Saturday, March 14, 2015

Land Acquisition Laws in India - Part I

Land Acquisition laws in India are always controversial . In the colonial era (British India), Land Acquisition Act, 1894 was in force, which was to help British lords to acquire lands as per their will (read by force) and with little or no compensation.


LARR Act, 2013
Then in the UPA regime, the unjust colonial act was replaced with Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LARR Act, 2013). This was framed after consulting all stakeholders over a period of 7 years by the government (Congress-led UPA government) and was passed unanimously after going through only 2 Parliamentary Standing Committees in 2007 and 2009.

The LARR Act of 2013 was meant to expedite land acquisition but only after ensuring adequate compensation and rehabilitation of the affected people.

(First, try to understand the provisions of the act, then think about the problems associated with it)



Provisions of LARR Act, 2013

1.  Public purpose ProjectsIt clearly defined various types of public purpose projects for which the government could acquire private lands

2.  Conditions for acquiring landsBefore acquiring any land, consents of the affected families were required as follows -

  • Private projects - 80 % family agreement
  • Public-Private-Partnership (PPP) project - 70 % family agreement

3.  Social Impact Assessment (SIA) - Under SIA, even consent of the affected laborers, artisans, tenant farmers, fishermen, small tradersetc. (whose livelihood would be affected) was needed (What could be the social impact after acquisition of the land was to be assessed)

4.  CompensationAfter SIA, one-time compensation was to be given to the people affected by the land acquisition, even if they don't own any land. The compensation to the owner of the land was proportional to the market rates as follows -
  • Rural area - 4 x market rate (4 times)
  • Urban area - 2 x market rate (2 times)

5.  Food Security - Fertile, irrigated, multi-cropped farmland could be acquired only in the last resort. If such fertile land was to be acquired, government would have to develop equal size of wasteland for agricultural purpose.

6.  Private provisionIf government acquires the land for private company, the private company itself would be responsible for relief and rehabilitation

7.  SC / ST provisionAdditional rehab package for Scheduled Caste / Scheduled Tribe owners was to be given.

8.  Dispute settlement authoritiesState government had to setup Dispute Settlement Authoritieswith chairman of district judge or lawyer (for 7 years) post.

9.  Accountability - Head of the department would be made responsible for any offense or mischief played from the government side

10.  Land returnIf project was not started in 5 years, the acquired land was to be returned to the land owner.



Problems with LARR Act, 2013

1.  ComplexityThis Act established an extremely complex and impractical/infeasible process for land acquisition.

2.  Consent problem - If 20-30 % of the affected families could be managed not to give consent (e.g., by promising them higher prices, etc.), then due to 70-80% consent requirement, the project would never start.

3.  High cost of compensation

4.  Red tapism, Environment activism, Policy Paralysisetc.



... to be continued (Land Ordinance 2014, Land Acquisition Bill 2015, etc.)



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Priority Sector Lending

Banks try to do business on those sectors that could generate most profits for them, like corporate sector, etc. There are several other sectors that might not get adequate credit supply (loans), if special dispensation is not provided by RBI (because banks can ignore those sectors, as those will generate less profit for banks).

Therefore, RBI has mandated that all banks need to provide credit to those special category areas, (Financial Inclusion), known as Priority Sector.


Priority Sectors
Priority Sector includes following categories -


1.  Agriculture and Allied Activities (like dairy, fishery, animal husbandry, poultry, etc.)

a.  Direct Finance
  • Without limit - to individual farmers, SHGs, JLGs, small and marginal farmers, distressed farmers indebted to moneylenders, etc.
  • With limit (up to Rs. 2 crore per borrower) - corporates in these activities, producer companies, partnership firms, cooperatives, etc.
b.  Indirect Finance -
  • If the loan limits per borrower is more than Rs. 2 crore, then it will be treated as Indirect Finance.

2.  Micro and Small Enterprises
Bank loans to Micro and Small Manufacturing and Service Enterprises are considered Priority Sector Lending. However, there are some upper limits -

a.  Plant and Machinery Investment -
  • Micro Enterprises - < Rs. 25 lakh
  • Small Enterprises - > Rs. 25 lakh, but < Rs. 5 crore
b. Equipment Investment -
  • Micro Enterprises - < Rs. 10 lakh
  • Small Enterprises - > Rs. 10 lakh, but < Rs. 2 crore

3.  Education
Loans to individuals for educational purposes with the following limits -
  • Education in India - < Rs. 10 lakh
  • Education abroad - < Rs. 20 lakh

4.  Housing
Loans to individuals with the following limits for construction / purchase of a dwelling unit per family, excluding bank's own employees' loans -
  • Metropolitan areas (population above 10 lakh) - Rs. 25 lakh
  • Other than metropolitan areas - Rs. 15 lakh
Note - Bank's own employees get low interest Housing loan from that bank, so loans granted on them is not considered as Priority Sector Lending.


5. Weaker Sections
The following borrowers are considered as Weaker Sections -
  • Small and marginal farmers
  • Artisans,village and cottage industries (max. credit limit Rs. 50,000)
  • Scheduled Castes (SC) and Scheduled Tribes (ST)
  • Beneficiaries of Differential Rate of Interest (DRI) scheme
  • Beneficiaries of some government schemes, like NRLM, SJSRY, SRMS, etc.
  • Self Help Groups (SHG)
  • Distressed farmers indebted to non-institutional lenders
  • Individual women beneficiaries upto Rs. 50,000 per borrower, etc.

6. Micro Credit
Loans upto Rs. 50,000 per borrower to the poor in rural, semi-urban and urban areas, either directly or in a group, will constitute micro credit.



PSL targets and sub-targets
The target for lending to the redefined priority sector is retained at 40 % of Adjusted Net Bank Credit (ANBC) or credit equivalent of off-balance sheet exposure, whichever is higher, for all Scheduled Commercial Banks (SCBs).

Target - Total PSL = 40 % of ANBC
  • Sub-target - Total Agriculture = 18 %
  • Sub-target - Advances to Weaker Sections = 10 %


Unused PSL fund to form MUDRA Bank
Unused PSL funds of commercial banks will be used to set up the Rs. 20,000 crore corpus of the proposed MUDRA Bank (read previous post on MUDRA Bank). 

The bank will use at least 65 % of its funds for lending to micro enterprises run by members of Scheduled Castes and Tribes.



New proposals on PSL
  • To enhance credit to Small and marginal farmers, a separate sub-target of upto 8 % 
  • Loans for Agri-processing and Agri-infrastructure would be included in PSL
  • Loans to Medium Enterprises would be included in PSL (Micro and Small Enterprises are currently included)
  • A separate sub-target of 7.5 % to be created for the Micro Enterprises
  • Loans upto Rs. 5 crore for Social infrastructure, like schools, health cares, drinking water, sanitation, etc. are being included under PSL, for towns of less than 1 lakh population
  • Renewable Energy sector is being added to PSL, upto Rs. 10 crore loans


* RBI has released New PSL Norms - Click Me


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Friday, March 13, 2015

Financial Inclusion

World Bank report shows that approx. 2.5 billion (250 crore) working-age adults globally - more than half of the total adult population of the world - have no access to the formal financial services delivered by regulated financial institutions.

Instead they depend on informal systems which bear high risks. They turn to the moneylender for credit, buy livestock as a form of savings, etc. It is evident that appropriate financial services can help improve household welfare and spur small enterprise activity.


Financial Inclusion
Financial Inclusion process is the conscious effort of the government or central bank of a country to deliver financial services to the excluded sector of the society (by including them). 

The Government of India and the Reserve Bank of India (RBI) have been making efforts to promote Financial Inclusion as a major national objective of the country. Some of the efforts -
  • Nationalization of banks
  • Building up of robust branch network of Scheduled Commercial Banks (SCBs), Co-operatives and Regional Rural Banks (RRBs)
  • Introduction of mandated Priority Sector Lending (PSL) targets
  • Lead bank schemes
  • Formation of Self Help Groups (SHGs) and Joint Liability Groups (JLGs)
  • Permitting Banking Correspondents (BCs) to be appointed by banks to provide door step delivery of banking services
  • Zero Balance accounts like Basic Savings Bank Deposit Accounts (BSBDAs), Small Accounts, Jan-Dhan Accounts, etc.
The primary objective of all above initiatives is to reach the financially excluded sector of India.


Financial Inclusion data sources
Financial Inclusion data is presented on 5 major sources, as follows -
  • National Sample Survey Organization (NSSO) survey results
  • Population Census of government (currently 2011 census)
  • CRISIL-Inclusix index
  • RBI study on 'Financial Inclusion' in India
  • World Bank 'Financial Access Survey' results


RBI Policy Initiatives
  • RBI advised all banks to open BSBDA accounts with facilities like no minimum balance, ATM facility, etc.
  • Relaxed and simplifed KYC norms - to facilitate easy opening of bank accounts, especially for Small Accounts with balances not exceeding Rs. 50,000, etc.
  • Simplified Branch Authorization Policy - Domestic Scheduled Commercial Banks (SCBs) are permitted to freely open branches in Tier-2 to Tier-6 center (population less than 1 lakh) under general permission, subject to reporting to RBI, etc.
  • Mandatory Branches in Un-banked villages - bank are directed to allocate at least 25 % of total number of branches to be opened during the year in un-banked (Tier 5 and Tier 6) rural centers
  • Opening of intermediate brick and mortar structure - for effective cash management, documentation, customer grievance redressal, etc - Micro branches to be opened in rural area, and can be operated by Business Correspondents
  • Financial Literacy Centers (FLCs) - to literate customers in financial matters, etc.
  • Licensing of New Banks - with aim to further spread the banking services



Financial Inclusion



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MUDRA Bank

According to Budget 2015-16, the union government will set up Micro Units Development and Refinance Agency (MUDRA) Bank with a capital of Rs. 20,000 crore to finance the micro-finance sector of India, under Pradhan Mantri Mudra Yojana.


Purpose of MUDRA Bank
The Bank will regulate and refinance all Micro-Finance Institutions (MFIs) in India, which lends to / finances the Micro, Small and Medium Enterprises (MSMEs) engaged in manufacturing, trading and services activities.

Finance Minister said, "The measures would not only help in increasing access of finance to the unbanked but also bring down the cost of finance from the last Mile Financers to the micro/small enterprises, most of which are in the informal sector".


Budgetary allocation
Rs. 20,000 crore corpus is allocated to set up the MUDRA bank. Another Rs. 3,000 crore would be provided to it, to create a Credit Guarantee corpus for guaranteeing loans to the micro finance sector.


Responsibility of MUDRA bank
  • Laying down policy guidelines for MSME financing business
  • Registration and regulation of MFI entities
  • Accreditation / rating of MFI entities
  • Formulating and running a credit guarantee scheme for providing guarantees to the loans which are being extended to micro-enterprises
  • Creating a good architecture of last mile credit delivery to micro business under the scheme of Pradhan Mantri Mudra Yojana, etc.

Priority Sector Lending
Finance Ministry also directed that MSME loans would be treated as Priority Sector Lending (PSL) and a separate sub-limit of 7.5 % in PSL is being created for the Micro Enterprises.


Some points on MUDRA Bank
  • It is to be set up as an apex refinancer, which will fund over 50 million entrepreneurswho generally do not have access to formal credit. These micro entrepreneurs also provide jobs to other people, thus creating an opportunity of inclusive growth.
  • It will fund micro units which are more efficient and adds more value to the economy than the corporates. According to the Economy Census 2014, the gross fixed assets of these (approx) 5.77 crore micro units is Rs. 11.5 lakh crore.62 % of these are owned by Scheduled Caste (SC), Scheduled Tribes (ST) and Other Backward Castes (OBCs).
  • The MUDRA architecture is indigenously designed to fund the Indian non-formal sector.


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Thursday, March 12, 2015

Subsidy leakage - JAM Trinity


Subsidy in India
Government of India provides subsidies to the needy people on several commodities like rice, wheat, pulses, kerosene, sugar, LPG, water, fertilizer, iron ore, etc. The estimated direct fiscal cost of subsidies is approx Rs. 3.78 lakh crorewhich is almost 4.24 % of GDP.

Now you can see, how enormous is the subsidy in India. But the real question is - does the subsidy reach the target household properly? Unfortunately, a significant portion of this subsidy is wasted due to leakage. Let's look into an example -

Kerosene is provided to the poor in a highly subsidized rate, as it is the primary fuel for cooking and lighting in the Below Poverty Line (BPL) households. Government distributes kerosene to the beneficiaries through Public Distribution System (PDS). But it is found that approx 45 % of subsidized kerosene does not reach the intended beneficiaries. This is just an indication of subsidy leakage on kerosene. Think about other commodities!


Government's steps to reduce leakage
Government has now taken some significant steps on reducing the subsidy leakage problem. Prime Minister Shri Narendra Modi's pet scheme of Jan Dhan Yojana (PMJDY) and Direct Benefit Transfer (DBT) are indeed good ones, as these mechanisms can eliminate leakage and ensure that subsidies reach those who deserves.


JAM Trinity
The 'JAM Trinity' is intended for the very purpose of restricting the subsidy leakage problem, and efficient transfer of subsidies to the beneficiaries (directly, rather than through intermediaries). In the Budget 2015-16, government proposed this. It consists of three schemes - 
JAM allows the state to offer subsidy support to poor households in a targeted and less distorting manner. 

Now the subsidy amount for LPG is directly credited to your bank account, rather through intermediaries. Thus government can keep track of the subsidy flow, and whether it reaches to the intended beneficiaries or not.


Post Offices
Apart from the above mentioned ways, Post Offices can be effectively utilized for this purpose, since India has the largest postal network in the world with over 1,55,015 Post Offices of which approx 90 % are in the rural areas


JAM Trinity
JAM Trinity


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Tuesday, March 10, 2015

Pradhan Mantri Jan-Dhan Yojana (PMJDY)

PMJDY Logo
PMJDY Logo
Pradhan Mantri Jan-Dhan Yojana (PMDJY)
PMJDY is a National Mission for Financial Inclusion (to include excluded-population for financial/banking services). A number of financial services is provided to the PMJDY account holder in an affordable manner, like -
  • Savings and Deposit Accounts
  • Remittances (transferring money to other accounts)
  • Credit
  • Insurance
  • Pension, etc.

PMJDY Slogan
'Mera Khata Bhagya Vidhata' (meaning in English - 'My Bank Account - The Creator of the Good Fortune')


PMJDY Account opening procedure
PMJDY accounts can be opened in the followings with Zero balance -
  • Bank branch (Public sector, Private sector and Regional rural banks)
  • Business Correspondents / Bank Mitr outlets
Note that there is no minimum balance criteria for opening PMJDY accounts (without cheque book). But if someone wants to avail the cheque book facility, he needs to maintain minimum balance criteria.


PMJDY Benefits
  • Deposits attract interests (you will get interest on your account balance)
  • Accidental Insurance cover of Rs. 1 lakh
  • Life Insurance cover of Rs. 30,000
  • After satisfactory operation of the PMDJY account for 6 months period, an Overdraft (OD) facility will be permitted, upto Rs. 5,000 (only one account per household, preferably female account holder of that household)
  • Beneficiaries of governmental schemes (like LPG subsidy, etc.) will get Direct Benefit Transfer (DBT) in these accounts (subsidy amount will be directly credited to your bank account)
  • Access to Pension, Insurance products
  • Easy transfer of money across India (remittances)
  • No minimum balance criteria (unless you avail cheque book facility)
  • RuPay Debit Card will be provided
Note that RuPay Debit Card must be used at least once in 45 days


PMJDY Statistics (as on February 28, 2015)
  1. Public Sector Banks - Total 10.7298 crore accounts
  2. Private Sector Banks - Total 0.5702 crore accounts
  3. Regional Rural Banks - Total 2.3804 crore accounts
Total 13.6804 crore PMJDY accounts has been opened in India (as on Feb 28,2015)


PMJDY Administrative Structure
  • Mission Head - Finance Minister Shri Arun Jaitley
  • Mission Incharge - Finance Secretary Dr. Hasmukh Adhia
  • Mission Director - Joint Secretary (Financial Inclusion) Shri Rajesh Aggarwal
  • Additional Mission Director - Director (Financial Inclusion) Dr. Alok Pande

PMJDY Guinness Book of World Records
PMJDY scheme of government recently recognized by Guinness Book of World Record for most bank accounts opened (approx 1.8 crore) in 1 week (during August 23 - 29, 2014).

The Certificate states, "The most bank accounts opened in 1 week as a part of financial inclusion campaign is 18,096,130 and was achieved by Department of Financial Services, Government of India (India) from 23 to 29 August 2014"

Guinness Certificate - PMJDY
Guinness Certificate - PMJDY



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Monday, March 9, 2015

Finance Ministry

Ministry of Finance (MoF)
Finance Ministry is one of the most important ministries of Government of India. It governs the following -
  • Taxation (direct and indirect - CBDT and CBEC comes under this ministry)
  • Financial Institutions (Banks, NBFCs, etc.)
  • Capital Markets (SEBI, etc)
  • Financial Legislation (Money Bills, etc.)
  • Center and State finances
  • General Budget (presented by Finance Minister)

Departments of MoF
Ministry of Finance of India comprises 5 departments -


1.  Economic Affairs
Department of Economic Affairs (DEA) formulates and monitors the economic policies and programmes of the government. It performs the following functions -
  • General Budget (excluding Railway Budget) preparation
  • Formulation of macroeconomic policies - fiscal policy, inflation, public debt management, capital market regulation, stock exchange, etc.
  • Deals with external resources through Bilateral and Multilateral cooperation with foreign countries, foreign investments, forex, balance of payments (BOP), etc.
  • Indian currency production (bank notes and coins), postal stamps, cadre management, etc.
Economic Affairs Secretary - Shri Rajiv Mehrishi


2.  Expenditure
Department of Expenditure governs the public financial management system in the Central government. It performs the following functions -
  • Appraises major schemes or projects before sanction (both Plan and non-Plan expenditure)
  • Center to State financial resources transfer
  • Implementation of Central Pay Commission (currently 7th Pay Commission chaired by Justice Ashok Kumar Mathur) and Finance Commission (currently 14th Finance Commission chaired by Dr. Y.V.Reddy) recommendations.
  • Expenditure management of Central Ministries or Departments, etc.
Expenditure Secretary - Shri Ratan P.Watal  


3.  Revenue
Department of Revenue controls all the Direct and Indirect Taxes by Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) respectively.
Note that Income Tax, Customs Duty, Excise Duty, etc. - all type of taxes are governed by Revenue Department.

Revenue Secretary - Shri Shaktikanta Das


4.  Financial Services
Department of Financial Services (DFS) governs all banks, insurance, pension and financial services (including MSMEs) provided by government agencies or private corporations.

Financial Services Secretary - Shri Hasmukh Adhia


5.  Disinvestment
Department of Disinvestment is responsible for making policy regarding disinvestment and privatization of Public Sector Units (PSU) of government of India.

Disinvestment Secretary - Smt. Aradhana Johri


Cadres of MoF
The following cadres of Indian Civil Services work under Ministry of Finance -
  • Indian Economic Service (IES)
  • Indian Revenue Service (IRS)
  • Indian Cost Accounts Service
  • Indian Civil Accounts Service

Finance Minister
First Finance Minister of independent India is Shri R.K.Shanmukham Chetty and current Finance Minister is Shri Arun Jaitley.

Minister of State for Finance
Current Minister of State for Finance is Shri Jayant Sinha

Finance Secretary
Finance Secretary plays the leadership role among the 5 departmental secretaries (chosen among them). Generally Finance Secretary tends to be the senior most of the 5 (seniority based on entry into civil services, not based on actual age).

Current Finance Secretary is Economic Affairs Secretary - Shri Rajiv Mehrishi



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Sunday, March 8, 2015

Banking Ombudsman

Ombudsman is an official appointed to investigate individual's complaints against a company or organization, especially a public authority (Google definition of 'Ombudsman').

To facilitate customer complaints resolution process, RBI introduced this fast and inexpensive (no fee to avail this facility) Ombudsman Scheme in 1995 under Section 35A of Banking Regulation Act, 1949. In this scheme, RBI appoints the Banking Ombudsman, generally a senior official, to redress customer complaints against deficiency in certain banking services provided by a bank.


Banks covered under this scheme
  • Scheduled Commercial Banks (SCBs)
  • Regional Rural Banks (RRBs)
  • Scheduled Primary Co-operative Banks

Banking Ombudsmen and their location
Currently, total 15 Banking Ombudsmen have been appointed by RBI, and their offices are located mostly in the state capitals -

Allahabad, Bengaluru, Bhopal, Bhubaneshwar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Kolkata, Mumbai, Delhi, Patna, Thiruvanthapuram


Legal power of Ombudsman
Banking Ombudsman is a quasi-judicial authority, who has legal power to summon both the parties - Bank and its customer, to facilitate the resolution of complaint through mediation.


Banking Ombudsman Scheme, 2006
The latest scheme is Banking Ombudsman Scheme, 2006, which has wider extent and scope than its previous versions, like online submission of complaints is possible. Also, if customer is not satisfied with the resolution provided by Ombudsman, he can approach the Appellate authority, i.e., Deputy Governor of RBI.


Complaint process
A customer can file a complaint before the Ombudsman, only after the followings -
  • If he has not received any reply from the bank within a period of 1 month after the bank has received his complaint (meaning, customer has to complain to the bank first, then Ombudsman)
  • If the bank rejects  the complaint of the customer
  • If the customer is not satisfied with the reply from the bank
He can file a complaint by writing on a plain paper, or online, or email to the Banking Ombudsman (under whose jurisdiction the bank branch is)


Note that, Banking Ombudsman is not meant to replace the traditional Consumer Courts or Forums, but the scheme only supplements them. Also note that this scheme deals with complaints of max. Rs. 10 lakh disputes.



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