Home

December 2019

 

Media coverage in India this month focused on the cabinet approval of India’s first exchange traded fund for bonds, the new alliance which formed Maharashtra’s state government and the Citizenship (Amendment) Bill being passed by the Parliament.

Cabinet Approves India’s First Exchange Traded Fund for Bonds

The Union Cabinet approved the government’s plan to create and launch India’s first corporate bond exchange traded fund (ETF) — Bharat Bond ETF.  The ETF will initially comprise of a basket of only AAA-rated papers issued by various government-linked companies and will come in two maturities — three and 10 years.  Various media publications have weighed in on what the launch of the ETF means for participation of investors in India’s bond market.

An article in The Hindu detailed out why the low unit values of the ETFs would help deepen India’s bond market as it would increase the participation of retail investors, who currently do not participate in bond markets due to liquidity and accessibility constraints. “These ETFs will invest only in AAA-rated bonds issued by PSUs maturing on or before the maturity of the ETFs. The ETF will hold the bonds till maturity and coupons received from those bonds will be reinvested in the fund. Post the NFO period, ETF units will be listed on NSE and BSE. Through demat accounts, investors can buy and sell units at the prevailing market prices… Liquidity in an ETF is mostly determined by corpus and market makers. Normally, a large asset size in an ETF implies the likelihood of more active trading in the exchanges. Since the Bharat Bond ETFs are expected to collect a large corpus, there could be ample liquidity available in these ETFs. Market makers are authorised participants appointed by AMCs to keep the price of the ETF at any point in time close to the fair value of its portfolio. … Bharat Bond ETFs provide a good opportunity to retail investors to participate in the corporate debt market while taking the lowest credit risk. The buy and hold strategy mitigates the interest rate risk too. The yields offered in these ETFs are more or less equal to the rates offered by the PSU banks on their deposits of similar tenure.”

A column in Livemint outlined how the ETF would diversify the investor base for companies by providing them with greater access to bond markets for their funding requirements and not just depend on equity market. “The Union Cabinet on Wednesday gave its approval to the launch of India’s first corporate bond exchange traded fund (ETF) aimed at diversifying investor base and bring in retail investors in the market… it will provide funds for the needs of central public sector undertakings or any other government organization though bonds issued by them. For now, it will have two maturity tenures, three and ten years… The bond ETF will be listed on the exchanges. This is part of the government’s efforts to deepen the bond market in India which, even after years of efforts by the regulator and the government, continues to be a very small one.”

The Financial Express focused on why the launch of the ETF would not only drive the liquidity of its units on the exchanges, but also create an alternate channel for mobilization of resources and growth of debt markets. “The ETF will be a basket of bonds issued by Central Public Sector Undertakings (CPSUs) Central Public Sector Enterprises (CPSEs), Central Public Financial Institutions (CPFIs) or any other government organisation bonds…  With the expansion of investor base through retail and HNI participation which can increase demand for their bonds, the government believes these issuers may be able to borrow at reduced cost, thereby reducing their cost of borrowing over a period of time… The ETF will hold bonds till their maturity and coupons received will be reinvested. The issuer weight is likely to be capped at 15% and weight allocation will be based on outstanding debt amount of the issuer in the particular period… the bond ETFs would enable deepening the corporate bond market with enhanced retail participation.”

Shiv Sena, Nationalist Congress Party (NCP) and Indian Nationalist Congress Form Maharashtra Government

Following the assembly elections in Maharashtra, the newly formed Maha Vikas Aghadi, an alliance of Shiv Sena, NCP, and the Indian National Congress formed the government in the state. Media publications shared their views on the new alliance, through a series of op-eds.

An op-ed in The Indian Express covered why the Shiv Sena and Congress will need to comprise on their traditional ideologies for the alliance to hold strong. “It is the second dimension of the Maharashtra developments, which calls for greater reflection. Just what does the break-up of the BJP-Shiv Sena alliance, lasting for three decades, and the emergence of a Shiv Sena-Congress alliance, signify? Note that I have left out the NCP from a fuller consideration. The NCP could have gone either way. It represents a regionalist sentiment. Beyond that, it has no great ideological core. It can justify any alliance on the argument that Maharashtra’s interests require such a move… the Shiv Sena is strongly ideological, associated with an anti-Muslim stance since the late 1980s, and the Congress, though not as ideologically resolute as in the past, is irreducibly multireligious. The Congress has, of late, gravitated towards a greater show of Hindu religiosity, but it finds it hard to, or cannot, break its reliance on Muslims. In the 2019 parliamentary elections, it received 38 per cent of the Muslim vote, larger than its share of any other social category. The alliance of an anti-Muslim Shiv Sena and a pro-Muslim Congress simply could not have been predicted.”

Another op-ed in Livemint outlined why the new alliance was an opportunity for a strong opposition to emerge in the current Indian political landscape. “Maharashtra has a lesson for the NCP and many other regional parties, too. Every victory has proved to be momentary. Reason? The moment they win, they indulge in power-grabbing politics. The basis of their government becomes not the ideology, but individual interests. By praising themselves and condemning PM Modi, elections can be won, but political power can be stable only when you do something for public welfare…  Despite getting 119 million votes in the last Lok Sabha elections, Rahul Gandhi had refused the post of the party president. Had Gandhi been active as before, he could definitely have hogged a lot of media attention. After Haryana, the voters have again proved in Maharashtra that they want to keep the Opposition alive and strong. But for that to happen, the leaders of responsible political parties will also have to show some will.”

Finally, an op-ed in The Hindustan Times raised concerns on how large ongoing infrastructure projects in Maharashtra would be impacted by the new government coming to power. “A national party like the BJP was always going to have growth aspirations, which means eating into the vote base of its opposition and allies alike. The Sena was losing out to the BJP in the state — quite evident from the two Lok Sabha and two assembly elections since 2014… However, if the MVA manages to hold strong for a while, the BJP will have to rethink its comeback strategy, embracing precisely the changes it sought to negate: Caste equations, strength of local cooperative bodies, and promoting leaders from the western Maharashtra and the Marathwada region. Most importantly, the BJP will now have to redefine what the Hindutva agenda means for Maharashtra and the country… Meanwhile, voters in Maharashtra will hope for stable governance, if not a stable government. The key concern is how the ongoing large infrastructure projects get impacted, if at all. India’s economic engine — 15% of the country’s gross domestic product (GDP) in most years — is at stake.

Parliament Passes the Citizenship (Amendment) Bill

The Citizenship (Amendment) Bill or CAB, which grants Indian citizenship to the non-Muslims of Afghanistan, Pakistan and Bangladesh, was passed by the both houses of Parliament.  Media publications debated the merits and demerits of the bill, through a series of op-eds.

An op-ed in Hindustan Times supported the bill outlining how keeping a check on the unabated influx of immigrants is one of the major expected outcomes of the entire process.  “One of the major concerns raised by the northeastern states is linked to the apprehension that there would be an increase in flow of immigrants. This sentiment is grounded in the fear that once religious minorities are given citizenship rights, it might encourage immigration. Contrary to this perception, one of the major objectives of entire exercise of Citizenship Amendment Bill is to prevent illegal immigrants that has gone unchecked for a long time… Further, CAB neither provides for nor intends to dilute any of the special rights available to the original inhabitants of the states. Also, there will be cut-off dates in CAB after which rights considered in CAB will not be applicable. As such, there is no reason to fear that CAB would lead to a spike in the number of immigrants to the region.”

An op-ed in the Indian Express opposed the bill stating that by including everyone except Muslim immigrants in the proposed National Register for Citizenship (NRC), the CAB makes partial gestures of inclusivity, but within an exclusionary framework. “The idea of asylum on a combination of free will with affectivity. The decision to belong comes from the feeling to belong, and both deserve to be respected. This is perhaps the widest possible humanist consideration behind defining the citizen… In contrast, Amit Shah said in the Rajya Sabha, the government was interested in persecuted non-Muslims from the three Islamic states alone. He scoffed at the Opposition for limiting its secularism to Muslims. The obverse logic is chilling: To consider the rights of Muslims is no longer necessary for secularism..… The argument in favour of the secular state was never to imply something extraordinary. It was meant to cure people’s historical prejudices and keep a nation-state from relapsing into majoritarianism. Both these possibilities have today regained their hold on the polity and the social sphere. We are poised to lose, not find, the ethical understanding of who ought to be a citizen of India.”

Finally, an op-ed in India Today focused on the challenges facing the bill, specifically proving who among the illegal immigrants entered India out of religious persecution or for the lure of better economy. “The Citizenship Amendment Bill prepares the ground that the fear of religious persecution exists only for those who do not profess a religion as adopted by the countries as their state religion. In this case, all three countries declare Islam as their state religion. This statement forms the basis of intelligible differentia for non-Muslim immigrants and creates the legal and constitutional basis for leaving out Muslim immigrants who entered India or stayed in India without valid documents… The government cannot conduct investigation into a few million cases in some other country to verify the claim of religious persecution. The government may easily deny the claim of religious persecution of a Muslim immigrant but how will it differentiate between those coming for the lure of economy and those forced to flee for professing belief other than that of the State?”