Financial Sector in India

Financial sector plays a vital role in any economy particularly emerging economies like India which

Photo source: IMARTICUS

needs to harness its full potential. Indian financial sector is in early stage of evolving on an inclusive financial system keeping in view of the aspirations of the billion plus people in the country. Banking sector is an indispensable organ of the financial sector for servicing various intermediations. The efficient intermediation of financial system among people enables to achieve higher economic and social development.

Since the economic reforms process which began in 1991, the nature of financial intermediation has undergone several transformation with other intermediaries such as the Non-Banking Financial Companies (NBFCs), insurance, pension funds and mutual funds emerging as the new mechanisms for channelizing savings to investments in the country. Besides, there are other forms of financial intermediation which emerged during in the process of systemic reforms including equity and debt markets, financial products like forwards, futures and other derivatives instruments which have the capacity of reallocating capital to more efficient use in the economy.

Over the years in the process, Indian financial system has also become more integrated with the global economy as well as global financial systems. Keeping this in view, India’s growing integration of financial services in terms of vertical as well as horizontal linkages both in domestic and globally need to be backed up with effective regulatory mechanism which keeps track and addresses the vulnerabilities of external and internal in nature. One of the major modes of financial transactions is banking as financial intermediaries that collect deposits from savers and lend them to investors and others. The deposits of banks form the basis of their lending operations. Banks also use the deposits for advancing credit or for making investment in government and other securities.

The prospect’s of growth of an economy depends on the foundation of the financial sector’s soundness and resilience. One of the core indicators of the financial soundness is the status and magnitude of the non-performing assets (NPAs) in the banking system. The NPA is also an important indicator for assessment of an economy’s financial prudence and creditability for future investments.

According to the latest Economic Survey 2013-2014:

·        Overall NPAs of the banking sector increased to 3.90% of total credit advanced in March 2014 (provisional) from 2.36% of total credit advanced in March 2011. While there has been an across-the-board increase in NPAs, the increase has been particularly sharp for the infrastructure sector, with NPAs as a percentage of credit advanced increased to 8.22% as in March 2014 (provisional) from 3.23% in March 2011. Because of the slowdown and high levels of leverage, some industry and infrastructure sectors, namely textiles, chemicals, iron and steel, food processing, construction, and telecommunication are experiencing a rise in NPAs.

·        Further, during 2012-13, the deteriorating asset quality of the banking sector emerged as a major concern, with gross NPAs of banks registering a sharp increase. The gross NPAs to gross advances ratio shot up to 3.6% in 2012-13 from 3.1% during the corresponding period of the previous year. The deterioration in asset quality was most perceptible for the State Bank of India (SBI) Group with its NPA ratio reaching a high of 5% at end March 2013. With their gross non-performing assets (GNPA) ratio reaching about 3.6% by end March 2013, the nationalized banks were positioned next to the SBI group.

·        The Gross NPAs (GNPAs) of public-sector banks (PSBs) have shown a rising trend, increasing by almost four times from March 2010 (Rs.59,972 crore) to March 2014 (Rs.2,04,249 crore) (provisional). As a percentage of credit advanced, NPAs were at 4.4% in March 2014 (provisional) compared to 2.09% in 2008-09.

However, it is striking to note that the former Deputy Governor of RBI, Shri  K.C.Chakrabarty, who had pointed out that “Economic slowdown and global meltdown are not the primary reason for creation of stressed assets but the state of credit and recovery administration in the system involving banks, borrowers, policy makers, regulators and legal system have contributed significantly to the present state of affairs”.

The rising of NPAs across different segments of banking system is not at all welcome trends and thus requires adequate continuous assessment and monitoring system has to be put in place to keep the financial system vibrantly free from adverse risks. Therefore, the need of the hour is to reform the existing regulatory machinery including Corporate Debt Restructuring (CDR) mechanism, Debt Recovery Tribunals (DRTs) & other legal provisions, Asset Reconstruction Companies (ARCs) and Credit Information Companies (CICs).

B.Chandrasekaran

Poverty Line in India: Changing Discourses and Policy Implications

Redefining poverty line by Rangarajan Committee report 2014 has set a fresh debate on India’s policy implications. It highlights three out of ten Indians as below poverty line, raising the poverty ratio to 29.5% in 2011-12 from 21.9%, based on Tendulkar estimation.  

Defining poverty line and the history of counting poor can be dated back to 19th century of pre-Independent India. The controversy around the term and its definitional clarity was one of the major concerns for our great visionaries and scholars like Jawaharal Nehru and Dadabhai Naoroji. The earliest effort to estimate poverty was Dadabhai Naoroji’s “Poverty and Un-British Rule in India” where he defined subsistence-based poverty line at 1867-68 prices. Later in 1936, National Planning Committee under the leadership of Jawaharlal Nehru made an economic review and recognized that “there was lack of food, of clothing, of housing and of every other essential requirement of human existence”, and suggested development policy objective ensuring adequate standard of living for the masses to get rid-of India’s appalling poverty.[i] The Committee identified poverty with sheer necessities for human existence like, nutrition with balanced diet of 2400 to 2800 calories per adult worker, clothing with 30 yards per capita per annum, and housing with 100 sq. ft per capita. Since then both its concept and counting has undergone several changes in post-independent India.

In 1962, independent India made its first attempt to define poverty line.  A Working Group with eminent Indian economists and social thinkers like D.R. Gadgil, B.N. Ganguli, V.K.R.V. Rao and others recommended along with 1958 - Nutrition Advisory Committee of Indian Council of Medical Research (ICMR) a national minimum for a rural Indian as Rs 20 per month at 1960-61 prices and for an urban Indian as Rs.25 per month; ensuring energy requirements for an active and healthy life.[ii]. This did not include expenditures on health and education, which were to be provided by the state according to the Constitution.[iii]

 Almost a decade later in 1971 noted scholars Dandekar & Rath in their phenomenal work "Poverty in India"[iv] redefined poverty line with average calorie norm of 2,250 calories per capita per day for both rural and urban areas. This was equivalent to Rs 14.20 per month for a rural Indian and RS 22.60 for an urban Indian at 1960-61 prices.[v] In the same year, Planning Commission began official estimation of poverty ratio at both national and state levels, based on consumer expenditure data of National Sample Survey Organization (NSSO) and classification of calorie consumption cost in rural and urban India. Thus defining poverty line in terms of calorie intake became an accepted criterion in India, and estimation continued both with quinquinniel and annual NSSO data based on Uniform Reference Period (30 day recall period) .

In 1979, a "Task Force on Projections of Minimum Needs and Effective Consumption Demand" of the Perspective Planning Division under Planning Commission revised poverty line as per-capita expenditure level at which per-capita, per day calorie intake was 2400 calories in rural areas and 2100 calories in urban areas. The Task Force used age, sex-activity specific calorie allowances recommended by the Nutrition Expert Group in 1968 to estimate average daily per capita requirements for rural and urban areas using age-sex-occupational structure of their respective population. The monetary equivalent of these norms (poverty lines), were Rs.49.09 per capita per month in rural areas and Rs.56.64 per capita per month in urban areas.[vi]

In 1993, another expert group was constituted, who submitted its report under the Chairmanship of Prof. D.T. Lakdawala on ‘Estimation of Proportion and Number of Poor’, once again resettling the poverty line. The group recommended continuation of calorie norm for poverty line, but with state-specific revision having following two steps,

1.   For state-specific poverty line with base year 1973-74 along with the standardized commodity basket corresponding to the poverty line at national level, prices prevailing in each state in the base year needs to be valued.

2.   Update poverty line reflecting current prices in a given year by applying state-specific consumer price indices.

 The Government of India accepted these recommendations with minor modifications in 1997.[vii]

In 1990s, India made a structural shift with its economic liberalization policy. Purchasing power was enhanced significantly with gradual inclination for non-food consumption. Changing trend in life-style was visible, which demanded a methodological shift in poverty estimation. A debate aroused for conceptual change from basic calorie norm to capture greater needs of individuals including health and education towards multi-dimensional poverty approach. The old Nehruvian idea of poverty started replacing with broader socio-economic needs with greater accessibility and higher aspirations of people. In 1999, NSSO simultaneously introduced Mixed Reference Period (MRP) method for measuring consumption of five low-frequency items (clothing, footwear, durables, education and health) over previous 365 days recall period, and rest of the items over previous 30 days. This was done to get a stable expenditure pattern for non-food items, which gave a new direction to revise the poverty line. In 2005, expert group headed by Prof. Suresh D. Tendulkar was constituted to review the methodology for official estimation of poverty. The Committee submitted its report in 2009 with four major departures as follows,

1.   To move away poverty line from calorie intake norm.

2.   Uniform Poverty Line Basket based on latest available household consumption data on rural and urban population.

3.   Price adjustment procedure that is predominantly based in the same data set that underlies poverty estimation and corrects the problems associated with externally generated and population-segment-specific price indices with out-dated price and weight base used so far in the official poverty estimation.

4.   Explicit provision of private expenditure on health and education in price indices which has been rising over time, and test for their adequacy to ensure certain desirable educational and health outcomes. 

Rejecting calorie based poverty line by Tendulkar committee was historic, which went against the long-term established view. The general anger was that many who deserve public support to continue its caps on the numbers of people entitled to various government benefits would remain excluded with Tendulkar estimates. It was also being criticized on lack of explicit normative content in poverty line. Delinking consumption poverty from calorie norms, Tendulkar had focused on proper treatment of price differentials over space and time, which was also recommended by Lakdawala committee. This led to significant upward revision of estimates of rural poverty that were attributed to faulty price adjustments in the past and corrected many cases where the Lakdawala method unrealistically measured a state to have much less rural poverty than urban.[viii]

To encounter the flaws, Rangarajan Committee was formed in 2012, and submitted its report in 2014 with latest poverty line. It not only suggested a calorie-plus norm that increases poverty numbers beyond Tendulkar but also endorsed the view that poverty estimates should not be used to cap entitlement to government benefits. The new consumption basket to redefine poverty line consists of adequate nourishment, clothing, house rent, conveyance, education and a behaviorally determined level of other non-food expenses. The revised poverty line has following components,

1.   Food component of the poverty line considers average requirements of calories, proteins and fats based on ICMR norms differentiated by age, gender and activity for all-India rural and urban regions. These nutrient norms are met for persons located in sixth fractile (25-30%) in rural areas, and in fourth fractile (15-20%) in urban areas in 2011-12. The monthly per capita consumption expenditure on food in these fractile classes is Rs.554 in rural areas and Rs.656 in urban areas.

2.   Non-food component of poverty line considers median fractile (45-50%) values of clothing expenses, rent, conveyance and education expenses with Rs.141 per capita per month in rural areas and Rs.407 in urban areas.

3.   The observed expenses of all other non-food expenses of the fractile classes that meet the nutrition requirements are also considered as part of poverty line basket, which is Rs.277 per capita per month in rural areas and Rs.344 in urban areas.

Thus Monthly Expenditure of Rs 972 (554 +141 +277 for Food, Four essential non food and other non food items) for a rural Indian and Rs 1407 (656+407+344 for the same) for an urban Indian constitute India’s new poverty lines. The Rangarajan Group uses Modified Mixed Recall Period (MMRP) consumption expenditure data of the NSSO. The national rural and urban poverty lines were used to derive the state-wise poverty lines by using the implicit price derived from the quantity and value of consumption observed in the NSSO’s 68th Round of Consumer Expenditure Survey (2011-12) to estimate state relative to all-India Fisher price indices. Using these and the state-specific distribution of persons by expenditure groups (NSS), state-specific ratios of rural and urban poverty were estimated. State-level poverty ratio was estimated as weighted average of the rural and urban poverty ratios and the national poverty ratio was computed again as the population-weighted average of state-wise poverty ratios.[ix] 

With this latest definition, India has made a long journey at policy level to define poverty line and to deliver public services to the poor. Such evolving attempts are crucial and need to be continued till the time India becomes free from such “worst form of violence”.

Rakhee Bhattacharya and Shruti Issar

---

 

Notes

 

[i] http://planningcommission.nic.in/reports/genrep/surya.pdf

 

[ii] http://www.fao.org/docrep/x0172e/x0172e02.htm

 

[iii] http://planningcommission.nic.in/reports/publications/pub93_nopoors

 

[iv] http://www.epw.in/special-articles/poverty-india.html

 

[v] http://www.fao.org/docrep/008/af349e/af349e0k.htm

 

[vi] "Report of The Expert Group on Estimation of Proportion and Number of Poor" (PDF). Perspective Planning Division,Planning Commission.

 

[vii] "Report of the Expert Group to Recommend the Detailed Methodology for Identification of Families Living Below Poverty Line in the Urban Areas" (PDF). Planning Commission.

 

[viii] “Rangarajan’s Measure of Poverty”, EPW, Vol XLIX, No 31, August 2, 2014

[ix] Report of the Expert Group to Review the Methodology for Measurement of Poverty. Planning Commission, Government of India. (2014). http://planningcommission.nic.in/reports/genrep/pov_rep0707.pdf

 

 

 

If He Rapes Like an Adult He Should be Punished Like an Adult: why the mentality around the new juvenile law needs a serious rethinking

The Union Cabinet on August 6, 2014 cleared the Juvenile Justice (Care and Protection of Children) Bill, 2014

Photo Source: The Alternative

that gives powers to the Juvenile Justice Board to decide if a juvenile above 16 years, involved in heinous crimes like rape, would be tried in an adult court. The Bill comes in at a time when there has been public outrage over the fact that the minor convicted in the Nirbhaya gang-rape case was handed a three-year term in a reform home by the Juvenile Justice Board.

The public has been made to believe by media and certain sections of the political leadership that the juvenile was the most brutal and indeed responsible for Nirbhaya’s death. However, the facts in this case have been completely overshadowed by false media reporting and backed by a political agenda that seeks to encash on misdirected public anger.

The juvenile justice board in its confidential order on August 31, 2013 deprecated the "media hype" over the minor's role in the said case. The board's order made it clear that in their testimonies, neither Nirbhaya nor her male friend singled out the juvenile as the person who had brutally assaulted her with a rod, resulting in an injury that led to her death within a fortnight. In fact the board asserted that the juvenile himself had been "brutalized" by the media portrayal of him as the most brutal assailant of Nirbhaya.

Not surprisingly, neither the media nor political leaders are in a haste to take the correct facts to the public. The media in fact has taken very few steps to rectify its stance.

It is also imperative to make it clear that even in cases where a juvenile commits a crime which is identical to an adult crime, he/she cannot be treated in the same manner as an adult.

 To quote eminent neuroscientist Laurence Steinberg, “I have argued that adolescents should be viewed as inherently less responsible than adults, and should be punished less harshly than adults, even when the crimes they are convicted of are identical”.

Simply because a 17 year old looks and acts like an adult, he should not be penalized in the adult criminal system. Physical changes coupled with adult actions and mental maturity to regulate those actions are two different things. Also, contrary to public opinion, a boy who is 17 years and 11 months old is not as mature as an adult. As neuroscience and psychology explain the structural and functional changes that occur during adolescence do not all take place at a uniform pace.

 There are many who argue that drawing a line at 18 years is also treading along a slippery slope as the brain is in development stages till the age of 25. However, if at all a line is to be drawn it is better to keep 18 as the age at which we consider an individual to be an adult. An individual in India who is 17 years and 364 days would not be given the right to vote, and similarly should not be tried under the adult criminal system.

While the public is baying for “strong action”, theirs is an emotional reaction. That the law makers are giving into these emotions by enacting an ill fitted new law, is a step that is regressive and ill conceived. India moved from penal law to reformative law by repealing the 1989 juvenile law and enacting the Juvenile Justice (Care and Protection) Act 2000. By enacting the new law, we will victimize juveniles who could not be ‘cared for and protected by’ their families, the society and the government system.

 

 

Divashri Mathur