There are two aspects to the news- knowing the headline and understanding the intricacies of it. We at The Connectere focus on both. While The First Forum edition gives a brief about the headlines, The Weekly Analysis Edition is meant to educate the reader on what do various news mean and what are their intricacies. This initiative is meant to educate the reader on how to understand the important news. In the Thirty First Edition we are covering the following news:
An Insurance Regulatory and Development Authority of India committee has suggested a reduction in an entry-level capital requirement for standalone micro-insurance companies to Rs 20 crore from the current Rs 100 crore with a view to accelerating expansion of this segment of the insurance market in the country. The committee set up by IRDAI to suggest steps to promote micro-insurance said that like other nations India too will need to attract multiple players if it wants to substantially increase insurance penetration.
It should be noted that for low-income families, calamities such as illnesses, accidents, death, or the loss of assets often have very grave financial consequences. Such events can push these families deeper into poverty as their meager resources get depleted. Many get drawn into debt traps as they borrow beyond their means, sell productive assets, take children out of school or put them to work, compromise on food, or leave sickness untreated.
A 2013 report, cited by the panel, noted that the Indian micro-insurance sector has only covered 9% of the overall population and 14.7% of the potential micro-insurance market size in the country. India, like other countries, will need to improve access for multiple players if it wants to substantially increase insurance penetration. After discussions with organizations that have been providing micro-insurance, national, and international experts, the committee has made several recommendations. One of them is that “entry-level capital requirement for standalone micro-insurance entities should be reduced to Rs 20 crore maximum from the current Rs 100 crore”. Also, the risk-based capital (RBC) approach should be adopted to enable the progressive growth of the micro-insurance business while maintaining the highest prudential standards. The report also suggested that IRDAI and/or the central government may establish a Microinsurance Development Fund to support and promote the growth of this business across the country.
IRDAI had constituted the committee in February 2020 consisting of members from NGOs, independent consultants, and other persons having experience of working in financial inclusion and regulatory fields, to study the concept of standalone micro-insurance companies. While we already know that there are majorly only some big insurance giants, it is equally important to understand that for insurance firms, a large amount of liquid funds is a necessary condition so there is a drastic level of ease and profit incentive required to invite more people to start investing in this. In the initial phase, firms will have to depend on the small customers as large firms take large plans which new entrants can’t easily afford to undertake.
The Mumbai police investigation into alleged rigging of TRPs (Television Rating Points) by some news channels including Republic TV, Box Cinema and India Today calls for an overhaul of the current audience measurement system. Besides cheating advertisers and securing a larger advertising pie, there are less obvious but equally serious consequences. Competitors are left dispirited and society is sent false signals on the kind and quality of content attracting viewership.
Let us see what is TRP and how do they work?
TRPs represent how many people, from which socio-economic categories, watched which channels for how much time during a particular period. So, TRP is a tool to judge which TV programmes are viewed the most, hence pointing to the popularity of a particular channel.
To calculate the TRPs, BARC (Broadcasting Foundation and the Advertising Agencies Association of India) an industry body comprising advertisers, ad agencies and broadcasting companies, carries out television ratings in India by installing ‘BAR-O-meters’ in over 45,000 households. While watching a show, members of the household register their presence by pressing their viewer ID button thus capturing the duration for which the channel was watched.
How does the rigging take place?
If broadcasters can find the households where devices are installed, they can either bribe them to watch their channels, or ask cable operators or multi-system operators to ensure their channel is available as the “landing page” when the TV is switched on. For TRPs, it does not matter what the entire country is watching, but essentially what the 45,000-odd households supposed to represent TV viewership of the country have watched. What Effects can TRP rigging have? If one can claim that they are the most watched channel, advertisers automatically buy advertising time with them even at higher prices. The matter involves not only the Rs 27,000 crore of revenue that TV channels garner from advertisers and product sellers, it also affects the more critical phenomenon of agenda-based television controlling public tastes and views.
So, not only advertisers but the viewers are at the suffering end as well, as everything is being created and pushed on to the viewers, in the name of being the most watched and the number one channel in the country. To protect the community BARC must increase sample sizes for niche segments to prevent gaming by a few homes. It can be supplemented by DTH subscriber base, by using return path data technology in set top boxes with informed consent. Amid stiff competition through digital OTT platforms and social media, the TV industry must protect the interests of advertisers and consumers.
For the first time the Reserve Bank Of India(RBI) is conducting Open Market Operations(OMOs) of state loans as a special case during the current financial year. Recently, RBI governor Shaktikanta Das announced a slew of liquidity measures including the purchase of state development bonds through OMO for an aggregate sum of Rs.20,000 crore. This decision took after considering the current liquidity and market operations.
Let’s now have a look at how OMOs work.
Open Market Operations are conducted by the RBI in the form of sale and purchase of government securities (G-secs) to adjust liquidity in the market. If there is excess liquidity then RBI undertakes sales of G-secs and if there is a liquidity crunch, then RBI conducts purchase of G-secs. As now there is a liquidity crunch in the economy, the RBI will purchase the government securities. The objective behind this is to regulate the money supply in the economy. It is one of the quantitative tools that RBI uses to smoothen the liquidity conditions and minimises its impact on the interest rate and inflation rate levels. This policy tool is popularly known as ‘Operation Twist’ which was first used by the US Federal Reserve in 1961 when the US economy was recovering from recession post the Korean War.
RBI conducts OMOs of state loans to impart liquidity. While OMOs in central government securities are routine, this is the first time the RBI has announced OMOs for state government bonds. The central bank will maintain comfortable liquidity conditions and will conduct market operations in the form of outright and special open market operations. It has come at a time when the RBI is eager to ensure that financial conditions don’t tighten and derail early signs of a recovery in the COVID hit economy. The RBI’s support to state bonds also comes against the backdrop of an ongoing tussle over GST compensation between states and the centre.
A few weeks earlier, Google removed Paytm from Google Play Store due to violations of its policies. Though it was reinstated later. But Paytm and several other Indian start-ups allege that Google is using its market dominance to arbitrarily enforce policies on the local players and target competitors. Hence, tech giants like Google have a near 100% dominance in the app marketplace in India while it has recently announced that it will start enforcing a 30% commission on all payments made for digital services in apps from its play store. Due to this reason, major Indian start-up founders come forward to lobby against global internet giants because this move comes against the backdrop of discontent among Indian start-ups against Google.
Due to this, the immediate decision for the meeting between Indian start-up founders had called in which more than 120 Indian start-ups joined hands to form indigenous App Developer Association. This association will be non-profit and independent from CII (Confederation of Indian Industry) and Internet and Mobile Association of India (IAMAI). This association will only be used to lobby the cause of app developers in India. To this, online payment company Paytm recently announced that it was building a “Mini App Store” which would empower and support Indian developers by reducing their reliance on tech giants like Google. And it also launched its Rs.10 crore Developer Fund, which will work as an incubator to support Indian app creators.
Moreover, the dominance of the tech giants must protect the uprising of Indian start-ups because India can’t afford too much reactive policymaking against the tech giants as it doesn’t signal well for attracting foreign investors. A strict policy environment encourages only local Indian innovation and tries to bar foreign competition which might not be the best possible approach from the consumer aspect. Hence the policy must both be able to attract foreign investment and also encourage Indian start-ups.
The Reserve Bank’s decision to enhance liquidity into the system through long-term repo operations will ease the borrowing cost for NBFCs and relaxation in loan to value guideline will help revive the economy, the industry said on 9th October. The non-banking financial companies (NBFCs) said the decision to keep the key repo rate – at which the RBI lends short-term money to banks – unchanged was on expected lines and in consideration with keeping the inflation target while supporting growth. RBI Governor Shaktikanta Das, unveiling the bi-monthly monetary policy review, said the six-member Monetary Policy Committee (MPC) voted unanimously to retain repo at 4% while keeping its policy stance accommodative and suggested more measures going ahead to support the economy.
Under the targeted long-term repo operations (TLTROs) measures, the Reserve Bank of India will conduct on-tap TLTRO with tenors of up to three years for a total amount of up to Rs 1 lakh crore at a floating rate linked to the policy repo rate. The RBI Governor said the liquidity availed by banks under this facility has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by entities in specific sectors over and above the outstanding level of their investments in such instruments as on September 30, 2020.
Besides, in order to give a fillip to the real estate sector, the RBI decided to rationalize the risk weights and link them to LTV (loan to value) ratios for all new housing loans sanctioned up to March 31, 2022, keeping in view the role of real estate sector in generating employment and economic activity. Rationalizing the risk weighting of all new home loans will see the risk of new loans to be linked only to the LTV ratio. Under the extant regulations, differential risk weights are applied to individual housing loans, based on the size of the loan as well as the loan-to-value ratio. The sectors like FMCG, agriculture, autos, and warehousing, among others, have been more resilient than others in Q2 and this augurs well for the transport industry that ensures last-mile connectivity.
The RBI’s policy measures will have a positive impact on those engaged in last-mile lending, as the rural and semi-urban economy is continuing to show strong recovery. The RBI also reviewed the co-origination model for banks and NBFCs by allowing all the non-banking financial companies, including the Housing Finance Companies (HFCs), for lending to the priority sector. The regulator said it will allow greater operational flexibility to the lending institutions. This co-lending model is expected to leverage the comparative advantages of banks and NBFCs in a collaborative effort and improve the flow of credit to the unserved and under-served sectors of the economy. After the much long COVID crisis, it can only be hoped that such measures could reduce the impact that is has had on the economy.