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Backgroud:-The PSB are under stress for sometime, they are in fact under double-whammy that is at one hand they are enduring asset loss due to increase in NPA( wilful or otherwise) while on the other hand there is erosion of business and credit expansion itself as many alternative saving/investment schemes are taking the customer’s attention away from the PSBs.This is what the economic survey calls double financial repression.
Analysis:-
Technological innovation is driving payments beyond the realm of the traditional private sector banks. An alert, albeit shallow debt mutual fund market helped disintermediate bank credit to better rated companies, leaving dodgy loans on PSU bank books.
Credit innovation by old and new Non-Banking Financial Companies has begun to address large profitable niches in small and medium enterprises (SME) and among informal citizenry. This leaves PSU banks with ever-shrinking customer business segments to deal with.
Public sector bank market shares that have been declining at about one percent per annum are predicted to decline at over one percent per annum due to “equity” challenges and bad loans on their books as well as inability of their principal owner – the Government of India – to provide adequate capital.
Add to that, poor PSU bank management and capability limitations of the people running these banks and we have a recipe for perfect disaster. PSU bank market share is expected to decline from around 70 percent currently to less than 50 percent by 2025.
As such, analysts are writing obituaries of the PSU banking sector with the inexorable market capitalisation value destruction. While this may yet to play out, there’s a case that this eventuality is not entirely inevitable and indeed can be delayed indefinitely.
Even acknowledging the challenges faced by PSU banks and agreeing that they can neither be solved in a hurry nor wished away given all the socio-political realities, the straight easy answer of privatising banks is unfortunately unachievable. Privatisation in this case is not a silver bullet by any stretch of imagination.
In the absence of the best solution, we need to make do with plausible ones. Credit losses, willful or otherwise, are the biggest source of value destruction in the PSU bank basket.
It is the assets side of their balance sheet that is causing maximum stress requiring continuous capital inflows. Conditions that created these losses continue to exist even now and it is imprudent to shut our eyes to emergent losses from new loans made by the weaker banks. However, the liabilities side of their balance sheet is not as impaired or as value destructive.
The PSU banks should reduce this good-capital-turned-bad syndrome to get increasingly larger number of these banks into the straightjacket of narrow banking while leaving the private market and stronger PSU banks to make credit decisions.
Emerging payment technologies and new credit products are likely to find mass adoption across formal, informal and SME sectors. However, the perceived “safety” of government owned banks combined with conveniently located branches and deposit guarantees will continue to help PSU banks retain bulk of the savings of the masses despite the lure of higher returns at private players.
Obviously, the PSU markets have overlapping costs and defunct processes which can be squeezed out through merger and acquisition and business process rationalisation exercises. The capital requirement for narrow banks is less onerous than loan-book-expanding banks. Arguably narrow banking can actually be a source of regular dividend return to the government if not outright capital return.
Basically, the government should club the bad banks and force them into “narrow banking” business and let them run down their assets and losses. Combined with branch, employee and cost rationalisation (certainly feasible as a large number of PSU bank employees are coming up for retirement), narrow banking is likely to make unit branch economics better while keeping the asset profile healthier.
This would arrest the wealth and market capitalisation destruction in PSU banks and set them on a healing path to modest success or extend their lifespan as opposed to assured destruction.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.
Globally, around 80% of wastewater flows back into the ecosystem without being treated or reused, according to the United Nations.
This can pose a significant environmental and health threat.
In the absence of cost-effective, sustainable, disruptive water management solutions, about 70% of sewage is discharged untreated into India’s water bodies.
A staggering 21% of diseases are caused by contaminated water in India, according to the World Bank, and one in five children die before their fifth birthday because of poor sanitation and hygiene conditions, according to Startup India.
As we confront these public health challenges emerging out of environmental concerns, expanding the scope of public health/environmental engineering science becomes pivotal.
For India to achieve its sustainable development goals of clean water and sanitation and to address the growing demands for water consumption and preservation of both surface water bodies and groundwater resources, it is essential to find and implement innovative ways of treating wastewater.
It is in this context why the specialised cadre of public health engineers, also known as sanitation engineers or environmental engineers, is best suited to provide the growing urban and rural water supply and to manage solid waste and wastewater.
Traditionally, engineering and public health have been understood as different fields.
Currently in India, civil engineering incorporates a course or two on environmental engineering for students to learn about wastewater management as a part of their pre-service and in-service training.
Most often, civil engineers do not have adequate skills to address public health problems. And public health professionals do not have adequate engineering skills.
India aims to supply 55 litres of water per person per day by 2024 under its Jal Jeevan Mission to install functional household tap connections.
The goal of reaching every rural household with functional tap water can be achieved in a sustainable and resilient manner only if the cadre of public health engineers is expanded and strengthened.
In India, public health engineering is executed by the Public Works Department or by health officials.
This differs from international trends. To manage a wastewater treatment plant in Europe, for example, a candidate must specialise in wastewater engineering.
Furthermore, public health engineering should be developed as an interdisciplinary field. Engineers can significantly contribute to public health in defining what is possible, identifying limitations, and shaping workable solutions with a problem-solving approach.
Similarly, public health professionals can contribute to engineering through well-researched understanding of health issues, measured risks and how course correction can be initiated.
Once both meet, a public health engineer can identify a health risk, work on developing concrete solutions such as new health and safety practices or specialised equipment, in order to correct the safety concern..
There is no doubt that the majority of diseases are water-related, transmitted through consumption of contaminated water, vectors breeding in stagnated water, or lack of adequate quantity of good quality water for proper personal hygiene.
Diseases cannot be contained unless we provide good quality and adequate quantity of water. Most of the world’s diseases can be prevented by considering this.
Training our young minds towards creating sustainable water management systems would be the first step.
Currently, institutions like the Indian Institute of Technology, Madras (IIT-M) are considering initiating public health engineering as a separate discipline.
To leverage this opportunity even further, India needs to scale up in the same direction.