Applications for the LAMP Fellowship 2025-26 will open soon. Sign up here to be notified when the dates are announced.
Yesterday, the BJP announced its candidate for the upcoming election of the President, which is scheduled to be held on July 17. In light of this, we take a look at the manner in which the election to the office of the President is conducted, given his role and relevance in the Constitutional framework.
In his report to the Constituent Assembly, Jawaharlal Nehru had explained, “we did not want to make the President a mere figurehead like the French President. We did not give him any real power but we have made his position one of great authority and dignity.” His comment sums up the role of the President as intended by our Constitution framers. The Constituent Assembly was clear to emphasise that real executive power would be exercised by the government elected directly by citizens. It is for this reason that, in performing his duties, the President functions on the aid and advise of the government.
However, it is also the President who is regarded as the Head of the State, and takes the oath to ‘protect and defend the Constitution and law’ (Article 60 of the Constitution). In order to elect a figure head who would embody the higher ideals and values of the Constitution, the Constituent Assembly decided upon an indirect method for the election of the President.
The President is elected by an Electoral College. While deciding on who would make up the electoral college, the Constituent Assembly had debated several ideas. Dr. B.R Ambedkar noted that the powers of the President extend both to the administration of the centre as well as to that of the states. Hence, in the election of the President, not only should Members of Parliament (MPs) play a part, but Members of the state legislative assemblies (MLAs) should also have a voice. Further, in relation to the centre, some members suggested that the college should comprise only members of the Lok Sabha since they are directly elected by the people. However, others argued that members of Rajya Sabha must be included as well since they are elected by members of directly elected state assemblies. Consequently, the Electoral College comprises all 776 MPs from both houses, and 4120 MLAs from all states. Note that MLCs of states with legislative councils are not part of the Electoral College.
Another aspect that was discussed by the Constituent Assembly was that of the balance of representation between the centre and the states in the Electoral College. The questions of how the votes of MPs and MLAs should be regarded, and if there should be a consideration of weightage of votes were raised. Eventually, it was decided that a ‘system of Proportional Representation’ would be adopted, and voting would be conducted according to the ‘single transferable vote system’.
Under the system of proportional representation, the total weightage of all MLA votes equals the total value of that of the MPs. However, the weightage of the votes of the MLAs varies on the basis of the population of their respective states. For example, the vote of an MLA from Uttar Pradesh would be given higher weightage than the vote of an MLA from a less populous state like Sikkim.
Under the single transferable vote system, every voter has one vote and can mark preferences against contesting candidates. To win the election, candidates need to secure a certain quota of votes. A detailed explanation of how this system plays out is captured in the infographic below.
Sources: Constitution of India; ECI Handbook; PRS.
Coming to the Presidential election to be held next month, the quota of votes required to be secured by the winning candidate is 5,49,452 votes. The distribution of the vote-share of various political parties as per their strength in Parliament and state assemblies looks like this:
Note that the last date for filing nominations is June 28th. In the next few days, political parties will be working across party lines to build consensus and secure the required votes for their projected candidates.
[The infographic on the process of elections was created by Jagriti Arora, currently an Intern at PRS.]
The increasing Non-Performing Assets (NPAs) in the Indian banking sector has recently been the subject of much discussion and scrutiny. Yesterday, the Supreme Court struck down a circular dated February 12, 2018 issued by the Reserve Bank of India (RBI). The RBI circular laid down a revised framework for the resolution of stressed assets. In this blog, we examine the extent of NPAs in India, and recent events leading up to the Supreme Court judgement.
What is the extent and effect of the NPA problem in India?
Banks give loans and advances to borrowers. Based on the performance of the loan, it may be categorised as: (i) a standard asset (a loan where the borrower is making regular repayments), or (ii) a non-performing asset. NPAs are loans and advances where the borrower has stopped making interest or principal repayments for over 90 days.
As of 2018, the total NPAs in the economy stand at Rs 9.6 lakh crore. About 88% of these NPAs are from loans and advances of public sector banks. Banks are required to lend a certain percentage of their loans to priority sectors. These sectors are identified by the RBI and include agriculture, housing, education and small scale industries.[1] In 2018, of the total NPAs, 22% were from priority sector loans, and 78% were from non-priority sector loans.
In the last few years, gross NPAs of banks (as a percentage of total loans) have increased from 2.3% of total loans in 2008 to 9.3% in 2017 (see Figure 1). This indicates that an increasing proportion of a bank’s assets have ceased to generate income for the bank, lowering the bank’s profitability and its ability to grant further credit.
|
Figure 1: Gross NPAs (% of total loans)
|
|
Source: Reserve Bank of India; PRS |
What has been done to address the problem of growing NPAs?
The measures taken to resolve and prevent NPAs can broadly be classified into two kinds – first, remedial measures for banks prescribed by the RBI for internal restructuring of stressed assets, and second, legislative means of resolving NPAs under various laws (like the Insolvency and Bankruptcy Code, 2016).
Remedial Measures
Over the years, the RBI has issued various guidelines for banks aimed at the resolution of stressed assets in the economy. These included introduction of certain schemes such as: (i) Strategic Debt Restructuring (which allowed banks to change the management of the defaulting company), and (ii) Joint Lenders’ Forum (where lenders evolved a resolution plan and voted on its implementation). A summary of the various schemes implemented by the RBI is provided in Table 1.
|
Table 1: Non-legislative loan recovery framework
Sources: RBI scheme guidelines; Economic Survey 2016-17; PRS. |
Legislative Measures
In June 2017, an internal advisory committee of RBI identified 500 defaulters with the highest value of NPAs.[8] The committee recommended that 12 largest non-performing accounts, each with outstanding amounts greater than Rs 5,000 crore and totalling 25% of the NPAs of the economy, be referred for resolution under the IBC immediately. Proceedings against the 12 largest defaulters have been initiated under the IBC.
What was the February 12 circular issued by the RBI?
Subsequent to the enactment of the IBC, the RBI put in place a framework for restructuring of stressed assets of over Rs 2,000 crore on or after March 1, 2018. The resolution plan for such restructuring must be unanimously approved by all lenders and implemented within 180 days from the date of the first default. If the plan is not implemented within the stipulated time period, the stressed assets are required to be referred to the NCLT under IBC within 15 days. Further, the framework introduced a provision for early identification and categorisation of stressed assets before they are classified as NPAs.
On what grounds was the RBI circular challenged?
Borrowers whose loans were tagged as NPAs before the release of the circular recently crossed the 180-day deadline for internal resolution by banks. Some of these borrowers, including various power producers and sugar mills, had appealed against the RBI circular in various High Courts. A two-judge bench of the Allahabad High Court ruled in favour of the RBI’s powers to issue these guidelines, and refused to grant interim relief to power producers from being taken to the NCLT for bankruptcy. These batch of petitions against the circular were transferred to the Supreme Court, which issued an order in September 2018 to maintain status quo on the same.
What did the Supreme Court order?
The Court held the circular issued by RBI was outside the scope of the power given to it under Article 35AA of the Banking Regulation (Amendment) Act, 2017. The Court reasoned that Section 35AA was proposed by the 2017 Act to authorise the RBI to issues directions only in relation to specific cases of default by specific debtors. It held that the RBI circular issued directions in relation to debtors in general and this was outside their scope of power. The court also held that consequently all IBC proceedings initiated under the RBI circular are quashed.
During the proceedings, various companies argued that the RBI circular applies to all corporate debtors alike, without looking into each individual’s sectors problems and attempting to solve them. For instance, several power companies provided sector specific reasons for delay in payment of bank dues. The reasons included: (i) cancellation of coal blocks by the SC leading to non-availability of fuel, (ii) lack of enough power purchase agreements by states, (iii) non-payment of dues by DISCOMs, and (iv) delays in project implementation leading to cost overruns. Note that, in its 40th report, the Parliamentary Standing Committee on Energy analysed the impact of the RBI circular on the power sector and noted that the ‘one size fits all’ approach of the RBI is erroneous.
[1] ‘Priority Sector Lending – Targets and Classification’ Reserve Bank of India, July 2012, https://rbi.org.in/scripts/NotificationUser.aspx?Id=7460&Mode=0.
[2] Revised Guidelines on Corporate Debt Restructuring Mechanism, Reserve Bank of India, https://www.rbi.org.in/upload/notification/pdfs/67158.pdf.
[3] ‘Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)’, Reserve Bank of India, February 26, 2016, https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8754&Mode=0.
[4] Timelines for Stressed Assets, Press Release, Reserve Bank of India, May 5, 2017, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10957&Mode=0.
[5] Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries, RBI, July 15, 2014, https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9101&Mode=0.
[6] Chapter 4, The Economic Survey 2016-17, http://unionbudget.nic.in/es2016-17/echap04.pdf.
[7] ‘RBI introduces a ‘Scheme for Sustainable Structuring of Stressed Assets’’ Press Release, Reserve Bank of India, June 13, 2016, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=37210.
[8] RBI identifies Accounts for Reference by Banks under the Insolvency and Bankruptcy Code (IBC), Reserve Bank of India, June 13, 2017, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=40743
