✌✌✌✌ THE HINDU ✌✌✌✌
✌✌ Demonetisation — an unkind postscript ✌✌
In November, the Governor of the Reserve Bank of India, Urjit Patel, said there was a ‘confluence of thought’ in the government and the central bank to deal with black money by removing existing Rs.500 and Rs.1,000 notes as legal tender. Now, just about ten days before the deadline to deposit these bank notes into accounts, a similar confluence of ideas has led to a stunning decision to make it harder for people to do so. The new caveats, announced on Monday, restricting deposits over Rs.5,000 (roughly $70) are not just difficult to fathom but also constitute an unfair change in the rules of the game. Those opting to disclose unaccounted income under the new amnesty scheme, the Pradhan Mantri Garib Kalyan Yojana, face no restriction on depositing old notes. But anyone depositing Rs.5,000 or more into a bank account will have to satisfactorily explain to two bank officials why this was not done earlier. However, the Finance Minister has suggested that such explanations will not be required for anyone making a deposit for the first time. Apart from the human tendency to act only when a deadline nears, there could be genuine reasons for people not to have queued up at banks till now — including their faith in the Prime Minister, as well as the Finance Minister’s statements that they had till December 30 to do so.
Overstretched bankers may somehow cope with this latest diktat. But implementation is likely to be arbitrary as each bank branch may come up with its own ground rules, just as they are doing in the case of cash withdrawal limits. Nevertheless, tasking them to record and flag for audit purposes deposits amounting to just 1.66 per cent of the personal income tax threshold is tantamount to outsourcing the taxman’s job to the banker for no ostensible revenue pay-off. Initially, the Centre said deposits up to Rs.2.5 lakh would not be questioned, but later held that all deposits could be scrutinised — even though the Income Tax Department will struggle to complete scrutiny of lakhs of accounts within the legally stipulated two-year deadline. The Prime Minister had said exchange limits for old notes would be enhanced from November 25; instead, the exchange facility was stopped altogether. By December 10, Rs.12.44 lakh crore, or 80 per cent of the old notes, was back in the system, and by December 30 most, if not all, could well return. Perhaps spooked by that prospect, the Finance Ministry suggested that double counting may have skewed the numbers, but bankers have dismissed that possibility. The latest flip-flop to make deposits difficult appears to suggest that the government is itself in panic mode over its bold gambit.
✌✌ Angela Merkel’s challenge ✌✌
It is hard now to remember a time when German Chancellor Angela Merkel was not in the thick of a political storm in Europe. However, Monday’s suspected terror strike in Berlin that claimed at least 12 lives along with a spate of incidents in July, all with a bearing on Germany’s liberal immigration policies, present a qualitatively different challenge to Europe’s most powerful politician. As she seeks election for a fourth term next September, Ms. Merkel’s political and diplomatic acumen could be put to the toughest test yet in a world still coming to grips with the implications of Britain’s vote to leave the European Union (EU) and the U.S. presidential election result. Her measured approach to the deepening debt crisis in the eurozone saw her being pilloried by some of her conservative colleagues as indulgence of a profligate Greece, even as the German-backed multilateral mission that negotiated the bailouts was greeted by angry Greek protesters carrying placards bearing the swastika. But the Chancellor, seen hitherto as cautious if not indecisive, was spontaneous and firm in her response to the tragic drowning of many Syrians at the height of the refugee crisis in 2015. Her open-hearted open-doors policy towards the hundreds of thousands who managed to cross the choppy waters of the Mediterranean, describing Islam as integral to Germany, may have alienated even some of her closest European allies.
Paradoxically, Ms. Merkel’s continued leadership of the 28-nation EU seems ever more critical given the rise of xenophobic and anti-immigrant forces across the continent. Matters are not helped by the fluid political scenario in the other staunchly integrationist founder-member of the EU, France, which is headed for presidential election in 2017. The prospects of Ms. Merkel rallying the forces of the political centre at home will depend on her capacity to counter the populist Alternative for Germany party, anxious to cash in on tragedies such as the Berlin attack. As for the European and international stage, there are clear signs of the Chancellor’s moderate political instincts to uphold the values of a pluralistic democracy underpinned by the rule of law. In a letter she wrote to congratulate Donald Trump, Ms. Merkel remained unequivocal. Among the values Germany and the U.S. shared, she wrote, were “democracy, freedom, as well as respect for the rule of law and the dignity of each and every person regardless of their origin, skin colour, creed, gender, sexual orientation or political views.” It is hardly surprising that Ms. Merkel’s views resonate across the Atlantic alliance, and much beyond.
✌✌✌✌ THE ECONOMIC TIMES ✌✌✌✌
✌✌ Destination NPS: Let the migration begin! ✌✌
The Employees’ Provident Fund Organisation (EPFO) did the right thing by lowering the interest rate on provident fund savings to 8.65% for 2016-17. Retaining the current 8.8% interest would have created a deficit. The trouble is that the EPF earns too little. The EPFO invests the bulk of its corpus — of over Rs 10 lakh crore — in government bonds, the rest in securities issued by banks, public sector enterprises and a minuscule 5% of its incremental deposits in equities. However, returns have been suboptimal compared to the National Pension System (NPS) that has lower assets under management but offers superior returns to its subscribers.
Areport on the performance of private sector pension funds shows that the seven fund managers have consistently delivered higher returns to their subscribers compared to the EPFO. The one-year average return on government bond fund stood as high as 16.88%, and the return on corporate debt fund at about 15.52%. So, the case for the government to swiftly fulfil its Budget promise, to let workers leave the EPF and join the NPS if they choose to, is compelling. Prudent fund management is warranted, given that a cut in the interest rate to let the economy grow will impact bond yields and lower the returns for workers, if asset management means holding on to bonds till maturity.
The NPS has the lowest asset management fees. The NPS corpus will grow, as more workers join, enabling more diversification and risk-taking. Both the EPFO and the NPS must diversify across asset classes that include private equity, real estate and startups to distribute risk and maximise returns. The government should also ensure parity in the tax treatment of the EPFO and the NPS. Reform to allow workers build a decent retirement nest brooks no delay.
✌✌ Demonetisation — an unkind postscript ✌✌
In November, the Governor of the Reserve Bank of India, Urjit Patel, said there was a ‘confluence of thought’ in the government and the central bank to deal with black money by removing existing Rs.500 and Rs.1,000 notes as legal tender. Now, just about ten days before the deadline to deposit these bank notes into accounts, a similar confluence of ideas has led to a stunning decision to make it harder for people to do so. The new caveats, announced on Monday, restricting deposits over Rs.5,000 (roughly $70) are not just difficult to fathom but also constitute an unfair change in the rules of the game. Those opting to disclose unaccounted income under the new amnesty scheme, the Pradhan Mantri Garib Kalyan Yojana, face no restriction on depositing old notes. But anyone depositing Rs.5,000 or more into a bank account will have to satisfactorily explain to two bank officials why this was not done earlier. However, the Finance Minister has suggested that such explanations will not be required for anyone making a deposit for the first time. Apart from the human tendency to act only when a deadline nears, there could be genuine reasons for people not to have queued up at banks till now — including their faith in the Prime Minister, as well as the Finance Minister’s statements that they had till December 30 to do so.
Overstretched bankers may somehow cope with this latest diktat. But implementation is likely to be arbitrary as each bank branch may come up with its own ground rules, just as they are doing in the case of cash withdrawal limits. Nevertheless, tasking them to record and flag for audit purposes deposits amounting to just 1.66 per cent of the personal income tax threshold is tantamount to outsourcing the taxman’s job to the banker for no ostensible revenue pay-off. Initially, the Centre said deposits up to Rs.2.5 lakh would not be questioned, but later held that all deposits could be scrutinised — even though the Income Tax Department will struggle to complete scrutiny of lakhs of accounts within the legally stipulated two-year deadline. The Prime Minister had said exchange limits for old notes would be enhanced from November 25; instead, the exchange facility was stopped altogether. By December 10, Rs.12.44 lakh crore, or 80 per cent of the old notes, was back in the system, and by December 30 most, if not all, could well return. Perhaps spooked by that prospect, the Finance Ministry suggested that double counting may have skewed the numbers, but bankers have dismissed that possibility. The latest flip-flop to make deposits difficult appears to suggest that the government is itself in panic mode over its bold gambit.
✌✌ Angela Merkel’s challenge ✌✌
It is hard now to remember a time when German Chancellor Angela Merkel was not in the thick of a political storm in Europe. However, Monday’s suspected terror strike in Berlin that claimed at least 12 lives along with a spate of incidents in July, all with a bearing on Germany’s liberal immigration policies, present a qualitatively different challenge to Europe’s most powerful politician. As she seeks election for a fourth term next September, Ms. Merkel’s political and diplomatic acumen could be put to the toughest test yet in a world still coming to grips with the implications of Britain’s vote to leave the European Union (EU) and the U.S. presidential election result. Her measured approach to the deepening debt crisis in the eurozone saw her being pilloried by some of her conservative colleagues as indulgence of a profligate Greece, even as the German-backed multilateral mission that negotiated the bailouts was greeted by angry Greek protesters carrying placards bearing the swastika. But the Chancellor, seen hitherto as cautious if not indecisive, was spontaneous and firm in her response to the tragic drowning of many Syrians at the height of the refugee crisis in 2015. Her open-hearted open-doors policy towards the hundreds of thousands who managed to cross the choppy waters of the Mediterranean, describing Islam as integral to Germany, may have alienated even some of her closest European allies.
Paradoxically, Ms. Merkel’s continued leadership of the 28-nation EU seems ever more critical given the rise of xenophobic and anti-immigrant forces across the continent. Matters are not helped by the fluid political scenario in the other staunchly integrationist founder-member of the EU, France, which is headed for presidential election in 2017. The prospects of Ms. Merkel rallying the forces of the political centre at home will depend on her capacity to counter the populist Alternative for Germany party, anxious to cash in on tragedies such as the Berlin attack. As for the European and international stage, there are clear signs of the Chancellor’s moderate political instincts to uphold the values of a pluralistic democracy underpinned by the rule of law. In a letter she wrote to congratulate Donald Trump, Ms. Merkel remained unequivocal. Among the values Germany and the U.S. shared, she wrote, were “democracy, freedom, as well as respect for the rule of law and the dignity of each and every person regardless of their origin, skin colour, creed, gender, sexual orientation or political views.” It is hardly surprising that Ms. Merkel’s views resonate across the Atlantic alliance, and much beyond.
✌✌✌✌ THE ECONOMIC TIMES ✌✌✌✌
✌✌ Destination NPS: Let the migration begin! ✌✌
The Employees’ Provident Fund Organisation (EPFO) did the right thing by lowering the interest rate on provident fund savings to 8.65% for 2016-17. Retaining the current 8.8% interest would have created a deficit. The trouble is that the EPF earns too little. The EPFO invests the bulk of its corpus — of over Rs 10 lakh crore — in government bonds, the rest in securities issued by banks, public sector enterprises and a minuscule 5% of its incremental deposits in equities. However, returns have been suboptimal compared to the National Pension System (NPS) that has lower assets under management but offers superior returns to its subscribers.
Areport on the performance of private sector pension funds shows that the seven fund managers have consistently delivered higher returns to their subscribers compared to the EPFO. The one-year average return on government bond fund stood as high as 16.88%, and the return on corporate debt fund at about 15.52%. So, the case for the government to swiftly fulfil its Budget promise, to let workers leave the EPF and join the NPS if they choose to, is compelling. Prudent fund management is warranted, given that a cut in the interest rate to let the economy grow will impact bond yields and lower the returns for workers, if asset management means holding on to bonds till maturity.
The NPS has the lowest asset management fees. The NPS corpus will grow, as more workers join, enabling more diversification and risk-taking. Both the EPFO and the NPS must diversify across asset classes that include private equity, real estate and startups to distribute risk and maximise returns. The government should also ensure parity in the tax treatment of the EPFO and the NPS. Reform to allow workers build a decent retirement nest brooks no delay.
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