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The basic structure of the Constitution is sacrosanct: A retrospect on the Kesavananda Bharati case

The Constitution of our country gives us religious freedom. Our personal laws are woven around our diverse religions. That is a fundamental right. Thus even though the Common Civil Code is perceived in the Constitution, its practicability must be measured against public sentiment.

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SC seeks Centre’s reply on fresh pleas against CAA

Constitutional supremacy is and has to be the bedrock upon which the edifice of a democracy rests. And if the foundation or the basic structure of the edifice is sought to be changed so as to invest one of the pillars of democracy with unbridled powers, the very edifice would tilt and consequently be weakened to the detriment of citizens and consequently of democracy. When however, an attempt is made to shift this balance, someone has to step in and play the role of a soldier, a saviour and consequently a titan so as to restore the balance. The titans to whom this article refers to in the context of the Constitution of India, have to surely be Kesavananda Bharati, the Judges of the Supreme Court that took the majority view and of course the legal genius Nani Palkhivala, who stood like colossuses in the face of the amendment to the Constitution which was the subject matter of challenge before the Supreme Court.

The passing away of His Holiness Kesavananda Bharati on the 5th of September,2020 brings down the curtain on the life of an individual whose memory shall be etched upon the minds of all those concerned with the Law, Judges, lawyers and politicians foremost amongst them, and of course, upon the minds of the Indian populace as a whole, who may not yet realise the immense contribution that the case that he helmed as a petitioner has had such a tremendous impact upon the politico legal landscape of our country.

Perhaps one of the greatest Constitutional cases that has been decided by the Supreme Court , and perhaps continuing to be so is the iconic case of His Holiness Kesavananda Bharati Sripadagalveru v. State of Kerala. That was a case that had the effect of stopping a legislature from running amok and imposing upon the citizens of this country, an Atlas like burden by seeking the right to amend and alter the basic structure of the Constitution, as per the whims and wishes of the legislature, which the Supreme Court thankfully and astutely halted in its tracks.

THE CASE

The challenge in the case was to the 29th Amendment Act , by virtue of which the Kerala Land Reforms Act, 1969 and the Kerala Land Reforms Amendment Act, 1971 were placed in the 9th Schedule to the Constitution. As a result, this brought into focus the issue as to whether the Golak Nath case had been rightly decided or not. The conflict started with the decision rendered by the Supreme Court in Golak Nath v. State of Punjab in 1967, where the Court held by a slim majority of 6 to 5 that the Parliament had no power to amend Fundamental Rights. The majority took the view that the law in Article 13(2) was inclusive of even a Constitutional law enacted by the Parliament in its powers under Article 368 of the Constitution.

On 5th November, 1971, the Parliament passed the 24th Amendment Act, which gave the right to amend the Constitution by amending Article 368 and Article 13, the effect of the amendment being to overrule the majority judgment in Golak Nath. As a result of this amendment, and as a corollary thereto, several legislations were amended, including the Kerala Land Reforms Act, 1971, which was sought to be inserted by the 29th Amendment Act , so as to place the Act in the 9th Schedule of the Constitution, in order to validate the provisions which had been overturned by the Kerala High Court. This laid the ground over and for the mine field of a direct confrontation between the Parliament and the Supreme Court.

THE JUDGMENT

With the challenge mounted to the Kerala legislations previously referred to, the challenge to the Golak Nath case was apparent in Kesavananda Bharati as it raised the question as to whether that case had been rightly decided. Whereas a bench of 11 Judges had decided the Golak Nath case, a bench of 13 Judges was constituted to hear the Kesavananda Bharati case. The stage was thus set for the decisive Battle Royale between the Parliament and the Supreme Court .

A marathon, in any sense of the term, the hearing of the case went on for a mammoth 66 days. It was decided with 7 judges taking the ‘Majority view’.The result upon conclusion being that though the decision in Golak Nath’s case that there is no implied limitation on the powers of Parliament to amend the Constitution, was reversed, it was emphatically held that no amendment can do violence to the basic structure doctrine. The words in the judgment are that “ Article 368 does not enable Parliament to alter the basic structure or framework of the Constitution”.

11 judgments were rendered in the case which constituted a bench of 13 justices. This being a short article on the issue, it is neither possible or practicable to reproduce the divergent views expressed by the judges.

Many legal scholars and jurists have argued that the “ Note” which bears the signatures of the “majority” could not be considered as a majority view. But comity in justice or judicial comity being what it is, it can very safely be argued that since 6 judges held the view that there was a limitation on the amending power and since one judge, Justice H R.Khanna had emphatically held that parliament could not amend the basic structure or the framework of the Constitution, the judgment was therefore by a majority, with the decisive view of Khanna J, which could be considered as a ‘ swing vote’ if election terminology is used or the deciding vote , as he agreed in principle with the view and furthered it by stating the above. The resultant effect being that by virtue of and being propped up by the view of Khanna J, the Court held that the Basic Structure of the Constitution could not be tinkered with by the Legislature. It could be said that the merged views of the majority read with the view elucidated by Khanna J, therefore effectively was the view of the Court and sealed the fate of the amendment.

The fallout of the verdict

The judgment in the Kesavananda case was pronounced on 24th April, 1973. Chief Justice Sikri was to retire on 25th April,1973. Normally his successor Chief Justice would be named earlier. In a surprise development however, which may perhaps have been foreseen by them, three senior most judges, Justices Shelat, Hegde and Grover, were superseded and Justice A N.Ray was appointed as Chief Justice, whereas in the normal course, justice Shelat would have been appointed as Chief Justice. This happened on 26th April, 1973 and Justices Shelat, Hegde and Grover resigned on the same day at 4.00 p.m.

THE REVIEW

On 9th October, 1975, Chief Justice Ray passed an order that a bench of 13 Judges would hear a review petition. The hearing commenced on 10th November, 1975 and went on to the 11th of November. When the bench assembled on 12th November, as soon as the proceedings were called, the Chief Justice stated that “ this bench is dissolved”. Every person concerned with the hearing was caught by surprise. The review therefore paled and was put to rest. However, no record of the review is available.

Upon the retirement of Ray CJ, M H.Beg J, was appointed as Chief Justice, whereas H R.Khanna J, would have been appointed. He was however overlooked, perhaps because he had dissented with the majority view in ADM Jabalpur v. Shivkant Shukla. That case was, of course one where many around the country had been detained during the days of the emergency. Upon Habeas Corpus petitions being filed, High Courts had held that the writs were not maintainable as Article.21 of the Constitution had been suspended. When the matters were heard in the Supreme Court, in the above case, the majority held that the petitions were not maintainable. The lone dissent was by Justice H R.Khanna. He disagreed with the position of the majority that Art. 21 can be suspended by the declaration of Emergency.

He stated that, “without such sanctity of life and liberty, the distinction between a lawless society and one governed by laws would cease to have any meaning.” This dissenting judgment and the earlier view that he had taken in Kesavananda, cost Justice Khanna his Chief Justice ship. He too resigned.

The turn of the tide decades later is worth a mention here. The great American Judge, Charles Evan Hughes wrote that “A dissent in the court of last resort is an appeal to the brooding spirit of the law, to the intelligence of a future day when a later decision may possibly correct the error into which the dissenting judge believes the court to have been betrayed.” That is what happened in the case of K S.Puttaswami v. Union, which is known famously as the Right to Privacy case. The decision in ADM Jabalpur was overruled . Though judges do their duty when they decide cases, they never look to accolades or even recognition while doing so, but one cannot but wonder whether the indomitable spirit of the judge would surely be pleased that , even if quite a bit late, his words of dissent have prevailed with considerable and emphatic authority.

FRESH ATTEMPT TO UNDO THE DECISION IN KESAVANANDA

The matter in Kesavananda refused to die down . The powers that be were perhaps biding their time for an opportunity to have the judgment reversed.

The basic structure doctrine, evolved by the Court in Kesavananda was first tested in the case of Indira Nehru Gandhi vs Shri Raj Narain, where the Court applied the doctrine . By virtue of the 39th Amendment ,Parliament inserted Article 329-A in the Constitution, clauses (4) and (5) of which article barred judicial review of elections for the posts of President, Prime Minister, Vice President and the Speaker of The Lok Sabha. The Court struck down the clauses as being violative of the Basic Structure doctrine.

The 42nd Amendment was moved by the Government in order to once again tilt the balance of power and establish supremacy over . Rather than reproduce the same here, suffice it to say that the amendment once again sought to curtail the powers of the Courts. There was a change of Government at the Centre and the new Government brought in the 44th Amendment in order to do away with the earlier one. The 44th Amendment reversed the provision made by the 42nd Amendment that allowed the government to amend the constitution .

The controversy however, did not rest there. This was brought to the fore in the case of Minerva Mills v. Union of India. The mill had been nationalised and taken over by the Government. This was challenged. Again without going deeper into the whole controversy, suffice it to say that section 55 of the Amendment Act was challenged. This too was struck down. The Judges however deferred on the amendment to Article 31C. That , as yet remains a grey area according to Constitutional experts.

The Basic Structure Doctrine remains, but was later refined by the Supreme Court

In a later decision in Waman Rao v. Union of India, soon after the decision in Minerva Mills, the Court held that the various Amendments by which additions were made to the 9th Schedule, would be valid only if they did not damage the Basic Structure of the Constitution.

That of course led to further issues. A Constitution Bench hearing the case of I R.Cohelo referred the matter to a larger bench. A bench of 9 Judges held that Amendments to the Constitution made on or after 24/4/1973 by which the Ninth Schedule is amended by inclusion of various laws..shall have to be tested on the basic or essential features of the Constitution……though an Act is put in the Ninth Schedule by a constitutional Amendment, its provisions would be open to attack on the ground that they destroy or damage the basic structure…

It was also further held that “ Justification for conferring protection…on the laws included….. shall be a matter of constitutional adjudication…..if the infraction affects the basic structure then such laws will not get protection of the Ninth Schedule”.

WHAT IS THE BASIC STRUCTURE?

The concept of basic structure is difficult to encapsulate. But what emerges from a perusal of the judgments of the Supreme Court is that some features of the Constitution lie at its core and are therefore sacrosanct. In the course of the hearing of Kesavanandas case, and as emerges from the judgment, some concepts as set out by the judges are what the basic structure refers to. I refer to some of them here. Supremacy of the Constitution, secular character of the Constitution, separation of powers between the legislature, executive and the judiciary, essential features of the individual freedoms secured to the citizens, secularism and freedom of conscience and religion.

The arguments advanced by Palkiwala in the Minerva Mills case are worth reproducing in an encapsulated form. He argued that giving primacy to the Directive Principles over Fundamental rights, had the effect of demolishing the basic structure. According to him, principles stated in the Directive Principles could only be achieved through permissible means, without infringing the provisions of Part III of the Constitution.

The Court stated that to destroy the guarantees given by Part III (Fundamental Rights) in order to purportedly achieve the goals of Part IV (Directive Principles) is to plainly subvert the Constitution by destroying its basic structure. And so holding, the Court held that Sections 4 and 55 of the 42nd Amendment Act, 1976 to be ultra vires the Constitution of India.

PERSPECTIVE

To put this in perspective. the Basic Structure is the base upon which the edifice of our Constitution stands. The structure is seen in the form of Fundamental Rights. If laws are made which have the effect of altering or altogether doing away with the Basic Structure Doctrine, then it would be perceived as an attack upon the Basic Structure and would not stand judicial scrutiny.

To further comprehend this. Article 44 of the Constitution speaks of the State endeavouring to have a Common civil Code. It is a Directive Principle. Why does it appear as a Directive Principle? The framers of the Constitution and the Constituent Assembly were aware of the plurality of religions in the country. They were aware of the various uncodified laws that existed. They were aware of public sentiment and the possible impact of foisting upon the citizens such a code. Thus it was placed as a Directive Principle with the words..The state shall endeavour. If the observations of the Court over the decades on a possible Common Civil Code are read, it becomes abundantly clear that though desirable as per Article 44, a code may not be practicable in view of public sentiment. In Lily Thomas v. Union of India the Court stated that-” In another decision, namely, Pannalal Bansilal Pitti v. State of A.P. “, this Court had indicated that enactment of a uniform law, though desirable, may be counter-productive. I refrain from reproducing excerpts from other judgments due to space constraints.

Dr. B. R. Ambedkar in the Constituent Assembly on 2nd December, 1948 at the time of making of the Constitution. While discussing the position of Common Civil Code, Dr. Ambedkar, inter alia, had stated in his speech that “. . . . . . . . . . . . I should also like to point out that all that the State as claiming in this matter is a power to legislate. There is no obligation under the State to do away with personal laws. It is only giving a power. He further stated in his speech as under :”We must all remember …that sovereignty is always limited, no matter even if you assert that it is unlimited, because sovereignty in the exercise of that power must reconcile itself to the sentiments of different communities’

The Constitution of our country gives us religious freedom. Our personal laws are woven around our diverse religions. That is a fundamental right. Thus even though the Common Civil Code is perceived in the Constitution, its practicability must be measured against public sentiment. It must also be looked at by the powers that be that we already have statutory personal laws in existence for many religions. If not in existence, they can be brought in by legislation for the religious denomination . In fact, the Law Commission of India itself in its report on the Common Civil Code stated through the then Chairman that instead of a code, changes in personal laws would be recommended.

Despite various attempts at different times, a Common Civil Code has been difficult to put into place. It has not been due to any appeasement but due to sensitive religious overtones . In fact, there are some petitions pending before a High Court seeking prayers that a Common Civil Code be formulated. The question arises as to whether such a petition based upon a Directive Principle can lie, when the Courts have held that one could prefer a writ when there is violation of a fundamental right. Let us suppose the High Court does not entertain the petitions on the ground of maintainability. But what if the petitions are entertained. Can the Court direct such implementation. I think not. If however, the court does recommend instead of directing, what will be the ultimate outcome? A political party has the Uniform Civil Code on its wish list.

Will the probable future taking away of personal laws and replacing them with a Common Civil Code amount to a violation of the fundamental rights of the guarantee of religious freedom? Can and more particularly, should it be done? Does it go against the Basic Structure Doctrine?

Do we have another Kesavananda Bharati waiting to happen in the wings, and alongside him another incarnation of N A.Palkiwala ?

Only time will tell.

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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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