Volume 6, No. 3 July-September 2005 - CUTS Centre for ... · Volume 6, No. 3 July-September 2005 Covering developments ... strategies. Retailing is one of ... likes of Haldiram to

��Volume 6, No. 3 July-September 2005

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

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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], Web site: www.cuts-international.orgPrinted by: Jaipur Printers P. Ltd., M.I. Road, Jaipur 302 001, India. Annual Subscription Rs. 150 p.a./US$30

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�� India: Retail Hot spot ........... 2

Coal to Oil ........................... 3

Walky Woes ........................ 5

Creating Giants ................... 7

Parliamentarians’ Forum .... 10

Whistle-blowing Computers ..... 11

Weaving in Success .......... 13

Investor Protection Fund .... 15

“The reformer has enemies in all thosewho profit by the old order and onlylukewarm defenders in all those whowould profit by the new.”

Machiavelli, in The Prince

India is in the midst of a retail boom. The sector haswitnessed significant transformation in the past decade

– from small, unorganised family-owned retail formats tolarge-scale organised retailing. Indian business houses andmanufacturers are setting up retail formats, while real estatecompanies and venture capitalists are investing in therequired infrastructure. Many international brands haveentered the market. With the growth in organised retailing,unorganised retailers are fast changing their businessstrategies.

Retailing is one of the few sectors whereforeign direct investment (FDI) is notallowed at present, but the Indiangovernment is seriously consideringallowing FDI in the sector. Quiteexpectedly, concerns have beenraised in several quarters aboutthe desirability of such a move,as this might adverselyaffect employment in thecountry. There are alsoseveral other issues thatwarrant scrutiny in theongoing debate.

Retail trading isconsidered to be a sectorwhere it is probably relativelyeasy to start a business even with very little capital. As aresult, there could be many inefficient traders and disguisedunemployment. In India, this sector buttresses a hugepopulation that would otherwise be unemployed. This isthe most forceful argument against retail FDI – one in whichsmall Indian retailers will not survive against the onslaughtof global retailers.

The main problem therefore, seems to be the choicebetween large and small players, of big retailers displacingthe small retailers, and not so much about domesticinvestment versus FDI. The idea is to see that smallshopkeepers do not get displaced and employment isgenerated.

On the flip side, it is contended that small retailing,being mostly a family-owned business, has gotconcentrated in a particular population group and does not

offer much employment opportunities to those who areoutside this group.

Organised retailing would open up a new employmentavenue for several others in both the front-end retail storesand at the back-end supply chain side. If one takes intoaccount the jobs generated in a variety of connected andsupport activities – processing, construction, hardware,furnishing, packaging, data processing and management— organised retailing has massive employment potential.

For all those concerned about mom-and-pop shopsclosing down, one can observe the existence of such shops

in the face of the Shoppers’ Stopsand the Big Bazaars (our

domestic retail giants) that haveestablished a foothold in

urban India. Consumersdon’t migrate just like that;it is the value that they

measure.Corner shops score over

the supermarkets by giving apersonal touch, and of course,

credit. In fact, the coming up oflarge retailers has raised the bar on

service and quality provided by smallretailers and has made them diversify

and provide additional goods and services– a boon for consumers.

Organised retailing has its own advantages, especiallyof scale. Also, it allows consumers to shop for everythingunder one roof – yet another boon for consumers. In allthis it is the consumer who benefits, with better qualitygoods and services at competitive prices. Organisedretailing thus offers huge potential for enhancing consumerwelfare.

Another beneficiary of organised retailing would bethe farmer. A study done recently by CUTS (Towards aFunctional Competition Policy for India, CUTS andAcademic Foundation, 2005) shows that there is a hugegap between the prices consumers pay and the pricesfarmers actually receive. This is because of the chain ofintermediaries between consumers and farmers, who mostoften behave in an anti-competitive manner.

www.nepalitimes.com

Caught Red-handed .......... 17

Sustaining Seven .............. 18

India has a Well-developed ...... 19

The Case of Solar Energy ........ 21

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Organised retailing would provide an alternativeavenue for farmers and bring an end to the scourge ofabusive practices of the middlemen. Further, lack ofserious scale investments in cold chains and handlingfacilities leads to a huge national waste, and we cannotexpect intermediaries and marginal food sellers to buildthis infrastructure. The creation of a national or even aregional supermarket network means large capital,sophisticated technology and management skills of a highcalibre. Organised retailing will thus impact upon bothfarmers’ incomes and consumers’ value.

It has been also argued that the entry of large retailfirms like Wal-Mart will induce them to procure from Indiaand sell in other countries. The example of China has beencited in this context. However, it has not yet been realisedthat Wal-Mart would have procured from China anyway,because of cost advantages and it is perhaps, improperto draw a linkage with the company opening its outletsin the country. In fact, China became a major source ofprocurement for Wal-Mart much before it opened its ownretail outlets there. This applies to India as well.

An associated concern is that, FDI in retailing willfacilitate the entry of retail giants who could monopolise themarket. Even in many developed countries, big retail chainsare getting more powerful, and as they flex their muscles,manufacturers are realising the importance of dealing with themin a different manner, as compared to the regular mom-and-pop stores or neighbourhood kirana outlets. There have beenseveral cases of enquiry in other countries that have foundretailers using their market (buyer) power to the detriment ofsuppliers and competitors, and finally, the consumers.

This is a genuine concern, but the way out is to strengthenour competition law, which is empowered to address suchpractices, and not block outright organised retailing. Thenew competition law (Competition Act 2002) has been in ain limbo for quite long, and it is high time to get it moving.Meanwhile, the Competition Commission of India (CCI),through its research and advocacy activity, can keep a closetab on this emerging sector.

The government needs to carefully examine all these andother issues before taking a decision. The high point on theagenda should be to make the CCI operational.

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India: Retail Hot spotAccording to the 2005 Global

Retail Development Index (GRDI),an annual study from the consultingfirm A.T. Kearney, India representsthe most compelling internationalinvestment opportunity for massmerchant and food retailers lookingto expand overseas.

The GRDI, published annuallysince 2001, helps retailers prioritisetheir strategies. It does so by rankingemerging countries based on a set of25 variables including economic andpolitical risks, retail marketattractiveness, retail saturation levels,and the difference between GrossDomestic Product (GDP) growth andretail growth.

D r i v i n gI n d i a ’ sattractiveness is avastly improvedi n v e s t m e n tclimate owing tothe recentrelaxation ofdirect ownershiprestrictions onforeign retailers.The country’sretail market totalsUS$330bn, whichis largelyunderserved andhas grown by 10

percent on average over the past fiveyears. It is also one of the mostfragmented retail markets in the worldgiven that the combined market shareof the top five retailers totals less thantwo percent. (www.atkearney.com, 08.07.05)

Yes or No?On one side of the pro vs. anti retail

FDI debate, Ravi Deol, President andCEO, FieldFresh Foods Pvt Ltd argueswith the example that Indians have notgiven up on their native food habitsconsequent to McDonald’s entry to themarket. He feels that it has been as aspur to “raise the bar on service andquality, which has been grabbed by thelikes of Haldiram to improve theirquality”.

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In contrast, Kishore Biyani,Managing Director, Pantaloon RetailIndia is of the opinion that “foreignchains wiped out the mom and popstores in Thailand till the governmentstepped in; Malaysia and Thailandhave restrictions on FDI, and Chinarelaxed norms after local playersattained critical size”. (BL, 15.06.05)

Retail FDI: For and AgainstThe World Bank is in favour of

opening up the Indian retail sector toFDI – a process they feel wouldbenefit the country, in that it wouldhelp speed up integration into theworld economy, as much as it wouldachieve a price availability forproducts.

However, the Communist Party ofIndia (Marxist), reiterated itsopposition to FDI in retail, arguingthat, it would put to risk thelivelihoods of the four crore peopleemployed in the sector.(www.indiadaily.com, 13.04.05 & 07.12.05)

2005 A.T. Kearney Global Retail Development Index

Country 2005 Rank 2004 Rank Change

India 1 2 1

Russia 2 1 -1

China 4 3 -1

South Korea 14 14 0

Malaysia 18 19 1

Saudi Arabia 21 21 0

Mexico 24 26 2

Indonesia 28 28 0

Brazil 29 N/A N/A

Pakistan 30 N/A N/A

www.mvtimes.com

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Excise DilemmaThe Petroleum Ministry has

refused to intervene on the issue ofapplicability of an excise duty onpetroleum products. Instead, theFinance Ministry is to decide whetherthe excise duty was to be levied ontransfer price (the price at whichrefineries sell petroleum products tooil marketing companies – {OMCs})or end price (what consumers pay).

The oil companies have beenlooking to the Petroleum Ministry topursue the matter, after earlierattempts to seek a clarification fromthe Finance Ministry fell flat on theface. The confusion arose when theexcise authorities started calculatingthe duty on the transfer price, whichis based on the import parity and ishigher than the end price. Therefineries have made clear that anyadditional excise duty with interestand penalty would have to be borneby the OMCs, thus burdening thealready bleeding companies.

(BL, 22.08.05 & 24.09.05)

Shaking Hands for PowerIn a bid to come closer, India and

Pakistan may seek global certificationon Iran’s gas reserves, the secondlargest after Russia, once the structureof the trans-national pipeline isfinalised. Representatives from thethree countries are expected to meetto discuss the pricing, transit fee,quantity of gas, project specificationand structure. The tripartite agreementon the pipeline project is likely to besigned by the end of 2005.

While Pakistan has estimated theproject cost to be around US$5bn,India estimated it at US$7bn. Pakistan

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has agreed to share with India itsresearch on different routes for theproposed pipeline.

India has appointed Ernst &Young as its financial consultant forthe project. Gas Authrity of IndiaLimited (GAIL) has been entrusted tofinalise the technical and legal adviser.

(BL, 16.09.05)

Subsidies Deal a BlowThe share of upstream oil

companies in the subsidy on petroleumproducts has more than doubled underthe new formula announced by thegovernment. Upstream companies willnow have to bear Rs 14,000 crore outof a total of Rs 40,000 croreunderrecoveries expected to beincurred in 2005-06 because of sellingpetrol, diesel, liquified petroleum gasand kerosene below import parity price.

This would mean a burden of Rs12,320 crore on Oil and Natural GasCorporation (ONGC) (88 percent ofthe share of upstream companies inthe underrecoveries) plus a specialdividend, which would not only makeup for underrecoveries, but would alsocover part of the shortfall in revenuefrom petroleum sectors. Thistranslates to ONGC alone bearing asmuch of the burden as the government.

(BS, 10.09.05)

Gas Monopoly IntactCity gas distribution is set to

remain a monopoly, with the regulatorselecting an agency, through acompetitive bidding process, whichwill have an exclusive area ofoperation.

A Committee of Secretaries,which cleared the Bill to set up the

Petroleum and Natural GasRegulatory Board, has proposed acompetitive process to decide uponthe distributor. The Bill would alsoprovide for the appointment of onemember to represent the petroleumsector in the Appellate Regulator forElectricity, after which it will becomethe appellate regulatory for thepetroleum sector. The regulator willlook into the reasonableness of prices,though not directly fix retail prices.

Only a common appellate bodywas feasible and not a commonregulator, as power is a concurrentsubject, and petroleum, a state subject.

(BS 25.07.05)

Consortium Led ExpeditionA consortium of Daewoo, ONGC,

GAIL and Korea Gas Corp is lookingto construct a 925 km sub-sea pipelineand get two liquefied natural gas(LNG) trains for transportation of gasfound in an offshore block inMyanmar.

The consortium has recentlystruck 19 tonne cubic feet of naturalgas, one of the largest gas discoveriesin the region.

According to sources, ONGCmight go alone with the projectdepending upon feasibility. Theproposed pipeline is to be built fromSittway, Myanmar, to Haldia in WestBengal. The possibility of transportingthe gas to the eastern region wasperceived with more interest due tothe high demand. (BL, 28.07.05)

‘No’ to MergersA high level Advisory Committee

on ‘Synergy in Energy’ headed by VKrishnamurthy, constituted to adviseon the revamping of public sector oilcompanies, expressed discontent atmergers of these companies. Instead,the committee urged to strengthen thepresent structure by ‘policy andmanagement improvements’.

The Committee proposed thecreation of a national ShareholdingTrust. It has also underlined the needfor an integrated energy policy, settingup of a Cabinet Committee headed bythe Prime Minister. Besides, it urgedthe need for revamping the existingframework of supervision by variousagencies by setting up a ‘Pre-investigation Board’. (TH, 12.07.05)

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Asia. The National Thermal PowerCorporation is preparing for a SriLanka foray, while Power GridCorporation of India Ltd is workingon augmenting a transmission link inAfghanistan. (BL, 19.09.05)

Autonomy Intact?In the face of stiff opposition from

the regulators, the Power Ministry hasdecided to allow them to retain theirpowers even while going ahead withamendments in the Electricity Act.These amendments have been short-listed through discussions withvarious allies, including the Leftparties. The ones proposed earlierwere seen to bind the power regulatorsto act in accordance with the policiesframed by the ministry.

The ministry has proposedcompetitive bidding for the selectionof transmission companies toencourage competition and privateparticipation and cutting the executiontime for projects (TH, 13.09.05)

Two Giants Team upThe global steel tycoon, US$22bn

LN Mittal group is joining hands withIndia’s petro giant, the US$14bnONGC to float an energy consortium.

The details of the deal are beingworked out. The joint venture, to beregistered in a European Union (EU)country, seeks to acquire overseas oilequity and energy-related businesslike energy trading and shipping, andwill concentrate primarily oncountries where the LNM group hasestablished its presence. The idea isto build on each other’s strengths.

The new consortium will needclearances from governmentdepartments before it can becomeoperational. (ET, 22.07.05)

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‘Dubious Role’ in LightThe standing committee on energy

revealed the dubious role of the DelhiElectricity Regulatory Commission inhiking power tariffs in Delhi. TheCommittee’s report states that theregulator forced Tata Power’s NorthDelhi Power Ltd. to effect a 10 percenthike for domestic power.

Evidence shows that the regulatorhad announced a 6.6 percent averageincrease in retail power tariff, withdomestic consumers needing to shellout about 10 percent more. The worsthit were agricultural consumers whowill have to shell out 19.8 percentmore for power.

The Left parties have alleged anunholy nexus between the Delhigovernment regulator and distributorsand have requested an intervention toset things right (ET, 24.08.05)

New NormsThe government hasannounced that the award of

hydroelectric sites to privateplayers for development of

international projects ofover 100 MW should be donethrough an internationally competitivetariff-based bidding process.

The guidelines issued by the PowerMinistry specify that the rehabilitationand resettlement of the peopleaffected by the project should beundertaken by the state governments.

The project developer would haveto have long-term power purchaseagreements of minimum 25 yearstenure and comply with the provisionsof the environment clearance issuedby the Ministry of Environment andForests. They must also demonstratetheir commitments to the tariffthrough duly authenticated powerpurchase agreements at the indicativetariff with the distribution utilities, forat least 90 percent of the energyproduced. The remaining power of upto 10 percent may be operated on amerchant basis. (BL, 23.09.05)

Energy ExpanseIndia is exploring possibilities of

emerging as a regional energy hub inSouth Asia. It has plans to strengthenexisting grids with Nepal and Bhutan.

Talks have been initiated with theauthorities in Myanmar for possibilitiesof setting up a gas-based power plantthere and wheeling the power to India.Plans are afoot to set up a powerstation in Bangladesh by an Indianutility and bring in gas to run thermalstations in India. Tata Power is settingup a 1,000 MW plant in Bangladesh.

Indian utilities have also startedleaving their imprint across South

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Mobile Number PortabilityTRAI has initiated the

consultation process on mobilenumber portability, which will allowusers to change their operatorwithout altering their phone number.This will benefit subscribers andincrease the level of competition,rewarding operators with the bestcustomer service, coverage andservice quality.

Although it involves little cost foroperators, they are not prepared toimplement the system immediately, asthis would force them to offer the bestservices.

However, before it getsimplemented, some specific issues,such as ensuring tariff transparencyand amending the national numberingplan need careful consideration.

(BS, 23.07.05)

Sharing Common GroundCell operators are planning a

common mobile infrastructure andsetting up of a special consumer cellto look at various grievances likebilling.

With a strong base of 60 millionsubscribers, the Cellular Operators

Association of India, the parent bodyof all GSM operators, has decided tocheck the industry’s socialresponsiveness to societal demandsfor more free space in the ecosystemand better services.

As a first step, the Delhi MunicipalCorporation has already asked theoperators to share cell sites. The ideais to increase the sharing from theexisting 30 percent to 100 percent,which would result in the saving ofcost and space in the ecosystem.

Besides, the operators would alsolike to share other networkingfacilities like the use of a third party’soptic fibre cable, though the conceptis new to the Indian scenario.

(FE, 23.08.05)

Two Sectors, One RegulatorThe new Telecom Policy 2005

calls for a single regulator like theOffice of Communications (Ofcom)in the UK, which handles five broadareas. This new information andcommunication technologies (ICT)framework is expected to hold thekey to future growth and to ensure alevel playing field in various facets,such as spectrum and bandwidthsharing.

Today, the ICT sector contributesto 3.82 percent of the country’s GDP,and this policy framework could pushit up to 5 percent by 2007.

Large operators like BSNL,Reliance and Tata Teleservices haveall created a large optical fibre cablenetwork and only 25 percent of theirinfrastructure is leveraged. This callsfor a proper sharing methodology.

(BL, 29.07.05)

Sops for Rural Areas In a bid to encourage telecom

services in rural areas, TRAI isconsidering a proposal to excluderevenues earned from rural telephonesfor the purpose of estimating theannual license fee and spectrumcharges.

Currently, operators pay 6-10percent of their adjusted grossrevenue every year towards licensefee and 2-4 percent as spectrumcharges.

The government has set a targetof 250 million telephones by 2007,which according to TRAI is possible

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only if operators are encouraged toroll out services in rural areas at cost-effective rates. The relaxation inlevies would reduce the cost ofoffering services, which mayencourage operators in setting upmore telecom infrastructure in ruralareas. (BL, 21.09.05)

Transparency TangleTRAI has disallowed tariff plans

with misleading titles, such as ‘zerorentals’ on the grounds thatoperators were continuing to chargerecurring hidden monthly fee. It isof the view that such titles will beconsidered as lacking intransparency. Operators have beenasked to comply with the order withimmediate effect.

It directed operators to show allmonthly fixed charges under one headfor reasons of transparency. WhileHutch has agreed to comply with theTRAI directive, Idea Cellular hasclarified that all its advertising istransparent and explicit. (BL, 16.09.05)

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Eliminating DisparitiesThe government is working

towards introducing a formula to bringa parity to toll rates across the country.At present, there exists a widedisparity in toll rates betweengovernment-funded and private roadprojects, a variation of rates indifferent states and differences in raterevision practices in each state.

According to officials, theproposal for revision has been putbefore a Committee of Secretaries(CoS), which was recently set up toresolve the inter-ministerial problemsfaced in the construction of roads.

The CoS is also consideringsetting up of a safety Commissioneratein the Ministry, which is expected tolay down safety norms. (BS, 21.09.05)

NHDP Plans RehabilitationThe National Highways

Development Project (NHDP) hasproposed the rehabilitation of itsPhases III and IV as well as upgradingof about 10,000 km of nationalhighways to four lane dualcarriageway configurations on abuild, operate and transfer (BOT)basis during the 10th and 11th planperiods.

During Phase IV, NHDP has alsoproposed to upgrade 23,000 km ofsingle lane to two-lane highways,strengthen 18,000 km of existing twolane highways and construct pavedshoulders on BOT basis.

The government has announcedseveral incentives to encourageprivate sector participation. However,the major deterrent has been the hugecapital investment and worries aboutrevenue collection. For this, it hasbeen decided to offer a number ofprojects on annuity basis.

The National Highways Authorityof India has formed a Special PurposeVehicle to fund road projects and theamount spent under this will berecovered through tolls.

(BL, 11.09.05)

New Policy ProposedThe government has proposed a

National Urban Transport Policy withpriority to public and non-motorisedtransport. The policy hasrecommended integrated land use,transport planning, segregated tracksfor bicycles and pedestrians underroad safety measures.

Additionally, there has also beena proposal to set up a National Urban

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Renewal Mission for select cities andan urban infrastructure developmentscheme for small and medium townsfor other cities to provide reform-linked assistance for development.

(BS, 02.08.05)

Using Vacant Railway LandThe Parliament has unanimously

approved the Railways (Amendment)Bill 2004 to set up a Railway LandDevelopment Authority tocommercially utilise vast vacantrailway lands across the country.

The Authority proposed to utilise43 lakh hectares of vacant land togenerate additional income forproviding better amenities, improvingsafety and to utilise the surplus forcommercial purposes. Some of thesurplus land was kept unused, as it wasrequired for railway expansion plans.

The Railways is expected togenerate Rs 10,000 crore surplusincome by the end of this year.

(BS, 23.08.05)

Protests over PrivatisationThe Water Transport Workers’

Federation of India has called uponthe ports and dockworkers to preparefor a countrywide protest actionagainst the proposed move of theunion government to privatise majorports. The working committee of thefederation was of the opinion that sucha step would surrender all the facilitiesin the sector to foreign monopolies.Instead of utilising the existingcapacity of Indian ports, thegovernment was making theseventures less viable by setting upparallel ports in the private sector.

The committee has decided toprepare a demand charter for revisedwages, as the five-year period of thepresent agreement would expireshortly. (BL, 27.07.05)

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Irrigational NeedsA recently released National

Sample Survey Organisation surveyshows inadequate irrigation facilitiesand infrastructure available to farmersin India.

Organised irrigation is available toonly half of the cultivated land, wherecanals cover a mere 15 percent andtube wells about 50 percent. Riversand springs are the least commonsources of irrigation in the country.

Expenditure on irrigation has beenestimated to be as much as one thirdof the fiscal deficit of most states. Evenwith a spending of Rs 88,100 croresince 1950 on irrigation infrastructure,facilities have fallen short ofrequirements. A funds crunch andresource misappropriation have

resulted in a declining use of tankirrigation, with a resultant pressure onIndia’s groundwater irrigationresources. (ET, 31.08.05)

Postal Expansion After getting a nod from the

Finance Ministry, the PostalDepartment has started retailingGovernment of India securitiesfollowing a tie-up with the IndustrialDevelopment Bank of India CapitalMarket Services Ltd.

The Union Minister forCommunications and InformationTechnology, Dayanidhi Maran haslaunched a range of services, includingDirect Post, a service for the corporatesector to distribute its promotionalmaterials, and has released an envelopeof Rs 5 denomination that canaccommodate A4 sized sheets. Theefforts are basically to expand anddiversify postal services to attractcustomers. While conventional letterwriting has suffered a set back withthe advent of the Internet, businessletters and parcels have shown nosuch signs. (BL, 19.07.05)

Poor Project ManagementAccording to a Flash Report of the

Ministry of Statistics and ProgrammeImplementation, 12 central projectscosting Rs 100 crore have reporteddelays in June 2005. Five of these arein the Railways and the other three arein the roads sector. The delays rangebetween one and 17 months.

In the fertiliser sector, the Namrupplant revamp project is estimating adelay of more than four years with acost escalation of over 80 percent,while the Tarapur three and fourtransmission system of power gridshas reported a delay of a month andcost over-run of Rs 50 crore.

With railways, the Patna-Gangabridge reported a delay of 17 months

with no cost escalation, whereas theKottur-Harihar project recorded adelay of eight month with a costescalation of 90 percent. (BL, 09.09.05)

Community Radio GuidelinesThe Ministry of Information and

Broadcasting will review theguidelines laid down for operation andrunning of community radio,especially with regard to allowinglocal advertising and news content.

The licenses for Community radio,a low power (50 watts) FM radio stationoperating within a radius of 6-8 km,have largely been awarded toeducational institutions. A number ofnon-governmental organisations havebeen running signature campaignsagainst non-issuance of licenses to them.

The government is keen toencourage the concept of a communityradio and about 20 stations are slatedto open within a few months.

(FE, 12.09.05)

Pushing Agri InsuranceThe Insurance Regulatory and

Development Authority has suggestedsetting up of stand-alone agricultureinsurance companies with a reducedcapital requirement of Rs 25-40 crore,a move expected to encourage moreplayers to explore the insurance market.A similar recommendation has been putforth with respect to health insurancecompanies as well.

The idea has gained momentumwith the World Bank’s commitment topromote agriculture insurance in India.It has initiated research and invitedbids from organisations for a study inthis area.

Experts are of the opinion that theproject would be a ‘capacity creationstudy’ where a selected research bodywith expertise in agriculture insurancewould partner a research body in India.

(BL, 15.09.05)

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Privacy – A Contentious IssueEven as laws are being proposed to

strengthen data protection, curb videovoyeurism and control sting operations,the National Association of Softwareand Services Companies (Nasscom) isundertaking an exercise to mobiliseviews on ‘privacy issues’ cutting acrossstakeholders, including civil society.

The issues to be dealt with are whois collecting the customer’s data, is itbeing collected with his consent, howis it being stored and used, andcompensation in case the data hasbeen used in a manner that thecustomer did not authorise.

Legal experts have said thatcurrently, there is no law that dealswith invasion on privacy. Theyhowever add, that a 1964 SupremeCourt judgment did acknowledge theright to privacy. (BL, 30.08.05)

New Criterion for BPLA programme evaluation study by

the Planning Commission and theMinistry of Consumer Affairs, Foodand Public Distribution has suggestedthat the government should do awaywith the methodology of identifyingpoor families on the basis of income orexpenditure. This is because identifyingincome sources at the household leveland measuring them with precision on

such a large scale is problematic andleads to imperfect information.

The organisation asked thePlanning Commission to devise anappropriate criterion for belowpoverty line (BPL) identification thatwould include only easily observablequalitative criteria relating tooccupations, assets or any suchindicators of economic insecurity.

To improve the delivery systemand plug leakages, the study suggestedthat the full quota of food grains fordistribution must reach outlets withinthe first seven days of the month, forwhich, doorstep delivery bygovernment agencies is required.Panchayati Raj institutions mustauthenticate this quantity.

(FE, 24.08.05)

SEBI to Assume New RoleThe Securities and Exchange Board

of India is willing to assume theresponsibility of regulating distributorsof mutual funds, if circumstances wereto call for such a move. Thesedistributors now have to adhere tostandards set only by the Associationof Mutual Funds in India.

The market regulator is aware thata few practices followed by somedistributors are often not conducivefor the average investor. Hence, it has

made it clear that it would not hesitateto take up the matter, provided theAMFI itself fails to address certaincritical issues. (BL, 10.09.05)

Single Food RegulatorThe much-awaited single regulator

for food processing industries willcome into existence by early 2006,Food Processing Industries Minister,Subodh Kant Sahai said.

He said the proposed Food Safetyand Standards Authority of Indiawould fix food standards, regulateand monitor the manufacturing offood items. The Food safety andStandards Bill 2005, shifts the focusto quality standards from earlierrequirements on norms relating toadulteration.

“The amended version would pavethe way for a single law and a singleregulator for the food processingindustries”, Sahai said. There are alsoprovisions in the Bill to enable thePanchayat and the local authorities toenforce food standards, he added.

(FE, 29.08.05)

Investments for Village IndustryIn a significant move to alter the

definition of ‘village industry’, thegovernment has introduced the Khadiand Village Industries Commission(Amendment) Bill, 2005 (KVIC) inthe Lok Sabha, proposing to raise thecapital investment ceiling from Rs15,000 to Rs 1 lakh for such units.

This is expected to bring about arise in the number of village industrieseligible for assistance by the KVIC. TheBill incorporates recommendations bythe Expert Committee constituted toexamine the structure, functioning andperformance of the KVIC. (TH, 23.08.05)

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India Post TransformedThe Communications and

Information and Technology MinisterDayanidhi Maran made public hisdesire that the financial services wingof the department of posts should betransformed into a bank.

The post office savings bank doespractically everything that a bank’sdeposit division does and has a hugeretail network. Post offices are alsoproviding value-added services likeselling insurance and retailing financialproducts like mutual funds, includingremittances, electronic fund transfer andelectronic service capabilities.

The crucial difference is that theylack expertise in managing anddeploying funds, which is a gap thatcannot be bridged easily. The size offunds under its kitty would make it alarge banking player from day one, atleast on paper. (ET, 05.07.05)

CCI as Nodal Agency?A few options have come under

the scanner of the Ministry ofCompany Affairs (MCA), which iskeen to have the CompetitionCommission of India (CCI) as thenodal agency to determine if the rulesput in place by sectoral regulatorshave resulted in anticompetitivepractices. Instead of overlapping withother sectoral regulators, the CCI willplay a useful and complementary role.

Going by the statements of a seniorMCA official, the Ministry is aware thatsome of the sector-specific regulatorsmay also examine competitiondimensions emanating from mergers oramalgamations of licensees and theremay be an overlap of jurisdiction. Headded that various alternatives, whichexist overseas, are being examined toresolve such conflicts between the

competition authority and the sector-specific regulators. (BL, 23.08.05)

Weight and WatchIf a new bill garners approval, the

power of the government authoritiesin certifying and monitoring weighingunits will be considerably diminished.Private agents, called ‘SpecialVerification Agency’ (SVA) will do theneedful. Once SVA certifications areover, another bunch of inspectors willcertify the ‘genuineness of stamping’.The proposed bill, christened, ‘TheStandards of Weighs and Measures(Enforcement) Amendment Bill 2005,has been referred to the ParliamentaryStanding Committee.

Currently, all weights and measureused by a dealer is stamped by thestate department after dueverification, with a special sealindicating the identification of theinspector and the quarter in which itis verified. The validity of suchstamped weights is two years.

Section 24 of the Principal Act,1974 is under the process ofmodification to accommodate privateagents. ‘Provided that the verification,of the weight of measure as prescribed

under the Standards Act, shall be madeby ‘Special Verification Agency’, saysthe amendment. (ET, 25.07.05)

Ban Brings DisquietThe ban on the use of plastic bags

by the government of Maharashtra hasgenerated much disquiet among varioususers, with the All India PlasticManufacturers Association contendingon its ineffectual nature. They believethat the ban does not hold water and willlose a good deal of punch before itsenactment. If enacted, it will generatetrouble for other segments like edibleoil, ghee, retail food and groceries.

It has been proved earlier that themicron-specific ban is difficult toimplement as plastic carry bags thatwere below the 20-micron markreappeared claiming 21-micronthickness following the 1998 banimposed in Mumbai.

“A blanket ban of plastic bags ismuch better than a thickness-driven ban.There are a number of alternativesincluding the promotion of recycledwaste paper and monetary deterrents onthe use of plastics…”, said Dr KSMRao, Managing Director, RamkyInfrastructure Consulting Ltd.

(BL, 26.08.05)

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Drugs De-branding OpposedDrugs de-branding has been

suggested as a means to promotegeneric medicines. Such a move haskicked up dust in pharmaceuticalcompanies. It could lead to the growthof specious and counterfeit drugs. TheIndian Pharmaceutical Alliance (IPA)has stated that mandatory de-brandingis anti-competitive and unsafe. “Theshift from brand to generic meanstaking the choice away from thedoctor to the chemist and the marginwill drive the chemist’s decision, notthe quality of the product”, the IPAsaid.

The recommendations have beentalked over with various industryassociations and include price controlof essential drugs, fixing a ceilingprice based on a weighted average ofthe top three brands of a molecule andreplacing the Drug Price Control Orderwith a new Drugs and Therapeutics(Regulation) Act. (BL, 07.09.05)

The Secret is OutA copy of the draft of the National

Environment Policy, which wasmarked ‘secret’ and submitted to theCabinet for clearance by the Ministryof Environment and Forests, has beenobtained by EC-Watch, and posted onthe web site of the EnvironmentSupport Group.

Over 70 citizens’ groups andindividuals had written to the PrimeMinister, demanding that thedocument be made public before itsfinalisation. They pointed out thatmaking the document covert andinaccessible is a violation of the Rightto Information Act that commits thegovernment to ‘publish all relevantfacts while formulating importantpolicies or announcing the decisionswhich affect the public’.

But the Ministry still disregardedthis public demand and marked thedocument ‘secret’. (BL, 31.08.05)

Workers Welfare in MindThe National Commission for

Enterprises in the Unorganised Sectorhas recommended that the governmentbring in the Unorganised SectorWorkers Social Security Bill, 2005, andthe Unorganised Sector Workers(Conditions of Work and LivelihoodPromotion) Bill, 2005, for the welfareof workers in the unorganised sector.

The two Bills taken togetherwould go a long way in creating amuch needed floor for providing ameasure of social security andminimum acceptable standards ofwork conditions. These Bills wouldbe complementary to the Bill onemployment guarantee, the actingChairman of the Commission, Dr KJayashankar said. (BL, 22.08.05)

Helpless, Hapless ConsumersThe Consumer Protection Act

(COPRA) was passed by theParliament in 1986, with the intentionto settle consumer cases within 90 to150 days, but they drag on for years.

As per an official account, on anaverage, it may take a consumer morethan five months to get an issueresolved through consumer courts.Only five to eight percent of consumerdisputes are decided within threemonths.

The proposed ConsumerAuthority could perhaps help toreduce the backlog of cases and striveto generate a measure of relief for theaverage consumer. India is the onlycountry that observes March 15 asNational Consumer’s day.

(FE, 11.09.05)

Ad Ban ChallengedA petition that has been moved in

the Madras High Court has challengeda central Act and subsequent rulesseeking to prohibit direct or indirectadvertisement of tobacco products inthe media.

In the petition, the Editor-in-Chiefof The Hindu, N Ram, sought todeclare the rules as ultra vires ofArticles 14 (equality), 19(1)(g)(freedom of expression) and 246(jurisdiction of Parliament andlegislatures) of the Constitution. Hesaid that public health, a state subject,was not a ground for imposingrestrictions on the freedom of speech.

Ram alleged that under the maskof safeguarding public interest, theAct interfered, arbitrarily, with privateenterprise and imposed unreasonableand unnecessary restrictive codes onlawful trade. (BL, 20.08.05)

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Networking PanchayatsThe Panchayati Raj Ministry is

banking on the Planning Commissionand the Finance Ministry to help itamass over Rs 1,000 crore in the nexttwo years for the installation ofcomputers in 2.4 lakh panchayats, forthe purpose of linking them with oneanother and with a national panchayatportal. The Eleventh FinanceCommission has recommended grantsof Rs 8,000 crore for the period 2000-05.

Apart from interlinking, theprogramme would guaranteeemployment to at least two from eachgram panchayat, who would betrained to operate the computers. Theministry would soon enter into aMemorandum of Understanding withthe state governments for completingwork within the stipulated time frame.

(TH, 15.07.05)

E-Procurement for RajasthanRajasthan is geared up to be the

first north Indian state to secure all itsrequirements, practically everything –from services of engineering firms andfurniture to stationery – that thegovernment and its offices mightneed, online. This online service istermed as e-procurement, and theconcept is one that has beenintroduced through the RajasthanUrban Infrastructure DevelopmentProject with the help of the Departmentof Information and Technology.

E-procurement enables the bidderto access bid documents fromanywhere in the world, whereapplicants are given digital signaturesto take part in the online tenderingprocess. An immediate benefit would

be the saving of the government’smonetary reserves, and the other is thelid put on corruption. (HT, 02.07.05)

RailTel on a RollRailTel, a public sector undertaking

under the Railways Ministry, is drawingout plans to provide spin-off benefitsof laying 42,000 km of optical fibrecable (OFC) along tracks in the nextthree years. This would streamline thesignaling system in over 4,000 stationsand also give a fillip to high-speedbroadband connectivity for end-users.Railway stations across the countrywill then be equipped with Internetcafes and ATMs.

Till August 2005, OFC had alreadybeen laid over 27,560 km andcommissioned over 23,398 km,connecting 2200 towns and cities andstrengthening the safety system of therailways. (www.newkerala.com., 30.09.05)

Planning Knowledge CentresNational Alliance Partners, the

umbrella body constituting about 150

Indian and foreign NGOs andinstitutions has suggested policyrecommendation for theimplementation of Mission 2007, forthe setting up of a Village KnowledgeCentre (VKC) in some 600,000 villages.

The implementing agencies havesuggested deployment of enhancedtechnologies and infrastructure beyondthe dial-up connectivity existing now.The other recommendations are the useof unutilised capacity for the setting upof 100 satellite radio channels. TheVKCs shall primarily dispenseinformation on topical areas likeagriculture, animal husbandry,fisheries, health, education, ruralenterprises and disaster management.Renewable energy sources would beimplemented, where there is anabsence of conventional power.

(FE, 18.07.05)

E-gov, a Concrete PossibilityThe urban development ministry

is working on its project of e-governance in urban local bodies toimprove overall work culture and toinfuse transparency in decayingmunicipal bodies. The draft is currentlyunder consultation, and will cover eightservices and management functions,including payment of property tax andother utility bills. It has been submittedto the Planning Commission for in-principle approval.

The mission was to be launchedin the 35 cities with a population ofmore than one million people, and goon to all the 388 cities with more than100 thousand people. The totalimplementation cost of the projectbetween 2005 and 2010 is estimatedto be Rs 1,861 crore. (ToI, 09.09.05)

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Far East TouchstoneRural India is all set to follow the

Thai one village one product modelfor encouraging small enterprises, andthe Chinese model for setting up ruralbusiness hubs. The idea is to devisean Indian model combining both.

There are at least 6,000 blockpanchayats in the country and thegovernment plans to set up about 60rural hubs soon.

Nine states have already beenidentified with four segments –handicrafts and handlooms, agri-produce and processing, small powerplants and bio-fuel production –selected on the basis of availability oflocal resources, needs of the localpopulation and relative absorptivecapacity.

The idea is not confined to localproduction alone, but also tomarketing – talks for which havealready been initiated withConfederation of Indian Industry(CII). The programme will be initiatedwith the active involvement of thepublic and private sectors and thepanchayats. (FE, 10.07.05 & 07.08.05)

A Cause to Rejoice!The per capita income at current

prices has recorded a growth rate of11.1 percent estimated at Rs 23,308in 2004-05, compared to Rs 20,989in 2003-04. In real terms also, it isestimated to attain a level of Rs 12,416in 2004-05 from Rs 11,799 in the

previous year. The per capita incomeat current prices has been steadilyrising over the last five years.

The real GDP grew by 6.9 percentduring 2004-05. The national incomeat current prices for 2004-05 alsoshowed an increase of 12.6 percent.

(FE, 30.08.05)

Double-digit GrowthThere seems to be a consolidation

drive in the tractor industry. Asignificant move was the takeover ofEicher Group’s business by Tractorand Farm Equipment for Rs 310 crore,vaulting it to second position.

The Indian tractor market has 11players competing hard for a fat sliceof the market. An inorganic growthstrategy would certainly be logical formajor players to increase their marketshare, and it would not only providemultinational players a foothold in thedomestic market, but also enable themto take advantage of Indian market asa low cost manufacturing hub.

The tractor industry recorded agrowth of about 30 percent to 2,47,531units in 2004-05, compared to1,91,673 units in the previous and isexpected to touch 2,70,000 units in thenext. (BL, 12.09.05)

Disinvestments DumpedThe government has formally

decided to call off the disinvestmentsof stakes in 13 publicly ownedcompanies to avoid the privatisation

of profitable state enterprises, and tokeep up the spirit of the NationalCommon Minimum Programme.

A clash broke out between theCongress Party and its Communistparty allies, over the sale of a 10percent stake in Bharat HeavyElectrical, a state controlled group.

The government has also calledoff sales of equity stakes in ShippingCorp. of India, Engineers India,Balmer Lawrie & Co, Sponge IronIndia, Manganese Ore India,Rashtriya Chemicals & Fertilisers,Hindustan Paper, National BuildingConstruction, National Fertilisers,Engineering Project India and StateTrading Corp. Instead, thegovernment is concentrating on thedivestment of the non-navratna publicsector units. (FT, 17.08.05 & ET, 22.07.05)

Post-Reform BluesExperts have pointed out that the

disparity in GDP growth andemployment has widened amongregions in the post-reforms period.While living standards improved a lotfaster in the 1990s as compared to the1980s in most states, the oppositehappened in Assam, Bihar, Orissa,Punjab, Rajasthan and Uttar Pradesh.

Stagnation in employment growthis yet another feature of the post-reforms period. Goa and Keralaregistered a negative growth in the1990s, while seven more statesrecorded less than one percent growthin employment. The downslide inemployment has come packaged withwage disparity. (FE, 17.09.05)

Migrant Remittance EffusionThe money sent home by migrant

workers from the developing worldreached close to US$200bn, last year.The amount exceeded that receivedby way of foreign aid and FDI.Migrant remittances have beenconsistently fuelling economic growthby providing foreign exchangeresources.

Last year, US$126bn inremittances was sent worldwidethrough formal channels such asbanks, which could even be accountedas US$200bn if informal transfers arecounted. 42 percent of totalremittances through formal channelsflow into Asia. (FE, 13.09.05)

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Tying a KnotIndia and UK have recently decided

to unite on a wide range of economicissues, including civilian nuclear energyand the hydrocarbon sector. This is astep towards India’s commitment toattract foreign direct investment worthUS$10-15bn, annually.

To mark ‘a very specialrelationship’ that exists between thetwo countries, an agreement has beensigned on an overall energy policy, anew air services and on intellectualproperty rights. The two countries havealso agreed to intensify co-operation onthe frontier areas of science andtechnology and the knowledge sector.

Furthermore, to deepen therelationship, they have also launcheda financial and economic dialogue atthe Finance Minister’s level andfinalised several MoUs andagreements. (BL, 09.09.05)

Manufacturing MattersA high-powered panel set up to

probe manufacturing problems hascome out with a draft strategy toachieve a 12 percent growth in thesector. The panel has identified tenelements for long-term manufacturingstrategy, including an enhanced focuson competitiveness, favourableclimate for domestic and foreigninvestments, and intensive studies ofthe sectors having potential to garnera major share of the global market.

The National ManufacturingCompetitiveness Council in its draftreport has identified 10-12 constraints,which includes infrastructure, power,labour issues, reversing duty structure,dismantling inspector raj etc.According to the Chairman, a 12percent growth is essential to deal with

with Indian Rayons Ltd., forming anew entity called Aditya Birla Nuvo.For every single share of IndianRayon, shareholders of Indo GulfFertilisers and Birla Global Financewill get three each.

Post restructuring, the turnover ofIndian Rayon will increase by Rs 750crore to Rs 2,611 crore. The newentity will include the telecom,information technology, fertilisers andinsurance businesses. The boards ofthe three companies have met andapproved the consolidation proposaland the swap ratio.

(BS, 12.09.05 & ET, 12.09.05)

Meeting Fiscal ChallengesDespite the need for more funds

for the Bharat Nirman scheme and theRural Employment Guaranteescheme, the government is fullyconfident of achieving the target setforth in the Fiscal Responsibility andBudget Management Act, of wipingout revenue deficit by 2008-09. Majorfiscal challenges are subsidymanagement and raising resources formeeting the NCMP objective.

On fiscal reforms, the FinanceMinister, P Chidambaram said thegovernment had undertaken measuresin expenditure management and hadcome out with an Outcome Budgetthat measured the results of Budgetoutlays for various schemes. Onexpenditure reforms, the governmenthad imparted greater flexibility tovarious departments in managing theirexpenses. Moreover, the FinanceMinister has directed the expendituredepartment not to approve any outlayif a measurable outcome within atime-frame is not specified.

(BS, 15.09.05)

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the employment problem because itwill generate 1.6-2.9 million jobsannually. It is to be noted thatmanufacturing accounts for only 17percent of India’s GDP, unlike manySoutheast Asian countries, where thefigure is 25-35 percent.

(BS, 27.09.05)

Move for a Mega MergerTo achieve a synergy in

operations, the Aditya Birla Grouphas planned to merge Indo GulfFertilisers and Birla Global Finance

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Bagging the BootyIndia has earned Rs 40,000 crore

extra from the global commodityboom in 2004-05 as compared with2003-04. The monthly foreign tradedata from the Directorate General ofCommercial Intelligence andStatistics show a huge 128 percentincrease in iron ore, 86 percent inpetroleum derivatives, 73 percent inores and minerals, 64 percent inmetals and four percent in agriculturalgoods over the same period.Moreover, the good news is that themomentum is expected to be kept upin 2005-06.

But, India’s farmers and agri-exporters could well see dismal daysahead. The main reason for the declinein world prices was the bumper cropsof several agricultural commoditiesafter many years that increasedsupplies substantially. (ET, 19.08.05)

Paper in PulpThe paper industry is banking on

the national forest policy for survival.The proposed policy will permitplanting of trees in wastelands anddegraded lands by the private sector.

The industry has shown acommendable growth, but is facingshortage of raw material base, theprimary issue for growth. While 57percent of paper produced worldwideis from wood, only 14 percent of thewood felled is consumed by the paperindustry. For India, the figure is only3 percent. The absence of propercollection system and alternate use ofwaste paper also makes theestablishment of large mills based onwaste paper really difficult.

Besides, there has been nogreenfield project in the last 20 yearsdue to heavy financial constraints.

(FE, 13.07.05)

Value ‘Adding’ TaxLike Jharkhand, four other BJP-

ruled states may also implement ValueAdded Tax (VAT) from January 1,2006.

The move is significant in the lightof former Finance Minister, YashwantSinha’s statement, at the BJP meet inChennai, that all BJP-ruled states wouldbe adopting VAT at the same time.

Jharkhand’s decision vindicatesFinance Minister, P. Chidambaram’s

recent statement that all states that hadnot adopted VAT so far would do soby the end of the year.

Himachal Pradesh had registeredan increase of 20 percent in revenuein just three months after theimplementation of VAT. It is clear, thatintroduction of VAT would definitelystrengthen the financial position of thestates. (FE, 25.09.05 & TH, 11.07.05)

Backyard BeckonsThe three Indian states, Orissa,

Jharkhand and Chhattisgarh areemerging as the biggest investmentdestinations in the world, leavingbehind the current global industrialhotspots like Guangzhou andShenzhen in China. The three stateshave already received investmentcommitments of nearly US$40bn.

Among the big proposals alreadyin queue are Tata Steel’s US$2-3bnplant in Chhattisgarh, Essar group’sUS$1bn plant and Jindal StainlessSteel’s US$1.5bn plan in Orissa. Thereason for so many ventures is themassive jump projected in thedomestic demand for steel.

While the big concerns are scalingup their operations in a massive way,the small ones are fast becomingunviable. This would lead to asituation where only a handful ofplayers would be able to survive.

(ET, 09.07.05)

Barriers upon BarriersEU’s anti-dumping actions and the

non-tariff barriers against Indianproducts have recently become amajor concern, according to the trademinister, Kamal Nath. The stringencyof standards and the complex rules,coupled with frequent use of tradedefense instruments were evolving asblockades to enhancing economic co-operation.

As a result, Indian entrepreneurshave been finding it difficult topenetrate markets in these countries.

EU’s Trade Commissioner, PeterMandelson has urged to createconditions in India to attract greateramounts of investment. He alsoinvited India to join hands with theEU and plead the case in theforthcoming Hong Kong Ministerialfor a greater openness in global trade.

(ET, 08.09.05)

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Placing the Lid on VanaspatiUnder the Indo-Sri Lanka Free

Trade Agreement (FTA), duty-freeimports of vanaspati from Sri Lankaare likely to be capped at 2,50,000tonnes.

The decision is a follow-up to therecommendations of the KT Chackopanel that had expressed concern overthe rising duty-free imports ofvanaspati.

Subsequent to the surge, India hadurged Sri Lanka to avoid approvingvanaspati units in the country forexports to India. Sri Lanka hadapproved the setting up of 10 units andconsented to not giving approval forany new ones. Each of these units willnow export 25,000 tonnes per year,totalling 2,50,000 tonnes in export.

(FE, 19.08.05)

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For Tighter Disclosure NormsThe Ministry of Company Affairs

(MCA) intends to tighten thedisclosure norms for the acceptanceof deposits in its sustained attemptsto protect investor interests anddissuade companies from defaultingon repayment of deposits.

The Minister of State forCompany Affairs, Prem Chand Gupta,has conveyed to officers in theMinistry that companies acceptingdeposits would have to inform theRegistrar of Companies. He alsosuggested that in the absence of sucha provision under the existing legalrubric applicable to companies, thegovernment would consider a clauseto make the above mandatory. Strictactions would be taken againstcompanies siphoning off fundscollected from the public.

MCA sources suggested that thegovernment has been working hardtowards developing a better regime ofinvestor protection; some of the

measures already in place includeonline filing of complaints againstdefaulting companies by investorsand depositors, and the establishmentof an Investor Protection Cell.

(BL, 02.09.05 & 04.09.05)

PSUs Fair PoorlyThe Economic Times has

published the outcomes of its recentcorporate governance survey withrankings for Indian companies. Whileprivate sector firms like InfosysTechnologies, Tata Steel and Wiprolead the list – public sector units(PSUs) do not find a mention in thetop 10. State Bank of India is thehighest placed PSU, occupying the13th spot on the list, followed byONGC at the 15th and BPCL at the20th, respectively.

The ‘G-Cube Model’ was used toassess the corporate governance ofthese companies. The model employsparameters like accounting quality,value creation focus, fair policies and

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actions, communication, effectivegoverning board and reliability inassessing excellence in the area ofcorporate governance, apart fromanalysing the opinions of fundmanagers and top broking houses. Theresults were compiled to establish theoverall rankings.

Experts feel that corporategovernance has come a long way,particularly in the last three years inthe country, especially with increasingpressure from foreign institutionalinvestors, who have pumped hugeamounts of money into Indiancompanies. (ET, 19.08.05)

Recommendations in LineThe new National Manufacturing

Competitiveness Council (NMCC),recommends easier norms to fireworkers, and a reduction in the numberof ‘pointless’ inspections, amongvarious other measures – to enableIndia to compete with super powerslike China in the global manufacturinghub.

The NMCC also calls for the ‘fullmanagerial and commercialautonomy’ of public sectorscompanies, in the light of allegationsof ministerial meddling at the ONGC,India’s energy champion. Besides, itprescribes that the country’smanufacturing sector needs to grow atthe rate of 12 percent, in order tomaintain a steady GDP growth ratebetween eight and ten percent.

Many, however, fear that therecommendations will be shelved,unless the government shows greaterpolitical will to take on the vestedinterests that oppose them.

(FT, 27.09.05)

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Information Security AlertA survey titled ‘Report on

Information Security Baseline 2005’conducted by the Confederation ofIndian Industry (CII) has revealed thatthere is now a greater realisation ofthe need for information security. Thesurvey, covering about 100companies, sought to assess theinformation security awarenessamong organisations and the level ofits implementation.

Only 11 percent of therespondents did not have password-protected data. Also, 100 percent ofthe respondents used some form ofanti-virus, anti-spam, and anti-wormsoftware. While a high 89 percenttook regular back-ups, about 63percent even had disaster recoveryplans in place. (FE, 11.09.05)

Top-notch India?According to a study titled ‘India’s

Cutting Edge in Services’ conductedby the Associated Chambers ofCommerce and Industry (Assocham),the country could well double itscurrent market share and acquire sixpercent of global informationtechnology services and software by2008-09.

India will also be providingservices to the EU and other countriesof the developed world by 2020. It hasbeen estimated that by then, there willbe a surplus of 47 million ITprofessionals in the country whoseskills can be put to optimum use.

The study has stated that by 2020,there will be a dearth of people in theworking age group in the developedworld owing to declining birth rates.So concerned is the EU on this issue,that it has underscored the need toreview immigration policies.

(TH, 11.07.05)

Way off MarkDespite being successful on the

economic front, India is likely to missthe millennium development goals, asstated in the Human DevelopmentReport 2005 released by the UnitedNations Development Programme(UNDP).

The report said that India hadreduced the incidence of poverty,based on income parameters, fromabout 36 percent in the early 1990s to25-30 percent. But evidence suggestedthat growth pick-up had not translatedto an equivalent decline in poverty.

More serious was the humandevelopment legacy, particularlypervasive gender inequalities, ruralpoverty and inequalities betweenstates, exacerbated by inadequatepublic health provision. (BS, 08.09.05)

Foul Play in Bt Cotton SalesA report released by the Monitoring

and Evaluation Committee (MEC) setup by civil society organisations hasalleged that transgenic seed companieshave resorted to false and misleadingclaims and unethical practices to sellBt cotton to farmers.

Earlier, a team of scientists fromthe Nagpur based Central Institute ofCotton Research had proved that theBt cotton becomes ineffective tobollworm after 110 days.

For the moment, the MEC hascalled for accountability mechanismsto put in place, to ensure that aggressiveand unethical practices used by the Btcottonseed corporations are put undercheck. (FE, 01.08.05 & 22.09.05)

Labelling ObligatoryThe Indian Council of Medical

Research (ICMR) has called formandatory labelling of geneticallymodified foods in a report it has

submitted to the government. It saidthat imported foods containing tracesof genetically modified organisms(GMOs) should be tested for theirsafety in the laboratories in the country.

The permissible limit of thepresence of GMOs in food as proposedby ICMR is higher than that proposedby the EU. The EU has fixed thepermissible limit at 0.9 percent whileICMR has fixed it at 1 percent. ICMRhas said that labels on GM foods shoulddisclose the necessary informationrelating to the origin of the transgeneand the processes involved. (FE, 28.09.05)

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India Tenth LargestIt is an official announcement that

India is now the tenth largest economyin the world. As per the latest WorldBank report, India is ranked so,dependent upon its absolute GDP size,which is US$692bn and growing oversix percent annually.

The rapid growth has beenpossible, given reform-orientedgovernments, manufacturing revival,the unceasing fast pace of the servicessector and larger foreign investments.

This report comes at a time whenIndian stock markets are drawingattention from investors worldwide fortheir transparency and gains achievedthrough smart marketing. The countryhas also witnessed increases in itsinvestment expenditure and demand.Save for China, few economies in theworld are growing as rapidly as thatof India’s. (ET, 14.07.05)

Subsidies StrainThe Ministry of Finance has stated

in its ‘Quarterly review of the trendsin receipts and expenditure in relationto the Budget’ for April-June 2005,that major fiscal challenges are to beconfronted. They include themanagement of subsidies, funding thefood-for-work and employmentguarantee programmes, andneutralising the decline in non-debtreceipts due to debt relief to the statesunder the Twelfth FinanceCommission.

The Finance Minister, PChidambaram pointed out that the

economy was showing remarkableresilience, in the face of highinternational crude prices and a seriesof natural disasters. With industrygrowing at a healthy double-digitfigure of 10.3 percent, forex reservesof US$132.9bn and inflationgradually decelerated to 4.1 percentin June 2005 compared with thebeginning of the year, the prospectsfor growth look good. (BL, 25.08.05)

Health at a PriceThe PHD Chamber of Commerce

and Industry (PHDCCI) has statedthat health insurance in India is set tobecome a Rs 25,000 crore industry by2010. Reasons accountable arelifestyle-induced diseases like cancerand cardiac diseases, which could be30 percent of in-patient ailments. Thisfigure is expected to rise withincreased HIV infections and anincrease in the number of seniorcitizens.

PHDCCI estimated the sector totreble itself within the next 10 yearsif insurance companies offered a rightblend of targeted products. Insuranceproducts would have to widen theirscope much beyond hospitalisation,and cover domiciliary treatment.

Despite the Insurance Regulatoryand Development Authority’s (IRDA)counsel, the government has notlegislated lowering the minimumcapital norms for exclusive healthinsurers. A move of this nature canwell attract newer companies to thesector. (BL, 12.08.05)

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High on EnergyResidential energy consumption

for purposes other than transportaccounted for 50 percent of theincrease in consumption – two billiontonnes of oil equivalent worldwide in2001 – over the 5.6 billion tonnesconsumed in 1991.

The data released by theInternational Energy Association citeda major difference in energyconsumption between the developedand the developing countries. In theUS, energy consumed for residentialpurposes accounted for less than 20percent of the increased energyconsumption during the period. Thefigure for China was 67.2 percent,while it was 72.5 percent for India.Countries like India and Chinaconsume much more energy per unitof GDP than the developed world.

(BL, 02.09.05)

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Can’t Bank upon PoliciesThe World Bank held various

policies of the governmentresponsible for a highly inadequatesupply of finance to the rural poor ina report titled ‘Scaling-up Access toFinance for India’s Rural Poor’.

High fiscal deficits, thegovernment’s domination of ruralfinance institutions, persistingweaknesses in the regulatory and legalframework and populist policies haveresulted in the distortion of risk/returnsignals and a dilution of the credit-creating role of rural banks.

The report also pointed out thatthe RBI restricts the entry of new non-service area bank branches into theservice area, by requiring them toobtain a no-objection certificate fromthe service area branches, which is noteasily forthcoming. (BL, 19.09.05)

Accolades from ADBThe President of the Asian

Development Bank (ADB), HaruhikoKuroda expressed his appreciation forthe performance of the Indianeconomy. ADB’s positive outlook onthe Indian economy for future growthcomes at a time when the Bank isready to revise downwards its forecastof the growth projections for the otherdeveloping Asian countries. Heannounced that ADB is considering amajor step-up in the assistance toprojects in India, with the totalassistance between 2006 and 2008being in the range of US$6.5-7bn.

Kuroda emphasised theimportance of the private publicpartnership route of financinginfrastructure projects, though theymay not work in rural areas. A JointWork Force would be formed along

with the Indian government, he said,to improve implementation anddisbursement of project assistance.

(BL, 01.09.05)

Call for ReformsAt the JRD Tata Memorial Lecture

organised by the AssociatedChambers of Commerce and Industry(Assocham), Wipro Chairman, AzimPremji suggested the adoption of amulti-pronged strategy comprisingimmediate initiation of land reforms,overhauling of the country’s powersector, health and primary education,to economically and sociallytransform India. He soughtrationalisation in property taxes toboost economic activity in the housingand retail sectors, which would createimmense employment opportunities.

Reforms in the power sector, thebiggest resource drain on theeconomy, could impact the fiscaldeficit of states greatly.

On software services in thecountry, Premji said the salarydifferential among softwareprofessionals between the US andIndia was a great arbitrage opportunityon which the initial success of theindustry was built. Similaropportunities have risen today in thebusiness process outsourcing industryand in pharmaceutical and biotechresearch. (BL, 31.08.05)

Merger of Oil Giants Ruled OutTo avoid destructive competition,

it has been felt that if the oil and gascompanies in India were integratedinto one or two large entities, thecountry would hold a much betterchance of competing with worldleaders like Chevron, SaudiAramco

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and Gazprom. The KrishnamurthyCommittee on ‘Synergy in Energy’constituted six months ago to workout merger options for consolidationof the oil sector has noted in its reportthat a merger would not be advisableas they generally occurred world wideduring times of low oil prices, andbetween companies that were alreadyvertically integrated – a means foreliminating excess workforce andduplicate facilities.

In the Indian context, despitesome efforts at vertical integration,the oil PSUs retain their distinct areasof competence. This would make anyconsolidation plans futile. TheCommittee has also ruled out amerger on the grounds that it is likelyto lead to loss of jobs. (FE, 12.07.05)

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It’s treated almost as a given today that India is thenext superpower. But however large our economybecomes in absolute numbers, a whole swathe ofcountries will have citizens living better lives than we will.Yet there seems to be a constricted debate. If anyone says,‘India is not going to be a superpower in the next 10years’, he’s accused of being negative. There’s no middleground, you’re either at one end or the other.

One way to judge the progress of a country is to look atthe lives of the people there – whether they are educated,well fed, get medical treatment, enjoy freedom ofexpression and literary creation, whether there isopportunity of creativity. That is a very different perspectivefrom the superpower perspective. It is, to me, a much betterway.

The idea of India being a superpower can’t beinterpreted to mean being enormously more powerful thaneverybody else, like Alexander with the vanquished tribesall around him.

Whatever increases in India’s economic position andpolitical importance occurs, will occur with other countriesalso making progress. This intense obsession of how wecan catch up with China is silly. We should take joy in thefact that a poor country is making progress. If I have aconcern, it is that there is other progress I would like to seein China, in having a multi-party democracy.

A ‘me versus you’ view is not very healthy.

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Your book talks of how India can learn from both,China’s post-reform judicious use of the market, and pre-reform investment in social infrastructure. There aresome who tend to interpret the 2004 election results as anegative vote on economic reforms. Manmohan Singhhas had difficulty in furthering reform. Do yousympathise with his predicament?

I think sympathy wouldn’t be the right word. Myposition on Manmohan’s understanding of politicaleconomy has been that he has been absolutely right inwanting reforms. Apart from getting over the license raj,more constructive things like education, healthcare andinfrastructure are part of his priorities. I would like to seehim succeed.

There are all kinds of other issues, like the role offoreign enterprises. The government has a good vision onthe need for India to play its part in a globalised world.

Now I’m not taking the view that the Left shouldnecessarily support the government on everything. Thepurpose of a democracy is to present your perspective,rather than prematurely seek agreement. But as a memberof the coalition, the Left also has a responsibility. Whenthe Left expresses disagreement, it is not right necessarilyto interpret that, as the media often does, as a severe strain.That’s part of democratic politics.

(FE, 19.08.05)

Earlier, in India, politics was a bywordfor sacrifice and privation. But,immorality rules the roost today, andthose politicians who swim against thetide are the exceptions to the rule.

As per news reports, two youngmen of Mumbai, both scions ofpolitical families have purchased a 4.8acre property of Kohinoor Mills in acompetitive bidding process at anastronomical price of Rs 421 crore.In a market economy, it is no sin to bewealthy. But this transaction points totwo things. The first is that politicalfamilies are amassing wealth of nomean proportions, and second,politics is now big business.

A party in power or a politicianno more needs to rely solely onentrepreneurs, traders and license

Economist, Nobel Laureate, former Master of Trinity College, University of Cambridge and now LamontProfessor at Harvard, Dr Amartya Sen is, arguably, India’s best-known global intellectual. Back homein August to release his new collection of essays — ‘The Argumentative Indian: Writings on IndianHistory, Culture and Identity’, Sen spoke to the Financial Express. Some Excerpts…

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seekers for election funds. Today, vastamounts of money are raised throughpolitical office and control over thelevers of power. A part of this is‘invested’ in elections and in a no-holds-barred competition to gain themarginal vote. It goes without sayingthat gargantuan proportions are spenton all the evil means that serve such apurpose. Once power is regained,multiple returns are assured.

Gone are the days of the licenseraj, when wealth creators paid offpoliticians to obtain the right to dobusiness. Now, politicians are theentrepreneurs in public affairs and inprivate capacity.

Thus, the pincer of politicalnepotism has gripped core areas,where the state’s failure is glaringly

apparent. Policing and justiceadministration are now ‘privatised’.Money is hoarded by settling disputesand dispensing rough and ready‘justice’, using the public office as ascreen. The process distorts themarket, undermines public confidencein wealth creation, erodes the rule oflaw, sets an abhorrent example to ouryouth and stunts economic growth.

No palliative can arrest thisscourge. Creating a system that allowsthe best and the most public-spiritedto get elected and survive in powerthrough honesty alone, andovercoming institutional rigidities toallow competent delivery are the twogreat challenges today. Will we wakeup?

(Abridged from FE, 22.07.05)

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Creator’s ConcernThe new ‘anti-corruption’ clause is

misguided and counter-productive. Itundermines the incentives that peoplehave to ‘blow the whistle’ in the eventof corruption. It also gives thegovernment sweeping powers to stopreleasing funds in a selective manner,even without adequate evidence. Whatis required instead, is to strengthentransparency measures and enablepeople to monitor the works.

The Act must be seen, along withthe Right to Information Act 2005, asan integral part of the battle forrestoring accountability in ruraldevelopment programmes. Thepremise of the Act is that every adulthas a right to basic employmentopportunities at the statutory minimumwage. It is a political initiative basedon the state’s responsibility to protectthe right to work. Corruption shouldnot be used as an excuse to abdicatethis responsibility – it can and must befought.

Jean Dreze, Former Member,National Advisory Council, and

chief architect of the scheme(ToI, 13.08.05 & www.indiatogether.org,

20.08.05)

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Minimum Wage Must be Treatedas Sacrosanct

The question of what wage rate isto be paid is a highly complex one.Fixing the minimum wage at Rs 60has not been justified. There istremendous variation in the statutoryminimum wage rate across states, withKerala leading the list at Rs 126 andMeghalaya at the bottom with Rs 26.

The states bear only 25 percent ofthe cost of work material and the Centrewill bear the entire burden of the wagebill. Since the overall cost of the schemeis closely linked to the wage rate, thegovernment may have wanted to fix aceiling to protect itself fromunwarranted increases in state specificminimum wage. Instead, the Centre haspegged the minimum wages at a lowerlevel as an easy way to keep its fiscalcommitments to a minimum.

In spite of these fisc-orientedarguments, there are enough legal,political and economic reasons to revertto the draft’s proposal that workers mustbe paid nothing less than the minimumwage in force in their state.

Siddharth Varadarajan,Journalist,

(TH, 23.08.05)

As India needs something more lasting than patchwork policies to help its millions of poverty stricken people,the government passed the National Rural Employment Guarantee Act, (NREGA) 2005, with an allocation ofRs 40,000 crore. Creation of durable assets and strengthening the livelihood resource base of the rural poor isan important objective of the Act.

Changing the Face of RuralIndia

The National Rural EmploymentGuarantee Bill (NREGB) that isbeing taken up must be regarded asthe insightful economic legislationof post-independent India.

Criticism against the schemecentres around two arguments – toocostly, and too many freshopportunities for corruption. Neithershould be allowed to derail theinitiative. Corruption can never berooted out, but if labour representativesand the panchayats together managethe schemes, it may be limited. Asregards the fiscal cost, the expenditurewould range from 0.6 percent (modestestimate) to 1.5 percent of the GDP(most extensive formulation). Thoughthis is not a small amount, it is justifiedif employment generation and povertyeradication are seen as worthwhilegoals.

The key to the desirability of thescheme is the creation of meaningfuland long-term asset creating activities.

Pulin B. Nayak, Professor ofEconomics, Delhi School of

Economics,(BS, 18.08.05)

• The state governments shall provide not less than 100days of work in a year to every rural household whoseadult members volunteer for unskilled manual work.

• Notwithstanding anything contained in the MinimumWages Act, 1948, the Centre may specify the wagerate, provided that it is not less than Rs 60 per day.Under no circumstances shall the labourers be paidless than the wage rate.

• If an applicant is not provided employment within 15days of application, he is entitled to a daily unemploymentallowance.

• The panchayats at the district, intermediate and villagelevels shall be the principal authorities for planningand implementation.

• The central and state governments shall share theexpenses of the scheme.

• The centre may, on receipt of any complaint regardingthe issue or improper utilisation of funds, cause aninvestigation and order stoppage of release of funds.

Salient Features

• The centre may, in consultation with the Comptroller andAuditor General of India (CAG), prescribe arrangementsfor audits of the accounts at all levels. All accounts shallbe made available for public scrutiny.

• The scheme is to focus on water conservation andharvesting, drought proofing, irrigation facilities, landdevelopment, flood control and all-weather roads – all inrural areas.

• Cost of the material component of projects shall notexceed 40 percent of the total project cost.

• The scheme shall not engage a contractor forimplementation of the projects.

• As far as possible, manual labour shall perform a taskand not machines.

• At least one-third of the beneficiaries shall be women.• Employment shall be provided within a radius of five km

of the village. Or, it must be provided within the block,along with ten percent extra pay.

• Safe drinking water, shade for children and a first-aidbox shall be provided at the work site.

(www.rural.nic.in)

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BackgroundIn India, the renewable energy movement took off in

the early 1970’s. However, the real initiative was takenwhen the Commission on Additional Sources of Energy(CASE) was created in 1980 followed by Department ofNon-conventional Energy Sources (DNES) in1982.

During the 1990s, faster growth of renewable energyneeded greater attention and hence, DNES was convertedinto Ministry of Non-conventional Energy Sources(MNES) in 1992. According to government estimates, thecountry’s share in global energy consumption wasanticipated to increase from 4.4 percent in 2001-02 to 6.36percent in 2021-22.

Non Conventional Energy Sources and DemandsTraditionally, in India like in most other developing

countries, thermal and hydropower have been used to meetthe rising energy demands. But the government graduallyrealised that a focus only on traditional or conventionalenergy sources would not be able to take care of the energydemand in the country. Renewable energy refers to energyfrom the sun (thermal and solar photovoltaic systems),biomass (direct burning, gasification or machination,including municipal solid waste), small hydel power plantsupto 25 MV station capacity, wind, tide, wave, geothermal,etc.

India today has among the world’s largest programmesfor renewable energy. In the Eighth Five Year Plan (1992-7), approximately 1050 MW of power generating capacity,originating from renewable energy sources was allocated.In the Ninth Plan (1997-2002), the accent was on accordingcommercialisation and development of entrepreneurshipin all renewable and non-conventional energy schemes andplans. By 2012, the MNES has the stated objective ofpropping up 24,000 MW from renewable and non-conventional energy.

Solar Energy – a Success Story!The activities facilitated by the MNES on solar energy

in various parts of the country have had tremendoussuccess, especially through the involvement of stateagencies. The agency that stands out for setting a precedentin this regard has been the West Bengal Renewable EnergyDevelopment Authority (WBREDA).

Established in 1993, WBREDA was mandated todiffuse useful knowledge in various fields of alternativeenergy and thereby, to deal with problems related to rapiddepletion of conventional energy sources and the everincreasing level of pollution caused by the use ofconventional methods of power generation.

WBREDA has been actively associated inimplementing a number of solar energy projects in WestBengal, in cooperation with the local self-government inrural areas (panchayats), universities, research institutions,NGOs and community based organisations. Thanks to

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WBREDA, 400 villages in the state havebeen electrified by the solar photovoltaic (SPV) route.

Some of the initiatives that WBREDA has beeninvolved with are as follows:· Encouraged the participation of private sector in

developing public-private participation projects onrenewable energy sources in various parts of the state.

· Set up Aditya Solar Shops – two in urban areas, andtwo in rural areas in order to make solar energy productseasily available to the people.

· Working in Sagar Island (the largest island amonghundreds that constitute the delta of the River Gangesin the southernmost part of West Bengal) since 1996,and has set up 11 small solar power plants on the islandand its neighbouring areas.

· Each of these small solar power plants has its own mini-grid system that distributes electric power to thesurrounding villages. These grids are managed bycooperative societies, comprising of villagers, who arethe users of the power themselves. The societies areresponsible for selecting the consumers, choosing theroutes for the distribution lines and setting the tariffsin consultation with WBREDA.

Non-Government InitiativesSocial Work and Research Centre (SWRC) is an NGO

based in Tilonia, Rajasthan. SWRC pioneered work onsolar energy since 1986 and electrified the 80,000 squarefeet of its Barefoot College, which was established as aninitiative to educate and train unemployed, illiterate andsemi-literate village youth, as barefoot engineers.

Barefoot solar engineers, from different part of thecountry, have been trained by SWRC to fabricate and installsolar home lighting systems using SPV systems. Today,due to the efforts of SWRC, more than 200 KW of solarenergy is generated across the country.

More than 12,000 households in over 350 villagesacross 10 states have been covered by SWRC in providingsolar photovoltaic home lighting systems. This includes,over 1500 families in the remote areas of Ladakh who arebeing provided light in the bleakest months of winter.

ConclusionWhile a lot has been done, a huge amount of work still

remains to be done to extend the benefits of non-conventionalenergy sources, especially solar energy to the remote partsof the country. The need is, however, to have an adequatepolicy framework in place with an aim to provide impetusthrough streamlining the structure of renewable and non-conventional energy sources. Initiatives taken by WBREDAand SWRC should encourage government and non-government agencies to act fast and meet the energy demandsof the Indian population, a large part of which still remainmiles away from the glow of an electric lamp!

(Information in this article has been collected from mnes.nic.in,www.wbreda.org/about.htm and www.barefootcollege.org)

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BackgroundThe author, Prof Jandhyala Tilak, of a report titled

‘Privatisation of Higher Education in India’, published bythe International Higher Education in 2002, notes withdejection that for the first time, the government hadclassified secondary and higher education as ‘non-meritgoods’, for which subsidies would be drastically reduced.A reflection of this is seen today, when the state isdepending on, but nonetheless, coercing private institutionsto fulfill its social objectives of providing higher educationto its teeming millions.

The Supreme Court (SC) ruled, in August 2005, thatprivate unaided institutions had an “unfettered fundamentalright to choose students and procedure thereof, subject toit being fair, transparent and non-exploitative”. The Courtallowed them to device their own fee structure, but madeit clear that capitation fees and profiteering would not beallowed.

The question that arose then, mostly from political circles,was about the responsibility of private institutions towardsthe underprivileged in the societythey serve. Such a ruling, theyargued, would be a great blow tosocial justice. Thus, overridingthe judgement, the Cabinetpassed the 104th amendment tothe Constitution, which insertedArticle 15 (5), providingreservations for the ScheduledCastes (SC)/Scheduled Tribes (STs) even in private unaidededucational institutions. The first four sections of Article 15had laid out the responsibilities of state funded institutionstowards the economically weaker sections of society.

The central legislation, Private ProfessionalEducational Institutions (Regulation of Admission andFixation of Fee) Bill, 2005 states that aided and unaidedprivate professional institutions would have to reserve seatsfor economically weaker sections of the society, conducttheir admission process and fix fees according to stringentnorms set out by the University Grants Commission (UGC)or the responsible state authority.

DiscussionVarious experts have been rather uniform in expressing

that this new legislation replaces the market entirely. Thegeneral argument, along the lines of the SC ruling, saysthat the state has the right to bear on aided educationalinstitutions, but the regulation of every aspect of the runningof private institutions that do not even receive aid fromthem is completely untenable.

The alleged profiteering by certain private educationalinstitutions and the doubtful quality of education dishedout by many of them surely calls for some regulation; but

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The issue of government interference in privately run educational institutions in matters of admissionand fixation of fees has been an area of concern among various sections of the academia and politics. Isimposing upon private institutions the best way to fulfill the social objectives of the government?

are fixing fees and quotas the most efficient methods ofaddressing this market failure?

It is argued that if the State fixes both the price and thequantity of the service, the market will not clear and the resultwill be either rationalising or parallel market operations. Itmight lead to regulatory capture by creating incentives forinstitutions to invest unproductively on trying to controlthe fees and admissions committee. Needless to say, someof these costs will be passed on to the consumers of highereducation. On the other hand, if the UGC were to fix fees atunrealistically low levels in the interest of equity, institutionswill try to cut corners, and hence, quality will suffer.

Reservations per se may not be a problem for privateinstitutions if the state pays for those who require subsidies.But, if the state fixes ceilings for the fees of students whojoin under the reservation quotas without offeringcompensation, the private institutions would not even beable to recover costs and may be forced to undertake drasticmeasures that compromise on quality. Under a situationwhen quality higher education is largely on private

shoulders, such a step is sure toforce many institutions to shutshop and provide a disincentivefor the setting up of new ones.

Ideally, if students are optingfor an institution by choice andemployers are recruiting them,then not much else is required.Management education in India

is a good example of a sector where regulation has becomeirrelevant. If detailed audited statements are made availableto anyone interested, this might take care of a large part ofthe transparency concern.

ConclusionThe President of India, Dr Abdul Kalam and many

others who have ambitions for the country, foresee thebuilding of a knowledge society for India. But, a revolutionin information technology that would be required for sucha purpose cannot come about with higher education beingput as far down on the priority list as it seems to be today.

At the present stage of the demographic transition thatIndia is in, over 60 percent of the population is under 24years of age. A significant share of this young populationis likely to demand higher education in the near future.With appropriate policies on the domestic front and well-thought through offers and commitments on internationalfora, higher education can well be turned into a sector thatpresents immense opportunities for growth anddevelopment. So, the need of the hour is for the governmentto ensure the provision of good quality education that isaccessible and affordable. As such, is regulating admissionand fixing fees the best way forward?

� What is the legitimacy of the State imposing uponprivate institutions?

� What is the incentive structure for new domestic/foreign institutions in the General Agreement onTrade in Services (GATS) regime?

� What are the areas of focus for regulation ofeducational institutions?

23��

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IntroductionSince the early 1990s, there has been a paradigm shift

in the approach to economic management in India. Market-regulatory agencies, such as sector regulators and competitionauthority have been set-up in the country to ensure apredictable regulatory environment and participatorydecision-making. However, popular perception is thatregulatory agencies have not been able to live up to theirexpectations. Amongst the most cited reasons are:• Lack of autonomy and accountability in regulatory

agencies• Incapacity to attract capable professionals due to

legislative provisions and prevailing practicesPresently, in most cases, regulatory autonomy is being

curtailed as a measure to ensure accountability, which isresulting in sub-optimal outcome.

Overlap between policy and regulation is a majorimpediment to regulatory autonomy. A certain minimumdistance between the regulators and the line-ministryconcerned is desirable to ensure that the latter does notunduly influence the former. The selection andappointment of regulators is one of the most crucial issuesthat need to be addressed upfront. Providing protectionagainst a possible discretionary dismissal would also go along way to ensure functional autonomy to regulators.Financial autonomy of regulatory agencies is equallyimportant, as the relevant line-ministry may use thisinstrument to curtail the functional autonomy of regulators.

The current provision of regulators submitting annualreport to the legislature is not sufficient to hold themaccountable in an effective manner. Setting up an appellatebody for each regulatory agency is also not desirable; itcan lead to forum shopping in similar cases, andinconsistent decisions at the appellate level.

Seven critical issues affecting regulatory autonomy andaccountability were identified and discussed at length in athree-session policy roundtable organised by CUTS in2005. The following sections provide the recommendationsthat emerged out of the discussions.

Policy vs. RegulationThe objectives and scope of regulation and the powers

of the regulator in the enabling legislation need to be speltout clearly and regulatory agencies should work within theframework spelt out in the legislation. A clear distinctionbetween ‘policy’ and ‘non-policy’ issues should be drawn.Regulators should be involved in the evolution of policy andconsulted before the issuance of policy directives.Government should put the comments received from theregulatory authority and other stakeholders in the publicdomain and provide reasons for issuing the directives.

Interface with the Line-ministryRegulatory agencies should be made autonomous by

legislation so that undue interference by the line ministrycan be avoided. A Parliamentary Committee on Regulationand Competition should be established as the reportingauthority for all regulatory agencies. Their domain should

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be confined to systemic issues only, and not the individualdecisions and orders of regulators.

Selection and AppointmentA committee consisting of eminent people needs to be

constituted to select regulators for various agencies at thecentral and state levels. Proper manpower planning shouldbe done to ensure that selection of a regulator is made inadvance of a position falling vacant, and applicationsshould be invited as against pre-determined selection criteria.Regulators should be given a fixed tenure of five years witha maximum age limit of 60 years for appointment. Theprevailing practice of granting sinecure positions needs tobe discouraged, and experts and young professionals shouldbe encouraged to apply for high positions in these bodies.

RemovalMember of a regulatory agency should be removed only

in case of a proven guilt or inability established in a judicialprobe by a sitting judge of the Supreme Court. The proposedParliamentary Committee on Regulation and Competitionshould initiate such probe, whenever necessary.

Appellate BodiesA common appellate tribunal with regional benches

should be established for a broad set of regulators. Thelaw should provide for appeal against a regulator’s decisionbefore the Common Appellate Tribunal first, and then tothe Supreme Court. The appeal should be made on pointsof law only. The power to deal with disputes should bewith the regulator, not the Appellate Tribunal.

AccountabilityThe proposed Parliamentary Committee on Regulation

& Competition should be the reporting authority.Regulatory agencies should submit an activity and outcomereport to the legislature through this Committee. AConsumer Advocacy Fund should be created to build thecapacity of consumer/civil society groups to raise consumerconcerns more effectively and to act as an externalwatchdog. Political parties and the government should givetheir feedback as stakeholders to the regulator whenever itis sought. They should participate in the open discussions/hearings conducted by the regulator.

Financial AutonomyRegulatory agencies should be allowed to generate

resources on their own through a fee, cess, etc. The financialrequirements proposed by the regulator should be linkedwith their work plan for a certain time period and approvedby the Parliament. Regulators should be given the libertyto hire required staff and appoint consultants in atransparent manner.

These touchstones of ‘regulatory autonomy andaccountability’ will go a long way in enhancing regulatoryefficacy and facilitate economic development.

*“Better Regulatory Framework for Economic Development:How?”, CUTS C-CIER Policy Brief, December 2005, http://

www.cuts-international.org/pdf/Better-Regulatory-framework.pdf

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

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BL: The Hindu Business Line, BS: Business Standard, ET: The Economic Times, FE: The Financial Express,

FT: Financial Times, HT: Hindustan Times, TH: The Hindu, ToI: Times of India

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