Excuse me for posting this blog. Reading that may either dishearten you or may create guilt feelings. That’s not the purpose of this blog. Most of us have been addicted to Social Media sites(read FB, Twitter Instagram etc) and spend leisure times in that. Good enough. Nothing wrong also. But have we all (if not most of us) not missed an all important issue (for us Indians)about spending quality time with our wards. Should we not take some interest in their academics? We have left them in the hands of tutors, or they may be dependent on guides or self help books or they may be seeking help from their class mates. You are quite often capable of rendering certain help. Have you noticed they would be too willing to get that. Grandfathers (undersigned)/grandmothers (my wife included) also got themselves separated from their grandchildren. GFs/GMs are capable of imparting life skills. By now it may be clear to you about the issue I am driving at. We need not wait for the dawn of a new year for the quite often broken resolutions. Any day or moment is good enough for initiating good things. If this blog makes some sense, please do let me know. DissentING opinions are also welcome for that may bring in new insights.
RBI AUTONOMY
18 MarSeveral features have been published regarding the central bank’s autonomy.
My blog pertains to the Indian context.
Despite the fact that Indian economy is an emerging growth economy, and often observed by eminent researchers for the Government’s promotional role,the RBI has received subordinate role. Not it’s fault but due to the New Delhi rulers hunger for remaining in power.
Here is a brief summary of circumstantial evidences:
(1) When banks were nationalised in 1969 and 1980 by the Government,RBI was not even consulted.
(2)Farm loan waivers carried out by the Government on the eve of elections.This has destroyed credit culture of the farmers even when RBI was struggling to preserve it.
(3) Directives on retail lending issued by department of financial services, ministry of finance.
(4) CEO appointments in public sector banks done by the Government. Appointments Committee process are all for public consumption.
On the top of these issues is the manipulative nature of the Finance Ministry with regard to its response to the monetary policy. On the eve of monetary policy announcements by the RBI, the finance ministers have the habit of announcing their expectations.While the FM opts for soft rated regime, RBI goes professional. Expert commentators quickly recognised the autonomy of RBI. Do we know that FM purposely allowed RBI’s full play in a matter that is trivia from a political angle.
COAL INDIA
6 AprBy a presidential directive, the Central Government asked CI to sign 20-year fuel supply agreements (FSAs) with power producers. After signing FSAs, CI would be compelled to supply the full quantity of coal. If it supplies less than 80 per cent of the total requirement of power producers, it would be liabile to pay a penalty which could range between 10-40 per cent of the price of the shortfall. The government has only acceded to CI’s request to incorporate a flexible penalty clause in the FSAs. No doubt the flexibility to decide on the size of the penalty if it fails to meet FSA commitments would make the directive far less harmful. TCI has now demanded that those penalties are close to zero and that they raise FSA prices to market levels.
This is not the first time that the government has forced CI to comply with its requirements. In 1998, it directed CI to accept the commercial terms of the Hinduja group(HG). HG has sought steep damages related to its coal supply pact with CI for a proposed plant in Andhra Pradesh. However the deal did not go through as the project itself was abandoned.
Even in the context of the mess that has been created by the government in the coal sector, certain brokerages (read Edelweiss Securities) have given a “buy” call on CI. According to Edelweiss, CI would be able to meet its contractual obligations in the coming months through increased output and de-stocking of its inventory. Further, the brokerage’s optimism is also based on accelerated clearances of CIL projects in the coming months. Further even in the long term, FSAs may not help power producers as CI would be compelled to import coal if it is unable to fulfill the FSAs.
The “interference” of the government raises the following questions:
(1)The company’s freedom to exercise commercial judgement has been jeopardised.
(2)The minority shareholders of CI were not consulted which tantamount s to exploitation of minority shareholders. The Companies Act has provisions (read Sections 397/398) to punish company managements that shortchange minority shareholders.
(3)The company was forced to make a mockery of corporate governance.
(4)The government has merely transferred the risk of power producers to CI in forcing CI to sign FSAs.
I invite readers’ comments on this feature.KVRAO Bangalore 9980145573(m)
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1 NovThrough incisive columns especially in the areas of FINANCE and HRD.
FINANCE & HRD
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