PM Modi's cashflow woes just got more bearable thanks to RBI switch

Agencies
December 18, 2018

Dec 18: Facing cash flow problems just months before a national election, India’s Prime Minister Narendra Modi could have a savior in the country’s new central bank chief.

India’s spending is exceeding its revenue, leaving the government looking for funds to help an ailing banking sector -- key to boosting loans and investment and creating jobs. Finance ministry officials estimate the Reserve Bank of India has at least 3.6 trillion rupees ($50 billion) more capital than it needs, which they say can be used to help bolster the banks.

“It will be difficult for the government to meet its targets absent substantial new revenue from asset sales or as a transfer from the RBI,” said Sasha Riser-Kositsky, an analyst with Eurasia Group. “The government could also seek to defer some payments into the next fiscal year in order to paper over the deficit.”

Keeping the economic engines firing ahead of a general election next year is crucial for Modi, whose party was rocked by defeats in key regional elections last week. While using the RBI’s surplus capital to support the banks was a point of contention with former governor Urjit Patel, it may not be the case now.

Shaktikanta Das, a former bureaucrat picked by Modi to steer the RBI after Patel’s exit, is open to hearing the government out on its concerns about the economy -- whose growth slowed in the three months through September. Getting the RBI to share its capital will help the government boost growth without missing its budget deficit goal of 3.3 percent of gross domestic product.

While the government has denied having asked for any specific amount from the RBI, the central bank has agreed to form an expert panel to decide on the appropriate level of reserves it should hold.

The government plans to infuse about 420 billion rupees ($5.9 billion) to recapitalize some state-run banks this month. It also has to pay for a health care program and purchase crops from farmers at guaranteed prices.

Everyone agrees that more needs to be done to recapitalize state-run banks, but not all approve of how the administration is going about it. The government’s increasing involvement in the central bank’s affairs could undermine gains in the country’s banking system, S&P Global Ratings said.

Still, with the fiscal deficit having touched 104 percent of budget estimate in October and revenue from tax and asset sales trailing estimates, the RBI may be Modi’s best hope of swaying voters. Here’s why:

Revenue

With total revenue in April to October accounting for 45.7 percent of the full-year target and lower than last year’s 48.1 percent, pressure is mounting on tax authorities and the asset sales department to make good on goals.

Monthly collections of the new goods and services tax have trailed the 1.1 trillion rupees target, and the finance ministry is banking on direct tax to make up for the shortfall. Sales of stakes in state-run companies have also lagged, with only 42 percent of the targeted revenue realized so far.

Expenditure

Spending in April to October was 59.6 percent of the budget estimate. A program to provide guaranteed prices to farmers for crops is expected to add to the food subsidy bill, while fuel subsidy has risen on higher oil prices.

The cost of a 120 billion-rupee health care program, which kicked off in September, is expected to be reflected in the fiscal second half.

Meeting budget goals may require cutting expenditure, but that may be easier said than done in an election year.

"With an election on the horizon, I suspect sparking a bit more growth will take precedence over meeting fiscal obligations," said Richard Rossow, an Indian policy expert at the Washington-based Center for Strategic and International Studies. "Modi thinks he has a very real chance at serving a second term, so he may moderate any inclination to break the bank too severely."

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News Network
March 21,2024

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Israeli military siege, hunger, and diseases will soon become the main killer in Gaza, says commissioner- general of the UN Relief and Works Agency (UNRWA).

Philippe Lazzarini, who heads the UNRWA for Palestine Refugees in the Near East, took to X on Wednesday to vent his concern for the growing hunger and spread of diseases as a result of the Israeli siege on the besieged strip.

He said starvation and illness may soon be the main killer in Gaza.

"This fabricated and catastrophic level of hunger can still be reversed by flooding Gaza with food and life-saving assistance," Lazzarini said.

"More than ever humanity requires political will,” the UNRWA chief added.

In a press release on March 19, UNRWA said that “famine is imminent in the Gaza Strip, especially for isolated populations in northern Gaza deprived of humanitarian aid.”

The statement noted that the Integrated Food Security Phase Classification (IPC), in a latest food security outlook, concluded that up to 1.1 million people in Gaza are facing catastrophic levels of food insecurity.

“Nutrition screenings conducted in February by UNICEF and UNRWA show that rates of acute malnutrition among children in northern Gaza and Rafah have nearly doubled since January,” it said.

The Israeli regime has accused UNRWA staff of being involved in the October 7 attack by the Palestinian resistance movement Hamas against the occupied territories, prompting a number of its western allies to suspend funding for the UN agency.

On Wednesday, an agreement was reached by US congressional leaders and the White House on a massive funding bill will continue a ban on US funding for UNRWA until March 2025, Reuters reported.

Earlier this year the US, Canada, Australia, Britain, Germany, Italy, the Netherlands, Switzerland, Finland, Estonia, Japan, Austria and Romania  decided to cut their funding to the UNRWA, considered a lifeline for the Palestinians in Gaza.

France had also announced that it does not plan a new payment to fund UNRWA in the first quarter of 2024.

Condemning the suspension of funding, Lazzarini had said, “It would be immensely irresponsible to sanction an agency and an entire community…, especially at a time of war, displacement and political crises in the region.”

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News Network
March 28,2024

New Delhi: After India summoned an American diplomat over their remarks on the arrest of Delhi Chief Minister Arvind Kejriwal in the liquor policy case, the US reiterated on Wednesday its call for "fair, transparent, timely legal processes".

We continue to follow these actions closely, including the arrest of Delhi Chief Minister Arvind Kejriwal, said US State Department Spokesperson Matthew Miller while responding to questions on India summoning Gloria Berbena, the US Acting Deputy Chief of Mission in New Delhi.

The meeting at the foreign ministry's South Block office lasted nearly 40 minutes yesterday with India objecting strongly to the US remarks on the arrest of Mr Kejriwal.

Miller also responded to a question on the Congress party's frozen bank accounts, saying, "We are also aware of the Congress party's allegations that tax authorities have frozen some of their bank accounts in a manner that will make it challenging to effectively campaign in the upcoming elections."

He said the US encourages "fair, transparent and timely legal processes" for each of these issues.

"With respect to your first question, I'm not going to talk about any private diplomatic conversations, but of course, what we have said publicly is what I just said from here, that we encourage fair, transparent, timely legal processes. We don't think anyone should object to that," he said.

Mr Kejriwal was arrested last week by the Enforcement Directorate (ED), the third Aam Aadmi Party (AAP) leader after Manish Sisodia and Sanjay Singh to be taken into custody in connection with the alleged liquor policy scam.

The US State Department on Tuesday said it is monitoring reports of Mr Kejriwal's arrest and called on New Delhi to ensure "a fair and timely legal process" for the jailed Chief Minister.

India objected to it and warned of "unhealthy precedents".

"States are expected to be respectful of the sovereignty and internal affairs of others, and this responsibility is even more so in case of fellow democracies. It could otherwise end up setting unhealthy precedents," the foreign ministry said.

"India's legal processes are based on an independent judiciary which is committed to objective and timely outcomes. Casting aspersions on that is unwarranted," the ministry stressed.

The US remarks came days after Germany's Foreign Office stressed that Mr Kejriwal is entitled to a fair and impartial trial. The Indian government had reacted strongly and summoned the German envoy, labelling their remark "blatant interference in internal matters".

The excise policy was introduced to bring an overhaul to the liquor business in Delhi, but was scrapped after Lieutenant Governor VK Saxena ordered a probe into the alleged irregularities in the policy. The ED believes the bribe money from the policy was allegedly used for funding the AAP's election campaigns. It has also called Mr Kejriwal a "conspirator" in the case.

His arrest just ahead of the 2024 Lok Sabha election has also prompted furious protests from the opposition camp.

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News Network
March 22,2024

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New Delhi, Mar 22: The Aam Aadmi Party has made it clear that Arvind Kejriwal will remain the Delhi Chief Minister despite his arrest in the liquor policy case. While no law would stop the AAP leader from running the state from prison, the jail guidelines would make it extremely difficult.

Kejriwal was arrested yesterday by the Directorate of Enforcement (ED), following his avoidance of nine summons issued by the investigative agency in relation to the Delhi liquor policy case. 

The decision to apprehend Kejriwal transpired shortly after the High Court's denial of protection from arrest. With this development, Kejriwal becomes the second opposition Chief Minister to face arrest by the ED within a span of fewer than two months, following Jharkhand Chief Minister Hemant Soren's similar fate in January 2024 due to allegations in a graft case. Subsequently, Hemant Soren was replaced by his party colleague, Champai Soren.

Delhi government minister Atishi declared shortly after Kejriwal's arrest that he would not step down from his position. However, the legality and feasibility of a detained Chief Minister continuing to fulfill official duties warrant examination.

A former law officer of Delhi's Tihar Jail says that an inmate can only hold two meetings in a week, which would make it difficult for Mr Kejriwal to carry out his responsibilities as Chief Minister.

Can he run government from prison?

While theoretically plausible, governing from detention presents logistical challenges. However, there exists no explicit prohibition against a Chief Minister conducting official responsibilities while under arrest. Disqualification only occurs upon conviction.

The Representation of the People Act, 1951 outlines disqualification provisions for specific offenses, necessitating a conviction for those holding office.

Will centre impose president’s rule?

Constitution expert SK Sharma told TOI that there exists no specific legal provision mandating the automatic resignation of a state's Chief Minister upon arrest. He cited the example of former Bihar CM Lalu Prasad Yadav, who appointed his wife Rabri Devi as CM during his arrest. "Former Bihar CM Lalu Prasad Yadav made his wife Rabri Devi the CM of the state when he was arrested. More recently, Hemant Soren in Jharkhand also resigned. Calling cabinet meetings in the jail or review meetings with officials in his cell does not seem practical," said Sharma.

Sharma further indicated that if AAP persisted in retaining Kejriwal as CM, it could lead to a deadlock, potentially prompting the Centre to impose President's rule in Delhi.

What may happen next?

Despite AAP's unwavering stance on Kejriwal's continuation in office, internal sources say that potential successors, including Atishi and health minister Saurabh Bharadwaj. Atishi, known for her extensive portfolio and close ties to Kejriwal, alongside Bharadwaj, a prominent minister with significant responsibilities, emerged as likely contenders. Additionally, sources speculated about the surprise candidacy of Kejriwal's wife, Sunita, given her background as a revenue services officer and active involvement in party affairs.

However, finding a successor of comparable stature to Kejriwal, a national convener of the party and three-time Delhi CM, presents a formidable challenge for AAP.

Role of Delhi's Lieutenant Governor

Delhi's unique power structure, featuring an elected Chief Minister and a Lieutenant Governor appointed by the Centre, presents a complex scenario. Kejriwal's ability to continue as CM hinges on legal relief, failing which the Lieutenant Governor can seek Presidential intervention, potentially leading to the imposition of President's rule.

Recent cases demonstrate how denial of bail can compel resignation, highlighting the precarious position of arrested officials.

In light of these developments, the Lieutenant Governor could invoke 'failure of constitutional machinery' to justify President's rule, thereby bringing the national capital under direct Union government control until the end of the current Assembly's tenure in February 2025.

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