Book Reviews
A Sensitive Writer’s Concern with the Environment
To Amitav Ghosh, climate change is intensely personal and his own sudden experience of it has been so inexplicable that he hesitates to use it in his fictional writings, for fear of melodrama. Even now, while writing this work, he says, we are in enough self-denial and that The Great Derangement could only be written as non-fiction and may not have found acceptance as fiction.
His first personal experience was of an extreme weather event: a short, intensely devastating storm in which he could have been killed had he been in a slightly different place. It left him with a feeling of unreality. Although such an experience should have served him well as inspiration in his novels, the truth was too sensational for use in a modern novel with its need for realism. 
 

There is an increasing number of such, apparently stand-alone, events all over the world. There is a great reluctance to acknowledge that they are a direct result of our own activities and our extreme, sometimes misplaced, efforts to control our own environment. These efforts, he says, while providing a sense of control to humans for the first time in history, are, paradoxically, irreversibly changing the established processes on which we unconsciously depend for stability. Our environment is more uncontrollable than ever.
 
This book is an explanation of the collective sense of nonchalance with which people view climate change. It reflects how changes in fictional writing parallel people’s attitudes to real-life events and their need to control their own reality.
 
Ancient stories used uncertainty and melodrama to bring excitement. Classics, such as the Arabian Nights, used highly improbable events to tell stories which would capture the imagination. Non-human agencies, such as wild animals and extreme weather events, provide the unexpected and unpredictable twists and turns that fuel these melodramatic events. 
 
Non-human agents in novels are, often, based on ancient knowledge of real events. From Ghosh’s ancestral experience of life on the river banks, he tells the story of a forced migration due to changes in established patterns of a mighty river. His knowledge of the Sunderbans, a dense mangrove forest in Bengal, points to the intertwined fact and mythology of man-eating tigers: tragic and unpredictable events impacting nearly every family, which live on, in the tales of the region and in 19th century literature. The reference to the eyes of the tiger meeting the eyes of the human as it was about to attack, and the close bonding of the souls of attacker and attacked, tells of the inextricable nature of human life with its natural surroundings. 
 
In ancient times, he argues, man accepted that there were events and agencies beyond his control. He struggled to make sense of uncontrollable circumstances through story-telling of wildly improbable events, often founded on uncontrollable facts. The word ‘uncanny’ represents the meeting of unpredictable event and uncontrollable consequences. 
 
In the 19th and 20th centuries, however, humans began to assume greater control of their environment through rapidly escalating access to technology. Popular literature reflected changed attitudes by changing the acceptable form of the modern novel to reflect a highly controlled reality. For the first time, writings containing uncontrollable or less understood events were classified into genres such as fantasy, science fiction and Gothic novels. They were kept away from mainstream ‘serious’ literature.   
 
This change in literature reflected an important change in human consciousness and attitudes to our surroundings. Our own destructive behaviour contributes to more unpredictable events than ever before; this is illustrated in several different ways. Traditional settlements, away from the reach of powerful water bodies with unpredictable temperaments, have given way to settlements closer to the water’s edge in most major cities, assuming greater control of the forces of nature. Ghosh narrates examples of early miscalculations in building infrastructure in unsuitable locations such as a now-abandoned port in Bengal and recent extreme weather events in cities like New York and Mumbai. He also links the human aspiration to control Nature to the disastrous siting of the Fukushima nuclear plant in a vulnerable location. Such a location would have been barred by traditional knowledge of weather events such as tsunamis. 
 
These well-known examples indicate the tenacity of our need to assume control and inclination to see each such event as one-off. Ghosh reflects on the reluctance of human beings to acknowledge their own complicity in bringing about climate change events by escalating their attempts to control, while moving further on the path of danger. 
 
This leads directly to a change in our acknowledgement of the power of extra-human agencies to impact daily life. Melodrama in novels is complemented by the avoidance of melodrama in daily life and ‘extreme’ weather events are seen as something to be controlled or denied.
 
 
It is ironical, argues Ghosh, that the very control which humans are exerting over their environment, is leading us towards more uncontrollable extreme weather events and loss of communication with wild animals and forests. A greater need to exert control and denial of the out-of-control behaviour leads to a collective denial of climate change to the extent where even fictional writing blacks it out, in spite of increasing evidence of its reality and impact.
 
This is a very important book, bringing climate change into the writings of one of our most popular fiction authors. While acknowledging the impediments to integrating these concepts into his past fictional works, the author has indicated his wish to use it in his future fiction as a backdrop to the recent human experience of denied calamity and the continuing impact of non-human agencies. The settings of calamity in several locations of the world, especially India, provide ample backdrop for the stories of people impacted by these calamities. The Great Derangement indicates a change in Ghosh’s writings to include the reality of seemingly unreal events brought about by climate change. The present work is of immense value to bring the reality of climate change into the mainstream of human consciousness.

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COMMENTS

Laxmi Lobo

9 months ago

An excellent review. Thanks for the insights.

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RBI proposes big changes for the bond market
In a bid to deepen the corporate bond market in India, a report of the Working Group on Development of Corporate Bond Market in India was released by the Reserve Bank of India (RBI) on 18 August 2016. It suggested standardisation of corporate bond issuance by allowing investments by foreign portfolio investors, creation of a bond index, encouraging corporates to tap the market among other recommendations.
 
The Working Group has recommended total 29 amendments in order to deepen the regime of corporate bond market in India. Recommendations include allowing investment by Foreign Portfolio Investors (FPIs) in certain non-permitted segments; allowing reissuance of bonds through same International Securities Identification Number (ISIN); extending electronic book mechanism (EBM) to all issuances; following uniform method of valuation and creation of centralised database. Let us discuss these recommendations separately.
 
Reissuance and exemption of stamp duty
 
The primary market has seen a surge in corporate bonds in India, but trading in secondary market has lacked volume. One such attributable reason is non-availability of sufficient floating stock for each ISIN as corporates have preferred for fresh issuances rather than reissuing of bonds. As new issue comes with new ISIN, older ones become illiquid. 
 
To augment market liquidity, it is recommended to encourage corporates to reissuance bonds under the same ISIN by consolidating various issues into one large issue. Though this may result in mismatch of assets and liabilities, it can be resolved can by spreading out the redemption amount across the year through amortising the payments. This could also help in reducing the cost of borrowing. 
 
SEBI has allowed reissuance of bonds. It is observed that the issuers of debt securities do not undertake re-issuances due to stamp duty and the bunching of repayment liabilities. The group recommended that reissuance not be treated as fresh issuance of bonds for the purpose of stamp duty. 
 
Allowing FPIs to invest in unlisted and pass through securities
 
Currently, in the bond market, FPIs are only allowed to invest in unlisted non-convertible debentures and bonds issued by infrastructure companies and in listed or to be listed debt securities. To attract more foreign funds into markets, the Union Budget envisaged FPIs to invest in unlisted debt securities as well as in securitised debt instruments i.e. pass through securities issued by special purpose vehicles (SPVs) or special purpose distinct entity (SPDEs). 
 
It is therefore, recommended to introduce necessary amendments, by August 2016, in FEMA Regulations allowing investments by FPIs in unlisted debt securities and pass through securities issued by SPVs and SPDEs. 
 
Another recommendation is to permit FPIs to transact in corporate bonds both in the  over-the-counter (OTC) segment and in the request for quote platform of a recognized stock exchange, subject to certain restrictions. This move is sought enable FPIs to trade directly on electronic trading platforms and thereby help in enhancing liquidity in the bond market.
 
Market Making 
 
The liquidity and the frequency of transactions in India are very low. One method to make the market liquid is by way of introducing a market making scheme. Market making can help the issuer to improve the market liquidity and also provide the investors to the option of entry and exit in the market. SEBI, though had allowed stock exchanges to introduce the market making scheme, stock exchanges are yet to come up with the mechanism. 
 
The Group therefore recommends stock exchanges to operationalize market making scheme in consultation with SEBI. For this, banks and primary dealers may be allowed to act as market makers upon developing an appropriate risk management framework
 
EBM for all
 
The debt market in India is dominated by bringing issue by way of private placements. The percentage is as high as 90%. Many market participants have indicated that private placements lack transparency and access is not available to a large pool of investors. The Union Budget 2016-17 announced that SEBI may operationalise electronic auction platforms to facilitate transparent private placements. 
 
In this regard, guidelines have been issued by SEBI on 21 April 2016, which enable introduction of EBM by the stock exchanges and mandate that all private placements of debt securities in primary market with an issue size of Rs500 crore and above, inclusive of green shoe option, if any, should be through such a mechanism. Such EBMs have been operationalized by the Stock Exchanges. Bonds with issue size of less than Rs500 crore, are required to disclose the coupon, yield, amount raised, number and category of investors to the electronic book provider and or to the information repository for corporate debt market. 
 
With the margin of private placement being as high as 90%, the working group is of the recommendation that EBM shall be made compulsory to all issuances of corporate bonds, but only after reviewing the success of the EBM for the existing issues and market feedback. 
 
Uniform valuation norms
 
Currently, RBI and Insurance Regulatory and Development Authority of India (IRDAI) have advised the entities under their ambit to follow the valuation norms issued by Fixed Income Money Market and Derivatives Association of India (FIMMDA), a quasi-self-regulated organisation. Mutual funds follow valuation norms as advised by credit rating agencies (CRAs). In addition, mutual funds require daily valuations as they have an obligation to publish net asset value of their schemes on a daily basis, but FIMMDA norms for valuation of corporate bonds are calculated on a monthly basis. Therefore, use of different norms has led to adverse effect on the market to some extent. 
 
Therefore, it is recommended to follow or establish a uniform valuation methodology available on a daily basis by the regulated entities for valuation of their holdings of corporate bonds. The working group, therefore, advised regulators to explore a mechanism for valuation including engaging the Financial Benchmarks India Pvt Ltd (FBIL) or credit rating agencies for the same with necessary safeguards and regulatory oversight. 
 
Disclosure norms for CRAs and Banks 
 
At present, CRAs are required to disclose the movements of credit rating of all outstanding securities on their websites on half-yearly basis. Market participants have, however, expressed the view that the level of compliance by the CRAs in adhering to these regulatory requirements is not high. Currently, banks furnish loan overdue information to credit information companies (CICs) on monthly basis. Also, CRAs are not eligible to access the information on bank lending to large borrowers under stress from CICs for the purpose of determining the ratings for corporates. 
 
The working group, therefore, recommended CRAs to publish the credit rating transition matrix more frequently. Also, CRAs may take up membership of CICs to access relevant credit information. The working group also opined that RBI may consider whether CRAs may be allowed access to Central Repository of Information on large credits. 
 
Integrated Trade Repository 
 
A central repository and database enables investors to get complete information about corporate debt market at one place. Such database will enhance transparency in the market and enable investors to take an informed decision. Though, NSDL and CDSL have created a database for the primary market there is, however, a need to have an integrated trade repository (TR) and database so that the information of both primary and secondary markets, such as, issue wise outstanding size, rating, shut period, price, volume of secondary market trades, rating migration, etc. are available at one place. Accordingly, an announcement for introduction of an Integrated TR for primary and secondary market in corporate bond market has been made in the Union Budget 2016-17. 
 
Therefore, it is recommended for introducing a centralized database for corporate bonds covering both primary and secondary market segments in two phases, for secondary market trades by end August 2016 and for both primary and secondary market by end October 2016. 
 
Index for corporate bond market
 
There is a strong need of bond market index in order to cater to the needs of participants who want a platform to act as a benchmark. In view of the same, the working report recommends Stock Exchanges to introduce a corporate bond index on the lines of Nifty 50 and BSE Sensex. 
 
Augmenting partial credit enhancement (PCE) limit on bonds
 
RBI Guidelines on PCE of Indian Rupee bonds issued by infrastructure companies restricts the extent of PCE provided by banks to 20% of the bond issue size. For investors desiring a minimum of AA rating on bond, the current PCE seems inadequate to raise ratings for bonds. In order to encourage corporates to avail of this facility, especially by infrastructure companies, during the initial phase the upper limit for PCE by the banking system as a whole may be enhanced to a higher limit with no single bank having exposure of more than 20 per cent. It is also felt that the capital required to be maintained by banks because of PCE should be lower if the base rating of the project improves. This would incentivise banks to provide PCEs on projects, which are expected to perform better with passage of time.
 
It was therefore, recommended for RBI, by August 2016, to enhance the upper limit for PCE to a higher limit with no single bank having exposure of more than 20 per cent of the bond issue size by end August 2016. In addition, it was recommended to formulate a separate regulatory framework for providing credit enhancement of corporate bonds by NBFCs engaged in such activities to help bolster bond ratings that can attract investors. 
 
Electronic trading platform
 
SEBI has prescribed norms for electronic trading platform (screen based trading) in place for trading of bonds; but only 15 of such bonds are available for trading. The reason for such low volume can be attributed to high penalty for short delivery of bonds (currently, 5% of default amount) given the volatility in bonds. 
 
To encourage market participants to start trading on such platforms, the risk management practices of the clearing houses shall be reviewed and a mechanism similar to equity market where the entity involved in delivery failure is given a time period to cover from the market and failing which some penalty is imposed shall be considered. 
 
Encouraging bond financing rather than bank financing
 
In many of the developed countries bonds are issued without creation of security interest, subject to certain compliances, to enable easy of raising of funds by the corporates. However, bank borrowing has been a popular source of funding in India. The reason behind this can be prevalence of the cash credit system where the burden of the cash management of the corporations falls on the banks. The objective is to encouraging alternative sources of funding to bank credit for the corporate sector to finance growth and to de-risk the balance sheets of banks and spur the bond market in India. In addition, it was announced in the Union Budget 2016-17 for RBI to issue guidelines to encourage large borrowers to access a portion of their financing needs through market mechanism instead of the banks. 
 
The Working Group therefore, recommends large corporates with borrowings from the banking system above a cut-off level to tap bond market. 
 
Acceptance of corporate bonds by RBI
 
As of now, banks can only pledge government securities to borrow from the Reserve Bank of India, and allowing them to pledge corporate bond could spur more buying of the debt by banks. Internationally, many central banks accept corporate bonds as collateral for their liquidity operation. It is not uncommon for central banks to take a lead with a view to developing the financial market.
 
In order to incentivise banks and PDs to invest in corporate bonds and thereby create demand for corporate bonds, it is recommended to RBI to explore the possibility for accepting corporate bonds for LAF operations with suitable risk management framework including rating requirements
 
Investor Protection
 
A robust, timely and effective bankruptcy regime is critical to the development of corporate debt market from investors’ point of view. The recently passed Insolvency and Bankruptcy Code, 2016 is expected to ensure recovery for creditors and address the concerns of investors in corporate bonds by providing new time bound recovery and resolution framework and rules under the Code are expected to be issued shortly. In order to achieve the objective behind the Bankruptcy Code, issues such as early notification of the rules, development of insolvency professionals, tribunal/court infrastructure and information utilities and quick redressal of the transitional problems may be addressed with priority.
 
Other Recommendations
 
Credit Default Swaps (CDS)
 
Pending amendments relating to permitting netting of OTC derivate contracts may be explored expeditiously within the purview of existing legal provisions and banking practices. 
 
Repo in corporate bonds 
 
FIMMDA is planning to consult market participants in order to develop an acceptable market repo agreement for execution among the market participants by end September 2016. Market makers may be allowed to participate in the repo market. 
 
Basel III compliant Perpetual Bonds
 
EPFO and Insurance companies may be allowed to invest in AT-1 bonds of banks and the maximum investment ceiling of 2% may be reviewed for relaxation. 
 
Rationalisation of Stamp Duty 
 
The stamp duty on debentures should be made uniform across states and be linked to the tenor of securities. 
 
The Indian bond market is in for major revamp by the regulators. There seems to be a huge drive from the government to integrate financial market in India further with the rest of the world. If everything falls in place as expected, the bond market in India expected to surge and be a much higher part of its GDP. This is expected to bring Indian bond market in line with that of China, Brazil and other developed countries.
 

(Saurabh Dugar works at Vinod Kothari Consultants Pvt Ltd)

 

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COMMENTS

R Balakrishnan

9 months ago

They will do everything except put themselves in the investor shoes and see why they are not flocking to the bond markets. RBI is truly a blinkered animal.

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