Theresa May survives confidence vote of Tory MPs; here’s what happens now

After a week of humiliating setbacks in her pursuit of Brexit, Theresa May, the UK prime minister, was spared the indignity of being voted out of office by her own MPs. Her victory in the Conservative leadership confidence ballot by 200 votes to 117 was seized on by allies as evidence that she retains the support of her party. To do so, May had to concede that she would not seek to lead the Conservatives into the scheduled 2022 election. Although reports differ as to how firmly she committed to stepping aside, it may have been sufficient to swing some extra votes her way. Her opponents, such as arch Brexiteer Jacob Rees-Mogg, have said the result shows that a large majority of all MPs in the House of Commons does not have confidence in the prime minister and that she ought to consider her position.
May’s margin of victory was clear but not overwhelming. Over a third of Conservative MPs have shown they have no confidence in her. Supporters have been repeating the line that she received more votes than in the leadership election of 2016. However, that was an open contest for the vacant post of leader, whereas this was a confidence vote in a sitting prime minister. The total of 117 votes against May is undoubtedly damaging, although not fatally so.
Victory in the ballot gives the prime minister some breathing space – she cannot be challenged again in this way for a year. The threat of a Tory confidence vote has hung over her head like the Sword of Damocles since the general election of June 2017, and speculation had become feverish in the weeks leading up to the vote. The postponement earlier in the week of the “meaningful vote” on the withdrawal agreement May negotiated with the EU amid fears of an overwhelming parliamentary defeat hardened the mood among Brexiteer MPs. May’s dash to the continent to seek “assurances” about the enforcement of the Irish backstop, the most contentious element of the deal, seemed to project an image of weakness. That was emphasised by the curt refusal of European politicians to countenance any renegotiation of the deal.
It was therefore little surprise when the chairman of the Conservatives’ backbench 1922 committee, Graham Brady, announced that he had received the required 48 letters, representing 15% of Tory MPs, to trigger a confidence vote in May.
Danger at every turn
Relief that she has won that contest will be short-lived, however. The road to securing parliamentary support for the withdrawal agreement looks no easier than it did before the ballot. With Labour and the opposition parties primed to vote against the deal, May needs solid support from her own MPs as well as the Democratic Unionist Party (DUP), which provides confidence-and-supply backing to her minority government. But the DUP is vehemently opposed to the Irish backstop, which it argues would undermine the unity of the UK. Meanwhile, the hard-Brexiteer wing of the Conservative Party, organised around Rees-Mogg’s European Research Group (ERG) remains steadfast in its hostility to the deal. May is still staring at a heavy defeat in the “meaningful vote”, whenever it is finally brought before parliament.
Danger lies in whichever direction the prime minister chooses to go. Picking off ERG members and winning their support for the deal still looks unlikely.
The DUP will not be placated by mere assurances – as opposed to legal guarantees – on the Irish backstop. Some commentators have urged May to seek a broad coalition of support for a deal spanning the non-ERG majority in the Conservative Party and a block of mainstream Labour MPs. That could entail shifting to an even softer Brexit, such as permanent membership of the customs union. Many Labour MPs might also support a deal that kept Britain in the single market. However, May has always interpreted the EU referendum as a rejection of freedom of movement of people, which is a condition of membership of the single market. It is difficult to see how she could credibly change her position on that now. She has also repeatedly rejected calls for a second referendum and at any rate, there appears little support for it among Tory MPs.
The more general problem with a reliance on Labour votes to push through a deal in the face of significant backbench Tory opposition is that it would even more severely split the Conservative Party, perhaps irrevocably so. It would be easy to see cohesion within the governing party breaking down completely. That could have enormous consequences for the Conservatives’ future electoral prospects.
More immediately, however, the government is reliant on the support of the DUP for its continuation in office. The DUP is committed to supporting the government in parliamentary confidence votes and in budget votes. If the DUP were to withdraw from the confidence-and-supply agreement, the government would be vulnerable to defeat in every Commons vote. It has been suggested that the DUP would not vote against the government in a confidence vote for fear of ending up with a Labour government led by Jeremy Corbyn. However, if the withdrawal agreement is accepted in the “meaningful vote”, the DUP may feel it has little option but to oppose a government that had, in its opinion, imperilled the strength of the union.
Whether through defeat in a parliamentary confidence vote or a simple inability to get anything done in parliament without the DUP’s support, an early election cannot be ruled out. One of May’s pitches to her MPs in her statement preceding the party ballot was that she would not contest the next election in 2022 as leader. But what happens if the election takes place much sooner than then, perhaps as early as February 2019? It would surely not be possible to change leaders in such circumstances.
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May’s victory removes one source of uncertainty. However, it does not remove the roadblock that is parliament’s “meaningful vote”. The options appear to be a cross-party alliance that causes a devastating split in her own party, an early general election that would worry every Tory MP with a majority under 5,000 (after the shock of the 2017 election), or a second referendum that would be opposed by most Conservatives. The immediate danger may have passed for the prime minister, but things won’t get any easier.
Theresa May survives confidence vote of Tory MPs; here’s what happens now

Are India’s world-class institutions being undermined by its own leaders?

Many of us have long argued that, whatever its problems, India is one of the best long-term bets in the world for one simple reason: It has the sort of world-class institutions that can help build and sustain a genuine market economy. Sadly, many of those same institutions are being undermined by the country’s own leaders — most recently the Reserve Bank of India, which Prime Minister Narendra Modi appear intent on subjugating as part of his bid for reelection. Of all people, Modi should recognize that no election victory is worth giving up on India’s best chance at becoming a world-beating economy.
For Indians who share that ambition, it’s been a sobering week. Late on Monday night, news broke that central bank governor Urjit Patel had quit. The news was particularly shocking because it followed a lengthy campaign by the government to bend India’s independent central bank to its will. The Finance Ministry had demanded a series of concessions from the governor — that the RBI stop forcing state-controlled banks to crack down on some big delinquent borrowers, for example. It believed that the central bank was also being too sparing with liquidity: Recent GDP numbers suggest a slowdown in demand, partly caused by a seize-up in India’s shadow banking sector. These “non-banking financial companies,” to use the official Indian term, are crucial lenders to infrastructure and to the small- and medium-sized enterprises Modi hopes will create jobs for his voters.
And, most controversially, the cash-strapped government — facing a tighter-than-expected reelection campaign — wanted to get its hands on the billions of dollars of reserves that the RBI is holding. Modi’s recently-departed chief economic adviser has said this would amount to “raiding” the RBI, and one of Patel’s deputies gave a public speech warning the government against it. But officials don’t seem to have been deterred. Patel appears to have been losing this battle and presumably quit rather than preside over the disappearance of RBI independence.
A leader who wished to preserve the integrity of the central bank would have appointed an independent-minded replacement for Patel, even if one whose views were closer to the government’s. But Modi’s choice was instead an ex-bureaucrat named Shaktikanta Das. Das served as India’s chief economic official right through the currency withdrawal and the botched roll-out of a new indirect tax regime and was a consistent advocate for the government’s claim that Patel and company were keeping interest rates too high.
Das doesn’t have the distinguished academic history of Rajan or even of Patel, who earned a doctorate from Yale and is a distinguished fellow at Brookings. True, bureaucrats have served as RBI governor before and many have grown into the role. In this case, however, there seems little doubt that the quality that Das has been chosen for is his ability to follow orders.
ALSO READ: Shaktikanta Das promises to uphold RBI autonomy; will meet PSB heads today
Modi’s choice is doubly damaging because he looks even more desperate for a compliant RBI today than he was last week, following deep losses in state elections. Many in Modi’s Bharatiya Janata Party believe that they are losing farmers and unemployed young people, crucial parts of the coalition that carried Modi to victory in 2014. Modi’s strategists will want to turn on the populist spending tap in response. With Patel watchfully guarding monetary policy and the RBI’s reserves, it would have been tough to find the resources for an election-winning spending push.
Das has vowed to “uphold the autonomy, the integrity and credibility” of the central bank. But, at least for the months leading up to parliamentary elections early next year, the government will expect that he’ll take dictation from New Delhi. Doing so would cause lasting harm to India and greatly reduce its potential future prosperity.
ALSO READ: RBI Governor Shaktikanta Das calls for ‘frank discussions’ with the govt
It’s the sort of institutional regression that we haven’t seen for decades. No RBI governor has had to quit in the two-and-a-half decades since India began to liberalize its economy; the history of India’s central bank has been one of ever-increasing autonomy. This is particularly important given that India’s a noisy democracy, with a half-dozen elections a year and politicians who want to win each of them. The RBI’s long-term view and evidence-based policymaking provided a crucial counterweight.
That was the sort of governance that many hoped Modi himself would provide when he won a landslide in 2014. Such political capital, they argued, would allow him to keep his eye on what really mattered instead of worrying about day-to-day survival in power. And perhaps that was true at first: The Modi government itself seemed to cap the RBI’s progression to true independence early in its term when it legislated an official inflation target for the bank, freeing it further from New Delhi’s control. In partnership with someone like Rajan, Modi could have provided the kind of sober and effective economic management that would have shifted India permanently to a high-growth trajectory.
Now, Modi’s India looks like a lot more like any other emerging economy, with a tame central bank and a profligate government that wants to ignore the laws of economics. Modi won once by promising world-class governance. Why does he think voters will reelect him for anything less?
Are India’s world-class institutions being undermined by its own leaders?

Sebi allows segregation of distressed assets by mutual funds

The liquidity crisis triggered by the IL&FS default has led the Securities and Exchange Board of India (Sebi) to introduce the concept of segregated portfolio – a mechanism to separate distressed assets from the liquid part of a mutual fund scheme. This provision will be optional for the schemes taking credits risks in their various debt exposures.
“This provision has been triggered by the crisis at non-banking finance company (NBFCs). So, it is for the interest of retail investors that the toxic assets are segregated from the assets which are doing well. We think it is an appropriate time to introduce this provision,” said Ajay Tyagi, chairman of Sebi.
The Sebi at its board meeting on Wednesday also decided to issue a consultation paper on bringing uniformity in the valuation process of corporate bonds. The regulator will look into the issue of valuing distressed assets and other debt exposures of mutual fund schemes. The regulator said that it will prescribe guidelines for pricing of corporate bonds, which shall be followed uniformly across all the mutual funds.
“Principally, we expect improvement in two areas. One is valuation of bonds and papers which have a residual maturity of less than 60 days also the paper which gets downgraded to below investment grade. The current guidelines are generic. So, we are looking to move towards crystalising the pricing guidelines,” said Madhabi Puri Buch, whole-time member of Sebi.
To make sure the provision of side-pocketing is not misused or doesn’t lead to any moral hazard, the regulator said it would soon come out with a circular giving clarity on the conditions under which the provision can be invoked.
Key decisions taken in the board meet
Allows MFs to ring-fence distressed assets
Relaxes norms to boost start-up listings
FPI shareholding with common ownership or control to be clubbed
Easing of IPO documents re-filing norms
Certain NBFCs exempted from share pledging-related disclosures
OFS route extended to all firms with m-cap of more than Rs 10 bn
No uniform bond valuation methodology from Sebi
The multi-notch downgrade of IL&FS papers in September had forced debt schemes to take large haircuts on their exposures. Given the bleak outlook of recovery of their dues, some schemes took the entire haircut, while some took haircut of as much as 50 per cent.
“This was badly needed. Such accidents (defaults) have become fairly routine thing. Side-pocketing will ensure that nobody unduly benefit or gets hurt. Often investors panic after a default and the smart guys benefit,” said Dhirendra Kumar, CEO, Value Research.
Meanwhile, the regulator said that it has initiated the adjudication proceedings against three credit rating agencies – ICRA, CARE Ratings and India Ratings – for their role in IL&FS fiasco. The three rating agencies had given IL&FS AAA, which indicates the highest grade of credit worthiness.
Among other key measures announced, the market regulator introduced changes to the capital-raising framework to help more promoters divest their holdings through offer for sale route and also encourage listing of start-ups.
To prevent misuse of beneficial ownership norms, Sebi said multiple entities having common ownership, directly or indirectly, of more than 50 per cent or common control shall be treated as part of the same investor group. Hence, the investment limits of all such entities shall be clubbed as applicable to single foreign portfolio investor (FPI).
“The proposal that clubbing of investment limit for FPIs will be on the basis of common ownership of more than 50 per cent of common control was approved. However, in case of appropriately regulated public retail funds, investment limit will not be clubbed on the basis of common control,” said Bhavin Shah, partner, Pricewaterhousecoopers.
Tyagi said the new rules won’t apply to sovereign wealth funds such as Singapore’s Temasek and GIC.
On the OFS, Sebi has allowed companies with market capitalisation of more than Rs 10 billion to use this facility. The move will help state-owned companies such as SJVN, Indian Bank and NLC India tap the OFS route.
On the allegation on Sun Pharma, Sebi said that it has received the whistle-blower complaint and it is examining the matter. On the possibility of reopening the insider case, Ananta Barua, whote-time member, Sebi said, “Within every consent order, there are certain conditions under which the settlement order is granted. So, if these terms are breached, a case can be re-opened.”
To boost startup listings, Sebi has made several relaxations to the institutional trading platform (ITP) based on the recommendations made by an expert panel. ITP will now be called innovator growth platform and will aim for listing of companies that make “intensive use of technology” and those which typically have private equity (PE) investments.
Sebi allows segregation of distressed assets by mutual funds

Tata Trusts appoints Vijay Singh, Venu Srinivasan as vice chairmen

As part of its succession plan, Tata Trusts, a cluster of charitable organisations controlling 66 per cent of Tata Sons, has appointed trustees Vijay Singh, former defence secretary, and Venu Srinivasan, chairman of TVS Group, vice chairmen of the various trusts under its ambit.
The trustees met on Wednesday and unanimously decided to appoint Singh and Srinivasan vice chairmen of the trusts, according to a statement issued by the organisation.
Vijay Singh Former defence secretary Vijay Singh It is learnt that sometime in early 2019, Tata Trusts, chaired by Ratan Tata, will make fresh inductions to strengthen the philanthropic cluster that virtually owns the $103-billion salt-to-software conglomerate. Recently, there were changes at Tata Trusts including the exit of Amit Chandra.
V R Mehta, trustee, Tata Trusts, said the move was part of a succession plan, should a need arise. If an emergency situation arises, succession should be clearly defined, said Mehta, adding this is good governance.
The announcement comes ahead of Ratan Tata’s 80th birthday on December 28.
Both Singh (70) and Srinivasan (66) are trustees of the Tata Trusts. A Tata loyalist, Singh was inducted as a trustee of Sir Dorabjee Tata Trust and Ratan Tata Trust, after his retirement from the Tata Sons board earlier this year. Srinivasan, a director on the board of Tata Sons, is the chairman of Sundaram-Clayton and TVS Motor Co.
According to Tata Sons’ Articles of Association, the holding company can have as many as 12 directors and Tata Trusts can nominate one-third of the directors on the company’s board. While Tata Trusts trustees can induct a new trustee through a consensus process, Tata Sons board inductions require board approval.
Tata Trusts was established in 1919, but the activities took off in a big way when Sir Dorabji Tata set up a trust in 1932. Over the years, the significance of the Trusts has grown in terms of its commercial interest in the Tata group and the power it holds, even as charity remains its core area, according to an official. Because it sits over a big business empire, Tata Trusts is different from any other trust of a corporate group, he added.
Tata Trusts appoints Vijay Singh, Venu Srinivasan as vice chairmen

MARKETS LIVE: Sensex reclaims 36,000, Nifty above 10,800; banks rally

The stocks of public sector undertaking (PSU) will remain in focus today as the new Reserve Bank of India (RBI) governor Shaktikanta Das is set to meet the top executives of these banks on Thursday. That apart, the investors are likely to react to key economic data (CPI and IIP numbers) released post market hours on Wednesday.
The market will also keep a tab on the movement in the rupee, oil prices and developments in the global markets for further cues.
Hours after assuming charge as governor of the RBI on Wednesday, Shaktikanta Das spelt out his priorities, asserting that he would uphold the autonomy, credibility and integrity of the “great institution”. Suggesting his focus on the banking sector, Das said more measures were needed to revive lenders, and that he would meet heads of public sector banks on Thursday. According to banking sources, there is no specific agenda for the meeting, but the concerns over PCA (prompt corrective action) banks, stressed loans and capital adequacy are likely to come up for discussion. READ MORE HERE
Economic Data
Two key indicators of macro economy— industrial production and retail price inflation — improved their performance in October and November, respectively. Industrial activity grew at an 11-month high of 8.1 per cent in October, while the retail inflation rate fell to a 17-month low of 2.33 per cent in November, showed the latest data released by the Central Statistics Office (CSO).
The rupee declined by 16 paise to close at 72.01 against the US dollar on Wednesday amid strengthening of the greenback and rising crude oil prices even as the equity markets staged a sharp upmove.
Global Markets
Asian shares and the pound moved higher on Thursday as investors breathed a sigh of relief after British Prime Minister Theresa May survived a no-confidence vote, and as China appeared to be taking more steps to meet US demands to open its markets.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 per cent in early Asian trade after US stocks finished the previous session higher, amid cautious optimism for progress in Chinese-US trade talks. Japan’s Nikkei stock index gained 0.8 per cent.
MARKETS LIVE: Sensex reclaims 36,000, Nifty above 10,800; banks rally

RBI board meet on Dec 14 to focus on liquidity in financial system

The first central board meeting of the Reserve Bank of India (RBI) on Friday with Shaktikanta Das as governor is expected to focus on the liquidity situation in the financial system.
The Centre’s proposal to call for governance reform in the RBI could, however, take a back seat, a source privy to the development said. “The governance issue (in the RBI) no longer holds immediate importance,” the source said.
The board may consider forming a committee to deliberate on the governance structure in RBI. Earlier, the central government nominees on the RBI board — Financial Services Secretary Rajiv Kumar and Economic Affairs Secretary S C Garg — had moved a proposal to consider governance reforms in RBI.
ALSO READ: Will hold RBI board meeting as planned on Dec 14: Governor Shaktikanta Das
With a new governor at the helm, the government may adopt a wait-and-watch approach before pushing for governance reforms in RBI. The government was upset with the way RBI took certain decisions, during former governor Urjit Patel’s tenure, in “closed door” meetings, including new norms for resolution of stressed assets set by the central bank in February, popularly known as the February 12 circular, according to sources.
The new governor is likely to take stock of the liquidity situation, especially related to non-banking financial companies (NBFCs), which showed signs of stress recently. The government has petitioned the RBI to take measures to boost liquidity for NBFCs but the RBI is not in favour of a systemic intervention at present.
ALSO READ: Shaktikanta Das promises to uphold RBI autonomy; will meet PSB heads today
The board will be apprised of a recent decision taken by Finance Minister Arun Jaitley and Patel on the structure and the mandate of the committee to review the RBI’s economic capital framework.
Sources said former RBI governor Bimal Jalan would head the panel and former RBI deputy governor Rakesh Mohan would be the co-chair. After the panel is constituted, it is expected to submit its report in 90 days, the source said.
“The chairman of the panel has to agree to the mandate first. The committee will be notified soon,” the source added. The panel may not hold discussions on the revaluation reserves held by the RBI in its ‘currency and gold revaluation reserves’, it is learnt. It accounted for over 70 per cent out of the RBI’s total reserves at Rs 9.6 trillion at the end of June 2018.
The finance ministry is of the view that RBI has ‘excess capital’ in its reserves and that can be transferred to the central government.
The decision to form a panel was taken in the nine-hour long board meeting on November 19.
“The agenda items from the previous meeting will carry forward. There were discussions only on three to four issues,” the source said.
The RBI’s central board will also take note of the Board for Financial Supervision (BFS) meeting chaired by Patel on December 6. The BFS was supposed to discuss the government’s proposal to bring some public sector banks out of the prompt corrective action (PCA) along with revision of rules. However, the BFS didn’t hold discussions on it and instead reviewed the financial position of all public sector banks, sources said.
The government has proposed “drastic changes” in the rules framed to re-tune the composition of three committees of the RBI: Board for Financial Supervision (BFS), the Board for Payment and Settlement Systems (BPSS) and the Committee of the Central Board (CCB). All three committees are chaired by the RBI Governor.
The government wanted more independent directors in forums, including the BFS, and had pushed for increasing the quorum in case of all the CCB and the BFS, sources said. In return, RBI had also exchanged its notes with board members suggesting only minor tweaks in the norms.
RBI board meet on Dec 14 to focus on liquidity in financial system

Shaktikanta Das promises to uphold RBI autonomy; will meet PSB heads today

Hours after assuming charge as governor of the Reserve Bank of India (RBI) on Wednesday, Shaktikanta Das spelt out his priorities, asserting that he would uphold the autonomy, credibility and integrity of the “great institution”. Das also said he would extensively consult various stakeholders, including the government, on key issues.
The former bureaucrat has replaced Urjit Patel, who abruptly resigned on Monday after a long-drawn feud with the government over issues related to governance and the autonomy of the central bank. “I will try to uphold professionalism, core values, credibility and the autonomy of the Reserve Bank as an institution,” Das said in his first media interaction as RBI governor.
ALSO READ: Shaktikanta Das, ‘bureaucrat’s bureaucrat’ famous for his tact and tweets
Suggesting his focus on the banking sector, Das said more measures were needed to revive lenders, and that he would meet heads of public sector banks on Thursday. According to banking sources, there is no specific agenda for the meeting, but the concerns over PCA (prompt corrective action) banks, stressed loans and capital adequacy are likely to come up for discussion.
Asked if Deputy Governor Viral Acharya remained in office, Das said, “He is still very much with the RBI. (I) just had tea with him.” There have been rumours about Acharya, whose speech on October 22 had brought the government-RBI stand-off out in open, putting in his papers.
On queries regarding the relationship between the central bank and the government, he said, “We have to have stakeholder consultation with everybody. The government is not just a stakeholder, it also runs the economy and country. So, there has to be free, fair, objective and very frank discussions between the government and the RBI. I will like to believe that all issues, howsoever contentious, can be resolved through discussions.”
ALSO READ: RBI Governor Shaktikanta Das calls for ‘frank discussions’ with the govt
Rating agencies like Moody’s and Fitch have flagged concerns over the sudden exit of Patel. Fitch Ratings said in a statement that the resignation followed a period of government pressure on the central bank to spur economic growth, and highlighted risks to the RBI’s policy priorities. Increased government influence on the central bank could undermine progress in areas like improving banking sector and stable macro-economic environment, Fitch said.
About accountability of the RBI to its board, Das said every institution has to have its professional integrity and maintain its professional autonomy. “At the same time, every institution must adhere to principles of accountability,” he added.
ALSO READ: Full statement: What RBI governor Shaktikanta Das said after taking charge
Elaborating on his communication approach, the governor said decision making had become far more complex in today’s world and consultation with stakeholders was very important. “Consultations with stakeholders add values and depth to our understanding of issues,” he said.
Das’s communication style is in stark contrast to his more reticent predecessor. RBI employees and top commercial bankers had vented frustration over Patel’s way of working.
“Banking is currently facing several challenges of critical importance that need to be dealt with. I am not implying in any manner that nothing has been done. A lot has been done both by the government and the RBI. Several measures have been taken, but many more measures perhaps need to be taken,” he said.
ALSO READ: Will ‘FinMin-insider’ Shaktikanta Das be able to preserve RBI’s autonomy?
On the contentious issue of the central bank’s capital (reserves), he said a committee would be constituted shortly and then its terms of reference would be drawn.
Das said, “There are a number of issues ahead. Inflation is broadly as per target and inflation outlook looks fairly benign at this stage, but we have to watchful of developments. The issue of health of PSBs is an important one.”
“The issue of liquidity has also come into the focus, especially in public space, from time to time. This will be an area where the RBI will interact with stakeholders and get internal feedback and then take a view on these issues,” he added.
Shaktikanta Das promises to uphold RBI autonomy; will meet PSB heads today