Cheaters' County

Saradha collapse is just tip of an iceberg with many more closures waiting on the cue. It is high time that RBI and SEBI are given more teeth to inspect into the books of burgeoning chit funds companies.

With the kind of financial frauds mushrooming in every nook and corner of India, it can no longer boast of having a tightly regulated financial sector. The debacle of Kolkata based Saradha Group’s chit fund business is the recent instance of how several wheeler-dealers are indulged in investment fraud undeterred and unchecked taking innocent people on ride. While capital adequacy norms, risk controls or even basic financial disclosures are thrust upon top level enterprises but the same are hardly imposed on small entities, thus a sheer anarchy prevails at bottom level. This is a matter of concern for the nation where a good chunk of population is by and large humbly resourced and financially-illiterate prone to get easily duped.

Chit fund, ponzi schemes, multilevel marketing frauds are not new to India. Saradha scam is yet another example of what Kuber, JVG, Speak Asia etc have done with the hard-earned thrifts of innocent people. They simply raise vast amount of money from innocent people luring them of high returns, special packages or foreign tours but eventually round-trip the collected money from one depositor to another instead of creating more assets. Such fraudulent business is burgeoning at faster pace with even 10-20 people opening up unregistered committees and start collecting money projecting fake investment plans as authentic.

It is ironical that despite having independent financial market regulators like RBI, SEBI, and IRDA etc for varied financial services, fraud companies devising Ponzi schemes are kept on flourishing. The problem is that regulation of chit fund business is governed by a central Chit Funds Act 1982 as well as specific Chit Fund Acts enacted by different states. As it is a State subject, RBI and SEBI exclude chit funds from the purview of their regulations for deposit-taking finance companies or collective investment schemes and only target capital market and banking frauds. It is time that financial regulators focus on financial frauds taking place at grassroots level as nearly 60% of India is still un-banked and vulnerable to be targeted by chit funds companies operating under no control or checks. Not only chit funds but almost entire grassroots financial business arbitrarily operates in seemingly no man’s land. For instance, co-operative banks and money lenders at lower level are also no less fraudulent.

It is of utmost importance that some measures are devised to keep a check over such Ponzis as in the absence of proper monitoring system; some crooked minded fellows easily acquire political clout and leverage the opportunity to give a legitimate shape to their fraud investment plans. They even enter into media and education and facilitate money-laundering, black money economy undauntedly by the virtue of political connections.

India’s financial sector is deeply crippled with corruption and hoax activities and more so at bottom level of pyramid. Saradha collapse is just tip of an iceberg with many more closures waiting on the cue. Policymakers must not forget that financial institutions are prone to ‘contagion’ and the pace at which such fraud companies are coming into vogue; it is highly significant to strictly regulate them at earliest. It is high time that RBI and SEBI are given more teeth to inspect into the books of burgeoning chit funds companies.

Export Growth: Let's Hope!!

Reformed SEZ policy might not bring desired results in medium term due to infrastructure hurdles and bureaucratic bottlenecks for business set-up. 

Considering the declining rate of exports and subsequent rising trade deficit, the Annual Supplement to the Foreign Trade Policy primarily aims at putting exports on a growth trajectory. Not left with many options to do that, Commerce Ministry has specifically tried to rejuvenate investment in Special Economic Zone (SEZ) through amending existing policies. In addition, extension of interest subsidy to engineering exports, simplifying the transaction rules for exports and expansion of Export Promotion Capital Goods (EPCG) scheme are few other provisions of Foreign Trade Policy (FTP) for current fiscal year 2013-14. However, it doesn’t speak about what measures are to be taken to control nation’s increased dependence on imports.

As per new SEZ framework, minimum land area requirement for multi-product SEZs will be 500 hectares as against 1000 hectares and for sector-specific SEZs 50 hectares as against 100 hectares. In a bid to boost small and medium size enterprises, Govt. has done away with mandatory requirement of minimum 10 acre of land area for setting up a business. Now, small office buildings can also avail SEZ benefits as minimum land requirement for 7 major cities is 100,000 sq. m, 50,000 square meters for Category B cities and only 25,000 square meters for the remaining cities. Also, exit policy has been introduced for existing units based in SEZ who can now transfer or sale ownership of their SEZ area. To some extent these moves will help revive investor interest but SEZ developers and units are disappointed that the Government has not exempted them from Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) which primarily drove away investments from SEZ. They also contend that SEZ units must have been made eligible for focus product and focus market schemes.

FTP has done away with 3% duty Export Promotion Capital Goods scheme and harmonized it with zero duty EPCG scheme. Sectors under Technology Upgradation Fund Scheme (TUFS) can also avail benefits of zero duty EPCG scheme which entails zero import duty on capital goods meant for production. This scheme has been extended beyond March 2013. The only glitch is that authorization holders will have export obligation of 6 times the duty saved amount to be completed in a period of 6 years. The interest subvention scheme, by which interest on loans to exporters is reduced by 2% has been extended by March 2014 and also has been widened to include 134 sub-sectors of engineering and textile sectors. These steps will help improve export performance of textile manufactures and garment exporters.

According to recent data, export from India has declined by 1.76% to $300.6 billion while imports rose 0.4 per cent to $491.5 billion pushing up the trade deficit to $190.91 billion. Commerce Minister Anand Sharma has tried to deliver best possible provisions via Annual Supplement of FTP to facilitate exports in the backdrop of global economic slowdown and policy restraints at home but one must not expect a quick export jump in the wake of this policy as export promotion is a long term initiative. Even the reformed SEZ policy might not bring desired results in medium term due to infrastructure hurdles and bureaucratic bottlenecks for business set-up.

Treading on Treacherous Trade

Indian Govt. is mysteriously going ahead with negotiations on India-EU FTA without addressing contentious issues at home. It has to listen to and also resolve the doubts of stakeholders affected by it.

Non-transparency and insolence has perhaps become the nature of the current Govt. Seemingly, not concerned with already ballooning trade deficit, India is likely to sign a Free Trade Agreement with world’s biggest trade block European Union and that too without any discussion with public in general and stakeholders in particular. Assumptions based on leaked documents online are suggestive that the agreement is detrimental to indigenous agriculture, commodity and industrial segments like poultry, dairy, farm, fisheries, automobiles etc. and will further dampen India’s self-reliance. 

Proposed FTA with EU is the culmination of long-drawn negotiations on Bilateral Trade and Investment Treaty which commenced in 2007. The modus operandi of going ahead with this FTA is dubious as despite such a long time Govt. has not even clarified what benefit it would bring to India and how it will help maintain trade balance with EU when latter already has low tariffs in most products while India’s average applied tariffs, even after significant reductions, are 31.4% and 9.8% for agricultural and non agricultural products respectively. In addition, close to 69 percent of India’s agricultural exports and 65 percent of its non-agricultural export already enter the European markets without duties, whereas EU allows only less than six percent of the former's products without duty. Hence, the benefits of the pact are ostensibly tilted towards this influential economic block who is trying to seek even lower tariffs and easier flow of products in growing Indian market.

Another apprehension is that it will hit Indian agro-industries and also marginal and small farmers as agriculture in India is not as incentivized as it is there in Europe where low production cost in itself is a protective barrier for domestic companies while India is at a loss at this front. EU is not willing to address this issue by contending that implicit subsidies are a multilateral issue discussion on which can only be routed through WTO.

EU, especially Germany is emphasizing the inclusion of automobiles in FTA which is a major concern for automobile sector in India. Also, EU demands stricter Intellectual Property regime intimidating generic drug manufactures in India. Pact is also believed to grant it procurement in central and state level institutions which would be extremely unfavorable for Indian Small and Medium Enterprises (SMEs) who can in no way compete with advanced European companies. Foreign companies might be allowed in technology-driven sectors but doing this for regular contracts is certainly harmful for the growth of homeland companies. This step would be an exclusive prerogative for EU as it hasn’t been accorded to any other FTA partners till now.

The shroud secrecy with which Govt. is moving ahead with India-EU FTA pact is against the sound democratic principles. Globally no Govt. can ratify bilateral trade agreements on its own discretion but Indian Govt. is fearlessly and quite mysteriously going ahead with negotiations with EU without addressing contentious issues at home. It is commendable that Parliamentary panel has warned Govt. not to sign the pact before it being discussed with stakeholders. Govt. must disclose what commitments are being made via FTA. It has to listen to and also resolve the apprehensions of interest groups affected by it. 

Humanizing Pharmacy

Supreme Court verdict on Novartis has established the sanctity of Indian Patent Laws and also sent a message across Big Pharma that its laws cannot be exploited. 

As the court struck down ‘evergreening’ of drugs and compulsory licensing already there with the authorities, India has enough power to stop arbitrary pricing of medicines in India by global Pharma giants. Supreme Court verdict on Novartis is the befitting answer to the devious practice of Big Pharmaceuticals who try to constantly extend the life of a drug-patent on frivolous grounds. The decision will benefit the Indian pharmaceuticals companies and also those poor people who by and large depend on the generic form of original drug. This stellar judgment has set a precedent for ongoing and upcoming patent cases which will go a long way to protect the availability of cheap generic drugs for poor patients. It will also drive other developing countries to follow the suit set in by Indian Patent Act.

In 2005 India conformed to the World Trade Organization’s intellectual property standards (1995 TRIPS Agreement), and retroactively accepted applications for product patents from 1995 for scrutiny. It is then that Novartis sought patent for its breakthrough blood cancer drug Glivec but Indian Patent Office, as per the amended Indian Patents Act, section 3(d) rejected its patent plea stating that inventions that are mere "discovery" of a "new form" of a "known substance" and do not result in increased efficacy of that substance are not patentable. Glivec which is a highly effective treatment for leukemia is nothing more than an altered version of beta-crystalline form of the imatinib mesylate compound, thus doesn’t require a patent. Novartis further claimed against this judgment in Madras High Court and also in Intellectual Appellate Board but both the institution dismissed its petition on the same ground, which has now finally been rejected by Indian apex court as well.

Novartis including other multi-national pharmaceuticals are criticizing the ruling stating that Indian patent laws aren’t robust enough to protect intellectual property rights. But the criticism is unfair as drug-companies are known to tweak with the existing molecules to show novelty and thus try to get an extension of drug-patent, a practice popularly known as ‘evergreening’. India rather deserves praise that its patent act is strong enough to keep a check over this unjustified tendency of Big Pharma. They have also threatened India to not invest in Research & Development in the country but the fact that Indian pharmaceuticals market is world’s fourth largest by volume and fourteenth largest by value, hardly any drug industry can afford to treat India as pariah in pharma sector.

Drug patents which are meant for fresh and authentic innovation have only enticed big pharma companies to make super-profits at the expense of social good and well-being. If Novartis were to get its patent on Glivec, it would have forced Indian Pharmaceuticals companies to stop producing generic drugs, thus making the drug non-accessible to a good chunk of poor population in developing world as one tablet of Gleevec, patented in US costs around 1.2 lakh while its generic form, Glivec manufactured by an Indian pharma company Resonance is available at 30/- per tablet.

Supreme Court verdict on Novartis has established the sanctity of Indian Patent Laws and also sent a message across Big Pharma that its laws cannot be exploited. It has marked the beginning of a new era of patent system to regulate the pharma sector.