Economy (27th February, 2016)

• PM wants 50% farmers to join insurance scheme in two years
  Highlighting benefits of the just-announced crop insurance scheme, Prime Minister Narendra Modi on 31st January said awareness about it should be spread across the country so that at least 50 per cent of the farmers join it within two years.
  
  In his monthly radio programme ‘Mann Ki Baat’, he also pitched for continued efforts to popularise Khadi and awarness to save girl child, mentioned about the recently launched ‘Startup India’ programme and talked about the upcoming International Fleet Review to be held in Visakhapatnam.
  
  Modi said he needs “maximum help” from people about spreading awareness regarding the Pradhan Mantri Crop Insurance Scheme which was launched earlier this month.
  
  The prime minister said that for so many years, there has been a talk regarding crop insurance but "not more than 20-25 per cent" of the country's farmers had been been able to benefit from such schemes. The prime minister also referred to the 'Startup India' scheme rolled out on January 16 and said it had infused new energy among the youth.
  
  Talking about popularising of Khadi regarding which he had issued an appeal in his first 'Mann Ki Baat' programme in October 2014, the Prime Minister said more and more youths are now using Khadi products.
  
• Panel suggests more freedom for India Inc
  To make it easier for companies to do business, a panel constituted to suggest amendments in the Companies Act, 2013 has recommended, among other things, doing away with any kind of government intervention in managerial remuneration and allowing start-ups to issue more sweat equity and employee stock options (ESOPs).
  
  The panel, headed by corporate affairs secretary Tapan Ray, has said that for managerial remuneration shareholders' approval should suffice and no government nod should be needed. Further, only ordinary resolution, nod from 50 per cent of shareholders, would be enough. At present, approval from 75 per cent shareholders is required. The committee also suggested relaxing norms for start-ups to issue sweat equity. Now, 50 per cent of the paid up capital could be issued as sweat equity, against the existing norm of 25 per cent.
  
  The ten-member panel recommended the removal of provision under Section 2(87), which prohibited the companies to not have more than two levels of subsidiaries.
  
  The panel found that Section 447 - which lays down the punishment for any person found guilty of fraud to minimum six months imprisonment - has a potential of being misused and may also have a negative impact on attracting professionals in the post of directors etc. It has recommended that only those frauds which involve Rs 10 lakh or above, or one per cent of the company's turnover, whichever is lower, may be punishable under Section 447.
  
  In order to bring the Companies Act in harmony with the Sebi regulations, the panel said that independent director should not have any kind of pecuniary relationship with the company. It has recommended there should be a test of materiality so that a 'pecuniary relationship' can be established and, subsequently, prohibited if it is affecting the director's independence.
  
  Sections 194 and 195 of the Companies Act - which restrict forward dealing and insider trading by directors and key managerial professionals (KMPs) of any company - have also been recommended to be removed. These issues are already covered under Sebi regulations.
  
  In a major jolt to the Institute of Chartered Accountants of India (ICAI), the panel has recommended formation of National Financial Reporting Authority (NFRA) under Section 132 of the Act. The Committee said, "in view of the critical nature of responsibilities wherein lapses have been seen to cause serious repercussions, the need for an independent body to oversee the profession is a requirement of the day."
  
  MAJOR CHANGES SUGGESTED IN COMPANIES ACT
  • A firm to be called associate company only when the parent firm owns 20 per cent of voting power in it
  • Insider trading and forward dealing provisions to be removed from the Act as Sebi regulations already exist
  • Institute of Chartered Accountants of India's regulatory powers to be taken away; National Financial Reporting Authority would be formed
  • Independent directors should not have any pecuniary relationship - where it is getting material benefits - with the company
  • Small frauds of less than Rs 10 lakh not to be considered under harsh provisions
  • Private placement process to be simplified, doing away with separate offer letter, making valuation details public
  • Incorporation process to be made easier, allowing greater flexibility to companies
  • Self-declarations to replace affidavits from subscribers to memorandum and first directors
  • Managerial remuneration to need only shareholders' approval. No need for government approval
  
  
• RBI keeps key rates unchanged
   The Reserve Bank of India (RBI) maintained a status quo in its sixth bi-monthly monetary review policy for year 2016 announced on 2nd February. Keeping the rates unchanged, the apex bank has kept its stance on the credit policy accommodative.
  
  The Repo rate is the same at 6.75 per cent as in the last credit policy so is the cash reserve rate (CRR) at 4 per cent and the reverse repo rate at 5.75 percent. The RBI sees FY 16 growth at 7.4 per cent with downward bias and FY17 growth at 7.6 percent despite headwinds.
  
  The bank sees inflation around 5 percent for FY 16-17 as a good monsoon next year could pull the inflation down. Inflation has evolved closely along the trajectory set by the monetary policy stance.
  
  With unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 target of 6 per cent should be met. Going forward, under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, inflation is expected to be inertial and be around 5 per cent by the end of fiscal 2016-17.
  
  Vagaries in the spatial and temporal distribution of the monsoon and the impact of adverse geo-political events on commodity prices and financial markets add additional uncertainty to the baseline. The RBI will also create a special eco-system for start-up funding.
  
  Reserve Bank of India Governor Raghuram Rajan said today that current momentum of growth is reasonable, though below what should be expected over the medium term.
  
  The RBI Governor said this while addressing a press conference after announcing the sixth bimonthly monetary policy for 2015-16 in Mumbai. He stated that structural reforms in the forthcoming Budget will create more space for monetary policy to support growth.
  
  The RBI Governor said that the RBI is working with the government and banks to ensure that the stressed assets are identified.
  
  The Reserve Bank of India (RBI) has kept the rates unchanged and taken an accommodative stance on the credit policy. The Repo rate is the same at 6.75 per cent as in the last credit policy so is the cash reserve ratio (CRR) at 4 per cent and the reverse repo rate at 5.75 pc. The RBI sees growth in FY 16 at 7.4 per cent with downward bias and growth in FY17 at 7.6 percent despite headwinds. The bank sees inflation around 5 percent by the end of FY 16-17.
  
  Reserve Bank of India kept it policy rates unchanged on inflation concerns. Repo rate that is the interest rate at which the RBI provides liquidity to banks to tide over short-term liquidity mismatches is kept at 6.75 per cent.
  
  The reverse repo rate under the Liquidity Adjustment Facility will remain unchanged at 5.75 per cent. Reverse repo rate is the rate at which RBI borrows money from commercial banks within the country.
  
  It has also left the cash reserve ratio of scheduled banks unchanged at 4.0 per cent. Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. Marginal standing facility (MSF) rate and the Bank Rate that is rate at which RBI lends money to dometic banks kept at 7.75 per cent.