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How`s Business (June 25 - July 01)
By M.K.Venu
FDI will promote print media freedom
The government has finally taken the bold decision of allowing 26 per cent foreign investment in print media. There has been much opposition to allowing any foreign investment at all in print media on the ground that foreigners would dictate the political and cultural agenda of a nation state barely 55 years old. All major Opposition parties opposed the move. Besides, leading newspaper proprietors, too, relentlessly campaigned against foreign investment in the print media. However, of late, some publication groups such as Living Media, which brings out India Today and runs the Aaj Tak TV channel, turned in favor of foreign investment largely because the growing need for capital in their businesses. Government after government over the past 10 years studied the possibility of allowing foreign investment in print media but had to hold back for fear of displeasing leading newspaper owners, who have the capacity to create opinion against the political establishment. But this time round the NDA regime has probably detected that the media itself is divided on the issue and felt this was the right time to test the waters.
On objective considerations, however, the bogey of foreign investment having the potential to dictate the political and cultural agenda is largely exaggerated.
Besides, with 26 per cent equity, the management will remain in the hands of Indians. Some foreign investment in print media is needed for another reason. Due to lack of funds, a large number of print media journals are, in fact, getting choked and threatened with extinction. If many of these publications close down for want of funds, it would encourage a certain oligopolistic situation in the industry and therefore have a direct impact on the variety of opinion in the social, political and cultural space that a reader gets at present. If there are fewer newspapers and magazines, there is a real danger that the political establishment actually succeeds in managing the press all too easily.
Recent history, starting with the Emergency imposed by the late Indira Gandhi, clearly shows that it is the second and third rung newspapers that have stood up to oppressive regimes that ride rough shod over basic freedoms enshrined in the Constitution. It is these relatively smaller newspapers that are getting choked today. They could do with some funding from abroad. It will be good for our fledgling democracy. How to make ARCs professional and workable
The Cabinet last week decided to promulgate an ordinance to facilitate setting up of an Asset Reconstruction Company (ARC) with adequate legal powers to take over the non-performing assets of banks and sell them off. This the first substantive step toward making the ARC, announced by the Finance Minister in the Union Budget, a reality.
The Asset Reconstruction Company will take over the NPAs of banks, at last count Rs.65,000 crore, and in a newly empowered legal framework, recover the funds by selling whatever remains of the assets. This is of critical importance in mitigating the risks associated with the burgeoning NPAs in the financial sector. So far, alternate legal mechanisms like debt recovery tribunals have yielded pathetic results. The Asset Reconstruction Agency will be formed as a non-dividend paying company under Section 25 of the Companies Act 1956. Since it will be a non-profit and non-dividend paying company it will most likely be exempt from provisions of Income Tax Act, 1961 as also from some of the provisions of the Companies Act. The main objects of the ARC will be recovery of non-performing assets in the financial system, asset reconstruction, risk management and risk mitigation as well as research and development in all aspects of asset reconstruction.
The ARC will actually take over the non-performing assets of the banks through an agreement with the bank in question. The valuation of the assigned NPA may be worked out on a case-to-case basis. The mode of payment to bank on taking over the asset may not be upfront and be done on a deferred basis. The method of transfer of assets to the ARC will involve stamp duty issues, if it is a mortgaged property. The state governments may provide special stamp duty relief as a special case for transfer of such property.
The Income Tax authorities will also provide relief in case of asset write offs by the ARC.
Initially, the equity partners in the ARCs will be banks and financial institutions.
If the empowered ARC actually manages to carry out its mandate, it will come as a big relief to the financial system, which has been reeling under the growing burden of NPAs these past few years. The only way this project will become possible is by appointing top class professionals in the Asset Reconstruction Company (ARC), with absolutely no political interference in the appointment of Chairman and other key decision makers.
The only pitfall one can see is that the equity holders of the ARC are none other than institutions like IDBI, UTI, LIC and so on where top level appointments are often subject to politicking and interference from New Delhi. If the same culture seeps into the ARC, then its functioning on the ground will be less than effective, however good the intentions on paper may be.
FDI will promote print media freedom
The government has finally taken the bold decision of allowing 26 per cent foreign investment in print media. There has been much opposition to allowing any foreign investment at all in print media on the ground that foreigners would dictate the political and cultural agenda of a nation state barely 55 years old. All major Opposition parties opposed the move. Besides, leading newspaper proprietors, too, relentlessly campaigned against foreign investment in the print media. However, of late, some publication groups such as Living Media, which brings out India Today and runs the Aaj Tak TV channel, turned in favor of foreign investment largely because the growing need for capital in their businesses. Government after government over the past 10 years studied the possibility of allowing foreign investment in print media but had to hold back for fear of displeasing leading newspaper owners, who have the capacity to create opinion against the political establishment. But this time round the NDA regime has probably detected that the media itself is divided on the issue and felt this was the right time to test the waters.
On objective considerations, however, the bogey of foreign investment having the potential to dictate the political and cultural agenda is largely exaggerated.
Besides, with 26 per cent equity, the management will remain in the hands of Indians. Some foreign investment in print media is needed for another reason. Due to lack of funds, a large number of print media journals are, in fact, getting choked and threatened with extinction. If many of these publications close down for want of funds, it would encourage a certain oligopolistic situation in the industry and therefore have a direct impact on the variety of opinion in the social, political and cultural space that a reader gets at present. If there are fewer newspapers and magazines, there is a real danger that the political establishment actually succeeds in managing the press all too easily.
Recent history, starting with the Emergency imposed by the late Indira Gandhi, clearly shows that it is the second and third rung newspapers that have stood up to oppressive regimes that ride rough shod over basic freedoms enshrined in the Constitution. It is these relatively smaller newspapers that are getting choked today. They could do with some funding from abroad. It will be good for our fledgling democracy. How to make ARCs professional and workable
The Cabinet last week decided to promulgate an ordinance to facilitate setting up of an Asset Reconstruction Company (ARC) with adequate legal powers to take over the non-performing assets of banks and sell them off. This the first substantive step toward making the ARC, announced by the Finance Minister in the Union Budget, a reality.
The Asset Reconstruction Company will take over the NPAs of banks, at last count Rs.65,000 crore, and in a newly empowered legal framework, recover the funds by selling whatever remains of the assets. This is of critical importance in mitigating the risks associated with the burgeoning NPAs in the financial sector. So far, alternate legal mechanisms like debt recovery tribunals have yielded pathetic results. The Asset Reconstruction Agency will be formed as a non-dividend paying company under Section 25 of the Companies Act 1956. Since it will be a non-profit and non-dividend paying company it will most likely be exempt from provisions of Income Tax Act, 1961 as also from some of the provisions of the Companies Act. The main objects of the ARC will be recovery of non-performing assets in the financial system, asset reconstruction, risk management and risk mitigation as well as research and development in all aspects of asset reconstruction.
The ARC will actually take over the non-performing assets of the banks through an agreement with the bank in question. The valuation of the assigned NPA may be worked out on a case-to-case basis. The mode of payment to bank on taking over the asset may not be upfront and be done on a deferred basis. The method of transfer of assets to the ARC will involve stamp duty issues, if it is a mortgaged property. The state governments may provide special stamp duty relief as a special case for transfer of such property.
The Income Tax authorities will also provide relief in case of asset write offs by the ARC.
Initially, the equity partners in the ARCs will be banks and financial institutions.
If the empowered ARC actually manages to carry out its mandate, it will come as a big relief to the financial system, which has been reeling under the growing burden of NPAs these past few years. The only way this project will become possible is by appointing top class professionals in the Asset Reconstruction Company (ARC), with absolutely no political interference in the appointment of Chairman and other key decision makers.
The only pitfall one can see is that the equity holders of the ARC are none other than institutions like IDBI, UTI, LIC and so on where top level appointments are often subject to politicking and interference from New Delhi. If the same culture seeps into the ARC, then its functioning on the ground will be less than effective, however good the intentions on paper may be.