Page 58 - Banking Finance April 2023

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Another problem is that 'Make in India' has evolved to where certain local projects get earmarked in a legal (if not
support production in labour-intensive industries such as cars, entirely transparent) congressional vote-buying process.
tractors, locomotives, trains and so forth. While the labour
Supposing that this interpretation is even partly correct,
intensity of production is an important factor in any labour-
Indian authorities might reply that the system is "necessary"
abundant country, India should be focusing on industries
to accelerate infrastructure spending and economic
where it has a comparative advantage, such as tech and IT,
development. Even so, this practice would be toxic, and it
artificial intelligence, business services and fintech. It needs
would represent a wholly different flavour of realpolitik
fewer scooters, and more Internet of Things startups. Like
compared to, say, India's vast purchases of Russian oil since
many of the other successful Asian economies, policymakers
the start of the Ukraine War.
should nurture these especially dynamic sectors by establishing
special economic zones. Absent such changes, 'Make in India' While those shipments still account for less than one-third
will continue to produce suboptimal results. of India's total energy purchases, they have come at a
significant discount. Given per capita GDP of around $2,500,
Finally, the recent saga surrounding the Adani Group is a it is understandable that India would avail itself of lower-
symptom of a trend that will eventually hurt India's growth. cost energy. Complaints by Western countries that are 20
It is possible that Adani's rapid growth was enabled by a times richer are simply not credible.
system in which the Indian government tends to favour
While the scandal surrounding the Adani empire does not
certain large conglomerates and the latter benefit from such
seem to extend beyond the conglomerate itself, the case
closeness while supporting policy goals. Again, Modi's
does have macro implications for India's institutional
policies have deservedly made him one of the most popular
robustness and global investors' perceptions of India. The
political leaders at home and in the world today. He and his
Asian financial crisis of the 1990s demonstrated that, over
advisers do not appear personally corrupt, and their
time, the partial capture of economic policy by crony
Bharatiya Janata Party will likely win re-election in 2024
capitalist conglomerates will hurt productivity growth by
regardless of this scandal. But the optics of the Adani story
hampering competition, inhibiting Schumpeterian 'creative
are concerning.
destruction' and increasing inequality.
There is a perception that the Adani Group may be, in part, It is thus in the Modi administration's interest to ensure that
helping support the state political machinery and finance India does not go down this path. India's long-term success
state and local projects that would otherwise go unfunded, ultimately depends on whether it can foster and sustain a
given local fiscal and technocratic constraints. In this sense, growth model that is competitive, dynamic, sustainable,
the system may be akin to 'pork barrel' politics in the US, inclusive and fair. (Source: Mint)

RBI circular on branch audit of PSBs causes disquiet
Chartered accounts (CAs) who audit public sector banks (PSBs) are worried as the Reserve Bank of India has left it to
the banks to decide the percentage of their branch business they want to get audited from FY24. Auditors say this
would severely impact their ability to properly assess the situation and highlight the risks. For the current financial
year, the RBI has drastically reduced the percentage of business of the branches that can be audited.
A recent circular from the RBI declared that the statutory branch audit of the PSBs should be carried out to cover a
minimum of 70 percent of the funded and non-funded business for FY23 and from FY24 they can decide the percentage
of business coverage they want audited. Earlier, the audit coverage of any PSB branch was 90 percent.
The RBI has also specified that the PSB board can decide on selection of branches for audit purposes, which would
effectively mean that all branches will not be covered under the audit. There are a total of 84,000 bank branches in
India and RBI has said that each auditor can cover only 2 branches.
“For FY23, statutory branch audit of PSBs shall be carried out so as to cover a minimum of 70 percent of all funded
and 70 percent of all non-funded credit exposures of the bank. For FY23-24 and onwards, the PSBs are being given the
discretion to determine business coverage under statutory branch audit, as per their board approved policy, after
considering bank-specific aspects relating to business and financial risks,” the RBI circular said.

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