Lower Cash to GDP Ratio is a Reason to Worry, Not Celebrate

Time flies.

In 10 days time, it will be a year, since the prime minister Narendra Modi, made his rather "infamous" decision to demonetise Rs 500 and Rs 1,000 notes.

One of the claimed successes of demonetisation has been that the cash to gross domestic product (GDP) ratio has come down. In a speech made on October 4, 2017, Modi said: "Demontisation के बाद Cash to GDP Ratio अब 9 प्रतिशत पर आ गया है। (after demonetisation, the cash to GDP ratio has come down to 9 per cent."

Let's take a look at Figure 1, it plots the currency in circulation (a measure of cash in the financial system) on a weekly basis, from the week before demonetisation was announced.

Figure 1:

Figure 1 clearly tells us that currency in circulation has still not come back to the level it was before demonetisation was announced. As on October 20, 2017, the currency in circulation was at 91.6 per cent of the currency in circulation as on November 4, 2016, four days before demonetisation was announced.

Now let's calculate the currency in circulation to GDP ratio (cash to GDP ratio). As on March 31, 2017, the cash to GDP ratio had stood at 8.8 per cent. How did things look as on June 30, 2017? The cash to GDP ratio had improved to 9.9 per cent of the GDP.

How did things look before demonetisation? As on March 31, 2017, the cash to GDP ratio had stood at 12.2 per cent. Currently, it must be a little over 10 per cent of GDP (the exact figure can be calculated only once the GDP number as on September 30, 2017, becomes available).

This fall in cash to GDP ratio is being passed off as an achievement and the fact that nation as a whole has become more honest. As Modi said in the speech referred to earlier in the piece: "भाइयों और बहनों, इस सरकार ने देश में संस्थागत ईमानदारी को मजबूत करने का काम किया है। ये सरकार के अथक परिश्रम का ही परिणाम है कि आज देश की अर्थव्यवस्था कम Cash के साथ चल रही है। (Brothers and sisters, this government has worked to strengthen the institutional honesty of the country. It is due to the tireless hard-work of this government that today the country's economy is running on less cash.)"

There are two points being made here. The first point is that less cash in the financial system means more honesty. The second point is that it is because of the hard work of the government that the country is running on less cash. Let's take the second point first.

When PM Modi decided to demonetise Rs 500 and Rs 1,000 notes, in one shot he made 86.4 per cent of the currency in circulation useless, overnight. This impacted the economic activity in the country, given that bulk of the economic transactions in India (anywhere from 80 per cent to 98 per cent, depending on which estimate you believe) are carried out in cash.

This slowdown in growth of economic activity has continued. Ultimately, economic activity translates into economic growth.

For the period of three months ending March 2017 and June 2017, the non-government part of the GDP (which forms around 90 per cent of the GDP) has grown by a little over 4 per cent. When growth in economic activity slows down, the growth in currency in circulation is bound to be impacted as well.

So, yes, the hard work of the government has led to a lower cash to GDP ratio, but at the cost of slowing down economic activity. Hence, claiming this as success, is more of trying to build a narrative around demonetisation being successful, rather than being an actual success of any sort.

Another point that needs to be looked at here are digital transactions. Take a look at Figure 2. It plots the total value of digital transactions over a period of time. It does not take RTGS transactions (which are over Rs 2 lakh and are usually carried out by banks to settle among themselves) into account.

Figure 2:

As Figure 2 clearly tells us, the total value of digital transactions is now lower than the months running up to demonetisation. This basically tells us that digital transactions haven't replaced cash transactions. Hence, economic transactions which were earlier carried out in cash are still being carried out in cash.

This buttresses the point I made earlier about the cash to GDP ratio coming down because economic transactions are not growing at the same rate as they were growing earlier. Hence, a lot of money continues to remain deposited in banks. And this means a slower growth in currency in circulation, and as a result a lower cash to GDP ratio.

Now let's talk about a lower cash to GDP ratio meaning that the country has become more honest. This is something I have addressed earlier as well, in February. Take a look Figure 3. It basically plots the cash to GDP ratio of different countries.

Figure 3:

Take a look at Figure 3. Japan has the highest cash to GDP ratio at 19.4 per cent. India is nearly half of that at around a little over 10 per cent? Is India a more honest nation than Japan? As per the Transparency International's Corruption Perception Index for 2016, Japan is the twentieth least corrupt country in the world. India stands at the 79th position, despite having a much lower cash to GDP ratio.

Or take the case of Brazil, which has a cash to GDP ratio of 3.31 per cent. Like India, it is the 79th least corrupt country in the world. Then there is the Eurozone (country's which basically use euro as their currency). Their cash to GDP ratio is higher than that of India. Is the Eurozone more corrupt than India?

Hence, the link between a low cash to GDP ratio and low corruption is basically very weak. It is basically something that the Modi government has invented in order to build a positive narrative around demonetisation.

To conclude, there is enough data to suggest that a lower cash to GDP ratio is a reason to worry and not a reason to celebrate. Hope, the Modi government, at least internally realises this.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul' Letter. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

'Am Being Framed As I Have Sex CD Of Minister,' Says Arrested Journalist Vinod Verma

GHAZIABAD: 
HIGHLIGHTS
Vinod Verma was arrested at 3:30 am from his Ghaziabad home
Nearly 300 CDs, pen drive seized from his home
Reports say he was working on story against a Chhattisgarh minister
 A senior journalist involved in an investigative report on the Chhattisgarh government last year was arrested around 4 am on Friday from his home near Delhi on charges of extortion. Vinod Verma, a member of the Editors Guild of India, was picked up from his Ghaziabad home by a police team that caught the last flight out of Raipur.

The police claim they have seized hundreds of CDs, a laptop and a pen drive from his home. Mr Verma, they say, was making copies of a sex CD allegedly featuring a minister and "intended" to distribute them. The police, however, refused to disclose the contents of the tape to the media.

"I have a sex CD of a Chhattisgarh Minister...the Chhattisgarh government is not happy with me," Mr Verma told the news agency ANI.

A freelance journalist, Mr Verma has been Digital Editor at Amar Ujala and has also worked with the BBC Hindi service.

He was part of a fact-finding team of the Editors Guild that travelled to Chhattisgarh last year to examine cases of intimidation of journalists.

His arrest followed a complaint yesterday by Prakash Bajaj, a member of the Chhattisgarh BJP's IT cell, that "someone had a CD of his boss (the minister)".  

Late last night, the police took a flight to Delhi and went to a shop that had allegedly made 1,000 copies of the sex tape. The shop owner allegedly named Mr Verma as the man who had commissioned the copies.

The Chhattisgarh government claims Mr Verma was working with the state's opposition Congress to discredit the ruling BJP. The journalist, it says, is related to state Congress chief Bhupesh Vaghel. Mr Vaghel has denied it.

"This is an attack on democracy and we condemn this. They are targeting a journalist to protect their minister," Mr Vaghel said.

The pre-dawn arrest has triggered outrage, with a deluge of posts on social media. The Congress' Pramod Tiwari tweeted that the arrest was a clear message that "If you speak against the BJP you will be crushed."
 Follow

urmilesh @UrmileshJ

Sr Journalist, Vinod Verma(formerly with BBC) was picked up last night at 3AM by UP and Chattisgarh Police. Emergency days are here!

6:13 AM - Oct 27, 2017

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ashutosh 

✔@ashutosh83B

Vinod Verma Ex BBC n Amar Ujala Digital Editor has been picked up most mysteriously by UP N Chhatttisgarh Police 3.30am. Attack on press?

5:45 AM - Oct 27, 2017

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The fact-finding report that Mr Verma co-wrote last year had concluded that journalists do not feel safe working in Maoist-hit Bastar and "there is a sense of fear".  "The state government wants the media to see its fight with the Maoists as a fight for the nation and expects the media to treat it as a national security issue, and not raise any questions about it," said the team.

Modi mimic? Shut up

New Delhi: The great Indian laughter challenge: how to make everyone roll on the floor laughing but not at the expense of Prime Minister Narendra Modi.

When STAR TV Network's The Great Indian Laughter Challenge was recorded on September 1, stand-up comedian Shyam Rangeela did bring the house, including actor Akshay Kumar, down by mimicking the maximum leader who used to intone "mitron".

Shyam squeezed in an act of Rahul Gandhi, too, complete with the rolling up of the kurta sleeves.

But when the episode was aired on September 30, the rib-tickling item was missing.

Shyam said that a few days before the scheduled telecast, he was told to record again after omitting Modi. He got the impression that Rahul was easy game but eventually that also was apparently discouraged.

Shyam then performed another act. "I had little time to prepare, and as a result lost out in the challenge," Shyam told The Telegraph.

"They called me and they knew what my USP was. I became popular because of my mimicry of the Prime Minister and the producers were aware of that. They offered to take me on the show without an audition because of my reputation but clearly developed cold feet somewhere along the way."

He said no explanation was given to him for pulling out his act. “I think they feared repercussions if they let my mimicry of the Prime Minister run the way it was. And, then as a balancing act, they must have decided to stop my act on Rahul Gandhi also so that they are seen as being even-handed,” Shyam added.

STAR was unavailable for comment till Thursday evening

.

But the clip reached social media and went viral, posing a greater challenge to those who stand to get offended.

Anti-Black Money Day: Dear PM Modi, Is the Govt Really Serious About Tackling Black Money?

The Bhartiya Janata Party (BJP) led National Democratic Alliance (NDA) government will celebrate November 8, as the anti-black money day. On November 8, last year, the Narendra Modi government had demonetised Rs 500 and Rs 1,000 notes. This was seen as an attack on the huge amount of black money in the Indian financial system.

In the end, it turned out to be a legal money laundering scheme and nothing else.

After demonetisation, the prime minister Modi has continued to maintain a stance against black money in almost all his public posturing. All this posturing reminds me of a line from the Salman Khan starrer Wanted: "Ek baar jo maine commitment kar di, phir main apne aap ki bhi nahi suntan (Once I have committed to something, then I don't even listen to myself).

Nevertheless, how serious is the Modi government and the prime minister himself about tackling the black money menace? Recently, the prime minister was in Gujarat and in a bid to reach out to the traders who have conventionally supported the BJP in the state, over the few decades, he said: "In the last few months, 27 lakh additional people have registered themselves for this indirect tax [I.E. THE GOODS AND SERVICES TAX]... No businessmen wants to indulge in tax evasion. But tax rules, system, tax officials and even politicians are forcing them to do it...I know, that those who are joining have fear that their past records will be checked. I assure you that no tax officials will be allowed to open past records of those who want to come in the mainstream."

What is the prime minister saying here: A bunch of people have been afraid of coming on to the Goods and Services Tax system because the declarations they make now and in the months to come, will give the government a good idea about the kind of money they were making in the past. The government also has the details on the kind of tax they have paid in the past [IF AT ALL ANY]. Hence, it is clearly in a position to estimate the total amount of taxes that were not paid in the past.

The prime minister was simply trying to assure the people of the state of Gujarat that the past records will not be checked and they won't get tax demands from the government. This assurance raises a number of questions:

a) Does the law of the land change, simply because there is an assembly election in the state?

b) Is the commitment to eliminating the black money menace limited to only those states and only those times, when there are no assembly elections happening?

c) Also, does this mean that tax officials are supposed to turn a blind eye to the past shenanigans of people who should have paid tax, and haven't, because the prime minister has made an assurance during the course of an election speech?

I have always maintained in my writing that prime minister Modi and the BJP aren't serious about eliminating the menace of black money. And this is one of the things they like to talk about to build a narrative around the point of the government being serious about eliminating corruption and black money. The voters like to hear such things and the politicians are giving it to them.

Let me explain this point in a little more detail. You and I have been getting emails and smses almost every day asking us to link our Aadhar card to our bank accounts. We have also been getting smses asking us to link our Aadhar card to our mobile numbers. It is almost impossible to carry out any transaction with the government without an Aadhar card.

At the same time, no identification is needed to donate money to a political party. Why is that the case? Why can't the Aadhar card be linked to every donation made to a political party as well. What is stopping the government from doing that? Almost everyone has an Aadhar card now.

If the idea is to eliminate black money, why aren't donations to political parties linked to Aadhar. In fact, to take this argument even further, why are political parties allowed to collect donations in cash, in this day and age. If the idea is to encourage digital transactions, why can't PM Modi and the BJP, set an example on this front and ensure that the BJP takes only digital donations.

A lot of the donation to the political parties at the state level comes from the builders and the real estate companies. Because these donations are made in cash, builders need to carry out a part of their real estate transactions in cash as well. (This is not to say that all the cash that they collect is handed over to politicians unless of course the builder is a politician himself).

To conclude, there is enough evidence to suggest that PM Modi and the BJP are not serious about tackling the black money menace. If they were they would first start with genuinely reforming political donations. And this leads me to believe that tackling the black money menace, like many other things, is just another talking point for PM Modi and the BJP.

Video of Hardik’s meeting with Congress leaders leaked

Gujarat government accused of snooping by Opposition

After bribery allegations by the Patidar agitation leader Hardik Patel, now the Gujarat government is accused of snooping on the Opposition.

On Tuesday, Congress leader Ashok Gehlot and Mr. Patel charged that the Gujarat administration was keeping them under surveillance, after the police allegedly leaked video footage of Mr. Patel meeting Congress leaders at a hotel in Ahmedabad.

Strategy session

On Monday, Mr. Gehlot and Mr. Patel held a meeting to discuss strategy for the Assembly elections and subsequently, a Patidar delegation also met Congress vice-president Rahul Gandhi, who was in the State to address a rally organised by OBC leader Alpesh Thakor, who joined the Congress.

However, within a few hours, local channels started showing footage of the meetings and even claimed that there was a secret meeting between Mr. Patel and Mr. Gandhi, which was denied by the Congress as well as Mr. Patel. “I met Hardik and Jignesh Mevani in a hotel. Now, the Intelligence Bureau and the police are checking the rooms. I want to ask why the Gujarat government is snooping on us. Are Patel and Mevani criminals?” Mr. Gehlot said.

As General Secretary in charge of the Gujarat Congress, Mr. Gehlot has been camping in the State to formulate the poll strategy and hold discussions with party and youth leaders like Mr. Patel, Mr. Mevani and Mr. Thakor, who are fighting a common battle against the ruling party.

Mr. Patel hit out at the administration, accusing it of mounting surveillance on his activities and tracking his movements. “The BJP is expert in snooping and surveillance and in the past, the State government has snooped upon a woman,” he said.

Denying that he met Mr. Gandhi, Mr. Patel, who is spearheading the Patidar quota agitation, said that if and when he met him, he would publicly announce it.

Gujarat Congress leader Shaktisinh Gohil also slammed the State government and said the authorities are being “misused for snooping on Opposition party leaders.”

BJP offered me ₹1 crore to join it, alleges Patidar leader Narendra Patel

Narendra Patel, a key member of the Patidar Anamat Andolan Samiti (PAAS), has claimed that the BJP offered him ₹1 crore to break away from the Patidar agitation and join it.

Mr. Patel joined the BJP on Sunday evening in the presence of Varun Patel, another aide of Hardik Patel who joined the party on Saturday after meeting BJP president Amit Shah.

However, within a few hours of joining the party, Mr. Narendra Patel alleged that he received a token amount of ₹10 lakh as as a part of the ₹ 1 crore that the BJP promised him to switch over to the party. He accused Mr. Varun Patel of facilitating the deal.

Mr. Narendra Pat produced before the media the cash he allegedly received from a BJP leader and claimed that he “enacted a drama of joining the BJP only to expose the party using money power to lure Patidar agitation leaders in the State.”

“The BJP stands exposed today. They offered me ₹ 1 crore and immediately ₹10 lakh was handed over to me in the presence of Varun Patel. I’m going to donate this money to the families of those killed during the Patidar agitation in 2015,” he told The Hindu.

“Varun Patel struck a deal with the BJP of ₹1 crore for me and the BJP immediately agreed. “I received ₹10 lakh so that I can parade it before media and expose the dirty tricks of the BJP in Gujarat,” he said.

“I will tell the BJP that I am not buy-able and even if you give me the entire Reserve Bank of India, I will not betray my community and its interests. My main aim was to expose the BJP and I did it,” he said.

The BJP had opened its purse strings to break the agitation and buy the Patidar community leaders ahead of the polls, he alleged.

With defections of Harik Patel’s key aides like Mr. Varun Patel and Reshma Patel and few other local leaders involved in the agitation, the BJP was hoping to contain the damage the Patidar quota agitation is likely to cause during the polls, he said.

Gujarat BJP spokesman Bharat Pandya dismissed the allegations, saying it was a “Congress motivated plan to malign the image of the BJP in Gujarat.”

Quits BJP

In a related development, Nikhil Sawani, a senior member of the quota agitation group who joined the BJP a few weeks back, resigned from the party, accusing it of trying to compromise the interests of the Patidar community in the State.

“I have resigned from the BJP,” Mr. Sawani told the media on Monday morning. He said he would meet Congr

Congress demands a judicial probe into Narendra Patel's charge

The Congress on Monday demanded a judicial investigation by a sitting High Court judge into the allegation raised by Narendra Patel, a Patidar quota agitation leader, that the BJP offered him ₹1 crore to join the party.

At a press conference, Congress leader Manish Tewari said the allegations had not been levelled by any political rival, but by “activists of an organisation that the BJP is trying to split”.

Serious allegations

“The allegations are very serious and the finger of suspicion points to the Gujarat BJP chief. First, it demands a reaction from the Prime Minister. We demand that an FIR be registered and an investigation takes place under the supervision of a sitting High Court judge,” Mr. Tewari told presspersons.

Watch: I was offered Rs. 1 crore to join BJP, alleges Patidar leader Narendra Patel

The former Union Minister was responding to allegations made by Mr. Patel, an associate of Hardik Patel, leader of the Patidar agitation.

On Sunday, Mr. Patel, a convener of the Patidar Anamat Andolan Samiti, held a press conference in which he alleged that ₹10 lakh was given to him to cross over to the BJP.

Rahul tweets

Reacting to the press conference, Congress vice-president Rahul Gandhi played on the theme of Gujarati pride to target the ruling party.

“Gujarat is priceless. It has never been bought. It can never be bought. It will never be bought,” Mr. Gandhi tweeted.

In his press conference, Mr. Tewari alleged that “attempts to buy is not new” and the BJP had tried to buy Congress lawmakers during the Rajya Sabha elections as well.

“Modiji doesn’t tire saying na khaunga, na khane doonga [Will neither indulge in corruption nor will tolerate any corruption], but the allegations of bribery are a blot on our democracy. It shows that the BJP is frustrated and scared of losing the elections,” Mr. Tewari said

'Tughlaqi Maharani': As Rajasthan ordinance issue goes viral on Twitter, Opposition doesn't spare Vasundhara Raje govt

The war over the Rajasthan government ordinance to protect bureaucrats and judges from being scrutinised for any on-duty action has heated up on Twitter, so much so that it is one of the top trends on the micro-blogging site.

It all began with Congress vice-president Rahul Gandhi, who tweeted reminding Rajasthan chief minister Vasundhara Raje that it is 2017 and not 1817.

However, the Congress vice-president's tweet inadvertently affected his own — Congress MP Jyotiraditya Scindia. In 1817, Gwalior's Scindia dynasty rulers signed a treaty with the British, through which they became a subsidiary state. Raje is Scindia's aunt and both belong to the Gwalior royal family. Scindia, in fact, is the scion of the family. Other political parties did not spare the Raje government. AAP's in-charge in Rajasthan Kumar Vishwas, an active Twitter user, called Raje a female Kim Jong-un. AAP upporters then flooded Twitter with the hastag #TughlaqiMaharani, which soon became a top trend, the report added.

However, the report noted that despite Raje having an active presence on Twitter, there was no clarification or counter-attack by her social media team.

The Criminal Laws (Rajasthan Amendment) Ordinance, 2017 amends the Criminal Code of Procedure, 1973 and bars the media from naming the public servant till the Rajasthan government allows the case to be investigated.

Ahead of Monday session of the Rajasthan Assembly, when it is expected that the ordinance will take shape of an Act, Gulab Chand Kataria defended the government over the decision.

Kataria told a press conference there was no provision in the ordinance which will weaken action against corrupt officers.

Kataria said the only one aim of the ordinance is that people do not "misuse" section 156(3) to tarnish the image of honest officers by levelling baseless allegations. Kataria said that media trial affects the morale of public servants, and added,"From 2013 to 2017, 73 percent people who were probed under section 156 (3) faced mental harassment although they were not guilty."

While defending the law, Kataria remarked that he too had faced media trail after his name cropped up during the investigation into the Sohrabuddin fake encounter case.

“What happened with me in Sohrabuddin case; I was named in the case and all of country’s media surrounded me, as if I had killed Sohrabuddin. But what eventually came out was that there was no evidence (against me). But the kind of media trial I faced, and I faced the courts too," The Indian Express quoted Kataria as saying.

Meanwhile, the Editors Guild of India on Sunday expressed concern over the bill, claiming that the law will be a pernicious instrument to harass the media. The organisation also added that the law will be 'draconian" and potentially also imprison journalists for reporting on matters of public interest.

The main Opposition Congress decided to protest against the Raje government by wearing black bands inside the Assembly when the bill is expected to be tabled. Outside the Vidhan Sabha, the party held a protest led by Rajasthan Congress chief Sachin Pilot, TV reports said

Senior advocate AK Jain filed a petition in the Rajasthan High Court, questioning the legality of the ordinance promulgated by the state government. NDTV quoted him as saying that the bill will be a license for criminals.

With inputs from PTI


Published Date: Oct 23, 2017 11:35 am | Updated Date: Oct 23, 2017 12:05 pm

Unacceptable fetters: on the Rajasthan ordinance

The Rajasthan ordinance making it a punishable offence to disclose the names of public servants facing allegations of corruption before the government grants formal sanction to prosecute them is a grave threat to media freedom and the public’s right to know. 

In recent times, the legislative mood is consolidating towards adding more layers of protection to officials from corruption cases. While no one can object to genuine measures aimed at insulating honest officials from frivolous or motivated charges of wrong-doing, there can be no justification for the Vasundhara Raje government to prescribe a two-year prison term for disclosing the identity of the public servants concerned. 

Section 228-B, the newly introduced Indian Penal Code offence that relates to acts done in the course of discharging official functions, is a direct threat to the functioning of the media and whistle-blowers. It is a patently unreasonable restriction on legitimate journalism and activism against venality. In addition, the Criminal Laws (Rajasthan Amendment) Ordinance, 2017 fetters judicial magistrates from ordering an investigation without prior sanction, as an additional shield for public servants who already enjoy the protection of Section 197 of the Code of Criminal Procedure, and Section 19 of the Prevention of Corruption Act, 1988, which make prior sanction mandatory before a court can take cognizance of a case.

It may even paralyse an impending probe, as no investigating agency can approach a sanctioning authority without gathering any material.
This is the first time a section prescribing punishment for disclosure is being introduced in India, though provisions barring investigation or prosecution without prior sanction are also in force in Maharashtra. However, the time limit for the sanctioning authority to act is 180 days in Rajasthan, and 90 days in Maharashtra. 

The Union government, too, has a set of amendments to the Prevention of Corruption Act pending since 2013, including a proviso for prior sanction. 
The Supreme Court verdict of May 2014 striking down a statutory provision for prior government clearance for a Central Bureau of Investigation probe against officials of the rank of joint secretary and above is the touchstone against which the constitutionality of the pre-investigation sanction requirement will be tested. The court had observed that such a provision destroys the objective of anti-corruption legislation, blocks the truth from surfacing, thwarts independent investigation and forewarns corrupt officers. Anti-corruption legislation in India seems to be in a state of unacceptable flux. Amendments, including those redefining criminal misconduct among public servants so that bona fide decisions by officials do not result in corruption charges, are yet to be passed. The Lokpal Act is yet to be operationalised. 

It is time the Centre enforced a strong body of legislation that punishes the corrupt, protects the honest, and ensures time-bound public services and whistle-blower safety. Nothing less will behove a government ostensibly keen on bringing down the edifice of corruption.

The above is from "The Hindu" of Chennai, one of the media houses which gives independent views, non influenced by Modi's money and threats.

Opposition has no authority to question ECI, says Modi

Prime Minister Narendra Modi, on his third visit to poll-bound Gujarat this month on Sunday, slammed the Opposition for questioning the Election Commission’s motives in delaying the announcement of the Assembly poll schedule for the State.

“The Opposition parties have no authority to question the Election Commission of India [ECI] over announcement of the poll schedule,” Mr. Modi said, addressing a gathering in Vadodara.

The crucial polls are due later this year and the term of the Assembly ends on January 22, 2018.

In a veiled dig at Congress leader P. Chidambaram, who had criticised the EC, saying the EC had “authorised” the PM to announce the dates for Assembly polls at a rally in Gujarat, Mr. Modi said, “Someone who won during recounting is targeting the EC now.”

Brushstrokes of Gujarat fight emerge
After the Election Commission announced the poll schedule for Himachal Pradesh, breaking the precedent of announcing polls for Gujarat and HP together, it came under sharp attack from Opposition parties. The Commission said it deferred the announcement for Gujarat as the State had sought time to complete rehabilitation work in the flood-hit northern region.

‘Economy on track’

The Prime Minister also defended the Centre’s policies in the context of criticism about an economic slowdown due to introduction of the Goods and Services Tax (GST) and demonetisation.

“After all reforms and hardcore decisions, the economy is on track and is going in the right direction,” Mr. Modi said, asserting that “hard decisions regarding economic reforms will continue.”


Many economists, he said, had agreed unanimously that the fundamentals of the economy were strong. The PM devoted time to cite data and economic indicators to buttress his claim.

During his day-long visit Mr. Modi inaugurated the ₹650 crore ferry service connecting Saurashtra and North Gujarat through the sea route. It runs from Ghogha in Bhavnagar to Dahej in Bharuch. He travelled by ferry from Ghogha to Dahej on its maiden trip. In Ghogha, he said the Centre’s Sagarmala initiative to develop new ports and expand existing ones to create infrastructure would push economic growth.

More than one crore job opportunities would be created in the port sector in the next few years. From Dahej, the Prime Minister flew to Vadodara to lay the foundation for half-a-dozen projects. In Vadodara, Mr. Modi held a road show to connect with the constituency that elected him in 2014. After winning the seat, he resigned it to retain the Varanasi constituency.

Why exempt CBI from RTI, asks petition

A plea has been filed in the Supreme Court for an early hearing of a petition challenging a 2011 government notification, which includes the Central Bureau of Investigation (CBI) on the list of “intelligence and security organisations” exempted from disclosing information to the public under the Right to Information Act.

Counsel Ajay Agrawal, in his petition, said the June 9, 2011 notification including the CBI in the Second Schedule of the Right to Information (RTI) Act of 2005 was arbitrary, especially when the organisation was only an investigating agency and not a security or intelligence organisation.

The fresh application, filed earlier this month, for an advanced hearing in the case alleged that the notification was “solely to scuttle the RTI appeal pending before the Chief Information Commissioner, New Delhi, in regard to the Bofors-Quattrocchi case in which order was passed by the Central Information Commission directing the CBI to provide the requisite papers to the petitioner [Mr. Agrawal]”.

Mr. Agrawal, who has been pursuing the Bofors payoff case for years, contended that “by issuing the notification and placing the CBI in the Second Schedule, the government appears to be claiming absolute secrecy for the CBI without the sanction of the law.”

“The RTI Act was a promise to the citizens by Parliament for transparency and accountability ... It is incumbent on the government to provide the reasons for constricting the citizen’s fundamental right to information,” the petition contended.

‘Deep impact’

“Such an administrative decision has a profound impact on the citizens of India inasmuch as it restricts their fundamental right to information ... By this method the government could keep adding organisations to the Second Schedule, which do not meet the express criteria laid down in Section 24(2) of the RTI Act and ultimately render the RTI Act ineffective,” the application said.

This case had been transferred from the Delhi High Court to the apex court following the government’s claim of multiplicity of such petitions in several High Courts.

The biggest ever fire sale of Indian corporate assets has begun, to tide over bad loans crisis

Piyush Pandey for "The Hindu"

We are seeing what is effectively India Inc.’s biggest ever fire sale. It’s even bigger than the government’s planned divestment target.

The Reserve Bank of India’s (RBI) has decided to clean up the balance sheets of Indian banks, which are collectively saddled with Rs five lakh crore of bad loans, by the end of this fiscal. So, the banks have started cracking the whip on Indian companies for repayment of loans. For most affected firms and groups, this will mean they will be forced to sell prized assets to repay their ballooning debts.

We are seeing ‘for sale’ tags on airports, roads, ports, steel plants, cement units, refineries, malls, corporate parks, land banks, coal mines, oil blocks, express highways, airwaves, Formula One teams, hotels, private jets, and even status symbol corporate HQs. Substantial stakes in firms, and in some cases entire companies, are on the block.

The Hindu reviewed leading corporate houses with billion-dollar loans riding on them, and the results are startling. The top 10 business house debtors alone owe Rs 5,00,000 crore to the banks. They will be forced to sell assets worth over Rs 2,00,000 crore.

Reliance Group (Anil Ambani)

The Anil Ambani-led Reliance Group alone owes Rs 1,21,000 crore of loans to the banks and had an annual interest liability of Rs 8,299 crore against earnings before income tax of Rs 9,848 crore. Some of the group’s firms, like Reliance Infrastructure and Reliance Defence, don’t earn enough to service the interest outgo.

Assets put on sale by the Reliance Group include about 44,000 telecommunications towers (valued at Rs 22,000 crore) and optic fibre and related infrastructure (Rs 8,000 crore) from Reliance Communications (RCom), its flagship firm. Weighed down by about Rs 40,000 crore of debt, RCom has posted a loss of Rs 154 crore in FY14-15, and has continued to post losses in the first three quarters of FY 15-16, accumulating losses of over Rs 2000 crore until December 31, 2015; it is likely to end that fiscal with a net loss too. The company is valued at Rs 13,440 crore, less than a third of its total debts. However, RCom plans to reduce its debts to Rs 10,000 by selling Rs 30,000 crore of telecom assets.

Reliance Infrastructure (R-Infra) is sitting on a pile of debt of Rs 25,000 crore as of February. In November 2015, it agreed to sell a 49 per cent stake in its electricity generation, transmission and distribution business in Mumbai and adjoining areas to Canadian pension fund Public Sector Pension Investment Board (PSP Investments). The transaction is expected to reduce debt of Rs.7,000 crore attached to the distribution business. It agreed to sell its cement business to Birla Corporation for Rs 4,800 crore in February, and is looking to sell its entire roads portfolio, valued at Rs 9,000 crore, for which three international bidders have been short-listed. R-Infra’s EBIT stands at Rs 1,686 crore, against interest liability of Rs 1,974 crore. Its market capitalisation at Rs 14,476 crore is Rs 10,000 crore lower than its debt. By sale, of cement, road and the Mumbai power distribution businesses, the company expects to be debt free on standalone basis by the end of this fiscal.

Reliance Capital, with debt of Rs 24,000 crore has sold stakes, in phases, in its mutual fund and life insurance businesses to Nippon Life Insurance for Rs 3,461 crore to allow the latter to increase its stake to 49 per cent in each of the businesses. It further plans to raise another Rs 4,000 crore by the end of 2016-17 by selling non-core assets, including proprietary investment book and by inducting a partner in its general insurance business. Reliance Capital’s debt includes its lending portfolio – commercial lending and housing finance- of about Rs 18,000 crore and claims to have a debt-equity ratio of 1.77, the lowest in the industry, as of December 31, 2015.

Mr Ambani is also looking to exit the media and entertainment businesses, under Reliance Broadcast Network Ltd (RBNL), for Rs 1,500 –Rs 2,000 crore.

His foray into defence — the recently-acquired Pipavav Defence & Offshore Engineering, rechristened Reliance Defence — is sitting on debt of Rs 6,800 crore against its current market capitalisation of Rs 4,895 crore. The loss-making company with negative EBIT of Rs 306 crore has an interest liability of Rs 347 crore a year.

Ruia’s Essar group (Shashi and Ravi Ruia)

Shashi and Ravi Ruia’s Essar group has gross debt of Rs 1,01,461 crore. The group is looking to sell about 50 per cent stake of its family silver, i.e., Essar Oil’s 20mtpa (million tonnes per annum) Vadinar refinery, for Rs 25,000 crore. It also plans to bring in a financial partner for its 10mtpa steel business that currently has a debt of Rs 40,000 crore; a 49 per cent stake in the steel facility will be valued at about Rs 25,000 crore. The debt-laden group is also looking to sell stake in its ports business. Essar Steel and Essar Oil each account for one-third of the group debt, and Essar Power, one-fifth.

Adani group (Gautam Adani)

The billionaire Gautam Adani’s Adani group, with Rs 96,031 crore debt, is under pressure to sell its stake in the Abbott Point coal mines, port and rail project. The Adani Group’s debt stands at Rs. 72,000 crore. Last year, Standard Chartered bank had recalled loans amounting to $2.5 billion as part of its global policy of reducing exposure in emerging markets. Global lenders have backed out from funding the $10-billion coal mine development project. State Bank of India has also declined to offer a loan despite signing an MoU to fund the group with $1 billion. An Adani spokesperson declined to offer any comments on the issue.

Jaypee group (Manoj Gaur)

Manoj Gaur’s Jaypee group’s debt is over Rs 75,000 crore. The group has agreed to sell its 20mtpa of cement assets to Kumar Birla-led Ultratech for Rs 15,900 crore. This will leave its listed entities with about 6mtpa of cement capacity, three thermal power plants, one hydropower plant, an expressway project and land parcels. It is looking to sell most of these assets at the right price, but buyers are not easy to come by. Aside from selling stake in its land parcels and the Yamuna Express Highway, the group is looking to sell its remaining cement plants for Rs 4,000 crore and its Bina thermal power plant for Rs 3,500 crore. In the last year, the group has defaulted on payment obligations worth $350 million. Analysts say its capacity to service its debt has not improved.

GMR group (GM Rao)

G.M. Rao’s GMR group was one of the first debt-ridden companies to sell off assets; it has already offloaded stake worth Rs 11,000 crore in its roads, power and coal assets in the last two years. Despite this, its total debt has actually gone up: from Rs 42,349 crore at the end of FY13 to Rs 47,738 as of March, 2015. The group is planning to raise about Rs 5,000 crore this year by selling land parcels, energy assets and stake in airport subsidiary. Last month, it announced it was selling part of a road project in Karnataka, to help reduce debt by more than Rs 1,000 crore. It also plans to sell 30 per cent of its stake in its airport arm, which is valued about Rs 10,000 crore.

Lanco group (L Madhusudhan Rao)

The Lanco group has debts of Rs 47,102 crore. It completed the sale of its Udupi plant in FY16 for Rs 6,300 crore (15 per cent of FY15 debt). Debt levels have continued to rise, up 6 per cent in FY15. The group plans to sell power assets worth Rs 25,000 crore to de-leverage its balance sheet and retire debts of about Rs 18,000 crore. It is also planning to sell a one-third stake in the Australian coal mine it acquired in 2011 for $750 million.

Videocon group (Venugopal Dhoot)

Despite the Videocon group selling its stake in its Mozambique gas fileds for Rs 15,000 crore, gross debt has continued to rise: it is up 10 per cent year-on-year to Rs 45,405 crore, while net debt has remained largely flat at Rs 39,600 crore. Last month, it sold its spectrum to Bharti Airtel for Rs 4,600 crore. “If you minus last month’s spectrum sale amount of Rs 4,600 crore which will be paid directly to the banks, then debt comes to Rs.34,000 crore. To decrease debt further, we will be liquidating assets worth Rs 5,000 crore this year so the net debt of the group will be around Rs 29,000 crore,” Videocon Industries chairman Venugopal Dhoot told The Hindu adding that out of this net debt, Rs.21,000 crore has been taken for oil and gas ventures in Brazil, Indonesia and across the globe, where the group and ita partners have discovered oil and gas reserves. So, domestic debt of around Rs 8,000 crore will be serviced.

GVK group (G.V. Krishna Reddy)

To repay some of its debt of Rs 34,000 crore, the GVK group is in talks to sell 49 per cent of its airport subsidiary, which has an enterprise value of Rs 10,000 crore. Last month, it agreed to divest its 33 per cent stake in BIAL to Fairfax India Holdings Corp for an aggregate investment of Rs 2,149 crore. The company is also exploring the possibility of bringing in equity investors into Hancock Infrastructure Pvt Ltd, its holding company for its rail and port projects in Australia. A GVK spokesperson in reply to an e-mail query by The Hindu said, “As part of our corporate policy, we do not comment on any speculation in the media. While it's public knowledge that we are considering various options for reducing our debt, we regret we cannot respond to any of your queries.”

Reliance Industries ( Mukesh Ambani)

India’s largest debtor, Mukesh Ambani’s Reliance Industries (RIL), has a total debt of Rs 1,87,079 crore (up from Rs 62,500 crore as on March 31, 2010, mainly because of the Rs 1,50,000 crore roll-out of Reliance Jio), the biggest among all corporate houses, and the largest ever in Indian corporate history. But it’s also one of the best-rated firms in servicing its interest, so banks are happy to offer RIL loans at competitive rates. Analysts believe that huge debt may weigh down the profitability due to interest outgo and depreciation after the commercial roll-out of Reliance Jio, if it is not able to scale up quickly.

Company	Gross debt (2014-15)	Assets for sale (Rs.Cr)
Reliance Industries (Mukesh Ambani)	187070	-

Tata Group

The Tata Group, India’s largest corporate group, with over 100 companies, wants to sell its UK steel business, which came as part of the $12.9 billion acquisition by Tata Steel of Corus in 2007. Tata Steel had invested over $ 2 billion as capital expenditure in its UK steel business and it has now written down the value of its investment of $2.9 billion, meaning the value of its UK steel business is almost zero. The company’s consolidated debt was $10.7 billion on September 30, 2015, with the total long-term debt of its Europe business at about $4.3 billion.

The others

Among other corporates,

• Naveen Jindal-led Jindal Steel and Power Limited has agreed to sell a 1,000 MW power plant to his elder brother Sajjan Jindal at an enterprise value of Rs 6,500 crore and is looking to sell other assets to reduce debts of Rs 46,000 crore.

• DLF Ltd, India’s most valuable property developer, has sought expressions of interest from several top global investors to sell a 40 per cent stake in its rental assets arm as it seeks to pare debt. The rental assets arm holds about 20 million sq.ft of leased-out office space and is valued at about $2 billion,

• India's largest sugar producer Shree Renuka Sugars Ltd has declared its Brazilian unit bankrupt and has filed for protection in the country. The company plans to fully exit from the National Commodity & Derivatives Exchange (NCDEX), as part of a strategy to sell all its non-core assets to reduce debt.

• The Sahara group’s sale list is long: 86 real estate assets, a 42 per cent stake in Formula 1 team Force India, four airplanes, and its hotels: the Sahara Hotel in Mumbai, Grosvenor House, London, the New York Plaza Hotel, and The Dream New York Hotel.

• Almost all of Vijay Mallya's assets are on sale by the banks.

Quenching the fire

Despite all the desperate deleveraging, the financial stress at these groups has intensified: all of them saw further increases in debt in FY15. These debts have grown seven-fold over the past eight years and account for 12 per cent of system loans, according to Credit Suisse

As groups like Jaypee and GMR cut back on capex and sold assets, their debt and EBITDA have deteriorated further, mainly because they sold their best assets, which were contributing to as much as 70 per cent of their EBITDA. For Jaypee, Lanco, Essar, and GMR, about half their debt has already been downgraded to Default by rating agencies. For GMR and Videocon, absolute debt has continued to rise despite asset sales. Lanco’s Udipi plant sales reduced debt levels by 15 per cent, but that project contributed to 69 per cent of its FY15 EBITDA. Videocon too hasn’t seen any reduction in debt levels.

Investment advisor SP Tulsian said that when you have gangrene in your body, you need to chop off that part to survive; “Similarly, Indian firms need to sell off assets to deleverage their balance sheets or they will die sooner or later. For, banks will take control of their assets and sell them to recover dues.”

However, Morgan Stanley, the global financial services firm believes that the worst of India's corporate debt crisis seems to be over as companies are reporting positive Free Cash Flow (FCF) for only the second time in two decades.

In its Asia Insight Report tilted “India – Macro meets Micro,” Morgan Stanley said that the distress in corporate India's balance sheet is unchanged for the past four years and lists out the following problems of corporate sector:

It’s a balance sheet recession

-Corporate debt to equity is at all-time high

-The debt service ratio is at a new low. The BSE 500 index companies have about 4 times their operating income to pay interest expenses compared to around 10 times in the boom years

-Interest to sales is approaching an all-time high, hurting net margins and impeding debt serviceability.

-Excess return on capital (ROCE minus the prime lending rate) is at all-time lows and in negative territory. This means that companies are earning less on their investment than the cost of their debt.

Tulsi Tanti’s Suzlon became the first casualty of the banks' recovery drive. In 2015, it was forced to sell its largest international subsidiary, Senvion, bought for €1.4 billion euro in 2007, for around €1.1 billion. The sale helped Suzlon cut down its debt of Rs 16,500 crore to Rs 10,500 crore, and reduce its interest liability from Rs 1,600 crore to Rs 800 crore a year. More companies from indebted sectors — power, infra, steel, realty for example — will be forced to emulate Suzlon and go for rapid asset sale in the hope of staying afloat until better times.