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POCSO ACT: AN ANALYSIS OF COURT JUDGEMENTS

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A bench comprising of Justice Indira Banerjee and Justice J.K. Maheshwari in the recent judgment titled Gangadhar Narayan Nayak @ Gangadhar Hiregutti V. State of Karnataka & Ors. having Crl. Appeal No. 451 of 2022 delivered on 21.03.2022 gave a split verdict as to whether Section 155(2) of the Cr.P.C. applies to the investigation of an offence under Section 23 of POCSO Act or whether the Court is obliged to discharge the accused under Section 227 of the Cr.P.C. because of want of permission of the jurisdictional Magistrate to the police to investigate into the offence. The Bench further gave differentiating opinions on whether Section 19 of the POCSO Act has overriding effect to the provisions of Cr.P.C.

FACTS

The Appellant was the editor of Karavali Munjavu Newspaper in which a news was reported on or about 27th October 2017 naming the 16 year old victim of sexual harassment. After getting to know about this violation against disclosure of the name of the victim, the victim’s mother lodged a complaint on 30th October 2017 against the Appellant under Section 23 of POCSO in the Siddapur Police Station. The Police after its investigation filed the Final Report (Chargesheet) under Section 173 of the Cr.P.C. on 31st December 2017 after which the Court of the Ld. Principal District Judge, Uttar Kannada, Karwar, took cognizance of the offence. Thereafter, an application for discharge was filed by the Appellant under Section 227 of the Cr.P.C. on the premise that the investigation carried out by the Police was ultra vires since as per the mandate of Section 155(2), the police cannot investigate a matter without procuring an order from the Magistrate. The discharge application was dismissed by the Ld. Trial Court, against which a Quashing Petition was filed by the Appellant under Section 482 of the Cr.P.C. before the Hon’ble High Court of Karnataka. That the Hon’ble High Court of Karnataka vide Judgement dated 17.09.2021 refused to exercise it’s inherent jurisdiction under section 482 of Cr.P.C. and dismissed the Quashing Petition of the Appellant on the ground that the non obstante provision of Section 19 of POCSO overrides the provisions of the Cr.P.C., including Section 155. Hence the present appeal was preferred by the Appellant in the Hon’ble Supreme Court of India.

That vide the Judgement dated 21.03.2022, the Division Bench of the Hon’ble Supreme Court delivered a split verdict wherein Justice Indira Banerjee refused to entertain the Appeal thereby upholding the Order of the Hon’ble High Court whereas on the other hand, Justice J.K. Maheshwari gave a dissenting Judgement by allowing the Appeal and setting aside the Order taking cognizance and consequential orders passed by the Trial Court as well as the Impugned Order of the Hon’ble High Court.

In order to understand the contrary point of view taken by the Division Bench in the present case, it is essential that both the judgments are analysed separately.

JUSTICE INDIRA BANERJEE’S JUDGEMENT

Justice Indira Banerjee sets the field in para 1, “This appeal is against a judgment and order dated 17 September 2021 passed by the Dharwad Bench of the High Court of Karnataka, dismissing Criminal Petition No.

101420/2020 filed by the Appellant under Section 482 of the Code of Criminal Procedure (hereinafter referred to as “the Cr.P.C.”), and upholding an order dated 19 April 2018 passed by the Principal District Judge, Uttar Kannada, Karwar, taking cognizance against the Appellant of offence under Section 23 of the Protection of Children from Sexual Offences Act, 2012 (hereinafter referred to as “POCSO”).”

To make it easy to understand the case, the issues are puts forth in para 2, “The short question of law involved in this appeal is, whether Section 155(2) of the Cr.P.C. applies to the investigation of an offence under Section 23 of POCSO? Is the Special Court debarred from taking cognizance of an offence under Section 23 of POCSO and obliged to discharge the accused under Section 227 of the Cr.P.C., only because of want of permission of the jurisdictional Magistrate to the police, to investigate into the offence? ”

After hearing the arguments from both sides, Justice Banerjee then puts forth in para 33, “On a combined reading of Sections 4(1) and (2) with Section 5 of the Cr.P.C., all offences under the IPC are to be investigated into, tried or otherwise dealt with in accordance with the provisions of the Cr.P.C. and all offences under any other law are to be investigated, inquired into, tried or otherwise dealt with, according to the same provisions of the Cr.P.C., subject to any enactment for the time being in force, regulating the manner of investigating, inquiring into, trying or otherwise dealing with such offences.”

As we see, Justice Banerjee then mentions in para 35 that, “The language and tenor of Section 19 of POCSO and subsections thereof makes it absolutely clear that the said Section does not exclude offence under Section 23 of POCSO. This is patently clear from the language and tenor of Section 19(1), which reads “…. any person who has apprehension that an offence under this Act is likely to be committed or has knowledge that such an offence has been committed……”. The expression “offence” in Section 19 of POCSO would include all offences under POCSO including offence under Section 23 of POCSO of publication of a news report, disclosing the identity of a child victim of sexual assault. ”

Furthermore, Justice Banerjee then reveals in para 36 that, “Moreover, sub section (5) of Section 19 of POCSO provides that where the Special Juvenile Police Unit or local police is satisfied that the child against whom an offence has been committed, is in need of care and protection it shall, after recording reasons in writing, make immediate arrangements to give the child such care and protection including admitting the child into a shelter home or hospital within 24 hours of the report. Action under sub-section (5) of Section 19 of POCSO has to be taken with utmost expedition. Such action obviously involves investigation into whether an offence has been committed and whether the child requires special care.”

Needless to say, Justice Banerjee then reveals in para 37 that, “Sub-section (6) of Section 19 of POCSO requires the Special Juvenile Police Unit or local police, as the case may be, to report information to the Child Welfare

Committee and the Special Court or where no Special Court has been designated to the Court of Sessions without unnecessary delay, within 24 hours from the receipt of information.”

To put things in perspective Justice Banerjee then envisages in para 39 that, “It is well settled that legislative intent is to be construed from the words used in the statute, as per their plain meaning. Had Legislature intended that the Cr.P.C. should apply to investigation of an offence under Section 23 of POCSO, would specifically have provided so. The expression “investigation” would, as in Section 4(1) or (2) of the Cr.P.C., have expressly been incorporated in Section 31 or Section 33(9) or elsewhere in POCSO.”

Most significantly, Justice Banerjee then hastens to add in para 44 that, “The entire object of provisions such as Section 228A of the IPC, 327(2) of the Cr.P.C., Section 74 of the JJ Act and Section 23 of POCSO is to prevent disclosure of the identity of the victim. The identity of the victim should not be discernible from any matter published in the media.”

While rejecting the case law relied upon by the Appellant, Justice Banerjee then expounds in para 55 that, “The judgment of this Court in Keshav Lal Thakur is clearly distinguishable, in that this Court was dealing with investigation into an offence under Section 31 of the Representation of People Act, 1950. The Representation of People Act, 1950 does not contain any provision regulating the manner or place of investigation, or inquiry into any crime, or otherwise dealing with any offence under the said Act.”

As a corollary, Justice Banerjee then hastens to add in para 57 that, “Mr. Kamat’s argument that Section 19 of POCSO does not include offence under Section 23 of POCSO is unsustainable in law and not supported by any cogent reasons.” Justice Banerjee further went to explain in para 57 “As observed above, the words “offence under this Act” in Section 19(1) of POCSO makes it clear that Section 19 includes all offences under POCSO including offence under Section 23 of POCSO. It is reiterated at the cost of repetition that a child against whom offence under Section 23 of POCSO has been committed, by disclosure of her identity, may require special protection, care and even shelter, necessitating expeditious investigation for compliance of sub-sections (5) and (6) of Section 19 of POSCO.”

Finally, Justice Banerjee then concludes by holding in para 59 that, “For the reasons discussed above, I do not find any infirmity with the impugned judgment and order of the High Court which calls for interference by this Court. The appeal is, accordingly, dismissed. ”

JUSTICE J.K. MAHESHWARI’S JUDGEMENT

To start with the dissenting judgment delivered by Justice Maheshwari, he sets the ball rolling by first and foremost putting forth in para 62 that, “The facts as succinctly stated in the order and on perusal of those, the first core

question that arises is that “In absence of any classification provided in the Protection of Children from Sexual Offences Act, 2021 (in short POCSO Act) regarding offences being cognizable or non-cognizable, can all the offences under the Act may be categorized as cognizable in view of the non-obstante clause specified under Section 19 of POCSO Act?”. The another question is “Whether Section 19 of the POCSO Act have overriding effect to the provisions of Cr.P.C., in particular Chapter 12 titled as ‘Information to the police and their powers to investigate’ in the context of the provision of Section 4 and 5 of Cr.P.C.?”. The last question is “In the case at hand, by virtue of mandate of Section 4(2) of Cr.P.C., in absence of having any provision in

Special Enactment i.e. POCSO Act for investigation, to try an offence under Section 23 of POCSO Act, the mandate of Section 155(2) of Cr.P.C. shall be required to be followed ? ”

To put things in perspective, Justice Maheshwari then envisages in para 68 that, “the provisions of Cr.P.C. would not tinker with the provisions of special enactment and they are saved to such extent as specified in Section 5 of Cr.P.C. and would be applicable as per Section 4(2) of the Cr.P.C. ”

Most remarkably, Justice Maheshwari then clearly points out in para 70 that, “Looking to the language of Section 19, it does not specify all the offences under the POCSO Act are cognizable. Simultaneously either Section 19 or other provisions of the POCSO Act also do not specify how and in what manner the investigation on reporting of commission of offence under sub-section (1) of Section 19 of POCSO Act be made by the police. Indeed, looking to the language of Section 19, it is true that the provisions of the POCSO Act override the provisions of Cr.P.C. being special enactment only to the extent of having corresponding provision. But POCSO Act does not specify how and in what manner the investigation on reporting of the offences ought to be made. In contrast, Chapter XII of Cr.P.C. deals with investigation also after receiving information in a cognizable or non-cognizable offences. ”

Justice Maheshwari further went to explain in para 70 that “Thus, in absence of having any procedure for investigation under the POCSO Act, either for cognizable or non-cognizable offences, as mandated by sub-section (2) of Section 4 of Cr.P.C., the procedure prescribed in Cr.P.C. ought to be followed in the matter of investigation enquiring into and trial. Section (5) of Cr.P.C. is a saving clause by which the procedure prescribed in the special enactment will prevail otherwise in absence of the provision and the procedure specified in Cr.P.C. may be applicable. ”

While rejecting the case law relied upon by the Counsel for Respondents, Justice Maheshwari then expounds in para 74 that, “Thus, as per the discussion made hereinabove, it is to conclude that the Delhi High Court’s judgment of Santosh Kumar Mandal (supra) deals with an offence of Section 12 wherein maximum sentence prescribed was extendable up to 3 years, however the said offence was found cognizable. It is to state that the observation made in the said judgment that all offences under POCSO Act are cognizable, is in my humble opinion not justified without taking note of the provisions of Cr.P.C.”

Justice Maheshwari further went to explain in para 74 that, “It is clarified, Section 19 of the POCSO Act overrides the provisions of Cr.P.C. only to the extent of reporting the matters to the police or SJPU and other ancillary points so specified in Section 19.”

Needless to say, Justice Maheshwari then plainly puts forth in para 75 that, “the offence under Section 23 is non-cognizable and Section 19 or other provisions of POCSO Act do not confer power for investigation except to specify the manner of reporting the offence. However, as concluded as per sub-section 2 of Section 4 and applying Section 5 savings clause of Cr.P.C., in absence of having any provision in special enactment, the Cr.P.C. would apply.”

Furthermore, Justice Maheshwari then discloses in para 76 that, “the language of Section 155(2) makes it clear and in terms it is mandatory that no police officer shall investigate a non-cognizable case without the order of the Magistrate. Therefore, the said provision is mandatory and required to be complied with prior to investigating a non-cognizable offence.”

While citing the relevant case law, Justice Maheshwari then expounds in para 78 that, “When the breach of such a mandatory provision is brought to the knowledge of the Court at a sufficiently early stage, the Court, while not declining cognizance, will have to take the necessary steps to get the illegality cured and the defect rectified, by ordering such reinvestigation as the circumstances of an individual case may call for. Such a course is not altogether outside the contemplation of the scheme of the Code as appears from Section 202 under which a Magistrate taking cognizance on a complaint can order investigation by the police. Nor can it be said that the adoption of such a course is outside the scope of the inherent powers of the Special Judge, who for purposes of procedure at the trial is virtually in the position of a Magistrate trying a warrant case.”

As a corollary, Justice Maheshwari then hastens to add in para 80 that, “The order of taking cognizance passed by the Special Court after filing the charge-sheet passed on 19.04.2018, merely reflect that after perusal of documents as per list which is verified, the Court has taken cognizance. The Court has not looked into the vital aspect of following the procedure of Section 155(2) of Cr.P.C. Therefore, at the earliest when the application for discharge was filed, it was dismissed by order impugned dated 28.08.2020 with the incorrect notion regarding overriding effect to the provision of Section 19 of POCSO Act, confirmed by High Court. In my considered opinion, the order taking cognizance and to pass consequential order rejecting the application for discharge is not in accordance with law. The view taken by this Court in case of Keshav Lal Thakur (supra) relating to a case of non-cognizable offence, is aptly applicable in the facts of the present case. ”

Finally and as a corollary, Justice Maheshwari while continuing in the same vein then in para 81 that, “In view of the above, this appeal is allowed. Order impugned taking cognizance and consequential orders passed by the Trial Court which is affirmed by the High Court are hereby set-aside. The Special Court is at liberty to follow the procedure prescribed in the matter of investigation of non-cognizable offences.”

CONCLUSION

In conclusion, the Division bench of Justice J.K. Maheshwari and Justice Indira Banerjee took opposing views on the above mentioned issue and therefore the matter was reserved to be listed before a larger bench.

Justice Indira Banerjee took the stance that the provision of Section of 155 (2) of Cr.P.C. are not required to be complied with in the case of an offence under section 23 for the reason that if the Legislature had intended that the Cr.P.C. should apply to investigation of an offence under Section 23 of POCSO, it would specifically have provided so. Whereas on the other hand, Justice J.K. Maheshwari gave a dissenting opinion by allowing the Appeal for the reason that Section 23 is non-cognizable and Section 19 or other provisions of POCSO Act do not confer power for investigation except to specify the manner of reporting the offence and that the language of Section 155(2) makes it clear and in terms it is mandatory that no police officer shall investigate a non-cognizable case without the order of the Magistrate.

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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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