Delimitation Commission and the case of exiled KPs - Business Guardian
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Delimitation Commission and the case of exiled KPs

Modi:2:0 is urged to give #Justice to Kashmiri Pandits by an amendment in the constitution to accord nomination of at least three seats in JK assembly and one seat in Parliament.



The Delimitation Commission is appointed by the President of India and works in collaboration with the Election Commission of India. It is appointed for the purpose of drawing up the boundaries of constituencies all over the country.

The Delimitation commission or Boundary commission of India is a commission established by the Government of India under the provisions of the Delimitation Commission Act. The main task of the commission is redrawing the boundaries of the various assembly and Lok Sabha constituencies based on a recent census. The representation from each State is not changed during this exercise. However, the number of SC and ST seats in a state are changed in accordance with the census. The present delimitation of constituencies has been done on the basis of 2001 census under the provisions of Delimitation Act, 2002.

The Commission is a powerful and independent body whose orders cannot be challenged in any court of law. The orders are laid before the Lok Sabha and the respective State Legislative Assemblies. However, modifications are not permitted.

Delimitation commissions have been set up four times in the past — 1952, 1962, 1972 and 2002 — under Delimitation Commission Acts of 1952, 1962, 1972 and 2002.

The union government had suspended delimitation in 1976 until after the 2001 census so that states’ family planning programs would not affect their political representation in the Lok Sabha. This had led to wide discrepancies in the size of constituencies, with the largest having over three million electors, and the smallest less than 50,000.

After the Articles 370 & 35-A are made inoperable and the State reorganisation,the J&K Reorganization Act, 2019 (Act) mandates gerrymandering of assembly constituencies through the process of delimitation.

The delimitation process of Assembly Constituencies, as envisaged by The J&K Reorganization Act, 2019 (Act) is underway. Delimitation Commission constituted under Section 3 of the Delimitation Act, 2002 is on the job. Need for delimitation of the constituencies arose because the number of seats in J & K legislative Assembly has been increased to 114.

The delimitation process has generated hope among the people especially in the displaced Pandits that a way will be found out to ensure their political representation & empowerment. Accordingly, they have approached the Commission with their well founded case for having a statuary share carved out for them in the upcoming State Assembly.

Social Aspect:

The three-member commission, was setup in March 2020 and is headed by Justice (Retired) Ranjana Prakash Desai, proposed six more seats in the Jammu region and only one additional seat in Kashmir in proposed 90-member house.

Kashmir will be have 47 seats and Jammu region 43 seats.

The Delimitation Commission, mandated to redraw the assembly and parliamentary constituencies in Jammu and Kashmir, put its report in the public domain on Monday and invited objections and suggestions from people.

The Delimitation Commission has published its report in the gazettes of India as well as Jammu and Kashmir regarding the proposals.It has proposed six more seats in the Jammu region and only one additional seat in Kashmir in proposed 90-member legislative assembly house.Kashmir will have 47 seats and Jammu region 43 seats.

The displaced aborigines natives put up their case strongly before the commission for reservations of assembly seats for them.Their representatives consisting of various social organisations namely AIKS,Kashmir Samiti, Jammu Kashmiri Sabha and Punun Kashmir etc.The most vocal representation has been presented by social activists,the former top civil servants,the thought leaders and cultural activists,led by a erudite columnist and prominent leader Ashwani Chrangoo articulated the cause of displaced KPs most comprehensively and submitted law and facts about the specially placed population elsewhere in the country having been accommodated in the constitutional scheme of the Country as an exception.KPs urged the Commission at least put in a Para or two in their final report recommending at least three nominated seats in the JK assembly and a nominated seat in the Parliament.Similarly the exiled community submitted memorandums to PM Modi and HM Amit Shah to effect required and specific amendments in the Constitution in this regard.There can not be more extraordinary special facts and circumstances than the plight of Kashmiri Pandits living as refugees in their own Country for 32 years in today’s modern days of enlightenment and democracy that deserves an amendment to accommodate 7lacs population in the promotion of idea of India in Kashmir.

The last memorandum submitted reads as;

Hon’ble Justice Ranjana Desai Ji

The Chairperson,

Delimitation Commission of India

New Delhi

In view of the visit of Delimitation Commission to Jammu in context of the publication of the final report on Delimitation of constituencies in J&K, kindly permit us to put our point of view before your honour.

We already have made in the our presentation before you last year in March at Delhi and in July at Jammu.

The issue of the displaced Kashmiri Pandits can’t be ignored so far as the political representation of the Community is concerned. It will be a worse tragedy than the tragedy of our genocide and exile. In case this community is left behind, it will be a constitutional sin against the community. A section of the society that is indegenous to the land of the state can’t remain unrepresented in a representative parliamentary democracy in its own state the foundations of which have been laid by the community forefathers.

It has already been made known by us to the Commission alongwith the necessary documents that the displaced communities of Kashmiri Hindus and Kashmiri Sikhs have no opportunity in the prevailing situation to get elected either to the J&K Assembly or to the Parliament.

A reference in the draft could be made in the final report regarding our repeated interaction and submission before you. The government could be asked to favourably consider the issue of amendment in the constitution to accomodate the displaced community by inclusion through reservation or nomination to the J&K Assembly. There are already a number of instances in this regard in our country in various states like Sikkim, Pudduchery, the previously Anglo-Indian nominations in the Parliament or the Women nominations in J&K Assembly.

Your honour acknowledged in the meeting last time that there was enough substance in our presentation in this context. It is requested that an appropriate reference is made in the final Report in this regard to the government and the parliament enabling the government to take an appropriate constitutional measure in this respect.


Best Regards,

Ashwani Kumar Chrungoo, Yoginder Kaul IPS,& Virender Raina, President,

Panun Kashmir


The delimitation process of Assembly Constituencies, as envisaged by The J&K Reorganization Act, 2019 (Act) is underway. Delimitation Commission constituted under Section 3 of the Delimitation Act, 2002 is on the job. Need for delimitation of the constituencies arose because the number of seats in J & K legislative Assembly has been increased to 114.

> The delimitation process has generated hope among the displaced Pandits that a way will be found out to ensure their political representation & empowerment. Accordingly, they have approached the Commission with their well founded case for having a statuary share carved out for them in the upcoming State Assembly.


Case for Constitutional amendment

Among the myriad ethno, cultural religious and other groups that exist in the melting pot called India, the place of numerically small but significant Kashmiri Pandit community stood out as being privileged. The community which down the ages has made immense contribution to overall social, political and religious life of our nation is facing existential threat today. Away from home, they are fast losing their identity and, as a distinct race, is on the verge of extinction. How can KP identity survive as a distinctive and distinguished culture group is the moot point. Primarily, for this reason, it should come within the ambit of the United Nations Declaration on Rights of Minorities, which General Assembly adopted recalling Resolutions 46/115 of 17.07.1991, 1992/16 of 21 Feb 1992 and 1992/4 of 20.07.1992 of Commission on Human Rights:

Art 1.1 casts a duty on the State to protect the existence and the ethnic, cultural, religious, linguistic identity of minorities within their respective territories; and shall encourage conditions for promotion of that identity;

Art 1.2 calls upon the State to adopt appropriate legislative and other measures to achieve those ends;

Art 1.3 reserves a right for the person belonging to the minorities to participate in the decision making process at national and appropriate regional levels, wherein they live.

It may be pertinent to recall that the National Commission for Minoritiee expressed concern on the dwindling number of KPs. Former Chairperson of National Commission for Minorities, Tahir Mehmood, wrote to the then CM Farooq Abdullah, in 1999, inviting his attention to the miserable plight of the minorities in J&K state. He wrote, “Our Hindu brethren are in minority in J&K. We owe them the sacred responsibility of all that is necessary to protect their lives, properties, human rights and civil liberties” (No. CH/4/88 NCM dt 21.01.1999).

> Another Chairman NCM, Gayural Hassan Rizvi told media on 13th June, 2017 “If the definition of minorities has to be revisited, it is my opinion that Kashmiri Pandits should be first people to be accorded minority status. When minorities in the entire country have that status, privileges and opportunities, why should Kashmiri Pandits, who are as minority in the state, be left out? It is something the Parliament has to decide but I will definitely raise the matter in the appropriate forum .”

> These references are made to assert right of the KPs to have a say in the decision making process of the state which, keeping their small number in view, may be possible only by initiating an affirmative action in their favour, by reservation of seats in the Assembly. Following should be a guide in the matter


The Sikkim Legislative Assembly has one seat reserved for Buddhist Monks who live in Monasteries across Sikkim. This constituency is not bound by geographical boundaries but spreads across whole state like a floating constituency. The Supreme Court has in RC Poudial and another versus UOI & others (1994 SCC Sup 1 324) upheld its constitutionality on the argument that though these Monasteries no doubt are religious in nature yet they form a separate section of society. The Court appreciated Sikkim’s Sangha Assembly seat and characterized it as a perfect example of state’s unique political process to protect minority rights.


Puducherry Assembly has 30 elected members and in addition the Government of India is empowered to nominate 3 members (with voting powers ) to the Assembly -from among the sections of society who don’t have chances to reach thereto by way of election. This model could be replicated in case of J&K UT, also to fecilitate the KP representation.

Nomination for Women in the erstwhile J&K Assembly:

In the erstwhile J&K Assembly there was provision for nomination of two women members to the House, in order to correct the gender balance. On the same principle demographic balance, in the upcoming Assembly, has to be maintained by ensuring representation of all sections – particularly the minorities of Kashmir whom the Kashmiri Pandits constitute the main bulk.


Art 331 of the Constitution of India, reserved seats in the Lok Sabha and made provision for State Assemblies to reserve seats for the Anglo-India Community. Rationale behind the reservation was that Anglo Indian community constituted a religious, social as well as a linguistic minority, and being numerically small community interspersed all over India, it wasn’t possible for them to get represented in a general election. KPs are similarly situated, so the logic behind Anglo Indian reservation fully applies to their case. True, this reservation lapsed in 2020 but the logic behind it remains intact. It got lapsed because only 296 Anglo-Indians remained in the country.


In Indira Gandhi versus Raj Narrain (AIR 1975 SC 2299), the Supreme Court added following to the list of Basic Features law laid down in Keshvananda Bharti’s case (AIR 1973 SC 1461) “Democracy which means free and fair election”. In UOI V/S Association of Democratic Reforms (2002) (SCC 294) Apex Court held “Democratic Republic is a part of the basic structure of the constitution. For this, free and fair periodical elections based on adult franchise are must”. In People’s Union for Civil liberties case (2013 (6) Supreme 673) Supreme Court observed that the decision taken by a voter either to vote or not is his right of expression under Art 19(1)a of the Constitution. It said, “the voters participation in the election is indeed the participation in democracy itself. Non-participation causes frustration and disinterest, which is not a healthy sign of a growing democracy”.

KPs right to vote is adversely affected for not having a proper vehicle of representation in the Assembly. The candidate who stands up in the constituency, where the exiled Pandits once lived, is not known to them nor does the candidate ever bother to make himself known to the displaced voter, leave alone enquiring about his problems and concerns which the displaced Pandits would want the candidate to raise in the Assembly. In this situation, where there is none to represent him, the exile’s right to vote gets effectively scuttled. Once a bulk of voters is excluded from participating in the voting process, it no longer remains a participatory democracy.

> Article 2.3 of the UN Declaration on Rights of Minorities reserves a right for minorities to participate in decision-making process at national and regional levels, were they live. The right can only be exercised if there is a proper forum available to them. For the KPs, Legislative Assembly could be the forum to feel politically empowered, besides the two houses of Parliament.

Respected Sir,

The Delimitation Commission is hemmed in by the constraints of law. It may not be able to address this demand of the KPs in the desired manner. It requires amendments to the Constitution and other law. If clause A could be added to Section 36 of now repealed JK Representation of Peoples Act to have polling booths away from the jurisdiction of an Assembly Constituency to facilitate a displaced person to cast vote, similarly constituencies could be carved out for them to ensure their representation in the Assembly.

> The head count of people and geography are inalienably integral to the whole electoral regime of which the Delimitation of Assembly constituencies is an important component. Precisely, to mark the point, the Delimitation Act 2002 lays emphasis on Census (Section 8) and compactness of Geography (Section 9) for delineation of Assembly or Parliamentary Constituencies.

For the reasons mentioned herein above both Census and the Geography elude them. There has been no head count of them, nor do they have the Geographic compactness to live in present. With the result KPs stand thrown out of the electoral regime. This amounts to their disenfranchisement and denial of citizenry rights which are available to their compatriots in the country.

In addition, this constitutes a grave violation of Human Rights. There can be no worse example of a whole community being excluded from the electoral process. The situation goes against the letter and spirit of the Delimitation process.

Appeal to PM Modi by representatives of Exiled KPs

Hon’ble PM ,Shri Narinder Modi,the displaced KPs look up to you as a Messiah who would deliver them their due ameliorate their miserable plight and ensure that the due rights -socio-political and economic– as envisaged by the Constitution of India, flow to them, smoothly.It is hoped that a necessary amendment to the constitution would be considered by Modi:2:0 to accommodate this illustrious community with political empowerment in the constitutional process of the Country to further contribute in promotion and consolidation of idea of India in Kashmir.

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Govt extends date for submission of R&D proposals



The Government has extended the deadline for submission of proposals related to R&D scheme under the National Green Hydrogen Mission. The R&D scheme seeks to make the production, storage, transportation and utilisation of green hydrogen more affordable. It also aims to improve the efficiency, safety and reliability of the relevant processes and technologies involved in the green hydrogen value chain. Subsequent to the issue of the guidelines, the Ministry of New & Renewable Energy issued a call for proposals on 16 March, 2024.

While the Call for Proposals is receiving encouraging response, some stakeholders have requested more time for submission of R&D proposals. In view of such requests and to allow sufficient time to the institutions for submitting good-quality proposals, the Ministry has extended the deadline for submission of proposals to 27th April, 2024.

The scheme also aims to foster partnerships among industry, academia and government in order to establish an innovation ecosystem for green hydrogen technologies. The scheme will also help the scaling up and commercialisation of green hydrogen technologies by providing the necessary policy and regulatory support.

The R&D scheme will be implemented with a total budgetary outlay of Rs 400 crore till the financial year 2025-26. The support under the R&D programme includes all components of the green hydrogen value chain, namely, production, storage, compression, transportation, and utilisation.

The R&D projects supported under the mission will be goal-oriented, time bound, and suitable to be scaled up. In addition to industrial and institutional research, innovative MSMEs and start-ups working on indigenous technology development will also be encouraged under the Scheme.

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India, Brazil, South Africa to press for labour & social issues, sustainability



The Indian delegation also comprises Rupesh Kumar Thakur, Joint Secretary, and Rakesh Gaur, Deputy Director from the Ministry of Labour & Employment.

India, on Thursday, joined the G20’s two-day 2nd Employment Working Group (EWG) meeting under the Brazilian Presidency which is all set to address labour, employment and social issues for strong, sustainable, balanced and job-rich growth for all. India is co-chairing the 2nd EWG meeting, along with Brazil and South Africa, and is represented by Sumita Dawra, Secretary, Labour & Employment.

The Indian delegation also comprises Rupesh Kumar Thakur, Joint Secretary, and Rakesh Gaur, Deputy Director from the Ministry of Labour & Employment. India has pointed out that the priority areas of the 2nd EWG at Brasilia align with the priority areas and outcomes of previous G20 presidencies including Indian presidency, and commended the continuity in the multi-year agenda to create lasting positive change in the world of work. This not only sustains but also elevates the work initiated by the EWG during the Indian Presidency.

The focus areas for the 2nd EWG meeting are — creating quality employment and promoting decent labour, addressing a just transition amidst digital and energy transformations, leveraging technologies to enhance the quality of life for al and the emphasis on gender equity and promoting diversity in the world of employment for inclusivity, driving innovation and growth. On the first day of the meeting, deliberations were held on the over-arching theme of promotion of gender equality and promoting diversity in the workplace.

The Indian delegation emphasized the need for creating inclusive environments by ensuring equal representation and empowerment for all, irrespective of race, gender, ethnicity, or socio-economic background. To increase female labour force participation, India has enacted occupational safety health and working conditions code, 2020 which entitles women to be employed in all establishments for all types of work with their consent at night time. This provision has already been implemented in underground mines.

In 2017, the Government amended the Maternity Benefit Act of 1961, which increased the ‘maternity leave with pay protection’ from 12 weeks to 26 weeks for all women working in establishments employing 10 or more workers. This is expected to reduce the motherhood pay gap among the working mothers. To aid migrant workers, India’s innovative policy ‘One Nation, One Ration Card’ allows migrants to access their entitled food grains from anywhere in the Public Distribution System network in the country.

A landmark step in fostering inclusion in the workforce is the e-Shram portal, launched to create a national database of unorganized workers, especially migrant and construction workers. This initiative, providing the e-Shram card, enables access to benefits under various social security schemes.

The portal allows an unorganized worker to register himself or herself on the portal on self-declaration basis, under 400 occupations in 30 broad occupation sectors. More than 290 million unorganized workers have been registered on this portal so far.

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India to spend USD 3.7 billion to fence Myanmar border



India plans to spend nearly $3.7 billion to fence its 1,610-km (1,000-mile) porous border with Myanmar within about a decade, said a source with direct knowledge of the matter, to prevent smuggling and other illegal activities. New Delhi said earlier this year it would fence the border and end a decades-old visa-free movement policy with coup-hit Myanmar for border citizens for reasons of national security and to maintain the demographic structure of its northeastern region.

A government committee earlier this month approved the cost for the fencing, which needs to be approved by Prime Minister Narendra Modi’s cabinet, said the source who declined to be named as they were not authorised to talk to the media. The prime minister’s office and the ministries of home, finance, foreign affairs and information and broadcasting did not immediately respond to an email seeking comment.

Myanmar has so far not commented on India’s fencing plans. Since a military coup in Myanmar in 2021, thousands of civilians and hundreds of troops have fled from there to Indian states where people on both sides share ethnic and familial ties. This has worried New Delhi because of risk of communal tensions spreading to India. Some members of the Indian government have also blamed the porous border for abetting the tense situation in the restive north-eastern Indian state of Manipur, abutting Myanmar.

For nearly a year, Manipur has been engulfed by a civil war-like situation between two ethnic groups, one of which shares lineage with Myanmar’s Chin tribe. The committee of senior Indian officials also agreed to build parallel roads along the fence and 1,700 km (1,050 miles) of feeder roads connecting military bases to the border, the source said.

The fence and the adjoining road will cost nearly 125 million rupees per km, more than double that of the 55 million per km cost for the border fence with Bangladesh built in 2020, the source said, because of the difficult hilly terrain and the use of technology to prevent intrusion and corrosion.

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However, Stock highlighted the enormity of the challenge, noting that between 40% and 70% of criminal profits are reinvested, perpetuating the cycle of illicit financial activity.

In a press briefing held on Wednesday, Interpol Secretary General Jurgen Stock unveiled alarming statistics regarding the extent of undetected money laundering and illegal trade transactions plaguing the global banking network. Stock revealed that over 96% of the money transacted through this network remains undetected, with only 2-3% of the estimated USD 2-3 trillion from illegal trade being tracked and returned to victims.

Interpol, working in conjunction with law enforcement agencies and private financial sectors across its 196 member countries, is committed to combating the rising tide of fraud perpetrated by illicit traders. These criminal activities encompass a wide spectrum, including drug trafficking, human trafficking, arms dealing, and the illicit movement of financial assets.

Stock emphasized the urgent need to establish mechanisms for monitoring transactions within the global banking network. Currently, efforts are underway to engage banking associations worldwide in setting up such a framework. However, Stock highlighted the enormity of the challenge, noting that between 40% and 70% of criminal profits are reinvested, perpetuating the cycle of illicit financial activity. The lack of real-time information sharing poses a significant obstacle to law enforcement agencies in their efforts to combat money laundering and illegal trade.

Stock underscored the role of Artificial Intelligence (AI) in exacerbating this problem, citing its use in voice cloning and other fraudulent activities. Criminal organizations are leveraging AI technologies to expand their operations and evade detection on a global scale. Stock emphasized the importance of enhanced cooperation between law enforcement agencies and private sector banking groups. Realtime information sharing is crucial in the fight against illegal wealth accumulation.

Drawing inspiration from initiatives such as the “Singapore Anti-Scam Centre,” Stock called for the adoption of similar models in other countries to strengthen the collective response to financial crimes. In conclusion, Stock’s revelations underscore the pressing need for concerted action to combat global financial crimes. Enhanced cooperation between public and private sectors, coupled with innovative strategies for monitoring and combating illicit transactions, is essential to safeguarding the integrity of the global financial system.

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FM defends Atal Pension Scheme, highlights guaranteed returns



Finance Minister Nirmala Sitharaman defended the Atal Pension Yojana (APY) against Congress criticism, asserting its design based on choice architecture and a guaranteed minimum 8% return. She emphasized the scheme’s opt-out feature, facilitating automatic premium continuation unless subscribers choose otherwise, promoting retirement savings. Sitharaman countered Congress allegations of coercion, stating the APY’s guaranteed returns irrespective of market conditions, supplemented by government subsidies.

Responding to Congress’s claim of scheme misuse, Sitharaman highlighted its intended beneficiaries – the lower-income groups. She criticized Congress for its alleged elitist mindset and emphasized the scheme’s success in targeting the needy. Sitharaman accused Congress of exploiting vote bank politics and coercive tactics, contrasting it with the APY’s transparent framework. The exchange underscores the political debate surrounding social welfare schemes, with the government defending its approach while opposition parties raise concerns about implementation and efficacy.

Finance Minister Nirmala Sitharaman’s robust defense of the Atal Pension Yojana (APY) against Congress criticism highlights the ongoing debate over social welfare schemes in India. Sitharaman’s assertion of the APY’s design principles, including its opt-out feature and guaranteed minimum return, underscores the government’s commitment to promoting retirement savings among lower-income groups. The Atal Pension Yojana, named after former Prime Minister Atal Bihari Vajpayee, was launched in 2015 to provide pension benefits to workers in the unorganized sector. It aims to address the significant gap in pension coverage among India’s workforce, particularly those employed in informal and low-income sectors. The scheme offers subscribers fixed pension amounts ranging from Rs. 1,000 to Rs. 5,000 per month, depending on their contribution and age at entry, after attaining the age of 60. Sitharaman’s response comes after Congress criticism alleging the APY’s inefficacy and coercive tactics in enrolment.

Congress General Secretary Jairam Ramesh described the scheme as poorly designed, citing instances of subscribers dropping out due to unauthorized account openings. However, Sitharaman refuted these claims, emphasizing the APY’s transparent and beneficiary-oriented approach. The finance minister’s defense focuses on three key aspects of the APY: Choice Architecture: Sitharaman highlights the opt-out feature of the APY, which automatically continues premium payments unless subscribers choose to discontinue.

This design element aims to encourage long-term participation and ensure consistent retirement savings among subscribers. By simplifying the decision-making process, the scheme seeks to overcome inertia and promote financial discipline among participants. Guaranteed Minimum Return: Sitharaman underscores the APY’s guarantee of a minimum 8% return, irrespective of prevailing interest rates. This assurance provides subscribers with confidence in the scheme’s financial viability and incentivizes long-term savings.

The government’s commitment to subsidizing any shortfall in actual returns further strengthens the attractiveness of the APY as a retirement planning tool. Targeting the Needy: Sitharaman defends the predominance of pension accounts in lower income slabs, arguing that it reflects the scheme’s successful targeting of its intended beneficiaries – the poor and lower-middle class. She criticizes Congress for its alleged elitist mindset and suggests that the party’s opposition to welfare schemes like the APY stems from a disconnect with the needs of marginalized communities. Sitharaman’s rebuttal also addresses broader political narratives surrounding social welfare policies in India.

She accuses Congress of exploiting vote bank politics and coercive tactics, contrasting it with the transparent and inclusive framework of the APY. The exchange underscores the ideological differences between the ruling Bharatiya Janata Party (BJP) and the opposition Congress, with each side advocating for their vision of social welfare and economic development. In addition to defending the APY, Sitharaman’s remarks shed light on the broader challenges and opportunities facing India’s pension sector.

Despite significant progress in expanding pension coverage through schemes like the APY, the country still grapples with issues such as financial literacy, informal employment, and pension portability. Addressing these challenges requires a multifaceted approach involving government intervention, private sector participation, and civil society engagement.

As India strives to achieve its vision of inclusive and sustainable development, initiatives like the APY play a crucial role in promoting economic security and social equity. Sitharaman’s defense of the scheme underscores the government’s commitment to addressing the needs of vulnerable populations and ensuring their financial well-being in the long run.

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Regulatory steps will make financial sector strong, but raise cost of capital



India’s financial system regulator, the Reserve Bank of India (RBI), is demonstrating a serious commitment to improving governance and transparency at finance companies and banks, with the RBI’s recent measures aimed at curtailing lenders’ overexuberance, enhancing compliance culture and safeguarding customers.

While the global ratings firm has appreciated the RBI’s “diminishing tolerance for non-compliance, customer complaints, data privacy, governance, know-your-customer (KYC), and anti-money laundering issues”, it has cautioned that increased regulatory risk could impede growth and raise the cost of capital for financial institutions. “Governance and transparency are key weaknesses for the Indian financial sector and weigh on our analysis. The RBI’s new measures are creating a more robust and transparent financial system,” says S&P Global Credit Analyst, Geeta Chugh. “India’s regulator has underscored its commitment to strengthening the financial sector. The drawback will be higher capital costs for institutions,” Chugh cautions.

The RBI measures include restraining IIFL Finance and JM Financial Products from disbursing gold loan and loans against shares respectively and asking Paytm Payments Bank (PPBL) to stop onboarding of new customers. Earlier in December 2020, the RBI suspended HDFC Bank from sourcing new credit card customers after repeated technological outages. These actions are a departure from the historically nominal financial penalties imposed for breaches, S&P Global notes.

Besides, as the global agency points out, the RBI has decided to publicly disclose the key issues that lead to suspensions or other strict actions against concerned entities and become more vocal in calling out conduct that it deems detrimental to the interests of customers and investors. “We believe that increased transparency will create additional pressure on the entire financial sector to enhance compliance and governance practices,” adds Chugh. The global agency has also lauded the RBI’s recent actions demonstrating scant tolerance for any potential window-dressing of accounts.

These actions include the provisioning requirement on alternative investment funds that lend to the same borrower as the bank finance company. Amidst the possibility of some retail loans, such as personal loans, loans against property, and gold loans getting diverted to invest in stock markets and difficulty of ascertaining the end-use of money in these products, S&P Global underlines the faith of market participants that the RBI and market regulator, the Securities and Exchange Board of India, want to protect small investors by scrutinizing these activities more cautiously.

On the flip side, at a time of tight liquidity, the RBI’s new measures are likely to limit credit growth in fiscal 2025 (year ending March 2025). “We expect loan growth to decline to 14 per cent in fiscal 2025 from 16 per cent in fiscal 2024, reflecting the cumulative impact of all these actions,” says Chugh. The other side of the story is that stricter rules may disrupt affected entities and increase caution among fintechs and other regulated entities and the RBI’s decision to raise risk weights on unsecured personal loans and credit cards may constrain growth. Household debt to GDP in India (excluding agriculture and small and midsize enterprises) increased to an estimated 24 per cent in March 2024 from 19 per cent in March 2019. Growth in unsecured loans has also been excessive and now forms close to 10 per cent of total banking sector loans.

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