PolicyWatch - CUTS CCIER manufacturers and related research and development. ... Outcome Budget ... provide a good demand market to harness all resources. (FE,

All night plenary sessions in Denmark’s capital have neither evolved a non-generic climate change agreement nor reformed the perspectives of world

leaders regarding the (non)urgency of addressing this calamity. The onlydevelopment has been the evolution of a strong BASIC (Brazil, South Africa,India and China) group of emerging economies, which has triggered a rift amongthe Group of 77 (G77) because of difference in demands and reluctance tocompromise on national interests.

Although agreement amongBASIC and developed nations onthe Copenhagen Accord resultingin financial assistance for climatechange mitigation is a step forward,the silence among advancednations on the more importantquestion of binding greenhouse gasemissions represents a step backwards.

The accord promises US$100bn asclimate change aid by 2020, tied implicitlyto a requirement that aid-receiving nations design a blueprint for mitigation strategies.India has also committed to reduction of its emission intensity which would besubject to domestic monitoring and preconditioned on policy initiatives to build agreen economy. The Indian Ministry of New and Renewable Energy should adopt aneven-handed approach to encourage demand for and supply of renewable energy.

The Reserve Bank of India recognises renewable energy as a priority sector forlending purposes, but only for small-scale industrial units involved in manufactureand use of alternative energy producing equipments. It is essential that the governmentprioritises the entire sector and thus allocates sufficient resources for large-scalemodule manufacturers and related research and development. This would stimulateentry by large-scale firms, however, care must be taken to ensure that assistancedoes not breed inefficiency and dependence of a permanent nature.

The government’s initiative to ensure that special economic zones compulsorilygenerate between 2 to 25 percent of their lighting needs from alternative sourcesand fit government buildings with such modules is deserving of appreciation.However, this increase in capacity should be supplemented by awarenessgeneration through the Indian Renewable Energy Development Agency Limitedamong people at the grassroots who are still unaware about alternative energyequipments as well as financially weak. An encouraging sign is that, according toa study, a high percentage of Indian consumers, when made aware, are willing tobuy eco-friendly products and provide a boost to green industries.

Policy makers must neither allow the lobbies of strong oil and coal suppliers toobstruct the growth of renewable energy nor dissolve strict pollution controlregulations. Timely exploitation of latent renewable energy potential will bringunprecedented advance in India’s energy security along with creation of a greenbase for sustainable development. Enduring government strategies can harmoniseeconomic growth and environment protection.

PolicyWatchPolicyWatchVolume 10, No. 4 October-December 2009

Covering developmentson policy responses,policy implementationand policy distortionson a quarterly basis.Comments are welcome.

Impact of MobilePhones on Farmers� Gaurav Tripathi ......................... 8

In Search of Civic Virtue� Gurcharan Das ....................... 17

Competition Law &Inclusive Growth� Madhav Mehra ...................... 21

Candle-Light Vigil � Gajendra Haldea ............... 22-23

Published by Consumer Unity & Trust Society (CUTS) , D-217, Bhaskar Marg, Bani Park, Jaipur 302 016, IndiaPhone: 91.141.228 2821, Fax: 91.141.228 2485 Email: [email protected], Website: www.cuts-ccier.org

Printed by: Jaipur Printers P. Ltd., M.I. Road, Jaipur 302 001, India.

“The reformer has enemies in all those who

profit by the old order and only lukewarm

defenders in all those who would profit by

the new.” Machiavelli in The Prince

H I G H L I G H TS

I N S I D E T H I S I S S U E

CFL Bulbs Good or Bad? .....2

MNP Likely to be Delayed .....4

Outcome Budget –Futile Effort ............................9

Corrupt Public Life ............. 13

GST to IncreaseEmployment ...................... 15

Judges Accountability ........ 16

Defining the Right Strategiesfor Sustainable Growth

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2 / www.cuts-international.org October-December 2009 PolicyWatch

I N F R A S T R U C T U R E � N E W S D I G E S T

NTPC Stake SaleThe government has approved the

sale of stakes in two state-ownedundertakings – NTPC Ltd and SatlujJal Vidyut Nigam Ltd. The sale ofshares in NTPC alone could net thegovernment Rs 8,600 crore, based oncurrent prices, and bring some relieffrom fiscal pressure.

NTPC, India’s largest powergeneration company, is valued ataround Rs 1.7 trillion and registered anet profit of Rs 7,827.40 crore onrevenue of Rs 42,182.40 crore in 2008-09. The company has reserves of Rs53,000 crore and the governmentcould expect to raise around Rs 8,600crore with a five percent dilution.

(www.Livemint.com, 20.10.09)

Filling in the GapsThe Power Ministry, striving to

bridge the widening gap betweendemand and supply has proposed toexplore opportunities to interconnectSouth Asian power grids on the linesof the Nordic Power Exchange,ASEAN Grid and North AmericanGrid. There is a capacity additiontarget of 78,700 MW in the 11th Plan.

The project envisagesinterconnection between India andBhutan (3,000 MW), between Indiaand Nepal 400 kv transmission line,between India and Sri Lanka the 1,000MW high voltage direct current(HVDC) system, with Bangladesh1,000 MW HVDC back-to-back. With

Pakistan, India plans to tap HVDCback-to-back link. India will haveaccess to green hydro power while theother South Asian countries canprovide a good demand market toharness all resources. (FE, 05.11.09)

Fines for OverdrawingThere seems no escape for power

distribution company BSES Rajdhanifrom having to pay up the Rs 1.68 crorepenalty levied on it by the DelhiElectricity Regulatory Commission.The discom’s plea for reconsiderationhas also not been reviewed favourablyby the power regulator.

The regulator’s order has a judicialbinding that has to be met, failure ofwhich may lead to punitive action. Thecompany’s then Chief ExecutiveOfficer too was asked to pay Rs 1 lakhas penalty for “managerial failure” onaccount of inadequate procurement ofpower by the company. The companyclaims that another discom, the Tata-owned North Delhi Power Limited, hadalso overdrawn power to meet itsrequirement during the summer.

(TH, 21.11.09)

New National Power GridState Electricity Minister for Tamil

Nadu has requested the Centre toestablish a national power grid byextending the grids of northern,eastern, western and north-easternregions (inter-connected since August2006), to southern states on prioritybasis. The southern grid continued tofunction separately therefore the

southern states were unable to enjoythe benefit of surplus power availablein the rest of the grid.

Chairman of Central ElectricityRegulatory Commission made it clearthat unbundling of State ElectricityBoards was not a precursor toprivatisation. Power sector reformswere initiated in 1990 with the objectiveof giving the consumer a choice tosource his supply. However, it mighttake many years to achieve this goal.

(TH, 09.12.09)

Overall GrowthThe capacity addition of just

60,000 MW against the target of 78,700MW could be possible by end of2011-12. The Parliamentary StandingCommittee of Energy will set upvarious groups to makerecommendations for an overallgrowth of the power sector. It wasdecided that members will make theirsuggestions on the formation ofvarious groups that will look into theissues and possible solutions.

Moreover, the flagship schemes ofUnited Progressive Alliancegovernment such as accelerating powerdevelopment and reform programmeand Rajiv Gandhi GrameenVidyutikaran Yojana (RGGVY) havebeen lagging behind their targets andfurther push is needed. The ministrysaid bottlenecks such as delay in awardsof contracts, in land acquisition, infinalisation of ‘Below Poverty Line’ listand theft of materials are affecting theimplementation of RGGVY. (FE, 05.10.09)

Sunshine Pulls InvestmentRajasthan is soon set to bask in

the sunshine. The desert state is likelyto attract an investment of Rs 45,000crore in the solar energy sector.Rajasthan Renewable EnergyCorporation Chairman and ManagingDirector Naresh Pal Gangwar told that72 power companies have registeredwith the corporation for the generationof 2500 MW in the solar energy sector.

The state government has alreadysanctioned projects worth 66 MWdistributed between 11 companies. Thestate receives the highest solarradiation in the country. According toan estimate, there is a whopping 1.5 lakhMW untapped potential of solar energyin this part of the country. (HT, 14.11.09)

POWER

CFL Bulbs Good or Bad?

With no proper disposal facility for CFL bulbs in sight, the governmentis worried that large-scale use of CFL bulbs may damage the

environment in the long run. CFL bulbs contain mercury and disposingthem might create environmental hazards. The Delhi Chief Minister is worriedabout the impact of these bulbs and has suggested lamps based on Light-Emitting Diode (LED) technology as an alternative. LED bulbs are beingreplaced in government buildings to testtheir efficacy and energy efficiency.

Tata Energy Research Institute (TERI)was approached to carry out an exercisein 100 buildings and fit them entirelywith LED lights. The Delhi governmentand The Energy and Resources Institute(TERI) have signed an agreement to retrofit100 existing buildings with over 10,000sq ft area to make them energy efficient.LED lights are very expensive, but theydo not contain harmful chemicals, last longer and can be recycled. (HT, 20.10.09)

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www.cuts-international.org / 3October-December 2009 PolicyWatch


OIL & GAS

Oil Regulators not EmpoweredThe Planning Commission has

slammed the weak regulatory regimein the oil and gas sector, blaming it onthe petroleum ministry’s ‘reluctanceto give up its powers’. PlanningCommission member, BK Chaturvedirued that both the regulators in the oiland gas sector – the Director Generalof Hydrocarbons (DGH) that overseesupstream activities and thedownstream regulator, Petroleum andNatural Gas Regulatory Board(PNGRB) – lack independence andhave not been granted powers by theministry.

The regulatory regime in the sectoris very weak. The upstream regulator,is recommended to be strengthened,made more independent and givenmore powers. The downstreamregulator is also very weak.

(FE, 12.10.09)

Gas Highways Authority SoonThe government will soon set up

a national gas highway developmentauthority to facilitate setting up of gashighways across the country. Theproposed authority will plan, develop,manage and regulate gas highwaysand focus on creating gas pipelineinfrastructure in remote areas.However, the government clarifiedthat it has no intention to wind upPNGRB, the licensing authority for citygas distributors.

The amendments will adequatelyempower PNGRB to perform thedesired functions. The Delhi HighCourt is scheduled to hear a publicinterest litigation regarding thealleged delay in notifying Section 16of the PNGRB Act that deals withauthorising pipeline construction.

(FE, 26.11.09)

Going the Whole HogEnsuring the nation’s energy

security and assuring supply ofenergy to poor at an affordable priceare the twin pillars of the ManmohanSingh government’s energy policy asit encourages companies to buy globalenergy assets and increasesexploration within the nation.

The government has got its handsfull in terms of required policy

changes. They are deregulation ofauto fuel prices, which drains theexchequer in the current practicewhere the government subsidises fuelwhen crude prices shoot up, andproviding direct fuel subsidies oncooking gas and kerosene to the poorthrough smart cards top the list. Thecurrent subsidy regime that regulatesretail prices of four ‘politicallysensitive fuels’ — petrol, diesel,kerosene sold through fair-priceshops and cooking gas — needs tobe reworked. (ET, 30.10.09)

Diesel Generators BannedThe West Bengal Government has

issued a notification banninginstallation and operation of dieselgenerators at mobile towers in orderto curb air and noise pollution. Mostof the mobile phone operatorsincluding Airtel, BSNL and Vodafonehave already agreed to comply withits requirements at a meeting heldabout two months ago. The move willsubstantially help cut down onemissions and noise pollution,especially for people in thesurrounding areas.

According to the notification, nonew mobile towers can be installed atupcoming mobile towers and existingtowers have been given time till May

2010 to switch over to a battery-operated or solar system. Mobiletowers install generators for theirpower requirements for the durationof a load-shedding or a power failure.

(TH, 14.11.09)

Curbing AdulterationDespite the introduction of a series

of technological and institutionalmeasures, the Ministry of Petroleumand Natural Gas is concerned over thegrowing menace of adulteration ofpetroleum products. Similarly, theministry is also worried over thediversion of kerosene, to be soldthrough the public distributionsystem, which goes on unabated. Theministry has asked the oil marketingcompanies (OMCs) to further step uptheir efforts to curb adulteration ofpetroleum products.

The government and the OMCshad launched regular and surpriseinspections of retail outlets andtamper proof tank-truck lockingsystems. Moreover, the OMCs havecreated a separate wing responsiblefor monitoring all activities andoperations to curb adulteration.Marketing discipline guidelines hadalso been issued in 2005 under whichOMCs take penal action against theerring dealer. (BS, 22.12.09)

Making up Failed Bonds

Prime Minister Manmohan Singhmay deliberate on freeing auto

fuel prices while reviewing thefinancial health of state-run oil firmswith the finance minister and oilminister. The issue of freeing petroland diesel prices from governmentcontrol may come up for discussionas Indian Oil, Bharat Petroleum andHindustan Petroleum are projected tolose Rs 45,000 crore on selling thetwo auto fuel and domestic LPG andkerosene at rates below cost duringthe current fiscal.

Sources said the government hadfailed to provide the promised oilbonds to make up for the revenue losson LPG and kerosene, in the absenceof which HPCL and BPCL reportedlosses in the second quarter. Besides the three, private fuel retailers RelianceIndustries, Essar Oil and Shell have also sought freeing of petrol anddiesel prices to give them level playing field. (ET, 23.12.09)

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Non-IMEI Handsets DisconnectedOver two crore subscribers with

handsets without the unique 15-digitinternational mobile equipmentidentity (IMEI) number lost theircellphone connection following agovernment order in this regard. Inview of terror attacks and heightenedsecurity arrangements, centralsecurity agencies requested theDepartment of Telecom (DoT) to banmobile phones without the number asthey cannot be tracked in the absenceof IMEI.

These cheap phones are mainlyillegal imports from China and othernations in the Asia Pacific region.Leading mobile operators includingAirtel, Vodafone and Idea are amongthose who have starteddisconnecting phones without IMEInumbers. (TH, 02.12.09)

Special Courts for Mobile-usersWith the mobile telephone market

adding 18 million consumers a month,the government feels the time is ripeto introduce a separate grievance-redressal mechanism for the sector.The law ministry has asked theconcerned ministry to work towardssetting up consumer courtsspecifically for mobile-users.

Currently, if a consumer hasgrievances against an operator, he hasno recourse but to approach normalcourts. The only alternative to theconsumer at present is to approachthe Telecom Regulatory Authority ofIndia (TRAI) as a group which is avery cumbersome and costly processfor the consumers. Surveys haverevealed that there are frequentproblems related to billing and calldrops. (HT, 26.11.09)

No Ombudsman in TelecomsThe government ruled out

appointing an ombudsman to redressthe complaints of poor mobiletelephony services, like call drops,saying state-run Bhartiya SancharNigam Ltd and Mahanagar TelecomNigam Ltd were taking effective stepsto upgrade technology and avoid calldrops.

The telecom minister said the per-second metering of call, recently

introduced by major mobile operators,was to ensure consumers were notmade to pay for full one minute whenthe call might not have lasted morethan a few seconds because of calldrop. The government was providinga level playing field to public andprivate telecom operators.

(BS, 26.11.09)

Cheaper Digital TV OptionConsumers will soon get a

cheaper option of watching digitaltelevision with the Ministry ofInformation and Broadcastingproposing to charge zero annuallicence fee from Headend In The Sky(HITS) service providers. HITSinvolves delivery of digital televisionsignals directly to cable operators viasatellite which are then passed on toconsumers, using cable lines.

Compared to existing digitalbroadcasting platforms HITS has theadvantage of spreading digitalisationthroughout the country at one gobecause of the country-wide footprintof satellites. DTH players are,however, not too happy with the moveas they have to pay 10 percent of theirannual revenues to the governmentas licence fee. (BL, 11.11.09)

Regulator for BroadcastingThe government has no intention

to regulate the content of televisionnews channels but will create anindependent body to look into allaspects of the broadcasting sector,says Information and BroadcastingMinister, Ambika Soni. The regulator

would be an independentautonomous body, withoutgovernment control, which will lookat all the ministry-related issues.

There is a debate going on for along time on what kind of a bodyshould be there. The minister addedthat she did not want the ministry toplay the role of a regulator. Regulatorwill not function on behalf of theministry but through some othermechanism which is autonomous.

(TH, 20.10.09)

Revamping PoliciesTRAI has initiated the first move

towards overhauling all rulesgoverning the country’s telecomsector in an attempt to formulate aclear and definite policy to govern theindustry. A new roadmap is beingdesigned to address every issue onthe policy front, plug loopholes inexisting norms and also bring aboutchanges that could facilitateconsolidation in India’s mobile phonemarket.

TRAI has sought opinion on howspectrum should be allotted in thefuture and whether the issuance oflicense can be delinked from theairwaves. Several possibilities arebeing explored such as: awardingspectrum through auction;introducing a cap on how muchspectrum can be held by telco,penalties for inefficient use ofairwaves; and differential allocationbased on the population of an area.

(ET, 17.10.09)

COMMUNICATION MNP Likely to be Delayed

Mobile Number Portability (MNP),a service that allows a user to switch

operators while retaining the number, islikely to be delayed as state-run MTNLexpressed inability to implement it byMarch 31, 2010 due to technicalconstraints. The government had earliersaid MNP will be introduced on December31, 2009 in the metros and by March 2010in other telecom circles.

The government has set a maximumfee of Rs 19 that telecom companies cancharge from users for a switch to anotheroperator. MNP is expected to help inincreasing competition between serviceproviders. (PTI, 27.11.09)

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Port Development PolicyThe shipping ministry has

objected to environment ministry’sproposal to draft a new policy ondevelopment of ports, fearing that itcould prove fatal for the government’sambitious National MaritimeDevelopment Programme (NMDP).The environment ministry decided toform a new policy on initiation of portdevelopment projects.

Prior to this, it issued interimguidelines that required conductinghydro-dynamic study andcomprehensive environmental impactassessment studies to judge theeffects of such projects on theshoreline and neighbouring ecology.

In preparation of the new policy,the environment ministry has initiateda micro-level study of changes in the7,517 km-long coastline of the countrydue to existing projects andidentifying suitable sites to locate thenew projects. The policy is likely tocome after October 2010. (FE, 29.12.09)

Railways Pulled UpThe Parliamentary Standing

Committee for Railways has pulled upthe Indian Railways (IR) for laggingbehind in the first two years againstthe targets set for the Eleventh Five-Year Plan period.

In the first two years of theEleventh Plan, the Railways achieved513 km of new lines, 2,612 km of gaugeconversion, 789 km of doubling and

1,299 km of electrification. This isagainst a Plan target of 2,000 km ofnew lines, 10,000 km of gaugeconversion, 6,000 km of doubling and3,500 km of electrification.

According to the committee, thereis a need for IR to make sincere andconscious efforts to address theproblems and achieve the targets inremaining Plan period. Track renewalswas the only area where the Railwayssurpassed the set target for 2008-09.

(BL, 21.12.09)

Land Buys in Less TimeThe government plans to halve

the time it takes to acquire land forroad projects, a move that is expectedto help it and construction companiessave over Rs 10,000 crore.

According to the Union RoadTransport and Highways Minister,Kamal Nath, the focus would be oneliminating the many “unnecessaryprocedures involved” in the landacquisition process.

The National HighwaysAuthority of India (NHAI) officialssaid land acquisition typically takes24 months, and the plan is to pare thattime to 11 months. There are plans tocentralise process by setting upspecial units in each state who willreport to the NHAI through projectdirectors. (BS, 04.10.09)

New Administrative EntityThe Directorate General of Civil

Aviation (DGCA) is planning to setup a separate body called the CivilAviation Authority of India (CAAI)

to lay down the administrativeguidelines for the industry. The CAAIwill perform the administrativefunctions while DGCA will continuewith the regulatory role relating to theindustry.

The Asia-pacific region couldsoon see seamless movement ofaircraft as all the 37 countries in theregion have agreed to work towardssuch an arrangement. Asia Pacific AirPlanning Implementation Board willoversee such an integration isbrought about in the policies andprocedures of various countriesregarding safety and technology.

(FE, 20.10.09)

White Paper Shows Black SpotsThe white paper (official position

statement) on organisational,operational and financial performanceof the railways, was presented inParliament which busted formerrailway minister Lalu Prasad’s claimsof raking in record profits during his2004-09 stint.

The document says changesmade in accounting norms during thelast five years had inflated‘cumulative cash surplus beforedividend’ by a whopping 55 percentto the claimed Rs 88,669 crore.

Dismissing Prasad’s claims thathis regime had witnessed the financialbest of the Railways, the report holds,“The best period for Indian Railwaysfinancially in the last two decades wasnot the last five years, but the periodbetween 1991-96”. (BS, 18.12.09)

TRANSPORT

India�s airports regulator is off to a bad start. In its very firstorder, the Airports Economic Regulatory Authority (Aera) has

let Delhi International Airport Pvt. Ltd (DIAL) off the hook.DIAL imposes a development fee of Rs200 on domesticpassengers and Rs1,300 on international travellers. This fee willallow DIAL to garner roughly Rs1,827 crore, the funding gap inthe project.

DIAL demanded an extension, and got it � for a secondtime. More serious is the absence of any reasoning in the orderof the regulator. The bigger danger lies in the circumstancessurrounding the liberalisation of the aviation sector since muchof the discretionary power continues to rest with the ministry.

Unless the right precedents are set now, there is a dangerthat governmental inefficiency may be traded for crony behaviourby the private sector. Aera will simply be unable to do its job ifit does not get its act right, quickly. (www.Livemint.com, 12.10.09)

The Weak Regulator

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Direct E-paymentsIn what would make online

commerce faster for customers, theRBI has mandated that all paymentsfor such transactions be crediteddirectly to merchants, instead ofgetting cleared by intermediaries orpayment gateways. Currently, until apayment is authorised and processedby intermediaries, a transaction is notcompleted. Under the new system, allpayments to merchants shall beeffected within a maximum of threedays from the date of transaction.

From now on, no payment otherthan the commissions at the pre-determined rates/frequency shall bepayable to the intermediaries. Theexisting system has some pitfalls.Often, there is a delay in transferringmoney to the merchant, at times it ismore than seven days. Evenintermediaries are welcoming the RBImove. (ET, 30.11.09)

Hitting the Target by 2015The Government is unlikely to

meet the US$500bn infrastructureinvestment target by 2012 but wouldbe able to do so over the next five-years (by March 31, 2015). “Due tothe global (economic) meltdown, wemay not be able to meet the target by2012. But we will reach the target by2015,” said Gajendra Haldea, Adviser,Planning Commission oninfrastructure. India was targetingabout US$500bn of investment duringthe period in infrastructure projectssuch as road development and powerproduction.

We are trying for leveragingbudgetary resources and multi-lateral

assistance for PPPs in the country’sinfrastructure development,” Haldeasaid. “The private sector will nowparticipate in infrastructure buildingand it will help to meet the target, hesaid (FE, 01.12.09)

Sanitation RatingsThe Ministry of Urban

Development has launched initiativesto give ratings to cities in terms of theirsanitation standards. This move aimsat strengthening implementation ofthe safe sanitation initiative, theNational Urban Sanitation Policy,launched by the government in 2008.

The rating will be carried out in441 cities that have a population ofover one lakh. The ministry has alsolaunched a national communicationcampaign under the National UrbanSanitation Policy in which the urbandevelopment ministry will do radiocampaign on civic issues and try andmake the urban citizens aware aboutkeeping the city clean and healthy.

(ET, 18.12.09)

SEBI Back on RadarA proposal to bring the

commodities derivatives market underthe regulatory purview of Securitiesand Exchange Board of India (SEBI),the capital markets regulator, is backon the government’s agenda. Both theRBI and SEBI are at loggerheads withthe former having made a strong casefor retaining its oversight over thefledgling currency derivatives market.

Although Forward MarketsCommission is the regulator for thecommodities markets, the ConsumerAffairs Ministry tends to micro-manage and interfere on its affairs.Moreover, policy decisions such as a

ban on trading of commodities aretaken more on political considerationsthan any scientific study of the impactof futures on spot prices ofcommodities. (FE, 22.11.09)

Consolidating BanksThe finance ministry is set to push

for consolidation in the public sectorbanking space and has started workon a road map to create eight to 10large entities. The ministry was infavour of such a consolidation butcould not push the process due toopposition from the employee unionsand the Left parties.

The government and chiefs ofsome banks such as Union Bank ofIndia and Bank of India have in thepast explored the option of merging.However, the process could not becompleted. As a result, public sectorplayers have had to be content withacquiring weak players in alliancespushed by the government and RBI.

(BS, 21.10.09)

Overarching PowersThe tittle-tattle involving former

Andhra Pradesh governor ND Tiwarihas brought to focus some keychanges in India’s informationtechnology (IT) law that gives thegovernment overarching powers tocontrol information on the Internet.

Recent amendments to the IT Act2000 have empowered thegovernment to ask websites such asYouTube to remove any contentdeemed unlawful. The IT law can goafter a company based anywhere inthe world. It also provides for actionagainst officials responsible for theconduct of the business of thecompany at the time of thecontravention of the law. (ET, 30.12.09)

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Transparent Lending System

RBI has rapped banks for continuing to charge unduly highinterest rates from retail customers even after announcing

a series of cuts in lending rates. This came at a pre-monetarypolicy meeting with bankers after the latter sought retaining ofthe soft interest rate regime.

Even after announcing lending rate cuts, the rates beingcharged were still high which has been reflected in the periodicdata banks send to RBI. RBI is not dictating the interest ratestructure to banks, it is only trying to maintain a status quo oninterest rates and on the cash reserve ratio, its main concernwould be ensuring transparency in the effective interest ratescharged by banks from their retail customers. (BS, 22.10.09)

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I N F R A S T R U C T U R E � I N F E A T U R E

Highways development, whichremained largely comatose

during UPA-I, has got an adrenalininjection with the induction of KamalNath as the minister in-charge. But hispitch to create 20 km of highways,despite his good intentions, lookshard to achieve, primarily because ofcapacity constraints in the roadconstruction industry – an issue thathas got much less attention than itdeserves.

Reasons and solutions for the slowprogress in this sector have beendiscussed by various committees.Policy attention have been mainly onthree areas: (a) reducing pre-construction delays – landacquisition, tree-felling and shiftingof utilities; (b) changes in the policyenvironment – changes in request forqualification or proposal documents,model concession agreements,viability gap funding, public-privatepartnership format and fiscalconcessions & taxation, besidesintroduction of new windows offinancing; and (c) strengthening thecapacity of NHAI to implement avastly enlarged programme.

The BK Chaturvedi committee hasbeen entrusted with the job of

finalising the changes in the policyenvironment, and a formalannouncement of the changes isexpected. Strengthening NHAI’scapacity is proving a daunting task,and nothing concrete has been doneso far. Theoretically, even if thesethree factors were to be handled, itwould still be impossible to make aquantum leap in the speed of projectexecution, since the road constructionindustry lacks the capacity to executeprojects quickly. This area is not underthe government control, and hencereceived poor attention.

When the National HighwaysDevelopment Authority was

launched and 100 percent foreign direct investment was allowed in the sector,the objective was to bring about a paradigm shift in the quality and execution ofroad projects. It was then hoped that foreign road construction companieswould bring in better technology, equipment and experts and global bestpractices. In the initial years of National Highways Development Project, (NHDP)there were encouraging changes in these spheres. The change over to amanagerial system based on ‘supervision consultants’ and ‘independentengineers’ vastly improved project execution and monitoring.

There were also bigger and better pavers, hot-mix plants, concrete batchingplants, rollers, levellers and crushers. More companies jumped into roadconstruction and suddenly, there was a huge demand for civil engineers andskilled and semi-skilled workers. It appeared as if the road construction industrywas going through a process of qualitative change. There has been littleconsolidation in the industry and the number of companies that can take up bigprojects is pretty limited. The size and quality of machinery and equipmenthave also reached a plateau. While technology has moved everywhere else ata face pace, we no longer see equipment capable of delivering projects quickly.There is a massive shortage of qualified civil engineers, diploma holders, masons,carpenters, electricians, mechanics, cutters, welders and machinery operators.No lessons seem to have been learnt on imbibing best practices.

I f the NHDP has to speed up the pace of project execution to the levelenvisioned by the minister, then the average capacity of present road

construction contractors will have to increase manifold. This can happen onlyif big foreign construction companies enter the scene. The minister’s plan tointroduce ultra-mega projects to attract big foreign companies is a step in theright direction.

On both these fronts, the domestic industry will have to raise its capacity by afactor of three. The construction industry needs to sit down with thegovernment and adopt a time-bound action plan for: (a) increasing the numberof civil engineers, diploma-holders and other semi-skilled workers; (b)introducing capacity building courses for each segment of human resources;(c) bringing construction specifications to international standards; and (d)increasing the availability of latest equipment and machinery. The governmentand the road construction industry need to wake up to this challenge of capacityconstraint.

* Director-General, CUTS Institute for Regulation & Competition. Abridged from an article that appeared in the Financial Express,on November 17, 2009.

Road Construction SuffersCapacity Constraints

– Mukesh Kacker*

The domestic industryis beset with capacityconstraints on twofronts. One, there is anextreme shortage ofskilled and semi-skilled humanresources. Two, thereis a shortage of qualityconstructionequipment.

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While substantial anecdotal evidence on the impactof mobile phones on farmers has been reported in

the media, rigorous demonstration of its potential has onlyrecently been attempted. Among the most celebrated ofsuch studies is the Jensen (2007) paper that estimated thewelfare impact of introduction of mobile phones amongthe fishing community in some of the districts in Kerala.

The study concluded that the economic impact of mobileis likely to be strongest when the absence or inadequacyof existing telecommunications facilities acts as a barrieror bottleneck to private economic activities. An IndianCouncil for Research in International Relations (ICRIER)study on the impact of mobile phones on farmers acrossseveral Indian districts highlights the key role played bymobiles in lowering transaction costs and raising theincome-levels of farmers, by efficiently addressing theirimmediate agricultural-information requirements.

Information asymmetries are a well documented sourcefor inefficient functioning of markets; farmers can bridgeor alleviate the information gap at three major stages ofthe agricultural cultivation cycle by the use of mobilephones. One, while deciding the crop and choosing thebest seed variety based on soil-type of their land; two,deciding the month/season of sowing and addressing plantprotection issues during the growth of crop; and three,deciding where and at what price to sell the farm output.

M obile phones enable farmers to access thisinformation from a host of information providers

such as scientists from seed and pesticide companies,cooperative committee office-bearers, input dealers,government agriculture extension officers, market-commission agents/traders, veterinary doctors, and so on.

* Researcher, ICRIER. Abridged from an article that appeared in The Economic Times, on October 12, 2009.

I N F R A T A L K

In the discussions with farmers, they emphasised thattiming of precise information is central to minimisingwastage and therefore increasing efficiency.

The recent launch of mobile-based agricultural informationservices in India, such as IFFCO Kisan Sanchar Ltd andReuters Market Light programme provided a reasonablemethod to test the above hypotheses. UP, Rajasthan andMaharashtra, with sizeable subscriber-base, were surveyedduring July and November 2008. In general, farmers wereconfident of the utility of the mobile phone in reducingcosts and enhancing earnings. The biggest influence wasreported from Maharashtra followed by Rajasthan and UP.

Maharashtra farmers took greater advantage of the mobilephone for their farming needs vis-a-vis farmers in UP andRajasthan. It should be highlighted that the Maharashtrafarmers were better placed in terms of both social andinfrastructure indicators. They reported higher literacylevels, economic well-being, and had better access toagricultural infrastructure facilities like irrigation and roadtransport, than the other two states.

The study highlights the vital importance of complementaryskills and other infrastructure to realise the full potential ofbetter access to telecommunications. There is no benefitin access to better information if it cannot be leveraged.

At a time when the government agricultural extensionservices are unable to adequately fulfil their

responsibility of providing information on scientific moderntechnology for farming to all the farmers due to resourceconstraints and the operative inefficiencies, mobile phonesalong with the mobile-enabled services present us with aray of hope for uplifting our agricultural extension system.Mobile phone has the potential to effectively supplementthe efforts of existing extension services and synergisethe whole process.

Mobile phone has huge potential to enable the small farmerto diversify from self-sustenance farming to higher incomegenerating ventures like horticulture crops, animalhusbandry and fish farming in paddy fields. This isparticularly useful when returns to farmers are decreasingdue to decline in agricultural yields and shortage of fertilisersfor the past few years, putting pressure on them. Mobilephones have the potential to play a key role in efficientlogistics management and reduce costs for both farmersand the government. The government will be well advisedto support the development of the complementaryinfrastructure to enable farmers to maximise the benefitsthat go with better access to information.

Impact of Mobile Phones on Farmers– Gaurav Tripathi*

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T R A D E & E C O N O M I C S � N E W S D I G E S T

Combating Capital FlowsThe government is discussing a

host of policy options to combat asharp and sustained surge in capitalinflows, anticipating that globalinvestors who shun the dollar couldpark their funds in markets like India.Policymakers have started worryingthat if the country, with its rathershallow capital markets, would havethe capacity to absorb such an influxof capital without being shaken.Besides, there is the looming spectreof inflation, which warrants soundmanagement of liquidity withouthurting the seeming economicrecovery.

India has received capital flows ofover US$42bn in 2009. Thegovernment is concerned that therupee may harden against the dollarand the euro and would pull down theexports, which had shrunk 31 percentin April-August 2009. (FE, 28.11.09)

Rebounding GrowthThe Planning Commission expects

the economy to stage a full recoveryby next fiscal and register a growth ofeight percent. It also expects 2009’sfinal gross domestic product (GDP)number to be a tad higher than therevised estimate of 6.7 percent. Theupward revision is likely because of abetter-than-estimated performance bythe manufacturing sector.

The Planning Commission expectsGDP to grow at 6.3 percent in 2009-10.It expects that if overall globalconditions are unfavourable, theIndian economy could grow at sevenpercent and if the conditions arefavourable, growth could be close tonine percent. The Plan panel hopesthat private corporate investment willpick up in 2010-11. (FE, 22.10.09)

Going for GoldIndia’s purchase of 200 tonnes of

gold from the International MonetaryFund displayed the economic strengthof the world’s two fastest growinglarge economies. India and China hadbeen adding to global output despiteturmoil in the world economy.

India’s return to building up goldstocks is described as soothing the“outrage” that Indians had felt whenthey had to pledge gold to the Bankof England just for borrowing dollars

to support imports. With the latestcentral bank purchase of gold, Asia’sthird largest economy has joined themove by a group of large economiesto diversify foreign exchange reservesand rebalance their holdings of dollar-denominated assets. India’s goldholdings as a percentage of foreignreserves are now higher than China’s.

(FT, 04.10.09)

Inking PactsIndia plans to enter into specific

information exchange agreements withabout 15 countries where illegal Indianmoney is alleged to be parked or whichpossibly serve as conduits forinvestments looking to avoid tax. Thiswould make it difficult for tax evadersto park their unaccounted cash insecret bank accounts in someEuropean location or bring it backthrough shell entities in tax havens.

The Central Board of Direct Taxes,the apex direct tax body, is also givingfinishing touches to a model TaxInformation Exchange Agreement. Themodel agreement would seek to ensurethat information about flow of fundsfrom banks, financial institutions,trusts or foundations is made availableto taxmen in the country. (ET, 04.10.09)

Simpler Labour LawsRepresentatives of micro, small

and medium enterprises (MSMEs) areseeking a simpler labour lawexclusively for the sector, saying it’snot feasible for small firms with

minimal resources to comply withmultiple laws. The SMEs sectorcontributes 45 percent of India’smanufacturing output. There are 44Central Acts governing labour. Underthe law, SMEs have to implement atleast 15 of them, including thosecovering social security, minimumwages and payment of gratuity andbonus.

The MSME ministry has beenopposing the labour ministry’s moveto bring establishments employing 10people under the Central healthinsurance plan, the Employees’ StateInsurance, without simplifying overallimplementation norms.

(Livemint.com, 05.10.09)

Law to Check PricesA key committee of Parliament has

recommended a new legislation tocontrol prices of essentialcommodities and extension of thepublic distribution system to themiddle class. The committee’srecommendations assumesignificance in the backdrop of risingprices of food items. Prices of cereals,vegetables, milk and fruits weresubstantially higher than last year.

The committee noted that pricemonitoring cell of the government wasmerely collecting and disseminatinginformation on prices. Whilesuggesting a new legislation forcontrolling prices, the committee hasrecommended capping profit marginfor various intermediaries.

(ET, 25.10.09)

Outcome Budget � Futile Effort

The Planning Commission�s Deputy Chairman, Montek Singh Ahluwaliajunked the exercise of producing outcome budget every year terming it a

futile effort that did not producethe desired results. He insteademphasised developing afoolproof evaluationprocess withgovernment.

The governmentstarted the practiseproducing outcomebudget few years back toshow the progress ofvarious governmentprogrammes. It has now decided set up a separate independent evaluationoffice to assess the progress of the government�s flagship schemes in benefitingthe poor. (ET, 13.10.09)

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The most striking move by Indira Gandhi, before thedeclaration of the emergency, was a mid-night

ordinance in July 1969. At one stroke, the ordinance gavethe government control over a big chunk of the savings ofthe Indian people. On July 19, 1969, India woke up toheadlines that India’s major private sector banks had beennationalised. That stroke of midnight brought a loss ofeconomic freedom. Like much of the economic policy ofthe 1969-1976 period, this was one more instance of powerbeing usurped by the state.Through the 70s, till the end ofthe emergency, economicenterprise and private initiativewere severely restricted.

Nationalised banks had socialobjectives such as lending to thepriority sector such as small-scale industry. Banknationalisation was followed bysmall-scale industry reservation.The policy of explicitly reservingcertain items for production bysmall companies was created.Indian industry has lost out foryears because of being unable toharness economies of scale.

But then the logic of control rajcan be strange. While on onehand there was a policy thatindustries should be small, if therewas a large industry that wished to become small, theIndustrial Disputes Act (IDA) was passed to prevent it.Until then factories with over 1000 workers used to requiregovernment permission for layoffs. The size threshold wasamended in 1976 to 300. In 1982, when Indira Gandhi wasback in power, this was further reduced to 100.

To offer nationalised banks protection from competition,foreign banks were prevented from coming in. Indeed,

not just foreign banks, even foreign money was notwelcome. Under the Foreign Exchange Regulation Act(FERA) draconian currency controls and restrictions onforeign investment were imposed in 1973. While FERAhas been supposedly replaced by a more liberal ForeignExchange Management Act (FEMA), the mentality ofcontrols is very much there in FEMA as well. The centralplanning logic went into other areas was well.

For example, on February 17, 1976 the Urban Land CeilingAct was passed. It covered 73 towns and cities and

imposed a ceiling of 500 to 2000 sq m on urban land holdings.It constitutes a major distortion of the urban land market.While this was a state subject, the Constitution allowsParliament to pass a bill if more than two states agree, andthis path was chosen during the emergency.

Another law giving disproportional powers to the statewas the Monopolies and Restrictive Trade Practices

(MRTP) Bill was proposed in 1967. It became an act andcame into force from June 01,1970. The MRTP Act, whichgave huge powers to thegovernment, sought to checkthe expansion of large industrialhouses with assets over Rs 1crore in businesses where theirshare in the market exceeded 33percent. The MRTP remained inplace even after liberalisationuntil 2002 when it was replacedby the Competition Act.

Banks need a licence to start andonly a handful of new bankshave been allowed since thebank nationalisation of 1969.Banks need licences to openbranches and until recently, theyeven needed licences to openATMs. Only 18 foreign bankbranches are given the licenceto open every year. If banks

open branches abroad, they need permission. Everyproduct that is launched needs permission from RBI. Theauthorities decide what the savings bank interest rate is.The authorities decide what the interest rate on lending tocertain sectors is. The authorities define who to lend, howmuch to lend and at what rate to lend. They decide howmuch a bank has to lend to the government, to the centralbank, to agriculture, to small scale industry, to exporters, tostudents, to rural businesses and so on.

Every element of the life a banker is dictated by theauthorities. The salaries Public Sector Unit banks can payare decided by the government, as are pension benefit.Loan decisions are often known to be influenced bypoliticians. In summary, nearly everything that can killgrowth of a healthy and competitive banking systemplagues Indian banking. Undoing all this is going to be aformidable task.

T R A D E & E C O N O M I C S � I N F E A T U R E

Mrs G and the Licence Permit Raj– Ila Patnaik*

* Senior Fellow, National Institute of Public Finance and Policy (NIPFP). Abridged from an article that appeared in the FinancialExpress, on November 02, 2009.

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The licence and control raj ofthe 70s shapes every aspect of

Indian banking


C O R P O R A T E G O V E R N A N C E � N E W S D I G E S T

Check on Misleading AdsThe Food Safety and Standards

Authority of India is working on acode that aims to stop false andmisleading advertisements on foodand beverages. The authoritycirculated a draft code to variousstakeholders including the industryand civil society organisations andwill soon invite public comments onit.

It discourages the portrayal ofproducts as substitutes for meals, andendorsements by governmentagencies, professional bodies,independent agencies or individualsin a particular profession without theirprior consent. The 2006 Act underwhich the authority was constitutedprescribes penalties up to Rs10 lakhfor publishing misleadingadvertisements and sellingmisbranded food. The new draft doesnot mention punitive action againstthose who breach the code.

(Livemint, 08.10.09)

Insolvency ProfessionalsThe government is planning to

establish a regulator for the growingtribe of insolvency professionals, whospecialise in rehabilitation or windingup of sick companies. The CompaniesBill, 2009 has given formal recognitionto insolvency experts as professionalsfor the first time. It was felt that thereshould be a regulator for insolvencyprofessionals.

Nowadays insolvency mattershave become cross-border issues andthere is a need for insolvencyprofessionals who can match up tothe global best. (BL, 09.10.09)

CSR Trading DraftThe government is working on a

framework for quantifying thecorporate social responsibility (CSR)initiatives of companies to permittrading in them. Backed with some taxincentives, the government expectssuch a framework to encouragecompanies to take up CSR initiativesmore seriously.

There is no precedent of CSRcredits being traded anywhere else inthe world and the minister has askedhis officials to look at a frameworkwhich is akin to the carbon creditstrading mechanism. The idea ofquantifying CSR and link it withincentives is workable idea. The draftwill also suggest a structure that willquantify what a private companystands to gain for CSR activitiesbeyond a certain level. (ET, 08.12.09)

CAs Volunteering for AuditAs the Ministry of Corporate

Affairs (MCA) gears up for theprocess of scrutinising the balancesheet of around nine lakh registeredcompanies in the country, the ICAIhas asked chartered accountants(CAs) to volunteer for this.

With the Registrar of Companiesfinding it difficult to conduct a detailedexamination of accounts of thecompanies, MCA has decided tooutsource the work of scrutinising theaccounts of both listed and unlistedcompanies also to cost and workaccountants and companysecretaries. The government decisionof outsourcing this work ofscrutinising the companies accountswould be in the interest of the CAs.

(FE, 04.10.09)

Class Action SuitsMCA will soon start talks with the

Insurance Regulatory andDevelopment Authority (IRDA) forthe development of concept of classaction suit in India. “The class actionsuit has to go hand-in-hand with theinsurance industry as it is in US,” saidSalman Khurshid, Minister ofCorporate Affairs.

It is a good move on part of theMCA to at least make sure that thereis some sort of financialreimbursement on account ofmalpractices or losses arising from thefraudulent practices resulting in lossesto the investors. The class action suitwill be a important tool in the handsof the investors as it would avoidmushrooming of the IPOs ofcompanies who don’t have anydefinitive business plan due to whichinvestors really suffer. (FE, 02.12.09)

Authority for Audit & AccountThe Government is planning to

strengthen the National AdvisoryCommittee on Accounting Standards(NACAS). NACAS was constitutedin 2001 only to examine only Instituteof Chartered Account of India’s(ICAI) accounting standards forcompanies in the country. NACASwould be renamed the NationalAdvisory Committee on Accountingand Auditing Standards (NACAAS)to make it the overall authority onaccounting and auditing.

NACAAS will also advise thegovernment in prescribing the policieson accounting and auditing. Thesechanges have been incorporated in thenew Companies Bill. NACAAS willcomprise representatives fromregulatory bodies such as SEBI, RBIetc. (BL, 05.10.09)

New Guidelines Released

MCA has released a set of voluntary guidelines on CorporateGovernance and CSR. This was released at the conclusion of the

first-ever India Corporate Week, the guidelines incorporate all TenPrinciples of the United Nations Global Compact. Shri Salman Khurshid,Minister of Corporate Affairs, presided over the event. Shri Khurshidunderscored various developmental challenges that need to be addressedwhile assuring continued corporate growth and emphasised the need forcollaborative solutions and partnerships among government, the businesssector, civil society organisations and citizens to address these challenges.

The corporate sector was urged to adopt these voluntary guidelines asa means to facilitate value generation throughout all societal sectors.India is the latest government to reference the UN Global Compactprinciples in formal CSR guidelines or strategies, as has previously beendone in Norway and Denmark. (www.csr-news.net, 24.12.09)

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C O R P O R A T E G O V E R N A N C E � I N F E A T U R E

As the Corporate Affairs Ministrycelebrates India Corporate Week,

one’s attention is again drawn tocorporate governance. Broadlydefined, this is the standard adoptedby corporations to regulate andmanage internal processes. Althoughnot a new function of society,corporate governance, as a measureof corporate functioning, has gainedsignificant importance over the pastdecade. Corporations have becomecomplex beings as have their systemsof governance.

Simultaneously, academics andlawmakers have undertakensubstantial research to develop waysto quantify and devise objectivecriterion for evaluating corporategovernance. The objective of allresearch has been to identify ways ofachieving a system of ‘better’governance.

Historically, two models of corporategovernance exist: the shareholdersmodel and the stakeholders model.The first caters only to shareholders’needs and individual interests. Thisis often critiqued when there exists ashareholder that directs decision-making in its own favour. By contrast,the stakeholder model is broader. It’sstructured to protect interests ofemployees, creditors, customers andall other persons that have a stake in acorporation, aside from just theshareholders.

Based on these models, varioustools to measure corporate

governance have been developed. Butquestions have also emerged aboutwhether there can really be one modelto measure corporate governanceacross all companies. Can there reallybe an ideal level of governance?Corporations vary and are too diversefor one rule to be universallyapplicable. A report, generated byWharton University, which evaluated500 companies, concluded that “the

* Partner-designate at Amarchand Mangaldas. The article is co-authored with Komal Kalha, an associate in the same firm, andappeared in the Financial Express on December 21, 2009.

Recipe for Good Corporate Governance– Satvik Varma*

recipe book is big and there’s a different recipe for each company.” Scholarsbelieve that culture plays a large role in governance and simply adopting asystem that works in another country leads to companies with fractured systemsof governance.

For governance to be effective, it must check greed and corruption, and addressthe lack of foresight. This needs to be achieved within a framework of financialdiscipline, law, ethics and values. It is difficult to accomplish any of these witha precise tool or under any model. Instead, it may be productive to rest thesystem of governance on four fundamental pillars: state regulations, internalregulations, duty of loyalty and moral intelligence, all of which appear to beuniversally applicable.

The first pillar is the structure of rules and regulations set by the sovereign.Systems and procedures must be devised to objectively monitor the functioningof corporates, taking into account public interest. Equally important are internalregulations, which must ensure smooth functioning and transparency. Further,proper internal structures reduce the risk of the external regulator hauling up acompany for fraudulent dealings.

Duty of loyalty forms the next pillar and is broader than the commonly usedlegal concept of duty of good faith and duty of care. The duty of loyalty

precludes acting for unlawful purposes and requires officers of a company tomake good faith efforts to monitor its affairs. As fiduciaries, these officerscannot be driven by personal objectives and must only act in the best interestsof the corporation.

The last pillar, moral intelligence, unlike economic factors, cannot be reducedto numbers and thus is difficult to measure. Moral intelligence stems frompersonal and organisational success, integrity, and responsibility. It originatesfrom the duty of care towards the organisation to which one belongs and is sopersonal that it is based on an individual’s conscience and ethics and is difficultto imbibe.

While regulations are essential as they prescribe the boundaries within whichto act, it is the duty of loyalty and moral intelligence that prevents the corporatesystem from being faulty. In comparing a corporate to a house with four walls,while each wall is essential, not all four can be load-bearing. Moral intelligenceis the differentiating load-bearing wall that separates corporate governancefrom good corporate governance.

Four fundamental pillars

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R E P O R T D E S K � N E W S D I G E S T

Skills ShortageIndia faces a chronic shortage of

skills in its construction industry overthe next decade jeopardisinggovernment’s ability to sustain itsnine percent growth target, the WorldBank warned in its report on roadconstruction industry. The number ofcivil engineering graduates neededto rise threefold to avoid a cripplingfailure to make improvements ininfrastructure.

“As it competes for skilledmanpower with other boomingsectors, the road industry facesincreasing turnover of its experiencedstaff, dwindling appeal to fresh talent,and several other constraints in theinvestment climate that inhibit itsoperations and attractiveness tofirms, both domestic and foreign,” thereport said. (FT, 06.10.09)

States Performances on RTIWhile the Information

Commissions of Karnataka, Keralaand Punjab are performingexceedingly well in various aspectsof implementing the much talkedabout Right to Information (RTI) Act,the performance of the CentralInformation Commission (CIC) hasleft a lot to be desired. Findings of astudy to evaluate the performance ofState Information Commissions andInformation Commissioners revealsthat Maharashtra and West Bengalwere the other states at the bottom ofthe chart.

The criteria for evaluationincluded overall public satisfaction,effectiveness, deterrent impact andpro-disclosure. In overall publicsatisfaction, Karnataka topped thelist, while West Bengal and the CICfigured at the bottom and fifth fromthe bottom respectively. (TH, 22.10.09)

Ration Cards to CashA study conducted by Self-

Employed Women’s Association(SEWA) on whether poor people inthe capital want to change from thePublic Distribution System ofrationing to cash transfers hasrevealed that a majority of about 60percent are agreeable to the idea while40 percent opposed it. The study alsorevealed a link between the economicwell-being of the respondents and

their responses, “with the poorestgroups strongly opposing cashtransfers and the better-off groupssupporting it”.

The two main reasons foropposition to the cash transfers are,first, women felt that cash would beused for other needs and not spent onfood, and second because inflationwould soon reduce the value of thecash they received and they would beable to buy less food. (TH, 26.11.09)

Higher Growth Sectors IdentifiedSectors such as telecom, capital

goods, cement, construction, and non-banking financial institutions areexpected to post highest revenue andearnings growth in the second quarterended September 30, 2007 while otherslike automobiles, pharmaceuticals,metals will report lowest growth,according to a study.

Sectors like telecom, cement,construction are expected to report asolid 19 percent and 10 percent year-on-year growth in earnings and inrevenues respectively, according tothe report. However, given the politicaluncertainty, high oil prices andincreasing impact of global factors, anear-term-correction is not justpossible but quite likely. Some of theoverweight sectors are bank and non-bank institutions, capital goods, power,telecom, cement and real estate.

(FE, 08.10.09)

India First in Pay TV PiracyIndia tops a list of 15 Asia-Pacific

nations in so-called pay televisionpiracy, a study said. Pay TV piracy isdefined as cable operators reporting alower number of subscribers than theyactually service, according to AnjanMitra, India executive director of Cableand Satellite BroadcastingAssociation of Asia (Casbaa), whichconducted the annual survey inassociation with Standard CharteredBank.

This leads to the governmentearning lower taxes and lower revenuefor broadcasters. The Casbaa surveysaid the Asia-Pacific region losesUS$1.94bn in annual revenue due toTV piracy. However, an analyst saidthe increasing spread of digital TVservices would lower such piracy inIndia. (Livemint.com, 05.10.09)

Corrupt Public Life

Public life is seen as much morecorrupt in China, India and

Russia than in leading westerneconomies, says a report publishedrecently. The three big emergingmarkets, which were all criticisedfor their failure to give strongerbacking to global anti-corruptionrules, have all finished below 75th

place in annual rankings of 180countries by TransparencyInternational, a campaigning group.

The survey results were of �greatconcern� because they showedcorruption continued to �lurkwhere opacity rules, whereinstitutions still need strengtheningand where governments have notenforced anti-corruption legalframeworks�. (FT, 18.10.09)

More Investment to Fuel GrowthThe power sector will need a total

investment of about US$250bn in thenext eight years to achieve plannedgrowth, an A T Kearney study,commissioned by the Confederationof Indian Industry (CII), said. By 2014,a new era of competition wouldemerge, leading to the addition of80,000-85,000 MW of new generatingcapacity while the demand for poweris expected to grow at a steady annualrate of 7.5-8 percent till 2017, the reportsaid.

Effective implementation of thenext generation reforms, addressingconstraints in fuel, financing,distribution and improved access,reach of power and realisation of latentdemand would ensure sustainedgrowth of the power sector, the reportsaid. (TH, 03.11.09)

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– This study has been contributed by Ruhi Tewari and Liz Mathew which appeared in www.Livemint.com on October 22, 2009.

R E P O R T D E S K � I N F E A T U R E

In the four years that the pioneeringRTI Act has been in force, an audit

shows that the legislation hasachieved a success rate of about onein four. The proportion of appeals filedunder RTI that have succeeded ingetting the information sought hasbeen put at 27 percent in a study bythe National RTI Awards Secretariatinstituted by the Public CauseResearch Foundation (PCRF), a Delhi-based organisation that works in thearea of transparent, accountable andparticipatory governance.

The study, based on orders passed in51,128 cases by informationcommissioners and benches during2008, shows that at a national level,orders have been passed in favour ofdisclosure in 70 percent of the cases.“Despite this, there has been 61percent of non-compliance of theseorders, with only 39 percent actuallyreceiving the information”, saidArvind Kejriwal, RTI activist andfounder of PCRF.

That does not take away from RTI’ssuccess in bringing transparency to asystem where there used to be none,said Jagdeep Chhokar, foundingmember of the Association forDemocratic Reforms (ADR), a Delhi-based non-governmentalorganisation. “It’s the way weinterpret this data”, he said.

The landmark legislation waspassed during the Congress-led

UPA government’s first term as partof its efforts to make the officialdommore accountable. In the area ofoverall public satisfaction, Karnatakatops the list with 55 percentpetitioners happy with the functioningof the commission, with Kerala (52percent) and Punjab (47 percent) nextin line. At the bottom of the ladder isWest Bengal, where only six percentof the petitioners were content withthe response they received.

all the cases in which pro-disclosureorders were passed, which means thata violation of RTI Act wasestablished, only two percent werepenalised”, he added. RTI has, in thepast, contributed towards the betterimplementation of the National RuralEmployment Guarantee Act anotherflagship programme of the UPAgovernment.

For instance, workers in Balisanavillage in Gujarat’s Sabarkantha

district, who were grossly underpaid,received their payments under theAct as per minimum wage provisionsafter an RTI appeal was filed by a civilsociety group asking for muster rollsand payment sheets. Anotherinstance where RTI has proved usefulis in the area of transparency ofpolitical funding after CIC directedthe income-tax department to makepublic the returns of political partiesfollowing an RTI filed by ADR. TheRTI Act also helped in creatinggreater accountability in theappointment of government officers.

For instance, the Delhi high courtcame under the RTI scanner recentlywhen CIC held that people have a rightto know the procedure that went intothe appointment of its publicinformation officer. Reports about thegovernment’s plans to further amendthe Act have not gone down wellwith activists.

“Its first agenda should be to makeimplementation more effective andstrengthen it, rather than focusing onamending it,” PCRF’s Kejriwal said.Others called for a more carefulselection of officials. “The singlebiggest problem with theimplementation of the Act is theappointment process and criterion”used to choose the informationcommissioners, ADR’s Chhokar said.

RTI has Hit Rate of 27%

A figure like 39 percentpeople getting informationis a positive figure if you

see that it has been a jumpfrom zero

Interestingly, the CIC itself falls in thebottom five.

The study does not include UttarPradesh, Tamil Nadu and Sikkimbecause of inadequate information.Experts opine that RTI has “actuallybrought out the poor governancestructure in the country”. ShaileshGandhi, Commissioner with CIC,defended its functioning even whilewelcoming such studies, saying theywould help in making RTI moreeffective. “There have been otherstudies on RTI, which have given abetter rating to the effectiveness ofthe Act”, he said. The parametersused by the study includeeffectiveness, deterrent impact andthe pro-disclosure factor.

“Under the Act, informationcommissioners have powers to levypenalty on defaulting governmentofficers as well as issue summonsand order arrests. But hardly anyinformation commissioner actuallyuses these powers”, said Kejriwal. “In

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G O V E R N A N C E & R E F O R M S � N E W S D I G E S T

Strengthening ConsumersThe government has decided to

come up with a National ConsumerPolicy that will ensure uniformnational and international standardsin the various arms of the central andstate governments, the regulatorybodies and on consumer fora, and tolay down the guiding principles ofcomplaint resolution.

The draft policy seeks to ensurethat goods, services and technologyare available to consumers “atreasonable prices and at acceptablestandards of quality”. It recognisesthat trade practices need to be identifiedand regulated, and law and codesshould be re-engineered. Consumersshould be aware and empowered tomake real choices. (TH, 31.12.09)

Face-lift for Urban IndiaReforms in the urban sector are

imperative to ensure sustainabledevelopment, efficient infrastructureservices and strong local governance.Recognising this, the JawaharlalNehru National Urban RenewalMission (JNNURM) was launched in2005 as a major flagship programmeemphasising on improving urbangovernance. JNNURM envisagestates and cities undertaking a totalof 23 reforms during the seven-yearmission period from 2005 to 2012.

The reform agenda should alsofocus on definite milestones to beachieved as far as service levelbenchmarking set for water supply,

sewerage and storm water drainage,solid waste management, e-governance and urban transportsectors are concerned. There is a needto build up further the momentumcreated in states and cities to bringabout substantial changes in urbangovernance. (ET, 15.11.09)

No Big-ticket Social ReformsThe government’s big-ticket

social sector programmes coveringeducation and food security are notlikely to take off this year. Though nocost estimates for implementation offood security scheme have beenworked out yet, it is estimated that theright to education could cost thecentre and states together about Rs1.78 lakh crore over the next five years.

There may be some adjustment offunds through what is called atechnical supplementary wheremoney saved under one head isutilised in the other but we are notlikely to increase spendingsubstantially. The thinking within thefinance ministry is that ministriesshould not park funds available withthem and utilise it instead of seekingmore funds from government.

(BS, 02.10.09)

UID Numbers SoonThe first set of 16-digit unique

identification (UID) numbers forcitizens of the country will roll out byAugust or December 2010, saidchairman, Unique Identification

Authority of India (UIDAI). He saidstates could prepare their data inabout six months for blending withthe UID numbers programme,launched as a social security card toserve all purposes as in the US.

Centres would be opened forpeople to enroll and get their UIDnumbers. He said the programmewould be implemented in AndhraPradesh on a pilot basis. The UIDprogramme would not exclude theidentity cards already issued by stategovernments but would take care toavoid duplication. (TH, 22.10.09)

Poverty Takes a DipThe proportion of poor people in

India has come down from 45.3percent in 1993-94 to 37.2 percent in2004-05, with these falling from 50.1percent to 41.8 percent in rural areasand from 31.8 percent to 25.7 percent inurban areas. The 37.2 percent all-Indiahead count poverty ratio for 2004-05,estimated by an expert group underProf. Suresh Tendulkar on the basis ofa new methodology to arrive at povertylines, is higher than the existing officialfigure of 27.5 percent.

The discrepancy vis-à-vis the oldmethodology is particularly evidentfor rural poverty. For 2004-05, the oldestimate is 28.3 percent which theworking group has re-estimated at 41.8percent. Even for 1993-94, the oldmethodology had put the ruralpoverty ratio at only 37.2 percentagainst the reassessed figure of 50.1percent. (TH, 11.12.09)

The Reluctant LitigantThe Cabinet has approved a

proposal to reduce the petitions bygovernments, the largest litigant incourts with 3.5 crore pending cases,said the Law Minister. The LawMinistry was working out a blueprintto implement the National LitigationPolicy.

The idea is to reduce the pendencylevels before 2012 by bringing downthe time taken to dispose of cases fromthe present 15 years to just threeyears. For the purpose, the LawMinistry has come out with a NationalLitigation Policy, in consultation withother ministries and after compilingthe number of pending cases of eachof the ministries. (BS, 09.12.09)

GST to Increase Employment

Goods and Services Tax (GST), which is proposed to be implementedfrom April 01, 2010, will help increase employment in the

manufacturing sector and also reduce prices of manufactured products. Thiswill also attract more investments in the manufacturing sector.

As �tax cascading�disappears, the industry willmove to the lagging regions,bringing them into the growthdynamics. For GST to besuccessful, all states and thecentre should implement itin a similar fashion. Onlythis will bring about thenational common market,which is one of its goals. This

will be possible when there is be a common law, common exemptions, acommon assessment procedure and perhaps even a common return.

(BS, 13.10.09)

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WB Health Regulatory BillThe West Bengal government

passed the controversial Rural HealthRegulatory Authority Bill 2009 in thestate assembly by majority vote. Indoing so, the state governmentcreated a precedence in the sense thatit over-ruled thereby the collectivedecision that was taken by the LeftFront to send the bill to the assemblyselect committee in view of thedifferences that existed over varioustenets of the bill among theOpposition.

The Bill introduces a three-yeardiploma course on medical science andthe apparent objective is to deploythese diploma holders in various partsof rural Bengal to meet the acuteshortage there in terms of qualifiedmedical practitioners. (ET, 17.12.09)

Bill to Amend Copyright ActThe government has approved a

proposal to introduce a Bill in Parlia-ment to amend the Copyright Act,1957, which includes a host of changesincluding giving independent rightsto authors of literary and musicalworks in cinematograph films.

The amendments propose to en-sure that the authors retain their rightto receive royalties and the benefitsenjoyed through the copyright soci-eties. The amendments also ensurethat the authors of the works, particu-larly songs included in the cinemato-graph film or sound recordings, re-ceive royalty for the commercial us-age of such work.

Amendments are being made tobring the Act in conformity with theWorld Intellectual PropertyOrganisation Internet Treaties, namelyWIPO Copyright Treaty (WCT) andWIPO Performances and PhonogramsTreaty. (TH, 24.12.09)

Trademarks Amendment BillA Bill seeking to amend the Trade

Marks Act 1999 with a view toenabling Indian nationals as well asforeign nationals to securesimultaneous protection oftrademarks in other countries wastabled in the Parliament.

Titled The Trade Marks(Amendment) Bill, 2009, it saidcurrently a person desirous ofobtaining registration of his trademarkin other countries has to make separateapplications in different languagesand disburse different fees in therespective countries. The MadridProtocol gives a simple, facilitative andcost-effective system for globalregistration of trademarks

(BL, 06.12.09)

Law Against ‘Ponzi Schemes’West Bengal will introduce a new

law to stem the mushrooming of Ponzischemes in the state’s rural areas.Under the law, be introduced in theassembly during the ongoing wintersession, police would have the powerto launch investigations, detain theoperators of such schemes and seizetheir assets even without complaintsfrom investors.

Illegitimate investment schemesoffering huge returns, which are paid

out of money raised from newdepositors, are called Ponzi or pyramidinvestment schemes. Named afterCharles Ponzi, who gained notorietyin the early 1920s for runningillegitimate schemes and for dupinginvestors in the US, such scamstypically collapse when the operatorfails to raise more money throughfresh deposits than is due forrepayment (www.Livemint.com, 09.12.09)

Gram Nyayalayas ActMore than 5,000 village courts,

aimed at providing inexpensive justice,set up under the provisions of theGram Nyayalayas Act, 2008, will startfunctioning from Gandhi Jayanthi.The Act has been enacted to establishGram Nyayalayas (GNs) at thegrassroots level for providing accessto inexpensive justice to the citizensat their doorstep.

It will be a court of the JudicialMagistrate of the first class. The GNwill be established for everyPanchayat at the intermediate levelor a group of contiguous Panchayatsat the intermediate level in a district orwhere there is no Panchayat at theintermediate level in any State, for agroup of contiguous Panchayats. TheGN will be a mobile court and exercisethe powers of both the criminal andcivil courts. (TH, 01.10.09)

Equal Opportunity BillThe Bill that will seek diversity

profiling of employees in public andprivate sectors to help in betterrecruitment of the disadvantagedpeople is to be introduced in theParliament. The legislation that willrecommend incentives anddisincentives to employers based oninformation in their records and ontheir performance in the diversity indexis in the final stages of preparation.

The Law Ministry is working onits final draft and it is the next majorstep in bringing the majority and theminority together in concern forequality. The diversity index will showhow far a company concerned hadgone about in providing affirmativeaction to the underprivileged sectionsas per Equal Opportunity Commissionguidelines and its strengths andshortcomings in this respect.

(BS, 01.10.09)

JudgesAccountability

The Centre plans to bring a�state-of-the-art� legislation in

the Winter session of theParliament to deal withcomplaints of corruption againstjudges and ensure accountabilityin higher judiciary. The JudgesStandards and Accountability Billwill cover the �entire judiciary�and would not be a �one sidedaffair�. It would also provideappropriate protection to thejudges so that it will not bemisused.

The government�s planassumes significance in thecontext of growing complaints ofmisconduct against judges of thehigher judiciary and a feeling thatredress system was not effective.The �forward looking� bill hasbeen drafted after taking intoconsideration �the best of lessons�learnt from all over the world,including UK, France and the US.

(TH, 09.10.09)

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In the 1990s I travelled widely across India. From these travels emerged aconviction that India would soon rise economically, and for the first time in

history Indians would emerge from a struggle against want into an age when alarge majority would be at ease.

Prosperity has indeed begun to spread. During a quarter century of high growth,the middle class has quadrupled to around 250 million, while one percent of thepoor have been crossing the poverty line each year since 1980, and this has addedup to almost 200 million people. If our economy continues to grow rapidly over thenext two to three decades – and there is no reason why it should not – then largeparts of India should turn middle class in the first quarter of this century. At thatpoint poverty will not vanish, but the poor will come down to a manageable level,and the politics of the country will also change. That is the good news.

I t used to be the other way around. During our socialist days we despaired overeconomic growth but we were proud of our institutions. The Indian state is in

steady decline today. Where it is desperately needed – in providing education,health, drinking water – it continues to perform dismally. Where it is not needed, itis hyperactive. According to the Centre for Civil Society, it requires 11 licences tostart a school in Delhi, including an ‘Essentiality Certificate’, and most of thesecome with a bribe.

When I speak of governance failure, I am not thinking of corruption in its usualsense — of the politician who is caught with a bribe. I feel anguish that one in fourteachers in a government primary school is absent and one in four is not teaching.Two out of five doctors do not show up at a state primary health centre; a cyclerickshaw driver routinely pays a sixth of his daily earnings as bribe to the police. Afarmer in an Indian village cannot hope to get a clear title to his land withoutbribing the patwari. One out of five members of the Indian Parliament elected in2004 had criminal charges against him; one in twelve had been accused of murderor rape.

This raises an uncomfortable question: Is India rising despite the state? Indiansare being forced to depend on themselves for the basic services that people

take for granted in civilised societies. The poor, for example, are removing theirchildren from government schools and placing them in indifferent private schoolsthat are opening in the slums and villages of India. The same is true for health andwater. The Indian state is so riddled with perverse incentives that accountability isimpossible.

What is eroding at our moral fabric is not the big news on which the media focusesattention – Jehadi terrorism, Gujarat 2002, Naxalism - but these quiet, everydayfailures. When a school teacher does not show up for duty, she wounds thedharma of our society, which has always regarded the guru as a model of behaviour.She also leaves her students with a terrible example in civic virtue. Every transactionof the citizen with the state, it seems, is morally ambiguous. As my driving licenceis expiring soon, what nags me is this question – will I have to bribe to renew it?The reform of the Indian state is more important than even economic reform. Wedesperately need police, judicial, administrative and political reform. Scandinaviancountries, the UK also suffered from poor governance. But they threw up leaders– Gladstone, Disraeli, Thatcher – who had the courage to fight vested interestsand bring accountability to the state. Shouldn’t this be or ought to be at the top ofthe mind of UPA leaders and on this government’s agenda?

* Former CEO, Procter & Gamble. This essay appeared in the Hindustan Times, on October 21, 2009.

In Search of Civic Virtue– Gurcharan Das*

The bad news is

that prosperity is

spreading

alongside the most

appalling

governance. It is an

amazing spectacle

— in the midst of a

booming private

economy, Indians

despair over the

simplest public

services

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G O V E R N A N C E & R E F O R M S � S P E C I A L A R T I C L E

Chief Justice K GBalakrishanan has set the cat

among the pigeons by making apublic statement on September12, 2009 that ‘if a public officialamasses wealth at the cost of thepublic, then the state is justifiedin seizing such assets.’

This made law minister VeerappaMoily to ask for a constitutionalamendment and ‘revisit’ Article311 of the Constitution whichshields civil servants becausethey cannot be prosecutedwithout prior approval of thegovernment. The persistent and prevalent evil ofcorruption among civil servants has infected the wholebody-politic and it deserves to be tackled very effectively.Politicians in a democracy are the protectors and promotersof either corruption-free good governance or they arethemselves engaged in governance based on the systemof patronage.

Indian reality is that politicians have exercised theirauthority with a view to maximise their private benefit incahoots with permanent officials. As a result, a nexus hasdeveloped between politicians and bureaucrats.Corruption has eroded the moral foundations of the Indianstate and society. And politicians and public servantshave completely weakened the foundations of democracybased on the principle of rule of law and equality of everycitizen before the law. The Indian bureaucracy, headed bythe IAS, the real Brahmans of the power structure, hasplayed a relatively autonomous role whether during theperiod of economic planning or during the present phaseof economic deregulation and liberalisation.

The prime minister is worried because the bureaucracyis not able to deliver the services to the public under

schemes launched for the aam aadmi. While the deliveryof services to the targeted public is a legitimate concernof the PM, it also deserves to be mentioned that the samebureaucracy which is not responsive to the needs ofcommon man, is quick to perform the work of the powerfulstrata of society.

It should not be forgotten that the higher echelons ofbureaucracy, both at the Centre and at the level of stategovernments, have developed close linkages with other

centres of power, especially in thenew sectors of economy liketelecommunication, petro-industry, and every upcominginfrastructural projects fordevelopment. Big players areinvolved in the new sectors of theeconomy and these investorshave shown immense capacity to‘co-opt and integrate’ the publicdecision makers and a quid proquo basis has been establishedbetween private business andindustrial power centres andpoliticians and bureaucrats.

Many senior bureaucrats have migrated from publicservice to serve private Indian and foreign investors

in the energy sector, telecommunications, and so on. Indianbureaucrats try to establish linkages with powerful privatebusiness elite while in public service by ‘obliging’ them atthe cost of public interest and in return, the obliged bigindustrialists employ the kith and kin of the servingbureaucrats on lucrative terms and conditions.

Further, many important bureaucrats who have worked incrucial and critical ministries walk out of the governmentfor lucrative private jobs. It’s a worrisome situation that,of late, public bureaucracy has been privatised and hasbecome the handmaiden of big Indian and foreigneconomic players. This privatisation of public bureaucracyis at the cost of public interest because public policies arebent and broken to the benefit of favourites in industry.

It is not only corruption, or casteisation orcommunalisation of bureaucracy but India has to be savedfrom its public servants who are at the beck and call ofpoliticians and private powerful players whose interestsare at variance with that of the government of the country.The upshot of the above narrative is that Indianbureaucracy has become an autonomous centre of powerbecause of corrupt and obliging politicians who are fullylinked with big business. This linkage of politician,bureaucrats and big business has corrupted the wholebody politics of India. The cohabitation among these threepowerful centres of power has adversely affected goodgovernance in India.

* Columnist, The Economic Times. Abridged from an article that appeared in the Economic Times, on October 03, 2009.

The Worrisome Babu-neta Nexus– C P Bhambhri*

The moot question is: can permanent government officials indulge incorrupt practices without the protective umbrella of politicians?

Down to Earth


C O M P E T I T I O N I N S I G H T

Settling Mergers FasterThe Competition Commission of India (CCI) has

decided to move faster in giving clearances to mergersand acquisitions (M&As) following concern that the limitof 210 days is too long a period when compared withpractices prevalent in the US or European Union. Realisingthis they have set an internal standard of 45 days for thosemergers which prima facie appear to have no appreciableadverse effect on competition. For cases, which need furtherinvestigation gathering, we would take another 65 days.

The 45-day limit would be the commission’s owninternal standard and would not be binding on it, clarifiedthe acting chairman, CCI. The commission, he said, isempowered to revisit any merger approval even after ayear if it appears that the process is distorting the marketdynamics. (FE, 08.10.09)

India’s competition authority –the CCI – is in an incipient stage.

While the legislation was passedway back in 2003, the competitionwatchdog came into existence onlya few months ago through themuch-awaited notification of thelegislation. CCI has an onerousresponsibility ahead. It ought tomake optimal choices as it focuseson its mandate of consumer welfareand seeks to earn legitimacy in theeyes of the market. Among otherthings, this would involve getting thecommission’s appellate structure right.

The fundamental economic rationalebehind the promotion of competitionis the reality of the scarcity ofresources. In order to carry out itsmandate of enforcement, CCI facescompeting demands upon its availableresources. This is exacerbated owingto the lack of adequately trained staff.Accordingly, the need of the hour isto select those few cases that involvea substantial impact upon consumers,and then to concentrate thecommission’s energy on them. Thatmeans prioritising cases. Thelegislation provides CCI with powersto facilitate such prioritisation.

It’s worth noting that competition lawis about protecting competition, not

Short of Hands – Less of WorkIndia’s six-month-old competition watchdog does

not have enough staff to tackle cases. The CCI probingcomplaints against companies such as HDFC Bank Ltd,Jet Airways (India) Ltd and even a division of theministry of external affairs, has not been able to makemuch progress.

The CCI has had nine cases pending since May2009, when it started operating. The complaints pertainto cartelisation or the abuse of a dominant positionintended to eliminate or deter a competitor. “The mainreason for cases not being disposed of is lack ofofficials at CCI”, said a senior official at the MCA. CCIis armed with more powers than its predecessor, theMRTPC but has been strapped for staff.

(www.Livemint.com, 09.11.09)

competitors. Businesses, however,have perverse incentives to utilisesuch a law to protect their entrenchedinterests. CCI needs to be cautious inorder to ensure that it does notbecome a handmaiden for rent-seeking behaviour.

But there are legal problems ahead.As per the legislative framework,

CCI’s orders would be subject toappeal at the Competition AppellateTribunal (CAT) and ultimately at theSupreme Court. In spite of theemergence of a plethora of regulatoryauthorities after 1991, Indian courtshave been reluctant to employ the USdoctrine of deferential review. In thisdoctrine, courts give adequate valueto the decision of expert bodies suchas CCI. Contrary to deferential review,Indian courts have in the past appliedthe standard of what is called de novoreviews – here, the appellate authority

is willing to start hearing the casefrom scratch. This perhaps explainswhy a multitude of SEBI orders areoften overturned by its appellateauthority, the Securities AppellateTribunal.

The trouble is that such reversals lead to uncertainty and

unpredictability, increasingtransaction costs for stakeholders.CCI’s endeavour to seek legitimacy

and credibility in the eyes ofconsumers here would mean gettingcourts to adopt some kind ofdeferential review.

Such legitimacy, if earned, willenhance certainty and predictabilityin CCI’s decision-making process. Asa result, businesses would have theopportunity to arrange their affairs insuch a manner that they would be in aposition to voluntarily comply withthe law. Indeed, it is unfair to expectbusinesses to adhere to competitionlegislations if decision-making andjurisprudence at the competitionauthority suffer from fits ofunpredictability. CCI is currently at acritical juncture. Carefully calibratedsteps have the potential of ensuringthat it does not become yet anotherhumdrum regulator.

The Future of Competition– Rahul Singh*

* Assistant Professor at National Law University, Bangalore. Abridged from an article that appeared in Livemint.com on December15, 2009.

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* AZB & Partners, Advocates & Solicitors. The column appeared in Livemint.com on November 08, 2009.

The Competition (Amendment)Ordinance 2009 promulgated by

the President of India on October 14,2009 the competition law regime inIndia finally saw the end of the 40-year-old competition law regulator, theMRTPC.

The ordinance provides that section66 of the Competition Act, 2002, whichdeals with repeal and saving, has beenamended such that all cases relatingto monopolistic trade practices andrestrictive trade practices, or thoseinvolving a combination of restrictiveand monopolistic trade practices orunfair trade practices will standtransferred to the CompetitionAppellate Tribunal (CAT) with effectfrom October 14. However, such caseswill be decided by CAT in accordancewith the older legislation, that is, theMonopolies and Restrictive TradePractices (MRTP) Act. Prior to theordinance, these cases were tocontinue with the MRTPC for a periodof two years with effect fromSeptember 01 and transferred to CATonly after the expiry of the two-yearperiod. However, as the MRTPCstands dissolved with effect fromOctober 14, the two-year windowgranted to the MRTPC no longerexists.

Further, the ordinance provides thatall cases pertaining to unfair tradepractices will stand transferred to theNational Commission under theConsumer Protection Act, 1986, witheffect from October 14, which theNational Commission will decide inaccordance with the MRTP Act.

Apart from the changes mentionedabove, the ordinance has not

effected any other change to Section66 of the Competition Act. All pendinginvestigations or proceedings relatingto unfair trade practices are to betransferred to the National

Commission, and all pendinginvestigation or proceedings (otherthan unfair trade practices) will betransferred to the CompetitionCommission of India (CCI), with effectfrom September 01. The CCI and theNational Commission will have thepower to conduct or order for conductof such investigation or proceedingsin the manner as they may deem fit.

However, while these changes in thelegal framework are noteworthy andwill have a significant impact on thelegal regime relating to competition,an important consideration is thenature of the promulgation bringingabout this change. It may be notedthat an ordinance is a law that ispassed when Parliament is not insession and so the tenure of theordinance is temporary. But duringthe life of the ordinance, it has thesame effect as an Act of Parliament.When Parliament is not in session, the

President can assume the legislativepowers of both the houses ofParliament temporarily and promulgatean ordinance.

Accordingly, each ordinance hasto be tabled in Parliament when

the houses reassemble for theirapproval. The ordinance will cease tooperate six weeks after Parliamentreassembles or before the expiry ofthis six-week period if both houses ofParliament disapprove the ordinance.In the latter case, the ordinance willcease to exist from the date the secondhouse of Parliament disapproves theordinance. Therefore, the life of theordinance extends to a maximum of sixweeks from the date Parliamentreassembles.

However, it is noteworthy that thelapse or disapproval of an ordinancewill not affect the initial validity of theordinance and the acts done andcompleted under the ordinance. Also,the ordinance will not become voidmerely because it ceases to operate.Therefore, any decision taken by CATwith effect from October 14 until theordinance lapses will not affect thevalidity of the decisions or orderspassed by it.

In the unlikely event that theordinance lapses or is disapproved,the government will have to bring intoexistence the same state of affairs asexisted before the ordinance waspassed, even though the MRTPC hasbeen dissolved. This scenario wouldcertainly cause uncertainty andconfusion that could only bedetrimental to industry, by shiftingregimes back from CAT to the MRTPC.However, if the government ispersistent in dissolving the MRTPC,in the case of lapse or non-approvalof the ordinance, it could table a newamendment Bill for the same beforeParliament.

Competition Law Regime:New Regulations and Uncertainties

– Aparna Mehra*

If the ordinance is passedby both the houses of

Parliament, the ordinancewill become an Act and

the shift from the MRTPCto CAT will become

permanent

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It has to be emphasised that a robustcompetition policy is central toeconomic reforms. Liberalisation, ifnot accompanied by competition lawsand policy aimed at controllingeconomic behaviour and structures,can result in substantial priceincreases and reduced benefits for theoverall economy. Hence the need fora strong and effective competition lawwhich will ban anti-competitiveagreements and encourage conductwhere there are demonstrable netpublic benefits.

This is why India decided toabolish its archaic MRTP Act and

passed the Competition Act 2002 thusshifting its focus from curbingmonopolies to promotingcompetition. Competition policy is acomplex, cross-cutting policyinstrument which is affected by anumber of interconnected factors. Itseffective implementation requires aholistic and integrated mind withability to hold two opposing views inmind and still have the capacity tofunction. Its practitioners, more thananyone, need to be men of “significantlearning”.

Competition law is essentially aneconomic law. It is anathema to thepurists and doctrinaires. We are livingin a world of harsh inequalities,inequity and injustice. There appearsa widening disconnect between lawand justice. Lawyers are heirs to anoble tradition of inventiveness. Themost ennobling element of a lawyer’sprofession is his ability to ensurejustice for his client. As Pope Paul VIsaid: “If you want peace, work forjustice”. Competition law isessentially an instrument that helpsus achieve that elusive goal.

The principal objective of competition law is to foster competition as aninstrument for accelerating growth through innovation and economic

efficiencies thus maximising consumer welfare by offering better products atlower prices. It achieves its objectives in three ways viz., prohibiting anti-competition agreements and practices that harm free trade and competition;preventing abuse of dominant position and anti-competitive practices that leadto such a dominant position; and regulating M&As.

Competition is irrefutably beneficial for every market participant. Competitivemarkets give consumers wider choice and lower prices. It gives sellers strongerincentives to minimise their costs through innovation and other productivityenhancing techniques. This enables firms to pass on cost savings to thecustomers and offer better products and greater choice at lower prices.

While there is a broad consensus on the competition policy objectives there isconsiderable divergence in the application and practice of competition lawleading to question marks about its efficacy.

US antitrust decisions in the first half of 20th century exhibited hostility tolarge successful firms. This has since changed. Recent judgements have

shown greater understanding of market economics and have been morejudicious. Competition law poses more a public policy challenge than a legalargument.

The need for competition law becomes more evident when FDI is liberalised.The impact of FDI is not always pro-competitive. Very often FDI takes the formof a foreign corporation acquiring a domestic enterprise or establishing a jointventure with one. By making such an acquisition the foreign investor maysubstantially lessen competition and gain a dominant position in the relevantmarket thus charging higher prices. Another scenario is where the affiliates oftwo separate multinational companies (MNCs) have been established incompetition with one another in a particular developing economy, followingthe liberalisation of FDI.

An economy that has implemented an effective competition law is in a betterposition to attract FDI than one that has not. This is not just because mostMNCs are expected to be accustomed to the operation of such a law in theirhome countries and know how to deal with such concerns but also that MNCsexpect competition authorities to ensure a level-playing field between domesticand foreign firms.

* President, World Council for Corporate Governance, UK. Abridged from an article that appeared in the Economic Times, onNovember 04, 2009.

Competition Law & Inclusive Growth– Madhav Mehra*

Competition law ismore a public policychallenge than a legalargument, and lawyersand judges dealingwith it must bothunderstandeconomics and showinventiveness to servethe cause of justice

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Candle-Light Vigil – Gajendra Haldea*

People don’t seem to realise that part of the electricity they consume costsover Rs 11 per unit simply because someone is making a quick buck.

Unscrupulous traders are selling to distribution companies at about Rs 7 perunit. After adding distribution costs and transmission and distribution lossesof 30 percent, the delivered cost crosses Rs 11.

Such profiteering in an essential commodity like electricity would have normallyattracted strong reactions but it has not happened primarily because distributioncompanies blend this high-cost electricity with cheaper supplies from dedicatedsources and the impact is thus diffused. This would, however, lead to ever-higher consumer tariffs with each passing year.

According to the latest Economic Survey, traders sold 2,192 crore units in 2008-09 at an average price of Rs 7.29 per unit as compared to Rs 3.14 in 2005-06,implying a rise of 132 percent in just three years.

In addition, over 2,150 crore units were ‘traded’ through UnscheduledInterchange (UI) at an average price of Rs 5.37 per unit. In the last eight monthsof 2008-09, two power exchanges sold about 270 crore units at an average priceof Rs 7.49 per unit. The total payments for ‘traded power’ thus aggregatedabout Rs 30,000 crore in 2008-09 and this amount is sure to increase in 2009-10.Assuming an average generation cost of Rs 2 per unit, profiteering exceeded awhopping Rs 20,000 crore in 2008-09 alone. All of it would be passed on to thehapless common man, who also bears the brunt of power cuts.

This exploitation occurs because the consumer is hostage to aninterconnected chain of monopolies. There is no power producer in India

who has open access to any consumer, howsoever large. In other words, noconsumer buys electricity from a competing producer or supplier. He can buyfrom none other than a state-owned distribution company.

Even where privatisation of distribution has occurred, such as in Orissa andDelhi, public monopolies have been substituted by private ones. The scourge

of monopolies has virtually decimated the power sector in Indiaand the peak shortage increased from 11.2 percent to 16.6 percentover a five-year period ending 2007-08.

State-owned monopolies neither have the credit-worthiness toraise the required capital nor the ability to build the additionalcapacity necessary for meeting the rising demand. Nor can theyinspire sufficient confidence to attract private investment, whichaccounts for only about 28 percent of the total investment,including captive generation.

As a result, about 40 percent of the households remain withoutaccess to electricity even after six decades of Independenceand those who do get electricity suffer from poor quality ofsupply. The loss in terms of productivity, quality of life,employment and incomes is enormous by any standards, anddiminishes India’s hope to be at the forefront of emergingeconomic powers.

In contrast, a single private company has provided mobile phoneconnections to no less than ten crore customers across India,and it is not a monopoly as it has four strong competitors.

If only open access to

consumers were

provided in pursuance

of the Electricity Act,

we would have seen a

vibrant electricity

market, leading to a lot

more growth and

welfare

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* Adviser, Planning Commission. The article appeared in OutlookIndia.com on October 05, 2009.

Every company can connect itssubscribers to any other telephonethrough open access to the networks.This has created unprecedentedopportunities, with about 65 percentof the total investment coming fromthe private sector. As a result,teledensity has increased from 7percent in March 2004 to 37 percentby March 2009 when mobileconnections exceeded 42.8 crore.

Over a crore new connections areadded every month while call chargesin India are, perhaps, the lowest in theworld. Thanks to competition andopen access, the telecom revolutionhas reached the aam admi—not justas rhetoric, but in reality!

The debate on introducingcompetition in the power sector beganin February 2000 when the draftElectricity Bill was presented at thechief ministers’ conference chaired bythe prime minister. An extensivedebate within and outside Parliamentled to enactment of the Electricity Act2003, which provides the legalframework for competition and openaccess, much the same way astelecom does.

Yet, no state has enabled open accessto a single consumer during the pastsix years and the regulatorycommissions have only been mutespectators. If there can be a goodexample of contempt of Parliament,this is it.

The electricity sold by powerproducers is only purchased by

20-odd state-owned utilities in whatcan best be described as a ‘non-market’. Power-surplus states are‘exporting’ to deficit states atexorbitant prices in violation of theconstitutional provisions that prohibitbarriers to inter-state trade.

Electricity is, perhaps, the onlycommodity market where all buyersare state-owned, most are loss-making. In an environment ofshortages, these state-owned entitiesare driven more by political impulses

than economic considerations. Whatis being passed off in the name of‘trading’ and ‘markets’ is no morethan a camouflaged vehicle for rent-seeking of unprecedentedproportions.

If all mobile users were to get theirconnections only from a state-ownedmonopoly, the telecom sector wouldhave resembled the power sector.Remember how hard it was during thepre-1990s to get a telephoneconnection?

A vibrant market got created onlyafter competing players were

allowed to access millions of potentialconsumers. Air travel went the sameway; competition led to massiveinvestment in expansion, besidesreducing fares to less than half. As aresult, the annual growth rate of airtraffic exceeded 20 percent for severalyears.

In contrast, denial of open access toelectricity consumers has meant theabsence of a market, which in turn hasled to scarcity of investment. Ifinvestors must remain confined to ahandful of loss-making state-ownedmonopolies, they would ratherventure elsewhere. If only openaccess to consumers were providedin pursuance of the Electricity Act, wewould have seen a vibrant electricitymarket, leading to a lot more growthand welfare.

In 1990, the UK provided open accessto all bulk consumers of one megawatt.This was gradually extended to smallerconsumers and went right up to thehousehold by 1999. Most of thedeveloped world has followed thispath over time. The electricity marketsso created have benefited theconsumers, suppliers and producers,and the respective economies too.

For example, a household in Londoncan choose from among twelvecompeting suppliers of electricity. InIndia, even if you consume fivemegawatts, you can only buy from thearea monopoly, your entitlement to

choice under the Electricity Actnotwithstanding.

The unmistakable objective ofcompetition and regulation is toprotect consumer interests. In thepower sector, however, both seem tohave deserted the common man.Competition is completely absent asno consumer of electricity is able toexercise any choice in the face ofmonopolies. As for regulation, the all-pervasive apathy of regulatorycommissions to rampant profiteeringin bulk supply suggests they havebeen captured by entrenchedinterests. No less than the CentralElectricity Regulatory Commissionhas recently decreed that the price capfor bulk power will be Rs 8 per unit,thus legitimising sales up to thatexorbitant ceiling in the name of“ensuring reasonable prices”. Aregulated wholesale price of 17 centsper unit would be a world record ofsorts! In comparison, Enron was anangel at 7 cents!

I ncumbents in the power sectorargue that India is not yet mature

for open access and the examples oftelecom in India or the power sectorin developed countries are irrelevant.They forget India is in the select clubof nuclear powers, it is a softwareleader and its growth in the telecomsector is second to none. It hasenough entrepreneurs and capital forturning around the power sector ifonly the state-owned utilities wouldlet go of their monopoly and licenceraj. The power sector needs a shake-up.

As a first step, the government needsto declare that come 2012 (by when ithas promised electricity for all),government offices in the state capitalwill observe a voluntary power cut oftwo minutes for an average outage of100 minutes suffered by the commonman. This would hopefully set the ballrolling. If not, it will at leastdemonstrate that the governmentidentifies itself with the common man!

P U B L I C A T I O N S

SOURCES

BL: The Hindu Business Line, BS: Business Standard, ET: The Economic Times, FE: The Financial Express, FT: The Financial Times,HT: Hindustan Times, IE: Indian Express; PTI: Press Trust of India; TH: The Hindu

Competition and Regulation in India, 2009

This 2009 report, second in the series, is an effort to educate the public and thepolicy community about the effect of these various facets of public policy on competition

and regulation. It focuses on the evaluation of quality of regulation in five sectors: power,ports, civil aviation, agricultural markets and higher education. India. The first report,published in 2007, lay down the rationale for a holistic competition policy and law regimein India. This study is an important contribution towards enriching the available literaturein the public domain and encouraging a dialogue to promote a healthy and competitiveenvironment as evolving an appropriate regulatory culture is always a learning curve.

Suggested Contribution: Rs 395/US$50

Competition Law in India � A Toolkit

India enacted its Competition Act in 2002 (amended in 2007) to deal with competitionissues in a more liberalised economy. This law is a successor to the Monopolies and

Restrictive Trade Practices Act, 1969. The CCI and the CAT are fully operational now. ThisToolkit is researched, compiled and customised in the Indian context, and is meant toprovide a simple and concise handbook on various implementation issues surrounding theCompetition Act 2002. It provides the definitions, characteristics of and ways to dealwith the trade practices which are forbidden by the Competition Act 2002, which arerelevant in the Indian market currently, with practical case studies which can help thereaders understand the issues relating to competition in India.

Suggested Contribution: Rs 195/US$40

The news/stories in this Newsletter are compressed from several newspapers. The sources given are to beused as a reference for further information and do not indicate the literal transcript of a particular news/story.

Complete reproduction without alteration of the content, partial or as a whole, is permitted for non-commercial,personal and academic purposes without a prior permission provided such reproduction includes full citationof the article, an acknowledgement of the copyright and link to the article on the website.

ReguLetter

The October-December 2009 issue ofnewsletter, �ReguLetter� encapsulates the

Linkages between Informality, Competition andEconomic Growth� in its cover story, whichpresents an argument as to how the informalsector may impact economic growth byaltering the degree of competition in aneconomy.

The lead story is followed by regularsections focusing on news, views and policies related tocorporate restructuring, regulations of utilities and finances, corporategovernance etc. of different countries in particular, the developingnations. Besides, annual roundup of competition laws, mergers &acquisitions, corporate issues etc. is another highlight of the edition.

A special article by Joseph E Stiglitz analyses that banks that are toobig to fail are too big to exist. If they continue to exist in what is calleda �utility� model meaning that they are heavily regulated. Another specialarticle by Asha-Rose Migiro says that developing economies are not onlyattracting investment, they are becoming investors in their own right.

About a Competition Law dwells on the competition scenario inMozambique, the institutions of competition law in the country andthe scope of improvement in the law.

This newsletter can be accessed at:http://www.cuts-ccier.org/pdf/reguletter4-09.pdf

CompetitionDistortion in India(October-November 2009)

This is the 4th volume of thebimonthly dossier that we are

producing to report on distortions to thecompetition process in India. In thisvolume, we continue to report on issueswhich have cropped up in the printedmedia on likely adverse effects oncompetition and growth.

For example, two of the news itemsin this Volume relate to inputs for thepower sector: equipment and coal, andhow they have an adverse effect on notonly competition but also the cruciallyrequired growth. We are in much deficitin the power sector and the currentmanagement of the situation do notshow any hope of resolving the powerfamine.

For previous issues, please refer:http://www.cuts-ccier.org/Competition

_Distortions_India.htm

Documents

PolicyWatch - CUTS CCIER manufacturers and related research and development. ... Outcome Budget ... provide a good demand market to harness all resources. (FE,