As of April 22, 2020, Sikkim does not have any confirmed cases of COVID-19.  As of April 21, 2020, 87 samples have been sent for testing from Sikkim.  Of these, 80 have tested negative for COVID-19, and the results of seven samples are awaited.  The state has announced several policy decisions to prevent the spread of the virus and provide relief for those affected by it.  In this blog post, we summarise some of the key measures taken by the Sikkim state government in this regard as of April 22, 2020.  

Response before national lockdown

On March 16, the state government responded to the growing number of suspected cases in India by notifying certain directions to be applicable till April 15, 2020.  These included: (i) banning the entry of all domestic and foreign tourists in to the state, (ii) closing all educational institutes and anganwadis, (iii) prohibiting the use of recreational facilities such as, casinos, gym, and cinemas, (iii) closing three out of five check posts (border opening) for all visitors in to the state and opening the other two only for medical and police teams, and (iv) banning private industries from getting migrant workers from outside the state and avoiding large concentration of workers at one place.

On March 19, assembly of more than five people was prohibited in the state until April 15, 2020.  The government ordered the suspension of all non-essential work on March 19.  The supply of all essential commodities such as food grains, vegetables, sanitisers and masks was allowed.  Further, the formation of a sub-divisional task force to detect suspected cases was ordered.  

On March 22, the government regulated intra-state movement of private vehicles, two-wheelers and taxis on an odd-even basis (allowing plying of vehicles on alternate days as per the number plate) until April 15, 2020.  The government also reduced the budget session of the state to two days on March 23. 

On March 25, the central government announced on a 21-day country-wide lockdown till April 14.  During the lockdown the state government took various steps for physical containment, health, financial and welfare measures.  These are detailed below.

Measures taken during lockdown

Movement Restrictions

Certain movement restrictions were put across the state.   These include:

  • Movement of vehicles: Inter-state movement of vehicles was restricted to vehicles transporting essential goods.  These vehicles need to have a permanent pass for such movement.  On April 5, intra-state movement of vehicles was restricted to government officials, transportation of essential commodities, banks and PSUs, and media and cable networks.   Their passes are valid only from 8am to 5pm.
     
  • Validity of passes:  The state government noted that a large number of vehicle passes were issued due to various reasons.  On April 14, the government ordered that all passes issued by District Magistrates, and other Departmental Authorities (except those issued by the police, health department and forest and environment department) will be invalid from April 14.  New passes will be issued only by Magistrates and Block Development Officers.  
     
  • Securing borders:  In view of the COVID-19 pandemic and to check unauthorised cross-border infiltration from China, Nepal, and Bhutan, the state government secured all porous borders along the Rangpo river and other vulnerable areas.

Essential Goods and Services

On April 5, the state government issued an order requiring establishments such as shops, hotels, private offices, and commercial establishments to remain closed until April 15.  Establishments which were permitted to remain functional include law enforcement agencies, health services, electricity and water services, petrol pumps, and media.  Shops for PDS, groceries, vegetables, milk and, medicines were only allowed remain open from 9 am to 4 pm.

  • Valid prescription and label required:  On March 25, the state prohibited the sale of hand sanitisers without drug manufacturing licence label.  It also prohibited sale of N95 masks to general public without valid prescription. 
     
  • Transit camps:  On April 17, the state government notified that transit camps (temporary accommodation) will be set up for drivers and helpers of vehicles carrying essential goods.

Health Measures

On March 31, the Sikkim government identified and set up dedicated isolation wards and treatment centres in the STNM hospital, Sochakgang as a precautionary measure.  The government also issued directions for citizens to avoid getting infected by coronavirus.  These included social distancing, and maintaining proper hygiene.  

On April 18, the state government made it mandatory for all the public, students, teachers, and government employees, to install the Aarogya Setu application.  The government of India launched a mobile app called ‘Aarogya Setu’ to enable people to assess the risk of catching COVID-19 on April 2, 2020.   The app uses Bluetooth and Global Positioning System (GPS) based device location for contact tracing in order to prevent the spread of COVID-19. 

Welfare Measures

  • Economic relief package:  On March 27, an economic relief package was announced by the state government.   This included free ration in specific quantities (other than the PDS entitlement) to needy families in rural and urban areas, daily wagers, migrant labourers, casual workers, and stranded people.  Further, the government announced an additional incentive wage of Rs 300/day for tea workers at Temi-tea estate. 
     
  • Food distribution:  On April 16, the government announced that Asha workers will be given Rs 5,000 as honorarium for work done during COVID-19.  Further, it ordered the food and civil supply department to compile a list of all the left out beneficiaries for distribution of food relief packages.
     
  • Relief to stranded patients:  On April 16, the government announced that a financial relief of Rs 30,000 will be provided to each patient undergoing treatment and stranded outside Sikkim from the Chief Minister's relief fund.
     
  • Relief for casual workers:  On March 30, the Sikkim government issued directions to all contractors/ employers to pay migrant and casual labourers on the due date without any deductions due to the lockdown.  The state government also provided grants worth Rs 2,000 to the 7,836 registered building and other construction workers in the state.
     
  • Relief for stranded students:  On March 29, the state announced that it will provide Rs 5,000 to each state student stranded outside Sikkim during the nationwide lockdown.

Certain relaxations after 20th April 

On April 14, the nation-wide lockdown was further extended till May 3, 2020.  On April 15, the Ministry of Home Affairs issued guidelines outlining select activities which will be permitted from April 20 onwards.  These activities include health services, agriculture related activities, certain financial sector activities, operation of Anganwadis, MNREGA works, and cargo movement.  Further, subject to certain conditions, commercial and private establishments, industrial establishments, government offices, and construction activities will also be permitted.  The Sikkim government took the following steps in the same line.

  • On April 19, the state government gave directions to all government and PSU offices to work with up to one-third of their actual staff strength from April 20 onwards. 
     
  • On April 19, the state government gave directions and standard operating procedures to be followed at manufacturing establishments, work spaces and public places post April 20.  These include: (i) no overlapping shifts, (ii) staggered lunch breaks, (iii) training on good hygiene practices, (iv) compulsory wearing of face cover, and (v) sanitising workplaces between shifts. 

For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.

The Financial Resolution and Deposit Insurance Bill, 2017 was introduced in Lok Sabha during Monsoon Session 2017.  The Bill is currently being examined by a Joint Committee of the two Houses of Parliament.  It seeks to establish a Resolution Corporation which will monitor the risk faced by financial firms such as banks and insurance companies, and resolve them in case of failure.  For FAQs explaining the regulatory framework under the Bill, please see here.

Over the last few days, there has been some discussion around provisions of the Bill which allow for cancellation or writing down of liabilities of a financial firm (known as bail-in).[1],[2]  There are concerns that these provisions may put depositors in an unfavourable position in case a bank fails. In this context, we explain the bail-in process below.

What is bail-in?

The Bill specifies various tools to resolve a failing financial firm which include transferring its assets and liabilities, merging it with another firm, or liquidating it.  One of these methods allows for a financial firm on the verge of failure to be rescued by internally restructuring its debt.  This method is known as bail-in.

Bail-in differs from a bail-out which involves funds being infused by external sources to resolve a firm.  This includes a failing firm being rescued by the government.

How does it work?

Under bail-in, the Resolution Corporation can internally restructure the firm’s debt by: (i) cancelling liabilities that the firm owes to its creditors, or (ii) converting its liabilities into any other instrument (e.g., converting debt into equity), among others.[3]

Bail-in may be used in cases where it is necessary to continue the services of the firm, but the option of selling it is not feasible.[4]  This method allows for losses to be absorbed and consequently enables the firm to carry on business for a reasonable time period while maintaining market confidence.3  The Bill allows the Resolution Corporation to either resolve a firm by only using bail-in, or use bail-in as part of a larger resolution scheme in combination with other resolution methods like a merger or acquisition.

Do the current laws in India allow for bail-in? What happens to bank deposits in case of failure?

Current laws governing resolution of financial firms do not contain provisions for a bail in.  If a bank fails, it may either be merged with another bank or liquidated.

In case of bank deposits, amounts up to one lakh rupees are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).  In the absence of the bank having sufficient resources to repay deposits above this amount, depositors will lose their money.  The DICGC Act, 1961 originally insured deposits up to Rs 1,500 and permitted the DICGC to increase this amount with the approval of the central government.  The current insured amount of one lakh rupees was fixed in May 1993.[5]  The Bill has a similar provision which allows the Resolution Corporation to set the insured amount in consultation with the RBI.

Does the Bill specify safeguards for creditors, including depositors?

The Bill specifies that the power of the Corporation while using bail-in to resolve a firm will be limited.  There are certain safeguards which seek to protect creditors and ensure continuity of critical functions of the firm. Order of priority under liquidation

When resolving a firm through bail-in, the Corporation will have to ensure that none of the creditors (including bank depositors) receive less than what they would have been entitled to receive if the firm was to be liquidated.[6],[7]

Further, the Bill allows a liability to be cancelled or converted under bail-in only if the creditor has given his consent to do so in the contract governing such debt.  The terms and conditions of bank deposits will determine whether the bail-in clause can be applied to them.

Do other countries contain similar provisions?

After the global financial crisis in 2008, several countries such as the US and those across Europe developed specialised resolution capabilities.  This was aimed at preventing another crisis and sought to strengthen mechanisms for monitoring and resolving sick financial firms.

The Financial Stability Board, an international body comprising G20 countries (including India), recommended that countries should allow resolution of firms by bail-in under their jurisdiction.  The European Union also issued a directive proposing a structure for member countries to follow while framing their respective resolution laws.  This directive suggested that countries should include bail-in among their resolution tools.  Countries such as UK and Germany have provided for bail-in under their laws.  However, this method has rarely been used.7,[8]  One of the rare instances was in 2013, when bail-in was used to resolve a bank in Cyprus.

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[1] ‘Modi government’s FRDI bill may take away all your hard-earned money’, India Today, December  5, 2017, http://indiatoday.intoday.in/story/frdi-bill-banking-reforms-modi-government-india-parliament/1/1103422.html.

[2] ‘Bail-in doubts — on financial resolution legislation’, The Hindu, December 5, 2017, http://www.thehindu.com/opinion/editorial/bail-in-doubts/article21261606.ece.

[3] Section 52, The Financial Resolution and Deposit Insurance Bill, 2017.

[4] Report of the Committee to Draft Code on Resolution of Financial Firms, September 2016, http://www.prsindia.org/uploads/media/Financial%20Resolution%20Bill,%202017/FRDI%20Bill%20Drafting%20Committee%20Report.pdf.

[5] The Deposit Insurance and Credit Guarantee Corporation Act, 1961, https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/dicgc_act.pdf.  s

[6] Section 55, The Financial Resolution and Deposit Insurance Bill, 2017.

[7] The Bank of England’s approach to resolution, October 2014, Bank of England.

[8] Recovery and resolution, BaFin, Federal Financial Supervisory Authority of Germany, https://www.bafin.de/EN/Aufsicht/BankenFinanzdienstleister/Massnahmen/SanierungAbwicklung/sanierung_abwicklung_artikel_en.html.