NFRA's Auditor-Audit Committee Interaction Series

The National Financial Reporting Authority (NFRA) has launched the first part of its Auditor-Audit Committee Interaction Series aimed at enhancing communication between auditors and audit committees, thereby improving audit quality.

Importance of Communication

• NFRA emphasizes the significance of communication between auditors and those charged with governance (TCWG).
• The initiative draws on requirements from various standards and the Companies Act, 2013.

Key Focus Areas

• Auditors should be prepared for questions on: 
  • Accounting estimates and judgments.
  • Audit of expected credit losses as per Ind AS 109, Financial Instruments.
• Enhancement of audit quality and promotion of accounting and auditing standards.

Effective Two-Way Communication

• NFRA Chairman highlighted the need for robust interaction between TCWG and auditors.
• Audit committees and independent directors should: 
  • Ask auditors pertinent questions.
  • Maintain professional skepticism.
  • Not accept information passively.

Such communication is expected to enhance stakeholder and shareholder confidence in corporate financial statements.

Sovereign Artificial Intelligence: A Strategic Imperative

The article discusses the importance of a Sovereign AI strategy for India in the age of AI, emphasizing its implications for economic and national security. The author proposes a framework for building this strategy, integrating government and private AI initiatives.

GovAI + Private AI = Sovereign AI

• AI's Role: AI acts as a transformative layer on digital infrastructure, enhancing efficiency and service delivery.
• GovAI: The deployment of AI in governance (GovAI) can significantly impact public services by making them smarter and more predictive.
• DPI + AI = GovAI: Digital Public Infrastructure (DPI), which includes vast data repositories, serves as the foundation for GovAI.
• Data Utilization: The India Datasets Programme aims to provide non-personal or anonymized data for AI training, crucial for developing India’s AI capabilities.

Developing an Architecture for GovAI

• Dataset Utilization: DPIs like Diksha can train AI models for improved service delivery, such as smarter education outcomes.
• Small Language Models (SLMs): Models for specific use cases can evolve into large language models (LLMs) through cooperative learning.
• Future Collaboration: Sovereign AI models could collaborate with other AI models globally to enhance learning and move towards artificial general intelligence (AGI).

Government and Innovators Partnership

• Leadership Support: India's Sovereign AI initiative requires backing akin to that provided to the Digital India and Semiconductor Mission.
• Partnerships: Collaboration between government, private sector, and academia is crucial for building AI models, platforms, and talent.
• Global Impact: Developing Sovereign AI could position India as a leader in safe, trusted AI, especially for the Global South.

Kisan Credit Card (KCC) Scheme Update

The central government is anticipated to increase the borrowing limit under the Kisan Credit Card (KCC) scheme from Rs 3 lakh to Rs 5 lakh in the upcoming Union Budget for FY26. This update is expected to be announced on February 1.

Rationale for the Increase

• The last revision of the KCC limit occurred some time ago.
• Continuous demands have been received by the government to raise the limit.
• The increase aims to support farmers and boost rural demand.

The government's decision to enhance the borrowing limit under the KCC scheme reflects its commitment to addressing the financial needs of the agricultural sector and stimulating economic activity in rural areas.

Understanding the Impact of Legalizing Minimum Support Prices (MSPs)

The debate around MSPs (Minimum Support Prices) is complex and has significant implications for both farmers and the economy. While the intent to support farmers is understandable, it's crucial to comprehend the intricacies of the market economy before making MSPs legally binding.

Challenges with Legalizing MSPs

• Market Dynamics: In a typical market economy, prices are determined by supply and demand. Legalizing MSPs would disrupt this balance, leading to potential market inefficiencies.
• Excess Supply: If MSP is set above market equilibrium, it may result in excess supply, which the government would then need to manage, raising questions about feasibility and resource allocation.
• Government Burden: The government would have to absorb unsold excess produce, which presents logistical and financial challenges.

Alternatives to Legalizing MSPs

• Price Deficiency Payments: Compensating farmers for the difference between MSP and market prices is another approach, but it risks market manipulation and collusion.
• Stabilization Fund: Establishing a Rs 25,000 crore fund focused on crops like pulses and oilseeds may enhance MSP effectiveness without making it legal.

Market-Driven Growth

• Non-MSP sectors such as fisheries, meat, eggs, milk, and horticulture have demonstrated robust growth, indicating the effectiveness of free markets.
• MSP-backed crops like wheat and rice have grown at lower rates, highlighting potential inefficiencies in the MSP system.

Policy Implications and Recommendations

• Agri-Value Chains: Encouraging models like AMUL can increase farmers' share of consumer prices, thus supporting income without legalizing MSPs.
• Consumer Bias: Current policies often suppress market prices, inadvertently taxing agriculture and harming farmers.
• Liberalization: Further liberalizing agricultural markets can potentially benefit farmers more than legalizing MSPs, aligning with broader economic reforms.

The views presented are personal insights by Gulati, a Distinguished Professor at ICRIER, emphasizing the need for rational policymaking in agriculture.

India's Engagement with the Taliban

Indian Foreign Secretary Vikram Misri's meeting with the Taliban's acting foreign minister Amir Khan Muttaqi marks a significant diplomatic engagement for India with the Taliban regime, which took control in August 2021. This meeting, held in Dubai on January 8, suggests an elevation in the level of dialogue, despite the absence of formal recognition of the Taliban by India or the international community.

Geopolitical Context

• The meeting coincides with heightened geopolitical tensions, particularly between Afghanistan and Pakistan. India condemned Pakistani airstrikes in Afghanistan, which allegedly targeted Tehrik-e-Taliban Pakistan (TTP) camps but resulted in civilian casualties.
• The Durand Line, established in 1893, remains contentious. The Taliban rejects its legitimacy, aligning with TTP's ambitions to evict Pakistani forces from Pashtun tribal lands.
• Pakistan's historical strategy of using Afghanistan for "strategic depth" against India is now challenged by an assertive Taliban, which supports TTP's operations against Pakistan.

International Terrorism Dynamics

• Links between the Taliban, TTP, and al-Qaeda persist, with these groups opposing the Islamic State (Khorasan Province).
• Comparisons are drawn to Syria, where Hayat Tahrir al-Sham (HTS) has gained control. There's speculation about potential rehabilitation of the Taliban akin to recent shifts towards HTS.

India's Diplomatic Strategy

India's decision to engage with the Taliban at a senior level is strategic, aligning with other countries like China and Russia, which quickly established contact with Taliban 2.0.

Humanitarian and Development Assistance

• India has offered material support focusing on health sector initiatives and refugee rehabilitation, amid Pakistan's expulsion of over 500,000 refugees.
• India has been providing essential supplies such as medicines, vaccines, surgical items, and educational materials to Afghanistan.
• The Union Budget for 2024-25 allocates Rs 200 crore in assistance for Afghanistan, highlighting India's commitment to humanitarian efforts.

Opportunities for Collaboration

• There is potential for India to collaborate with Iran, utilizing Chabahar Port to expand trade and humanitarian aid.
• Strengthening bilateral ties through cultural exchanges like cricket can engage Afghan youth, as seen with Afghan players in the Indian Premier League (IPL).

Given the complex geopolitical landscape, India aims to bolster its humanitarian aid and potentially revive development projects in Afghanistan, aligning with its "Act West" policy and long-standing friendship with Afghanistan.

Shifts in Silicon Valley Post Trump's Re-election

The re-election of Donald Trump in the United States has prompted significant changes in the tech landscape, particularly in Silicon Valley. Here's a breakdown of these developments and their implications:

Meta's Fact-Checking Changes

• On January 7, 2025, Meta, the parent company of Facebook and Instagram, announced major alterations to its fact-checking program.
• The changes are aimed at prioritizing free speech, following a "Community Notes" model similar to X.
• CEO Mark Zuckerberg emphasized the move as a step towards greater freedom of expression.

Alignment with New Administration Ideas

• Elon Musk, a key figure in the new administration, supports this less restrictive approach, advocating for "anti-censorship."
• The alignment between Zuckerberg and Musk indicates a shift towards prioritizing expression over censorship.

Global Implications and User Experience

• With Facebook's 3 billion users worldwide, particularly in countries like India, Brazil, and Indonesia, any policy changes will have global repercussions.
• Social media platforms are not just connectivity tools but also significant sources of news and information.
• The spread of misinformation, as seen during the Covid-19 pandemic, poses substantial risks.

Influence of Social Media

• Elon Musk's actions on platforms like X highlight the power of social media posts in influencing global politics.
• His involvement in issues like the "grooming gangs" scandal and political endorsements has caused international concerns.

Strengthening Institutional Media

• To address misinformation, there is a call to strengthen institutional media.
• The tech industry, while influential, is ultimately driven by business interests and cannot be the sole source of reliable information.

Overall, these developments in Silicon Valley following Trump's re-election underscore the evolving role of Big Tech in global politics and the importance of diversified news sources.

Investment in Inland Waterways

India is set to invest about ₹50,000 crore over the next five years to enhance its inland waterways. This decision follows a meeting of the Inland Waterways Development Council (IWDC).

Key Initiatives

• Funding Allocation: 
  • Approximately ₹23,000 crore has been allocated for the New National Waterways Development and Green Shipping initiatives.
• Shipbuilding and Ship Repair: 
  • The government plans to develop facilities for shipbuilding and repair across all national waterways, aiming to reduce logistics costs and support ancillary industries.
• Riverine Community Development Scheme: 
  • This scheme aims to improve the socioeconomic well-being of coastal communities by enhancing infrastructure, promoting trade and tourism, and providing skill training.

Infrastructure Developments

• Floating Jetties: 
  • Six floating steel jetties on the Godavari River (NW 4) in Andhra Pradesh.
  • Ten community jetties on the Mandovi (NW 68), Cumberjua (NW 27), and Zuari (NW 111) rivers in Goa.
  • Additional jetties on Sal (NW 88) and Chapora (NW 25) rivers.
• Technology and Maintenance: 
  • Proposals for fairway maintenance in NW 68, NW 27, and NW 71 have been approved.
  • A Quick Pontoon Opening Mechanism (QPOM), designed by IIT-Kharagpur and tested on the River Ganga (NW 1), is to be extended to all National Waterways (NWs). Two QPOMs have been launched for deployment in Uttar Pradesh and Bihar.

Planned Developments in Uttar Pradesh

• Inland Waterways Transport: 
  • Eight floating jetties will be built in Mathura, along with two steel jetties and an electric catamaran in Ayodhya.
  • A ship repair facility is being developed in Ghazipur to minimize vessel downtime due to maintenance.

Return of Startups to India

Encouraged by the removal of the angel tax, several startups are relocating their headquarters back to India. This move is attributed to the decision outlined in Budget FY25, which abolished the angel tax or Section 56(2) VII B of the Income Tax Act.

Angel Tax Abolition

• Introduced in 2012 as an anti-abuse measure to prevent tax avoidance and curb money laundering.
• Taxed the difference when shares were issued at a price exceeding the fair market value (FMV) as income from other sources.

Impact of Government Initiatives

The government's focus on ease of doing business has led to a trend called reverse flipping, where Indian startups that initially set up headquarters abroad are moving back to India.

• The equity market is beginning to reflect the impacts of reverse flipping.
• The Ministry of Corporate Affairs has expedited the process to facilitate this movement.

Startup India Initiative

• Since its inception in 2016, the number of registered startups has surged to over 157,000 by the end of 2024 from approximately 400.
• Startups raised $155 billion in funding in 2024, compared to $8 billion in 2016.
• Generated over 1.7 million jobs in India.

International Interests and Collaborations

Countries like Saudi Arabia have expressed interest in India's Startup Mahakumbh event. The government is in discussions with various nations to enhance exposure for Indian startups.

Gold Monetisation Scheme (GMS) in India

India has approximately 22,000 tonnes of gold in households, equivalent to 26 years of gold imports. To leverage this gold and decrease import dependency, gold trade bodies have proposed enhancements to the Gold Monetisation Scheme (GMS) to the government.

Proposed Enhancements

• Flexible Tenures: Encourage banks to offer varied tenures for gold deposits to meet diverse depositor needs.
• Higher Interest Rates: Increase rates to make the scheme more appealing.
• Tax Exemption: Assure no tax enquiries for up to 500 grams of ancestral gold deposits.

Current Situation

• India's gold imports reached a record $47 billion in the first 11 months of 2024, exceeding $42.6 billion in 2023.
• Gold prices have surged to historic highs, with physical market prices at ₹77,908 per 10 gm.
• Current GMS participation remains low due to procedural and trust issues, despite the potential of mobilizing 22,000 tonnes of gold.

Participation & Challenges

• Recognition of reputed retail jewellers to promote customer participation.
• Current rules stipulate a minimum deposit of 10 grams of raw gold, with no maximum limit.
• Terms for deposits: 
  • Short-term: 1-3 years
  • Mid-term: 5-7 years (2.25% interest)
  • Long-term: 12-15 years (2.5% interest)
• The interest rate for short-term deposits is decided by the respective bank.

India's Strategy to Attract Foreign Investments through Low Data Tariffs

India is leveraging its low data tariffs to attract foreign investments, particularly from companies dependent on affordable and fast broadband connectivity for delivering essential services.

Key Objectives

• Highlighting India's low data rates compared to countries such as China, US, UK, and Australia.
• Emphasizing the rapid adoption of 5G services and affordable 5G phones in India's large mobile phone market.

Government Initiatives

• The Prime Minister’s Office (PMO) is collaborating with the Department of Telecommunications (DoT), Ministry of External Affairs, and the Department for Promotion of Industry and Internal Trade (DPIIT) to promote India's low data rates.
• The telecom department is actively promoting India as an attractive investment destination offering affordable internet access.

Data and Statistics

• India's average data pricing is $1.89/month, significantly lower than China ($8.84/month), the US ($49/month), and the UK ($12.5/month).
• The expected growth of the smartphone user base from 695 million in FY25 to 915 million by March 2027.
• India's 5G smartphones reached 250 million by September 2024, comprising over 83% of shipments.

Telecom Developments

• Reliance Jio and Bharti Airtel have completed the national rollout of 5G services, while Vodafone Idea plans a phased launch.
• The PMO is pursuing a comprehensive evaluation of the 100-plus 5G labs in the country to foster competition and productivity.

Security Concerns

The PMO has raised concerns about Indian mobile handsets in border areas automatically catching signals from neighboring countries' telecom operators, urging the DoT to investigate and address the issue.

Japan's Sanctions Against Russia

Japan's Cabinet has taken significant steps to escalate sanctions against Russia due to its war on Ukraine. This move aligns with the efforts of the G7 industrialized nations to reinforce measures against Russia's actions.

Details of the Sanctions

• Asset Freezing: The sanctions include freezing the assets of numerous individuals and groups associated with Russia.
• Export Bans: There is also a ban on exports to various organizations in Russia and other countries suspected of helping Russia evade existing sanctions.

Japan's Commitment

Chief Cabinet Secretary Yoshimasa Hayashi emphasized that these additional sanctions demonstrate Japan's dedication to joining G7 nations in their unified response to Russia's invasion of Ukraine.