Corporate & Financial Law

Examining the regulatory framework for pensions in India

Pensions primarily act as a buffer against old-age income insecurity. In the context of rising life expectancies, both globally and in India, having access to reliable old-age income security is urgent. While globally, populations aged 65 years and above are poised to touch 20%, per World Bank estimates, statistics from India indicate that the elderly population is poised to touch 19% by 2050. The importance of pension reforms is hence, timely and urgent.

In the Indian context, the present regulatory framework for pensions is highly fragmented, with multiple regulators, governing regulations and schemes. Such disparity does not lend itself well to creating simple, effective and harmonised pensions for all citizens. Further, the tilt towards securing pensions and social welfare for individuals in the organised workforce creates concerns about unequal access and inadequate protections offered to others. This disparate state of affairs, therefore, points to the need to discuss the challenges inherent in India’s pensions framework

Given the imperative for reform, the present report analyses the regulatory framework governing some of India’s largest pension schemes. While in a previous report,  we have discussed in detail, issues plaguing some of the flagship pension schemes meant for India’s informal sector workforce, the present report takes this discussion forward. 

The present report undertakes a broad review of issues plaguing India’s pensions regulatory framework generally. Within this framework, we focus on some of India’s biggest pension schemes such as the Employees’ Provident Fund and the National Pension System. Some of the key issues we look at are directly posed by the fragmented pensions framework such as the challenges posed by the classification of pension regulations, while other issues are more systemic and concern funding of pensions, tax distortions, dispersed investment guidelines and inadequate consumer protection.

Looking at best practices across selected jurisdictions and a critical analysis of some of the issues inherent in India’s existing pensions framework, we make a case for a comprehensive harmonisation of India’s fragmented pensions regulatory framework. We argue that multiple regulators, regulatory frameworks and legislations governing retiral income security, inhibits the development of an inclusive and equitable pensions framework, which provides equal opportunities and rights to all citizens. Therefore, we urge that all existing and new pension programmes should be guided by similar regulatory principles.

Based on our analysis, we set out certain recommendations for reform, both long-term and short-term. These include for instance, recommendations in relation to harmonising the existing pensions framework and investment guidelines, reducing tax distortions available to certain pension schemes, creating an enabling framework for resolving distressed pension funds, clarifying the role and function of existing pension regulators and requiring mandatory regulatory consultation and co-ordination.

At a time when India’s pensions framework is in the news, evidenced by the introduction of new schemes such as the Pradhan Mantri Shram Yogi Mandhan Scheme, a holistic re-look at the broader issues inherent in this framework is overdue and necessary. We hope that this report will initiate a conversation in this regard, and set the stage for reforms which would assist in making India’s existing pensions framework harmonised, accessible, and transparent, providing sustainable, and equitable retiral incomes for all citizens.

Click here to download the report on ‘Examining the regulatory framework for pensions in India: Making a case for harmonisation’.

Consumer Protection and Payment Wallets: A Case for Tech Based Intervention

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 From being a heavily cash-based economy, India is witnessing a steady growth in digital payments. The Reserve Bank of India (RBI) notes that the share of electronic transactions in the total volume of retail payments increased from 88.9% in 2016-17 to 92.6% in 2017-18 with a corresponding reduction in the share of paper-based clearing instruments from 11.1% in 2016-17 to 7.4% in 2017-18. One of the popular modes of electronic payments is prepaid payment instrument (PPI) / payment wallet. The share of transactions carried through such PPIs in the total volume of retail payment transactions increased from 18.04% in 2016-17 to 8 21.94% in 2017-18.

 While the development of technological innovations has enabled businesses to provide such innovative products / services to consumers and also further the cause of financial inclusion, they also create new risks for the financial systems, particularly for vulnerable consumers such as the low-income groups, that are often the beneficiaries of financial inclusion schemes.

 In light of these developments, it is critical for policy makers to assess whether current regulatory / supervisory approach for regulating the ever-evolving payments sector is adequate. Just as emerging technologies are enabling the evolution of FinTech, financial sector regulators in many jurisdictions are leveraging technological innovations to increase the efficiency of their supervisory approaches particularly in automated data collection and data analytics.

 Against this background, this Concept Paper explores the possibilities of integrating technological solutions in RBI’s supervisory framework for PPIs with a view to enable the regulator to have access to real-time or near-real time access to consumer complaints data of PPIs, which can then be further used for data analysis. Broadly, this Concept Paper presents two alternatives for the consideration of the regulator: (a) direct access to consumer complaints data from the systems of PPI issuers on a real-time or near real-time basis; or (b) setting up a centralised online grievance redressal platform by RBI for accepting consumer complaints. Timely access to consumer complaints data of PPIs can assist RBI in identifying potential risks. This is in contrast to the existing mechanism that relies on approaches based on past data and onsite inspections that may often result in delayed supervisory action. Further, RBI’s direct oversight over the redressal process is likely to promote accountability among PPI issuers for discharging their consumer protection mandate efficiently and inspire confidence of consumers in the process. This is crucial in promoting the cause of financial inclusion. Needless to say, there are several considerations that have to be considered before adopting any approach, including conducting a technical feasibility and cost-benefit analysis.

 While RBI has been proactive in taking steps to promote consumer protection in the digital payments industry, we hope that this Concept Paper will help in sharpening such interventions further.

Click here to access the report on Consumer Protection and Payment Wallets

Insolvency and Bankruptcy Code-The journey so far and the road ahead

The Vidhi Centre for Legal Policy & EY are pleased to present "Insolvency and Bankruptcy Code: The Journey so Far and the Road Ahead" which was inaugurated by the Hon'ble Union Minister for Finance & Corporate Affairs Shri Arun Jaitley on 18th December at the IBBI-Vidhi Conference "Insolvency and Bankruptcy Code, 2016: A roadmap for the next two years".

This report take stock of the developments in the insolvency eco-system since the implementation of the Insolvency and Bankruptcy Code, identifies key challenges for the insolvency eco-system and suggests the next generation of critical reforms required to address these challenges.

We hope that this report will provide both impactful and novel ideas to improve capital availability, promote entrepreneurship, reduce judicial backlog and build a more efficient insolvency resolution eco-system.

Click here to download the publication Insolvency and Bankruptcy Code: The Journey so Far and the Road Ahead

Competitive Neutrality in Corporate Governance Norms for CPSEs

State-owned Enterprises (SOEs) are significant players in the global economy. However, their governance poses unique challenges, primarily because the State which is the ‘owner’ of these enterprises, also acts as a ‘regulator’. This many a time manifests itself in the form of the State prescribing less-stringent norms for SOEs as compared to private sector companies, thus, creating an unequal playing field and distorting the principle of ‘competitive neutrality’.

The benefits of ‘competitive neutrality’ or maintaining an ownership-neutral legal and regulatory framework are aplenty. For example, adopting a market-driven legal framework for SOEs which is competitively neutral, will ensure better protection for minority shareholders, and will also make SOEs more productive by raising their governance standards. This in turn will assist in meeting several objectives of the government, including aiding disinvestment by securing higher valuations, increasing inflow of investment into SOEs, and reducing the liability of the government as a majority owner of such SOEs.

In the Indian context, SOEs are synonymous with Central Public Sector Enterprises (CPSEs), where the Central Government directly holds 51% or more shareholding in such companies. While various incentives may be offered to CPSEs such as subsidies and access to cheaper credit, our Report focuses on ‘statutory exemptions’ from corporate governance provisions, granted to government companies to demonstrate a lack of ‘competitive neutrality’ in the regulatory framework governing CPSEs vis-à-vis private sector companies.

Our Report studies various exemptions granted to CPSEs under company law, securities law and competition law, and reveals corporate governance distortions caused by such exemptions. Particularly, we find that certain exemptions granted to CPSEs under the current dispensation are redundant and may unnecessarily expose government finances to lapses. For instance, exempting CPSEs from the provisions of company law which place restrictions and reporting requirements for loans and investments made by companies, or disqualification of directors in case of companies which fail to file financial statements or repay deposit holders, are misplaced and do not resonate with the intent of the Central Government to increase accountability of the boards of CPSEs.

We supplement our analysis with three brief case studies - the acquisition of Hindustan Petroleum Corporation Ltd. by Oil & Natural Gas Corporation Ltd., the merger of State Bank of India with certain other state owned banks, and the Children’s Investment Fund-Coal India dispute, to lend context to our analysis of these exemptions. We also look at SOE governance in terms of competitive neutrality in the legal framework in three leading jurisdictions - Singapore, Brazil and Norway, and suggest Next Steps for India.

We hope that our Report sets the ball rolling and initiates a discussion on the merits of pursuing corporate governance reforms for India’s CPSEs, so that a level playing field is created, and Indian CPSEs are able to harness their true potential.

Download the full report Competitive Neutrality in Corporate Governance Norms for CPSEs

Securing our Future: Analysing the Regulatory Framework for Pensions in India

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In the past few decades, burgeoning populations and increasing life expectancies have led to an unprecedented rise in the elder population across the world. India is no exception to this trend, with the elder population projected to reach 19% of the total population by 2050. A significant part of this group will be unable to work for a living, and also simultaneously incur higher medical and other expenses. Not only does the lack of a financial security net for this group leave it vulnerable to a number of exigencies, it also increases the likelihood of inter-generational continuity of debt and a higher fiscal burden for the government of the day. Given these factors, the presence of a sound, efficient and reliable pension system is indispensable to the economy. Further some parts of the elder population, by virtue of their socio-economic standing, levels of education and financial sophistication are likely to be hit harder by ageing, and may therefore require targeted intervention for adequate protection. 

The Pension Fund Regulatory and Development Authority of India (PFRDA), set up in 2003, is responsible for establishing, developing and regulating pension funds in India. 

This Report has undertaken a study of the PFRDA Act and some of the key regulations under it, and suggested reforms wherever appropriate. Some of the important reforms surveyed are in the areas of redressal of subscriber grievances, regulations with respect to aggregators and points of presence, as well as the NPS Trust Regulations.

 International experience in this field, such as the pension systems in United Kingdom, Australia, Chile, Canada and New Zealand have also been surveyed to highlight best practices in this regard. 

This Report also points to prevailing gaps in the regulation of micro-pensions and the treatment of distressed pension funds. Both of these are critical, and this Report makes the case for detailed discussions on them. 

Lastly, this Report examines the Atal Pension Yojana, a PFRDA scheme targeted solely towards the unorganised sector. Having identified some unique concerns for this sector (which comprises of the majority of the workforce), this Report suggests some measures to tackle the same.

Download the full report Securing our Future: Analysing the Regulatory Framework for Pensions in India

Report on Systematizing Fairplay - Key Issues in the Indian Competition Law Regime

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Since the enactment of the Competition Act in 2002, the business milieu has changed considerably globally and in India. More and more businesses are now being run in the virtual world and newer models of business exist now which would have been inconceivable a decade ago. Given the intertwined relationship of competition law and the markets, in order for the law to remain relevant, it is imperative that it develops in line with market realities and revamps from time to time.

Almost 15 years have elapsed since the inception of the Competition Act and it is now an opportune time to take stock of its performance and devise a workable way forward. In this Report, we therefore, identify key structural and procedural issues in the Indian competition law framework and discuss relevant experiences from the European Union and Singapore, to understand how similar concerns are addressed by their regulatory frameworks. Drawing from these practices, we provide key recommendations to deal with these concerns in the Indian context. As India gears up to meet the challenges posed by a buoyant economy, it needs to cure these anomalies in its competition law framework to be able to fully reap the benefits of a thriving market based economy.

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Regulation Of Credit Rating Agencies In India

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Credit Rating Agencies form an essential part of the financial markets. SEBI has regulated them since 1999. However, in the years following the financial crisis, specific concerns have been raised regarding their regulation globally, as well as in India.

This report highlights the concerns regarding the regulation of credit rating agencies in India, examines the solutions adopted by regulators in other jurisdictions, and makes recommendations to strengthen the regulatory framework in India.

Download the full report-Regulation Of Credit Rating Agencies In India