30 May 2023 : The Indian Express

Editorial 1: Imphal SOS

Context:

Recently, after a short lull, arson and violence and killings are back in the ethnic tension that has singed Manipur for nearly a month. Ahead of Union Home Minister Amit Shah’s arrival in Imphal, at least two people, including a policeman were killed. 

Key factors behind tensions in Manipur:

Poor Law and Order Situation

• Unruly mobs controlling the street and the administration missing from the scene, attacking the houses of legislators, police stations and looting armouries. 
• At least 75 civilians have died in the violence so far. 

Failure of the Administration

• Not able to anticipate that the Manipur High Court’s controversial March 27 order could trigger a communal conflict and resultant insecurities created by the demand for the ST status by Hindu dominant Meiteis.
• Eviction of Kuki Tribals from the Hill forests by the government in the name of encroachment over the ‘reserve forest’.
• Destruction of Poppy cultivation in the hills by the government without provision of alternative occupations apart from dissent among drug warlords in Manipur.
• Recent ‘verification drive’ by the administration to identify the ‘illegal immigrants’ from Myanmar ignored the historic ties between Kukis of Manipur and Kukis of ‘Zo’ ethnic group in Myanmar and Nagas on both sides.
  • It also ignored the refugees in Manipur are those running away from persecution in Myanmar.
• Unexpectedly pulling out of the Suspension of Operations (SoO) agreement with two tribal insurgent groups in March on the grounds:
  • Its leadership was based in Myanmar.
  • They were aiding the protests in the hills.
• Crisis of Governance, related to broader questions of development, employment and educational opportunities, land ownership and usage.
• Ignoring the traditional institutions of the tribals and no prior consultation with the people before taking over ancestral lands of the people in the hills.
• Problem of less autonomy of Hill Area Autonomous District Councils in Manipur which are not under Sixth Schedule of the constitution.

Social Inter communal Trust Deficit:

• The chasm between the Meiteis and Kukis only seems to have widened over the days with no attempt being made at facilitating a reconciliation.

Judicial Tussle

• The battle in the courts over the granting of tribal status to the Meiteis is yet to be settled though the Supreme Court had criticised the directive.

Poor Domestic Political Posturing

• Chief Minister is increasingly seen as a partisan figure by the hill communities, who perceive his administration to be pro-Meitei.
• Even legislative units seem divided along communal lines, with community/tribe affiliations trumping party loyalties.

International Cross-border Spillover Effects

• Post-coup turmoil in Myanmar, which has led to an influx of refugees, including people with alleged links to anti-junta resistance groups, fuelling rumours about demographic change.

Steps Taken:

• Recently, the Union government invoked Article 355 of the Constitution when the Manipur government was unable to tackle the violence.
• Central Government has announced that it is ready to hold dialogue with insurgency groups in Manipur to bring lasting peace to the region.
• Compensation packages made available on account of death or injury.
• Relief works like transportation of stranded persons, are being undertaken in the state.
• Law is taking its own course through registration of FIRs and seizure of arms to avoid any unwanted situation.
• A total of 318 relief camps have been opened where more than 47,914 persons have been given relief.
• Provision of food, water, ration and medical care and medicines are being arranged by the district magistrates.
• State has also sanctioned Rs 3 crore as a contingent fund to meet exigencies in providing relief measures.
• State has also decided to earmark 25 per cent of MLA Local Area Development fund for relief measures in respective assembly constituencies, among others.
• Security is also being provided to places of worship and specific security measures are being taken in every district and every locality in accordance with the need of specific areas.

Way Forward:

• The response needs to be multi-layered too: At the administrative, judicial, political, social levels.
• The first task is to restore law and order.
  • Central forces must be deployed to control the situation and enforce peace.
  • This is essential since the breakdown of trust among communities had seeped into the police force as well.

• Political Dialogue between communities:
  • With strong political will, dialogue must be promoted between respective communities to resolve issues of differences and find practical solutions.
• Evidence based Affirmative Action Policy:
  • Need is to ensure unbiased approach to reservation policy through ground surveys and quicker policy decisions to diffuse the situation.
• There is a need to provide alternative employment and market for agricultural produce to replace Poppy cultivation in the Hills, for instance aloe vera cultivation.
• Technology Infrastructure must be created to fight the menace of illegal migration and drug smuggling from the Golden Triangle (Thailand, Myanmar, Laos) across the porous unfenced India-Myanmar border.

• Drug deaddiction drives and deaddiction centres must be set up to wean away the youth from this deadly drug menace.
• Forest area acquisition and eviction must follow due process and only done after consultation and prior rehabilitation and resettlement according to 2007 policy on rehabilitation.
• Tackling Illegal Migration must take humanitarian approach considering traditional pre-independence cross border tribal family relations and allow for the grant of citizenship on compassionate basis in cases of persecution.
• Consider increasing autonomy of the Hill District Councils to address insecurities among the Hill tribes, possibly bringing the area under Sixth Schedule.

Way Forward:

The Centre needs to step in to build public trust so that this crucial border state, the gateway to India’s Act East dreams, to ensure peace in not just a city or a state but in the entire region. There is a need for cooperation between Union and State government in the spirit of cooperative federalism where the Centre through Act East policy, provides diplomatic, economic and cross border alternatives to resolve the employment, market and drug smuggling issue. Further, devolution of power is necessary to empower the tribals to redress their cultural and ethnic grievances. Compassionate policy of development and citizenship is the need of the hour to ensure peace in the region.

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Editorial 2: Keep the policy promise

Context: Recently, the report submitted by the Supreme Court-appointed Committee to probe certain allegations against the Adani Group and suggest changes in the legal framework, provides insight into the dichotomy between the legislative intent and the actions of the Securities and Exchange Board of India (SEBI).

About the issue:

• In January 2023 when New York-based Hindenburg Research, which has short positions in Adani companies through US-traded bonds and non-Indian-traded derivative instruments, accused industrialist Gautam Adani-led conglomerate of “brazen stock manipulation and accounting fraud scheme over the course of decades”, causing the shares of Adani Group companies to nosedive.
  • Adani, who until recently was the richest Indian in the world, has now slipped to 22nd spot in the Forbes Real-time billionaire list for 2023.
• Accusations:
  • The key listed companies in the group had “substantial debt”.
  • Various irregularities in Adani’s finances, from inflated stock valuations to sky-high debt.
  • Conglomerate was being run unprofessionally like “a family business”.
  • The report also accused the conglomerate of operating multiple shell companies, often offshore, “to serve several functions, including stock parking/ manipulation, and laundering money through Adani’s private companies onto the listed companies’ balance sheets in order to maintain the appearance of financial health and solvency”.
• Market regulator SEBI, however, has not announced any probe into the crash in Adani shares and the withdrawal of Rs 20,000-crore FPO.
  • SEBI in its response to the committee claims its inability to investigate the wrongdoing on account of the absence of information from foreign agencies.
  • Four out of 13 overseas entities are already being investigated by market regulator Sebi since October 2020 but failed to establish any wrongdoing.
• RBI sought details: As the market continued to hammer its stocks, the Reserve Bank of India (RBI) has sought details from banks about their exposure to the group.
  • Punjab National Bank (PNB) said its total exposure to the Adani Group of Rs 7,000 crore is backed by adequate cash flows and there is no worry on repayments at present.
  • Union Finance Minister said that both LIC and SBI were not “over-exposed” (to Adani Group shares) and that “investors’ confidence” would endure in the market.
• Judicial Intervention: Supreme Court issued orders to form a committee to look for breaches of securities law, failures of regulations (if any) and non-disclosures of related-party transactions.
• Report of the Committee:
  • First, the committee in its report exonerates SEBI (regulator) of any failure. At the same time, the committee leaves it for SEBI to further investigate the matter.
  • Committee suspects wrongdoing only regarding minimum public shareholding limits and 12 suspicious transactions but no evidence of stock price manipulation.
  • No pattern, of artificial trading or wash trades among the same parties’ multiple times, was found.
  • Enforcement Directorate (ED) and Central Board of Direct Taxes (CBDT): No breach of law was pointed out by either agency.

Issue of Contradictory SEBI Regulations:

• In the case of the norms governing the minimum public shareholding, once a disclosure of ultimate beneficial ownership is made, there is sufficient compliance in line with the requirements under the Prevention of Money Laundering Act, 2002 and SEBI’s Foreign Portfolio Investment (FPI) regulations.
  • Despite this, the SEBI has taken a different stance. The requirement to disclose the last natural person above every person owning any economic interest in the FPI was discontinued in 2018, according to a recommendation by a SEBI-appointed working group that consulted with the Reserve Bank of India and the Ministry of Corporate Affairs.
• Similarly, the “opaque structure” provisions in the regulations were deleted in 2019 as declarations made under the PMLA constitute sufficient compliance.
  • The Committee notes the reason that if every FPI was required to provide information about beneficial owners in respect of owners holding more than 10 per cent, there was no need to have a massive requirement to know the ultimate beneficial owner of every owner of the FPI.
  • Yet in 2020, the SEBI moved the investigation and enforcement in the opposite direction, stating that the ultimate owner of every piece of economic interest in an FPI must be capable of being ascertained.
  • Citing this flip-flop, the Committee has suggested the need for a coherent enforcement policy.
  • There have also been other instances where SEBI’s regulations or enforcement have clashed with legislative intent.

Key Takeaways from SC report:

• There is a need for stable regulatory regime apart from having minimum gap between the legislative intent and the regulations to attract foreign investment in a developing country like India.
• The Indian financial system is rock solid: Major international brokerages, ratings agencies, retail investors and everyone else on Dalal Street looking for any systemic risk to Indian banks but nothing significant was found.
• Short seller report used opportunistically to attack India: Major international publications pounced on this report to declare India as unworthy of investment, a den of crony capitalism, and so on. 
  • Creates Distrust in the economy: The revelation of facts, such as by the Hindenberg Report, creates distrust in the economy leading to decreased capital inflows and thus investments.
• Stock market crashes: Such a report causes economic loss to companies and individual investors as happened recently with Adani company’s stocks.

Conclusion:

India competes globally to attract investments from foreign investors. Our policy so far has encouraged FPI participation in our stock markets. FPIs assess risks such as changes in taxation policies, capital controls, repatriation restrictions or shifts in regulatory frameworks to make their investment decisions. They rely on stable and transparent regulatory frameworks to make informed investment decisions. Need is for the regulators like SEBI and other entities to be swift in their action to prevent such motivated attacks on Indian stock markets through proper regulation and preventing volatility in the stocks to protect investors interests and punish such malicious attacks by short sellers, to ensure stability and credibility of Indian stock market.

About:

Securities and Exchange Board of India (SEBI)

• It is the regulatory body for securities and commodity market in India under the ownership of Ministry of Finance within the Government of India.
• It was established on 12 April 1988 as an executive body and was given statutory powers through the SEBI Act, 1992.
  • Controller of Capital Issues was the regulatory authority before SEBI came into existence; it derived authority from the Capital Issues (Control) Act, 1947.
• The SEBI is managed by its members, which consists of the following:
  • The chairman is nominated by the Union Government of India.
  • Two members, i.e., Officers from the Union Finance Ministry.
  • One member from the Reserve Bank of India.
  • The remaining five members are nominated by the Union Government of India, out of them at least three shall be whole-time members.
• After the amendment of 1999, collective investment schemes were brought under SEBI except nidhis, chit funds and cooperatives.
• It aims to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
  • SEBI has to be responsive to the needs of three groups, which constitute the market:
    • Issuers of securities
    • Investors
    • Market intermediaries
• SEBI has three powers: Quasi-legislative, Quasi-Judicial and Quasi-Executive.
  • It drafts regulations in its legislative capacity,
  • It conducts investigation and enforcement action in its executive function and
  • It passes rulings and orders in its judicial capacity.
  • Though this makes it very powerful, there is an appeal process to create accountability. There is a Securities Appellate Tribunal which is a three-member tribunal headed by former Chief Justice of the High Court. 
  • A second appeal lies directly to the Supreme Court.
  • SEBI has taken a very proactive role in streamlining disclosure requirements to international standards.

Short selling

• The Securities and Exchange Board of India (Sebi) defines short selling as the sale of a security or share that the seller does not own. In short selling, an investor sells borrowed shares in the market in the hope of buying them back at a cheaper price.
• In other words, short selling is exactly the opposite of usual stock market investments, where an investor has bought a stock, hoping that its price will rise in future. In short selling, an investor holds a short position after anticipating a decrease in the value of a stock.
• In short selling, an investor does not need to own a particular company’s shares to sell them. Instead, they can borrow shares/assets of the company from any broker or dealer.

Shell Companies

• Shell companies are a main component of the underground economy, especially those based in tax havens. They may also be known as international business companies, personal investment companies, front companies, or "mailbox" companies. Shell companies can also be used for tax avoidance.

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