The RBI and the ministries have already stepped up their investigations against the MLM company
It seems that pressure is mounting on the government to tighten the noose around the dubious multi-level marketing (MLM) company Speak Asia online Pte Ltd. The Reserve Bank of India (RBI) and the Income-Tax (I-T) department have already initiated investigation against Speak Asia and bank accounts of the company's franchisees have been frozen.
Sources have confirmed that the Reserve Bank of India (RBI) is investigating the operations of the online survey company, which was promising Rs500 a week for just filing online surveys. The investigation would mainly look into financial irregularities, money collection and remittances abroad. Meanwhile, other pyramid schemes are also making headlines with regularity.
Recently, the Prime Minister's Office (PMO) forwarded the complaints filed by Kirit Somaiya, former member of parliament (MP) and national secretary of the Bhartiya Janata Party (BJP) along with the complaints of party MPs Prakash Javdekar and Hansraj Ahir, to the home secretary, finance secretary and ministry of corporate affairs (MCA). In a release, Mr Somaiya said the MCA and the Securities and Exchange Board of India (SEBI) have intimated him that they have started an inquiry and investigation into the functioning of Speak Asia.
Moneylife and its affiliate Moneylife Foundation, a not-for-profit organisation which promotes financial literacy, had sent a representation, dated 17 May 2011, to the prime minister, urging him to completely ban MLM companies in India or to bring them under the regulation of either the RBI or SEBI. We also requested urgent intervention to investigate Speak Asia for the ambiguities prevailing over its business model and source of funding. (http://foundation.moneylife.in/promotion/speakasia/index.html)
Moneylife columnist Veeresh Malik also filed a Right to Information (RTI) query on 14th June with the PMO, seeking to know the action taken on the representation sent by Moneylife.
The ministry of corporate affairs had earlier said that it would not take any action against the survey company. "Speak Asia is not registered in India so we cannot initiate any investigation against it. MCA does not have any database of the company," corporate affairs secretary DK Mittal had told media persons.
Experts point out that since the PMO has also forwarded the complaints to the ministry of corporate affairs, it remains to be seen what action the ministry will take, as they had earlier shown their inability to initiate any investigation.
Even as SEBI’s move to get investors to buy mutual funds through the stock exchanges has failed to work, fund companies are floating fund-of-funds to funnel money into ETFs—which are supposed to be bought only on the stock exchanges!
In late 2009, the Securities and Exchange Board of India (SEBI) hastily cobbled up the idea that mutual funds can be easily sold through stockbrokers, with fund units getting lodged in demat accounts. But the idea of getting investors to buy mutual funds through the broker-demat route has turned out to be a damp squib.
After one-and-a-half years, retail investors are not buying mutual funds from stock brokers in any meaningful numbers. What about the one kind of fund that must always be bought from stock brokers: exchange-traded funds (ETFs)? These are traded on the exchanges like stocks, hence the name. But fund companies are unable to sell enough of ETFs either. This is of course because hardly anybody buys funds from stockbrokers—exactly the opposite of SEBI's premise. So, even though there are 1.17 crore demat accounts, in a supreme irony, fund companies are now launching a vehicle that would funnel money into ETFs from those who don't have a demat account! The fund companies are arguing that this is being done to widen the market.
But widening what, really, when the ETFs themselves are not selling that well? Since the core objective of garnering money into ETFs itself is not working, the fund companies feel that there is a need to offer schemes to attract money that would then be put into ETFs. This makes nonsense of not only ETFs but SEBI's basic premise that mutual funds would be eagerly bought from stockbrokers.
Reliance was the first to offer the option of investing in ETFs without a demat account for its Gold Savings scheme. The idea was that those who were not able to invest in mutual funds since they did not have a demat account can now participate by investing in the markets through mutual funds. What Reliance had essentially done was converted an ETF into a mutual fund product. After Reliance, Kotak, Quantum, Religare and HDFC also launched a fund-of-fund (FoF) kind of scheme for gold.
Now, Motilal Oswal has also come out with a similar concept-Motilal Oswal MOSt Share NASDAQ 100 FoF. The only job of this FoF is to invest in units of Motilal Oswal MOSt Share NASDAQ 100 ETF. But why launch a scheme only to invest in another scheme which is merely tracking a foreign index? Because MOSt Share NASDAQ 100 ETF will be useless to those who don't have a demat account.
We will wait to see whether the convoluted idea of launching FoFs to funnel money into ETFs manages to get any traction. There is a fundamental contradiction here. Fund companies obviously think that India has a large number of eager investors, but only a small fraction of them have demat accounts. But a fact that the regulator, exchanges and market-infrastructure companies are unable to come to terms with is that India's investor population is not expanding. Those who do not even have a demat account don't even know about the risks of equity or are risk-averse enough not to dabble in equity shares. Most investors like them have preferred a safe investment, such as fixed deposits. The 40-odd funds operating in India have not been able to give achieve much of penetration.
In other words, one can't assume that there are large numbers of eager investors but they don't have a demat account. If they don't yet have a demat account, it means that they simply don't want to invest in markets. To sell FoFs only as a vehicle to funnel money from those who are currently non-investors in ETFs and that too into equity ETFs addresses a need that does not exist. At least, Reliance Gold ETF was a novel idea. It was the first FoF to invest in ETFs and the underlying product was gold, which Indians can relate to. But for those who don't even have a demat account, it would be a blind leap of faith to put money into NASDAQ 100, of all things. And if at all these people want to become investors they would rather prefer to start investing in domestic equity funds rather than plunging directly into foreign funds.
Fund companies and regulators don't see eye to eye on most things. In other things, they are on the same side: they are both focused on the destination, not the road.
Neither of them see that if people (investors) are not taking the current road to the destination (market), building another road to reach the same destination makes little sense.
According to deputy chairman of the Planning Commission Montek Singh Ahluwalia, the decision to cut duty, was a conscious decision to lose some revenue to moderate the impact (of the fuel price hike on the common man)
New Delhi: Defending the government’s decision to raise prices of petroleum products, the Plan panel today said it would suck money from the system and ease inflationary pressure in the long run, reports PTI.
“As we are raising the prices, the move will pull money away from the system. That would have a softening impact (on inflation),” Planning Commission deputy chairman Montek Singh Ahluwalia told reporters.
He further said, “I don’t agree with the view that if we had done nothing, inflation would have been lower. If we had done nothing, then the hidden inflation would have been eating away.”
The decision to cut duty, he said “was a conscious decision to lose some revenue to moderate the impact (of the fuel price hike on the common man)”.
The government had last week hiked diesel, kerosene and cooking gas prices by Rs3 per litre, Rs2 per litre and Rs50 per cylinder, respectively.
In addition, the government also reduced customs duty on petroleum products to 2.5% from 7.5%, which would result in an annual revenue loss of Rs49,000 crore.
Excise duty on diesel was also reduced from Rs4.60 per litre to Rs2 per litre.
During the remaining nine months of the fiscal, the Centre and states will lose around Rs24,000 crore and Rs11,000 crore, respectively, due to the duty cut on petroleum products.
The Plan panel chief said the rise in prices of fuel items would suck liquidity from the system, leading to a moderation in inflation numbers.
Headline inflation, as measured in terms of the wholesale price index, stood at 9.06% in May and experts said it will breach the double-digit mark by July on account of the fuel price rise.
Regarding the impact of the fuel price hike on the fiscal deficit, Mr Ahluwalia said: “They (government) have quantified some revenue losses. What happens to the fiscal deficit depends on many other things. I am sure the finance ministry is looking at that. And I think they are shortly going to submit to Parliament some sort of medium assessment on the fiscal position.”
He further said, “My personal view is that if we are looking ahead and if India faces a situation of rising energy prices, we should adjust ourselves to passing on the fuel prices, because if we have fail to do so, we will be weakening the economy.”
Asked his views about when the inflation numbers are likely to moderate, he refused to make any guess.
“The finance ministry has said that if the monsoon is normal and agricultural production is good, then price pressure will decrease. But I do not want to give a forecast,” the Plan panel chief said.
Mr Ahluwalia also called for a drastic reappraisal of the subsidy system in the country.
“We in the Planning Commission... it is our view that except for strictly targeted subsidies, I don’t think we can afford a system where we have subsidisation of fuel in any extensive way.
“The increase in prices has been a very modest increase.
It has not covered the full gap necessary. So if we have to implement the kind of energy policy that makes sense in the medium-term, we have to somehow or the other pass on the full burden unless oil prices fall,” he said.
Regarding the draft Food Security Bill, the Plan panel chief said: “The Department of Food and Civil Supplies is supposed to bring its proposals before the GoM... I know they are working on it.”
Asked if the Bill is likely to be implemented this fiscal, he refused to commit on a timeframe.
“As far as Food Security Act is concerned, the Act also depends on the new poverty numbers. So whether you pass it now or you pass it a little later, I don’t think the poverty list is going to be available for some time. So I don’t think the date of passage is crucial. What is important is so get a clear idea of what is it going to be,” he said.