Public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty, the International Monetary Fund said on Wednesday.
In a new research paper, the IMF said that tackling corruption is critical for the achievement of macroeconomic stability, one of the institution´s core mandates.
The Fund argues that strategies to fight corruption require transparency, a clear legal framework, a credible threat of prosecution and a strong drive to deregulate economies.
“While the direct economic costs of corruption are well known, the indirect costs may be even more substantial and debilitating,” IMF Managing Director Christine Lagarde wrote in an essay accompanying the paper. “Corruption also has a broader corrosive impact on society.
It undermines trust in government and erodes the ethical standards of private citizens,” Lagarde added.
The paper, titled “Corruption: Costs and Mitigating Strategies,” follows Lagarde´s warning to Ukraine in February that the IMF would halt its $17.5-billion bailout for the strife-torn eastern European country unless it takes stronger action to fight corruption, including new governance reforms.
Lagarde is due to participate in a British government-sponsored anti-corruption summit in London on Thursday that will include U.S. Secretary of State John Kerry and other senior officials including the presidents of Nigeria and Afghanistan.
Extrapolating from 2005 World Bank research, the paper estimated that around 2 percent of global gross domestic product is now paid in bribes annually.
But it said corruption´s indirect costs are substantially higher, reducing government revenues by encouraging tax evasion and reducing incentives to pay taxes, leaving less money available for public investments in infrastructure, health care and education.
EMC is offering its services to the central and state governments, according to senior officials of the company.
The world’s largest IT storage company is in the race for developing smart cities in India, offering their services to the central and state governments, according to senior officials of the company.
“We have already completed a health project for a state government to make hospitals smart and to provide real time information to the government for taking appropriate decision,” Rajesh Janey, President, EMC India and Saarc, told visiting Indian journalists to the EMC world annual conference here.
The project was done for Telengana, the newest state in India. “We are talking to the central governments as well as state authorities to offer the hardware and software to make cities smart,” Janey said.
The Narendra Modi government had announced an initiative to develop 100 smart cities in India, with initial funds of Rs.7,000 crore being allocated for the project by the central government, though very little was actually spent. The project would be implemented by state governments or city councils.
EMC and Dell had announced a $67 billion merger in October, making it the largest tech marriage in history. The EMC World conference at the casino capital of the world was told by Michael Dell, Chairman and CEO of Dell, on Monday that the merged entity would be called Dell Technologies while the enterprise company would be named Dell-EMC.
The merger is awaiting some regulatory approvals and is likely to be completed between June and October, according to the team set up to work out the logistics of two tech giants coming together.
EMC has over 5,000 employees in India, largely in the engineering section, with offices in Bengaluru, Hyderbad, Delhi NCR and some tier-two towns. It provides storage hardware and software to companies and did about $350 million (Rs.2,400 crore) business last year. The $25 billion EMC employs around 70,000 employees globally.
EMC has set up a division on smart cities, whereby they are offering services for collating all data from health services, traffic, police, power infrastructure, municipalities, weather division, transport and government services collating all data from health services, traffic, police, power infrastructure, municipalities, weather division, transport and government services collating data and bringing forth significant information which needed decisions. Also, the interface with citizens and those who seek services would become much easier, officials say.
According to Rob Silverberg, Director and Chief Technology Officer, Enterprise Application Architecture for State, Local Government and Education at EMC California, the company is focusing on smart cities because it’s the world of future.
“We are talking to several cities and towns across the US to adopt what we have to offer,” said Silverberg, adding it would help city officials do their job more effectively and efficiently. He said the Indian section of EMC was following up on the smart cities in India. EMC is competing in smart cities business in the US and other countries with IBM.
Silverberg said that already a huge amount of data was being collected every day and every minute whether in crime tackling, traffic regulation or policing and other activities. “The data has to be stored and made intelligible for everyone so that right decisions are made fast.”
Silverberg said the EMC smart cities project could even help track crimes and prepare evidence for courts whether it’s through video monitoring data already been collected across the country or other methods. “Essential everything is data, and we are the experts who can help store and make sense of it,” he said.
According to Janey, the basic modules which the global company is now projecting to cities in various parts of the world, including Dubai, was made in Bengaluru by Indian software engineers. Janey said that EMC International had thrown up demand and the engineers in India came up with an effective solution which was adopted by the multinational.
The country’s e-commerce sector is expected to see revenues of USD 120 billion by 2020 from USD 30 billion at the end of last fiscal, a report said.
The increase would be mainly on the back of young demographic profile, rising Internet penetration and relatively better economic performance, the Assocham-Forrester study said.
India’s e-commerce sector saw revenues of USD 30 billion at the end of the financial year 2015-16. It is expected to reach USD 120 billion by 2020, it said.
“While in terms of base, India may be lower than China and other giants like Japan, the Indian rate of growth is way ahead of others. Against India’s annual expansion of 51 per cent, China’s e-commerce is growing at 18 per cent, Japan 11 per cent and South Korea 10 per cent,” the study noted.
The report further said that India has an Internet user base of 400 million in 2016 whereas Brazil has 210 million Internet users and Russia 130 million, among the BRICS nations.
About 75 per cent of the country’s online users are in the age group of 15-34 years since India is one of the youngest demographies globally and one out of every 5 (online user) visits the Indian Railways site, the report said.
In India, about 60-65 per cent of the total e-commerce sales are being generated through smart phones. Branded apparel, accessories, jewellery, gifts, footwear are among the major hits on the e-commerce platforms, it added.
The RBI’s move to regulate the peer-to-peer (P2P) lending business has evoked good response with most participants saying that it could provide greater confidence to lenders and borrowers, as also to venture capitalists. The space has some 35 startups now and more than 20 of them were founded just last year, according to data from startup tracking platform Tracxn. They have collectively attracted only $7.5 million in venture funds, and the ones that have received the most funds include Faircent, Milaap, iLend, RangDe, LendenClub and LoanCircle.
“VCs have so far shied away from the industry due to lack of recognition and regulation of the segment,” says IDG Ventures partner Karan Mohla, adding that the proposed regulation will help the sector grow the way microfinance did.
P2P lending typically involves a technology platform that brings together borrowers and lenders, often individuals. The borrower can place his/her requirements, and lenders can bid to service that borrower. Normally, the platforms insist on more than one lender servicing a single borrowing requirement to reduce risks. The interest rate may be set by the platform or by mutual agreement between the borrower and lender, or through an auction where lenders place bids. The platform does a preliminary assessment of the borrower’s creditworthiness, and they also collect the loan repayments. Over time, the platforms could automatically develop creditworthiness scores. Borrowers and lenders both pay a fee to the platform for these services. The average interest rates on these platforms tend to be high at 20% and the loan amount is an average of around Rs 1 lakh. Most borrowers are self-employed or those with salaries above Rs 6 lakh per annum. Most platforms charge around 2.5% of the loan amount as commission, from both parties.
The RBI is looking at factors such as what should constitute P2P lending, the legal framework, whether to set a maximum interest rate, and how to differentiate it with crowd-funding. It is, for now, looking to categorize them as non-banking financial companies (NBFCs).
“The potential benefits that P2P lending promises to various stakeholders (to borrowers, lenders, agencies, etc) and its associated risks to the financial system are too important to be ignored,” says the RBI consultation paper. The UK-based Peer-to-Peer Finance Association (P2PFA) estimates that lending through the channel globally has grown dramatically from 0.2 billion pounds in the first quarter of 2012 to 5.1 billion pounds in the first quarter of 2016.
Apoorv Sharma, founder of Venture Catalyst and an investor in LenDen, says P2P in India is still in its early stages but the government’s involvement could drive rapid growth.
Faircent, one of the largest platforms in the country, believes that the new norms will accelerate the growth in the sector – similar to how RBI regulations helped the e-wallet sector. The company has raised funding from Aarin Capital, M & S Partners and others. It has disbursed more than Rs 4.5 crore to beneficiaries so far and it is looking at loans of more than Rs 60 crore this fiscal.
Abhishek Periwal, founder of P2P platform KountMoney, said that regular banking channels don’t cater to lots of self-employed people. “P2P lending platforms come into play here, as they are faster than banks and NBFCs,” he said. Bhavin Patel, founder of LenDen Club, which started in 2015, believes the RBI regulation will be a confidence booster but has reservations about the regulator’s proposal that payment should happen directly between the borrower and the lender and that P2P platforms should have brick-and-mortar offices. He thinks the former will make monitoring and control difficult, and the latter is unnecessary. “A lot of our plans have been put on hold due to these uncertainties,” said Patel, whose platform has more than 2,000 borrowers and 900 lenders.
A company list showing the Mossack Fonseca law firm is pictured on a sign at the Arango Orillac Building in Panama City in this April 3, 2016 file photo. REUTERS/Carlos Jasso/Files
The Obama administration is issuing a long-delayed rule requiring the financial industry to identify the real owners of companies and proposing a bill that would require companies to report the identities of their owners to the federal government, U.S. officials said on Thursday.
The Customer Due Diligence (CDD) rule, in the works since 2012, and the proposed legislation are meant to hinder criminals from using shell companies to hide ownership and launder money, finance terror, and commit other threats to the global financial system.
The use of shell companies to hide assets and avoid taxes is in the spotlight following a massive leak of data from the Panama-based law firm Mossack Fonseca, which embarrassed several world leaders and sparked government investigations around the globe into possible financial wrongdoing by the wealthy elite. The International Consortium of Investigative Journalists said it will release a searchable database of more than 200,000 offshore entities next week.
“Fundamentally our financial system should not provide the rich, the powerful, and the corrupt with the opportunity to shield their assets,” said Wally Adeyemo, the U.S. deputy national security advisor for international economics, in a call with reporters on Thursday. “Nobody should be able to hide in the shadows from their legal obligations.”
The final CDD rule will require banks, brokers, mutual funds and other financial institutions to collect and verify the identities of the real people, or “beneficial owners,” who own and control companies when those companies open accounts.
Financial institutions will have to verify the identity of any person or company who owns more than 25 percent of the company, and one live person who controls the company even if that person owns less than 25 percent.
Banks will have two years to get their systems into compliance, said Jennifer Fowler, the U.S. Treasury deputy assistant secretary for terrorist financing.
The U.S. Treasury said in 2012 it planned to propose a rule that would clarify and standardize financial institutions’ obligations to know the identities of their customers.
But the proposal generated opposition from the financial industry, which argued it would be costly, ineffective, and difficult to implement because the United States lacks a national database of corporate information.
To address one of those industry concerns, Treasury will propose legislation requiring companies to report to the Treasury the identity of beneficial owners when a company is incorporated. The legislation would create a central registry of beneficial ownership, something the U.S. currently does not have, Fowler said.
U.S. secretaries of state have lobbied against similar legislative action in the past, arguing that the Internal Revenue Service already has corporate ownership records that it could make available to law enforcement.
Adeyemo said the Obama administration had been “consulting actively” with secretaries of state. “This is a place where we need Congress to act,” he said.
Taken together, the measures would make the financial system more transparent and close loopholes that allow for abuse or illegal activity, officials said.
More than 1,000 prosecutions are brought each year in the United States for money laundering, Fowler said. “This is a record that no one in the world can match.”
But, she added, “there are vulnerabilities that we need to address in order to maintain an effective regime.”
The Treasury is also proposing a regulation that would increase requirements for some foreign-owned companies operating in the United States to report information to the government, which officials said would prevent the use of those companies for tax avoidance purposes.
In addition, the Justice Department is proposing amendments that would strengthen its ability to pursue foreign corruption cases, including issuing subpoenas for records in money laundering investigations, obtaining overseas records, and using classified information in civil cases.
According to IMF, China and India have grown rapidly and reduced poverty sharply, however, this impressive economic performance has been accompanied by increasing levels of inequality.
Financial inequality is highest in India and China among Asia Pacific countries despite the two being among the fastest growing economies, IMF has said.
According to the International Monetary Fund, China and India have grown rapidly and reduced poverty sharply, however, this impressive economic performance has been accompanied by increasing levels of inequality.
“In the past, rapid growth in Asia came with equitable distribution of the gains. But more recently, while the fast-growing Asian economies have lifted millions out of poverty they have been unable to replicate the ‘growth with equity’ miracle,” the Fund said.
As per the report, China managed to increase middle class in urban areas, as did Thailand, while India and Indonesia struggled to lift sizeable portions of their populations toward higher income levels.
“In India, differences between rural and urban areas have increased, and have been accompanied by rising intra-urban inequality,” it said.
Many factors have been identified as key drivers of the inequality between rural and urban areas in China and India.
In China, rapid industrialisation in particular regions and the concentration of foreign direct investment in coastal areas have led to substantial inequalities between coastal and interior regions. Other factors also include low educational attainment and low returns to education in rural areas.
On India, the report said inter provincial inequality is lower in India than in China, and rising inequality in India has been found to be primarily an urban phenomenon.
Moreover, the rural-urban income gap has increased, and higher rural inflation has been found to be a key driver of this. Educational attainment has also been identified as an important factor explaining rising inequality in India over the past two decades, the Fund said.
The two countries have introduced a number of policies to tackle the rising inequality.
China introduced the Minimum Livelihood Guarantee Scheme (Dibao) for social protection in the 1990s. Moreover, various social programs are aiming to expand social safety nets and provide support for the development of rural areas and western regions.
In India, the government introduced the Mahatma Gandhi National Rural Employment Guarantee Act to support rural livelihoods by providing at least 100 days of employment. Programs to improve education include the National Education Scheme and Midday Meal Scheme.
The Fund lauded the JAM (Jan Dhan-Aadhaar-Mobile) initiative and said that “the JAM trinity initiative helped India in making substantial advances in financial inclusion. More recently, programs aiming for universal bank account coverage were launched”.
Insurance regulator IRDAI has approved as many as 16 proposals amounting to Rs 14,591.9 crore as foreign investment, Parliament was informed today.
“Post notification of the Insurance Laws (Amendment) Act, 2015, Irdai has approved 16 proposals amounting to Rs 14,591.89 crore as foreign investment in the insurance sector,” Minister of State for Finance Jayant Sinha said in a written reply in the Rajya Sabha.
The Insurance Laws (Amendment) Act, 2015, provides for an increase of foreign investment cap in an Indian insurance company to 49 per cent from 26 per cent with the safeguard of Indian ownership and control, he said.
The government had notified the Indian Insurance Companies (Foreign Investment) Rules, 2015, to facilitate foreign investment in the insurance sector.
“Indian Insurance Companies (Foreign Investment) Rules, 2015, have been amended on March 16, 2016, to allow foreign investment up to 49 per cent through automatic route in the insurance sector,” Sinha said.
To bring clarity on ‘Indian owned and controlled’, the Insurance Regulatory and Development Authority of India (Irdai) has issued guidelines on the same.
In December, Irdai chief T S Vijayan had said higher foreign participation in the insurance sector will attract more capital and increase sectoral penetration in India.
Public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty, the International Monetary Fund said on Wednesday.
