Energy Sector And Law: A Critique Of Contemporary Policies - Business Guardian
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Energy Sector And Law: A Critique Of Contemporary Policies




The energy sector is one of the most essential and crucial parts of the Indian economy. For the development and growth of India, new policies new legislations are necessary for the welfare of the nations and the growth of the Indian economy. The demand for electricity in the country is increasing. If we compare, India’s power sector is diversified compared to so many developing countries where “Natural Gas” and “Renewables” play an essential role. India ranked sixth in the list of countries to make significant investments in clean energy at US$ 90 billion. Out of 25 nations that measure overall power, India ranked fourth in the Asia Pacific region. Furthermore, India ranked fifth in renewable power, fourth in wind power, fifth in solar energy according to the Installed capacity index 2018. With the rapidly increasing demand for electricity, India ranked 26th in the World Bank list accessibility in 2017. The Government of India (GOI) focuses on the “Power for all” policy. By 2022, 114 GW is estimated to contribute by solar energy, 67 GW from wind power and biomass and hydropower; it’s approximately 15 GW. Furthermore, by 2022 the target for renewable energy is also increasing by 227 GW. By October 2020 total installed capacity of power stations increased to 373.43 GW, and electricity production reached 1252.61 billion in FY20. The present paper analyses two current policies of the government, the EV (electricity vehicles) policy through which it aims to achieve a target where 70% of all the commercial cars, 30 % of private vehicles, and 80% two-wheeler ( 2W) and three-wheeler by 2030 but there are severe flaws as far as setting up the infrastructure is concerned due to a weak financial standing. The second part of the paper critiques the government’s Solar Power policy because of its heavy dependence on China’s hostile neighbour for raw material imports.


Electric vehicles are a rage in the modern automotive industry, with Tesla Inc. changing the market dynamics of the automotive industry with its ballooning valuation and swelling innovation in the EV market, which is forcing the existing automotive leaders like Volkswagen, General Motors, Toyota etc. to innovate and setting deadlines to switch to EV completely. Hence, it becomes imperative to look at the Indian EV market, especially the current laws and policies operating in India and their viability.


The Indian EV market is still nascent, having a market share of 0.47 % in the Four-wheeler vehicle industry as of 2019. However, the government has announced some critical strategies towards adopting EVs in the Indian market. The government aims at 100% adoption of EV by 2030. In furtherance towards EV development, the central government had initiated the “Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME)” scheme for two years at an authorised disbursement of Rs. 795 Crore in the year 2015. Further, it was protracted until September 2018 and was concentrated on “technology development, demand creation, pilot projects and charging infrastructure.” In phase II of ‘FAME’, it was intentioned to increase the monetary backing of Rs further. 8,730 Cr for three years. The government shall be principally targeting the placement of electric buses plying in the Indian markets.

The NITI Aayog, in its 2020 report, stated that “India’s electric vehicle financing industry projected to be worth Rs 3.7 lakh crore in 2030.” Some of the government’s effective plans include setting up infrastructure for 69,000 EV charging stations across India, charging stations at every 25 km, taxation benefits for EVs, etc. The Supreme court (SC) has also stated the importance of EVs, especially about the environment. So, it can be perceived that the Indian government is determined about the adoption of EVs in the Indian market.


The Electricity sector in India falls under the concurrent list of the Indian constitution and is managed by the central and state governments concurrently. The Electricity distribution companies in India (Discom) are driven mainly by the state governments and are mostly government-owned companies. However, they aren’t the producers of electricity. Discoms procure electricity from the producers and then retail it in the market through their distribution infrastructure.

In the EV policies of the Indian government, discoms play a critical role. In its “Charging Infrastructure for Electric Vehicles – Guidelines and Standards”, the Ministry of Power stated that the Discoms are responsible for facilitating the charging points for EVs in Offices and private residences. Similarly, the guidelines proposed that Discoms shall be the default Nodal agency in a state to set up infrastructure for charging, subject to the state governments discretion. Similarly, under the “Amendments in Model Building Bye-Laws (MBBL – 2016) for Electric Vehicle Charging Infrastructure”, most of the aspects relating to charging, inspection, certification etc., of charging stations are the responsibility Discoms. Hence, the discoms play a vital role in developing EVs in India.

However, as can be seen in the next section, the Discom companies are operationally inefficient and financially unhealthy even to complete their existing duties.


One of the essential requirements for the successful setting-up of EV infrastructure in India is the healthy condition of discoms. Discoms in India has been facing heavy debts, which in FY2022 is in the tune of Rs. 6 trillion. To correct this massive debt, the government of India launched the “The Ujwal DISCOM Assurance Yojana (UDAY scheme)” in November 2015. UDAY envisioned that state governments are taking over seventy-five per cent of the utilities’ debts, thus reducing the interest burden on the discoms. In turn, the discoms were to progress their monetary and operative parameters through various reformative measures and turn out to be financially healthy companies.

However, the objectives of UDAY were never fulfilled as the debts of the discoms decreased. Until now, only seven states, including HP, AP, TN, Gujarat, Kerala, Telangana & Goa, have enumerated losses under 15 %, and the remaining states have been unsuccessful in accomplishing even these numbers.

UDAY also necessitates income to lower the gap amongst “average cost of supply and average revenue realised to zero.” Instead of dropping the opening, most states like the then J&K, Goa, Punjab, Manipur and Goa — have widened the gap in the previous few years. A study shows that even after four years of the implementation of the Scheme, the debts of these discoms companies were as of that of pre-2015 level. Most studies have concluded that the Discom scheme was a failure. The Ministry of power, in March 2020, has announced the formulation of the revamped system, UDAY 2.0, for yet again resurrecting the Discoms. Still, as of March 2021, no new constructive steps have been taken by the central government in that regard.


Instead of reforms in discoms, the government has intended to privatise them to increase their efficiency. However, this push for privatisation has been met with stiff opposition by State governments, employees and opposition parties.

The Ministry of power has introduced a Standard Bidding Document (SBD) which envisions permanent privatisation of Discoms in India. The contentious terms of the SBD are:

a. “Employees of the existing distribution licensee shall be transferred to the successor entity.”

b. “Assets of the existing distribution licensee, other than land, will be transferred to the new entity at Net Asset Value. Land owned or in possession of the existing distribution licensee shall be provided to the successor entity on the right to use basis at nominal charges.”

These terms proposed in the SBD for the privatisation of income directly contradict many Supreme court’s (SC) judgements.

InBCPP Mazdoor Sangh & Anr v. NTPC, wherein the employees of NTPC were transferred to the BALCO (which was being privatised), the SC held: “It is clear that no employee could be transferred without his consent from one employer to another. The government or its instrumentality cannot alter the conditions of service of its employee.”

In Jawaharlal Nehru University v. K.S Jawatkar, it was observed that “the position in law is clear, that no employee can be transferred, without his consent, from one employer to another.”

In H.L Trehan v. Union of India, it was held, “It is now a well-established principle of law that there can be no deprivation or curtailment of any existing right, advantage or benefit enjoyed by a Government servant without complying with the rules of natural justice by giving the Government servant concerned an opportunity of being heard. Any arbitrary or whimsical exercise of power prejudicially affecting the existing conditions of service of a Government servant will offend against the provision of Article 14 of the Indian Constitution.”

Therefore, the provision by the government in the SBD wherein the employees will be transferred to the transferee company unilaterally by the government violates the tenets of natural justice and is violative of the SC mandate.

Further, under Sec.131 (2), “Electricity Act 2003”, it specifies that: “Provided that the value of the transfer of any assets transferred hereunder shall be determined, as far as may be based on the revenue potential of such assets….” Consequently, any rule by the government in which the assets shall be sold at “Net Asset Value” and the Land assets will be sold-off at minimal charges is violative of the provisions of the “Electricity Act, 2003.”

Furthermore, under Sec. 22 (2)(m), “The Electricity Regulatory Commissions Act, 1998”, the State Electricity Regulatory Commission (SERC) is mandated by parliament to assess the net value of the assets of the Discoms. However, as stated, the power sectors in every state are running into losses to the tune of thousands of crores. By looking at the contemporary times, mainly due to the COVID-19 recession, the states will face extreme financial hardships to assess the net worth of the discoms.


Paris Declaration on the ISA 2015

Prime Minister Narendra Modi and former French President Francois Hollande announced the launch of the International Solar Alliance at the 21st session of the UN climate change conference of the parties (COP-21) to promote and promote solar energy efficiently. ISA is a treaty agreement of solar-rich nations between the tropic of cancer and the Tropic of Capricorn. The funding is received from members of ISA, partner countries, the private sector and the UN. As of now, eighty-nine countries have signed the agreement, and seventy-two have submitted their instruments of ratification. The primary goal of the framework agreement is to bring down the solar cost and mobilise more than $1,000 billion by 2030. In the Energy investment meeting an expo 2020, PM had urged global investors to join the production linked incentive scheme for manufacturing high-efficiency solar power modules in the county.

India’s Dependence on China (a Hostile Neighbour) for Solar Equipment

India’s solar sector is heavily dependent on China to import solar equipment. Solar modules account for 60% of any solar project’s cost, and Chinese firms supply about 80% of such solar modules to India. “India is dependent mainly on China for 80-90 per cent of the solar equipment required for meeting the ambitious target by 2022,” i.e., out of total import worth $1.5 billion, $1.2 billion is imported from China. For FY20, the aggregate value of the solar cell or photovoltaic imports stood at $1,525.8. Low prices, as stated above, is one of the reasons why India’s heavily relied on supply from Chinese companies. As the Minister of renewable energy, RK Singh, said, “The solar panels or modules imported from China are generally cheaper than those produced by domestic manufacturers”.

Such heavy dependence on a county with which we do not have cordial diplomatic relations poses a threat to the very aim of India’s solar power mission. Narendra Taneja, an Energy expert, observed, “it is not smart that India should be dependent upon imports”. He raised concerns regarding 40 GW of the capacity that is bid out or auctioned; the process involves investments of about Rs. 2 lakh crore for acquiring the solar modules.

It is always unsettling to see India’s contemporary discourse, and it is nothing less than trouble for policymakers. “It is an ever-growing power asymmetry, the uncertainty of future intentions and a fluid geopolitical context that surrounds the relationship”. India lags on every primary material indicator – or comprehensive national strength as the Chinese call it – by a margin that is not surmountable in the foreseeable future. This differential of power has widened in the past decade, which might explain a part of the crisis in the relationship and China’s reluctance to adopt a different Indian policy in the absence of any compelling reason to do so. If we look at what Chinese strategists say, there is an unwillingness to bet on India’s future foreign policy. The dominant belief among Chinese scholars seems to be that India has already chosen the other side or has crossed a tipping point. There is a massive power gap between the two counties, “there is probably no international example of a modus vivendi under such circumstances where one rising power has raced substantially ahead of another rising power”. That being mentioned, the contentious territorial issues only worsens the situation and increase apprehension.

With this amount of apprehension and lack of confidence, entirely depending on our Power policy on imports from China that too without any alternate recourse in or backup, is nothing short of a policy blunder. It is essential to mention that China has neither ratified the ISA nor signed it. Therefore, India has no legal protection or recourse if a crisis arises between the two countries.

As far as India’s domestic manufacturers are concerned, Adani Green, Vikram Solar, Waare Energy, Tata Power Solar etc., have a capacity of appx 8 GW to manufacture modules which is the main component of solar equipment. Most companies have a meagre manufacturing capacity and are dependent on imports from China. The solar power market sees widespread developments in the technology, which prevents local manufacturers from investing in advanced research and development to offer upgraded production standards due to lower returns.

Government’s Plans to Switch to Alternative Sources

The minister informed that the solar industry would switch to alternate sources or domestic suppliers following the coronavirus outbreak and was not compelled to import from china. Further, the government is promoting solar equipment manufacturing by domestic suppliers through schemes such as M-SIPS, PM-KUSUM, CPSU scheme, grid-connected rooftop solar programme, and by setting up photovoltaic manufacturing units.

Increasing the essential customs duty (BCD) looks like an effective recourse given the anti china mood in the country. JMK research finds “with ongoing border issues; 20% of the BCD will likely be applicable on imported solar modules instead of 10%”. Therefore safeguard duty can bring a drop in imports from China.

To further decrease import dependence on china and boost domestic manufacturing, India had imposed a 25 % SGD on Solar imports from China and Malaysian 2018, which was reduced to 20% and 15% in the years 2020 and 2021, respectively. Additionally, to lower the cost of interest charged to the developers of domestically manufactured equipment, financing from IREDA( Indian Renewable energy development agency), REC (rural electrification corporation) and Power finance corporation will be structured.


The government of India has ambitious policies regarding the embracing of EVs in India and becoming a world leader in the renewable energy sector. This can be stipulated from the fact that India is facing rising environmental and energy concerns. India is an energy-hungry nation, with most of its current energy requirements fulfilled by imports. The adoption of EVs shall improve the balance of payments for India, which suffers quite a drain due to energy imports. However, Discoms will play a crucial role in this development. As discussed in this paper, the government’s current policies for the revival of discoms are ineffective at best and unsuccessful at worst. Further, the government’s policies in promoting EVs rely heavily on the discoms. Hence, it is suggested that the government reformulate and restrategise its policies towards the functioning of discoms. A financially weak and inefficiently functioning discom industry shall play a massive hurdle towards the government’s ambitions to develop the EV industry in India.

The solar policy and mission of the International solar alliance will not be an overstatement to say that this policy will be nothing short of a blunder because of its heavy dependence on imports from China, which is a hostile neighbour and cannot be trusted. Entirely basing so big a project on a fragile diplomatic relation poses a threat to India’s credibility at both national and international levels. It is suggested that the government must divert all its efforts and resources in boosting the manufacturing capacity of domestic developers to reduce its dependence on China significantly. Further, unless the alternatives are put in place, the government must execute an agreement with China to have legal recourse in crisis cases.

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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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