All Newspaper editorials in one place – February 05, 2024





February 5, 2024

A sunshine initiative

Centre’s solar initiative should be accommodative to States


Finance Minister Nirmala Sitharaman’s interim Budget day speech reiterated a plan by Prime Minister Narendra Modi to supply power to one crore households in the country using rooftop solar panels. This would help households save ₹15,000 annually, the Minister claimed. What is known so far is that households that have a monthly electricity consumption of less than 300 units a month will be able to install a mid-sized system (1-2 kilowatt) with the government bearing the expense. This could mean a minimum outlay of ₹1 lakh crore. As of today, rooftop solar systems are subsidised up to 40%, with the remainder having to be borne by the consumer. Under the proposed policy, the subsidy will increase to 60% and the rest will be financed by a private developer who is affiliated to a public sector enterprise connected to the Power Ministry. This will ostensibly ensure quality in installation and also reliable service. There is a mechanism of ‘net-metering’, wherein surplus electricity produced by households can be sold back to the grid to make good the loan, though the actual way in which this is implemented can be quite complex. A monthly consumption of 300 units is paltry in houses where air conditioners and heaters are a given, but by national standards, is a significant metric of consumption. About 80% to 85% of 25 crore to 30 crore households in India use between 100 units and 120 units of power a month on average. Therefore, finding one crore houses that will be eligible for the plan will not be a difficult task.

The major difference from earlier solar promotion policies is that it is the Centre, as opposed to the State power distribution companies (discoms), that will be pushing for solarisation. India’s discoms, most of which are heavily loss making, have had little incentive so far in moving high-consumption customers to decentralised solutions, such as rooftop solar. Given that such discoms have the best granular information about power supply at the household level, by-passing them will not be a successful strategy. The Centre’s push to give visibility to a hitherto laggard programme is welcome. After all, the move towards decarbonised power will be half-hearted if it does not involve households. So far, only 12 gigawatt (GW) out of an intended 40 GW of rooftop solar panels has been installed. Here too, household rooftops account for only 2.7 GW with the rest being commercial or building units. The Centre’s move can thus galvanise a subsidiary domestic industry of solar panels — the subsidies will not be available for imported panels — and must be tweaked in a way to be more accommodative to States. Else, there is a real risk that much of the challenges that have impeded previous initiatives will resurface.






February 5, 2024

Unending woes

India must incentivise fishermen to give up bottom trawling


The continuing arrests of fishermen from Tamil Nadu and Puducherry by the Sri Lankan Navy in the Palk Bay, despite diplomatic interventions at the highest level, and the attacks on them mid-sea by armed civilians are a matter of serious concern. True, Indian fishermen cross into Sri Lankan waters in search of catch, and affect the livelihood of Sri Lankan Tamil fishers. But the numbers this year are staggering. The detention of 23 fishermen and the seizure of two trawlers on Saturday, off Delft island on charges of “poaching”, has taken the number of those arrested so far this year to 69, compared to 240 the whole of last year. Since 2013, Sri Lankan authorities have also remanded some fishermen in judicial custody for several months. This year, 34 fishermen, including 12 who were arrested last year, have been released, while over 45 men remain in custody. What is distressing for the community is the confiscation of their expensive fishing nets and vessels — this year, 10 boats were seized. By the time these boats are released through a judicial process or following diplomatic talks, most are not in a sea-worthy condition.


No doubt, Sri Lanka is under pressure from its northern province fishermen to act against Tamil Nadu fishermen, who they accuse of resorting to destructive bottom trawling, a practice banned by the country since July 2017. While India promised to end bottom trawling in the Palk Bay and incentivise fishermen to take to deep-sea fishing under the Blue Revolution Scheme, bottom trawlers are still active. Fishermen also face a practical problem as under the Tamil Nadu Marine Fishing Regulation Act 1983, mechanised fishing boats are permitted to fish only beyond three nautical miles from the coast. Since the distance between Dhanushkodi and the International Maritime Boundary Line is only nine nautical miles, breaches do occur, a point the Sri Lankan Navy should not overlook. As Prime Minister Narendra Modi emphasised in 2015, the tensions over fishing must be handled as a “humanitarian concern”. Unfortunately, neither side has demonstrated consistency in the handling of the issue. In November 2016, the countries had agreed upon a Joint Working Group (JWG) on Fisheries that would meet every three months, and also have a bi-annual meeting of the Ministers of Fisheries. But the JWG has held just five sittings, the last one being in 2022. Tangible and targeted action is needed to encourage deep-sea fishing, bottom trawling being given up and the issue resolved with mutual compassion and periodic talks. Failing this, the Palk Bay would remain perilous territory for Indian fishermen.






February 5, 2024

Bharat Ratna Advani

His arc shows a rare capacity to reflect and reinvent – He was each and all of his many versions that shaped and reshaped the nation’s politics


The Bharat Ratna to BJP veteran LK Advani, just days after the consecration of the Ram temple at Ayodhya and the Bharat Ratna to socialist icon Karpoori Thakur, is remarkable for its timing. The two awards help the BJP to symbolically fold in both Mandal and Mandir. Ahead of an important election, they underline the BJP’s efforts in nudging Mandal vs Mandir towards becoming Mandir plus Mandal. But this moment is also, and more, about LK Advani, the politician with an arc spanning over seven decades. Advani’s arc is impactful and controversial, not just because it is long, but also because it shows a rare breadth and movement, and an even more rare capacity to reflect and reassess and reinvent. He has been each and all of many versions of LK Advani.


The Organisation Man, who worked to strengthen the nuts and bolts of the party from within, mentored a second generation of leaders, and spoke his mind too. Marking the 40th anniversary of the Emergency, one year into the first term of the government of his ex-protege Narendra Modi, he cautioned on the task ahead, saying he could not rule out another curtailment of liberties. The Parliamentarian, who steered important debates in the House, but was eventually overtaken by the Rath Yatri, who irreversibly changed the political narrative with his journey from Somnath to Ayodhya, using the idiom of religion and joining it to nationalism and patriotism, while sparking communal polarisation and triggering violence that led to the demolition of the Babri Masjid, an event that redirected the future course of the country’s politics. The Script Writer, alongwith the party’s more coalitionable face, Atal Bihari Vajpayee, of the BJP’s rise and rise, from a political “untouchable” in the aftermath of the demolition at Ayodhya, to the position of the second pole of politics, setting the scene for its edging out of the Congress to become, as it is now, its dominant pole. The (less successful) Script Rewriter, who in 2005, was forced to step down as party president because he praised Jinnah in Pakistan and suggested he was “secular”, and who told this paper in a 2010 interview, on the 20th anniversary of his Somnath-Ayodhya rath yatra, that “my party lost an opportunity” during the Jinnah row, of being seen as proud of Hinduism but not anti-Muslim or anti-Pakistan. Said Advani: “If I had any apprehension that the incident (Babri demolition) could take place, I would not have gone to Ayodhya… I’d still have gone to Pakistan”.


By honouring Advani with the Bharat Ratna now, the BJP commemorates a founding father in an opportune moment, and it does more than that: It also sends out a message of its continuing inventiveness in sending out messages. It has shown political dexterity earlier in deploying the Ratna. But in a time when spaces of grace and generosity are shrinking in politics, not without the active contribution and complicity of the BJP, with this high award to someone seen as a mentor who also raised concerns, Prime Minister Narendra Modi sets an example even as he scores a political point.






February 5, 2024

What US needs to do

Using military force against the ‘axis of resistance’ without disciplining Netanyahu will be an American exercise in futility


TWO ROUNDS OF US military strikes across the Middle East over the weekend against militant groups — the so-called “axis of resistance” — backed by Iran, are unlikely to either deter US adversaries or reassure US allies in the region. The US military response will not rally the deeply divided domestic opinion behind the White House. Nor will it dampen fears of a widening war and its impact on global commerce that relies on the vital trade route running through the Red Sea Although the US remains the pre-eminent external power with significant leverage in the region, the Biden Administration’s political and military dilemmas have only been accentuated with each passing day since the October 7 terror attacks against Israel. The one step that could dampen the conflict is Washington’s decisive pressure on Israel to accept a ceasefire. Despite its push for a pause in the Gaza war, Washington has been unwilling to apply the necessary political pressure on Israel.


The wave of attacks by militant groups on US military presence i n the region since October 7 included one at the end of January that killed three US soldiers at a US base in Jordan. President Joe Biden, in the middle of a challenging campaign for reelection, promised a decisive military response. The first round of the response on Saturday saw the US bomb 85 targets of Iran’s Revolutionary Guards Force in Iraq and Syria. A second round of attacks in the early hours of Sunday focused on the Houthis, the Yemeni group backed by Tehran, who have been attacking international shipping in the Red Sea region. The US counterattacks are unlikely to impress the hawks at home, especially in the Republican Party, who accuse Biden of being weak, indecisive, and unwilling to confront the source of the challenge in Iran. The doves in the Democratic Party are angry that Biden is leading the US into a wider war in the Middle East, notwithstanding the claims of the Biden administration to the contrary.


A ceasefire in Gaza and a fresh diplomatic effort to address the concerns of the Palestinian people could go a long way in deterring Iran and its proxies that have built support by pointing to Israel’s brutal record against Palestine. To be sure, the Biden Administration is trying to broker a long pause in the Gaza military operations and facilitate the release of Israeli hostages and Hamas prisoners that could set the stage for a renewed peace process that would recognise the long-standing aspirations for a credible Palestinian state. But resistance from Israel’s Prime Minister, Benjamin Netanyahu, continues to stymie US peace efforts. Using military force against the “axis of resistance” without disciplining Netanyahu will be an American exercise in futility.






February 5, 2024

Invest In Jobs Too

FM’s right on investment in sunrise sectors. But that has a fallout on job market


Trends in Indian economy’s investment pattern have sparked debate. FM, in a post-budget interview to TOI, said public focus has been on traditional sectors while investment has flowed into sunrise areas such as AI and materials research.


IP, an investment magnet | Her observation is supported by a decade-long trend in National Statistical Office’s data on investments. Between 2011-12 and 2021-22, the pattern of investments by private non-financial corporations underwent two important changes. In nominal terms, investment in plant and machinery declined from 18.4% to 13.8% of the overall national investment. Investments classified as intellectual property products grew from 5.9% to 9.7% of the total during the decade. Absolute level of incremental investment in nominal terms in intellectual property (IP) was greater than the same in plant and machinery.


Impact on jobs market | Technological evolution has brought IP to forefront. This is a good development. However, it’s had some adverse impacts on the job market. Technology driven growth in manufacturing in a country where many workers have limited skills has led to distortions. According to GOI’s jobs data, between 2017-18 and 2022-23, the percentage of the workforce in manufacturing declined from 12.1% to 11.4%. Some of them seem to have gone back to agriculture where the proportion of the workforce during the same period increased by 1.7 percentage points.


Long-term phenomenon | Employment intensity of investment in India has been falling for decades. It’s following a global pattern. A study by Azim Premji University showed that after adjusting for inflation, the number of jobs generated for every ₹1 crore investment fell between 1994 and 2015. In factories, ₹1 crore of investment led to 33 jobs in 1994. By 2015, it fell to eight jobs.


Small’s not the answer | Decline in employment intensity was sharper in informal sector. Among family enterprise units there, ₹1 crore of investment led to 4,615 jobs in 1994. In 2015, just 702 jobs were created for the same investment.


Two-pronged effort | Two solutions need to play out simultaneously. Immediate solutions need to be found in removing constraints that prevent highly labour-intensive companies in sectors such as garments from expanding their scale. It will provide an easier entry point for people stuck in low-wage farm employment. Long-term, there’s no substitute for improving human capital. That requires sustained effort at all levels.





February 5, 2024

West Asian Timebomb

US stepping up bombings in the region won’t help. Instead, it should rein in Israel and stop war in Gaza


Latest American strikes on more than 85 targets in Iraq and Syria – killing at least 40 people – again inch up threats of a wider regional conflict. They were in retaliation for the killing of three American servicemen on a Jordan base by militias linked to Iran. Raids were carried out by B-1 bombers flown directly from US. There are fears US is slow walking into another prolonged conflict.


Symptoms and problem | But what US is fighting are essentially symptoms. Since the beginning of Israel-Hamas war, Iran-backed militias, part of Tehran’s so-called ‘Axis of Resistance’, have stepped up their attacks in the region. Their single-point agenda is to stop Israel’s attacks on Gaza.


Hydra-headed challenge| These militias are spread across a wide geography with decentralised military assets. There’s no way US can take them out at one go. Nor can it deter them as shown by continuing Houthi disruptions in Red Sea. Only option then is for US to engage in prolonged bombing campaign. That’s politically dicey in a US election year.


Mistakes can be catastrophic | Hitherto US and Iran have avoided attacking each other directly. But given the spread of Iran Revolutionary Guards commanders and American personnel in the region, mistakes can happen, politically forcing Tehran and Washington to switch to direct attacks, which would be devastating.


Israel is the issue | All of this can be avoided if there’s a ceasefire between Israel and Hamas. Biden has given Netanyahu a very long rope. But Israel’s operation is mostly killing civilians in Gaza. Nor is Israel any closer to rescuing the remaining Israeli hostages. True, Biden has started sanctioning Israeli settlers for violence in West Bank. But more needs to be done to rein in Israel. Getting into a wider, prolonged West Asia conflict for the sake of Netanyahu-led Tel Aviv is just not worth it for Washington.






February 5, 2024

On PSUs, GoI Has Taken The Right Call

Take a more holistic approach to privatisation


Finance secretary TV Somanathan’s assertion that GoI no longer sees disinvestment from a budget-balancing perspective is a welcome development. It suggests greater government confidence about revenue buoyancy and tighter control over expenditure. Principally, though, the public sector is undergoing a revival, which makes it attractive to shareholders in terms of valuations and dividends. The sector has acquired a new agency to push investment growth, and GoI is rightfully wary of scaling up disinvestment, considering the scope for structural changes to the economy that PSUs can accomplish. The public sector will have to take up some of the slack of slowing government capex till the private investment recovery is more robust. Widening the scope of divestment policy to include PSU asset value, their earning potential and capacity buildup is a more holistic approach than creating a selloff calendar and sticking to it.


Divestment ambitions have remained modest for most of the tenure of this government, partly on account of the appetite for stake sales during global economic crises. Repeated missed revenue targets have trimmed ambitions and have led to a rethink over announcing a schedule that leads to investors beating down prices. The markets currently fancy PSU counters, but these are companies that have benefitted from specific policy actions, such as climate mitigation and logistics cost reduction.


Delinking divestment from the fiscal math gives the government more room to assess individual PSUs’ economic value. Set against GoI’s longer-term commitment to scale down its role in business, this allows better realisation at a time of the government’s choosing and not that of the market. Disinvestment serves a larger role than realising value in that it enhances the economy’s competitive intensity and improves corporate governance. GoI would do well not to lose sight of these effects as the fiscal urgency to sell PSU stakes is reduced.






February 5, 2024

Don’t Normalise Disinformation


It has been used as a tool of warfare in the ancient era. It has been used as propaganda during the Cold War. And in an unprecedented year for elections — at least 64 countries, including India, go to polls this year — misinformation or disinformation has become one of the significant threats that people will face, warns World Economic Forum’s 2024 Global Risk Report. It could destabilise the real and perceived legitimacy of newly elected governments, risking political unrest, violence and terrorism, and a longer-term erosion of democratic processes. Worryingly for India, false information has been identified as a significant risk, threatening the stability and security of the country.


Ironically, India’s strong digital infrastructure and good internet penetration exacerbate the risk. Other factors include an education system that fails to encourage critical thinking. This, in turn, builds a culture where asking questions is seen as questioning authority and legitimacy. It is not what the information is but who provides the information that is critical to establish its veracity and trustworthiness. Unsurprisingly, information from social media platforms and WhatsApp groups of friends and family has more currency than information provided by legacy and formal media and governments. Probing the information is not the SOP. Mobile and internet-based messaging options make dissemination easy. Each forward adds strength to misinformation passed around. Facts become stranger than fiction.


With virtually no one immune from spreading disinformation/ misinformation this election season, the only antidote is for an equally determined lot to counter and push facts without fear or favour. That, unfortunately, remains a tall order.





February 5, 2024

Under the scanner

Paytm Bank fiasco raises fintech regulation issues


The Reserve Bank of India’s (RBI) directive to Paytm Payments Bank last week indicates serious irregularities in the controls and checks in the bank and raises concerns about similar lapses in other fintech service providers. As this newspaper has reported, the Enforcement Directorate will probe the Bank if the RBI raises concerns over money laundering.


The RBI has practically asked the bank to pull down its shutters by stating that it cannot take any further deposits or allow any top-ups in customer accounts, wallets, FASTags, prepaid instruments or National Common Mobility Cards. It cannot provide any fund transfer or banking service after the end of this month. Customers have, however, been allowed to withdraw their funds from accounts and prepaid instruments. The Paytm Payments Bank’s customers may shrink sharply by the end of this month. This action will have ripple effects across the digital payments ecosystem. Paytm Payments Bank is the back-end for One97 Communications, which is among the popular players in online digital transactions, offering its services under the Paytm brand. The 330 million Paytm wallets were however issued by Paytm Payments Bank. RBI has tried to sever the link between the Paytm Payments Bank and One97 Communications by asking the bank to close the nodal accounts of One97 Communications at the earliest. One97 Communications now has a month to migrate its merchants and users to some other bank, which is not going to be easy.


According to NPCI, Paytm accounted for 13 per cent of UPI transaction volumes and 11 per cent of transaction value in October 2023. Millions of users will be inconvenienced, if the transfer of funds to another bank is held up. Paytm Payments Bank has also issued 17 per cent of the FASTags in the country and its 58 million users will also have to shift to another service provider before March. Paytm Payments Bank had been found non-compliant with RBI’s rules multiple times since it was established in 2017. RBI has not spelt out the offences this time, but has said that the action was due to “persistent non-compliances and material supervisory concerns in the bank.” This episode shines the spotlight on the rather lax policies adopted by payments banks, small finance banks and other fintech payment gateways while onboarding new customers and their lack of adherence to the stipulated KYC checks. In a bid to show higher customer addition, creation of fake accounts with fake IDs appears rampant.


The need to encourage the rapid increase in digitisation of payments should not translate into regulatory laxity. RBI has done well to crack the whip on Paytm Payments Bank and should follow this with tighter surveillance on such entities. Besides their opacity, they have not been able to further financial inclusion through lending. RBI also needs to review the fundamental question of whether there is a place at all for payment banks in the financial system.






February 5, 2024

Qualitative improvement

Higher capex will improve growth prospects


Union Finance Minister Nirmala Sitharaman pleasantly surprised Budget analysts by projecting a lower than expected fiscal deficit in the Interim Budget last week. This is particularly commendable because of the expected low nominal gross domestic product (GDP) growth this financial year. The government expects to contain the fiscal deficit at 5.8 per cent of GDP in 2023-24, as against the Budget Estimate (BE) of 5.9 per cent. Further, sticking to the medium-term fiscal glide path — announced in the Budget speech for 2021-22 — of lowering the fiscal deficit to below 4.5 per cent of GDP, Ms Sitharaman projected a decline in the fiscal deficit to 5.1 per cent of GDP in 2024-25. There were apprehensions that the government could announce populist measures in the runup to the upcoming Lok Sabha elections. It has done well to stay clear of any such temptations. Further, projections for next financial year look credible. The assumption of nominal growth at 10.5 per cent in 2024-25, though higher than in the current financial year, is not overly optimistic.


The most significant feature of fiscal management, however, is that the deficit is being reduced without compromising on the quality of government expenditure. In fact, the allocation for capital expenditure is increasing. As an analysis in this newspaper last week showed, capital expenditure as a proportion of the total expenditure of the Union government is projected to hit a 30-year high in 2024-25. The government increased capital expenditure significantly after the pandemic. Since the private sector was reluctant to spend because of high levels of uncertainty, the government did well to support recovery after the pandemic. The Union government’s capital expenditure in absolute terms nearly tripled between 2019-20 and 2023-24. There were some concerns that the system may be unable to absorb large amounts of capital expenditure because of capacity constraints. But the government seems to have overcome such constraints and the Revised Estimate (RE) for this year is only marginally lower than the BE.


For next financial year, while total government expenditure is projected to grow a little over 6 per cent, capital expenditure is expected to increase about 17 per cent to record Rs 11.1 trillion. This suggests the government is focusing on containing revenue expenditure to create space for capital expenditure. It is reasonable to assume that the new government will retain the deficit and capital expenditure targets in the full Budget, to be presented after the Lok Sabha elections. Given the broad infrastructure deficit, the need for higher capital expenditure cannot be overstated in a developing economy like India. It has also been observed that the multiplier effect of capital expenditure is much higher than revenue expenditure.


In the current context, the idea is that as the private sector gains confidence with improvements in economic prospects and starts investing in capacity creation, the government would gradually withdraw from this space and consolidate its finances. Both corporate and bank balance sheets have improved significantly over the past few years. It thus remains to be seen if the initial signs of revival in corporate investment can be sustained over a longer period. In this context, lower than expected borrowing by the central government will also help because it will reduce the cost of money in the system. Besides, well-managed government finances strengthen macroeconomic stability and increase investor confidence.







February 5, 2024

Defence preparedness

Govt will have to find more resources


One of the expenditure heads in the Interim Budget that was keenly anticipated was the spending on defence. In the Budget, allocations to the defence ministry are divided into four heads: The civil expenditure of the ministry (which is negligible); revenue expenditure on defence services; the capital outlay; and pensions. Total expenditure on defence services (excluding Ministry of Defence civil expenditure) is around Rs 4.55 trillion, of which about 38 per cent, or Rs 1.72 trillion, has been put aside for capex. When the Rs 1.41 trillion to be spent on pensions is added to the mix, total expenditure goes up to nearly Rs 5.96 trillion, and capex shrinks to 29 per cent of the total. Defence capex in the Budget is thus 9.4 per cent higher than in the Revised Estimate (RE) for 2023-24. This is below the rate of growth of nominal gross domestic product, which was estimated at 10.5 per cent. Total defence expenditure is expected to shrink marginally. Notably, in 2023-24 revenue expenditure was higher in the RE for the defence ministry than in the Budget Estimate (BE) by 10.6 per cent. The overall allocation for defence, including pensions, has now dropped below 2 per cent of gross domestic product (GDP), and excluding pensions defence spending is below 1.4 per cent of GDP. This shrinkage is largely in line with trends over the past years.


The question that must be asked, therefore, is how long a major shakeup of India’s defence allocations can be avoided. The wages and salaries bill for those currently serving is in any case higher than in peer countries as a percentage of total expenditure; and pensions are considerably larger. It is true that reducing these is politically difficult. The one-rank-one-pension promise has caused the pension bill to expand significantly, and recent attempts to change the system of recruitment for India’s personnel-heavy army caused widespread protests. Nevertheless, as it stands, India will struggle to pay for the modern equipment required to deal with 21st-century threats. This year, the Budget has made a change in how it reports its planned defence capex: It is no longer explicitly broken up among the three services. So it is far from clear how much will be spent on new equipment for the Air Force and the Navy.


However, it is worthwhile to note the specific projects mentioned in the context of the higher defence capex for the coming year (although smaller as a share of GDP) in the defence ministry’s press release after the Budget. These are: The modernisation of Sukhoi-30s alongside some new purchases of those aircraft; more advanced engines for India’s MiG-29s; and payment for the C-295 tactical transport aircraft, being manufactured by Tata Advanced Systems under licence from Airbus. Most of these decisions had already been taken. Three points, therefore, stand out. First, there is no real provision for big new purchases of platforms or aircraft. Second, the Navy might well find itself being shortchanged. And third, India’s defence co-operation with the Russian Federation shows no signs of slowing. All these militate against the projected image of India as a maritime power closely aligned with the Quad to manage Chinese aggression in the Indo-Pacific. The government will need to find resources to improve defence preparedness.





February 5, 2024

Paytm in the dock

The management of the payments bank has to pay the price for being reckless in its actions


If the catchy tune of the ad jingle “Paytm karo” has been sounding more like a cacophony these days, the blame lies squarely on the management of One97 Communications, the parent of Paytm Payments Bank (PPB). In a blogpost on Friday, One97, which holds 49% in PPB, cited a post by its founder and CEO Vijay Shekhar Sharma on X, “To every Paytmer, Your favourite app is working, will keep working beyond 29 February as usual.” Unfortunately for the millions of Paytmers, this might sound like bravado of an individual who seems to have forgotten the basic governance principles while running a business. Nothing else can explain the persistent non-compliances and continued supervisory concerns about PPB, which was put on notice by the banking regulator in March last year and directed not to onboard new customers.


Inexplicably, the management did nothing despite repeated warnings on falsified compliances, irregularities in KYC norms, and rules pertaining to related-party transactions. That left the regulator with little option but to bar PPB from key operations. What will be a crippling blow to the bank, which has 50 million account holders, and for a group which has 300 million wallets and a leader in the FASTag units segment, is the diktat that it will have to terminate the nodal accounts of the parent firm and Paytm Payment Services. Nearly a quarter of all Unified Payments Interface (UPI) transactions on Paytm end up credited to a PPB account. But now, all that would have to change as the regulator felt that there was no wall between Paytm and the bank — money and data flowed easily even when they shouldn’t have.


Paytm’s biggest challenge will be to tie up with other banks for UPI transactions, necessitating a sea change in its business model. That’s easier said than done. Lending partnerships are based on trust and few banks would be willing to enter into a partnership with an entity which is not only under the strict lens of the regulator but also of the government. Revenue secretary Sanjay Malhotra told a news agency on Saturday that PPB would be probed if any fresh charges of fund siphoning are found. Global brokerages Jefferies and Macquarie are both worried that these dark clouds over the group could end up spooking some of Paytm’s lending partners, and they might even limit the business they do with the fintech. One feels sorry for Paytm’s investors. Last November, Paytm completed a year as a publicly traded company and its performance has been an embarrassment. The latest episode would only add salt to investors’ injuries.


There has been criticism in some quarters over the RBI’s “harsh” action against PPB. Payment banks are justifiably concerned over their steep profitability path because of the restrictions on their operations by the RBI and have been arguing for permission to start lending, albeit in a small way. The regulator must consider this in view of the contributions made by the differentiated banks and fintechs to a segment outside of mainstream banking. But there is absolutely no basis for the accusation against the regulator of killing them through aggressive actions. Nothing can come in the way of a credibility test when millions of depositors’ money is concerned. The fintech industry should rather relook its own internal systems to ensure the highest compliance standards. Entities such as Paytm have to pay the price for being reckless in their actions.


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