Daily Financial News Analysis – 17th Dec’19

Table of Contents

DBT

7 years ago direct benefit transfer was launched on a pilot basis.
Initially it was a pilot project of Planning Commission in 20 districts

The DBT mechanism was steadily expanded to cover ever more government welfare schemes.
DBT is supposed to bring efficiency, effectiveness, transparency and accountability in the government’s welfare and payments system.
At present: there are 436 schemes across 56 ministries which use DBT.
The cumulative payments to date are about ₹9 trillion.
Annual number of transactions this year itself are more than 3 billion.
Assuming a poverty rate of 25% for the country, it means more than 10 bank transactions per man, woman and child living in poverty.
DBT is a grand success and is the largest such electronic payment system in the world.
The government claims that cumulatively till March 2019, it had saved ₹1.4 trillion due to DBT.
This was mainly due to reduction in fake, duplicate or non-existent beneficiaries.
This applies to cooking gas subscribers, ration card holders, as well as fake muster rolls in the NREGS projects.
On fertilizer subsidies, the government has saved ₹10,000 crore due to reduced sales at the retail level.
In cases where the bank branch is not near by, the beneficiary may have to actually trek a long distance to encash her DBT.
Bank branches, even with the proliferation of ATMs and correspondent banking, as well as kirana shop-based payment kiosks, are far less widespread than what the eager designers of DBT may have assumed.
At its peak, UREA amounted to more than ₹1 trillion annually for the government.
The first problem is how to identify poor farmers.
The Aadhaar number may not be adequate.
Secondly, how to ensure that there is no resale?
Farmers in Nepal and Bangladesh pay much higher prices for urea in their countries.
Shall we allocate urea only on the basis of land owned, up to a ceiling of say 2 hectares?
But the fact is more than 40% of India’s agriculture output is by tenant farmers, who do not own the land that they cultivate.
Even if you could identify the non-landholding tiller farmer, and if you promise to give him his subsidy through a DBT, he will refuse it.

CJI on RTI

Chief Justice Sharad A Bobde: time is ripe for laying down guidelines on use of the Right to Information Act (RTI).
REASON

Misuse of the transparency law has created a sense of “paralysis and fear” in the government
Officials are afraid of taking decisions.

CJI directed both Centre and States: appoint information commissioners within 3 months in the Central Information Commission and State Information Commissions.
CJI observed that the transparency law has started to have an adverse effect.
People who are in no way connected to an issue file RTI.
People describe themselves as RTI activists. Is RTI filing a profession?

RBI Governor

Shaktikanta Das: There is scope in India for cutting interest rates further.
The central bank will use it when required after studying growth and inflation data.
MPC surprised markets and analysts this month by holding rates steady after trimming the key interest rate by 135 basis points.
Mr Das said both the government and the central bank had taken steps to help the economy recover but the outcome of events in the global economy would play a role.
Das said he hoped a recent trade deal between the United States and China would hold and not be reversed.
Das also stressed the importance of communication for the markets and said the RBI had tried to be as clear and transparent as possible.

Moody’s

Global ratings agency: lowered India’s gross domestic product growth projection for the fiscal year 2019-20 to 4.9% from 5.8%.
Citing weak household consumption.
Private-sector banks have a larger exposure to retail loans and may be more at risk.
What was once an investment-led slowdown has now broadened into weakening consumption.
Driven by financial stress among rural households on the back of stagnating agricultural wage growth and constrained productivity, as well as weak job creation due to rigid land and labor laws.
The credit crunch among non-bank financial institutions (NBFIs) has exacerbated this slowdown.

Pre-Budget Consultations

Finance minister Nirmala Sitharaman, along with a team of top bureaucrats, kicked off the pre-budget meetings on Monday.
Top officials from financial institutions and capital markets sought solutions for the liquidity crisis surrounding non-banking financial companies (NBFCs) and for improving the credit offtake from banks.
Governance changes in PSBs (public sector banks) with special focus on the PJ Nayak Committee’s recommendations
Creation of a well functioning bonds market
Benefits of partial credit guarantee scheme
Alternative investment funds in real estate sector
Measures for alleviating stress among NBFCs

GST compensation to states

The central government on Monday released Rs 35,298 crore to states to make up for the loss of revenue due to rollout of the Goods and Services Tax (GST).
This compensation was to be released after every two months but the same was pending since August, drawing protests from states, particularly non-BJP ruled ones.

Q1 Who is the new Prime Minister of United Kingdom?