SEBI - IRDA Battle

India’s market and insurance watchdogs are at each others' throats, growling and snarling. See how the dirty events unfolded.

Early this month market regulator Securities and Exchange Board of India (SEBI) barred 14 private sector insurers from issuing ULIPs (unit-linked insurance plans) without asking its permission. Within 24 hours, the Insurance Regulatory and Development Authority (IRDA) directed the insurance companies to ignore the market regulator’s order and continue business. Then the Government clarified in Parliament that insurers can do business in equity and bond-linked products i.e., ULIPs as per rules laid down by the insurance regulator IRDA.

ULIPs (unit-linked insurance plans) are insurance products that invest a part of the premium paid by investors in equity or debt instruments, while another part accumulates as insurance. High commissions of up to 40% have motivated the insurance agents to aggressively sell ULIPs in the past few years. ULIPs account for up to 90% of the new business premium for some of the private sector life insurers.

The fight got more spice as IRDA has threatened to ban all policies sold by the Department of Posts (DoP) in case of a failure to comply with its norms. Further adding that compliance with IRDA's norms will actually benefit the department of post.

Be it insurance policies, mutual funds or post-office saving deposits, all these are good investment avenues for Indians. The shameful fighting among regulators and a Government department has left the investors confused. This all has raised a question mark on the effectiveness of financial regulations and coordination among different governing bodies in this country. The legal battle between SEBI and IRDA over ULIPs is set to be fought in India’s Supreme Court.

Setting up of Financial Stability and Development Council (FSDC) as a super regulator may be a possible solution. The finance minister in his 2010 budget proposed to create FSDC with a view to strengthen and institutionalise the mechanism for maintaining financial stability. This Council would monitor macro-prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues. Hope that FSDC turns out to be a coordinator in true sense and not just become an appellate tribunal for regulators.

Swiss Bank Account

We call it by many names. Gh’aban, ghotala… Indians are well aware of scams by politicians, bureaucrats and business houses. Scams are not only prevalent in our country but also traced in Japan, US and other advanced countries. We are also aware about the destinations of this moola. Swiss banks are the place where scams-ters put their hard earned money (with blood of the poor victims). These banks provide private banking services to ultra-rich clients. Complete secrecy is maintained. No government or any party on this earth can get accounts’ information from these wealth managers.

No one has idea about the number of netas, babus and banias who hold secret accounts in the banks of Switzerland and no clue about the money locked in. Recently the tax authorities in US have encountered tax-evasion and investment of laundered money in UBS AG and Credit Suisse. Switzerland’s bank secrecy laws have come under increasing scrutiny in many countries. This issue has even caught the limelight in the summit of G-20 countries. Lichtenstein and Monaco are other tax havens.

The International Money Laundering Information Network states, “Serious efforts have been, and continue to be, made to create greater transparency in financial matters, but the offshore financial world remains for a large part a ‘Bermuda triangle’ for financial investigations.”

The supporters of bank-secrecy say that this is a legal contract between two parties for ‘not to reveal’ anything. But those against this concept are of the view that ‘funds being misused to commit terrorism, money laundering, tax evasion, or other misconduct.’ UBS has turned over the names of nearly 300 clients who owned the Swiss accounts. International news agency AFP is reporting that UBS rejected a new U.S. government lawsuit filed late last week asking that the bank disclose the identities of some 52,000 U.S. customers who allegedly evaded taxes. The U.S. government estimates approximately $14.8 billion is hidden in the Swiss accounts.

Any way this is a matter of shame that when millions of people are losing their jobs due to economic crisis, some richest of the rich are not fulfilling their civil and legal responsibilities of paying taxes. Thanks to “bank secrecy” poor are not getting loaf of bread. Few banks have suggested their executives not to travel abroad to avoid arrests by the authorities of host countries. A fresh report reveals that ‘Switzerland agreed to loosen bank secrecy for foreign clients.’ The wheel has started rolling in the right direction. We can now hope for a transparent banking system. Furthermore this will only create more “white money” and reduce some of the “black money”.

Come on, Nationalize!

The nationalization debate has started. The governments in US and UK are pumping rescue funds or bailout money in the financial giants for almost a year now. AIG, Citi, BofA, RBS etc. have been provided with billions of dollars from the taxpayers’ money. Still the mount of capitalism is shy of using the term “nationalization”. Fed Chairman Ben Bernanke and FDIC chief Sheila Bair call this concept a non-sense.

Nationalization, at this stage, is almost necessitated in order to prevent further collapse of the financial institutions. Depository institutions are the life-blood of a nation’s trade and well-being, and cannot be allowed to play roulette with the citizens’ money. Nouriel Roubini, a well-respected economist has been pushing the nationalization idea for several weeks now. Roubini proposes that the government nationalize all the banks that are deemed insolvent as per the Treasury’s ‘stress-test’, and quickly separate the acquired assets into good and bad for easy disposal.


Indira Gandhi’s government nationalized all 14 of India’s largest banks in one fell swoop in 1969. In a second act, the government nationalized the six next largest banks back in 1980. Today, out of the 88 commercial banks in India, 27 (the largest, including State Bank) have the Indian Government as the largest shareholder. To put in perspective, 75% of the country’s banking assets are in the hands of our trusted government. Also to note is that the Reserve Bank of India, the counterpart of the US Fed is completely nationalized, unlike the Fed which is a quasi-autonomous entity with sometimes squeamish objectives.

Free markets only work when they can self-regulate effectively, which is somewhat ironical given that they only exist because of individuals’ greed. Nationalization is a need of the hour. Be rational in taking decisions and making comments.

No Bonus

The Indian Prime Minister Dr. Manmohan Singh had once remarked about sky high packages of CEOs. This time executive bonuses have hit the limelight in US. There was a time when a middle level manager would get a joining bonus almost equal his hefty annual salary. The worth of a person was measured by his CTC. As the economy entered into recession, executives are saying ‘no bonus’ “thanks God my job is safe.”

Securities industry in US granted its employees $18.4 billion in bonuses – a revelation that President Barack Obama characterized as “shameful.” Surely when the sector and economy is bleeding, people are losing their jobs and the future is dark it is a shame to declare bonus. In England a lavish party was thrown to the employees of Royal Bank of Scotland even after bailout money was given to company by the Government.

In my company there is no bonus for H2. Performance Appraisal will take place. The salary increments based on appraisal. May God it takes place! The bad news are circulated everyday. Many companies have announced freezing of annual increments. Experienced, times are tough. Hit the bears eye. Fresher, good luck!

The Book Says

He likes the literary value of this book. A book he purchased for Rs. 65 in a Book Fair. He enjoys the couplets and tries to derive meaning out of them. They are full of meanings, like the 3D figures wrapped in a single stanza.

He puts this treasure trove on one side of his pillow and goes into deep sleep. When he wakes up the book is not there. What’s it? He murmurs. He comes out in the courtyard. The book is in her hands. She is immersed in poetry. Now he is with lots of thought and without words.

She is polite still rustic, she is naive still confident. She suddenly finds a piece of paper inside the book. Her lips read:

sukoot-e-sham judai hua bahana mujhe
kisi ki yaad ne sikhla diya tarana mujhe

And asks, “Whose remembrance has taught you the anthem”? He answers, “This is the hymn of love, and my dear your memory has taught me this sacred song”. But he doesn’t utter a single word.

The Year That Passed

Recession hounded the year 2008. Here I will talk about just two issues, business and job market. Former was bleeding so the later was murky.

The problems of this year had culminated in August last year with large number of sub-prime defaults in US. The home-owners faced foreclosures and problems transmitted from housing lenders to entire financial sector. Retail, aviation, IT and outsourcing was to follow. Good number of techies and financial wizards got extra leisure time; some made suicides out of boredom, while some faced postponement of their marriages.

The economy has globalised. If west sneezes east catches cold. The business houses declared losses and started cutting cost for flexing their muscle. The pre defined economic notions altered. Sovereign funds of gulf and Singapore funded the financial institutions. Bank of England issued rescue package to UK banks, Federal Reserve was kind enough to provide $750 billion of emergency bailout. Even the big three of Detroit came out in the streets with begging bowl. Generosity prevails!

Job market was hit hard. United Nations predicted that 20 million people around the world will go jobless. This proved to be prophetic. Every day we saw the news of retrenchment under the caption ‘Corporate Layoff’. A few companies were hiring and gates opened for only quality workforce. Some PSU banks in India announced their recruitment programmes in big number.

Lets see what is there in store for the companies and the youth with skills and qualifications as a new year gift. Be positive and stay calm.

Some Indian Issues

Every citizen of India has the right to express his/her views provided it doesn’t hamper the peace and freedom of others. In later paragraphs I am about to discuss some pertinent issues but given the gravity of the situation as the present economic crisis (in some countries officially declared recession) corrective actions should be taken at its earliest.

Agricultural Income – Why not Taxed?
India is a country where 85% of its population was dependent on agriculture at the time of independence. Majority of the population lived in villages. They were involved in the production of food grains without using modern implements. Naturally there income and life style was below standard. After six decades the figure has come down to 60 % and modern farming has been started for long. The agriculture output comprises almost 25% of our total Gross Domestic Product.
The situation of farmers has not improved, because of many reasons: over dependence on the farm, low land holdings, disguised unemployment, lack of storage facility, lack of irrigation facility, etc. Now everyone is bound to say that these fellows are leading their lives under pathetic conditions, their income is minimal and they should not be levied tax on their income.
But I say that income from agriculture should be taxed as we collect tax from business men, service class etc. I have valid reasons to support my views. First have a look at the poor who is involved as a labourer in a factory, or running a road side shop, or pulling rikshaw. Their condition is sub standard just like poor kisans. We are a progressive society and not taxing the disadvantaged. Now have a look at the lavish styles of big farmers, and sprawling farmhouses owned by them. The valuable properties in their hands are full of luxuries, and their income runs into crores. Think at this juncture; they should be taxed or not? Yes, of course.
The exemption of agricultural income under income tax rules has no significance for the poor. But definitely it provides unnecessary cushion to the big farmers with massive land holdings. They are getting tax exemption and exchequer is losing revenue all in the name of poor kisan. Then why we are practicing this system for so long? For this check the ownership of few farm houses. We get the clue. Almost all the politicians have a number of farmhouses and the income from this is fully exempt from tax. This is surely a political drama not a pro poor policy.

We are subsidising the rich
The subsidies and financial help of any kind to the poor make good sense. It helps the people have a taste of opportunities if they have missed the bus. It also provides a social equilibrium. India provides many types of subsidies in the areas of basic commodities like food, energy resources, education, medical facilities and input costs to agriculture and industry. The government gives subsidy to oil and gas companies to sell their produce at affordable prices. Education is funded by the government so that more number of men and women could provide their energies to the development of society. Subsidy is given to fertilizer producing companies so that the market price of this important input of farm comes down. Ration is provided on minimal prices to those living below the poverty line.
Some financial assistance is provided to selected few and some subsidies are provided above board. Subsidy towards oil and other energy resources is provided to all. Likewise every one can get benefited from the government funded education system. Some help like low prices on ration is provided to BPL families.
Subsidy to all irrespective of economic condition means assistance to the rich too. Petrol, electricity, gas etc. are sold at lesser prices to the people who can very well afford to pay more. The government funded schools are a complete failure. The well to do parents sends their children to the private schools while the poor children languish in the sarkari schools. These two groups of high school graduates compete for a seat in the universities and institutes of higher learning. The city slickers and students from convent and other private schools get admission in places of repute. The students from sarkari schools are thrown in colleges where professors go to mark attendance, and students to fill the forms and sit in the examinations. The higher education is largely funded by the government. Best part of these fund go fulfil the needs of students from well off families.
For how long we will continue this practice of subsidising the rich? Subsidy and financial help should be provided to only economically backward section. The haves should be provided things at par. Money thus saved should be channelled to give things to the poor at discount.

Remove rotten British traditions
The British came here with their ethnicity and habits. They developed the Indian administrative system with their national interests. The army, bureaucracy, courts, commerce and education were designed in British style. Army parades, civil administration, court proceedings, trading relations and university convocations all carried their traditions to India.
Before the arrival of our foreign masters we had our own system of maintaining army, carrying through court orders and trading patterns. We managed our seats of higher learning. All these institutions had their rituals and ways of doing things. As the saying goes the victors crush everything related to the defeated. Indian system of court, administration, education etc. was abhorred by them. They changed everything Indian. In the words of Pandit Nehru, “Like shadows on a stage these high officials continued to function in their old way, trying to impress us with their elaborate imperial ritual, their court ceremonies, their durbars and investitures, their parades, their dinners and evening dresses, their pompous utterances.”
He further says, “But new standards had arisen, different values had been created, and now this elaborate show was the subject of jest and ridicule.” After independence we continued with their style. The world has changed a lot. But our administration, courts, police, army, universities lack willingness to adopt new designs and style to perform the things at their disposal in a better way. Even the customs and styles in England have changed but we are living with inertia.The British rule has given us many good things. Only I want to say is to remove rotten and harmful conduct. See the high handedness of police, long delays in court proceedings, and all prevalent corruption and babu culture. All these have British origin. These evils of our society should be changed for the better.