Thursday, January 31, 2013

GMO - boon or curse - two contrasting views

source of cartoon : for link click here
Anybody who is concerned with various burning issues the world is facing, will recognize that GM seeds or Genetically modified seeds is of prime concern for the human population. But the views are so divergent, that it is difficult for a person of reasonable intellect to decipher, which one is more acceptable. I have been reading on this subject for quite some time , but none of them has been able to satisfy me fully. However recently I read three wonderful articles from two different sides of the spectrum. Let us not be judgmental and read with open mind.

Before that for the starters, Genetically modified foods or biotech foods are foods derived from genetically modified organisms (GMOs), specifically,genetically modified crops. GMOs have had specific changes introduced into their DNA by genetic engineering techniques.

These techniques are much more precise than mutagenesis (mutation breeding) where an organism is exposed to radiation or chemicals to create a non-specific but stable change. Other techniques by which humans modify food organisms include selective breeding and somaclonal variation. I think that green revolution started in India by Mr Swaminathan is done by using this method.

According to wikipedia "While there is broad scientific consensus that food on the market derived from GM crops pose no greater risk to human health than conventional food,critics have objected to GM foods on several grounds." Genetically engineered plants are generated in a laboratory by altering their genetic makeup and are tested in the laboratory for desired qualities. Scientists first discovered that DNA can transfer between organisms in 1946.The first genetically modified plant was produced in 1983, using an antibiotic-resistant tobacco plant. In 1994, the transgenic Flavr Savr tomato was approved by the FDA for marketing in the US. Therefore the commercial sale of genetically modified foods began in 1994, when Calgene first marketed its Flavr Savr which delayed ripening tomato. There are differences in the regulation of GMOs between countries, with some of the most marked differences occurring between the USA and Europe. Whether they should be labelled or not.

'It is also being argued that GM seeds bought from corporations come with a TERMINATOR GENE. That means the seeds borne by those same crops cannot be reused for growing crops. For second use, you have to buy from company again. You are thus dependent on the company for seeds. After some time, the normal seeds will no longer be available in enough quantity, to return to organic farming and you become slave to the company ..... This is FOOD IMPERIALISM.' However there can be a counter argument,what is more harmful: 1. An indigenous variety laden with fertilizers and pesticides (which could cause cancer in 5-10 years) 2. A modified strain which can do better with less chemicals but may cause cancer in 15-20 years.

And the main culprit is Monsanto : the largest company in the world which is into this business.In fact it is so powerful that it controls government.So it must be veryyyyy BIG. Let us see how big it is. In the financial year 2012, in India, its Sales was Rs 386 crore and profit was Rs 50.32 crore ( in contrast the Reliance Industries was more than Rs 339,792 crore (around 62 Billion $ ) and profit was more than Rs 18,000 Crore (around 3.2 Billion $) in the financial year 2012 (, which makes the turnover of Reliance similar/bigger than GDP of Sri Lanka !!

Let us see, how big  Monsanto world wide : Monsanto's sales  in the financial year 2012 was 12 Billion $ and profit was 1.7 Billion $ ( ). Just to remind you that Sales/ turnover of Walmart is more than 400 Billion $ .

Lets read what Greenpeace Executive Director / chief of India, Samit Aich writes in ET on 25.1.13. 

"It is my duty to adopt a cautious, precautionary principle-based approach and impose a moratorium on the release of Bt brinjal, till such time independent scientific studies establish to the satisfaction of the public and professionals the safety of the product from the point of view of its long-term impact to human health and environment, including the rich genetic wealth of brinjal existing in the country," said the then-Union minister for environment, Jairam Ramesh, on Bt brinjal moratorium. This decision, he further stated, "is both responsible to science and responsive to society", which also represents the GM debate in India.... It created the space for scientific concerns on the impact of GM crops on human health and the environment, besides those on socioeconomic considerations.

It is not surprising to see the opposition to GM crops in India, like elsewhere, was started by scientists on the impact of GM. Stalwarts like Dr M S Swaminathan and Dr Pushpa Bhargava have recommended precautionary-based approach towards Bt brinjal and, more recently, the Technical Expert Committee (TEC) appointed by the Supreme Court has emphasised on a science-based cautious approach towards open releases of genetically-modified organisms (GMOs). It proves that the science community continues to have concerns around GM crops.

The TEC, made up of eminent scientists from the fields of molecular biology, toxicology, biodiversity and nutrition science, in their interim report to the court, highlighted the potential impact of GMOs on health, biodiversity and socioeconomic realities and the abysmal standards of GM regulation in India.

While the biotech seed industry lobbies went around town tarnishing the TEC recommendations, more than 120 scientists made a submission to the Supreme Court urging the Hon'ble judges to accept the TEC report. More than 20 farmer unions from across the country too wrote to the apex court demanding the same.

In the last 15 years, India has witnessed modern biologists, socio-economists, ecologists and health experts raising concerns on the mindless rush towards GM crops. It is unfortunate that these scientific concerns are being sidelined and trampled by the powerful GM lobby led by MNCs like Monsantoand their cronies. GM crops are a false solution to the global food and farming crisis. If there is one thing that is a constant, it is the propagation of the myth that GM crops are a necessity, if the world has to feed its growing population. The same myth is propelled in India as well, both by the seed industry and its supporters..
However, the latest global food projections by USDA show that the current world food production can feed 13 billion people, double the existing population.

Similarly, in India, we are sitting on one of world's biggest hoards of food grainaround 667 lakh tonnes (till January 1, 2013), which is 2.5 times more than the government's benchmark for buffer stocks. It is disgusting how 21 million tonnes of wheat perish every year due to lack of storage and distribution facilities. How is it that the government insists on more production in the name of food security while we sit on mountains of food grain, wasting it?

In fact, intensive agricultural practices promoted by GoI like the Green Revolution have destroyed the soil and polluted and depleted water table in the Indo-Gangetic plains of Punjab, Haryana and western UP. Mindless usage of toxic pesticides has further added to it and GM crops are a continuation of these input-intensive models of farming.

However, this has not saved farm livelihoods. Going bythe National Crime Records Bureau, more than 2.5 lakh farmers have committed suicide in the last 20 years, most of it due to agrarian distress, and a majority of them were from the cotton belt of Vidarbha, where aggressive promotion of Bt cotton took place. It has exposed the government's bluff of GM crops being the panacea for agrarian distress.A 10-year review of Bt cotton by the Central Institute of Cotton Research, Nagpur, shows that yield has not increased in proportion to acreage of Bt cotton. 

Even the IAASTD report, to which India is also a signatory, calls for a fundamental change in farming practices and acknowledges that GE crops are highly controversial and will not play a substantial role in addressing the key problems of climate change, biodiversity loss, hunger and poverty. The initiative sponsored by the United Nations and the World Bank had 450 scientists analysing developments in agricultural science and technology and their impacts in the last 50 years.

So, if our government and all of us are serious about solving our food and farming crisis, it really is high time that we stop parroting the seed industry and start focusing on progressive science of agroecology.

For the link click here 

Now read what Swaminathan A Aiyar wrote in ET

Last week, Greenpeace's chief in India, Samit Aich, wrote a column in ET on genetically-modified crops. In this, he repeated an old green falsehood, that Bt cotton has failed to raise cotton yields in India. For the truth, consult the government's Economic Survey 2011-12 (see accompanying graphic).

Bt cotton cultivation began in 2002, and its acreage shot up from 0.29 million hectares in 2002 to 9.4 million hectares in 2011-12.
Bt cotton cultivation began in 2002, and its acreage shot up from 0.29 million hectares in 2002 to 9.4 million hectares in 2011-12.

India's cotton yield was 225 kg per hectare in 1990-91. It fell to 190 kg per hectare in 2000-01, a bad monsoon year. Bt cotton cultivation began in 2002, and its acreage shot up from 0.29 million hectares in 2002 to 9.4 million hectares in 2011-12. By this time, the Bt variety accounted for 90% of cotton acreage. The result? Cotton yield rose to 362 kg per hectare in 2005-06, and then increased further with fluctuations to 510 kg per hectare in 2010-11.

In a decade, the yield more than doubled. The truth is clear. Bt cotton has raised yields hugely. Greenpeace and other activists lack the honesty to admit they were wrong. Instead, they desperately search for studies showing poor Bt cotton results in some conditions or areas. These may show, for instance, that Bt cotton fared much less well in Vidarbha than Gujarat. So what? How does that change the truth that Bt cotton has been a boon overall? When Bt cotton was introduced in India, activists claimed it had low yields and would be uneconomic.

Once the crop started spreading in India, activists produced fresh field studies purporting to show that Bt cotton had actually reduced yield and ruined farmers. At that time, I asked farmer leader Sharad Joshi of the Shetkari Sanghatana for his views. He said, "Let the activists stick to ecological issues. Why are they talking about yields? The farmer knows better than any scientist or activist what his farm yields. Let him decide." But, I said, the activists say illiterate farmers might be misled by seed companies. So why not look at yield studies by scientists? Joshi replied, "The illiterate farmer is no fool. If he finds that a new variety yields more, he will expand his acreage regardless of what any activist or scientist says.

If his yield falls, he will abandon that variety regardless of what any seed companysays. Forget scientists or ecologists or seed companies. The farmer knows best." I learned about the wisdom of farmers as a young journalist in 1966. I was part of a press group taken to see the progress of TN-1 rice, a high-yielding variety the government was promoting as its spearhead for a green revolution in rice. Despite aggressive promotion by state governments, farmers refused to adopt TN-1.

They also rejected another variety, Tainan-3. Only when IR-8 arrived two years later did farmers test it and declare that high-yielding varieties worked. Only then did the green revolution in rice take off. Farmers refused to accept varieties just because scientists or researchers claimed these were good. Farmers proved they were hardheaded realists, who could not be taken for a ride. So, Greenpeace and other activists need to end prevarications about gullible Indian farmers being duped to grow uneconomic Bt cotton. Farmers have switched massively from other crops to Bt cotton.

They pay hefty rentals (over Rs 50,000 per hectare in Punjab) to lease land to grow Bt cotton. Would they be so stupid as to pay such high rentals if it was uneconomic? Activists now warn that pests are developing resistance to old varieties of Bt cotton, and so, new, costlier varieties will have to developed. So what? Antibiotics have saved millions of lives the world over, and have hugely improved and lengthened human life. But bacteria have developed drug resistance, and to overcome this new, costly antibiotics have to be developed. Does this mean antibiotics have not been a boon? 
Alexander Fleming won the Nobel Prize for discovering penicillin.Today, many bacteria are resistant to penicillin. Will Greenpeace demand that Fleming's Nobel Prize should be revoked? 

The boon of antibiotics would be even bigger without drug resistance, but it remains a boon even with resistance. Exactly the same holds for Bt cotton. Aich and other activists keep implying or saying outright that anyone having a good word for GM crops is a crony of multinational seed companies. Really? Is the agriculture ministry a division of Monsanto? Is the finance ministry, which brings out the Economic Survey, a paid hack of Monsanto? Am I a paid hack? The claim that anybody who disagrees with green activists is a crony of seed companies is outrageous green McCarthyism. It is intellectually bankrupt and morally malodorous.

Aich touches on many GM issues other than Bt cotton. In effect, he seems to be saying, let us disagree on Bt cotton and move on to other GM issues. Sorry, but I will not move on since his position on Bt cotton is not a mere disagreement. It is a falsehood.

Lets read even more interesting article by him:

Mark Lynas, a green activist who once ranted against and destroyed fields of genetically modified (GM) crops, has recanted and apologised for "demonising an important technological option." Other activists like Greenpeace and Vandana Shiva need to do the same.

Lynas says when he first heard of Monsanto's GM soya, he thought a nasty US corporation was putting out a monster food by mixing genes. He helped kindle fears that effectively shut down GM foods in Europe and in developing nations like India. But having gone into the science behind it—and getting the Royal Society science book prize for his 'Six Degrees'—he found his beliefs on GM foods were myths.

"I'd assumed that GM would increase the use of chemicals. It turned out that pest-resistant cotton and maize needed less insecticide.

"I'd assumed that GM benefited only the large companies. It turned out that billions of dollars of benefits were accruing to farmers needing fewer inputs.

"I'd assumed that Terminator technology (which Monsantowas accused of) was robbing farmers of the right to save seed. It turned out that hybrids did this long ago, and that Terminator never happened.

"I'd assumed that no-one wanted GM. Actually what happened was that Bt cotton was pirated into India and Roundup-Ready soya bean in Brazil because farmers were so eager to use them.

"I'd assumed GM was dangerous. It turned out that it was safer and more precise than conventional breeding using mutagenesis for instance. GM just moved a couple of genes whereas conventional breeding mucks about with the entire genome in a trial and error way.

"But what about mixing genes between unrelated species? The fish and tomato? Turned out that viruses do that all the time, as do plants and insects and even us—it's called gene flow."

Lynas argues that a global population of 9.5 billion by 2050 will require a doubling of food output. To achieve that with low-yielding organic technology, huge forests and grasslands will have to be cleared and cultivated. This will devastate the environment, biodiversity, and water supply. No, the world needs higher yields, and GM is a way of achieving that.

Organic farming is fundamentally the same as traditional pre-green revolution technology that kept the world at the Malthusian edge of starvation throughout history. 

Fortunately, modern scientists led by Nobel Laureate Norman Borlaug showed that high yielding varieties (with manipulated wheat genes) using large doses of fertiliser could more than double yields and thus prevent mass starvation. Indian youngsters have no idea how terrible and humiliating were the droughts of 1965-66 that made India entirely dependent on US food aid to stem starvation.
Fortunately, the Green Revolution then replaced organic with high-yield farming, and converted India from a starvation area to a food exporter. Borlaug said organic farming could meet the demand of elites for superior, costly food.
But it could not meet mass needs. Greenpeace and other activists seem determined to push the world into food scarcity, falsely claiming that organic farming can produce as much as high-yielding varieties. By spreading false scares about GM foods and demanding ever-more testing, says Lynas, activists have increased the time for regulatory clearances from 3.7 years to 5 years, and raised the cost of bringing a GM variety to market to a whopping $139 million. Only the biggest multinationals like Monsanto can stay in this game.Thus, activists have conferred monopoly status on the very companies they claim to abhor. Last year, Greenpeace activists destroyed a GM wheat crop in Australia. But another GM wheat trial showed a yield increase of 30 per cent.
Activists wanting to destroy a variety before it is tested are like medieval churchmen burning books and persecuting Bruno and Galileo to prevent scientific truths from coming out. 
Organic produce is not safer, says Lynas. In 2011, Germany's organic beansprouts caused 23,500 cases of kidney failure and 53 deaths.Consumers who died thought, wrongly, that they were eating something safer than fertilised vegetables. Lynas says, "The GM debate is over...We no longer need to discuss whether it is safe. Over a decade and a half with three trillion GM meals eaten, there has never been a single substantiated case of harm. You are more likely to get hit by an asteroid."
Americans have happily eaten GM maize and soya for 15 years. European governments have been intimidated into banning GM foods, yet European tourists visit the US and eat GM foods there without any harm. 
Yet, Lynas is wrong in saying the debate is over. Pro-Greenpeace scientists say that not even 15 years and three trillion meals are enough to establish safety. They seek to kill GM through endless delays that make GM production uneconomic.
The debate will not end till the public realises it has been taken for a green ride. Lynas tells activists: "You are entitled to your view. But you must know by now that they are not supported by science."
The world needs more green rebels like Lynas.
For full article read the following link Click here

Now time for some laughter, through a wonderful cartoon here

Let there be more light ! and debate !

Friday, January 25, 2013

All you want to know about GDP

source: source : click here for the full article

what are these income,production and expenditure methods in calulating GDP?how do terms like NNP, NDP, GNP,GDP,NNPFC,NNPMP DIFFER FROM EACH OTHER. what is difference between gdp at constant prices and current prices. its very confusing
I’ll deal with each question in one post. First, lets refresh the concepts again.

GDP (Gross Domestic Product) means,

Money value of everything you produce within your country.
(Domestic=within country).
Everything means products and services.

GNP (Gross National Product) means,

The Money value of everything you produce within your country PLUS your income from abroad. Anil Kapoor goes to America, get 5 million dollar$ to play baddie in Mission Impossible 4, but sends that money to India = counted in India’s GNP.

But with same logic, Cricket Coach Gary Kirsten gets 50 lakh rupees from BCCI, and sends it to his family in S.Africa, you’ve to deduct it from India’s GNP. (South Africans will count it in their GNP)

Similarly, Americans will subtract the dollar value of Anil Kapoor’s remittance to India while counting their GNP.

So, what’ll be the (stupid) formula?

Gross National production=Money value of everything produced within India+Incoming money from outside-Outgoing money to abroad.
Or GNP = GDP + incoming money from abroad – Outgoing money to abroad.
How GDP calculated and what is are these income, production and expenditure methods.

GDP is calculated by three methods.

Theoretically all three of them should give same final number, but in reality there will be slight difference between each of them.


Here you count the money spent by everyone.
So How to make a ‘technical’ formula? 
Ask yourself, where is the money changing hands? There are 5 components of that.
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like you and me buying (overpriced) daal, vegetables and milk (courtesy: Sharad Pawar).
I buy your second-hand bike for 15,000 Rupees, should we including it in the consumer Expenditure (C) ? 
Nope. Because the bike Is not ‘produced again.
Second hand products are not counted
When you had bought that bike for Rs.30000, 10 years ago, we had counted that money in that year’s GDP. So the same second hand-product sale money cannot be counted in this year’s GDP.

Now, I buy your second-hand bike from an auto dealer, (who gets Rs.1,000 Commission) should we include it in the (C)? 
Hell Yes, because he sold his ‘service’ to me uniquely. Every time he sells a second hand product, although no new ‘product’ is created but new service is delivered by him.


Each service/ product has separate value even if same currency note is used to purchase it
I gave a note of Rs.1,000 to that dealer as part of his brokerage (dalaali) and he gives the same Rs.1000 note to the electricity company for his monthly bill.
Same Rs.1,000 note is changing hands so is our GDP =Rs.1,000 ? Nope. GDP is the money value of everything produced within India. So brokerage service is Rs.1000 separately and the electricity produced is also worth Rs.1000 separately. Therefore, even as same 1000 rupee note is given to both parties.

Total GDP=1000 brokeage+1000 electricity bill=Rs.2000

If electric co gives that 1000 rupee note to its peon as salary, then again it has to be counted. Because peon sold his unique service separately to the company. So in that case
Total GDP =Brokerge+Electric bill+peon^’ salary=Rs.3000

#2: Investment [I]

People investing in sharemarket, putting money in banks etc.

#3: Government spending [G]

Like buying (overpriced) sports equipment from Kalmaadi’s associates during Common wealth games. Government  paying salary to staff, buying new tanks and missiles..everything.

#4, 5 :Export & Import [X & M]

Money we get from export is added.
You remember that GDP means Money value of everything we produce within India. So if we import something, it has to be subtracted, because it is not produced within India.
So formula (for ease In remembering)
GDP = Consumer+Investor+Governer + (eXporter – iMporter)
Technically correct formula:

#B: Income Method of counting GDP

Here you count everyone’s income. But some people may be running business in credit (udhaari), sometimes payments are delayed. So may not give the ‘full picture’ for the given year.

#C: Production method of counting GDP

Total money value of everything produced (value added at each stage)
  1.     Farmer produced Wheat and sold 100 kg of it @ 2000 Rs. (Original value)
  2.     Flour mill, purchased it, grinded it and sold the flour to baker @ 2500 Rs. (+500 value added to previous purchase)
  3.     Baker made breads, cookies and biscuits and sold the total production @3500 Rs to its final customers. (+1000 value added to previous purchase)
what is total ‘GDP’ here?

2000+2500+3500=8000 Rs? 
Hell no! You’ve to see the value added.
So, total money value of this line is: 2000+500+1000=3500.

Not all of the wheat goes into Baker’s oven. Some of it will go in making beer, some in a normal household for making roti and so on. You’ve to track the value added in each different line.
To be continued… GDP at nominal price, Market price, Factor Cost, etc.etc.etc.

Another article - very nice

What is the difference between GDP, GNP and PPP?

Gross Domestic Product (GDP)
Gross domestic Product is the money value of all final goods & services produced by residents & non-residents within a country's boarders in a specified time period. GDP comprises of all consumption both private and public, government expenditure, investment and net exports (exports less imports) that transpire within an economy. GDP can be valued with three methods.
Value added method: This is also known as output or Production method. This method measures the value added by each producing enterprise in the domestic territory of a country. Then each producing enterprise is grouped into different sectors and finally the net value added by all sectors is added to derive the national income.
For example, a timber producer may sell wood to a furniture maker worth Rs. 10,000. The furniture maker adds value by converting this wood into an office table and sells it to a furniture retailer for Rs. 20,000. The retailer sells this table to you for Rs. 25,000. If you simply add up the sales turnover of all the three businesses, you will get an inflated picture of Rs.55,000, whereas in fact, it was one table which got finally purchased for Rs. 25,000. The value added method of GDP computation therefore considers only the value added at each stage of business done, in order to compute the total GDP of the country. In this method, the figures that will be considered is Rs.10,000 for the timber seller, Rs.10,000 (20,000 - 10,000) for the furniture manufacturer and Rs.5,000 (25,000 - 20,000) for the retailer.
Income approach: This method is based on the approach of factors of production and is calculated by adding all the income generated by the production of final goods and services. National income is computed by adding up the following :
    - wages & salaries of employees,
    - interest earned on capital, and other forms of investment income
    - profits of entrepreneurs & companies, and
    - incomes of self-employed people including farmers
Expenditure approach: The expenditure approach measures GDP by adding together the total expenditure incurred in buying a year's output: private and public consumption expenditures (C), investment (I), government expenditure (G), and net exports (NX).
GDP = C + I + G + NX
All three approaches should in theory come to the approximately the same figure. In India, the Central Statistical Organisation ( is responsible for computing and publishing GDP data on a quarterly basis.
How is GDP different from GNP?
Gross National Product represents the total market value of all finished goods & services produced in a year by a country's residents - whether within the country or outside. GDP however is a measure of all economic activity that took place within the country - whether conducted by residents or non-residents. For example, the sales of Jaguars and Land Rovers from Tata Motor's UK factories to UK citizens will be consolidated into Tata Motors' consolidated accounts. But from a national income point of view, these sales will not be counted within India's GDP as it was not domestically earned, but will be considered in GNP as it was earned by an Indian entity.
Nominal vs real GDP
When considering whether GDP is growing or not, one of the biggest impediments that does not allow for an evaluation across years is inflation. If the same quantum of goods and services were produced in 2 years but the value increased in the second year due to inflation, you can't really say that there has been growth in the economy in real terms. In order to understand what the real (inflation adjusted) GDP growth really is, the nominal GDP (GDP at current prices) is deflated using a GDP deflator to arrive at the real GDP. When this real GDP is measured against the previous year's real GDP, we get a truer picture of real GDP growth.
In India, the CSO currently uses 2004-05 as its base year for calculating real GDP. CSO routinely puts out 2 sets of GDP data - GDP at market prices (nominal GDP) and GDP at base year prices (GDP for the current period, but at 2004-05 price levels). The base year was shifted in 2010 to 2004-05, to reflect the latest trends in economic activities, expansion of coverage of many activities etc. More details on the hows and whys relating to the base year are available here :
When we say GDP is growing at say 6%, what is really meant is that in real terms (net of inflation), GDP is growing at 6%. If inflation is around 8% for the year, the nominal GDP growth would actually have been around 14% (6% + 8%). This growth of 14% is however not reflective of actual growth in underlying business activity as 8% out of the 14% was due to inflation.
From a corporate profitability standpoint though, the nominal GDP growth is very relevant. If the nominal GDP growth is 14%, you can say that on average the sales (topline) of companies should have on average grown by 14%. Companies whose sales value grew at less than 14% can be argued to have grown less than the national average. A topline growth of 14% should normally yield a bottom line growth of something more than 14% as fixed costs would have got spread over a larger base. However, margin pressures often cause the bottom line to grow much slower than the topline, which is what we have recently been seeing.
GDP on a PPP basis
When comparing GDP levels across countries, the standard metric is to compare per capita GDP - GDP per individual - which is a broad approximation of income per individual in each country. In order to facilitate this comparison, all GDP data in respective currencies is re-stated in a single currency - the US dollar and is divided by the population of the country. India's GDP per capita is thus pegged at $ 1,704. This means that on average, an Indian earns $ 1,704 in a year - or Rs. 93,720 (1 US$ = Rs.55). When you compare this figure with the corresponding per capita GDPs of some developed nations like USA ($ 48,112), Germany ($39,456), UK ($ 35,598) etc, you get a clear picture of the relative levels of average incomes in respective countries, which tells you how economically well-off the average citizen of each country is, in relation to other countries.
There is however one criticism to this approach. If the idea is to determine economic well being, a clearly picture will emerge if you consider what amount of goods and services a certain level of income can buy in each country. After all, you earn to be able to afford to buy the goods and services you need. If your currency in the international markets depreciates due to a current account deficit or other factors, it may not necessarily mean you became correspondingly poorer in terms of your ability to buy your daily goods and services, most of which are produced locally and are thus less influenced by currency movements.
This is where the concept of Purchasing Power Parity (PPP) comes in. In this approach, you first take a standard basket of a few representative goods and services that a typical individual may consume in a month (say some food items, fuel, electricity, etc). You would then add up how much this common basket would cost in different countries and uniformly express these amounts in US dollars at current exchange rates. There will be significant variations in the dollar value of the same basket spent in various countries - whereas in theory, there shouldn't ideally be. If you find for example that the common basket costs $ 100 in US and Rs. 3,500 in India, when the Indian amount is expressed in USD (at say Rs.55 to a dollar), the dollar equivalent will work out to US$ 63. In other words, you need only $ 63 to actually buy the same basket of goods and services in India, which you would buy for $ 100 in US. This also means that in PPP terms, Rs.3500 = US$ 100 or in other words the exchange rate in PPP terms should be 1 US$ = Rs. 35 instead of Rs. 55, which is where the actual exchange rate is.
The Big Mac Index - published by The Economist is a simple way of arriving at PPP. By looking at the price paid in different countries for the same standard McDonald's burger, you can roughly estimate relative under/over valuations of respective currencies and arrive at a rough approximation of PPP. According to this metric, the Indian rupee is about 62% undervalued to the US dollar. In other words, if the same burger costs say US$ 3 in US, it should cost 3 x 55 = Rs. 165 in India, if the exchange rate is truly reflective of purchasing power parity. If however the burger actually costs Rs. 103 in India, then in PPP terms, Rs. 103 equates to 3 dollars and therefore the exchange rate in PPP terms should be US$ 1 = Rs. 31 and not Rs. 55. The Indian currency would thus be deemed to be undervalued by 62%.
As per current official data, India's per capita GDP when expressed in nominal terms is $ 1,704, but when expressed in terms of PPP, it works out to $ 3,608. This means that while he may have earned Rs. 93,720 in a year which translated to $ 1,704, in reality his earnings would have bought him goods and services worth $ 3,608 in the US, and not just $ 1,704 worth of goods and services.
Is India No 10 or No 3?
In terms of nominal GDP expressed in US$, India is today the 10th largest country - which means that we are no 10 in terms of the total value of goods and services produced by each country. But, if we were to look at the PPP angle, find out the per capita GDP on PPP basis and then multiply by our population to arrive at a GDP figure on a PPP basis, India ranks no 3 in the world, after US and China. Does this mean we are the 3rd largest economy in the world or are we the 10th largest economy in the world? What the PPP basis really tells us is that if we look at just the quantum of goods and services produced, we probably rank No 3 in the world. But when we put a value to this quantum of goods and services and then express this value in dollar terms, we are the 10th largest economy in the world. If anything, this does bring out starkly the need to correct some of the fiscal imbalances in the Indian economy, which can help the Indian currency find a healthier level that more accurately reflects its internal purchasing power.
What does the GDP composition tell us?
Here is a table which shows the composition of India's GDP, in relation to the other countries that make up the world top 15. While we are familiar with our own GDP composition, a comparison gives some good insights.
India's much vaunted services sector's contribution to GDP is really pretty much in line with world averages. What comes out as a sharp contrast to all other big countries is the very low level of contribution from industry to our GDP and the consequential higher contribution from agriculture. While much of the last decade went into lauding our service sector's contribution, it seems quite clear that for us to make meaningful and sustained progress from hereon, manufacturing will need to grow far more rapidly and incrementally attract more labour from agriculture into more lucrative jobs.

All you want to know about SARFAESI

source : To read the full article click here

What is NPA?

  • Bank gives loan to a person.
  • Person fails to make regular payments.
  • Bank gives him notice to correct his behavior. But he doesn’t.
  • Bank declares that loan as Non-Performing Asset (NPA) (=Bad Loan)
  • Currently Indian banks have NPAs worth more than Rs. 1 lakh crores.

Debt Recovery tribunals?

  • Prior to 1990s, banks had very hard time recovering bad loans.
  • Because often, borrowers (loan takers) would file frivolous cases in civil courts, then ….. proceeding would go on for years.
  • So 1993, Government established Debt Recovery Tribunals to deal with NPA matters.
  • Now borrower cannot approach civil court, they’ve to go to special Debt Recovery Tribunal (DRT).
  • This led to some relief, but then DRTs clogged down by truckload of cases. (Even now, more than 60,000 cases pending with DRTs)
  • In 2002, Government came up with new Act, named “SARFAESI Act”.

What is the Sarfaesi Act?

  • Securitisation
  • and Reconstruction
  • of Financial Assets
  • and Enforcement of Security Interest Act, 2002,
Suppose, Mr.Paraajay has opened factory with Rs.100 crores. He financed this, via mixture of Debt + equity in following way. 
HolderRupees in Cr.
Equity (IPO->Shares)Paraajay and his family20
Juntaa (public)30
Debt (loans, Bonds)Business loan from SBI40
  • Initially the company runs well and good.
  • But then Mr.Paraajay doesn’t revise his MBA books often, so he forgets the business concepts. His company starts making losses.
  • He fails to pay loan EMIs for many months.
  • SBI gives him notice to correct his behavior.
  • Still, he doesn’t start paying money.
  • SBI declares this Rs.40 crores loan NPA (Non-Performing Asset).
  • Once a loan is declared as non-performing asset, SBI can take actions under SARFAESI act, to recover the loan money.
Bank have following powers under SARFAESI Act
  1. Take possession of Mr.Paraajay’s assets without requiring court order. (Commericial or residential, fixed or moving assets.)
  2. Auction / Sale them
  3. Change the administration/ Management of those assets.
  4. If Mr. Paraajay had sold away the mortgaged asset to third party Mr. X, bank can order Mr.X to surrender that Asset.
  5. If Mr.X owes money to Mr.Paraajay, he can be ordered to pay money.
  • *ARCs explained after a few paragraphs.
  • SARFAESI applies only to loans above Rs.10 lakhs.
  • By the way SARFAESI applies only to those assets “mortgaged/secured” to get the loan.
  • E.g. if Mr.Paraajay had taken business-loan, SBI would have asked him to sign away his factory/machinary/vehicles/land etc. specific items as mortgage.
  • Hence SBI can attach only ^those assets.
  • But SBI cannot take away Paraajay’s personal home-furniture, expensive wrist-watch or his son’s bicycle in the name of SARFAESI.
  • Similarly, Agricultural land is exempted from SARFAESI attachment.

Appeal structure

The borrower (loan taker) has following options:
  • Get a stay order from Debt Recoverty tribunal (DRT) against the auction/sale of his properties. (He cannot file case in Civil courts.)
  • Fight the case in DRT.
  • If unhappy with DRT verdict, he can appeal to Debt Recovery Appellate Tribunal (DRAT).
  • But before filing appeal with DRAT, he’ll have to deposit 50% of his pending loan money.

Bank: Power to Auction

  • First SBI  contacts the experts, gets valuation of Mr. Paraajay’s assets.
  • Expert says “those assets are worth Rs.50 crores according to present market value of land/ building/ machinary whatever.”
  • Then SBI will give advertisement in newspapers “we are auctioning xyz land/machinary/building. Minimum bidding amount is Rs.50 crores. Whoever wishes to bid, send us application along with Rs.50,000 as deposit, and their class 10, 12 mark-sheets and school leaving certificates, duly attested by a Gazetted officer.”
  • Problem: sometimes, bidders do not take interest in buying such properties, factories etc.
  • To fix this problem, Amendment bill of 2011, makes a new provision: if no one else comes to bid in the auction, Bank itself can buy that property.

Here comes the new problem:

  • Suppose SBI  attached a warehouse of Mr.Paraajay.
  • If the land was in good urban area, SBI could open a new branch office there (or housing for its employees).
  • But if plot/factory/house is in some remote area= useless for SBI’s personal business.
  • Under the Banking regulation Act, a bank cannot keep such immovable property beyond 7 years, (max 12 years with RBI’s permission).
  • So ultimately SBI will have to auction it to someone. What if they don’t get better price? Critiques of the bill say, this is not clarified in the bill.
SARFAESI structure

What is ARC?

  • Asset reconstruction company (ARC).
  • They buy NPA (Bad loans) from Banks and try to extract maximum money out of it=profit.
  • They’ve to register with Reserve Bank of India.
  1. ARCIL (India’s first and largest asset reconstruction company (ARC))
  2. Reliance Asset Reconstruction Company Limited by Anil Ambani
  • In our example, SBI has NPA worth Rs.40 crores.
  • ARC will buy the NPA file from SBI at a lower rate say 35 crores. (well, SBI is making loss, yes, but something is better than nothing.)
  • Besides, banks have hundreads of bad loan cases, they donot have time or manpower to pursue individual case, sometimes no bidders are interested in auction. All the filework and donkey labour, In such cases, it’s better for bank to transfer NPA to ARC.
  • But that doesn’t mean ARC will give 35 crores to the SBI from its own pocket!
  • Then how will the Asset reconstruction company (ARC) arrange for the money?= via Security Reciepts.

What are Security Reciepts (SR)?

  • In above example, ARC needs Rs.35 crores to buy a Non performing asset from SBI.
  • So ARC will issue “security reciepts (SR)” worth Rs.35 crores.
  • Only Qualified Institutional buyers (QIB) can buy these security reciepts (SR).
  • SR are not “bonds”, they donot carry fixed interest rate.
  • ARC will promise to pay money on SR, when it gets money the bad loan.
  • Although, ARC usually promise 9% profit on “security reciepts (SR)”.
  • So, three possible situations:
  1. Qualified institutional buyers (QIB) buy those security reciepts (SR). So Rs.35 cr cash goes from QIB -> ARC -> SBI.
  2. SBI itself recieves SR worth Rs.35 crores for free. (that means ARC will gradually pay the money to SBI).
  3. combination of both: QIBs buy SR worth 30 crores + SBI recieves free SR worth 5 crores.

What is Qualified Institutional Buyer (QIB)?

These people have the expertise and the financial muscle to evaluate and invest in the capital markets.
  1. Scheduled Commericial Banks
  2. Foreign Institutional Investor
  3. Mutual Funds
  4. Venture Capital Investors
  5. Insurance Companies
  6. Pension/ Providend Funds

Foreign investment in ARC

  • ARC =buy bad loans from banks.
  • ARC =arrange money from QIBs to buy bad loans from banks.
  • Problem= Indian QIBs do not invest much in ARCs.
  • Therefore ARC’s capacity to buy NPA= very low.
  • And bank themselves don’t have enough expertize or manpower to dispose those NPAs quickly.
  • Previously Foreign investors could invest only upto 49% in ARC=minority shareholder=cannot influence company decisions.
  • Now, Government also increased foreign investment limit in ARCs. This would attract more investment in ARCs and help in quicker purchase and disposal of NPAs.
Foreign investment in ARC%
Now (December-24-2012)74%
Anyways, back to the topic, let’s recap:
  1. SBI  had NPA. First solution: auction the property. Did not work out.
  2. Second solution: sell it to ARC.
So, ARC purchased the NPA worth Rs.40 crores (at Rs. 35 crores).
ARC’s aim= extract maximum money out of this investment. But how?
  1. Auction the assets fully or partially. (sell the machinery now, rent the building and wait for land prices to go up for two years and then sell it.)
  2. Sell the property in combination with other NPA properties of other defaulters. (similar to “buy one large pizza  and get 20% discount on any medium sized pizzas”).
  3. Restructure the EMIs of Mr.Paraajay. E.g. instead of 1 lakh per month, give us 75,000 per month.
  4. Change the Management of that asset, appoint its own directors/officers.
  5. Order Mr.Paraajay to outsource or lease his business to a another company.
^SARFAESI act empowers ARC to do such things. The amendment Bill adds a new power to the ARC.

ARC New Power: convert Debt into equity

Before reading further, Make sure you know the pros and cons of Debt Vs. Equity 
The new Amendment in SARFAESI, empowers ARC to convert debt into equity.(fully or partially).

Share holding Before:

SharesRupees Cr.%
Paraajay and his family2040%
Total shares worth50100%

Share holding After

SharesRupees Cr.Approx. %
Paraajay and his family2022%
Total shares worth90100%
*that is the paper value of original debt (NPA loan of SBI to Mr.Parajaay), Otherwise ARC purchased it @Rs.35 crores.
Anyways, This leads to two situations:
  1. If company starts making more profit in future, ARC will receive more share from that profit. (because more profit=more dividend to shareholders.)
  2. If price of company’s shares go up in the sharemarket, ARC can sell those shares to third party and make decent profit.

Anti-arguments: Debt to Equity conversion

Critiques says this “debt to equity”provision will be abused. This provision is made to help bad corporates. How so? Well consider following:

Bank’s loss

  • SBI gave Rs.40 crores loan to Mr.Parajaay
  • He refuses to pay loan=bad loan/NPA.
  • Then SBI sells this bad loan file to an ARC company @Rs.35 crores.
  • Hence, SBI’s loss is 40-35=5 crores. (actually more than 5 crores, if we count the possible interest rate that he would have paid, if he had not defaulted. And loss figure will be different if he had paid a few installments earlier. Anyways, let’s keep the loss at 5 crore for the moment.)

ARC’s profit

  • Now ARC owns the NPA assets. (their investment Rs 35 crores)
  • Paraajay offers Rs.37 crores and ask ARC to sell the assets to his relative, friend or proxy.
  • Hence, ARC’s profit is 37-35=Rs.2 crores.
  • And yet Mr.Parajaay successfully saved Rs.3 crores (because originally he had to pay Rs.40 crores to SBI, but he walked away by paying just Rs.37 crores!)
  • Few years back, CVC had held a meeting with Bank chairmans and CBI officers. They alleged ^this type of mischief going on, in many loan default cases.
Now under the new provision: if ARC converts its debt into equity (shares), then what will happen?
  1. It is very unlikely that Parajaay’s company will start making huge profits (otherwise it wouldn’t be in bad loan problem in the first place!)
  2. It is very unlikely that share-price of Parajaay’s company will go up in sharemarket. (because it has negative publicity due to NPA).
Hence it is very unlikely that ARC will make huge profit out of this “Equity”.
Then Mr.Parajaay can simply offer them a way out : “sell those shares to me, in my friend,relative,driver or peon’s name @Rs.37 crores.”
And ARC would agree, because 37-35=Rs.2 crores profit!

Side question

How would Mr.Parajaay arrange those Rs.37 crores?
Ans. If Mr.Parajaay is “totally awesome” then he wouldn’t give 37 crores from his own pocket. He’d just open another company, get new loan from second bank, issue IPOs to get money from juntaa. Then Iski topi uske sar pe.
^This is (one of the many) reasons why Mr.Ratan Tata said following thing:
  • Overseas people go bankrupt or companies go bankrupt. Here they never do–they continue to be sick and still operate. Then they are operating to kill you with destructive competition (using predatory pricing etc.)
  • (Airline business) is proliferated by many operators, some of them in financial trouble.
  • I would hesitate to go into the (airline) sector today in the sense that the chances are that you would have a great deal of competition which would be unhealthy competition.
Bank Employee unions are also against the “Debt to Equity” clause of SARFAESI amendment. (When they had gone on strike to oppose Banking Amendment bill, they also cited this Debt-equity reason as well.)

Central Registry

  • Previously, borrowers used to forged property documents and get loans from multiple banks by giving them duplicate property documents as security.
  • So when borrower refuses to pay up loan, many banks would make claim for the same property!
  • To fix this problem, Reserve Bank of India (RBI) setup Central Registry in 2011, under SARFAESI.
  • This central registry has details of all properties against which loans have been taken.
  • Any person or bank can inspect records of this registry to make sure the mortgaged property is genuine.
  • Official name: Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI)


  1. In public interest, Union Government can issue notification that xyz provision of SARFAESI act may not apply or may apply with modifications to a class or classes of banks or financial institutions.  Suppose many textile exporters have taken loans from banks but due to global recession they are not receiving payments and hence unable to repay loans. In that case, Government can order notification that“SARFAESI will apply to all loans except those given for textile-export business.”
  2. Earlier a borrower could approach Debt Recovery tribunal (DRT) to get stay order against bank/ARC. New amendment says DRT cannot grant any stay order unless both parties (Borrower vs. lender bank) are heard. This will ensure the process of law is not misused by unscrupulous borrowers to get stay orders just to delay money-recovery.
  3. Bill proposes to enable banks and financial institutions to enter into settlement or compromise with the borrower. It also seeks to empower the Debts Recovery Tribunal to pass an order acknowledging any such settlement or compromise.


  • SARFAESI empowers banks and other financial institutions to attach secured assets of a loan defaulter and sale, auction or manage them without requiring court intervention.
  • Parliament passed the amendment to SARFAESI Act and the debt recovery tribunal, in Winter session 2012.

Salient features of new amendment

  1. Bank
  • can buy for the NPA property if there are no other bidders.
  • multi-state co-operative banks can also take actions under SARFAESI.
  1. Borrower
  • can’t get stay orders from DRT easily.
  • Can make settlement / compromise with Bank/ARC.
  1. Asset reconstruction companies (ARC)
can convert their debt into equity (fully or partially)
  1. Government
can prohibit or modify SARFAESI’s applicability in public interest.
Apart from this amendment, Government has also increased foreign investment limit in ARCs from 49 to 74%.

Boring details

  1. Recovery of Debts Due to Banks and Financial Institutions Act of 1993 (RDBF)
Established Debt Recoverty tribunal (DRT) and
  1. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 (SARFAESI)
Helps banks recover money from bad loans.
  1. Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011
Passed in Lok Sabha in Dec 2012, to amend above two laws (RDBF + SARFAESI)


SARFAESI was based on recommendation of these two Committees
1. Committee on Banking Sector Reforms (Narasimham Committee II), 1998
2. Restructuring of weak Public Sector Banks -Verma Committee
The latest amendment (Debt to Equity), is based on recommendations of Alok Nigam Panel on ARCs, made by Finance Ministry.


1. Section 37 of SARFAESI ACT states under “Application of other laws not barred” (Quote) “The provisions of this act or rules made there under shall be in addition to, and not in derogation of, the Companies Act 1956, the Securities Contracts (Regulation Act, 1956, the Securities and Exchange Board of India Act, 1992, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993 or any other law for the time being in force.” 

This section clearly and without any ambiguity states that the provisions of SARFAESI ACT is applicable in addition and not in derogation of the existing laws for the time being in force which means that other laws for the time being in force particularly those Acts mentioned in the said section 37 of SARFAESI ACT, are also equally applicable while adjudicating cases under SARFAESI ACT. The authorised Officer and the Presiding Officer of Debts Recovery Tribunal shall not overlook or set aside other laws that are in force while adjudicating the cases under SARFAESI ACT. 

2. Many instances have been reported that the Authorised Officer and the Presiding Officer of DRT rejecting the claim for loss and damages or counter claims by the borrowers under SARFAESI ACT. Such rejections are based on the mistaken notion that there is no rule under SARFAESI ACT to put up such claims to the Authorised Officer or to DRT. Due to this false notion, the advocates also do not encourage the borrowers to claim loss and damages or preferring a counter claim in DRT. But a dispassionate, pragmatic and unbiased look at the act shows that the SARFAESI ACT does not prevent the borrower to claim loss and damages.

 The psychological disposition of the people is that the banks hold public money under trust and that their prime right is to recover the money they advance. But they also forget the dictum that every right is derived out of a duty first to be performed, the duty of the banks being the duty of concern and care for their customers. 

In view of what has been stated in the SARFAESI ACT, 2002 it is apparent and necessary that the borrowers should make it mandatory to file their claim for loss and damages in their application to DRT against the notice of possession served by the Authorised Officer of the bank and the advocates also must invariably incorporate this claim in their pleadings before DRT.

For full article click here 

3. Section 28 and Section 29 of the SARFAESI Act, 2002 stipulates the penalties to be imposed in for non compliance of Reserve Bank of India directions and contravention or abetting the provisions of SARFAESI ACT respectively. 

Section 28 states, “Penalties for non-compliance of direction of Reserve Bank. –if any Securitization company or reconstruction company fails to comply with any direction issued by Reserve Bank [under section 12 or section 12(A)], such company and every officer of the company who is in default, shall be punishable with fine which may extend to 5 lakh rupees and in case of continuing offence, with an additional fine which may extend to 10 thousand rupees for every day during which the default continues.”

Section 29 stipulates, “If any person contravenes or attempts or abets the contravention of the provisions of this Act or of any rules made thereunder, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both.”  

But in practice, the aforesaid provisions of the act are neither taken in to consideration by the Authorized Officer of the Bank nor taken cognizance by the Presiding Officer at DRT even when sufficient evidences are produced by the borrower for non compliance of RBI directions and contravening or abetting the rules of SARFAESI Act.

For full article click here

4. Bombay  and Madras High Court ruled that, Sec.5 of Limitation Act is applicable to the proceedings under Sec.17 of SARFAESI Act. Following are the basic points for the above ruling:

1) Provisions of Limitation Act apply to any statute if such statute does not expressly or impliedly exclude applicability;

2) SARFAESI Act does not expressly exclude application of the provisions of Limitation Act 1963 and there is no controversy about the same. Whether there is exclusion by implication, can be seen from a reading of the relevant provisions.;

3) Right of borrower or guarantor under Sec.17 is right of redemption embodied in Section 13(8) of the Act. It is constitutional right and also human right.;

4) Any contrary interpretation would defeat right to property ;

5) Sec.17 can not to be treated strictly like suit.

6) Sec.5 of Limitation Act applies to some type of applications even though it does not apply to suits.

7)  Sec.17 of SARFAESI Act is right of redemption which extinguishes after sale of asset. To say that, Sec.5 does not apply it would mean that the right of redemption (right to property =Constitutional right=human right) is denied.

8) Interpretation leaning towards right to property should be chosen by the courts.

9) It is fallacy to think that every original proceeding pending before tribunal is like a suit.

Madras High Court and Bombay High Court are of the common view that, Section 5 of Limitation Act applies to the proceedings under sec. 17 of SARFAESI Act. But Calcutta High Court and Kerala High Court together are of different view on the point that, Section 5 of Limitation Act does not apply to the proceedings under Sec.17 of SARFAESI Act.

Summary : Hence there should not be any doubt on applicability of the provisions of Limitation Act 1963 to the proceedings u/s 17 and 18 of SARFAESI Act. Supreme Court knows the public policy of the Limitation Act that no one should sleep over his right and should enforce it within time prescribed does not mean that it is enacted to hamper the right of redemption borrower to redeem his mortgage. Let us hope that Supreme Court may take a similar view as taken by Bombay, Madras & Allahabad High Courts on this crucial issue at the earliest as some DRTs are declining to accept the condonation of delay as it is not specifically provided except the right of enforcing their claim under Sec.13(2) of SARFAESI Act and shut the doors leaving some aggrieved parties to peril.

For full article click here

5. Who is an  ‘Authorised Officer’ ? 

Rule 2(a) defines ‘Authorised Officer’ as under:-

a)   Authorised Officer must be of rank not less than Chief Manager in a public sector bank or equivalent.

b)  (i)Board of Directors
(ii) or Board of trustees of the secured creditor
(iii)or any other person
(iv) or authority exercising powers of superintendence, direction and control of business or
affairs of the secured creditor under the Act is competent to initiate action.

There are two categories of persons i.e. a) and b) as stated above. One is Chief Manager or  equivalent. Another is Board of directors or Controller of the business of the secured creditor.

Authorised Officer who is clothed with statutory power has to perform his action as per prescription of law. He represents secured creditor. His services are not mandatory but may be engaged to exercise the rights of the secured creditor (See Sec.13(12). Chief Manager level officer is chosen because with rich experience and maturity of mind he will be able to take action with due care and caution in view of stringent nature of the provisions of the Act.

As can be seen from the language in the sub Section action under the Act by Authorised Officer is not mandatory. Every branch is extended hand of secured creditor. 

When suits can be filed by officer of the bank irrespective of his cadre for recovery of debt the question often arises as to why a branch manager cannot take action under the Act without seeking assistance of Authorised Officer. The word “may” in the sub Sec.13(12) leaves scope to contend that an officer below the rank of Chief Manager with his experience and ability, can also initiate action under the Act without assistance of the Authorised Officer as his service is not mandatory. The purpose of engaging services of Authorised Officer is to see that action under the Act is initiated by an officer of Chief Manager cadre as he is supposed to have acquired more experience in bank than an officer of lower cadre and knows his limits and responsibility and he will be able to perform the action under the Act with all precautions as the provisions are stringent in nature.

Therefore it is clear from the above discussion that, there is no absolute bar for an officer of lower cadre than Chief Manager to take action under the Act for secured creditor. However it is better that the Rule 1 (a) is amended substituting ‘Senior Manager’ in place of ‘Chief Manager’ so that a Senior or Dy. Chief Manager (in scale III cadre) can take action in NPA accounts of his branch for expeditious recovery of the debt instead of waiting for services of Authorised Officer / Chief Manager in each case.

6.Can the Authorised Officer of the bank delegate his powers to send demand notice u/s. 13(2) of the act and submit replies u/s. 13(3)(a) through a lawyer? 

Yes, The bank and Authorized Officer of the bank has right to send the notice or reply through an advocate.
A notice given by a solicitor or an advocate on behalf of the secured creditor or the Authorised officer, as the case may be, in terms of section 13 (2) of SARFAESI ACT is quite conformity with the provision contained in the act and the rules framed thereunder.

7. Procedure followed for obtaining physical possession from chief metropolitan  magistrate under section 14 of SARFAESI Act

Where an immoveable property secured to the Bank is occupied by the Borrower or is let out by him, the Bank approaches the Jurisdictional Chief Metrop.  Magistrate or DM under section 14 of SARFAESI Act.The Authorized Officer prefers an application / request to the Jurisdictional CMM. The jurisdiction of the CMM is determined on the basis of the Jurisdictional Police Station where the immoveable property is situated.

The registry of the court (CMM) numbers the request / application as C.Misc No……of……..

One date is fixed for the Authorised Officer to appear Before the CMM with originals of:

a) Title deed establishing the Borrower’s title to the immoveable Property

b) Upto date Encumbrance Certificate of the immoveable property

c) Possession Notice, Paper Publication and service by Registered Post & evidence of affixing the notice on the conspicuous portion of the property.

After being satisfied that the Bank has followed the prescribed procedure, the CMM will issue a direction to the Jurisdictional Police Station to assist the Bank-secured Creditor to obtain Physical/actual possession. The CMM order also authorizes breaking open of the Lock if necessary.

With this order (certified copy) in hand, a letter is addressed to the Jurisdictional Police station informing the SHO about the date on which the Authorised Officer will proceed to take Physical Possession. [Copy of the CMM order is enclosed for reference of the Police and after meeting the police officer - indicating the date of process in consultation with the head of  jurisdictional police thana , a date is fixed ]and finally the physical Possession is obtained . 

The above procedure does not provide for issuance of notice to Respondents or occupants of the property. Hence, no notice of the proceedings before CMM is served either on the mortgagor or any person in occupation of the immoveable property. Section 14 is only a step-in-aid for Authorised Officer to take physical possession.


1.Whether section 14 is a due process of Law or merely a procedure established by Law?

It is a due process of law 

2. Can a Tenant/occupant be evicted under section 14 without preferring suit/proceedings for eviction in a civil court?
Yes tenant can be vacated without any further proceedings for eviction in a civil court, courts do not have jurisdiction to entertain cases under SARFEASI

3. As the Bank does not step into the shoe of the Landlord / mortgagor, can it maintain a suit for eviction against the tenant? if not, is the Bank driven to sell the propety on "As is where is Basis" so that the Purchaser steps into the shoe of the Landlord to maintain eviction case.

If the tenant wants to file a suit under tenancy then it can be done against the owner. . . . and after auction it is upto the new owner how he want's (with tenant or not)

4. Against the order of CMM [under section 14]: What is the remedy for the Tenant? Can he invoke the Writ jurisdiction or approach DRT or Civil court for stay?

   The tenant can try civil suit but i seriously doubt that. Another view is that :

1 DRT only considers whether the Secured Creditor has followed all the prescribed procedure as per the SARFAESI Act and Rules framed thereunder. If it grants a declaration under Section 17(4) of SARFAESI Act, the remedy of the Tenant is foreclosed.
2. Civil Court may not entertain any suit which has the effect of staying the proceedings initiated under SARFAESI Act. Hence only a Writ Petition seeking review of CMM order is maintainable by the Tenant to protect his possession

However if if mortgage was created during the pendency of the lease or, if the lease was created with the permission of the bank, then the DRT can give relief to the tenant till the expiration of period of lease, from the vacating the property. Otherwise if the lease is without knowledge of bank, tenancy is illegal ab initio.

8. If the banks wants to file the Sec.14 application before the CMM, without taking any steps for symbolic or physical possession or serving notice to the party of the security property.Is it legally permissible under SARFAESI Act. 

S14 can be resorted to only after mandatory compliance of S13.

9. I have purchased a property from United Bank through public auction. The property is in symbolic possession with the bank. Now upon full consideration being paid to bank, will the bank get the physical possession from the borrower and hand it over to me(buyer)?

Option I - You may approach the district magistrate / CMM (Metropolitan magistrate) U/s 14 of the NPA Act for assistance for taking physical possession of the property, as by buying the property under the Auction you have stepped into the shoes of the Bank. Dont except hte borrower or the security owner to come to your doorstep and handover the keys

Option II - The bank have the symbolic possession means that they don't have the key of the property and the property is still under the borrower however the bank have served the borrower a possession notice and a copy of notice has been pasted in a prominent place of the property. The Advertise in news paper was "possession cum sale notice". Actually there is nothing like a symbolic possession under the SARFAESI Act. Nothing has been defined as "symbolic posession" in SARFAESI Act,2002. Possession is possession and there is no distinction between symbolic and physical possession. 
Secondly, you need to confirm whether any appeals are pending against the action taken by the bank. If so the outcome of the litigation will have a bearing on whether you will be given the possession or not.
Thirdly, what documents were executed between your self and the Bank at the time you made the payment will also have to be considered.

Purchasers of the properties from banks under the SARFAESI Act have to bear the risk of various problems, since SARFAESI Act even though enacted about 10 years back, each bank officials and even courts interpret the Act & Rules provisions according to their own understandings. Still the laws under the said Act are not adequately settled. 

According to advocate Raju , Normally bank had to issue separate possession notice u/S13(4) and Sale Notice u/R 8(6). Some banks stipulate illegally in the sale notice that 'as is where is, as is what is, without recourse, without entertaining any complaints, without responsibility of tax or other dues of the borrower, etc.'. If the bank is selling a property, which was leased for long period to another party, they have to disclose that fact in the sale notice. Hence the purchaser gets the property subject to lease, after the lease period. ("as is where is" means you get what you see or it means they won't move it or What you see is what you get....The seller told you the house was for sale ‘as is,’ so you are on your own. Hidden problems often translate to costly repairs, and that means you might not be able to make money on the resale " )

The purchaser cannot directly go to CJM u/S14 for taking physical possession of the property, the bank had to do that and give vacant possession to the purchaser.

source :

Chronological order