Topic 1 : Payment blocked
Introduction: Last week, the Reserve Bank of India announced a series of measures against the Paytm Payments Bank. This move has cast a shadow on the future of one of India’s largest fintech players.
What was the decision of RBI?
- Under section 35A of the Banking Regulation Act, 1949, the central bank barred the payments bank from accepting any deposits, undertaking credit transactions in customer accounts, wallets, FASTags, and others, after February 29.
- Action against the payments bank has been taken with the comprehensive system audit report and subsequent validation report of external auditors revealing “persistent non-compliances and continued material supervisory concerns”.
Banking Regulation Act, 1949
- Banking Regulation Act, 1949 is legislation in India that regulates all banking firms.
- Initially, this act was passed as Banking Companies Act, 1949 and it was applicable to whole of India except Jammu & Kashmir. It became applicable to Jammu and Kashmir from 1956.
- Initially, the law was applicable only to banking companies.
- But, 1965 it was amended to make it applicable to cooperative banks and to introduce other changes.
- Primary Agricultural Credit Society and cooperative land mortgage banks are excluded from the Banking Regulation Act 1949.
- Section 35A: Section 35A of the Banking Regulation Act, 1949 vests power in the RBI to give directions to banks and can take action, "to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company".
The RBI vs Paytm
- Shares of One97 Communications, which runs Paytm services and has a stake of 49 per cent in the payments bank, are down 42.35 per cent over the past five days.
- This, however, is not the first time that the payments bank has found itself in the regulatory crosshairs.
- In March 2022, the RBI had directed the payments bank “to stop onboarding of new customers with immediate effect”.
- In October last year, the central bank had imposed a Rs 5.39 crore fine on it due to deficiencies in regulatory compliance, including, as reported in this paper, its failure to “identify the beneficial owner in respect of entities” that came on board its platform for providing pay out services, and delaying informing on a “cyber security incident”, among others.
- Following the central bank’s actions now, with issues over new customers coming on board the platform, and non-compliance with KYC norms among others, sustaining existing financial relations or building new ones is likely to prove challenging for the entity.
- As per a note by analysts at Macquarie, “the bigger issue is Paytm has not been on the good books of the regulator and going forward, their lending partners also could possibly re-look at the relationships in our view.”
Concerns about RBI’s decision
- Paytm is one of the largest fintech players in the country.
- As per the bank’s website, it has over 300 million wallets and 30 million bank accounts.
- It has around 100 million KYC customers, and is also the largest issuer of FASTags.
- The central bank’s actions will have an impact on both customers and merchants.
- On Sunday, the Confederation of All India Traders (CAIT), fearing disruptions, advised small traders, vendors, hawkers, and others, to switch to other payment modes.
- However, the lack of compliance, the non-adherence to KYC norms despite the issues being repeatedly pointed out, is inexplicable.
The way forward
- All entities must ensure compliance with the regulatory architecture.
- At the same time, the regulatory pushback, while ensuring compliance, must not be excessive.
- In the past as well, some questions have been raised over interventions in the area of payments such as e-mandates.
- Actions must be carried out in a transparent manner, acknowledging the implications for millions of users.
Conclusion: Considering the rapid expansion of the digital economy, and especially financial transactions, regulatory interventions, while ensuring the stability of the financial system, must take care not to throttle innovation.
Topic 2 : Demography and destiny
Introduction: In her speech, while presenting the 2024 budget, Finance Minister Nirmala Sitharaman promised a committee to study India’s population growth to ensure that the nation is on target to meet the Viksit Bharat goal by 2047.
India and population growth
- India is and will remain the world’s most populous nation for the foreseeable future.
- Nonetheless, it does not appear to be the fearsome prospect it once appeared to be.
- Fertility has steadily declined to a level where two parents are being replaced by two children and all segments of the society have begun to adopt family planning.
- Moreover, India has learned not to let the burden of a growing population pose an obstacle to its continued economic growth.
- However, we have yet to adapt to the changes that population transformation brings.
- The committee will focus on reshaping the policy agenda that rides the inevitable demographic wave and not be mired in the old discourse of population bomb.
- This will require focusing on several priorities.
1. The investment in the skilling of the Indian workforce
- First, we must recognise that India’s demographic destiny for 2047 has already been written.
- The workforce of 2047 has already been born and will look very different from the workforce of 2024.
- Today 33 per cent of the population is aged 20-29, while 23 per cent of the population is aged 40-59.
- But in 2047, the proportion of the younger population will decrease, and the proportion of older working ages will increase, with each forming about 28 per cent of the population.
- To ensure that this growing proportion of middle-aged workers can keep up with the changing demands of an increasingly technologically driven economy, we must invest in continued skill upgradation and on-the-job training above and beyond formal education.
2. allocation of resources to address the demographical inequality in India
- Second, all of India will not undergo demographic changes at the same pace.
- Just as fertility decline first emerged in southern, more developed states, population aging will also be most visible in these states.
- Dependency burden, defined as the number of individuals ages 15-59 supporting children under 15 and older population above 60, will vary dramatically between states.
- For example, demographer P M Kulkarni estimates that in 2021, in Bihar, 44 working-age adults supported 100 dependents, while in Tamil Nadu, 50 adults supported the same population; this will flip with the worker-to-dependent ratio changing to 47 in Bihar and 24 in Tamil Nadu by 2051.
- In short, the future of India’s elderly and children will rest on workers’ productivity in states we have historically considered demographic laggards, such as Bihar, Uttar Pradesh, Madhya Pradesh, and Chhattisgarh.
- How can we invest in the workers in these states to ensure the future welfare of all Indians?
- This will be the challenge that the newly formed 16th Finance Commission will face as it decides on inter-state allocations.
3. Reduced burden of child caring will free women to join the workforce
- Third, as fertility declines, the burden of child care for women drops.
- Analysis of National Family Health Survey data, undertaken with sociologist Sojin Yu, shows that in 1993, an average woman spent about 14 years caring for children under age five, while that number dropped to eight years in 2021.
- However, time freed up from childcare has not been utilised in increased participation in the workforce.
- Unless we find ways of creating a welcoming labour market for women, we will waste the opportunity of turning a demographic dividend into a gender dividend.
- One of the best ways of expanding women’s ability to participate in the job market may be to improve the availability of childcare, possibly through creative combinations of Anganwadi and the Mahatma Gandhi National Rural Employment Guarantee Scheme.
- There is no reason why permissible MGNREGA works cannot include rotational provision of childcare under the supervision of a trained early childhood educator.
4. The welfare of older populations will be looked after
- Fourth, a combination of rising numbers of elderly and a declining number of children to care for them means we must increase the ability of this older population to be self-sustaining.
- A combination of policies will be needed, including rising retirement age, enhanced old age pension schemes, and increased ability to sell land or homes, assets in which most of the wealth of the Indian elderly resides.
The changed discourse on population control in India
- Historically, the population dialogue in India has been dominated by concerns about population explosion.
- However, it is time for us to move beyond the Emergency era fears and learn from the experiences of other countries.
- In its quest for rapid population control, China implemented a strict one-child policy, bringing it to a demographic cliff where the needs of its aging population have begun to drag down its economic growth.
- Relaxing the one-child limitation has been unsuccessful in increasing fertility.
- This suggests that India should refrain from a similar panicked reaction and let fertility decline continue at a natural pace.
- If demography is destiny, let us adapt to it with grace.
Conclusion: These complex challenges require multifaceted attention from demographers, economists, sociologists, and public policy experts. The move to set up a high-powered committee to evaluate the challenges posed by demographic transformation in conjunction with the 16th Finance Commission will allow its recommendations to flow into government spending priorities, creating a virtuous cycle.