Stocks
Nifty, Sensex headed lower – Thursday closing report
Nifty continues to fail at 7,600 depsite positive news
 
We had mentioned in Wednesday’s closing report that Nifty, Sensex continued to look weak and that Nifty would have to close above 7,550 to regain its uptrend. Nifty traded above 7,550 for much of the day, following a strong opening, but ended flat. The trends of the major indices in Thursday’s trading are given in the table below:
 
 
The US Federal Reserve kept its benchmark short-term interest rates unchanged amid potential risks to the US economy, signalling the central bank will slow the pace of future interest rate hikes this year. In a statement released on Wednesday after a two-day policy meeting, the Fed said US "economic activity has been expanding at a moderate pace despite global economic and financial developments in recent months," but these developments continue to pose risks. In December, the Fed raised its target range for the federal funds rate by 25 basis points to 0.25%-0.5%, the first rate hike in nearly a decade, marking the end of an era of extraordinary easing monetary policy. But the turmoil in financial markets and a slowdown in global economy since the start of the year had raised increasing concerns about the strength of the US economy, forcing Fed policymakers to hold off on any further rate hikes since then. In its January policy statement, the Fed declined to make a judgement about the balance of risks to the US economy, an indication of the uncertainty about the impact of global economic and financial turbulence on the world's largest economy. The changes in the statement on risks signalled that Fed officials are inclined to wait for more time to assess the US economic outlook before raising interest rates again.
 
With over 20% growth in domestic aviation market in 2015, India is well on its way to becoming the third-largest aviation market by 2020, says a Ficci-KPMG report. According to the report released on Thursday at the India Aviation 2016 here, with 81 million trips, the domestic aviation market grew at over 20.3% during January-December 2015, the highest growth rate recorded in the world. The total passenger throughput grew by 17.1% in 2015-16, standing at 184 million till January 2016. Passenger throughput is expected to reach around 370 million by 2020, with domestic traffic constituting around 80% of the total throughput. The report suggests that aspects such as increasing disposable incomes, fall in prices of Aircraft Turbine Fuel (ATF), increase in tourism, visa reforms, have all placed India in a unique position. 
 
Japan reported a trade surplus of 242.8 billion yen ($2.2 billion), marking its biggest trade surplus since September 2011, the Japanese government announced Thursday. The surplus compares with a deficit of 426 billion yen ($3 billion) in February 2015 and a deficit of 648.7 billion yen ($5.75 billion) in January 2016, EFE news reported. Japan's exports in February fell 4% from a year earlier to 5.7 trillion yen ($50 billion) while imports dropped 14.2% to 5.46 trillion yen ($48 billion), according to data released by the finance ministry. The closures of most nuclear power plants following the Fukushima accident in 2011 have pushed Japan from surpluses into deficits since the imports of oil and gas to generate electricity in power plants has put a heavy burden on the Japanese trade balance. Japan's deficit with China, its biggest commercial partner, fell by 50.5%, to 382.4 billion yen ($3 billion).With the world's largest economy and its second biggest trading partner, the US, Japan posted a trade surplus of 604 billion yen ($5 billion), up 4.3% from year-on-year. 
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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Why suspicious transaction reports are important for blocking illicit money
STR plays a vital role for detecting crime, laundering of criminal proceeds and terrorism financing activities. Financial institutions, as the first barrier against illegal money, need to use it proactively
 
New York Governor Andrew M Cuomo, on 1 December 2015, while announcing Anti-Terrorism Regulation requiring Senior Financial Executives to certify effectiveness of Anti-Money Laundering Systems said in a statement that “Money is the fuel that feeds the fire of international terrorism; global terrorist networks simply cannot thrive without moving significant amounts of money throughout the world. At a time of heightened global security concerns, it is especially vital that banks and regulators do everything they can to stop that flow of illicit funds.”
 
Suspicious Transactions Report (STR) is a vital tool in identifying funds that maybe used for terrorism, criminal and/or other illicit activities. Therefore, its effectiveness is crucial. It is the STRs that lead to detection of black money. The Indian financial intelligence unit (FIU) disseminates the information in STRs to the law enforcement agencies. As per the FIU Director Report 2013-14 the unaccounted money detected by the agencies was of the order of Rs7,848 crore while the amount of assets seized, frozen and confiscated was of the order of Rs195 crore within the country and abroad. The detection of  huge amount of black money could be possible  as the FIU  received 61,953  STRs during 2013-14 as compared to a mere 31,731 STRs received during 2012-13. That is a jump of almost 100%. All banking, financial intermediaries, insurance companies, payment system operators and capital market operatives are required under the Prevention of Money Laundering Act (PMLACT) to submit STRs to the FIU.
 
From the above statistics, it is quite obvious that STRs, if furnished with adequate and relevant details, have the potency to disrupt the nefarious activities that are funded by tainted money.
 
FIU-IND provides financial intelligence to assist law enforcement, revenue and national security agencies within the country to combat money laundering and terrorism financing. It also regulates entities that have obligations under the  Prevention of Money-laundering (Amendment)  Act, 2012  to establish anti-money laundering and counter-terrorism financing (AML/CTF) programs and  to  meet compliance obligations by reporting transactions suspected of being linked to money laundering, terrorist financing, criminal proceeds, drug trafficking or other serious criminal activities.  These reports are an essential contribution to the development of the financial intelligence resources that are used by country’s law enforcement, revenue and national security agencies.
 
The greater the quality, accuracy, and timeliness of reports, the greater the value they provide to the detection, deterrence and disruption of criminal and terrorist activity. The most unique and potentially valuable report is the STRs under the Prevention of Money-laundering (Amendment) Act, 2012.  A robust regime of reporting high quality, relevant suspect financial activity is of major benefit to financial intelligence unit (FIU) role and the work of Indian law enforcement, revenue and national security agencies.
 
These reports are often the main information source authorities use to detect suspected offenses and identify that criminal activity is occurring through a transaction or series of transactions.  Reports are analysed for activities and patterns that may indicate wrong doing and are used by law enforcement to aid investigations.  An STR is more often the first indication that financial crime is occurring and can be a powerful tool against organized crime.
 
Recommendation 20 of the Financial Action Task Force (FATF) states that if a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU). Financial institutions (FIs) should pay special attention to all complex, abnormally large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies.
 
The system of STR is recommended internationally as the effective mechanism to prevent, detect and fight money laundering. It is designed to use information reported by financial institutions for investigations of money laundering and predicate offences and to prevent crime organisations from abusing financial services. Its purpose is to get useful financial information concerning money laundering from financial institutions to utilise the information for actual investigations and to maintain confidence in financial institutions and the overall financial system.
 
The gathering, processing, reporting, analysing and sharing of suspicious transaction is critical to preventing crimes, including those associated with domestic and international terrorism. Hence, the STR becomes an important source of information for detecting crime, laundering of criminal proceeds and terrorism financing activities. Early detection of such activities helps reduce crime and keeps the organisation and the nation safe and secure.
A fundamental element of international anti‚Äźmoney laundering (AML) systems is the requirement that financial institutions file STRs with financial intelligence units. Although the Financial Action Task Force (FATF) has established global standards, there is a range of national laws, practices and experiences with STR systems. The number of STRs received by Financial Intelligence Unit-India (FIU-IND) has risen steadily every year. These STRs have also led to the detection of a number of significant cases, some of which were not even discovered by the victims had it not been for the STR.
 
The value of an STR depends on the quality of information it contains. An STR must set out in a clear manner the basis for knowledge or suspicion of money laundering or terrorist financing. Reporting entities should include as much relevant information about the customer, transaction or activity that it has available from its records.
 
This concept is based on the fact that it is very difficult to chase money flow once it enters the financial system. Therefore, it is necessary for the law enforcement authorities to get co-operation and information from financial institutions before or when illegal money enters the financial system. Financial institutions are expected to play a role of a first barrier against illegal money, as they can examine such financial transactions from the viewpoint of their expertise. The cooperation from financial institutions is essential to detect money laundering.
 
Battling Organised Crime (OC) is a global challenge. To finance its operations, OC relies on funds raised through ransom from kidnapping, extortion, drug trafficking and funds transfers from one person to another across countries and continents. However, a single STR can help stop this flow of illegal money and prevent the repercussions financial crime causes. Frontline staff can serve as the first line of defence against such illicit transactions being passed through their organisation. Financial institutions must keep a tight lid on investigations of suspicious account activity, even when transactional alerts do not merit regulatory reporting. 
 
(SSA Zaidi is a retired banker and consultant for training and development. He is also author of Anti Money Laundering /Anti-Terrorism Financing & Know Your Customer)

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Ghost Savings in DBTL: 99% gap between Jaitley’s claims and actual savings
Aadhaar and DBTL savings for FY2016 are less than 1% or Rs121 crore, excluding the costs of implementation, as against FM Jaitley's claim of an estimated saving of Rs15,000 crore, reveals an analysis from IISD based on publicly available information
 
The net fiscal impact of integrating Aadhaar into the Direct Benefit Transfer of liquefied petroleum gas (LPG) (DBTL) scheme during FY2015-16 is very low, and the expectations of substantial net savings in subsidy expenditure from the introduction of the Aadhaar scheme appears to be hugely misplaced. 
 
"....the integration of Aadhaar within the DBTL programme resulted in total savings on LPG subsidy expenditure in FY2015-16 of approximately Rs121 crore – less than 1% of the estimated subsidy saving figure of Rs15,000 crore (as stated by Finance Minister Arun Jaitley), " reveals an analysis done by International Institute for Sustainable Development (IISD) based on information available in public domain.
 
On 11 March 2016, Finance Minister Arun Jaitley was reported as stating in the Lok Sabha that “targeted subsidy through Aadhaar of LPG consumers had resulted in savings of over Rs15,000 crore.”  The same was repeated by Information Technology Minister Ravi Shankar Prasad in Rajya Sabha, while seeking support to the Aadhaar 'Money' Bill.
 
Even Nandan Nilekani, the former chief of Unique Identification Agency of India (UIDAI), in an article stated, "“we have…visible evidence of [Aadhaar’s] utility with Rs10,000 crore-plus savings in LPG subsidy in one year alone”.
 
IISD says, using publicly available information, and applying the same methodology as adopted to calculate additionality in FY2014-15, it is possible to provide an estimate of the fiscal impact of integrating Aadhaar within the DBTL programme in FY2015-16. This is calculated by applying the recorded deduplication rate achieved through Aadhaar integration to the total number of Aadhaar-seeded LPG connections, then applying the average monthly consumption rate per active connection and the monthly (variable) subsidy rate per cylinder (including both direct budgetary subsidy and uncompensated oil marketing company (OMC) costs) to arrive at a total ‘avoided’ subsidy expenditure figure due to Aadhaar before accounting for any costs of implementation. 
 
The table below gives the monthly calculations of the total (gross) avoided subsidy expenditure due to the integration of Aadhaar into the DBTL programme in FY2015-16 (all figures in Rupees crore).
 
 
IISD says, "To obtain an accurate assessment of the net fiscal impact of integrating Aadhaar, this figure should then be offset against the costs of implementation. For example, assuming an average enrolment cost of Rs120 per person, the marginal cost of enrolling just those customers with Aadhaar-seeded LPG connections as of 1 March 2016 (i.e., not including the costs of non-LPG linked enrolment, or any of the costs associated with implementing and operating the DBTL programme itself) was approximately Rs1,343 crore – 20 times greater than the fiscal saving from integration into DBTL in FY2015-16. An accurate cost-benefit appraisal would also include the direct and indirect costs imposed on beneficiaries."
 
"Putting aside the relative merits of Aadhaar as a public policy tool, our calculations indicate that, instead of resulting in significant savings, the net fiscal impact of integrating Aadhaar into DBTL in the current financial year was likely to be minimal, and that expectations of substantial net savings in subsidy expenditure from the introduction of the Aadhaar scheme may be misplaced," IISD concluded.
 
 
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COMMENTS

Mahesh S Bhatt

11 months ago

Can this be captured legally & fix Jaitley?? Mahesh

Bhamy V Shenoy

11 months ago

IISD has grossly underestimated the potential benefit of using Aadhar platform. They have based it on those who tried to duplicate. They have not been able to estimate or decided not to estimate how many cylinders which would have been diverted to commercial or auto sector were avoided. It is surprising it is the research of IISD which had showed significant advantage of using Aadhar and now they have tried to underplay the use.

In fact currently with residential LPG subsidy having fallen to less than Rs 50 or even zero because of the low oil prices, savings would be nothing. Does it imply that Aadhar is of no use. When there are policemen on the streets, there are no burglaries. Should we conclude that there is no use of policemen.

Jaitely's computation of Rs 15000 or that of Nandan Nilekani might have been based on when LPG subsidy was more than Rs. 500 per cylinder and assuming 30% of residential LPG is diverted, those numbers are in the ball park.

I

Davidson D

11 months ago

If the facts given above are accurate, then does n't it mean that FM is misguiding the Parliament and the people of India

vnrao

11 months ago

again you appears to be wrong because the diversion of domestic cylanders are avoided by linkin adhar no do not give distored pictue to to say thing diffrent

Krishnan Narayanan

11 months ago

This article is a repeat of the earlier one published a while ago.

Mohan Damodaran

11 months ago

True there could be exaggeration as every govt. does but fact remains Adhar is must for stopping leakages. This is not to suggest that there will be no problems but for perfecting a subsidy system you need the minimum basic requirements and Adhar is certainly that minimum.

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