Auto industry agrees to govt’s BS-VI timeline
In what could help India combat vehicular pollution, the automobile industry on Thursday agreed to skip one stage and move straight to Bharat Stage-VI (BS-VI) emission norms from 2020.
In return, it sought assurance that BS-VI fuel would be available across India at once, unlike a partial roll-out of BS-IV fuel, which is only available in top 50 cities even after five years of India accepting that standard.
It also asked the government to scrap vehicles that comply with older BS-I, II, and III norms as well as even older ones that do not comply to any norms at all. This would result in an increase in demand for vehicles that comply with BS-VI norms.
Nitin Gadkari, the minister of road transport and highways, and chief executives of about 26 automobile firms met Thursday.
“We had a discussion on the challenges that we are facing. One of the key concerns is apart from the technology road map, the success of this proposal is dependent on fuel availability. The fact is a BS-VI vehicle cannot run on any other fuel (but a BS-IV vehicle can run on BS-VI fuel),” Sumit Sawhney, managing director and chief executive officer, Renault India Pvt. Ltd, said in a phone interview.
According to a government official, who spoke on condition of anonymity, Gadkari informed the companies about India’s programme to bring down pollution at a national scale.
“CEOs were told that the matter has become very sensitive, and judiciary is also very active in this area. Since the prime minister himself is concerned, it will be good if industry complies with the proactive measures and supports the government,” said the official, adding that industry representatives did not raise objections about moving to the BS-VI norms directly but sought more time to do so.
Earlier on Thursday, at a press conference, Gadkari argued that Indian companies exported 2.5 lakh cars in 2015, of which 1 lakh units complied to BS-VI norms.
“If they can export such cars, why can’t they make for India?” Gadkari asked.
According to the CEO of an automobile company who asked not to be identified, the minister was not in a mood to compromise.
“His point is: I am doing a lot for you guys (in terms of road building and infrastructure development) and in return, you will have to step up on these issues,” this executive said. “He assured us that the oil ministry will be ready with BS-VI fuel by October 2019, across the country.”
While there is not much difference in the quality of BS-V and BS-VI fuel—the sulphur content is nearly the same—moving to BS-VI directly requires a significant technology upgrade and additional investments by the auto industry.
The decision to graduate to BS-VI—the immediate motivation appears to be the poor air quality in Delhi—will make cars, sports utility vehicles (SUVs), trucks and buses more expensive. Auto companies and parts makers doubted whether they would be ready in time.
“If there is a regulation, that comes tomorrow and says, we need to do it, the industry will try its best to do it. Whether we will be successful or not...(we) can’t say today,” Vinod Dasari, managing director of Ashok Leyland and president of Society of Indian Automobile Manufacturers, said. “Let me also say: European and American technologies simply cannot be applied in India. It’s not that simple. Indian driving conditions are different.”
It is estimated that auto firms, parts makers, and oil refiners will end up spending anything between Rs.70,000 crore and Rs.90,000 crore on the change.
“My guess is investments required will be Rs.50-Rs.100 crore for each model to upgrade to BS- VI norms,” said Pawan Goenka, executive director, Mahindra and Mahindra Ltd.
Goenka’s firm, along with Tata Motors Ltd, are the companies impacted most after Supreme Court banned until 31 March the registration of vehicles with more than 2,000cc-capacity diesel engines in Delhi.
The auto CEO mentioned in the first instance said that graduating to the BS-VI norms is a big issue for the Indian manufacturers, as they are not technologically advanced as their global peers.
“How you re-engineer your entire portfolio is a big challenge. It is technically doable but requires a lot of money and innovation,” this person added.
Sebi plans additional checks for rating firms
The Securities and Exchange Board of India (Sebi) will likely ask rating agencies to set up independent internal assessment teams, which will be required to assess whether the rating assigned to a company is appropriate or not, said two persons familiar with the regulator’s thinking. These in-house teams will offer a second level of check on recommendations made by the ratings committees of these agencies and act at an arm’s length from the latter, they said.
In addition, rating agencies will be asked to give clear reasons if they choose to withdraw their rating on a company. The changes, though, may not make a huge difference, said experts.
The move is primarily aimed at avoiding sudden and sharp downgrades in the rating of fixed-income instruments. Such sharp downgrades can impact investors such as mutual funds and insurance firms who hold these instruments. The relook at the strength of the rating system in India has been sparked off by a sharp cut in the ratings of Amtek Auto Ltd, which forced JP Morgan Asset Management Co. (AMC) to restrict redemptions for two of its funds in September. Other instances of sharp downgrades and ratings withdrawals have also come to light, forcing a wider relook at regulation.
“The regulator received several submissions on improving the practices adopted by the rating agencies. Among them was the setting up of an additional team to look through the rating before being assigned. The regulator is positively inclined towards this move,” said the first person quoted above requesting anonymity since the discussions are still private.
“Will urge rating agencies to relook at the practice of suspension of ratings. In India, when there is a lack of information flow, rating is allowed to be suspended,” said Sebi chairman U.K. Sinha at the 25th anniversary of rating agency Icra.
Suspension shouldn’t be allowed to be done without adequate reason, he said. “We are looking into time taken for disseminating information about default in interest payouts by issuers to investors by debenture trustees and credit rating agencies. Also being looked into is the issue of conflict of interest between debenture trustees and the holding companies and rating agencies,” said Sinha.
An email sent to Sebi about the specific proposal remained unanswered on Thursday.
Ananda Bhoumik, managing director and chief analytical officer, India Ratings, said, “India Ratings follows global best practices and look forward to Sebi’s initiative to improve local standards. We are confident that our investments in systems and process help us meet both the regulatory requirements and investor expectations.”
India Ratings and Research Pvt. Ltd is among the five largest rating agencies in the country, along with Crisil Ltd, Icra Ltd, Credit Analysis and Research Ltd (Care) and Brickwork Ratings India Pvt. Ltd.
Following the crisis at JP Morgan AMC, Sebi held a series of discussions with these credit rating agencies and, in October, formed an internal committee to recommend ways to make the rating process more reliable for investors. The rating agencies submitted a report to the regulator in November, based on which the regulator will decide on an amendment to its rules.
One of the biggest issues that Sebi wanted the agencies to address was the practice of withdrawal of ratings. Often, when a rating agency doesn’t get access to enough information, it withdraws the rating on the firm. This, however, leaves investors, who may have invested based on earlier ratings, in the lurch.
While the regulator wanted this practice to stop, rating agencies have maintained that they cannot continue to rate a company if they have no access to information. As a compromise, rating agencies may be asked to give clear reasons for the suspension of a rating, said both the people cited above.
“Principally, the agencies have agreed that the rating of a company would not be suspended without according a reason for the same, which was the largest concern of the regulator,” said the second person quoted above, requesting anonymity.
If a client, which is being rated, is withholding information that is pertinent to the rating process, then the first step would be to issue a warning, said the first person, adding that as a second step, the rating agency can withdraw a rating.
Most rating agencies declined to comment on the likely changes in regulations.
“Crisil has continuously strived to adopt best practices in the credit rating industry. We have worked closely with the regulator in the past to ensure standardization of the rating scales across credit rating agencies (CRAs) as well as enhance the quality and extent of disclosure of information, some of which include data on rating transitions and default rates,” said a spokesperson for Crisil, adding that they are not aware of the specific changes but will work with Sebi to strengthen best practices in the industry.
A spokesperson for Care Ratings said the agency already has an external rating committee with majority external members for assigning investment grade ratings. The spokesperson added that Care has aligned its code of conduct with the ‘Code of Conduct Fundamentals for Credit Rating Agencies’ issued by the International Organization of Securities Commissions.
“For example, Care has separate teams for business development and rating analytics, which are vertically separated,” said the Care spokesperson in an email.
An email sent to Icra on Thursday was not answered.
The new rules being considered by the regulators will do little to improve the reliability of ratings, said experts.
“Cessation of the practice of suspending ratings of a company without assigning a reason only addresses one part of the problem. Default after withdrawal of a rating by the agencies should be fully captured in the default and transition matrices. This will ensure that the bond holders and investors are aware of the initial rating quality,” said Amit Tandon, of Institutional Investor Advisory Services India Ltd, a proxy advisory firm.
The new norms for rating firms, which are likely to be released by Sebi for public consultation in the next few weeks, may also require rating agencies to provide an additional annual disclosure, confirming that there is no conflict of interest between their ratings business and other divisions such as business development.
Currently, the company to whom a rating is issued pays a fee to the rating agency. This is seen as a conflict of interest as a rating agency may be tempted to offer higher initial ratings in order to generate business.
Tandon feels that an annual disclosure will not suffice and adds that the rating business should be separate from other businesses.
D. Ravishankar, founder director, Brickwork Ratings, said, “Globally, a lot is changing and the systems always have scope to be more robust. Finally, it is a matter concerning investors and thus the industry more than welcomes a relook at the systems to make them robust and bring them in line with best global practices.” He added: “The industry is moving towards a level that there is only one language and that there is a limited scope for interpretation.”
According to a third person familiar with the ongoing deliberations, Sebi will look closely at the rules followed by rating agencies in other markets like the US before finalizing its guidelines. He declined to be identified as the discussions are confidential.
Focus offline to make it big online: World Bank report
Every day, there are 4 billion searches made on Google. That number is also the count of people who do not have access to the internet, according to the World Development Report (WDR) 2016, released by the World Bank on Thursday. The report, which discusses the importance of advances in information communication technology (ICT) for overall development, has one clear message: to exploit ICT’s full potential in economic upliftment of the poor, attention must be paid towards overcoming backwardness in traditional areas such as education, skill development and governance. Here are five charts that explain that in detail.
1. ICT has led to huge increases in labour productivity
The importance of technical advances such as steam engine and electricity in ushering economic development is well established. The WDR cites research to show that trajectory of growth in labour productivity in the US in the digital era is similar to what was witnessed during the electrification era. The gains, though initially slow, accelerated once technological progress became ripe for widespread usage. What’s better is that developing countries can exploit ICT gains more quickly than past advances.
It took Indonesia 160 years after the invention of steamships to reap its benefits, and Kenya 60 years to have electricity; but for Vietnam to introduce computers, it took only 15 years. Mobile phones and the internet took fewer number of years. More households in developing countries own a mobile phone than have access to electricity or improved sanitation, the report says.
2. Digital economy offers flexible work, making it easier for disadvantaged groups to find employment
One of the biggest challenges towards equitable development is providing employment to groups that face a relative disadvantage in the traditional economy, such as women or disabled persons. ICT-based jobs might be able to solve this problem. The report cites statistics to show that the share of women in ICT sector employment is much more than total non-agricultural employment. These advantages are rooted in the greater flexibility in ICT sector employment such as the option of working from home and reduction in search costs.
3. ICT’s overall contribution to employment is still low
The report, however, also gives good reason not to go overboard with optimism on the employment front. Firstly, ICT employment is not without its share of problems, such as job security and non-fulfilment of income expectations. Job availability is also contingent on availability of infrastructure and requisite skills. Moreover, ICT employment is still a very small share of overall employment in economies, especially in developing countries, where average ICT employment is just 1%. Also, the sector has very low labour intensity of employment.
For example, Instagram, a photo sharing app, had just 13 employees in 2012 when it was bought by Facebook for $1 billion. Facebook, in turn, had 5,000 employees at the time—compared with 145,000 at Kodak at its peak in photographic film industry in the 1990s. Yet, Facebook’s market value is several times what Kodak’s was back then, the report says.
4. Access to internet is still ridden by inequality; India has the largest number of offline people in the world
The biggest challenge to realizing ICT-enabled gains is at the most basic level. Majority of people still do not have access to the internet. Less than 15% of the world’s 7.4 billion people have access to high speed internet, although 5.2 billion have mobile phones. India has the highest number of offline people in the world, followed by China. The report lauds policy measures to facilitate Internet access for poor people and those in remote regions on the grounds that, although not a classic public good, the Internet does have significant positive externalities which can help development.
5. Leapfrogging to digital methods in seeking democratic opinion can produce skewed results
The report also has a warning. Notwithstanding the virtues ICT revolution has brought to governance systems—ease in filing tax returns, applying for new businesses or increased transparency and accountability are some examples—it is early days to take online views as sacrosanct, especially in developing economies. Since poor people lag the privileged sections in accessing ICT services, such feedback is likely to be skewed in favour of the latter, the report says. It cites profile-based voting turnouts from a poll in Brazil in support of its advice. Those who treat online polls as the only barometer of societal opinion would do well to pay heed to this warning.
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Direct Benefit Transfer to get a boost after RBI clarifies on Aadhaar
In a move that would facilitate more effective implementation of the direct benefit transfer (DBT) scheme, the Reserve Bank of India (RBI) has clarified that banks can seed accounts with Aadhaar unique identity numbers in case the beneficiary agrees.
This will also help in de-duplication of accounts opened under the government’s flagship financial inclusion scheme, the Pradhan Mantri Jan Dhan Yojana, which aims to provide every household access to basic banking services.
In a notification on Thursday, RBI said that in view of the Supreme Court order on Aadhaar, “use of Aadhaar Card and seeding of bank accounts with Aadhaar numbers is purely voluntary and it is not mandatory”.
This will remove ambiguities over the linking of Aadhaar with bank accounts.
Hearing a number of petitions against the use of Aadhaar, the Supreme Court, in an interim order in October, permitted the use of the unique identity numbers for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the Pradhan Mantri Jan Dhan Yojana, pension payments by central and state governments, and the Employees’ Provident Fund scheme, in addition to the public distribution system and payment of subsidies for cooking gas and kerosene.
In less than two years, the government has managed to bring several payments—pensions, scholarships and cooking gas subsidy—under the ambit of DBT, wherein the beneficiaries’ account is directly credited.
The government will also launch DBT for kerosene from 1 April.
The government, financial sector regulators and financial institutions are awaiting a final order by a five-judge constitutional bench of the Supreme Court for clarity on the scope of using Aadhaar.
Aadhaar could be used for delivering the benefits of various social security schemes to plug leakages. For instance, it could be used to facilitate e-KYC (know your customer) verification for opening bank accounts to facilitate DBT and lower delivery costs.
Finance Minister Arun Jaitley has hinted that the government is looking to give Aadhaar legislative backing and is working on a new version of the Unique Identification Authority of India bill.
“There are many ghost ration cards that are made and people continue to claim subsidy or pension based on such proofs. Aadhaar will correct this,” said
N. C. Saxena, a former member of the erstwhile National Advisory Council.
N. C. Saxena, a former member of the erstwhile National Advisory Council.
“However, Aadhaar cannot help in identifying who is poor and who is rich. Banks will not be able to establish whether that person is eligible to get that entitlement but at least this will help in ensuring that the beneficiary is identified and there is no duplication,” he said.
As per data available with the government, of the more than 200 million bank accounts opened under the Jan Dhan Yojana, less than 50% have been seeded with Aadhaar. However, the number of Aadhaar cards issued so far is more than 900 million.
India, Pakistan suspend foreign secretary-level talks
Talks between the foreign secretaries of India and Pakistan, meant to chalk out the way forward after the two countries announced the start of a fresh bilateral dialogue in December, have been suspended for now.
The postponement was announced by both countries a day before the two were scheduled to meet in Islamabad.
According to Indian foreign ministry spokesman Vikas Swarup, the dialogue is to be rescheduled in the “near future”.
The deferment of talks comes after the 2 January militant attack on the Pathankot airbase in India’s northern Punjab state in which the six attackers were killed. India blamed the attack on the Jaish-e-Mohammed (JeM) militant group and sought action from Pakistan to bring the perpetrators to justice.
That the attack took place a week after Indian Prime Minister Narendra Modi made a surprise stopover in Lahore to greet Pakistan’s Prime Minister Nawaz Sharif on his birthday on 25 December did not help matters.
In a phone call to Modi on 5 January, Sharif promised to crack down on the perpetrators.
On Wednesday, a statement from Sharif’s office said that Pakistan had “apprehended” several operatives of the JeM and their offices had been traced and sealed. Further investigations were underway, the statement said and added that Pakistan was planning to send a special investigation team to India to gather more evidence against the Pathankot attackers.
These were all developments that Swarup welcomed during his press briefing in New Delhi on Thursday.
“We welcome the statement issued by the government of Pakistan... on the investigations into the Pathankot terrorist attacks. The statement conveys that considerable progress has been made in the investigations being carried out against terrorist elements linked to the Pathankot incident,” Swarup said. “We note the apprehension of Jaish-e-Mohammed members. The action taken against Jaish-e-Mohammed is an important and positive first step,” Swarup said. On plans by Pakistan to send a special investigation team to India, Swarup said, “We have accepted the offer.” He added that Indian investigative agencies would extend all necessary help to bring the Pathankot attackers to book. India, he said, hoped that Pakistan would continue with the investigation.
On the foreign secretary-level talks, Swarup said that Indian foreign secretary S. Jaishankar had spoken to his Pakistani counterpart on Thursday and “they agreed to reschedule the talks in the very near future”.
Earlier in the day, Pakistani foreign office spokesman Qazi Khalilullah told reporters that the talks were being rescheduled through mutual consultations.
Neither Khalilullah nor Swarup could confirm that JeM chief Maulana Masood Azhar had been detained by the Pakistani authorities as was reported by many Pakistani media organizations late Wednesday.
When asked why the talks were being postponed despite the “positive” actions by Pakistan, Swarup said that it could be due to the foreign secretaries coming to the conclusion that they needed to hold their dialogue away from the shadow of the Pathankot attacks.
In fact, Pakistan’s action against the JeM had ensured that the momentum recently generated in India-Pakistan relations by the announcement of the resumption of peace talks and Modi’s Lahore visit were maintained, Swarup said.
“And the fact that the foreign secretaries have now agreed to reschedule through mutual agreement their meeting is a very positive indication,” he said.
India welcoming Pakistan’s moves was aimed at “encouraging Pakistan to continue with this action in line with Pakistan’s own commitment to eradicate terrorism from their country,” he said. When asked if India could be sure that Pakistan would crack down on the JeM this time and not merely detain its leadership for a while and later release them like it did in the case of those involved in the 2008 Mumbai attacks, Swarup said, “We will go by what evidence we see on the ground. So far what Pakistan has done, we have welcomed.” According to former foreign secretary Lalit Mansingh, both India and Pakistan were looking for a “face-saving device” which they have got.
India, he said, was hoping for some kind of action from Pakistan against the JeM which could justify the resumption of the peace process while Pakistan could be hoping that India would take its measures of detaining the JeM at face value and continue with the peace process. “In the past, India would criticise Pakistan and demand prompt action in the event of a terrorist attack and Pakistan would reject India’s demands. “In this case, India’s reaction was very guarded, as if waiting for Pakistan to assure us. Pakistan has detained some JeM cadres but I am not sure its actions are a departure from the past. What I would call credible action is a real crackdown on anti-India militant groups based in Pakistan,” Mansingh said.
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