Editorial Simplified : 27th / 28th day of April 2016
This is an special post for the Editorials form Business Standard for the last two days.
Editorial : Companies run by god-men need regulation too
The spiritual gurus, like Baba Ramdev and Sri Sri Ravishankar, are running businesses. But there is concern that the aura of spiritualism might not shield them from the regulatory structure for too long. There are also many open questions about whether current food and drug regulations can deal with consumer products from companies like Patanjali.
- Patanjali is an unlisted entity
- Patanjali will cross Rs 10,000 crore by March 2017 putting it ahead of Nestle, Colgate-Palmolive and Procter & Gamble.
- “Sri Sri” Ravi Shankar’s Art of Living has also launched products related to Ayurveda.
- How well businesses like Mr Ramdev’s or Mr Shankar’s conform to the overall regulatory framework.
- Most of these businesses run by spiritual gurus have crowd-sourced their funds from followers.
- But the law on “collective investment schemes” (defined as any collection of funds to the extent of Rs 100 crore) would deter crowd-funding for a business idea that openly says it is a business seeking money.
- Then there is the issue of related-party transactions.
- A majority of Art of Living’s FMCG products are made by companies run by close relatives.
- The law is tough on related-party transactions and imposes tough compliance conditions.
Editorial : Hallmark complications
Government is planning to make hallmarking gold jewellery mandatory by Diwali. It has merits as well as many complications.
- Nearly 80 per cent of India’s annual gold consumption of around 900 to 1,000 tonnes is in the form of jewellery.
- However, misrepresenting the purity of gold is rampant.
- Mixing more alloy than specified and liberal use of soldering alloys is a common malpractice.
- Standardisation and tests-based quality marking of high-value gold products, therefore, would definitely protect buyers’ interests.
- Such quality assurance can also help boost domestic investment in gold and may also contribute to the success of the gold monetisation scheme.
- Government has taken some statutory measures making hallmarking compulsory.
- The Bureau of Indian Standards (BIS) Act, 1986, has been amended to give the government powers to specify the goods that will need to compulsorily carry the standards mark.
- The amended law empowers the BIS to cancel licences, punish offenders with fines and order product recalls if found substandard.
Challenges to make gold hallmarking compulsory
- So far, gold hallmarking has been optional.
- To make it mandatory, infrastructure for assessing gold ornaments needs to be expanded.
- Some states have no more than one or two hallmarking units.
- Assessing and stamping is easier with machine-made ornaments than with hand-crafted items.
- The real challenge will be in the case of thin ornaments such as nose-pins, gold wire earrings and slim gold chains.
- Difficulty in assessing quality of ornaments made by rural goldsmiths.
What could be done
- Arrangements would need to be made to supervise the hallmarking process.
- Outsourcing the hallmarking to designated private agencies.
- Assuring the quality of rural jewellery to safeguard the interests of rural consumers, many of whom buy gold products as a replacement or other forms of social security.
Editorial : Balancing power
Speaker is given power and independence to secure the legislature’s independence and fairness. However, recently on two instances Speakers of the legislature used their discretion to take debatable decisions.
The Case of Uttarakhand
- In Uttarakhand, Speaker refused to allow counting of legislators’ votes on the state budget.
- Why was it done-
- The Congress government of the state had reportedly lost the confidence of several members of its own party.
- It was possible that the Appropriations Bill (which is a money bill) would have been defeated had votes been counted.
- Government would thus have had to resign since it was a money Bill.
- The Uttarakhand Speaker in effect declared the budget passed and insulated the government from falling.
The Case of Lok Sabha
- At the Centre, Speaker of the Lok Sabha permitted Aadhaar Bill, to be introduced as a money Bill.
- By definition, a money Bill is related to proposals that alter taxation, borrowing, or affect the Consolidated Fund of India.
- Aadhar bill did not meet these specifications of a money bill.
- Speaker’s decision on whether a bill is a money bill has traditionally been considered to be the last word.
What is the broader problem
- Two major national parties are on opposite sides.
- This is indicating a problem of institutional weakness that transcends political parties.
- Decisions of Speaker are being discussed by judiciary.
- So the judiciary and the executive will now discuss a decision that has traditionally been the sole prerogative of the legislature (Speaker).
- The elements of a full-blown constitutional crisis are visible.
What could be done
- The tradition of the Speaker belonging to the ruling party (and being only notionally independent) needs to be revisited.
- The legislature itself should consider what checks and balances can be imposed on the Speaker’s discretion in order to ensure such situations are not repeated.
Editorial : Retail licence Raj
Apple Computers might soon be allowed to open a chain of single-brand retail stores across India without fulfiling the standard regulatory requirements. Department of Industrial Policy and Promotion, or DIPP, might be giving a waiver in the requirement of local component sourcing.
What is wrong with giving Apple this permission
- DIPP can invoke clauses for exemptions from regulations that govern retail.
- The clauses also seem discretionary.
- Other manufacturers of consumer electronics will be unhappy if Apple receives such a waiver and they do not.
- Several such proposals are said to be pending.
What is the current policy
- Current policy allows 100 per cent FDI in single brand
- But permission is required if the FDI holding exceeds 49 per cent.
- The company must also commit to sourcing at least 30 per cent of components locally.
- The “escape clause” allows a waiver in the 30 per cent sourcing requirement if “state-of-the-art” and “cutting-edge technology” is employed.
Why can’t companies manufacture locally
- India lacks an ecosystem for manufacturing electronic components at the massive scale necessary to be cost-effective.
- The ongoing tax issues (Nokia’s Chennai factory case)have made global manufacturers wary.
What could be done
- It is not in the consumers’ interest to keep manufacturers out.
- Currently the products are widely sold and serviced via distributors.
- Exemptions pertaining to “state-of-the-art” and “cutting-edge technology” are open to subjective interpretation.
- The regulations pertaining to retail remind of the Licence Raj.
- These must be reviewed to avoid discrimination between competitors in the same space.