Articles

The Voldemort of bills got passed, and you didn’t know

Major reform week alert!

As you might be aware, unless you are living under a rock, the Goods and Service Tax Bill was passed last week amidst much fanfare and political bromance. There was one more interesting and 140-character unfriendly bill that was passed titled — The Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016. Given the complexity of both of these crucial legislations, ladies and gentlemen, I must warn you that this is going to be a long post.

GST Bill: Why did AIADMK oppose it?

The much anticipated Constitutional (One Hundred and Twenty Second) Amendment Bill, 2014, a.k.a the Goods and Service Tax Bill was finally cleared in the Rajya Sabha.

The media be like:

The business community be like:

Mr Arun Jaitley be like:

The All India Anna Dravida Munnetra Kazhagham (AIADMK) be like:

In the end, the AIADMK was the only political party that was left opposing the GST Bill. They did not vote in Rajya Sabha and decided to stage a walkout instead. Countless articles have been written about how the GST Bill is the most awesome thing to happen to India since we invented zero, but next to nothing has been written about the other side of the coin.

Will GST actually turn out to be an absolute and utter disaster? AIADMK sure does think so.

MP A. Navaneethakrishnan spoke in the Rajya Sabha on behalf of the AIADMK during the debate on the GST Bill and pointed out why his party opposes it.

  1. It encroaches on the state’s right to levy taxes

The states were allowed to impose their own taxes till now on various things. Kerala, for example, recently implemented a 14.5% ‘fat tax’ on junk food to control obesity. India is basically many different countries knit together to form a mega-country. The diversity and variation in our country is absolutely mind-boggling. In such a situation, the federal structure is to be preserved so that state governments can make tailored policies for themselves, depending on their regional attributes.

Yes, even taxes.

  1. The GST Council gives veto power to the Central Government

The Bill forms a new GST Council that would decide the rates of taxes to be levied on all goods and services. The committee will consist of the Union Finance Minister and the Finance Ministers of each state. The decisions will be made based on voting: the Central Government has one-third vote weightage (33 per cent) while the states have the remaining two-thirds (67 per cent). Tax changes can only be made if three-fourths of the committee (75 per cent) votes in favour.

This provision gives an automatic veto power to the central government. Plus, it doesn’t take into account the population of each state. For instance, Sikkim will have one vote (Population: 6 lakh) and so will Uttar Pradesh (Population: 20 crore).

  1. Destination-based taxation

Tamil Nadu is a manufacturing state, ie it produces more stuff than it consumes. Under the GST, since there will not be only one tax, there was a big question raised about which state gets to levy it. For example, if Tamil Nadu manufactures cars and sends them to Delhi for sale, Delhi will be the state that will levy the GST on the product. Earlier, both the producing and consuming states were allowed to levy their own taxes. Now, only the consuming state will be able to do so. This would lead to major losses for manufacturing states and consuming states would benefit.

To put it simply, if Tamil Nadu manufactures products that are to be sold outside the state, it will get zilch state tax on the said product.

  1. Rate of tax is still not fixed

As mentioned earlier, the GST Council will take a call on the rate of tax to be levied on all products. Till now, there is no clarity about how much the rate will be. The Arvind Subramanian panel, which was set up to give a report on what would be the optimal tax rate across the country, said that the rate should not exceed 18 per cent. They said the base revenue neutral rate should be as low as 15-15.5 per cent.

The problem here is that some states like Maharashtra today charge upto 27 per cent indirect tax on certain goods. They will end up losing a large chunk of revenue if the rates are reduced. The central government has hinted that the rate will be higher than 18 per cent. AIADMK opposed this bill also because there was no clarity on how much this rate would be.

Such complexity, much wow.

It takes about a year to even understand the legislation completely and another decade to go through the numerous bill drafts, standing committee reports and sundry third-party reports related to it. Unless you’re from Samajwadi Party.

Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016

The title of the bill is so insanely long and complicated that MPs ran out of party time right after reading it out.

(Joke)

This was one important piece of legislation which, sadly, saw very little coverage in the media. At the moment, the situation of our banks is dire. In reply to a Lok Sabha question, the Ministry of finance said Gross Non-Performing Assets (GNPAs) to total advances of Public Sector Banks (PSBs) as on March 31, 2016 were Rs 4,76,816 crore. That’s 9.32 per cent of total loans given out, which means 9.32 per cent of all loans given out by Public Sector Banks cannot be recovered.

Wait…

What’s more, estimates say that GNPA might go up to 10.10 per cent (!!!) by March 2017. Ok, now you can panic.

So yeah.

The situation is dire and the Government must do something about it. They have brought in a plethora of bills in the past two sessions including the Insolvency and Bankruptcy Code, Arbitration & Conciliation Bill and Commercial Courts Bill. The latest one was… this bill with the extremely long title… let’s just call it the Debt Recovery (DR) Bill.

Without going into too much detail about the bill itself (uber technical, boring stuff), I am going to attempt to do an ELI5 about what the *intentions* of this bill seem to be. For that, I must tell you about these incredibly interesting organisations called Asset Reconstruction Companies (ARC).

Basically, when a loan goes kaput and the bank is unable to recover the amount, it tries to sell off the security that was guaranteed against the loan in order to recover the loan amount. It can be anything ranging from houses to land, machinery or even company shares. The problem is that to initiate this process, the banks have to go through a tedious process of filing cases and dealing with special courts called Debt Recovery Tribunals.

This is where the ARCs enter, wearing a cape and all, looking heroic and stuff.

The ARC tells the bank, “Guys, we’ll buy this loan from you, take it off your books and then fight the tedious court battle for you.”

“Oh alright,” says the Bank. “But what will you get? It’s a bad loan. We don’t even know how much value the security has now.”

The ARC grins and says, “That’s alright. We’ll take a cut out of whatever amount we recover from the loan defaulter. You see, at least you will recover *some* amount of money. We give you a piece of paper that guarantees you 15 per cent of the bad loan value.”

“Promise?”

“Pinky promise.”

Satisfied, the Bank hands over the loan to the ARC and gives it complete charge of the recovery process. In some cases, the ARC takes over a whole company and tries to ‘restructure’ it and make it profitable again to recover the loan. Or it just sells it off to the highest bidder.

This new debt recovery bill gives ARCs super powers, of sorts. The handing over process of the assets from defaulter to bank to ARCs is now made smooth and fast. Bad loans will not be the problem of the banks anymore because they’ve sold the *risk* to the ARC.

The Debt Recovery Tribunals, on the other hand, will have to deal with the cases as quickly as possible. The DR Bill lays down a few timelines for the completion of the legal process. One of the interesting provisions includes being able to issue summons electronically on the DRT website and assuming that the notice has been served to the defaulter.

No time to lose.

Chop chop people!

What would be the result of this complicated godforsaken exercise?

Banks function on a very simple principal. They take money from you (the depositor) and give that money to someone else (the borrower) as loans. If the borrower fails to repay the loan, the banks are in trouble and cannot give out more loans. The loans are being given out to support industrial growth, aka Make In India (for companies to buy more machines, land, factories and stuff). The current NPA situation has put a screeching brake on loan disbursements. The banks are shutting their windows to any borrowers because they are not able to recover the past loans.

Now comes along the bill with the unending name that I’ve rechristened the DR Bill.

Loans will now be taken out of bank books and put into the ARCs’ books as fast as possible. Earlier, the process of asset recover was very slow. Now this bill simplifies things for ARCs to take over these debts rather quickly. This will free up the banks to give out loans again.

Yaay! Growth!

Here is a report from two years ago which will make things clearer. Side-note: If you play the same video in 2X speed while playing Pink Floyd’s Dark Side of the Moon, it will tell you what the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016 does.

MP breaks down after breaking an unbreakable rule

Sasikala Puspa, MP from AIADMK, allegedly slapped Tiruchi Siva, MP from DMK, at the IGI Airport in Delhi. She explained that while both of them were waiting for the security clearance, Siva “exceeded all limits while criticising Amma and her government.”

So she lost control, the spirit of Thalaiva took over and she slapped Siva.

The battle went to Parliament last week where Sasikala turned the conversation around and alleged that Tiruchi Siva was the one who had slapped her. She pleaded with the speaker to give her protection.

She broke a cardinal rule though.

She didn’t say, “I thank my leader Puratchi Thalaiva Amma for giving me this opportunity to speak.” That, in the books of AIADMK, is incredibly disrespectful. Sure enough, right after her intervention in Rajya Sabha, she was suspended from the party. I’m not saying it happened because of that. But probably it did. I’m just saying she broke a rule and faced the consequences. Probably.

And then she broke down.

Fun experiment:
Step 1 – Open this PDF of uncorrected debates from Lok Sabha
Step 2 – Press “Ctrl+F”
Step 3 – Type “Amma” in the search
Step 4 – Count the number of times AIADMK MPs say “Puratchi Thalaivi Amma”.
Step 5 – Collect your blown mind entrails and put it back in.

Random lulz from Lok Sabha & Rajya Sabha TV

When you watch Lok Sabha and Rajya Sabha TV obsessively, you notice the slightest of changes. Last week, Lok Sabha made life interesting by introducing shiny new side-face camera angles.

They ended up showing a little too much.

*cough* That belly *cough*

A Redditor made a hilarious GIF of the background activities in Rajya Sabha during the GST Debate.

Rare MP sighting

Look who decided to make his presence felt in Parliament!

Fun Fact: Sachin Ramesh Tendulkar has an attendance of only 7 per cent as opposed to the National average of 79 per cent. Here’s a breakdown of his performance as an MP.

Legislations Passed Last Week

Lok Sabha

Rajya Sabha

Also Read