All Newspaper editorials in one place – February 28, 2024





February 28, 2024

Decoding spending

The latest household spending survey signals some shifts in people’s priorities


In an uncharacteristic late Saturday release, the Statistics Ministry unveiled the broad findings of the Household Consumption Expenditure Survey done between August 2022 and July 2023. This is significant as it is the first major survey-based data released since 2011-12 that captures ground realities at the household level — especially with the once-a-decade Census, due since 2021, nowhere in sight. Conducted every five years by the National Sample Survey Office (NSSO), the results of the last such consumption survey in 2017-18, along with a similar employment survey, were junked with the government citing “quality issues” with the data — viewed as a euphemism for the unhappy tidings it may have showed. If the 2017-18 Survey was abandoned because it captured the deleterious after-effects of the demonetisation of high-value currency notes in late 2016 on India’s largely informal economy, and the subsequent onset of the Goods and Services Tax, the 2022-23 survey also needs to be interpreted with a dash of salt. For, it may likely magnify the exuberance seen in consumption after two years of pandemic-induced curbs and income losses — what economists call the release of pent-up demand.


To be clear, the Survey suggests some interesting transitions in consumption patterns and the complete findings must be published swiftly to enable deeper analysis. Households’ average monthly per capita consumer expenditure (MPCE) rose 33.5% since 2011-12 in cities to reach ₹3,510, and 40.4% in rural India to ₹2,008. The government has sought to paint this as a signal of rising incomes, narrowing inequality, and a sharp slippage in poverty levels. But this only implies a 3.5% compounded annual growth in rural spends over 11 years, with a 3% growth for urban households — well below the inflation and GDP growth rates in this period. Puzzlingly, even after adding the imputed values of free goods received through a myriad of welfare schemes such as the PM Garib Kalyan Anna Yojana, the average MPCE only rose to ₹2,054 for rural households and ₹3,544 for urban peers. That the proportion of monthly spends on food has slipped below 50% in rural homes (to 46.4%), and under 40% in urban homes, with cereals seeing the sharpest drop, is remarkable, and may ease inflation trends if used to rejig Consumer Price Index weightages. However, it is pertinent to recall that food inflation began spiking last June just ahead of the Survey’s completion, and has remained elevated since. So, proportional spends have likely changed. A clearer picture, devoid of pent-up demand and inflation flip-flop effects, is expected from the fresh Survey that concludes this July. So, any recalibration of poverty, inflation or GDP calculations must wait till those results are compiled, and released as well.





February 28, 2024

Burden of power

Search for superpower status should not drive India’s space exploration


Prasanth Balakrishnan Nair, Ajit Krishnan, Angad Pratap and Shubhanshu Shukla — these Air Force pilots constitute the final shortlist of candidates from among whom India’s astronauts for its human spaceflight mission, a.k.a. Gaganyaan, will be selected. The announcement, by Prime Minister Narendra Modi during an official visit to Kerala, fills the last real unknown about the ambitious mission, which aims to send an Indian crew to low-earth orbit onboard an Indian rocket. The Indian Space Research Organisation (ISRO) has signalled that, setting aside the risk of unexpected delays, it expects to conduct two test flights of the human-rated Launch Vehicle Mark-3 rocket in 2024 and 2025 and the crewed launch in 2025. The Union Cabinet approved Gaganyaan in 2018 at a cost of ₹10,000 crore. Since then, the ISRO centres and their collaborators in industry and academia have worked to bring the mission’s various components together while also negotiating delays due to the COVID-19 pandemic and ISRO’s commercial commitments. Now, with the astronauts’ names in the open, India is truly in the last mile.


It would be naive to believe an undertaking of this scale can be completely free of political capture, but Gaganyaan cannot be altogether politically motivated either. Among other things, the Indian Space Policy 2023 requires ISRO to “carry out applied research and development of newer systems so as to maintain India’s edge in … human spaceflight” and to “… develop a long term road-map for sustained human presence in space”. ISRO has also flown a bevy of technological, research, and commercial missions with sufficient support from the Centre to render them immune to political accountability, and Gaganyaan has been no different. But going ahead, it should be different, with justification that is amenable to public scrutiny and debate while seeding a culture of space exploration that is truly democratic, rather than being motivated seemingly by geopolitical aspirations. Similarly, while a road map is being set — accommodating Mr. Modi’s “directive” to ISRO to land an Indian on the moon by 2040 — the endeavour must be to give Gaganyaans present and future an identity rooted less in “India’s edge”, which when maintained for its own sake becomes a vacuous thing, and more in the fundamental act of creating new scientific and societal value. Other countries, including China, may be technologically ahead, but India must keep the focus on scientific exploration and expanding human horizons, and not on achieving some ‘space superpower’ status.




February 28, 2024

Costs of a barrier

High tariff walls allow inefficient players to survive, hurt consumers. Government must review industrial, trade policy


Since the early 1990s, India had been steadily moving towards a low tariff structure. The average tariff declined from 125 per cent in 1990-91 to 13 per cent in 2014-15, according to a study. However, since 2014 there have been around 3,200 tariff increases, with the largest increases occurring in 2018, according to a paper by economist Shoumitro Chatterjee and the former chief economic adviser to the government of India, Arvind Subramanian. These large tariff increases, which can be traced to the government’s call for atmanirbharta or self-reliance, have meant that the average tariff rate has risen to around 18 per cent, affecting a sizeable segment of the country’s trade basket. India’s tariffs are amongst the highest in the world. In fact, they are not only higher than those of China (7.5 per cent), but also countries like Vietnam (9.6 per cent) and Bangladesh (14.1 per cent) — India’s competitors in the China plus one strategy. High tariffs place manufacturers at a disadvantage, affect export competitiveness and hurt consumers. Alongside this growing protectionism, the targeting of Chinese imports post the Galwan clash is also now being seen as impacting domestic output or loss of competitive advantage in sectors such as electronics and pharmaceuticals — China accounts for a sizeable share of India’s imports, especially inputs in key sectors and capital goods. According to a report in this paper, sections within the government have begun raising these issues, favouring a more nuanced approach. This should spur conversations in the government on its approach towards promoting manufacturing and facilitating exports.


Reportedly, the Ministry of Electronics and Information Technology had also earlier this year pressed for reducing duties on parts including circuit boards, chargers and fully assembled phones. Groups representing cell phone manufacturers had said that the country’s high tariff structure is a disincentive to de-risking supply chains beyond China. Seeking to be attractive alternatives for mobile manufacturers, countries like Vietnam, Thailand and Mexico are lowering tariffs on phone components. There are some indications of a rethink on the issue — a day before Union Budget 2024-25, the government announced a reduction in the import duty for components used in the manufacturing of mobile phones from 15 per cent to 10 per cent. This is the right approach. Erecting high tariff walls allows inefficient domestic players to survive, and hurts consumers.


Alongside, the government must press ahead with signing trade agreements. After initially showing some hesitation, it has signed a comprehensive economic partnership agreement with the UAE and an economic cooperation and trade agreement with Australia. It is currently negotiating agreements with other countries such as the UK. It must pursue similar pacts, including with the European Union.






February 28, 2024

The young ones

Newcomers combined with seniors to complete a memorable cricket series triumph against England


Why does a home Test series win against England feel so special? For the first three days, in fact, England had collapsed, India had a runaway 190-run lead, and the five-match series felt a bit too long already. It was then that Bazball, England’s attacking philosophy with which they beat Pakistan in Pakistan and pushed teams to introspect around the world, reared its head. Ollie Pope stunned India with a brilliant hundred, replete with innovative momentum-snatching sweeps, before their novice spinners rolled over India in the chase on a turner. For the first time in years, it felt that an overseas team had the ability, skill and mental strength to thwart India in their own game.


The anxiety in fans had increased once injuries ruled out KL Rahul and Ravindra Jadeja in addition to the news that Virat Kohli won’t be available for the entire series. Indian batting looked brittle and even young guns like Shubman Gill and Shreyas Iyer were in a difficult situation. For the first time, R Ashwin, Jadeja, and Axar Patel looked a touch “rattled”, in former England batsman Kevin Pietersen’s words. And visuals of Rahul Dravid visiting the pitch and talking with curators became viral. The undercurrent was that India will need to change their pitches. They did, preparing more batting-friendly tracks to counter England’s inexperienced spinners and their one speedster Mark Wood. India banked on pacer Jasprit Bumrah to sprinkle his magic but the batting was down to the youngsters.


One by one, they stood up. Yashasvi Jaiswal showed that his story isn’t just a romantic tale of a boy who sold panipuris making it to the big league. Gill, who as this newspaper reported, was told by the team management to be ready to step down to domestic cricket if his form doesn’t improve, responded with a hundred. Not everyone flourished: Shreyas Iyer fell, Axar Patel fell, KS Bharat fell. But India did enough to win. In the third Test at Rajkot, more young guns stared down the English snipers. Sarfaraz Khan impressed on debut, wicketkeeper Dhruv Jurel showed spark. In the next game at Ranchi, without Bumrah, Akash Deep laid the groundwork before Ashwin ensured all is well with his world and Kuldeep Yadav again showed why he should be considered ahead of Axar in future elevens. Jurel exploded with two game-turning knocks and Gill played his character-defining innings in the chase as the newcomers combined with the seniors to complete a memorable series triumph.




February 28, 2024

Yesterday once more

Paul McCartney’s admission of a filial connection to a Beatles classic affirms the curious afterlives of songs


IT BEGAN ITS life with the working title “Scrambled Eggs”, a sort of joke between band members about a melody that Paul McCartney claimed to have arrived at in his dream while he was living with his then-girlfriend at her Wimpole Street apartment. The boys from Liverpool might have had a hard time writing words to it, but, as classics go, there is very little to fault in how ‘Yesterday’, the 1965 Beatles song, turned out. Now it appears that part of the anguish of the breakup anthem might just have been a Freudian slip. In his podcast, A Life in Lyrics, McCartney, 81, has revealed that the lyrics, “Why she had to go, I don’t know, she wouldn’t say./I said something wrong, now I long for yesterday”, might have been a posthumous apology to his mother, Mary—who he lost to cancer when he was 14 — for a teenage episode of misdemeanour.


It is hard to not be touched by the admission, given the fact that McCartney has, on several occasions, spoken of how his mother’s death had affected him. It lay at the core of his special bond with John Lennon, who, too, had lost his mother to an accident. The lyrics of ‘Yesterday’ are credited to them, even though in interviews the two spoke of how McCartney was the one responsible for finally whittling it down to its essence.


It might have taken McCartney years to unspool the tangled threads of unconscious inspiration, but, like all works of art, the afterlife of a song is a curious thing. It cares little for the original thought, building new associations. The Beatles were no stranger to it: When their psych-rock number ‘Lucy in the Sky with Diamonds’ came out in 1967, based on a drawing by Lennon’s nursery-going son, speculation was rife that it was a veiled endorsement of the hallucinogenic drug, LSD. The song survived. The legacy of ‘Yesterday’ is only likely to be enhanced by McCartney’s admission.





February 28, 2024

Rothschild Template

Why we remain fascinated by dynastic wealth and whether this will change any time soon


Their life is our soap opera. It is our interest in the super-rich that shows like Billions and Succession cash in on. But what family dysfunctions in these shows often miss is the extent to which the greatest wealth creation often comes from families cohering towards this end generation after generation. With the death of financier Jacob Rothschild, we are reminded that his family began building its various fortunes back when Napoleon was yet to be defeated at Waterloo. Bloomberg’s 2023 list of the world’s top 10 wealthiest families traces one back to 8 generations, one to 6, one to 5, and the rest to 3 generations each.


Born to oil | West Asia’s Al Nahyans, Al Thanis and Al Sauds are a class apart. Their billions rose from oil and gas reserves on top of which they were literally ruling. While US’s Kochs are called the “Kochtopus” by critics of their formidable financial interventions in politics, it’s of a different species, namely the family acquired wealth in a market democracy.


Rags to riches | Other dynasties in the wealth list have even more self-made origin stories. Dhirubhai Ambani started out as a petrol pump attendant. France’s Hermes family founded this luxury fashion house making horse saddles. America’s Walton empire opened with one Walmart store in 1962, which went on to transform how people everywhere shop and how much they pay for their shopping. Canada’s Thompson family built its information behemoth from one radio station in the 1930s.


Gen to gen | As important as surviving events like World Wars has been how to manage the passing of control from one generation to another. Notable here is how Mukesh and Anil Ambani finally made peace. In a different paradigm, Bernard Arnault, the world’s richest man, is putting his five children through a “Darwinian contest” to run LVMH after him.


Tech break | But techbros whose breed is predicted to birth the first trillionaire are different. Gates and Bezos say they will give most of their money to charity. Musk is not a fan of leaving his children in charge either, despite having more than 10 of these. For now though, the family model looks unassailable. That’s why the Pride and Prejudice opening line about every single man in possession of a good fortune being on the lookout for a suitable spouse still doesn’t feel dated. Except, the same goes for every single woman with a fortune.





February 28, 2024

Fair, Lovely Market

Fairness creams are now less popular. Reason: shifts in beauty norms. Lesson: lecturing doesn’t influence users


Fairness creams are no longer as popular as they used to be, says a surprising piece of consumer data from NielsenIQ, reported by Economic Times. Younger audiences are seeking glow rather than fairness, say companies, and fairness creams have grown significantly slower than ‘clean’ skincare and sun protection. Is this wholesome trend a sign of social change? Some time back, in part responding to global chatter, Indian companies figured out that they couldn’t openly hawk their wares for whiter skin. Skincare products across the market changed their pitch.


We’ve come a considerable way from earlier days. But here’s what to remember – what worked? All the scorn heaped on these products and all the pleas to intervene, to ban them didn’t work. Matrimonial ads – wheatish, if not fair skin – didn’t change. Women daubed turmeric or sandalwood or talcum powder to achieve various tints. With fairness products, supply simply met demand.


What worked is that beauty norms shifted, as they do, even if slowly. These norms are not eternal truths but social constructs. We once admired the blue-black forms of Krishn or Draupadi, we still have poetic names for all the beautiful hues of Indian skin. The modern fetish for light in India was fed by caste, colonialism and global media. Today, the pushback by popular discourse and media has had a visible impact. Even aspirational fashion magazines show gorgeous models of every race, stock images have diversified, TV shows, actors and models reject old norms and are applauded for it. So, we have more expressions of beauty to choose from, and we’re moving with the times. There is little point lecturing or hectoring anyone into seeking a different appearance ideal. The heart and the market have their reasons, and they change when they do.




February 28, 2024

Tap Into Hospitality’s New Avatars

Top consuming class is fastest-growing segment


Hotel chains offering branded residences reinforces the concentration of India’s hospitality industry, which is limited by its geographical footprint, and by the share of branded hotel rooms. The tendency to seek out new revenue streams in established locations such as metros to cater to lifestyle demands of the uber rich is a sign some pockets of the country are maturing as hospitality markets. Range of innovations can extend further in high-end retail and gatherings. Yet, these remain niche offerings, while the big push in hospitality should ideally emerge from the need for quality hotel rooms in new destinations. Improvements in connectivity are opening up new areas — and new forms — for hospitality. While the market’s top end is increasing the sophistication of hospitality offerings, the mass market is going to be a sustained growth driver for the industry.


Broad industry categories such as convention tourism remain relatively untapped, although India offers an enormous diversity of options among its Asian neighbours. Local infrastructure development is bringing a new crop of locations into play that can expand the market for branded hospitality. Localised skill development is converting the employment opportunity thrown up by a wider tourism footprint. Most tellingly, though, living standards of a large section of the population are reaching levels at which demand for tourism explodes.


The industry is focusing on its fastest-growing segment, which happens to be the top consuming class with exposure to international hospitality standards. These are being extended to cover more of lifestyle, be it housing, retail or entertainment. This helps deepen the industry and establish benchmarks for further innovation. The Indian hospitality market is expected to retain its strong socio-cultural underpinnings based on religious and ceremonial tourism. These segments would benefit from the innovations the industry is borrowing from international markets. The demonstration effect is powerful in this service industry.





February 28, 2024

A Thicker Skin Suits A Growing Power


Power, of the hard as well as soft variety, is about knowing when to use a fly swatter and when to use a sledgehammer. Reacting to every critique, difference of opinion, point of opposition and irritant voice with a ‘silencer’ does not behove a robust democracy, let alone a democracy globally on the rise. As countries like the US, Britain and Israel have figured out over the decades, making a show of not allowing critical voices against government policy, especially from the academic and intellectual domain, makes for worse advertisement than if these voices are allowed to say their two-paise bit in a two-day conference. No administration has wobbled, no democracy has been shaken to its roots when in any institutional gathering, critical views against that administration or country have been aired. India should develop a thicker skin for its own self-imaging as a ‘tough guy’ rather than come across as a ‘snowflake’.


British academic Nitasha Kaul is no terrorist. She holds a view antithetical to GoI policy and view held by (most) Indians. Her view, in our view, is biased, one-sided, wrong. And, yet, to deny the professor entry to participate in a convention on the invitation of the Karnataka government smacks of feeding the very criticism that India rightfully denies.


No one outside the convention hall in Bengaluru would have heard of Kaul were it not for the hyperbolic action taken against her. A few protesters would have done the needful to critique the critic. But by deporting her, despite her papers being in order, a rising power — which will face far more serious pushbacks over time as it becomes a bigger player on the world stage — has unnecessarily shown exaggerated concern, when all it had to show was displeasure.




February 28, 2024

Uneven success

Consumer survey shows qualified gains in well being


The National Sample Survey Office’s household consumer expenditure survey for the period August 2022-July 2023, conducted after 11 years, portrays a sanguine picture – chiefly, of the income gap closing between rural and urban areas; and a diversification in expenditure away from food, particularly cereals, to discretionary items. The question is whether the improvements have been ordinary or substantial.


The difference between average urban and rural monthly per capita consumer expenditure (MPCE) as a percentage of rural MPCE (in current prices) has fallen from 88.2 per cent in 2009-10 to 71.2 per cent in 2022-23. The rural-urban gap has perhaps closed due to the direct benefit transfers and free grain distribution, the latter creating space for discretionary spending. States regarded as laggards have shown maximum improvement in closing the gap, such as Bihar, Uttar Pradesh and Madhya Pradesh. From the findings of the consumer survey, the government claims that income poverty is down to 5 per cent. This is, however, based on a poverty line whose methodology is not clearly defined. Be that as it may, SBI Research observes that rural and urban consumption patterns are converging at the bottom of the income pyramid, which points to a sociological convergence as well as aspirational trends.


One of the most remarkable findings of the survey is the sharp decline in cereals spending as a proportion of MPCE, which points to an economy on the upswing. It has fallen from 10.75 per cent in 2011-12 to 4.91 per cent in 2022-23 in rural India, and from 6.66 per cent to 3.64 per cent in urban India. This reinforces the closing of the rural-urban gap. Consumer price index weights would have to be re-examined with respect to cereals, even as the proportion of expenditure on food as a whole is 46.38 per cent in rural India and 39.17 per cent in urban India. However, the issue of whether the Centre is supplying more foodgrains for free than required does arise.


As for the downsides, average rural MPCE was up 40 per cent in 11 years (July 2012-July 2023) in real terms (2011-12 prices) from ₹1,430 in July 2012 to ₹2,008, and in urban areas by 33.4 per cent to ₹3,510. This works out to a CAGR of about 3.2 per cent in rural India and 2.8 per cent in urban India. This lags GDP growth by a fair margin. Experts have estimated that as per National Accounts Statistics, the annual growth in private final consumption expenditure over this period would be in the region of 6 per cent. Even if one shaves off more than a percentage point to account for population growth, this is a big gap that needs to be explained for an economy where consumption accounts for 60 per cent of GDP. As for inequality, 60 per cent of the rural population and nearly 70 per cent of the urban population has an MPCE below the average nominal level of ₹3,773 and ₹6,459, respectively. The rural-urban gap is pronounced at higher levels of income – even though it has declined over time for the whole population. India has progressed, but somewhat unevenly.





February 28, 2024

Responsible innovation

Govt intervention should address the concerns of fintechs


The recent regulatory action by the Reserve Bank of India (RBI) against Paytm Payments Bank has created significant unease in the system, particularly in the fast-growing fintech business. While the regulator has made it clear that action was taken after considerable bilateral discussion with the regulated entity, some believe it was a consequence of the regulator’s inadequate understanding of the nature of the business, which could stifle innovation. Such views against the regulator are not new in the financial sector. Regulatory intervention to contain risk and maintain financial stability, which affects the short-term growth of regulated entities, tends to invite such comments. Nonetheless, it is also correct that regulators need to maintain a fine balance where innovation is promoted without compromising the objective of financial stability. Interventions by Union Finance Minister Nirmala Sitharaman in this context will go a long way in achieving this objective.


Ms Sitharaman, in a meeting with leaders of fintech firms on Monday, suggested the RBI hold a monthly virtual meeting with fintechs and startups to address their needs. To be fair, new-age fintechs may be operating in areas where regulations are not very clearly spelt out. The regulator is also in the process of understanding the business and potential risks it can create for the system. Although the regulator regularly interacts with all stakeholders, putting in place a formal system will help both sides. Further, the Department of Financial Services has been asked to hold a daylong workshop for fintechs with law-enforcement agencies, providing them with an opportunity to raise their concerns. This should again help fintechs understand the system and voice their apprehensions. Both the regulator and government would do well to hear the concerns of fintechs and make necessary adjustments to enable responsible innovation.


The government has also formed an expert committee under Union Finance Secretary T V Somanathan to come up with uniform know-your-customer (KYC) norms. Improvement in such norms will benefit both financial services firms and consumers. There is concern that some fintechs don’t adhere to established KYC norms. Thus, the timely intervention by the finance minister should help address the worries of fintechs and enable a regulatory environment that promotes innovation and benefits the end consumer. The growth of fintechs will, however, remain a challenge for the RBI. While some have helped improve the ease of payments with the benefit of the Unified Payments Interface, a large number of them are enabling the flow of small-ticket loans from banks and non-banking financial companies (NBFCs). This has resulted in significant growth in consumer credit. In this context, the RBI has increased risk weightings for consumer loans (other than housing, education, vehicle, and loans against gold) in November last year. The idea was to reduce the pace of growth in unsecured loans.


The RBI has also raised concern over increased algorithm-based lending. Significantly increased consumer lending, if done without proper due diligence, can increase risk for both banks and NBFCs. It has been reported that some consumers are able to take credit from multiple platforms. Although it is likely that fintechs are reaching consumers who were hitherto excluded from the formal credit market, it still makes sense to move cautiously till the entire mechanism and all possible outcomes are not properly understood. Innovation and growth expectations should be balanced and not allowed to endanger financial stability.





February 28, 2024

Private participation

The space sector has opportunities for India


Prime Minister Narendra Modi on Tuesday revealed the names of four astronauts who have been selected for the Gaganyaan mission. This came shortly after the Union Cabinet’s decision to approve 100 per cent foreign direct investment (FDI) in the space sector to enhance activity. The recent amendment to the FDI policy is in line with the vision and strategy outlined in the Indian Space Policy 2023. According to the recent decision, firms in satellite manufacturing and operation, satellite data products and ground segment, and user segment can get FDI up to 74 per cent under the automatic route. For the sub-sector comprising launch vehicles and associated systems, and the creation of spaceports for launching and receiving spacecraft can get FDI up to 49 per cent through automatic routes. At the same time, 100 per cent FDI under the automatic route has now been permitted for manufacturing components and systems/subsystems for satellites.


Having garnered a reputation for its cost competitiveness, India’s space economy is worth $8 billion, a meagre 2 per cent of the global space economy. Yet, the remarkable feats achieved by the country in space exploration, from landing on the moon’s south pole to the liftoff of a satellite with the first indigenously built cryogenic engine, far outweigh its modest space spending. The country’s space programme for the future is ambitious and it includes plans to launch a space station by 2035. Military and security imperatives have also gained greater prominence in thinking about space utilisation. Such elevated space ambitions call for greater financing needs and enhanced research and innovation in the sector. In the Interim Budget this year, the central government allocated Rs 13,042.75 crore to the Department of Space, as against Rs 12,543.91 crore in 2023-24. Given the other demands on the Budget, India’s space sector must attract private-sector investment. In this context, the government launched NewSpace India Ltd in 2019 to produce, assemble, and integrate launch vehicles with involvement from private players, and the Indian Space Association in 2021 to open up the Indian space industry to private companies and startups. Already, around 190 startups are working in this area.


At a broader level, the Indian Space Policy does well to allow the Indian Space Research Organisation to primarily focus on research and development while promoting greater private sector participation in the entire value chain, and also opening up the sector for foreign investment. Aside from increasing India’s share in the global space economy, increased activity in the sector can have several spinoff benefits. It can potentially come up with innovative solutions in areas such as telecommunication, agriculture, climate change, and disaster management. Increased private-sector participation in the country’s space sector has competitive advantages because of the availability of engineering talent at low cost. Some industrial clusters have already been established, such as the Salem aerospace cluster in Tamil Nadu and the Belagavi aerospace cluster in Karnataka. Increasing the level and ease of FDI in the sector should address its financing needs. Given the focus on technology and global interest in space, in general, India has the opportunity to increase the scale of activity, which can lead to multiple benefits.





February 28, 2024

Play by the book

In their quest for quick profits, many fintechs have acted in a cavalier fashion; easier listing is not the answer


If a large number of fintechs are upset because they are being asked to play by the rules, they need to grow up. One appreciates their ability to reach out to borrowers who are otherwise unable to access organised credit, but the fact is that quite a few of them have been using ingenious methods to do what they are not permitted to—lending. The regulator is justified in stopping them from running their businesses by renting balance sheets because their “innovation” cannot pose risks to the system. The regulator’s crackdown on Paytm Payments Bank because of inadequate know-your-customer (KYC) compliance, is simply a reminder that fintechs must observe the rules.


Some of the suggestions put forward by fintechs during their meeting with the finance minister on Tuesday are reasonable. For example, it’s possible that the KYC process is onerous and needs to be eased. In fact, the finance ministry has already agreed to review this. Fintechs have also asked for low-cost funding that can be on-lent to small borrowers such as small companies. That’s a reasonable ask, which should be considered by banks. However, one is not sure why fintechs asked for easing the listing process. After all, they are merely financial entities and must comply with the market regulator’s rules for listing. In fact, the regulator’s decision to waive the three-year profitability criteria for start-ups was a case of misplaced priorities. If anything, the listing rules for need to be tightened. If some of them wish to list overseas because the rules in India are too onerous, they are welcome to do so. Consider what has happened to the share price of One97 Communications whose shares were sold to investors at Rs. 2,150 apiece. The stock is currently trading at a fifth of its value; at one point of time, it was trading at Rs. 318.


The fact is that many fintechs, in their quest for quick profits, act in a cavalier fashion. If the Reserve Bank of India (RBI) has been tightening the rules for digital lending, it is because many of them they were ‘borrowing’ the balance sheets of banks and non-banking finance companies and exploiting the loopholes. In June, 2022 it disallowed the loading or reloading of prepaid instruments (PPIs) such as cards and wallets, with credit lines, by mainly non-bank PPIs. This was essentially because the fintechs were piggybacking on banks. Worryingly, most of the exposure belonged to just two banks, one of them a very weak one. Again, very often loan disbursals and repayments were not being routed via the customers’ accounts as they should have been. This is clearly a risk since the lending system would be left unaware of the leverage of customers as would the credit bureaus. Since fintechs were partnering with several NBFCs, they were pooling the funds and enjoying the float.  Also, the customer’s credit limit was being raised without her consent.


Fintechs were miffed when the RBI clamped down on FLDG—first loss default guarantee—restricting the amount to 5% of the loan portfolio and disallowing corporate guarantees from being issued. FLDGs ensure fintechs have skin in the game but if they go bust, the lender would be left with the losses especially since guarantees averaged 35%. One cannot expect the regulator to ignore such malpractices. Fintechs are welcome to be a part of the financial system, but they must not try to game it.


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