Kerala HC: Mere Violation Of bail Condition Is Not Sufficient To Cancel The Bail - Business Guardian
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Kerala HC: Mere Violation Of bail Condition Is Not Sufficient To Cancel The Bail

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While setting the record entirely straight, the Kerala High Court has in an extremely laudable, landmark, learned and latest judgment titled Godson v. State of Kerala & Ors. in Crl. MC Nos. 2807 & 2814 of 2022 [Against the order dated 24.2.2022 in Crl.M.P.No.249/2022 IN Crl.M.C.No.197/2018 on the file of the IInd Additional Sessions Court, Ernakulam] and cited in 2022 LiveLaw (Ker) 425 pronounced as recently as on August 10, 2022 made it absolutely clear that non-compliance with the bail conditions alone is not a ground to cancel the bail already granted to the accused since such cancellation affects the personal liberty of a person under Article 21 of the Constitution. We all fully know that the personal liberty of a citizen is accorded the paramount importance under Article 21 which is a fundamental right also of every citizen of India! It deserves noting that the Single Judge Bench of Justice A.A. Ziyad Rahman minced just no words to clarify that while considering an application to cancel the bail on the ground of non-compliance with the conditions, the court has to consider the question of whether the alleged violation amounts to an attempt to interfere with the administration of justice or as to whether it affects the trial of the case in which the accused is implicated. Very rightly so!

At the outset, this brief, brilliant, bold and balanced judgment authored by a Single Judge Bench of the Kerala High Court comprising of Hon’ble Mr Justice A.A. Ziyad Rahman sets the pitch in motion by first and foremost putting forth in para 1 that, “The petitioners are the accused in Crime No.160/2018 of Kalady Police Station. The petitioner in Crl.M.C No.2814/2022 is the 1st accused and the petitioner in Crl.M.C. No.2807/22 is the 2nd accused in the said crime. The aforesaid crime was registered alleging offences punishable under Sections 341,308 and 324 r/w. Section 34 of the Indian Penal Code (IPC).”

To put things in perspective, the Bench then envisages in para 2 that, “The petitioners were arrested in connection with the said case and later, as per order dated 9.2.2018 in Crl.M.C.No.197/2018, the 2nd Additional Sessions Court, Ernakulam, granted bail to them subject to certain conditions. One of the conditions was that they should not involve in any other crime of similar nature during the bail period. Subsequently, the investigation in the said case is completed, and the final report has been submitted.”

While continuing in the same vein, the Bench then observes in para 3 that, “Later, Crl.M.P.Nos.249/2022 and 247/2022 were submitted by the Public Prosecutor for cancellation of their bail. The sole reason highlighted in the said petition is that both the petitioners are subsequently involved in Crime No.1159/2021 of Kuruppampady Police Station, which was registered for the offences punishable under Sections 143,147,308,324,506(ii)and 294(b) r/w. Section 149 of IPC. The learned Sessions Judge, as per orders dated 24.2.2022 allowed the said applications after hearing the petitioners and thereby, the bail granted to them was cancelled. These orders are now under challenge in this Crl.M.Cs.”

It is worth noting that the Bench enunciates in para 7 that, “The conditions to be imposed while granting bail, are contemplated under Sections 437(3) r/w. Section 439(1)(a) of Cr.PC. The condition not to involve in similar offences during the bail period is something which is specifically stipulated in the aforesaid provision. Since such a condition is specifically mentioned in the statute, that would indicate the importance of such condition and the necessity to insist on the compliance of the same. However, the question that arises here is whether a violation of the said condition should result in the cancellation of the bail in all the cases. In my view, merely because of the reason that such a condition was imposed while granting bail to the accused, that would not result in the cancellation of bail automatically. This is particularly because, since the order of cancellation of bail is something that affects the personal liberty of a person, which is guaranteed under Article 21 of the Constitution of India, unless there are reasons justifying or warranting such an order, the bail already granted cannot be cancelled. In Dolat Ram and Others v. State of Haryana [(1995)1 SCC 349], the Hon’ble Supreme Court has observed as follows:

“5. Rejection of bail in a non – bailable case at the initial stage and the cancellation of bail so granted, have to be considered and dealt with on different basis. Very cogent and overwhelming circumstances are necessary for an order directing the cancellation of the bail, already granted. Generally speaking, the grounds for cancellation of bail, broadly (illustrative and not exhaustive) are : interference or attempt to. interfere with the due course of administration of justice or evasion or attempt to evade the due course of justice or abuse of the concession granted to the accused in any manner. The satisfaction of the Court, on the basis of material placed on the record of the possibility of the accused absconding is yet another reason justifying the cancellation of bail. However, bail once granted should not be cancelled in a mechanical manner without considering whether any supervening circumstances have rendered it no longer conducive to a fair trial to allow the accused to retain his freedom by enjoying the concession of bail during the trial. These principles, it appears, were lost sight of by the High Court when it decided to cancel the bail, already granted. The High Court it appears to us overlooked the distinction of the factors relevant for rejecting bail in a non – bailable case in the first instance and the cancellation of bail already granted.”

The aforesaid view was reiterated in X v. State of Telangana and Another reported in [(2018) 16 SCC 511].”

Most remarkably, the Bench then observes in para 8 that, “In Dataram Singh v. State of Uttar Pradesh [(2018)3 SCC 22], it was observed by the Hon’ble Supreme Court in the manner as follows:

“It is also relevant to note that there is difference between yardsticks for cancellation of bail and appeal against the order granting bail. Very cogent and overwhelming circumstances are necessary for an order directing the cancellation of bail already granted. Generally speaking, the grounds for cancellation of bail are, interference or attempt to interfere with the due course of administration of justice or evasion or attempt to evade the due course of justice or abuse of the concessions granted to the accused in any manner. These are all only few illustrative materials. The satisfaction of the Court on the basis of the materials placed on record of the possibility of the accused absconding is another reason justifying the cancellation of bail. In other words, bail once granted should not be cancelled in a mechanical manner without considering whether any supervening circumstances have rendered it no longer conducive to a fair trial to allow the accused to retain his freedom by enjoying the concession of bail during the trial.”

Therefore, while considering an application to cancel the bail on the ground of non compliance of the conditions, the court has to consider the question whether the alleged violation amounts to an attempt to interfere with the administration of justice or as to whether it affects the trial of the case in which the accused is implicated. In XI, Victim SC No.211 of 2018 of POCSO Court v. State of Kerala and Others [2019(3)KHC 26], this Court laid down the principles with regard to the nature of the enquiry to be conducted by the court concerned, while considering an application for cancellation of bail. In paragraph 9 of the said judgment, it was observed as follows: “9. But in a case where the victim or the witnesses specifically complains of threat and intimidation and the said aspects are projected either by victim or by the prosecution before the Bail Court through an application as referred to in Ext.P- 5, then it is bounden duty of the Bail Court to consider the correctness or otherwise of the allegations in a summary manner after affording an opportunity of being heard to the prosecution as well as to the affected accused concerned whose bail is ought to be cancelled and if possible to the victim as well, in a case like this. In such process of enquiry, the Bail Court could call for the records if any in relation to those allegations and if a separate crime has been registered in that regard, the records in those crimes should also be perused by the Bail Court in order to make an enquiry in a summary manner as to the truth or otherwise of the allegations therein, and after affording reasonable opportunity of being heard to the prosecution, accused and the victim, the Bail Court is expected to discharge its solemn duty and function to decide on the correctness or otherwise of the allegations in such a summary manner and the evidentiary assessment thereof could be on the basis of the overall attendant circumstances as well as the attendant balance of probabilities of the case. Based on such a process, the Bail Court is obliged to take a decision whether the bail conditions have been so violated and if it is so found that the bail conditions has been violated then it is the duty of the Bail Court to cancel the bail, but certainly after hearing the affected party as aforestated. So also, if the said enquiry process reveals that the truth of the above said allegations has not been established in a convincing manner in such enquiry process, then the Bail Court is to dismiss the application to cancel the bail. But the Bail Court cannot evade from the responsibility by taking up the specious plea that since the very same allegations also form subject matter of a distinct crime then the truth or otherwise of the allegations is to be decided by the Criminal Court which is seisin of that crime through the process of finalisation of said impugned criminal proceedings by the conduct and completion of trial therein.”

Thus, from all the above decisions, it is evident that, mere violation of the condition alone is not sufficient to cancel the bail granted by the court. Before taking a decision, the court has to conduct a summary inquiry based on the records, including the documents relating to the subsequent crime and arrive at a conclusion as to whether it is necessary to cancel the bail or not. Therefore, the orders impugned in these cases are to be considered by applying the yardstick as mentioned above.”

Be it noted, the Bench notes in para 9 that, “When coming back to the facts of this case, it can be seen that the petitioners are seen implicated in the offences under Sections 341,308,324 r/w. Section 34 of the IPC, in a crime registered in the year 2018. They were granted bail on 9.2.2018, subject to the above conditions. Now the present application is submitted in the year 2022 on the allegation that the petitioners are involved in a crime committed in the year 2021. The fact remains that in both cases, final reports were already submitted by the Police. In the subsequent crime also, the petitioners were granted bail even after taking into consideration the criminal antecedents of the petitioners. Therefore, custody of the petitioners is not required to conduct the trial of the said cases. The allegations in the subsequent crime are not relating to an act which was allegedly committed by the petitioners with the intention to intimidate or influence any witnesses in the crime registered in the year, 2018. Both crimes are entirely different and have no connection with each other.”

While adding clarity, the Bench then specifies in para 10 that, “In my view, even though the court which granted the bail is empowered to direct the arrest of the petitioners who were already released on bail by virtue of the powers conferred upon the court as per Section 437(5) and 439(2) of Cr.PC, such power has to be exercised only if it is absolutely necessary. Of course, if the subsequent crime is allegedly committed with the intention to influence or intimidate the witnesses, the consideration should have been different, but it is not the case here. In Dataram Singh’s case, it was categorically observed that, bail once granted, cannot be cancelled without considering whether any supervening circumstances have rendered it no longer conducive to a fair trial to allow the accused to retain his freedom by enjoying the concession of bail during the trial.”

Most significantly, what constitutes the cornerstone of this notable judgment is then encapsulated in para 11 wherein it is postulated that, “While considering the alleged involvement of the petitioners in the subsequent crime for cancellation of bail, the fact that the second crime is after three years of the earlier crime is also a relevant aspect. The petitioners are indeed involved in some other cases, and one of the petitioners is already undergone preventive detention under KAA(P)A. However, that alone cannot be a reason to cancel the bail, unless it is shown that the involvement of the petitioners in the subsequent crime is affecting the trial of the earlier case. If the prosecuting agency is concerned with the commission of repeated offences by the accused persons, there are ample statutory provisions available for them to initiate appropriate proceedings for subjecting the accused persons to preventive detention. The stipulations contained in Section 437(5) and 439(2) of Cr.PC cannot be treated as a substitute for preventive detention laws. The legislature has brought into force, various enactments to enable the authorities concerned to keep the persons involved in repeated crimes under preventive detention, despite the stipulations in 437(5) and 439(2) of Cr.P.C. The said fact fortifies the view which I have taken as above. Moreover, there are no provisions in Cr.PC which specifically deal with the cancellation of bail and instead, the power is given to the court as per sections 437(5) and 439(2) to direct the person already released on bail, to be arrested and committed to prison, if it considers necessary to do so. When the court orders the arrest of a person already released on bail, it would have the effect of cancellation of the bail. Therefore what is relevant is not a mere violation of the bail condition but the satisfaction of the court that ‘it is necessary to do so’. While considering the aforesaid question, the matters such as; the time gap between the crimes, the possibility of false accusation in the subsequent case, bail granted to the accused in the subsequent crime, stage of the prosecution of the case in which cancellation of bail is sought, chances of affecting or causing interference in the fair trial of the case, etc. could be relevant. In some cases, the commission of heinous crimes repeatedly, in such a manner as to infuse fear in the mind of the witnesses, which may deter them from deposing against the accused, may also be relevant, as it is something which affects the conduct of the fair trial. However, no hard and fast rules can be laid down in respect of the same, and it differs from case to case. As held in the case of XI, Victim SC No.211 of 2018 of POCSO Court (supra), the court has to conduct a summary enquiry after perusing the records and arrive at a satisfaction as to whether it is necessary to cancel the bail of the accused.”

Finally, the Bench then concludes by holding in para 12 that, “While applying the above principles to the facts of this case, one of the crucial aspects relevant for consideration is whether the subsequent crime interferes with the conduct of a fair trial of the case in which he is involved. Such a situation is not there in this case. Further, the mere allegation of the involvement of the petitioners in the subsequent crime after three years of the crime in which the bail was granted, cannot by itself be a reason for the cancellation of bail. Even in the subsequent cases, the petitioners were granted bail and the investigation in that case was also completed. Therefore, the custody of the petitioners is not at all necessary, and hence I do not find any justifiable reason to sustain the order of cancellation of bail. In the result, both these Crl.M.Cs are allowed. The orders passed by the IInd Additional Sessions Court, Ernakulam on 24.02.2022 in Crl.M.P.No.247/2022 and Crl.M.P.No.249/2022 in Crl.M.C.No.197/2018 are hereby quashed. However, it is made clear that, this shall not preclude the authorities concerned in initiating any proceedings for preventive detention of the petitioners if there are materials warranting the same.”

On the whole, this extremely commendable, cogent, composed and convincing judgment by the Kerala High Court makes it indubitably clear that violation of bail conditions by itself is not a ground to cancel bail. We thus see that the Kerala High Court refuses to find any justifiable reason to sustain the order of cancellation of bail. There can be just no denying it!

Sanjeev Sirohi, Advocate,

s/o Col (Retd) BPS Sirohi,

A 82, Defence Enclave,

Sardhana Road, Kankerkhera,

Meerut – 250001, Uttar Pradesh.

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Policy&Politics

Govt extends date for submission of R&D proposals

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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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Policy&Politics

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

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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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Policy&Politics

India to spend USD 3.7 billion to fence Myanmar border

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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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Policy&Politics

ONLY 2-3% RECOVERED FROM $2-3 TN ANNUAL ILLEGAL TRADE THROUGH BANKING: INTERPOL

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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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Policy&Politics

FM defends Atal Pension Scheme, highlights guaranteed returns

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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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Economic

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

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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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