the wake of sustained government spending.
Regional offices of the RBI have supplied fresh currency of INR1.2 lakh crore from March1 till April 14, 2020 to currency chests across the country to meet increased demand for currency in the recent scenario. RBI has even undertaken measures to target liquidity provision to sectors and entities which are experiencing liquidity constraints and/or hindrances to market access. It has been decided to conduct targeted long-term repo operations (TLTRO 2.0) for an aggregate amount of INR 50,000 crore, to begin with, in tranches of appropriate sizes. As confirmed by the RBI in the recent press release, the apex bank will review the operations and the situation and accordingly may increase the amount as per the requirement.
iv. Trade Balance:
Foreign direct investment (FDI) is one of the major sources of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, large consumer base, special investment privileges such as tax exemptions and for the benefit of ease of doing business.
According to the report shared by the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflows in India in April-December, 2019 stood at US$36.79 billion, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms is giving positive results. As per the latest RBI Press Note, the trade deficit declined to US $9.8 billion in March 2020 from US $11 billion a year ago. After the economic activities resumes its operation post COVID-19, the Current Account deficit may be reduced by increasing the export on a large scale and decreasing the import of goods.
v. Growth in the Agricultural Sector:
The country’s agriculture sector accounts for 17% contribution in the GDP and has a growth rate of 3.4%. Approx. 55 cr population of the country is engaged in the agriculture sector which tantamount to 58% employment generation. Since agriculture sector is the prime sector employing the maximum population of India, so the Government focusses on increasing the percentage of the contribution to GDP from this sector. It has even been observed that by April 10, pre-monsoon kharif sowing had begun strongly, with acreage of paddy – the principal kharif crop – up by 37% in comparison with the last season. India has set up an ambitious goal of doubling farm income by 2022.
The farmers should now have a direct reach to the market so that they can sell their products in the market directly and at a reasonable rate; use of new techniques and technology to be introduced to attract youth to this sector and ultimately achieve better production and exports.
vi. Growth in GDP:
With the massive side effects of the pandemic spread, our dependence on the import of raw materials and consumer goods will be curtailed forcefully. Service industry will grow extensively, and tourism industry will be linked with the healthcare sector so as to give an added benefit to the youth employed. As per the RBI report, India is expected to post a sharp turnaround and resume its pre-COVID pre-slowdown trajectory by growing at 7.4 per cent in 2021-22. As the trade balance is maintained, Indian GDP is expected to make a remarkable growth in the next few quarters.
Steps already taken
The Indian Government had recently announced economic package of INR1.7 lakh crores under Prime Minister Gareeb Kalyan Yojana to protect the poor citizens of the country from the economic impact of the nationwide lockdown and decided to defer the Tax and regulatory payments along with compliance filings as a relief to combat the existing crisis and for easy governance. The apex Bank has also come up with some positive arrangements to infuse liquidity in the market and control the turmoil. Some of the steps taken may be highlighted as below:
a) Money markets were facing pressures from redemptions by mutual funds. The Targeted Long-term Refinancing Operations (TLTRO) will ease the liquidity position of the banks, for which they were supposed to invest in investment-grade bonds, commercial paper etc. In order to reduce the adverse effects on the economic activity leading to pressures on cash flows, the RBI had decided to conduct auctions of targeted term repos of up to three years tenor of appropriate sizes for a total amount of up to ₹1,00,000 crore at a floating rate linked to the policy repo rate. This will reassure the money markets to work without the crunch of funds.
b) The RBI recently issued a press note confirming that they had a talk with the NABARD, SIDBI and NHB and accordingly decided to provide special refinance facilities for a total amount of INR 50,000 crore to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs.
c) The cut of 75 basis points in repo rate is a powerful signal, aimed at lowering the cost of funds. The interest on floating rate housing loans will come down, helping household cash flows. Repo rate has come down to 4.40 % from 5.15%. The RBI also cuts the reverse repo rate two times, one by 90 basis points and another by 25 basis points, which has now come down to 3.75% to discourage banks to passively deposit funds with the RBI.
d) Liquidity coverage ratio requirement for Scheduled Commercial Banks has been brought down from 100% to 80% with effect from April 17, 2020.This requirement shall be gradually restored back in two phases – 90% by October 1, 2020 and 100% by April 1, 2021.
e) Health insurance scheme of INR 50 lakh for health workers fighting COVID-19 in Government Hospitals and Health Care Centres has been announced.
f) In order to help the poorest section of the society, a total of 20.40 crores PMJDY women account-holders would be given an ex-gratia of INR 500 per month till June, 2020 to help them run their household during this difficult period. The Government of India has also declared to spend INR 31,000 crores for this purpose.
g) Free gas cylinders, would be provided to 8 crore poor families till June, 2020 and three gas cylinders would be provided to the beneficiaries of Pradhan Mantri Ujjwala Yojana during this period.
h) Under National Rural Livelihood Mission Scheme, collateral free loans is doubled from INR 10 Lakhs to INR 20 lakhs to 63 lakhs Women Self Help Groups(SHGs) which would ultimately benefit 6.85 crore households.
i) It has been now decided that where the time limit of due dates for issue of notice, intimation, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents and time limit for completion of proceedings by the authority and any compliance by the taxpayer, including investment in saving instruments or investments for roll over benefit of capital gains under Income Tax Act, Wealth Tax Act, Prohibition of Benami Property Transaction Act, Black Money Act, STT law, CTT law, Equalisation Levy law, Vivad Se Vishwas law is expiring between March 20, 2020 to June 29, 2020, it has been extended to June 30, 2020.
j) Taxpayers having aggregate annual turnover less than INR 5 crore will be allowed to file return under Form GSTR-3B due in March 2020, April 2020 and May 2020, till 30th June, 2020 without any interest, late fee, and penalty whereas others having annual turnover more than or equals to INR 5 crore will be allowed to file the same with a reduced interest of 9% p.a. instead of the existing 18% p.a., from 15 days after the relevant due date but without any late fee or penalty.
k) In order to reduce the burden and make the default good, the Ministry of Corporate Affairs has introduced Companies Fresh Start Scheme, 2020 and LLP Settlement Scheme, 2020 with a one-time relaxation to law abiding Companies and LLPs so as to enable them to complete their pending compliances without payment of any additional filing fees, thereby the entrepreneurs may focus on the growth of their businesses.
An intensive study on the past economic performance of the Indian economy vis-à-vis the global economy and the effects of the COVID-19, a few recommendations are likely to be highlighted for the taking advantage of the better opportunities to the Indian economy:
a) The India Government should now focus on interacting with the business entities and Governments of various other countries to set up their manufacturing base in India. The Central and State Governments may set up specific workforce for interacting with the foreign investors and frame guidelines for timely completion of the projects. The said workforce may be formed jointly by the industry experts, professionals and Government representatives.
b) New guidelines for Foreign Portfolio Investment (FPI) may be introduced in order to safeguard the opportunistic takeovers/ acquisitions of the Indian businesses by way of indirect overseas investments.
c) While calculating the qualifying criteria of the non-performing assets (NPA) the lockdown period and the long-term economic impact of the COVID-19, may be excluded;
d) The Government may incentivize digitalization and facilitate payments through digital mode only and the charges on the credit card/ digital payments may also be waived off;
e) The compliance structure/norms may be diluted for the MSME sector in order to encourage ease of doing business in India. Post the COVID-19 effects, India is expected to have the largest job-market ready for youth population in the world by 2020-21 and this sector is sure to support India in improving its financial inclusion and mitigating the rural-urban divide. Several policy interventions along with technology and innovation will continue to play a pivotal role in creating a business- friendly atmosphere for the MSMEs;
f) There may be a reduction in the short-term GST rate for some specific sectors and further the GST deposit may be linked to the receipt of the amount for the services rendered to balance the cash flows for the time being. Presently GST deposit is based on the invoice raised and not on the payment basis. It can in return reduce the burden on the SME sector and in return reduce the defaults;
g) Tax compliances may be diluted and there may be a reduction in the Tax rate and interest rate on business borrowings in order to give relaxation to the manufacturers and the consumers. Tax rate reliefs may also be allowed to the proprietorship and partnership entities like the Companies;
h) In order to encourage export and reduce import, the Government may bring certain relaxations on the export compliances and also expedite the refund and duty drawback process to stabilize the cashflow operation;
i) There should be compulsory health and life insurance by the Government for the healthcare workers, police, Safai karamcharis who are working endlessly for eradicating this menace.
The recent reforms or policies taken up by the Government clearly demonstrates that the we are leaving no stone unturned to make India a better place to do business and to improve opportunities for all sections of society along with increasing prosperity. India now has the best opportunity to become the economic giant and work as ‘one-size-fits-all’ country and the best business destination in the world. India has always been a friendly partner to the other countries and has now even decided to relax the export of hydroxychloroquine to the USA on case to case basis. It is good to quote that in the coming days India will be the prime source for supply of all essential and life saving commodities to the world. The World Trade Organisation sees global merchandise trade contracting by as much as 13-32 per cent in 2020. Activity in the corporate bond market has picked up appreciably, with several corporates making new issuances. The level of foreign exchange reserves continue to be robust at US $ 476.5 billion on April 10, 2020 equivalent to 11.8 months of imports. India is expected to become the next economic powerhouse with its core competencies.
In order to put a further check on the import of goods, the Government may increase the duty on import of consumer goods and incentive to be given to the MSME sector in order to encourage the production of goods and increase the exports of the country. New technologies are required to be used in the cottage and rural divisions. The government incentives are required to be increased in the manufacturing sector along with easy accessibility of finance and market to the youth so that they can engage themselves in this sector and can start manufacturing without any marketing or financial difficulty.
The Companies Act, 2013 and Limited Liability Partnerships Act (LLP Act) 2008 require all Companies/ Limited Liability Partnerships (LLPs) to make annual statutory compliance by filing the Annual Return and Financial Statements. Apart from this, various other statements, documents, returns, etc. are required to be filed on the MCA electronically within prescribed time limits.
As part of its constant efforts to ease of doing business and to reduce the litigation burden from the Companies and/LLPs and in order to encourage the businessman to focus more on the growth of the Company/LLP and organize their internal structure, the Government of India has announced a one-time relaxation to law abiding Companies and LLPs so as to enable them to complete their pending compliances without payment of any additional filing fees. The Ministry of Corporate Affairs (MCA), introduced the “Companies Fresh Start Scheme, 2020” and revised the “LLP Settlement Scheme, 2020” to provide an opportunity to both companies and LLPs to make good their default by filing pending documents and to serve as a compliant entity in future. The Fresh Start scheme and modified LLP Settlement Scheme condone the delay in filing the specified documents with the Registrar, insofar as it relates to charging of additional fees, and granting of immunity from launching of prosecution or proceedings for imposing penalty on account of delay associated with certain filings during the unprecedented lockdown caused by COVID-19. The prominent feature of both the schemes is a one-time waiver of additional filing fees for delayed filings by the companies or LLPs with the Registrar of Companies during the currency of the Schemes, i.e. during the period starting from 1st April, 2020 and ending on 30th September, 2020.
Both the Schemes, apart from giving longer time for corporates/LLPs to comply with various filing requirements under the Companies Act 2013 and LLP Act, 2008, significantly reduce the related financial burden on them, especially for those with long standing defaults, thereby giving them an opportunity to make a “fresh start”. Both the Schemes also contain provision for giving immunity from penal proceedings, including against imposition of penalties for late submissions and also provide additional time for filing appeals before the concerned Regional Directors against imposition of penalties, if already imposed. However, the immunity is only against delayed filings in MCA 21 and not against any substantive violation of law.
Details of the both the Schemes are available vide the Circular nos. 12/2020 & 13/2020 dated 30.03.2020, issued by the Ministry of Corporate Affairs.
The Schemes are not applicable in following cases :
Non-applicability in case of Companies:
to companies against which action for final notice for striking off the name u/s 248 of the Companies Act 2013 (previously Section 560 of the Companies Act, 1956) has already been initiated by the Designated Authority.
where an application has already been filed by the companies in Form STK-2 for striking off the name of the company from the Registrar of Companies.
to companies which have amalgamated under a scheme of arrangement or compromise under the Act.
where applications have already been filed for obtaining Dormant Status under section 455 of the Act before this scheme.
to vanishing companies.
Where any increase in Authorised Share Capital is involved and also charge related documents
Non-applicability in case of LLPs:
LLPs which has made an application in Form 24 to the Registrar, for striking off its name from the register as per provisions of Rule 37(1) of the LLP Rules, 2009.
The Government of India is working on giving the businessmen the opportunity to mitigate the pending litigations against their business so that they are able to focus on developing their business and in turn contribute in the growth of the nation’s wealth and GDP of the Country. In the wake of this pandemic outbreak, it is an opportunity on the shoulders of the professionals to help the businessmen by working online and cleaning the pending compliances of the Companies and the LLPs.
With the outbreak of the COVID-19 and the subsequent nationwide lockdown, life is operational in a more or less standstill mode now. Government took strict steps to combat the spread of the deadly virus and ordered to close schools, malls, cinema halls and later on all offices except some of the offices providing essential services to the society. With the revolution of technology in recent times, many of the MNCs and corporates have been providing ‘Work from Home’ facility to its employees. With the complete lockdown of activities and to sustain the economy, employers have an option to allow ‘Work from Home (WFH)’ for the safety of employees and society as a whole.
Keeping connected is of utmost importance at the time of pandemic while keeping social distance and consequent strains from the spread of the COVID-19 pandemic. Many of the employees might be working from remote places and may not be used to this facility, and this might be a challenge for others.
Regardless, below are some of the tips that would help you master ‘Work from home’ strategy:
1. Ideal workspace
Choose a silent and comfortable place in your home with something similar to an office desk- like a desk and a working chair with close access to a charging point for your laptop and/or smartphone. Also, look for an ideal background wall for online meetings and talks with colleagues. Refrain from the couch or bed, as that could trigger a backache and neck problems and isn’t healthy if prolonged.
2. Organize time and space
You have to be tricky with an increased number of responsibilities and distractions while working from home. You have also to manage other distractions e.g. Children at home, household chores etc. besides your time for office work. Keep your desk organised and clean, and keep a notepad, pen, earphones etc. handy at all times. If your partner/spouse is working from home too, incorporate your working schedules and take turns for daily household chores.
3. Train yourself in technology
Work from home is entirely based on your efficiency with technology and software applications chosen by your employer e.g. Skype, Zoom, Microsoft Teams etc. Speak to your IT department for any required help or take help from a tech-savvy person in your home. In dire circumstances, you can even watch a Youtube tutorial for a better tech grip.
4. Communicate properly
In WFH, you must always prioritize communication. Stay connected with your team as well as the manager. Refrain from emails and use video chats for queries instead. Let your colleagues know that you are available. Physical isolation is ok, but do not isolate yourself socially. You can even stay connected with your colleagues through non-work related video chats. Keep checking on others, although not excessively, even as a manager.
5. Maintain a strict schedule
Remember even in WFH, you are getting a salary. Set reminders and always stay available for scheduled video conferences and keep some buffer time for the unscheduled ones as well. Stay professional and organise household activities in a manner that does not hamper your work. Coordinate with others at your home by sharing house workload and inform them of your working hours. Try to stick to your office schedule, taking scheduled breaks for yourself.
6. Don’t forget to exercise
In these trying times, please do not forget to stay healthy and fit. Take little strolls around the house in between work-related tasks and munch on some healthy snacks in between. Find an ideal time in your routine for exercise and stay hydrated. Listening to music will help you to focus on your work. Put the tougher tasks for the morning and others for later half. Finding a balance will help you to better fit into a WFH environment.
7. No distractions
WFH makes you more vulnerable to get sucked into non-productivity through distractions like social media, children at home or readily available entertainment, without your team around to keep a check. As explained earlier, keep such distractions for scheduled breaks or after working hours. Better to log out of non-work social media accounts as possible to improve your work efficiency.
A team should always work as a team along with working independently with the sole intention of positively contributing to the nation-building exercise. It is a once for all opportunity of every working professional to prove his/her abilities and grab the opportunity, add value by reading new things, working in isolation and preventing the nation to fight against the pandemic COVID-19.