Editorial 1: A contested Diaspora
Context:
Recently, the Prime Minister and the opposition leader have upcoming visits to the US to meet Indian diaspora.
Status of Indian diaspora in the world:
- As on December 31, 2021, there were 4.7 crore Indians living overseas.
- According to the World Migration Report, 2022, India has the largest emigrant population in the world in 2020, making it the top origin country globally, followed by Mexico, Russian and China.
- At $83 bn in 2020, India was the largest receiver of remittances, according to World Migration Report 2022.
- UN World Migration Report (2020): Indian diaspora is world’s largest, with slightly more than 17.5 million people from India living overseas.
- Every year 2.5 million (25 lakhs) Indians migrate overseas, which is the highest annual number of migrants in the world.
- According to a Ministry of External Affairs report 2018, there are 32 million NRIs and PIOs (inc. OCIs) residing outside India and overseas Indians comprise the world's largest overseas diaspora.
- These include Indian citizens studying, living, and working abroad as well as the people of Indian origin who have settled in other lands.
- The number includes NRIs, PIOs, OCIs, and students. Excluding students, the number stands at 3.22 crore, including 1.87 crore PIOs and 1.35 crore NRIs.
- The countries with over a million (10 lakh) overseas Indians include United States of America (44 lakh), United Kingdom (17.6 lakh), United Arab Emirates (34 lakh), Sri Lanka (16 lakh), South Africa (15.6 lakh), Saudi Arabia (26 lakh), Myanmar (20 lakh), Malaysia (29.8 lakh), Kuwait (10.2 lakh) and Canada (16.8 lakh).
- With a population of more than 4.5 million, Indian Americans make up approximately 1.35% of the U.S. population and are the largest group from South Asia and highest-earning ethnic group in the United States.
- India to the United Arab Emirates (over 3 million), comprises mainly labour migrants, making it the third largest bilateral migration corridor in the world.
Role of Indian Diaspora for India:
- India’s Soft Power: They act as “bridge-builders” between their home and adopted countries.
- Rich and influential Class: Indian diaspora is richer and contributes in myriad ways to the Indian economy – from hard currency remittances to the air travel market, from consuming Indian goods to entertainment.
- For instance, Diaspora Diplomacy led the doubting legislators into voting for the India-U.S. nuclear deal.
- The Indian diaspora has now become a fully transferable political vote bank as well.
- Also, many people of Indian origin hold top political positions in many countries, which enhances India’s political clout at multilateral institutions like the United Nations. Like the Prime Minister of Britain Rishi Sunak and US Vice-President Kamala Harris or reappointment of Justice Dalveer Bhandari to the International Court of Justice in November 2017, when it secured two-thirds of the votes at the UN.
- In 2019, the British House of Commons had 15 members of parliament of Indian origin.
- Economic Contribution: Remittances help India in Balance of Payments (BOP), and bridge a wider trade deficit.
- The migration of unskilled and semi-skilled labour (especially to West Asia) has helped in bringing down unemployment in India.
- Further, the migrant workers facilitated the flow of information, commercial and business ideas, and technologies into India.
- Highly Skilled Professionals: As many countries hunt for talent to run their advanced industries, the demand for Indian professionals will continue to grow.
- Recent “Migration and Mobility” agreements that will facilitate more substantive flows abroad of Indian scientists, engineers, doctors, accountants, managers, and bankers.
- The global footprint of India, then, will continue to widen and deepen in the years ahead.
- Domestic Influence: The diaspora’s engagement with Indian politics too has grown. Over the last few decades, the Indian diaspora has graduated from the passive role of extending support to presumed collective Indian goals or individual commitments to community development at home.
- The leaders of the diaspora now take active positions on the issues of the day in India.
- They mobilise their local political leaders and officials to take up their real and perceived grievances against Delhi.
- For instance, Indian-American community members who played a big part in electronic campaign and election funding in 2014 and 2019.
- Rise of Conservatism: More troubling has been the resurgence of religious, ethnic, and caste solidarities that overwhelm the rich collective inheritance of the Subcontinent.
Steps Taken to promote Indian Diaspora:
- Since 2000, Government of India had launched separate Ministry of Overseas Indian Affairs, the Person of Indian Origin (PIO) Card, Pravasi Bharatiya Divas 2003, Pravasi Bharatiya Samman Award, Overseas Citizen of India Card, NRI funds and voting rights for Indian citizens abroad.
- PIO and OCI card holders were merged into OCI in 2015.
- In 2015, the Ministry of External Affairs launched the e-migrate system that requires all foreign employers to register in the database.
- ‘Know India Program’ (KIP) 2016 for diaspora engagement which familiarizes Indian-origin youth (18-30 years) with their Indian culture.
- VAJRA (Visiting Advanced Joint Research Faculty) scheme which seeks to formalise a rotation program wherein top NRI scientists, engineers, doctors, managers and professionals serve Indian public sector organizations for a brief period, lending their expertise- is a step in the right direction.
- Pravasi Kaushal Vikas Yojana (PKVY): To institutionalize the process of skill development of emigrant Indian workers.
- Scholarship Programme for Diaspora Children (SPDC): 100 scholarships per annum are granted to PIO and NRI students for undergraduate courses.
- Recently, United Kingdom (UK) and India decided to launch a Young Professionals Exchange in 2023.
- UK will offer 3000 degree-holding Indians in the 18-30 year age group places to work for up to two years.
- UMANG International App: It would help all Indian international students, NRIs, and Indian tourists abroad to avail themselves of the services of the government of India anytime they want.
Way Forward:
India needs to catalyse the influential Indian diaspora to promote national interests without jeopardizing their position in the host nations. Indians living abroad are “brand ambassadors” of the country. Overseas Indians can project the truth about India to the world in a credible and effective manner and counter “propaganda” spread by hostile countries like Pakistan and China.
About:
- Diaspora Diplomacy: A collective action that is driven by a country’s diaspora, that influences host country’s culture, politics, and economics in a manner that is mutually beneficial for the homeland and the new home base.
- Non-Resident Indians (NRI):
- NRIs are Indians who are residents of foreign countries.
- To qualify as a resident Indian, an individual should have spent 182 days or more of a financial year in India, or stayed in India for 60 days or more in the year and for a period of 365 days or more in the 4 years preceding the relevant financial year
- Persons of Indian Origin (PIOs):
- The PIO category was abolished in 2015 and merged with the OCI category.
- However, existing PIO cards are valid till December 31, 2023, by which the holders of these cards have to obtain OCI cards.
- PIO refers to a foreign citizen (except a national of Pakistan, Afghanistan Bangladesh, China, Iran, Bhutan, Sri Lanka and Nepal) who at any time held an Indian passport, or who or either of their parents/ grandparents/great grandparents was born and permanently resided in India as defined in Government of India Act, 1935, or who is a spouse of a citizen of India or a PIO.
- Overseas Citizens of India (OCIs):
- A separate category of OCI was carved out in 2006.
- An OCI card was given to a foreign national who was eligible to be a citizen of India on January 26, 1950, was a citizen of India on or at any time after January 26, 1950, or belonged to a territory that became part of India after August 15, 1947.
- Minor children of such individuals, except those who were a citizen of Pakistan or Bangladesh, were also eligible for OCI cards.
Editorial 2: Welcome caution
Context: Recently, annual report of the Reserve Bank of India was released by RBI Governor Shaktikanta Das.
Concept:
- Evergreening-The process of evergreening of loans is typically a temporary fix for a bank. If an account turns NPA, banks are required to make higher provisions which will impact their profitability.
- To avoid classifying a loan as non-performing asset (NPAs), banks adopt evergreening.
- Such (evergreening) methods include
- Bringing two lenders together to evergreen each other’s loans by sale and buyback of loans or debt instruments;
- Good borrowers being persuaded to enter into structured deals with a stressed borrower to conceal the stress;
- Use of internal or office accounts to adjust borrower’s repayment obligations;
- Renewal of loans or disbursement of new/additional loans to the stressed borrower or related entities closer to the repayment date of the earlier loans.
Problems due to Evergreening:
- Window Dressing: It may keep a loan from going default in short run, but in long term, it increases bank’s exposure to a troubled credit.
- The reason is that banks tend to show less stressed assets in the balance sheet, therefore a clear picture of economic scenario is not reflected.
- Zombie Lending: Banks adopting over-aggressive growth strategies and using innovative methods for Evergreening of Loans — reviving a loan on the verge of default by extending more loans to the same borrower.
- An Accommodative Monetary Policy: It creates an enabling environment for weak banks to evergreen loans to zombies and keeps them alive.
- Since March 2020 during pandemic, such policy has led to evergreening in public sector banks which subsequently led to a jump in NPAs.
- The CBI had detected several cases of fund diversion by promoters of companies from loans advanced again and again by banks in the last couple of years.
- Corporate Governance issues were found due to evidence of concealing the real status of stressed loans.
- Evergreening suggests that the board, CEO and the audit committees are not adequately vigilant.
- In Asset Quality Review by the RBI in 2014, it was found that
- There was poor project appraisal management by banks, especially public sector banks,
- Some shady promoters who were known for fund diversion, joined hands to evergreen loans.
- Mismatch in Asset Liability Management (ALM) in business models of banks and financial institutions causes some degree of volatility in the banking sector.
- Recent bank failures in the USA-also indicate the perils of evergreening.
- Unclear Picture: Such practices cause doubt upon the performance of insolvency resolution of the twin balance sheet problem of overleveraged companies and high bank NPAs to catalyse higher GDP growth.
- As per RBI, exact state of NPAs in private banks is still not clear.
- Crowding Out of Good Borrowers: There was evidence of indirect evergreening in India – weak firms increase leverage by borrowing through related parties from weak banks, but decrease real investment – which often goes undetected. Such resource misallocation supports the crowding-out effects.
Steps Taken:
- SEBI has taken various initiatives to deal with the issue of evergreen loans.
- As per new norms, listed companies need to present disclosure of defaults. This information will be open to all and will be present in real time. So, the bank before providing loans can check information from stock exchanges and ensure if there is any default disclosure. And if there is a default disclosure, the bank cannot be fooled by the company. This new disclosure norm will make the practice of evergreen loans very difficult.
- Also, when an investor is willing to gain control of a stressed company in the listed space, such investor need not to make an open offer.
- Also, SEBI’s pricing formula for share acquisition will not be applicable in such cases. Such relaxations from SEBI would keep the acquisition costs in check and also speed up the bad loan resolution process.
- RBI conducts Asset Quality Review from time to time and monitors the loan quality and norms adhered.
- It also penalises for wrong disclosures and not following RBI guidelines on credit disbursal.
Way Forward:
- The Economic Survey 2020-21 on zombie lending, noted that apart from re-capitalising banks, need is to improve quality of their governance.
- RBI needs to levy penalties and take action against the erring officers.
- CEO, the audit committee and the Bank board need to be particularly vigilant.
- PJ Nayak Committee recommended that
- Penalties should be levied through cancellations of unvested stock options and claw-back of monetary bonuses on officers concerned and on all whole-time directors, and the
- Chairman of the audit committee be asked to step down from the board.
Conclusion:
Though Bankers say that sometimes it is practical to extend liquidity support to companies that are genuinely facing issues. However, the practice of evergreening must be dealt with transparency norms and bring about a better governance in banking sector apart from reapitalization.
About:
Practice of Evergreening
- Evergreening in banking is a practice of providing a fresh loan to repay an old loan. For example, a bank can lend money to a company to pay another bank’s loan.
- In this way, the first bank can maintain its balance sheet and reduce its non-performing assets (NPAs). The first bank can then extend a similar service to a company which is unable to pay the debts of the second bank.
- So, through evergreening practice banks to ‘manage’ their balance sheets by circumventing banking laws. Evergreening in banking is a practice of providing a fresh loan to repay an old loan.
- For example, a bank can lend money to a company to pay another bank’s loan. In this way, the first bank can maintain its balance sheet and reduce its non-performing assets (NPAs). The first bank can then extend a similar service to a company which is unable to pay the debts of the second bank.