All Newspaper editorials in one place – February 19, 2024




February 19, 2024

Misplaced priorities

Free movement regime between India, Myanmar had more benefits than costs


A nation is defined not by the borders that demarcate it but by the people who live in it. This is not just an abstract adage but a vision of nation-building and sustenance, especially for a country that emerged out of colonial rule. The idea of neighbourly relations and borders was tied not just to the interest of national security for the post-colonial nation-state but also to the interests of the people in border areas and their imagined histories. When Home Minister Amit Shah announced that the “Free Movement Regime” (FMR) in place in Indian States bordering Myanmar from 2018 would be scrapped and that the India-Myanmar border be fenced, he was decidedly negating this idea. The ostensible reason for this demand and the need for fencing is because the porous border has served as a conduit for narcotics, besides helping insurgent groups in the north-east to establish bases within areas in Myanmar where the junta’s writ is relatively non-existent or weak. But these reasons are not convincing in themselves. Most insurgent groups have weakened substantially and successive Indian governments have been able to neutralise their threats through force or peace efforts, ongoing or completed. Besides, the drug trade is enabled not only by the border’s porosity but also by the relative lack of strong law enforcement with the cooperation of residents.


That the demand to scrap the FMR has been most vociferously endorsed by one section of the currently conflict-prone Manipur but has also been fervently opposed by Nagaland and Mizoram should provide a hint about the sentiments of the people in these States. Myanmar is in the throes of a civil war with civilians from its western regions and States such as Sagain and Chin State seeking refuge and humanitarian relief in neighbouring Mizoram and Manipur. The Mizos of Mizoram and the Kuki-Zo community in Manipur feel a kinship with the Chin community and have been organising relief for the refugees. The opposition to the FMR has come from Meitei majoritarian forces in the Imphal valley who have raised the bogey of Chin refugees entering Manipur as a case of illegal migration. The institution of the FMR, as a formalised regime of the movement of citizens across the sparsely populated border to within 16 kilometres of it, for trade and commerce, was a nod to India’s Act East policy. This was also an expression of the will of people of the region who share ethnic relations but are divided by colonially drawn boundaries. The reversal of this regime and the humongous exercise of fencing a border situated in rugged mountains and forests is a case of misplaced priorities and needs reconsideration.




February 19, 2024

Ties across the sea

Tolerance and pluralism are values that India shares with the UAE


At first glance, Prime Minister Narendra Modi’s UAE visit last week, might have seemed like any other bilateral visit he has undertaken. But this visit, Mr. Modi’s seventh to the UAE since 2014 indicates the government’s desire to signal more about the salience and prominence of the Emirates, than it has with any of the other country in the Gulf region. The timing may have been related to an invitation to address the ‘World Governments Summit’ in Dubai and to inaugurate Abu Dhabi’s first Hindu temple, but the 10 bilateral agreements signed need a closer look. The speed with which India and the UAE concluded the Comprehensive Economic Partnership Agreement (CEPA) in 2022 has been matched by last week’s Bilateral Investment Treaty (BIT). This makes the UAE not only the first country the Modi government has signed these agreements with but also the only country that India has both a trade and an investment agreement with. The UAE is now India’s third largest trading partner, India’s second largest export destination, and fourth largest source of FDI. The inauguration of the Bharat Mart for Indian MSMEs is also expected to strengthen trade ties. A second raft of agreements dealt with technological ties including building digital infrastructure; R&D for energy security and trade focusing on green hydrogen and energy storage, and digital cross-payments. Third, the Agreement for an Intergovernmental Framework on the India-Middle East Economic Corridor paves the way for multilateral cooperation between the two countries, that also coordinate over the I2U2 initiative with the U.S. and Israel, and, from 2024, will cooperate within the BRICS framework, as the UAE is now a member. Finally, the discussions on the Israel-Gaza operations and the Red Sea attacks, indicate that in a region roiled by conflict, India considers the UAE to be a stable interlocutor.


India-UAE ties are also built on a bedrock of history and cultural engagement that includes centuries-old maritime trade and a diaspora contributing about 18% of India’s global remittances. While India’s technological prowess and the UAE’s positioning as a trade and industry hub bring complementarities, the changes in their polity and societies bring possible friction points. As the UAE, a theocratic monarchy, seeks to democratise its governance and have a more pluralistic system, such as the decision on the temple in Abu Dhabi, it has expressed concern over the rise of majoritarian and sectarian forces in India. To that end, Mr. Modi’s words in Abu Dhabi, where he rejoiced in the mutual values of tolerance and pluralism, and “shared heritage of humanity” may be the most significant bonds between the two countries separated by the Arabian Sea.



February 19, 2024


Framing India as ‘non-West’, not ‘anti-West’, government shows self-assurance, leaving room for closer ties with US, Europe


Participating in a panel discussion at the annual Munich Security Conference over the weekend, along with the US Secretary of State, Antony Blinken, and the German Foreign Minister, Annalena Baerbock, the External Affairs Minister, Subrahmanyam Jaishankar has offered a new template to think through India’s relationship with the West and how it is different from other members of the BRICS forum that India founded with China and Russia. He was responding to a question about India’s apparent freedom to choose between multiple partners, including the US, Europe and Russia and the implicit assumption that the BRICS forum dominated by Beijing and Moscow was “anti-Western”. Affirming the distinction “between being non-West and anti-West”, Jaishankar said he would “characterise India as a country which is non-West but which has an extremely strong relation with the Western countries, getting better by the days”. He added that that definition might not apply to other members of the BRICS.


While Russia and China might want to mobilise the BRICS against the West, Jaishankar said India had no interest in such an agenda. At the same time, he insisted that Delhi sees value in the BRICS as a non-Western forum that has had considerable value in reshaping global governance in the 21st century. Although many in the West are dismayed by Delhi’s close ties to Russia and BRICS, Secretary Blinken had no reason to quarrel with Jaishankar’s formulation. He endorsed Jaishankar’s case for “flexibility” in international relations and underlined the importance of “variable geometry” in the current global context. Rejecting the division of the world into “rigid blocs”, Blinken said the US “may have different collections and coalitions of countries that bring certain experiences and capacities” in dealing with different challenges. Blinken added that the relationship between the US and India is now “the strongest it’s ever been”, and it “makes no difference that India happens to be a leading member of BRICS”. He also highlighted the wide-ranging international collaboration between Delhi and Washington, including in the Quadrilateral Security Forum, along with Canberra and Tokyo.


This new comfort level at the highest political level in Delhi and Washington with the apparent geopolitical contradictions does not always filter down to Delhi’s foreign policy discourse that has long defined India’s international relations in anti-Western terms. The anti-imperial left and the nativist right in India, as well as the centrist Congress party and the national security establishment, have long operated on the assumption that the contradictions between India and the US are irreconcilable. The Narendra Modi government has transcended this paradigm by engaging the US with greater self-assurance and building a strategic partnership with Washington that is deeper and broader than ever before. The decline of the left in India and the weakening of the Congress removed much of the traditional resistance to India’s productive engagement with the US and Europe. However, there is residual anti-western sentiment among the rising conservative nationalists. In framing India as “non-West” but not “anti-West”, the Modi government consolidates the support of the Hindu right for its foreign policy while leaving much room open for closer ties with the US and Europe.





February 19, 2024

Bengal deja vu

Violence in Sandeshkhali, West Bengal government’s response, show Mamata Banerjee’s party has not heeded lessons of past


For Chief Minister Mamata Banerjee, the situation in Sandeshkhali may well evoke a sense of deja vu. It also has a lesson she needs to heed. In 2006-7, the CPM government in West Bengal was as domineering, if not more, as the Trinamool Congress government is today. The protests, then, Banerjee leading from the front, against land acquisition for the Tata Motors factory in Singur and the SEZ in Nandigram — and the excesses of the party and state response to it — had marked the beginning of the end for “bam”, the Left, in Bengal. In her third term as CM, Bam has been replaced by the Syndicate, a government-TMC-business nexus, and the same politics of violence and whataboutery continues to undermine the rule of law in the state.


Protests broke out in Sandeshkhali in North 24 Parganas district earlier this month with villagers demanding the arrest of TMC strongman Shahjahan Sheikh, zila parishad member Shivprasad Hazra and Uttam Sardar, TMC region president of Sandeshkhali panchayat — Hazra was arrested on Saturday. The protesters, many of them women, have accused the three men of land grabbing and sexual assault. Violence ensued with clashes between those allegedly backed by the TMC and BJP. Sheikh is already absconding from the Enforcement Directorate: A group of his loyalists had attacked the ED team last month when it came to search his home. The government’s initial reaction was disturbing. The ruling party insisted that the protesters had been “brainwashed” by the CPM and BJP and issued prohibitory orders under Section 144 of the CrPC, subsequently overturned by the Calcutta High Court, which has also taken cognisance of the sexual assault allegations. Unfortunately, the BJP has tried to communalise the issue, while the CPM is holding protests of its own.


With the state police forming a “special team” to look into the allegations, it remains to be seen whether further arrests are made and how the law takes its course. But the government’s larger response has touched off apprehensions of a politicisation of the case. CM Banerjee has accused the BJP-RSS of “fomenting trouble” and riots in the area — her allegations ignore the structural issue of which Sandeshkhali seems but a symptom. The government and police must have a monopoly on violence — in Bengal, vital ground has been ceded to the Syndicate. Figures like Shahjahan Sheikh are seemingly beyond the law because they are the lynchpins, at the local level, of this warped system. The first step for the government must be to act — and be seen to act — against those within its own ranks who are undermining the rule of law.





February 19, 2024

Rich By AI

How US billionaires are raking it in tells India how to climb the next big wave of wealth-creation


It’s big but not surprising. As much as 96% of wealth gained on the Bloomberg Billionaires Index this year is in AI-related stocks. Giant waves of innovation have spawned giant wealth-creation since the first industrial revolution. True, some tech-inspired wealth-creation is short-lived. Like crypto. But AI is different. Because there is no credible scenario in which its use value across business and society will plummet. AI is a substantive game-changer.


American advantage | US’s first billionaire John D Rockefeller controlled 80% of global oil supply at one point. That’s how much of the search engine market Google enjoys today. And AI tomorrow may follow this trend. A big gainer of this year’s blistering rally in AI-related stocks and a company whose m-cap has overtaken Alphabet’s, is Nvidia. It holds around 80% of the high-end AI chip market. Like in the case of Silicon Valley sultans before them, network effects will help AI titans achieve super dominance.


Chinese competition | Of course it’s not like everyone else slept as the starter pistol went off. Chinese billionaires have also joined the AI race. Their science and money do lag significantly. US export controls are another major challenge. But these very controls are also spurring indigenous technological development, with govt spurs. China’s biggest chip manufacturer SMIC is trying to catch up with the Taiwanese giant TSMC. US companies like Nvidia themselves keep devising one workaround after another to frustrate US controls. It’s possible that Nvidia’s own dominance will be undermined by this one day. For now, though, experts say US is eating everybody’s lunch.


Indian lag | India was behind the curve with earlier platform shifts represented by personal computers, internet, mobile devices and cloud computing. With today’s seismic AI shift, Microsoft CEO Satya Nadella says “there is no impedance, there is no gap.” What does he mean? This is a very, very capital-intensive game. While India might not fall behind in adoption this time, that’s not the same as collecting a goodish part of AI IPRs and profits. Tech stocks have not even been particular stars in Indian equity market’s star performance. If AI drives a new industrial revolution, alongside new concentrations of wealth and power, the only way for India to be at the high table will be to be an AI-maker. Not just an AI-taker.




February 19, 2024

Leonine We Ain’t

VHP objection over lion & lioness names & Siliguri zoo’s response show how absurd humans can be


Tomorrow, Siliguri bench of Calcutta high court will hear Bengal VHP’s plea that religious sentiments are “hurt” because a lioness is named Sita, who has a companion named Akbar. Both were brought from Tripura’s zoo. Their names wouldn’t have hurt anyone’s sentiment, and their arrival in Siliguri would have generated only excitement, as always happens when big cats come to town. But clearly VHP spotted an opportunity for needless controversy.


Competitive anger | Obviously, Bengal VHP is seeking its 15 minutes of fame, vying with quick-to-anger compatriots in the Hindi heartland. Sadly, it has already succeeded. The lioness and lion are now kept in separate areas, though they shared an enclosure in Tripura zoo. This, presumably because officials are afraid of the trouble mobs may cause.


Dangerous busybodies | The Sita-Akbar controversy is another example of how non-state actors, often backed by state, intervene in matters that, first, they have no locus standi in and, second, do not need any intervention by anyone. It’s happened with books, theatre, movies, ads, lectures, art, commercial products…and now names of animals. Authorities make a terrible mistake by not signalling that while anyone is free to feel hurt about anything, govt is not required to do anything unless law is breached.


Us and animals | There is a bigger point. People in general seem to treat non-human species as playthings, not living, breathing, intelligent creatures. A lion and a lioness who shared a living space have now been separated by one group of humans fearful of potential trouble from another group of humans. Siliguri safari park officials’, and local administration’s, first concern should have been about not disrupting the routine of the lion and the lioness. Zoos are, in any case, fundamentally problematic ideas – denying wildlife its natural habitat for human entertainment. Let’s not add to that. Here’s hoping Sita and Akbar are reunited.





February 18, 2024

Hooking CSR to a Cause of Choice

Ratan Tata’s vet hospital sets a corporate model


CSR, as mandated by the state, has been a self-serving endeavour. Automobile makers funnel resources into lowering emissions, food producers invest in organic farming, cosmetics companies sponsor football teams, technology providers make endowments for education, and energy firms generate power from renewable sources. Which is fair enough. The CSR law is designed to serve the larger good — broadly UN’s millennium development goals — through self-interest. It is a softer touch than outright taxation to meet social needs, and corporations are free to view their responsibility through the prism of business. Philanthropy, when it enters the equation, does so in a controlled setting. Which makes Ratan Tata’s act of setting up a veterinary hospital in Mumbai an outlier among CSR outcomes, but something worth aspiring for.


India offers strong economic and demographic profiles for growth of pet ownership. The population of household pets tends to expand with the middle class, to which India is contributing the most now. Millennial households are the biggest age cohort with pet animals, and again, India has the largest population of 25-year-olds in the world. Pet ownership has demonstrable effects on reducing human healthcare costs. The country needs to build greater veterinary capacity given the unusually high incidence of strays.


Tata’s project, thus, sits within the rubric of CSR, although the involvement of group companies, or the wider corporate sector is fairly limited. Companies could draw inspiration from private philanthropy to what can emerge as a scalable CSR initiative that has a resonance with consumers. Indian families are shrinking, and children are being conceived later in marriages. Pets are filling up some of the gap and constitute an unorthodox bridge between sellers and buyers. A caring attitude in an area seemingly off limits for business may bolster corporate value proposition. The Tatas have shown how innovative social responsibility can lead to improved business outcomes. The latest out-of-the-box cue will not be lost either.





February 18, 2024

Pakistan’s Meltdown Needs Therapy


Things will get significantly worse before it can get better in Pakistan. The lead-up to the February 8 election that saw Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) derecognised, the rigged election itself, and the ‘heads we win, tails you lose’ result in favour of anyone but Khan, have been bad enough. But with Rawalpindi’s cage rattled by the impressive show of PTI-backed independents —who captured the highest (35%) vote share — the military knows that its good old days of being absolute puppet master are numbered. And that their diminished hold is now over a fast diminishing political economy.


A vacuum has been avoided, as of now, by the army-backed Pakistan Muslim League (Nawaz) and Pakistan People’s Party (together winning 49% of votes) government with Shehbaz Sharif from the first camp as a consensus PM. But this is a finger in the dyke. The deluge that awaits Pakistan before it can claim to find its proverbial ‘road to Damascus’ could be a popular uprising. Or, extremists of the Tehreek-e-Taliban-e-Pakistan variety forcing the issue. Either way, this does not look good for a nuclear power on the way to meltdown, which happens to be a member of our neighbourhood.


So, Pakistan will be, more than usual, a concern for an economically-chugging, geopolitically-expansive India. But the China-Pakistan ‘eternal friendship’ is getting strained on the ground with fast-diminishing returns on infrastructure spends and mounting debt. Plus, Pakistan’s strategic value to the US is short of zero today. In this space, New Delhi can keep the hotline with Rawalpindi open while focusing elsewhere to ensure peace, stability and growth in the region. This could, inshallah, have a demonstration effect of the benefits of friendly relations.




February 19, 2024

Maximum confusion

Farmers’ MSP demands will not serve their interests


There are two broad truths that underlie the farmers’ agitation this time as well as the one that took place in 2020-21. First, they point to a crisis of incomes in agriculture of varying degrees across regions (the NSS’ 77th Round on ‘Situational Assessment of Agricultural Households’ bears this out) — even if one presumes that the agitating wheat and paddy farmers of Punjab and Haryana are better off than the rest.


Second, the demands of the agitators — basically, a ‘legally guaranteed minimum support price’ at a much higher level — do not at all address the income problems in Green Revolution areas or in the rest of the country. It is not clear what the protestors mean by a legal guarantee for MSP, beyond the assurance that only an Act of Parliament can repeal it. If it is supposed to be a guarantee that all the output of the 23 crops will be purchased at MSP, that is patently absurd. For wheat and paddy, a de facto guarantee to procure all the produce within a stipulated period after harvest is already in force. With the Centre now committed to supply free rice and wheat to 81.35 crore people for five years, the procurement of wheat and rice will be robust. In order words, there is an implicit quantity guarantee — which really means that asking for a price guarantee (a higher price based on comprehensive cost, or C2, plus 50 per cent) as well is unreasonable.


The MSP for these two crops is expected to rise anyway to ensure extra output. It is also important to separate wheat and paddy from the other 21 crops which are under MSP, but in practice are governed almost wholly by market forces. Price support could make sense in pulses and oilseeds where self-sufficiency is a national priority — but in the form of price stabilisation rather than a procurement guarantee. The income concerns of Green Revolution farmers have different roots. Their bane is the high input, low productivity agriculture trap (the yield in Green Revolution areas such as Punjab and Haryana has dropped over decades, with the soil nutrients having been depleted with intensive inputs), which is best addressed by changes in cropping pattern and methods of cultivation. As agriculture economist Ashok Gulati has argued, the subsidies on power and fertilizer (₹2.78-lakh crore, all-India) should be collapsed into an income and investment support package that is linked to a shift to high value, export-oriented crops in Punjab, while inputs are provided at market prices to prevent misuse of water, fertilizer and power.


A viable price support mechanism for farmers is to revive futures, so that sowing decisions are based on future rather than last year’s prices. To this end, the e-NAM, warehouse infrastructure and forward delivery contracts need to be a focus area. Farmer Producer Organisations can act as participants and aggregators. The mistakes of the past in going this route can be easily avoided. Hedging price risks in agri commodities is better done through financial market instruments rather than through government support.





February 19, 2024

Encouraging signals

Q3FY24 results show private capex and rural demand improving


The Q3FY24 (October-December 2023) results of 3,233 listed companies suggest consumption is still below par but there are a few signs of recovery and a return of corporate investment. Growth in net sales is low — only 7 per cent — compared to the same period of FY23, and is barely ahead of inflation. Profit after tax (PAT) and operating profits, or earnings before interest, taxes, depreciation and amortisation (Ebitda), have risen by 24.5 per cent and 26 per cent, respectively. Operating-profit margins have expanded. There is also a sharp rise in other income (up 25 per cent), which may or may not be sustainable.


There’s also a visible impact of monetary tightening, with interest costs up 33 per cent year-on-year (Y-o-Y), and 5 per cent quarter-on-quarter (Q-o-Q). Banks have seen credit expansion — up 30 per cent Y-o-Y and 4.5 per cent Q-o-Q. They have also registered 38 per cent growth in fee-based income. The cost of finance has increased 45 per cent Y-o-Y (up 6 per cent Q-o-Q) and reported profits are up 17 per cent. The non-banking financial sector has been hurt by the Reserve Bank of India’s decision to increase risk-weightings on unsecured loans. Non-banking finance companies’ interest costs are up 27 per cent, while they reported a 17 per cent increase in profits.


The upstream oil sector has seen profits go down 8 per cent Y-o-Y and 19 per cent Q-o-Q. Crude oil prices have moderated and the tax on windfall profits has put a ceiling on PAT. Refinery profits are up by 65 per cent Y-o-Y but down 33 per cent Q-o-Q due to refining-margin volatility.


After excluding the volatile oil and gas, and financials, other sectors have registered an aggregate 5 per cent rise in net sales, 20 per cent rise in Ebitda, and 32 per cent growth in PAT. Adjusted for one-off extraordinary items, PAT growth remains impressive at 28 per cent. The operating margin is at 18.5 per cent, up by about 0.50 per cent.


One sign of better big-ticket consumption is that the automobiles sector has seen 20 per cent expansion in sales, with 57 per cent rise in PAT. One contributor to rising profits is Tata Motors, where the main growth in PAT has come from overseas, in JLR. However, Maruti, Hero Honda, Bajaj Auto, TVS, have all done well — better two-wheeler and small car volumes indicate better rural demand, which may have been driven by festive season discounts. Daily consumption was flat going by the fast-moving consumer goods (FMCG) sector. FMCG sales grew only 6 per cent during Q3FY24 while PAT was up 3 per cent.


The capital goods sector has also seen a revenue expansion of 14 per cent and PAT growth of 55 per cent, which may mean a gradual return of corporate capital investment. The software industry continues to face weak global exports demand. Sales were up 4 per cent, with PAT up 1 per cent in constant-currency terms. Another major contributor to exports — the pharma industry — has done better with a 10 per cent expansion in sales and 29 per cent rise in profits.


Among sectors that produce key infra inputs, cement has an overhang in terms of surplus capacity while steel and non-ferrous metals like aluminium and copper are seeing good domestic demand, offset by weak global prices. There are signs the global commodity cycle is bottoming out, however.





February 19, 2024

More effort needed

India’s track record better than APAC peers on SDGs


As the global economy recovers from the pandemic and confronts ongoing geopolitical crises and increasingly severe natural disasters, there is no better time to evaluate the progress on achieving sustainable development goals (SDGs) goals across countries. Alarmingly, not a single SDG is on track to be achieved by the 2030 deadline. In fact, only one-third of the necessary progress may be made by then. The United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) recently released the “SDG Progress Report” for the Asia and the Pacific region. The report suggests a 32-year delay in attaining the goals, given the current rate of progress. Despite the need for universal implementation of these goals, differences across various segments of population, based on gender, region, education level, and other demographic factors remain. Overall, in the Asia-Pacific region, maximum progress has been made on goals 1 and 9, ie “no poverty” and “sustainable industry, innovation and infrastructure”, respectively. At the same time, the report mentions, climate action (goal 13) has continued to regress, rendering the region a major victim of climate change and extreme weather events. At a disaggregated level, of the 116 measurable targets, only 11 per cent are set to be achieved by 2030.


Despite uneven and inadequate progress, the report has lauded the efforts of certain countries. For instance, Vietnam’s efforts to prioritise technical and vocational education and digitally empower its migrant workers, or Bangladesh’s improved maternal and perinatal-death surveillance and response systems find special mention in the report. Interestingly, India’s track record is better than that of many of its peers in the region.


Country-wise analysis, as seen in the data tables of the report, portrays India’s performance across all 17 goals and all targets. India performed well on 85 indicators, stagnated on 27, and saw deterioration on 36. In contrast Vietnam and China improved in 84 and 79 counts, respectively. Bangladesh’s progress was slightly lower on 78 indicators, and Sri Lanka performed well on only 76. Some of the targets where India’s progress reversed include investment in agriculture; suicide rates; treatment of waste water; international agreements on hazardous waste; fiscal, wage, and social-protection policies; expenditure on research and development; expenditure on biodiversity and ecosystems; land degradation; and employment in manufacturing. Overall, India’s performance remains mixed. The country made no real progress for “life below water” (goal 14). There was either stagnation or reversal in targets under this goal. India endured maximum reversal in progress in zero hunger (goal 2), decent work and economic growth (goal 8), and life on land (goal 15). In contrast, remarkable improvements were seen in access to affordable and clean energy (goal 7), industry, innovation and infrastructure (goal 9), and good health and wellbeing (goal 3). For goal 4, ie provision of quality education, the country saw tremendous positive strides and no reversal in progress.


At the same time, data unavailability is a major hindrance in accurately measuring countries’ advancement on various SDGs. Progress for 32 per cent of the indicators could not be calculated for India due to insufficient or lack of data. While India’s commitment to the SDGs is evident through policy initiatives, partnerships, and data-driven approaches, there is work that remains to be done to achieve all SDG goals by 2030.



February 19, 2024

Better safe than sorry

Sebi’s move on disclosure may mean more paperwork, but knowing end-use of funds is necessary


The Securities and Exchange Board of India’s (Sebi) plans to seek more end-use disclosure of funds from companies going for initial public offerings (IPOs) is a well-timed move. After all, the IPO market has been on the boil for quite some time. Since the beginning of 2023, over 50 companies have already raised around `50,000 crore through main board IPOs and an equal number are awaiting the market regulator’s permission for almost `1 trillion fund-raising. In fact, the going has been so good that even promoters of already listed companies have raised almost `50,000 crore since January 2023 by diluting their stake. Given this euphoria, the regulator’s concerns about end-use of funds are legitimate. According to reports, Sebi has returned several IPO documents in the recent past on the ground that the details about the end-use were vague and the information was ‘potentially misleading’.


There were also worries about companies who changed the details about end-use of funds in the issue document from those given in the application form, leading to legitimate concerns that these changes are being made to reduce the promoters’ lock-in period. For example, current guidelines say that if the funds raised through the IPO are earmarked for debt reduction, the promoters and major shareholders’ shares would be locked in for a period of 18 months. However, if the end-use is capital expenditure, the lock-in period extends to 36 months. It seems many have been changing the end-use from capex to loan repayment to reduce the lock-in period. Industry experts say the difference in tenures is justified as capex entails a significant element of project implementation risk. As a result, the market regulator has been seeking granular details from promoters. In fact, it has also said that the firms using IPO proceeds to repay loans taken for capex will have to keep the lock-in period at 36 months since the project risks continue to exist.


Sebi isn’t alone. Other regulators like the Reserve Bank of India (RBI) have also been tightening their screws on the end-use of funds. In January, it tweaked norms for the issuance of commercial papers (CPs) and non-convertible debentures (NCDs) up to one year to regulate short-term investments. One of the key changes that will take effect from April 1 is that the issuers have to mention the exact end-use of the funds raised through these instruments for better transparency. Of course, there have been/will be complaints that the process will become more onerous for IPO-bound firms, especially at a time when many companies are beginning to get out of their addiction of bank loans and the equity cult, especially amid domestic investors, is on the rise.


But that is precisely the argument that favours the market regulator or the RBI’s decisions. The idea is to help investors make informed decisions about the risks associated with the instrument. Anyway, enough leeway has been given to firms, as far as end-use of funds go. According to Sebi regulations, funds raised through IPOs can be allocated for various purposes including capital expenditure, debt reduction, general corporate needs, and acquisitions. And a good 25% of the net proceeds can be earmarked for general corporate purpose and an additional 10% (total 35%) can be kept aside towards unidentified future acquisitions. So, seeking granular details for certain key items isn’t being too harsh. The regulator clearly believes that it’s better safe than sorry.


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