Daily Mains Practice Questions 13-03-2023

KEY POINTS

·        As the size of the mutual fund industry and the equity holding is increasing, mutual funds are expected to play a pivotal role in corporate governance.

·        Shareholder voting on companies’ resolutions is the most important aspect of corporate governance.

·        Another observation is that more than 90 per cent of the time, the mutual funds support investee companies’ resolutions.

·        Mutual funds have two options when they are in disagreement with the investee company’s policies — vote against the management (“voice”) or vote with their feet (“exit”).

·        However, the analysis finds not much difference in the way the top 10 large funds managing close to 80 per cent of AUM have been voting versus the rest 15 mutual funds.

·        The ‘voice’ of the larger mutual funds against the companies’ management in comparison to the smaller ones is only slightly higher.

·        Also, the analysis shows that all the mutual funds have voted in lockstep, though SEBI’s regulations do provide for voting at the scheme level.

·        The bank-affiliated funds, though, have abstained from voting on more number of resolutions than other mutual funds (3.25 per cent versus 1.11 per cent).

·        Going forward, as the mutual fund industry in India further matures and gains in size, there would be increased expectations of their meaningful stewardship role in improving corporate governance.

KEY POINTS

·        India has a robust corporate social responsibility (CSR) policy that mandates that corporations engage in initiatives that contribute to the welfare of society.

·        India has long had a number of laws and bodies regarding environmental, social and governance issues, including the Environment Protection Act of 1986, quasi-judicial organisations such as the National Green Tribunal, a range of labour codes and laws

·        Further legislation regarding ESG are likely, given the increased emphasis by the Indian government on ESG issues, which can be seen in India’s more active role in global climate forums.

·        Compliance with ESG regulations  both originating in India and elsewhere around the world  thus, pose a significantly different challenge than India’s CSR regulations.

·        In particular, compliance by Indian companies with the ESG regulations of the U.S., the U.K., the European Union and elsewhere will be critical if India is to take full advantage of the growing decoupling from China and play a more prominent role in global supply chains and the global marketplace overall.

·        As Indian companies look to expand their ESG risk management, thorough due diligence will play a key role. However, this requires more than having sub-suppliers fill out a questionnaire.

·        Companies that wish to maximise their opportunities in the global economy need to embrace these new requirements and adjust their organisations accordingly.

KEY POINTS

·        There appears to be a concerted effort by the Centre to monitor and plug routes to move funds surreptitiously in and out of the country, including for laundering of money.

·        Two announcements this week  relating to crypto trading platforms and non-profit organisations  seek to increase scrutiny under the Prevention of Money Laundering Act.

·        With conventional routes under close watch, cross-border funds movement is shifting to newer channels.

·        Allowing illicit funds to be converted into legal money under the garb of donations to charitable institutions is especially objectionable.

·        The Centre is, however, trying to attain multiple objectives by bringing crypto trading platforms under PMLA.

·        One, to check money laundering through crypto exchange transactions and to ensure that the exchanges maintain detailed records which can be shared with the ED.

·        With investors moving away due to the erosion of over 65 per cent in the value of crypto assets since 2021, these platforms could find it difficult to stay afloat.

·        The Centre’s strategy appears to be to continuously tighten regulation and monitoring of cryptos but stop short of a complete ban that could push trades under the carpet.

·        But the use of crypto assets for illegal purposes certainly needs to be stopped; bringing them under PMLA could help.

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