Q.1) Recently ministry of corporate affairs (MCA) has deregistered about 50,000 companies. Highlight the threats posed by illegal shell companies and steps taken by government to deal with them. (GS-3)
Answer: Shell companies include multiple layers of companies that have been created for the purpose of diverting money or for money laundering.
Threats posed by illegal shell companies:
- These companies are sources or destinations of money laundering. Thus, they can convert money gained from illegal activity into legal money.
- Often these companies misuse their corporate structure for various illegal purposes.
- Sometimes shell companies are created for the purpose of evading tax. They affect the tax revenues.
Steps taken so far:
- Ministry of Corporate Affairs(MCA) and Central Board of Direct Taxes (CBDT) signed a Memorandum of Understanding (MoU) to facilitate the sharing of data and information with each other on an automatic and regular basis.
- SEBI directed stock exchanges to initiate action against 331 suspected shell companies and bar them from trading.
- MCA cancelled the registration of around 2 lakh defaulting companies and Ministry of Finance directed banks to restrict operations of bank accounts of such companies by the directors of such companies. MCA has identified directors for disqualification under Companies Act, 2013.
- A database of shell companies was compiled by the SFIO.
- The constitution of the Special Investigation Team on Black Money.
- Enactment of The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Income Declaration Scheme, 2016, Benami Transactions (Prohibition) Amendment Act, 2016 are measures taken from the legal front.
- Demonetisation scheme
Steps that can be taken:
- Clean up the corporate registry from time to time.
- Create a transparent and compliant corporate ecosystem.
- Promote ease of doing business and simplify tax compliance for corporates.
Q.2) Instances of people losing their hard-earned money to Ponzi schemes keep coming to light. What are Ponzi schemes? How these schemes run unhindered in India? In your opinion, what steps should be taken to curb the menace of these schemes? (GS-3)
Answer: A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. Schemes run by Sharda group have led to a major crisis in West Bengal.
How these schemes run despite many failures:
- People are often lured by promises of quick gains.
- Lack of financial literacy in rural areas makes people vulnerable to deceit.
- There are no regulatory measures to prevent such scheme.
- Poor financial inclusion in the country attracts the poor to such illegal sources of money(for credit).
Steps to be taken:
- The Banning of Unregulated Deposit Schemes Bill, 2018 aims to provide comprehensive legislation to deal with illicit deposit schemes.
a) Complete prohibition of unregulated deposit taking activity.
b) Deterrent punishment for promoting or operating an unregulated deposit taking scheme.
c) Punishment for default in repayment to depositors.
d) Designation of a competent authority by State government to ensure repayment of deposits in the event of default.
e) Attachment of assets of a defaulting establishment.
f) Designation of courts to oversee repayment of depositors and to try offences under the Act.
g) Listing of Regulated Deposit Schemes in the Bill. Central government can expand or prune the list.
h) It also bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme.
2. Increasing Financial Literacy in the citizens.
3. Stricter implementation of fines and punishments.
4. Expanding financial inclusion.
Q.3) What do you understand by corporate social responsibility? What relationship does corporate governance share with corporate social responsibility? (GS-4)
Answer: Corporate social responsibility is a business approach to contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders.
IT is generally understood that following the principles of corporate governance will eventually lead to CSR. The Companies Act prescribes a mandatory CSR spend of 2% of average net profits for companies.
Relation between CG and CSR:
- CG is usually incorporated in the company’s governance mechanisms.
- Both these concepts focus on the ethical aspects of doing business.
- They lead to better image of the company and thus affects its performance positively.
- Fulfilling CSR norms but faulting on Corporate Governance is usually seen. Here, CSR is used as a marketing strategy than genuine intention in helping all round development.
- CG is related to profit maximisation while CSR is about sharing the profits for others’ welfare.
- The officials of an organisation who are hired with due technical qualifications may not fulfil its CSR mandates.
It has to be remembered that CG may not eventually lead to CSR. If a company visualises its long term growth in terms of allround welfare, it may incorporate CSR principles into its CG strategy.
Q.4) What do you understand by “entrepreneurial governments”? Do you think civil servants need to develop entrepreneurial behavior? (GS-4)
Answer: A government which takes an entrepreneurial approach in handling its responsibilities is called entrepreneurial government. Just life free market and competition benefits the public at large, this kind of government is expected to serve the citizens better.
Principles of entrepreneurial government:
- It defines missions in terms of objectives.
- The objectives are realistic.
- It embraces change.
- It is market-oriented.
- Customer driven
- Community owned
Need for entrepreneurial approach:
- It brings in efficiency in implementing government programs and thus cuts down government budgets.
- As it is more citizen-friendly, it gives preference to local needs rather than imposing programs in a top-down approach.
- Government sector’s performance is poor when compared to the private sector in service delivery. These new principles can improve the quality of Public Service Delivery.
Problems with the approach:
- It may lead to excessive privatisation, which is harmful in essential sectors life health and education.
- Welfare attitude of government is required in poor and developing countries. Business approach may not always help.
- Efficiency is needed, but it cant be given more priority over equity and effectiveness. For example, though many schools are running successfully under private sector the question whether they are accessible to all needs to be answered.