Covering developments on policy responses, policy implementation and policy distortions on a quarterly basis. Comments are welcome.

VolumePP 11,oo No. 4 licyWatchlicyWatchOctober-December 2010 Jalan Committee Report Stifling Away Competition he Committee was appointed in February 2010 to deliberate on governance, ,T listing of bourses and other issues. The Committee came out with a report on I N S I D E T H I S I S S U E ‘Review of Ownership and Governance of Telcos Set to ‘Steal’ Market Infrastructure Institutions’ in Subscribers ...... 2 November 2010. The report makes important recommendations pertaining to market entry No Deregulation of Diesel ...4 norms, fund raising and market exit, which are RTI Activists Seek critical determinants of the state of

Transparency ...... 11 competition in this relevant market. www.google.com Failure of Green An intense debate concerning Plan ...... 13 competition amongst stock exchanges has Police to Check Money followed the publication of the report. It has Laundering ...... 16 been alleged that the report is aimed at helping the National Stock Exchange (NSE) retain its for the next five years at Behind Onion least and also at permanently eliminating any competition. During public Price Rise ...... 20 meetings, NSE’s competitiors – the Bombay Stock Exchange (BSE) and the MCX Stock Exchange Ltd (MCX-SX) – has voiced that if the recommendations of the Committee are accepted then they may be starved of funding and become inconsequential. H I G H L I G H TS The first debate on ownership started in 2002 with Kania Committee. Nearly 19 stock exchanges complied with this requirement by reducing the ownership of Focus on Rapid Urban brokers to 49 percent and increasing public ownership to 51 percent. It was natural Transportation to expect Jalan committee to take into account the progress made by – M Ramachnadran ...... 8 recommendations of Kania committee and then suggest the path for taking exchanges to the next level – for making exchanges independent for their resources Disseminating Good Corporate as they get into new realm of expansion and absorption to become Governance Practices globally competitive. However, sadly, the committee has taken the stock exchanges – Neville Dumasia ...... 12 back to the era of a controlled economy as against the spirit of liberalisation and globalisation that has been pursued since 1991. Ill Fares the Land Indian capital markets, which due to lack of competitive environment, have not – Nitin Desai ...... 21 been able to create a new generation of intermediaries in tier two and tier three cities with support system as good as tier one cities. Rotting Grain & Judicial Hopefully, the policy makers will reason and consider the whole issue on the Transgression following two moot points: – Ashok Khemka ...... 22 1. What are the inefficiencies and gaps in the Indian capital market which are required to be bridged to steer the Indian economy to a sustained nine percent growth and meet the capital needs of infrastructure, MSMEs and the at large? “The reformer has enemies in all those who 2. What is the need for capital infusion in stock exchanges, depositories, clearing profit by the old order and only lukewarm corporations, brokerage houses and other ecosystem support agencies so as defenders in all those who would profit by the new.” Machiavelli in The Prince to address the gaps in this market and ensure its growth?

Published by Consumer Unity & Trust Society (CUTS), D-217, Bhaskar Marg, Bani Park, Jaipur 302016, India Phone: 91.141.2282821, Fax: 91.141.2282485 Email: [email protected], : www.cuts-ccier.org Printed by: Jaipur Printers P. Ltd., M.I. , Jaipur 302001, India. I N F R A S T R U C T U R E – N E W S D I G E S T Transparency in Tariff Plan year 2010. Therefore, there is an urgent COMMUNICATION The TRAI will frame new need to facilitate rapid growth of Mother of all Scams guidelines to make cellphone tariffs broadband. (TH, 08.12.10) Indicating that a court-monitored more transparent and help customers probe was required in the 2G Spectrum make informed choices about their USO Seeks Autonomy scam, allegedly involving disgraced mobile plans. The regulator was also The USO administration has told former telecom minister A Raja, the examining if it should impose a cap the Department of Telecom (DoT) that Supreme Court said that the scam is on the upper tariff limit for premium it was in favour of keeping the USO the mother of all scams put together. SMSes to ensure that operators, fund outside the purview of the A Bench comprising justices G S broadcasters and other players do not Communications Ministry and re- Singhvi and A K Ganguly said that fleece customers for this facility. organised as an independent body. It “given the magnitude of amount The guidelines will also aim to has also told DoT that the new body allegedly involved in the scam, it bring operators who issue misleading may be headed by a Secretary ranked might need monitoring of the tariff advertisements to task. The officer and should be given complete probe The case must be regulator’s move to interfere in tariff- financial autonomy. investigated efficiently, diligently and related issues is bound to irk the This is in line with the expeditiously... This scam will put to industry, which largely believes that recommendations made by the TRAI shame all other scams put together.” all tariff-related issues should be in 2009. The regulator had suggested The court reserved its verdict on determined only by market forces. a complete overhaul of the USO fund a plea filed by Subramanian Swamy Justifying the move to launch a to make it more efficient and seeking a direction to the Prime consultation process on telecom Minister for grant of sanction to tariffs, the regulator had received transparent. (BL, 05.10.10) prosecute A Raja. (FE, 25.11.10) ‘several complaints and Clash over Licence Fees representations from consumers and The six private Direct-to-Home Heat on Cold Calls their representatives seeking further (DTH) operators are on course for a The Telecom Regulatory effective transparency measures’. legal showdown with the government Authority of India (TRAI) is all set to (ET, 15.10.10) over the modalities of charging their introduce a new foolproof mechanism annual licence fees. This comes on to bar these irritable calls from January Broadband Network Soon! the back of the decision taken by the 01, 2011. Under the new system, to be The TRAI recommended setting called Customer Call Preference up a ‘National Broadband Network’ Information and (I&B) Registration (CCPR), if a subscriber at a cost of about A60,000 crore to Ministry to challenge a recent order registers for not getting such calls and achieve 16-crore broadband by the Telecom Disputes Settlement if a tele-marketer still tries to call the connections by 2014. and Appellate Tribunal (TDSAT) in number, the call would be barred. Issuing its recommendations on court which had given relief to the Further, a new 70-series number ‘National Broadband Plan’, TRAI said DTH operators by allowing them to would be given to all tele-marketers the project would be financed by pay their annual licence fees based so that commercial calls can be clearly universal obligation (USO) on adjusted gross revenue (AGR) as identified. Also, commercial calls fund and the loan given by the opposed to gross revenue. would be categorised – subscribers government. At present in India, the Currently, all private DTH can either choose not to get any calls penetration of broadband is 0.8 operators have to pay 10 percent of or select certain areas where they percent as against the tele-density of their annual gross revenue to the I&B would like the calls to come. There 60.99 as of September, 2010. Ministry as licence fees. However, the would also be an option whether one The number of broadband TDSAT order also indicates that AGR wants calls or information only via connections is only one crore as will be calculated at the rate of eight messages. (FE, 29.11.10) against a target of two crore by the percent. (FE, 12.11.10) Telcos Set to ‘Steal’ Subscribers ith the roll out of mobile already beefed up their network number portability (MNP) for giving their subscribers a better onW a pilot basis in and quality of service and to churn in a country-wide implementation subscribers once MNP sets off. expected by December 31, MNP allows subscribers to telecom operators are losing no switch operators without changing time in trying to wean away their number in the same telecom subscribers from competition, circle. With 95 percent of the while at the same time, guard market on pre-paid services and their own subscriber base. www.manjul.com the dual-SIM phenomenon, the The game plan is to step up promotions and educate impact of MNP will be restricted to only the post-paid subscribers on the benefits of their services. Telcos have segment of the market. (FE, 13.10.10) 2 October-December 2010 PolicyWatch I N F R A S T R U C T U R E – N E W S D I G E S T

TRANSPORT Airfares Leave Passengers in Dark UMTA for Bengal irlines making airfares public have left travellers lurking in the dark as there is no information on availability of seats in a particular price is all set to have its range.A In order to protect first Unified Metropolitan passengers from an abrupt Authority (UMTA), an agency that hike in airfares and also to will look into the issues of public make ticket pricing transport and fare transparent, the government determination, in the city and in the had asked all to put state. a price band to airfares every

The new authority will look after www.wordpress.com month and publish them in traffic management and transportation newspapers or their system in the Metropolitan , after airfares shot Area as well as in the State as a whole. up drastically, by about 200 Every form of transport that includes percent in a few sectors, buses, taxis, trams, railways, and river, post Diwali. will come under the purview of the However, the fare charts on airlines’ respective websites just give a range proposed authority. of basefares without the number of seats available in each fare category. UMTA will also approve and Hence, they are not consumer friendly as the passenger cannot really know integrate action plans of all relevant what he or she has to shell out for a ticket. Experts do believe that it is a first departments and agencies regarding step towards transparency. (ET, 09.12.10) various traffic and transportation projects and implement the same. The authority will also recommend don’t want to see on the such successful, the common transport effective ways of traffic and transport as a diesel-driven car or SUV. We card, or ‘Common Mobility Card’/ management in the city. (BL, 15.10.10) cannot ask people to buy or not to ‘India Mobility Card’, will be a reality buy a particular car, but through an by 2011. New Regulator for Aviation effective fiscal policy, we can have an These cards will function India will have a more autonomous impact.” essentially as e-purses. This means aviation regulator, the Civil Aviation People who have used SUVs say the money will be on the card – these Authority (CAA), in two years. The they offer ‘higher levels of safety, can be swiped and the value would be aviation sector has seen substantial higher ground clearance, and better automatically deducted. This would growth in recent years, leaving driving’. (ET, 13.11.10) hence obviate the need to buy tickets. Directorate General of Civil Aviation These cards will cover all forms of (DGCA) under pressure, particularly Incentives for Public Transport transport, including buses, trains, in the face of high attrition. Urban Development Minister S metros, ferries, taxis and even auto- Many employees have either Jaipal Reddy spoke against low excise rickshaws. The only sector not retired or joined the better-paying and customs duty for private included is air travel. (FE, 31.10.10) private sector. Limited autonomy has and stressed on the need to provide made it tougher for DGCA to replace more incentives for public transport. Industry See Losses on Toll Cuts them quickly. CAA will be have more He supported ‘disincentives’ for The Ministry’s autonomy. Faster decision-making private transportation. agreement with truckers to bring down will make it better-suited to regulate Talking about sustainable urban the toll for three-axle trucks by A1 per India’s aviation industry. The change transport, he said excise duty should km will lead to a loss of about A350 will be brought in through an Act of be removed for buses to encourage crore annually to the National Parliament. (Livemint, 22.10.10) public transport. Noting that the Highways Authority of India (NHAI). paradox of the urban mobility issue The NHAI’s annual toll earning for ‘Criminal’ Tag on Fuel-guzzlers was that everybody agreed in 2009-10 was in the range of A1,700 Environment Minister Jairam principle but very few implemented it crore from 141 public-funded toll Ramesh said the use of sports utility in practice, Reddy said those who plazas in the country. Urging the All vehicles (SUVs) and BMWs in India drive public policy in India as well as India Motor Transport Congress not was ‘criminal’ and called for changes car owners must learn to travel in to go on strike, the Ministry signed in diesel pricing to discourage people public transport. (PTI, 05.12.10) an agreement with the truckers to from riding fuel-guzzlers. He said create a new category of toll collection India’s SUV market was growing on Plans for Mobility Card for the three-axle trucks. This subsidised diesel, the owners Soon you may be able to travel effectively reduced toll rates for such benefiting from the subsidies intended across the country carrying merely a vehicles by one rupee to A2.40 per km. mainly to help farmers. swipe card that can be used on all NHAI is still working on the details of Ramesh spoke of a need to “put a modes of transport. If plans by the the impact on toll collection. penalty on the type of cars that you Urban Development Ministry are (BS, 06.12.10) October-December 2010 PolicyWatch 3 I N F R A S T R U C T U R E – N E W S D I G E S T that are likely to come up till 2012. Regulatory Board (PNGRB) or those OIL & GAS These include the expansion earlier approved on a cost-plus basis. An Oil Board to be Set Up programme of the Anil Dhirubhai However, the new transportation The industry has Ambani Group’s Samalkot power rate would have to be non- urged the government to set up a project. (TH, 08.11.10) discriminatory, is the idea. The Board national body to protect the interest has proposed amending the PNGRB of all stakeholders – traders, A Lot of Gas (Determination of Pipeline processors and consumers. A central The recurring demands for a Tariff) Regulations, 2008, and has body, which could be called the Oil review of the gas pipeline tariff policy, invited comments from stakeholders Board, on the lines of the where rate for transmission varies in and experts. The issue came up in a Board, the Coffee Board and Tea proportion to the distance that gas is pre-bid conference for pipelines and Board, is needed to bring up trade- carried or telescopic system, and the some bidders had wanted to know if related issues to the government and call to replace it with uniform wheeling they could offer a rate lower than what suggest solutions in consultations rates or postalised system is based was determined by the Board. with industry representatives. on a convoluted logic and needs to (BS, 22.12.10) A central body could negotiate be snipped. with the government on larger issues The demand for a uniform tariff Uniform Pricing for Natural Gas like tariff fixation, import and export fails to take note of the disastrous The Kerala government has urged duties and ways and means for impact of the freight equalisation the Union Government to adopt a increasing domestic production. There policies that deprived the states of uniform pricing policy for natural gas is already a National Oilseeds and Orissa, Bihar and West Bengal the throughout the country. When the Vegetable Oils Development Board, a fruits of their large resource LNG Project comes to a reality in Kochi statutory body, established in March base. by 2012, the Centre should ensure a 1984, with the aim of integrated The current zonal tariffs where uniform price of natural gas. development of oilseeds and the every network is divided into zones The availability of natural gas will vegetable oils industry. (BS, 05.10.10) of 300 km with all customers in the have a tremendous potential in the same zone paying the same tariffs has development of power plant at Gas Allocation Policy Amended the combined advantages of the Cheemeni near Kannur, high speed rail The Group of Ministers (GoM) will telescopic and postalised systems and corridor from Thiruvananthapuram to decide on a change in the can be a forerunner to the use of more Mangalore, industrial corridor from government’s gas allocation policy sophisticated tariff models at a later Kochi to Coimbatore, Titanium and allocate natural gas to power stage. (FE, 08.11.10) sponge factory, Kannur airport and plants that are likely to come up in the overall industrial growth. next two-three years. Till now, the Pipeline Firms to Cut Rates The laying of pipes from Kochi to Centre has maintained that owing to Gas transportation companies Coimbatore, Mangalore and the scarcity of gas, it does not favour such as GAIL and Reliance Gas Bangalore will bring greater benefits reserving gas allocation for plants that Transportation Infrastructure Ltd for Kerala which will be a boon for are still to become operational. (RGTIL) may soon be able to charge a industries as well as residential But now it is ready to review the lower rate than that determined by the consumers. (BL,14.12.10) policy and make allocations to plants Petroleum and Natural Gas India Offers O&G Exploration India offered 34 oil and gas blocks for exploration in the 9th round of New No Deregulation of Diesel Exploration Licensing Policy (NELP). he government would not free diesel prices The blocks offered include 8 deep-sea, Tfrom its control in hurry as the move 7 shallow water and 19 onland, Deora would lead to sharp rise in price of fuel most said. The onland blocks include 8 used in the transport sector. The government, small blocks for which there is a on June 25, 2010 decontrolled petrol price technical qualifying criterion for and said that diesel would move at free price companies to bid. regime shortly. At that time, an ad-hoc M2 a In the 8 rounds of NELP since litre increase in diesel price was affected. 1999, 235 blocks have been awarded Freeing of diesel prices now would mean till date. This has resulted in a further M2.01 a litre increase in rates which enhancement of exploration coverage will have cascading effect on the already high from 11 percent to about 58 percent of rate of inflation. Since June 25, 2010 decision, Indian sedimentary basin between petrol prices have been raised twice ... once 2000 and 2010. The 8th round attracted in September 2010 and second time in TimesofIndia investment commitment of US$1.34bn October 2010 to reflect the rising trend in for 36 blocks that received offers. international crude oil prices. (FE, 18.10.10) (ET, 15.10.10)

4 October-December 2010 PolicyWatch I N F R A S T R U C T U R E – N E W S D I G E S T

POWER Blotches of Red Ministry Pulled Up on NEF espite all talk of reforms and improvements in technical efficiency A Parliamentary Panel has pulled the losses of SEBs continue to mount. Commercial losses made by up the Power Ministry for failing to 20D major SEBs have touched M58,235 crore in 2009-10 compared with get the National Electricity Fund M51,670 crore in 2008-09, an increase of 12.7 percent. (NEF) – a critical funding intervention for projects – operational, Among the biggest losers were the electricity boards of Rajasthan especially when power distribution is (M10,250 crore), Tamil Nadu (M8,555 crore), Andhra Pradesh (M5,639 proving to be a major roadblock for crore), Uttar Pradesh (M5,593 crore), Madhya Pradesh (M5,122) and Haryana realisation of investment targets in the (M5,104). The sole profitable SEB in the list was in West Bengal; the country’s electricity sector. power supplier made a profit of M344 crore. The idea of creating the fund was The states shelled out larger subsidies to cover the huge losses and mooted over two years back to help ensure bare minimum liquidity to power generation companies. This the perennially-bankrupt state pushed up the states’ subsidy bill from M15,915 crore to M20,409 crore electricity boards (SEBs) improve their over the last two years. The highest subsidy was paid by Punjab (M3,144 finances and reduce distribution crore), followed by Haryana (M2,803 crore) and Karnataka (M2,795 crore). losses. The money raised by the fund (FE, 20.10.10) was to be loaned to these boards at low interest rates. of 7,059MW so far in the current fiscal. will have to pay 4 paise more per unit. The panel had made 12 In 2009-10, India added a capacity of Industrial consumers would have to recommendations – including those 9,585MW as against a target of pay 26-33 paise more per unit, regarding the lagging pace in power 14,500MW. commercial consumers would have to capacity addition and uneven Projects are faltering because of pay 24-46 paise more per unit for the utilisation of funds – in its April 2010 reasons as varied as shortage of power power usage. (EI, 03.12.10) report. (BS, 05.12.10) generation equipment, delayed investment decisions, contractual Increasing Renewable Power Steeper Plan Target problems, resistance to land The Ministry of New and “The Centre has targeted capacity acquisition, delays in environmental Renewable Energy (MNRE) aims to addition of 100,000 MW each in the and forest clearances, geological add another 4,700 MW of renewable 12th Plan (2012-17) and 13th Plan (2017- issues and natural calamities. This will power by 2012 to the current capacity 22)”, said the Union Power Minister, aggravate the current 12 percent peak- of 18,000 MW. The additional Sushil Kumar Shinde. hour power shortage. investments expected would be close He said about 65,000 MW was (Livemint, 30.11.10) to A28,800 crore. slated to go online in the 12th Plan. Of this, nearly 50 percent of thermal Bills to Spike in Maharashtra plants would be subcritical while the The power tariff across all categories has gone up in

balance would have supercritical www.energytribune.com technology. Maharashtra. The regulator has In the 13th Plan, the Centre would approved an additional revenue of ensure that only supercritical R1,136 crore for Maharashtra State technology came up as it was about Electricity Distribution Company Ltd two percent more efficient than (MSEDCL), resulting in an overall five subcritical and consumed less , percent increase in tariff across all besides having a lower carbon categories of consumers. footprint. (BL, 09.10.10) The additional charge would be effective from December 01, 2010. In Further, for renewable energy Power Capacity Shortfall September, MERC had allowed a tariff generation, the Central Electricity India will again fall short of its hike of three percent for MSEDCL by Regulatory Commission (CERC) has power capacity addition target on approving R909-crore revenue for notified Renewable Energy Certificate account of equipment supply delays 2010-11. (REC), which seeks to address the and other reasons, exacerbating an Hence, power consumers in mismatch between availability of energy deficit that’s seen as a key various categories would now be renewable sources and the bottleneck in efforts to sustain and required to pay more. MERC, while requirement of obligated entities to boost economic growth. approving the additional charges, said meet their renewable purchase The government had set a target an error had occurred in calculating obligations. The National Load of adding 20,359MW of power the revenue from the various Dispatch Centre is the nodal agency generation capacity this fiscal, but categories of consumers. for implementation of RECs. The REC scaled it down to 18,600MW. The Domestic consumers with market is likely to be operationalised country has commissioned a capacity consumption up to 30 units per month by 2011. (BL, 26.10.10)

October-December 2010 PolicyWatch 5 I N F R A S T R U C T U R E – N E W S D I G E S T

MIXED BAG reduce water consumption and The committee will assess the contain the shortage crisis. investment to be made by the Centre, Agents to Recover Ahluwalia said that by improving the state governments, public sector efficiency in water usage in undertakings (PSUs) and the private Loans with a Smile by 100 percent, water supply as a sector in the 10 physical infrastructure whole could increase to 40 percent. sectors during the 12th Five Year Plan Agriculture consumes about 80 (2012-17). percent of the water resources. The 16-member committee will (BL, 14.11.10) have representatives from , the Pension Fund Regulatory and RBI Head FSDC Committee Development Authority, Finance Minister Pranab Regulatory and Development Mukherjee met financial sector Authority (IRDA) and regulators to thrash out a broad Corporation of India (LIC), among framework of the proposed Financial others. (BS, 19.01.10) Stability and Development Council (FSDC) – a council to deal with inter- Infra Investment to Double TimesofIndia regulatory issues. The council would “Infrastructure investment in the th gents who recover loans, even also be involved in prudential 12 Five-Year Plan would be to the when they are arm-twisting supervision of the economy. tune of around A41 lakh crore”, the defaultersA into paying up, have to do The RBI Governor D. Subbarao Union Finance Minister”, Pranab so with a smile now. The Reserve will head the sub-committee of FSDC. Mukherjee said. He highlighted the of India (RBI) has made it The decision to make the RBI initiatives taken by the Finance mandatory that from January 01, governor head of the sub-committee, Ministry in enabling greater flow of 2011 those who have not completed which will also look at inter-regulatory funds to infrastructure sector and the a certificate course and 100 hours of issues, comes in the wake of the RBI challenges that lay ahead. training in behavioural skills from the expressing apprehensions over The Finance Minister also Indian Institute of Banking and breach of regulators’ autonomy by the highlighted the progress made so far Finance (IIBF) cannot be employed proposed council. (HT, 12.10.10) under ‘Bharat Nirman’, the Flagship by banks and their agencies as loan- Programme of the Central Government recovery agents. Draft Norms on Bank Licences which aims to rapidly upgrade the Recovery agents were hired on The RBI is likely to issue draft quality of rural infrastructure in areas performance-linked compensation guidelines on new bank licensing by such as roads, water, electricity and and their tactics were seldom January 2011. Meanwhile, the Central telecom connectivity. questioned by banks. But in 2009, Bank would put up a gist of feedback He said that more than 30 percent regulators and banks were forced to received from various stakeholders on of the total funds envisaged in th take a relook after a borrower was its discussion paper, according to the infrastructure, during the 11 Plan driven to suicide following RBI Governor, Dr D Subbarao. period, would go directly into harassment by the recovery agent The discussion paper listed a few and upgrading rural infrastructure. appointed by a large private bank. issues such as the initial capital (BL, 27.10.10) required, ways of diluting promoters’ The agents do not have the right stake, whether to allow corporate to harass the customer with constant Promoting Financial Inclusion houses and non-bank finance telephone calls. Moreover, he can Central bank pushes banks to companies and the business model only speak to the person who has provide basic banking services in that should be adopted. A larger villages. The RBI has urged taken the loan and nobody else in number of banks would foster greater commercial banks to open financial the house. (ToI, 30.11.10) competition, and, thereby, reduce inclusion resource centres throughout costs, and improve the quality of the country. These would work as a New Water Policy Soon service apart from promoting financial store-house of all relevant information The Planning Commission Deputy inclusion. (BL, 09.12.10) pertaining to financial inclusion. Chairman, Montek Singh Ahluwalia, The RBI is pushing banks to said that the government is preparing Committee on Infra Finance provide basic banking services in a new Water Policy, which is being Recognising the need for a policy villages with a population of 2,000 and readied by a Group of Ministers to enable flow of resources for above by 2012 and those with a headed by the Agriculture Minister, infrastructure, the Centre constituted population of less than 2,000 over the Sharad Pawar. a 16-member High-Level Committee on next three to five years. The central He also suggested a pricing Financing of Infrastructure, which bank, which has opened such centres mechanism for water, based on would have representatives from in Pune and Chandigarh, was availability in different regions to various financial sectors, under former planning to open two more, one each control the ‘demand side’ and help RBI Deputy Governor . in Kolkata and . (BS, 07.12.10) 6 October-December 2010 PolicyWatch I N F R A S T R U C T U R E – I N F E A T U R E Should Telecom Licences be Cancelled? he report of the CAG t is patently obvious that the licences granted by The documents how the DoT in 2008 by A Raja were neither as per policy immediate MinistryT of norI in line with prevailing economic conditions. All task is to Communications and rules in the were bent to award these licences at recover Information Technology 2001 rates, though Finance Ministry and some DoT the M1.76 gave away spectrum officials advised against it. CVC has ordered an lakh crore worth A1,76,000 crore enquiry and CBI has registered a case. the CAG when, in 2008, it issued talks of. This can be 122 mobile licences in Now, the events have been put in the public domain done only by cancelling barely a day, in brazen by the country’s highest audit body, CAG. Naturally, the licences and disregard of its own the next question that comes to mind is whether these norms, and propriety. licences should now be cancelled. immediately re- While it pursues the auctioning them to guilty, the government The government should cancel the licences of all players who need the can undo the potential those players who have not done anything so far, spectrum damage to the sector by which means not rolled out their services as per the Mahesh Uppal cancelling the impugned licensing agreement. The government is well within Telecom Consultant licences. It must do so its rights to cancel these licences after settling losses without delay. due to no use or inefficient use of the spectrum.

Spectrum, like land, is not an inexhaustible resource. Getting But in case of players who have shown some the spectrum back requires a simple withdrawal of licence to performance in terms of out services, the use it. Given the huge unmet demand for it, spectrum obtained government should charge them the market- by stealth must be repossessed and such blatantly undeserved determined price for the licence and allow them to largesse revoked. In the 85 cases where companies have lied carry on. about their eligibility, cancelling the licences should be a no- brainer. The government is well within its rights to change terms and conditions of the licence GSM spectrum at Cancelling others may be difficult but is no less important since the 2001 rate. Why should they be allowed to pay the the process for getting these licences, as the CAG shows, is old rates and carry on? They must pay the market- seriously tainted. The same applies to the award of dual determined rates to the government. The policy was technology licences, where spectrum worth thousands of crores twisted to benefit them and is getting rewritten with of rupees was handed out without a competitive process. some hollow argument of a quicker rollout in an era of infrastructure sharing. Public interest arguments against cancelling the licences are quite weak. The benefits of the low price of spectrum did not If the government adopts the above measures, it go to consumers, as Raja had claimed. They went to the should be able to companies who promptly sold it at market prices. Some recover the Licences consumers will inevitably be impacted if licences are cancelled. money lost while should be The TRAI must devise a scheme to help these consumers move awarding these to operators of their choice without additional expense. This is licences. And cancelled straightforward as well as cheaper to do. the serious of those players in the who never A move to cancel licences will admittedly involve some business – who rolled out collateral damage. At least some companies whose licences did not enter the their get cancelled will contest the decision in court and possibly sector for quick networks. Allow others win. They may be due for some compensation from the gains – should to function after they government or, in rare cases, be allowed to retain their licences. not have any pay a penalty that takes But this is unlikely to dent the billions expected from reallocating issues with care of the under- the recovered spectrum. If this happens, the government could paying more in pricing thank Raja, since it was the shortage of 2G that resulted from this ever- BK Syngal his arbitrary decisions that brought it the windfall from 3G growing Indian Former CMD, VSNL . market.

Abridged from an article that appeared in The Financial Express, on November 19, 2010.

October-December 2010 PolicyWatch 7 I N F R A T A L K Focus on Rapid Urban Transportation – M Ramachnadran*

The public transport system is an efficient user of space and energy. It is generally accepted that a city with a population of one to two million should have a 50-60 percent share of public transport and for cities with higher population, this will need to go up to 70-80 percent. Not only are we www.imageshack.us at these levels in most of our cities, but the modal split in favour of public transport is declining

f cities are the engines of growth, it is the transport While, on the one hand, public transport in general will network which keeps these engines working efficiently. have to be prioritised for support and action, rail-based ThisI is particularly relevant for poorer sections of the mass transit systems also will have to be prioritised for the society, as studies show that around 20-30 percent of their same, the latter will also have to be thought of and planned family incomes require to be spent on transport for most as such systems are less congesting and can be very of such families. important for those who are peripherally located and have long journeys to access employment. As cities grow and become richer, ownership and use also grow more rapidly than the road space available, Other than Kolkata Metro and now Delhi Metro, Bangalore, resulting in increased congestion, air and Chennai and Mumbai are in the process of adding metros, considerable loss of time spent commuting. with Hyderabad and Jaipur also planning it. Ten cities are to have Bus Rapid Transit System (BRTS). Thus, other A city like Delhi adds something like 1,200 new vehicles than seven of the total 35 cities that have a million-plus everyday whereas Mumbai, Kolkata and Chennai add close population, no city has a definite plan to have a spread- to 1,000 vehicles each day. As per a forecast, energy out modern mass transit system. demand in the transport sector will grow at 5-8 percent per annum and the two-wheeler population, which was at 46.1 If we need a good example of how a city has effectively million in the country in 2008, is to go up to 87.7 million in and successfully addressed its city transport problems, 2015. despite constraints, Singapore would be a good case study. Its transport system is recognised as one of the best in the The number of cars and SUVs will go up from 8.8 million to world. Singapore of the 1960s had road length totalling 18 million during the same period. As with prosperity and only 1,000 km, but since its population has more than development, capacity to afford vehicles goes up, we have doubled and the vehicle population almost quadrupled, to ensure that the role of public transport also has to keep its transport system today has a network of more than improving. 3,000 km, 12 percent of its land is taken up by roads and the number of daily motorised trips has gone up from a The fact that the importance of organised, affordable city mere 2.7 million in 1981 to 11 million today. Motorists in transport is not accepted and recognised across the Singapore enjoy one of the highest urban traffic speeds of country becomes clear from the fact that only 20 out of a 25 kmph. total of 87 cities studied, with a 50,000 or more population, have a formal public transport system in the form of a city Besides restraining vehicle ownership and usage, bus service. Singapore has invested heavily in infrastructure development for both public and private transport. The The National Urban Transport Policy announced in 2006 noteworthy feature of Singapore’s system is that in a period suggests a clear roadmap for improving urban transport. of four decades, it could move from little or no systematic But neither the states nor the cities, basically due to lack transport planning to problem-driven transport planning of clarity as to who has the assigned mandate for city to vision-driven transport planning, achieving an effective transport, have taken the required steps to convert this land transport system that is integrated, efficient and cost policy into action. effective.

* Former Secretary, Urban Development, . The article appeared in The Economic Times, on November 13, 2010.

8 October-December 2010 PolicyWatch T R A D E & E C O N O M I C S – N E W S D I G E S T Hawkers Have Right to Trade FDI inflows in the first four failed to throw up a solution on Observing that hawkers have a months of this fiscal (April-July 2010) implementing the new tax regime. fundamental right to carry on their were US$7.6bn, down 27.9 percent GST is India’s most ambitious business, the Supreme Court has from US$10.53bn in the same period indirect tax reform, seeking to create a asked the Delhi government to enact of 2009-10. The country has got a common national market by bringing a law to regulate their trade keeping in cumulative FDI of US$123.3bn from down fiscal barriers between states. mind also the right of commuters to April 2000 till July 2010, of which The constitution’s current provision move freely and use the roads without US$101bn have come since 2006-07. on the demarcation of the taxation any impediment. (BL, 05.10.10) powers of the Centre and states has A Bench of Justice G. S. Singhvi to be amended to implement GST, and Justice A. K. Ganguly disposing Haryana’s Industrial Policy which needs a wide-ranging of a batch of appeals filed by hawkers The draft of new Industrial Policy consensus among political parties. said “before June 30, 2011, the of Haryana is ready and likely to be The Centre had asked states to appropriate government is to enact a announced very soon. The new policy come out with an alternative to their law on the basis of the Bill mentioned would provide for special facilities to proposal after many states feared the {by the authorities} or on the basis of entrepreneurs who set up their units loss of fiscal autonomy. any amendment thereof so that the at industrially backward areas in the (Livemint, 07.12.10) hawkers may precisely know the state. contours of their rights”. It would lay focus on inclusive India-EU Trade Next Spring The Bench was of the view that development for which new industrial India will open its trade in the fundamental right of the hawkers, estates and industrial clusters would and services with Malaysia, Japan and just because “they are poor and be set up at all districts to promote the European Union in the first half of unorganised, cannot be left in a state industrially backward belts. The new 2011. India has already signed a of limbo nor can it left to be decided policy would not only acknowledge framework agreement for the by the varying standards of a scheme the role of small and medium enterprise Comprehensive Economic Cooperation which changes from time to time under (SMEs) in state’s industrial Agreement with Malaysia and orders of this court”. (TH, 20.10.10) production but there will be a separate concluded negotiations for a similar chapter for SME sector in the new pact with Japan FDI in Multi-brand industrial policy. It has been drawn in With the EU, which has a bilateral Foreign direct investment (FDI) in consultation with the Asian trade of US$76bn with India, multi-brand retailing is set to become Development Bank. (FE, 22.12.10) differences had cropped up on the a reality, with a 26 percent cap. With level of opening of the market, dairy influential wings of the government GST Make Little Headway farming, issues pertaining to child including the PMO, Finance Ministry, Negotiations among states, and labour and environment. India had Agriculture Ministry and the Planning between the Centre and the states on entered into comprehensive market Commission lending support for the the proposed goods and service tax opening pacts with Singapore, South crucial piece of economic reform, (GST) were stuck after a meeting of Korea and Association of Southeast political backing was bound to come. state finance ministers in New Delhi Asian Nations. (TH, 24.12.10) FDI in retail could transform the way agriculture produce is procured, stored, conserved and marketed in the GDP Tops Expectations country. Significant allies in the UPA he Indian economy expanded by more than expected in the September like the Trinamool Congress and Tquarter. The gross domestic product (GDP) rose 8.9 percent year- outside supporters BSP and SP had over-year during the July-September 2010. The GDP growth was bigger resisted FDI in retail trade, which was than the consensus forecast of 8.2 percent, but matched the previous earlier proposed at 51 percent. quarter’s growth, which was upwardly revised from 8.8 percent. However, even they are being pacified output by the consensus formula of limiting grew 9.8 percent in the the FDI in the sector initially at 26 September quarter, but down percent. (FE, 18.11.10) from the 13 percent expansion seen in the first FDI Inflows to Surpass 2009 quarter. Meanwhile, farm The FDI into the country in 2010- output increased 4.4 percent

11 is likely to surpass the inflows seen after increasing by 2.5 www.rttnews.com in 2009. India had received FDI (equity percent in the previous capital components only) worth quarter. During April- US$25.9bn in 2009-10, around 5.28 September 2010, the percent lower than US$27.3bn in 2008- economy grew by 8.9 09 – the fall mainly attributed to the percent compared to 7.5 percent in the same period of 2009. aftermath of the global financial crisis. (www.rttnews.com, 30.11.10) October-December 2010 PolicyWatch 9 T R A D E & E C O N O M I C S – I N F E A T U R E Decline and Fall of Indian – Surjit S Bhalla*

The level of poverty indicated by the 2007-08 survey is 14 and 27 percent, There is a lot old and new lines respectively. To put these numbers in perspective, the to cheer about Millennium Development Goals target the pattern of of 15 percent poor was to be reached by India in 2015. This suggests that growth and the target was reached about a decade earlier. poverty It needs to be emphasised that these

www.blogspot.com alleviation poverty figures are as the raw figures indicate, i.e. no adjustments have been made to the survey data. Indian NSS data are notorious for only n this winter of gloom, doom and corruption, the government can obtain capturing half of the per capita some warmth from data collected by its statistical agencies. Alas, these consumption that prevails in the agenciesI have yet to hire some basic data processing capabilities from minor country according to national computer firms, let alone agencies like Infosys. Perhaps Nandan Nilekani can accounts data. If adjustments are loan some programmers from the Unique Identification (UID) project. So what’s made, poverty will be considerably the issue, and what’s the evidence? lower than even these low figures.

If ever my column title “No Proof Required” is applicable it is to the sorry and Two conclusions follow. First, it is sad state of affairs regarding discussion of poverty in India. Anything goes very likely that by the old definition and went – especially since the economic reforms were introduced in 1991. The of the poverty line, poverty in India is poverty industry got a major boost to its market capitalisation by the reforms in single digits. Equally true that we as economists, particularly of the left variety, vied for space and attention. should proceed towards substantially Reforms could not possibly help the poor – they only made the rich richer and raising the poverty line, and do so in the poor poorer. We have all heard it before, ad nauseam. an objective rather than the convoluted manner of the Tendulkar In India, the respected but painfully slow National Sample Survey Organisation report. (NSSO) collects data on households and in June 2010 completed the large sample survey for the period July 2009-June 2010. While there are still some My calculations are that the poverty economists, and policy makers, who think that India is overheating with a 8.5- line in India should be raised to about 9 percent GDP growth, the fact remains that for the last eight years, and including 30 percent higher than the old poverty the crisis year of 2008-09, Indian GDP growth has averaged above 8 percent! So line i.e. the urban poverty line in 2010 what has happened to poverty alleviation over this period? should be A1000 per capita per month and the rural poverty line should be Some evidence is available from the NSS survey from July 2007 to June 2008. It A650 per capita per month. This will was a “small sample survey” with 50,000 households rather than the regular yield the result that approximately 30 120,000 households, but still large enough for calculations of poverty. Results percent of the population is poor in are presented for two poverty lines – the official Planning Commission and the India. new 20 percent higher Tendulkar line. Still a large segment of the population The results underline the dramatic improvement in poverty alleviation during and a reduction to zero that Indian the recent high growth period. Regardless of the poverty line used, or the policy should target – but without the region, poverty has declined at about three times the earlier pace. For the old chest beating and the accompanying official poverty line, the head count ratio of poverty declined by 0.9 percent a legislation of morality that UPA seems year for the 22-year growth period of 1983 to 2004-05; in the subsequent three to be so fond of. years the rate of decline accelerated to 2.6 percentage points (ppt) per annum. For the higher Tendulkar poverty line, the rate of decline accelerated from 1 ppt a year to 3.3 ppt a year.

* Managing Director, Oxus Research and Investments, New Delhi. Abridged from an article that appeared in The Financial Express, on December 18, 2010. The details are available in Inclusive Growth in India: Myths and Evidence, LSE India Observatory Project on Growth and Inclusion in India, forthcoming, www.oxusinvestments.com

10 October-December 2010 PolicyWatch R E P O R T D E S K – N E W S D I G E S T New Jobs in India Q4 Then there were the Commonwealth others such as China and many Six sectors, including healthcare Games scam, the Uttar Pradesh food South-east Asian nations on income and realty, are expected to create a scam, and a host of others. All these indicators. The latest Human whopping 2.3 lakh jobs in India in the have preoccupied Indians like never Development Report has also tried to last three months of 2010, according before. look deeper into the indicators to to global consultancy Ernst & Young. The survey, carried out by establish various inequalities. These Boosted by strong domestic opinion research consultancy inequalities arise due to disparity in economic recovery and improved Globescan, for BBC World Service, distribution of incomes, gender global sentiment, most local industries revealed that corruption was inequality and mutli-dimensional are expected to increase their considered the most serious problem poverty. (ET, 05.11.10) headcount in the coming months, in 21 out of 26 countries surveyed. E&Y said. Over 68 percent of people mention Dare to Dream High! The alone is corruption as one of the most serious Indians are most optimistic projected to generate 60,000 jobs in problems facing the world. globally about their job prospects for fourth quarter of 2010. Real estate and (ToI, 11.12.10) the next one year, although their IT/ITes sector, each are expected to confidence and spending has not create 50,000 jobs. & India Ranks Low on HDI increased in third quarter of 2010. As training industry is projected to Rapid economic growth of the per the Nielsen Global Consumer generate 30,000 jobs. Manufacturing past decade has ensured India a place Confidence survey, more than nine and BFSI sectors would each be among the top 10 movers on GDP out of ten Indians (91 percent) are churning out 20,000 jobs in the 2010 growth, but the country ranks a low optimistic about their job prospects fourth quarter, E&Y said. 119 among 169 countries on the 2010 in the next 12 months. (ToI, 31.10.10) Human Development Index. China has The report, however, said after a been ranked much higher at 89 on the steady increase in the first two IMF Pegs India’s Growth index published annually by the quarters of this calendar on a year- The International Monetary Fund United Nations Development (IMF) projected that the Indian on-year basis, degree of optimism of economy will grow by 9.7 percent in Programme. Indians on the state of the economy 2010 and 8.4 percent in 2011, driven Yet India is a laggard, as many has not grown, although the same for by robust industrial production and others have moved faster on the their global peers saw a dip. As per macro-economic performance. measured indicators, some more the findings India’s index stood at 129 However, neighbouring China is rapidly on non-income ones while as compared to global index of 90. expected to grow at an even faster (EI, 01.11.10) rate of 10.5 percent in 2010 and 9.6 percent in 2011, driven by domestic demand. Advanced economies, on RTI Activists Seek Transparency the other hand, are projected to grow ive years after Right to Information (RTI) Act came into existence, by just 2.7 percent in 2010 and 2.2 information commissioners feel that there should be more transparency percent in 2011. inF their appointments. A survey conducted by Parivartan, an NGO, among The IMF report added that global Central and state information trade is forecast to expand by 4.8 commissioners, the final percent in 2010 and 4.2 percent in appellate authorities for RTI 2011, with a temporary slowdown Act grievances and complaints, during second half of 2010 and first has found that 66 percent of www.qbtpl.net half of 2011. (ET, 07.10.10) commissioners surveyed want a transparent selection process. Corruption on Top in India The survey found that A recent survey of people in 26 information commissioners countries showed that the most had reservations about the talked-about topic in 2010 among current appointment process. Indians was corruption. About a third The survey reveals that of of Indians reportedly talked about 44 information commissioners corruption with friends, co-workers who participated in the survey, and family. 29 favoured an open and This year has seen the exposure transparent process requiring of sleaze at an unheard of scale in the proper application procedure. country, gathering all manner of the Of the 29 Information high and mighty in its sweep. Topping Commissioners, 26 felt that such a transparent process can be followed the charts is the gigantic 2G spectrum under the present RTI Act but remaining three felt that the Act would have scam with its chaotic political fallout. to be amended. (ET, 15.10.10) October-December 2010 PolicyWatch 11 C O R P O R A T E G O V E R N A N C E – S P E C I A L A R T I C L E Disseminating Good Corporate Governance Practices – Neville Dumasia* ost-Satyam, much of the debate of disclosures that listed companies around corporate governance make. Then there is also the issue of hasP centered around independent whether the disclosures are made in directors and auditors. Corporate simple English for the average governance practices evolve as investor to comprehend. countries, economies and companies become more mature. The business case The other question worth It is important to consider corporate contemplating is whether adoption governance as a by-product of the of these guidelines will make the overall governance ecosystem and, companies better in terms of therefore, look at improvements in the performance and positively boost context of the entire governance value stakeholder perception. If this has to chain – promoters, executives/ happen, the ability of a company management, regulators/ Regulations are at best a board to make a good promoter or policymakers, institutions, investors, good starting point, thereafter CEO even better is critical. non-executive directors and auditors. it is up to every company to decide the structure of If the expectation is that independent Around the world, there has been a governance that will best directors add strategic value beyond spate of new regulations to serve its objectives compliance, they would have to strengthen corporate governance. spend more time interacting with India too is seeing frenetic activity on the regulatory front management to understand the – the Companies Bill and the Voluntary Guidelines released business, undertake site visits, immerse themselves in by the Ministry of Corporate Affairs (MCA) being key strategy sessions, have executive sessions and shape the regulatory developments to strengthen corporate board agendas and discussions. governance. Are they prepared to do all of this? If yes, then five things Through the Voluntary Guidelines, the MCA is also need to be in place — clarity around roles, higher experimenting whether corporate India is mature enough compensation, better informed directors, the powers to to transition to a ‘Comply or Explain’ model. The Minister seek independent advice and fewer directorships. of Corporate Affairs has gone on record that the voluntary nature of these guidelines is a vote of confidence from the It is important for companies to align their strategic priorities policymakers that corporate India is capable of voluntarily to skills required in the boardroom and, accordingly, seek adopting good corporate governance without the need candidates for non-executive positions on the board. More for having them enshrined in regulations. But there are importantly, it is also important to re-look at the some very real and practical challenges in adopting these composition of the board and work with the members to guidelines and the time is ripe for some objective enhance their skill and awareness of the organisation and introspection. the complexity in which it operates.

Voluntary adoption An art, not science There is scepticism that a principle-based approach to When it comes to corporate governance, regulations are corporate governance will work in India. This view stems at best a good starting point, thereafter it is up to every from the lack of any precedence for successful company to decide the structure of governance that will implementation of principle-based regulations in India. For best serve its objectives in terms of sustainable growth a country that until two decades ago was used to and value creation. Due to these very reasons, corporate conducting business within severe constraints imposed governance is an art, not a science and hence cannot be by the licence raj, it takes time to comply voluntarily. implemented with a box-ticking mindset.

On the issue of ‘Comply or Explain’, the bigger question is It is important for companies to attempt implementing these whether companies will make disclosures on how they are guidelines or undertake a robust impact assessment, implementing the guidelines. Further, the capital markets highlight unworkable guidelines and participate in shaping today lack the maturity to monitor the adequacy and quality the country’s regulatory landscape.

* Head of Governance, Risk and Compliance, KPMG. Abridged from an article that appeared in The Hindu Business Line, on October 14, 2010.

12 October-December 2010 PolicyWatch C O R P O R A T E G O V E R N A N C E – N E W S D I G E S T CAG REPORTS Failure of Green India Plan Corruption Exposed in Assam airam Ramesh’s green activism may have The CAG found serious made him a darling of the environment www.wordpress.com discrepancy in the budget of the JNGOs, but the CAG has put a spoke in the Assam government, which was wheel by asserting these NGOs are not pumping in more money than what utilising government funds properly. The CAG was proposed in the budget for the has pulled up the Environment Ministry’s plan North Cachar Hills Autonomous for greening India and preserving of Council. The excess fund sent to the biologically sensitive regions. autonomous district council was The CAG report shows the Ministry has neither re-appropriated nor cost the government about A500 crore by not supplemented by the government following up with hundreds of non- through supplementary demand. governmental organisations to whom it had The CAG said that there was no given funds for projects like afforestation. The NGOs apparently took the evidence whether any supplementary first installments but did not return to show what they had achieved with grant was provided or any re- the money and the Ministry officials, too, did not ask them. (FE, 25.11.10) appropriation was made on excess expenditure. suffering losses due to the burden of Prior to this, the watchdog had (www.assamnewsonline.com, 04.12.10) paying higher salaries to teachers after also asked the Department to explain the Sixth . why it overlooked several licence CAG Indicts Raja for Arbitrariness The auditor has alleged that conditions when awarding pan-India Former telecom minister A Raja around 25 ‘elite’ schools in Delhi were mobile permits to realty firm Unitech, went ahead arbitrarily with the 2G making the parents suffer the burden which in turn ceded majority control spectrum allotment in 2008, ignoring of the additional costs of hiking the to Norway’s Telenor. (ET, 11.10.10) the advice of Prime Minister salaries of teachers without bothering among others and to utilise the cash reserve that they Reduce Corporate Taxes causing a ‘presumed loss of A1.76 lakh had accumulated by not implementing In its latest recommendation to the crore’ to the exchequer, the CAG said. the staff salaries as prescribed by the government, the CAG suggested that The presumptive loss caused to government. India should come up with an alternative the government through spectrum (www.indiaedunews.net, 07.12.10) lower corporate tax rate so as to prevent allocation to 122 licencees and 35 dual several non-resident firms from technology licences in 2007-08 was DoT Slammed misusing the Double Taxation A1,76,645 crore. The figures were The DoT’s attempts to stonewall Avoidance Agreements (DTAAs) on arrived on the basis of 3G held queries from the Comptroller & account of higher levies in India. earlier in 2010 in which the government Auditor General of India (CAG), using CAG stated that in several countries collected over A67,000 crore. an opinion from the Law Ministry that with which India has signed the DDTA, (BS, 16.11.10) policy decisions cannot be second- tax rates range from 20-30 percent of guessed by auditors, has failed to net business income, where as in India Top Schools Condemned deter the national auditor. TDS ranges between 10-20 percent on A report by the CAG regarding The CAG has now sought an gross receipts, which turns out to be private schools in Delhi has revealed explanation from the DoT for giving a much higher than taxes in other that they had been using the Sixth Pay pan-India mobile permit to the Essar countries. It also urged the government Commission as an alibi to make more Group-owned Loop Telecom, which it to introduce and implement such a rate money. Several private schools said did not fulfill ‘the eligibility criteria along with the direct tax reforms from complained that they had been for obtaining the permit’. April 2012. (www.taxworry.com, 13.12.10)

E-GOVERNANCE UP Facing Power Hurdles E-auction for Govt Purchases Uttar Pradesh, which is gearing up to launch e-governance The government is planning to adopt electronic from January 2011 is facing challenges in the form of seamless auctions for all non-strategic procurements, abandoning connectivity hurdles and inadequate power supply on its the existing tendering system. The move is aimed at path. Although UP is one of the most promising states in improving transparency and eliminating inefficiencies. North India on the e-governance front, connectivity and All ministries and public sector undertakings will have power are proving to be the biggest impediments in its path. to compulsorily follow the e-auction system. Meanwhile, the Centre has asked public sector Bharat E-auctions leave no scope for favouritism, checking Sanchar Nigam Limited to provide broadband connectivity the possibility of corrupt practices. The move also to the Common Service Centres (CSC) being set up all over promises huge savings for the government as e- the country. In UP, CSCs are known as Jan Suvidha Kendra. auctions cut out several layers of inefficiencies in the (BS, 03.11.10) tendering system. (FE, 02.12.10) October-December 2010 PolicyWatch 13 G O V E R N A N C E & R E F O R M S – N E W S D I G E S T National Employment Policy Super Regulator Proposed Lokpal to Curb Corruption With an eye on projected 2.5 The government has proposed a After several abortive attempts, percent annual growth in the job super-regulator that will oversee the government is once again working on sector, the government is in the working of all tribunals, regulatory a law for establishment of the process of giving final touches to a bodies and authorities, as it seeks to institution of Lokpal to go into national policy to accelerate put in place an institutional allegations of corruption against employment growth. The draft of the arrangement to ensure greater public functionaries, including the proposed National Employment Policy transparency and accountability of Prime Minister. is likely to be placed before the quasi-judicial bodies. The draft Lokpal Bill, 2010 Cabinet soon for its approval. The The proposal is expected to provides for filing of complaints of draft policy also favours an urban job generate intense debate, as it comes allegations of corruption against Prime guarantee scheme on the lines of soon after a hotly-debated decision Minister, ministers and MPs with the National Rural Employment Guarantee by the finance ministry to create a Lokpal. According to the Bill, the Act (NREGA). body for regulator coordination. The Lokpal shall consist of a Chairperson It also aims at improving the proposal faced resistance from who is or has been a Chief Justice or a quality of jobs in terms of productivity, financial sector regulators, which felt judge of the Supreme Court. It will also average earnings and protection of their regulatory autonomy would be have two members who have either workers especially in the unorganised undermined by the proposed body. been the judges of the Supreme Court sector. The policy has emphasised on As many as 62 tribunals and or the chief justices of high courts. inclusion of youth, women and regulatory bodies in areas such as (www.dnaindia.com, 08.12.10) vulnerable groups with their specific telecom, taxes, insurance, railways, needs of training and skill highways, human rights and the press Scarcity of Food Grain development. (PTI, 01.11.10) council are proposed to be monitored Archaic rules continued to hinder by the division. (ET, 04.11.10) effective food management despite Bihar Scraps MLA Fund the country sitting on record grain In yet another move aimed at Manufacturers in Question? stocks, but the government seems to nipping administrative corruption in The government is framing a new be in no hurry to make changes. The the bud, Bihar’s newly-formed law to amplify consumer rights. The problems with food management National Democratic Alliance idea is to empower consumers to sue manifested in the last 18 months in government announced its decision manufacturers and service providers the form of 20 percent-plus food to do away with the MLA Local Area who dupe them by concealing inflation, that too at a time when huge Development (LAD) fund. information in a manner that their amount of grain was rotting in With this, Bihar becomes the first purchase decisions are wrongly government . State in the country to do away with influenced. Under the proposed law, The disbursement of grain to LAD funds for its legislators. Laying the firms will also be prosecuted for states through the public distribution bare a road map for the State’s not issuing receipts of purchases to system in a particular year is based development over the next five years, consumers. on the average offtake for the the Nitish Kumar-led NDA Cabinet The government will create a preceding three years. This rigid outlined 22 new resolutions which will ‘simple, inexpensive and quicker formula denies the government aid in transforming Bihar into a justice delivery system,’ where the flexibility to quickly release grain to developed State by 2015. consumer can haul up any company tide over crisis situations. The LAD fund money, earlier – large or small – in a new court called The government is currently routed through the Rural Works ‘National Consumer Protection Court trying to raise gain storage capacity Department, will now be channelled via Authority.’ The new judicial system by roping in the private sector. But the State’s Planning and Development will work on the lines of the US Federal the question of efficient management Department. (TH, 15.12.10) Trade Commission. (FE, 18.10.10) remains. (ET, 12.10.10)

All Ministries Stay, Will Rejig Work Hindustan Times he government has rejected the Administrative Reforms Commission (ARC) suggestion to reduce the number of ministries at the Centre. However, it has agreed to reorganise workT within the ministries and reduce the number of levels in the bureaucracy. An empowered group of ministers, headed by Finance Minister , has turned down the ARC recommendation to end the proliferation of ministries and departments since independence. ARC had also suggested opting for no more than 25 ministries headed by Cabinet Ministers and assisted by other ministers. However, the empowered group accepted the recommendation for a mandatory scheme of delegation in each ministry. The core group on Administrative Reforms has agreed to implement instructions that files should not pass through more than three levels. (HT, 03.10.10)

14 October-December 2010 PolicyWatch G O V E R N A N C E & R E F O R M S – I N F E A T U R E Remedy for Corruption – Shubhashis Gangopadhyay*

he veil over the 2G spectrum scam seems to be slowly lifting. As it reveals its ugly face, the country becomes moreT and more involved in speculating on the name of the next character that will take centre stage in this sordid drama. We are also being treated to some excellent side-shows involving land scams in Maharashtra and the scams in Karnataka. All of this has come to light after the corruption episodes that hogged newspaper coverage during, and after, the Commonwealth Games. And new corruption dramas will be enacted with a completely new

set of actors. www.blogspot.co

No country has been able to completely get rid of corruption. What is remarkable in India is how widespread and systematic it is. It is difficult to think of any one sphere of our lives where we can say that we will not face any corrupt activity. The question to ask is why corruption is so rampant here. And, the reason is a simple one – we Policy decisions do not believe in professionalism; instead, we depend on “fixers” to get the job done. should be undertaken after they have been Take for example the 2G scam. To begin with, the minister was not exactly a natural choice for this important ministry. The main fixer was not somebody who can in thrashed out in public any way be described as a public or social policy strategist, or even someone space by who could be remotely described as a technologist of some repute. Many of the companies that obtained licences at throwaway prices had no proven expertise in professionals, not by this field and they promptly sold a part (or all) of their holdings at obscene civil servants and premiums to other players even before any market was developed by them. politicians Take the issue of land. Both in acquisition and distribution, all decisions are taken by politicians and their relevant ministries. The expertise on, say, urban planning or on land auctions comes from politicians themselves or, from civil servants. This is not to say that they should not be involved, but clearly they should demonstrate expertise on these specific issues before being asked to take decisions on them. Instead, lands are acquired, they are parcelled out among the loyal and faithful and then grandiose development plans are worked out. So, those who got cheap allocations become rich overnight because of their proximity to decision makers.

If India has to develop into a knowledge-based economy, if India has to modernise, if India has to urbanise, if India has to build infrastructure, we have to become more professional-oriented. Remember, our economy reformed in the nineties under a finance minister extremely well-trained in economics leading a team of other extremely well-trained economists in major official positions. The reforms of the nineties were not orchestrated by fixers and that has put us on the growth path we are now experiencing. Professionals get their reputation from a job well done, not from the amount of money they have made, or allowed others to make, by networking in the corridors of power.

India will not be a leader among developing countries if people become experts by sitting on committees; they should be sitting on committees because they are experts. Public policy decisions should be undertaken after they have been * Research Director, India thrashed out in the public space by professionals. They cannot be left to be Development Foundation. drawn up in closed-door meetings of civil servants and politicians. Otherwise, Abridged from an article that fixers will continue to have a field-day and India will continue to be at the top of appeared in The Business Standard, on November the list of corrupt countries. 27, 2010.

October-December 2010 PolicyWatch 15 P A R L I A M E N T A R Y R O U N D U P – N E W S D I G E S T Friendly Companies Bill to, say, five years. The Bill may have the 12 ports from trusteeships into Amid the ongoing controversy provisions relating to corporate social corporate entities. over 2G spectrum scam and lobbying, responsibility (CSR). (BS, 18.12.10) The new Act, if it goes through, Corporate Affairs Minister Salman will replace the Indian Ports Act 1908 Khurshid said the government would Judicial Accountability and the Major Ports Trusts Act 1963. introduce a corporate- and people- A Bill seeking to strengthen the The proposed Bill is intended to meet friendly companies Bill in the Budget institution of judiciary of the country the current operational and session. by making it more accountable and, developmental requirements of the The Bill sets a cap on the number thereby, increasing the confidence of Indian ports sector. (Livemint, 20.10.10) of directorships an individual can the public in the institution was hold, as well as prevents a subsidiary introduced in the Lok Sabha by the Uniformity in Healthcare (of a company) to have another arm. Union Law Minister, Veerappa Moily. The Clinical Establishments Bill, The Parliamentary Standing The Judicial Standards and 2010 passed in the Lok Sabha making Committee had recommended that a Accountability Bill 2010, introduced it mandatory for all clinical provision be made in the Bill for by the Law Minister amid melee over establishments in the country to rotation of independent directors by the Opposition’s call for a Joint register as per the provisions of the restricting their tenure in a company Parliamentary Committee (JPC) on the new statute. The Bill, which has been 2G spectrum issue that has stalled pending for several years, aims to bring proceedings for several days, seeks in uniformity in the healthcare delivery Police to Check to repeal the Judges (Inquiry) Act, and prescribes penalty for the Money Laundering 1968. defaulting establishments. Previously, there was no legal The legislation is now applicable he Prevention of Money mechanism for dealing with to clinical establishments under all TLaundering Act (PMLA) complaints against judges, who are recognised systems of medicines or amendment will lead to coordinated governed by ‘Restatement of Values treatment under Allopathy and investigation by agencies. In a recent of Judicial Life,’ adopted by the Ayush. It would apply to all the change of law, the police of every judiciary as a code of conduct without or clinics including single state have been empowered to any statutory sanction. (TH, 02.12.10) doctor establishments, with or without question anyone on suspicion of beds. money laundering or having income Amendments to Seeds Bill The Act includes any laboratory, that is illegal or disproportionate to The government approved which offers pathological, his income sources. additional amendments to the Seeds bacteriological, genetic, radiological, This is after the amendment to Bill, 2004 that includes raising chemical, biological and other the PMLA, 2002. Section 66 of PMLA penalties for offences like sale of diagnostic or investigative services. empowers local police, who will spurious seeds. The additional (raviverma24.blogspot.com, 05.11.10) then have to report to the Financial amendments provided for submission Intelligence Unit, the Central of seed related periodic returns to Introduction of Mining Bill Government agency responsible for state governments and enhancement The Union Government approved monitoring possible money in penalties of offences. the introduction of a Bill in the laundering transactions. In March 2010, the Cabinet had Parliament to amend the Mines Act, approved the Seeds Bill, 2004 that 1952 . The Bill proposes to amend the seeks to regulate the quality of hybrid law relating to regulation of condition seeds and check the sale of spurious of work and welfare of persons seeds in the country, besides employed in the mining sector. The Act increasing private participation in was last amended in 1983. seed production and distribution. The Bill proposes that that every The Bill seeks to repeal and person who contracts for the services replace existing Seeds Act, 1966, for or operations in a mine, and includes a it does not deal with the quality contractor and sub-contractor, shall be control of GM seeds, as they are considered the ‘owner.’ Considering the generally not notified. (BS, 20.10.10) risk factors involved in mining, the bill

Business Standard enhanced penalties by about 100 times, Ports Get Rights to Set Rates so that the offender is not let off with a The legal change is part of the The 12 ports owned by the Union token penalty, as is mostly the case. effort for the Government of India Government may win back the The Mining Bill has generated to become part of the Financial freedom to set their own rates if a intense media debate over its 26 Action Task Force, an inter- proposed new law on India’s ports percent profit sharing clause and over government body to combat money sector is enacted by the Parliament. the proposal to separate the mining laundering and financing of The new Indian Ports Bill 2010 would accounts of integrated steel plants. terrorism. (BS, 01.10.10) also allow the government to convert (Livemint, 30.12.10) 16 October-December 2010 PolicyWatch H E A L T H N E W S New Regulator for Health Soon The Bill to set up National Council Insurers to Detect Bogus Claims for Human Resource in Health he government has asked (NCHRH) – the overarching Thealth insurance companies to regulatory body for the health sector, crack down on hospitals that raise false which will replace the existing Medical, claims as it seeks to widen the scope Dental, Nursing and Pharma Councils of Rashtriya Swasthya Bima Yojana of India – will be introduced in (RSBY), the hugely successful public Parliament soon. scheme for poor The Economic Times The Bill will seek to create an families. enabling environment that will address The Labour and Employment issues of quality, quantity and Ministry has issued guidelines to equitable distribution of medical insurance companies for education resources. surveillance and de-empanelment of The government is trying to hospitals engaging in fraudulent activities. It is also putting in place a address the lacunae of inadequate process for dispute resolution between insurance companies and hospitals. public provisioning for critical health Claiming insurance money is easy for hospitals as they just have to services. The 11th Five Year Plan has swipe smart cards owned by the patients loaded with the sum insured. envisaged an increase in public However, since data flows on a daily basis from hospitals empanelled expenditure on health to at least two under the RSBY to the Central server, suspicious activities often stand out. (ET, 25.10.10) percent of GDP. (ToI, 02.10.10)

Evaluating Drug Prices place, which would disseminate life There are many common brand More definitive contours on the saving information about non- names used by separate pharma price control that government standard drugs or banned drugs to companies. Besides the same brand exercises on medicines are expected the pharmacist. (ET, 29.11.10) name, many companies use variants to emerge with the revised National of an existing brand that are List of Essential Medicines (NLEM) deceptively similar to a different expected in December 2010. MCI Crackdown on Quacks product. The revised NLEM will form the Cracking down on quacks The problem lies in multiple basis of the policy on price control. operating in the country, the Board of authorities involved in granting At present, the NLEM comprises 354 Governors of the Medical Council of license to market and manufacture a medicines, of which 74 are under price India has issued a circular to health drug. Drug licences are control. Under the Union Health secretaries of all state governments given by national Drug Controller Ministry, the erstwhile List of and superintendents of police of the General of India after the efficacy and Essential Drugs was rechristened districts among others to list medical safety of a medicine is established. NLEM and its last major revision was practitioners covered by the Council. (ET, 21.10.10) in 2003. The development gains “Allopathy, Indian system of importance since the proposed new medicine, homoeopathy and bio- Health for All! Drug Policy has been hanging fire for chemic system of treatment is Recognising the importance of eight years now. (TH, 01.12.10) recognised by law in our country. defining a comprehensive strategy for Apart from these systems of medicine universal health coverage, the SMS Alerts on Banned Drugs [also excluding , Planning Commission has set up a Gujarat Food and Drug surgery and dental services, there is high level expert group to develop a Administration (FDA) has developed no system of medicine recognised in 15-member blueprint and investment software that would enable the FDA the country. plan for meeting the human resource to send short messaging services Electro-homoeopathy, alternative requirements to achieve ‘health for all’ (SMS) to all pharmacists in the state system of medicine, integrated system by 2020. on non-standard drugs and banned of medicine and Indo-allopathy which The group is mandated to rework drugs. If this happens, then the state are being practiced as systems of the physical and financial norms FDA would be the first to provide medicine in our country are not needed to ensure quality, universal warning alerts through SMS in the recognised by law”, noted the circular. reach and access to healthcare country. (TH, 15.10.10) services, particularly in underserved The FDA office had approached areas and to indicate the role of private some of the telecom operators in the Drugs’ Registration Mandatory and public service providers. state and will select those operators The government plans to make it The group will suggest critical who have larger market share and mandatory for drugmakers to register management reforms in order to provide good services. Interestingly their brands to avoid marketing of improve efficiency, effectiveness and there is no other state FDA in the medicines, used to treat different accountability of the health delivery country to have such a system in diseases under the same brand name. system. (TH, 20.10.10) October-December 2010 PolicyWatch 17 E D U C A T I O N N E W S government was formulating a policy Vocational Education on Cards for the private schools and it would he Union Government is planning to bring be announced on the first day of Tin a national vocational education Budget session of the Legislature in framework within one year, according to Mumbai. Kapil Sibal, Union Minister for Human

www.blogspot.com Members, however, pointed out Resource Development. that it would be too late by then as A national policy on vocational the admission process in private education was the need of the hour to schools would be almost over by then ensure that the parameters of each vocation and argued the government should were well identified and benchmarked. The come out with an ordinance. vocational training programme could be Conceding the demand of the provided at various levels starting from members, Darda said the state wanted Standard VIII and could either be integrated to wait for some time as the Central with the regular curriculum or be offered as Government is also coming out with a standalone courses, he pointed out. policy on the same issue. (BL, 09.12.10) The state governments could be asked to identify and devise vocational courses, standards of which would be decided at the national level. The Corruption & Primary Schools gross enrolment ratio was only 12.4 percent at present and the aim was to The Bihar government is making take it to 30 percent by 2020, he said. (BL, 20.10.10) good its promise to confiscate the property of corrupt officials and turn Privatising Higher Education setting up of a professional body like them into primary schools. That is Suggesting increased private the Indian Medical Association or Bar what has happened at the home of as a viable financial model Council of India, which applies to former motor vehicle inspector (MVI) to enhance investments in the professionals in their respective fields Raghuvansh Kunwar at Chaira village education sector, the government has and imposes penalties in case of in Samastipur district. The recommended raising fees in higher violations of ethical practices. government has already begun the education institutions and allowing (FE, 27.12.10) process of setting up a primary school schools to function as profit-making there. bodies with a regulatory mechanism HP Passes Education Bill He owns property worth A80 lakh in place. Himachal Pradesh Assembly and was allegedly caught red handed For students belonging to weaker passed the key Private Institutions accepting a bribe of A50,000 when he sections, there could be provision for (Regulation Commission) Bill seeking was MVI of Aurangabad district on financing grants for pursuing higher to regulate the functioning of September 24, 2008. In the course of education, repayable after students institutions of higher education investigation, vigilance officials found start earning so as to ensure including private . huge unaccounted for wealth. A case sustainability of the system. Himachal Pradesh was the first state of disproportionate assets was The analysis says adequacy of to bring such a Bill to regulate higher subsequently lodged against him in teachers – both in numbers and quality education. 2009. (DNA, 11.12.10) – remains a cause for concern. More amendments could be made (TH, 08.12.10) if needed with passage of time as the Boosting Education government was committed to “The government may come up Code of Ethics for Teachers regulating higher education. The Bill with a law in the coming years to make Like doctors and lawyers, teachers provides for constitution of a three- sure that all children must go from may soon be subject to a “code of member commission to regulate the elementary to higher secondary professional ethics”, which includes functioning of private institutions and education which is vital for the future clauses for disciplinary action over universities. It also empowers the of the country”, Kapil Sibal said. corporal punishment, private tuitions commission to impose a penalty upto He said that while the Right To and other “anti-community” A5 crore for violation of guidelines set Education has now become a activities. by government and other statutory fundamental right, a similar move is If accepted by the government, the bodies. (FE, 10.12.10) crucial for the secondary education proposed code would apply to school so that there is a critical mass at the teachers across the country, from Ordinance to Regulate Fees level who will create wealth primary to secondary and senior Maharashtra government is for the country. secondary levels, and across planning to come out with an He also ruled out fears that cost government as well as private schools, ordinance to regulate fees charged by of education will go up, saying 93 with the aim of restoring “dignity and private schools. Earlier, Minister for percent of the education infrastructure integrity” to the vocation of teaching. School Education, Rajendra Darda in the country lies in public sector. One of the most far-reaching informed the members who raised the (BS, 20.11.10) recommendations of the code is issue in the Assembly that the

18 October-December 2010 PolicyWatch M I C R O F I N A N C E S E C T O R Regulator to Review Sector for financial empowerment of disruptive business models that offer Institution Network marginalised sections of society and similar services at far lower costs (MFIN) – the self regulatory improvement of their productivity. He through process . As organisation of the of the micro regretted that SHGs had not yet been scale improves and the desired finance organisation – has demanded granted a legal status even though the efficiency numbers are reached, the a comprehensive regulator for the RBI had given the mandate in 1992 to costs fall sharply. sector to check indiscipline in the provide loans to them. Broadly, an MFI’s costs consist functioning of the sector. The support to the bank-SHG of four components. The first is the MFIN comprises 31 non-banking linkages as well as expansion of rate of interest at which the MFI finance companies (NBFC) MFIs business correspondents programme borrows. MFIs do not accept including the top 10 MFIs. It is time would ensure growth of bank-related deposits; the rates at which they raise that the sector gets a regulator which micro-finance sector even as other money thus form the base rate for them will go beyond prudential regulations forms of micro-finance institutions to be able to lend. The second and cover all aspects such as continue to grow. (TH, 06.10.10) component is the cost to the MFI of prevention of over-lending, excessive running its operations. The third profit and coercive recoveries and also MFIs or Moneylenders? component is the loan loss reserve for grievance redressal of clients. Private MFIs’ vision of anticipated defaults. And the fourth The MFIs charge an interest rate “eradicating poverty” is far removed is the cost of capital. (BL, 27.10.10) of 24 percent per annum as against 30 from reality, say finance experts. They percent being charged by the say MFIs are no better than Private Equity in Microfinance moneylenders. As MFIs grow larger moneylenders, who lend to the poor Even as investors await regulatory reaping economies of scale, they at a higher rate of interest, or almost clarity, allocation to Indian MFIs should pass on the cost of savings to the same as a moneylender, and turn would not dip. their clients in the form of lower this into a profitable venture. Though Indian private equity interest rate. (FE, 21.10.10) Banks, which are meant to reach players are upset over the Andhra out to the rural poor but choose to Pradesh government’s stand against Doors Shut on MFIs fund MFIs instead, have only the state’s microfinance sector, the The Andhra Pradesh Micro contributed to the debt crisis the poor global investors that pump money Finance Institutions (regulation of are facing in Andhra. into the PE firms remain bullish on the money lending) Ordinance, 2010, The MFI sector in the state has sector. MFIs already face a shortage approved by the State Governor, E S largely three kinds of players: the of funds as banks refuse to lend them L Narasimhan seeks to regulate MFIs, SHGs which are government money. making it mandatory to register with supported MFIs, the private MFI firms MFIs have posted over 500 local authorities, while having and non-profit NGOs. (ToI, 14.10.10) percent growth in 2010 as far as PE stringent punishment for coercive investments are concerned. In 2009, methods of collection of dues. Interest Rate to Plummet only five deals worth US$20mn took The Ordinance passed in the wake Interest rates in the microfinance place, while 2010 witnessed about 18 of nearly 40 deaths allegedly due to industry will fall with greater deals worth US$132mn in the harassment by MFIs on loan dues, competition and the emergence of microfinance space. (BS, 19.12.10) also has provisions to create fast- track courts in consultation with the High Court of Andhra Pradesh, with Law to Cap Interest Rates an express provision for disposal of he Centre is planning to cases within three months. The MFIs bring in legislation to put a www.wordpress.com now have to register with the local capT on the interest to be authority and display the interest collected by the microfinance collected prominently. (BL, 16.10.10) institutions (MFIs), Andhra Pradesh Rural Development to Weaker Sections Minister V Vasant Kumar said. Prime Minister’s Economic The state government had Advisory Council Chairman C brought out an ordinance to rein Rangarajan emphasised the in the MFIs whose coercive significance of micro-finance as an methods have resulted in the instrument for financial inclusion of suicides of a large number of weaker sections and said linkage people in the state. The women’s groups at the district level can speak to between banks and SHGs should be the MFIs to reduce the high interest rate being collected by them. Self Help promoted to provide credit on easy Groups (SHGs) should be run in a fool-proof manner. The state government terms to small borrowers. has asked bankers to ensure that their loan disbursement targets with regard Dr. Rangarajan said micro-credit to the poor are met. (FE, 27.10.10) should be an integral part of the model

October-December 2010 PolicyWatch 19 C O M P E T I T I O N I N S I G H T – N E W S D I G E S T Predatory Pricing by NSE The move is in conformity with they were abusing their dominant The Competition Commission of the internationally accepted practice positions in the market by charging India’s (CCI) investigation wing has of exempting crisis mergers from the pre-payment fees on certain schemes. found “predatory pricing” by National purview of competition regulators. CCI held by a 4-2 majority verdict Stock Exchange (NSE), the country’s (ET, 09.12.10) that the 15 banks and housing finance largest and most diversified exchange, companies (HFCs) involved in the in the over two-years-old currency Competition Policy Review case were competing fairly and were derivatives segment. India said at the recently not being unfair in levying pre- According to an official source, the concluded UN summit on trade and payment charges. CCI Director-General’s probe on a development that competition policy Deutsche Postbank Home Finance complaint by rival MCX-SX clearly followed in various nations have to Ltd, State Bank of India, Oriental Bank established that NSE enjoyed a be reworked so that it protects the of Commerce and LIC Housing dominant position in the exchange common man’s interest in times of Finance Ltd were among those market by virtue of its presence across economic crises. involved in the case. verticals, and it abused this privileged “During these times (of economic (Livemint, 08.12.10) status by waiving transaction fee in crises), it is the common man who is the fledgling currency futures affected the most, and therefore, Cartelisation by Cotton Traders segment. competition policies have to be The State Cotton Federation has Predatory pricing is an anti- reviewed and re-oriented to ensure the launched procurement but not a single competitive behaviour that is interest of the common man,” said CCI farmer has turned up to sell cotton at punishable under . Chairperson Dhanendra Kumar. its collection centres because of the (FE, 12.11.10) The meet reviewed the huge gap between minimum support multilaterally agreed equitable price and the open market rates. Banks Mergers Sealed principles and rules for the control of But private traders are now being A government panel has favoured restrictive business practices. accused of cartelising in order to pull exempting crisis mergers between Besides preventing cartels, down prices as it has become a buyers‘ banks from the CCI’s oversight, a competition law tries to ensure that market. decision that could boost the there are no entry barriers in an Nearly half a dozen incidents of Corporate Affairs Ministry’s efforts to economy. (FE, 17.11.10) clashes between protesting farmers get speedy Cabinet approval for the and traders trying to manipulate proposed merger norms. CCI Favours Home Loan cotton and soyabean prices in The committee of secretaries set In its first ruling, the CCI held that Vidarbha were reported from all over up to clear the regulatory logjam over lenders offering housing finance were Vidarbha. Traders who have a strong bank mergers, however, could not not being unfair in charging a fee on network and faster means of agree on the RBI’s view that all advance repayment of home loans. communication have allegedly mergers between the country’s lenders The matter was taken up after an ganged up. (ToI, 17.11.10) should be kept outside the purview of individual filed a complaint with CCI the competition regulator. against home lenders alleging that Kingfisher Accused by CCI The CCI, on November 21, 2010, under Section 43 of the Act imposed Cartels Behind Onion Price Rise a A1 crore (US$220,000) fine on few traders bought small quantities at high rates to signal a spike in Kingfisher Airlines for not providing Aprices. Price fixing by some traders acting together reportedly fuelled sufficient information in the CCI’s onion price rise. They bought investigation of the ’s alliance minuscule quantities at high rates, with Jet Airways. sending a message that prices had gone Subsequently on December 01, up sharply. 2010, Competition Appellate Tribunal On December 20, 2010 the (COMPAT) stayed the CCI order maximum and minimum prices at imposing A1 crore fine on Kingfisher Asia’s biggest onion market, Lasalgaon, airlines. were A6,299 and A1,200 a quintal, www.wordpress.com COMPAT ruled against the respectively, while the average imposition of a fine after it was wholesale price was A3,800 a quintal. convinced on the facts that Most farmers were deprived of the Kingfisher had indeed furnished the benefits of the high prices quoted that information sought by the CCI in time. day. Prices were raised in the retail The COMPAT order is confined to the market on the basis of higher wholesale prices, as the Agricultural Produce question of the fine alone with a Market Committee (APMC) announces the low and high prices. This gave decisive hearing scheduled to take wrong signals to retailers and other wholesalers. After the Central place on January 20, 2011. Government’s ban on export, prices started declining. (BS, 29.12.10) (BS, 22.11.10 & 02.12.10)

20 October-December 2010 PolicyWatch S P E C I A L C O L U M N Ill Fares the Land – Nitin Desai*

The current crisis of confidence in institutions of governance is an opportunity for reform The Hindu Business Line Ill fares the land, to hastening ills a prey, where wealth accumulates, and men decay – Oliver Goldsmith

his has been a bad year for the We have laws and institutions that republic. The economy may have are meant to enforce accountability – recoveredT with the revival of growth the Election Commission, the PAC, the and our egos may have been boosted CAG, the CVC, the CBI, the by the attentions of the great powers, Enforcement Directorate and, of implementing laws and this nexus but for practically every institution of course, the Law Courts. Yet impunity will be broken, and ministers governance, this has been an annus is the norm and hardly anyone is answerable to the legislature will horribilis with scams and scandals punished. There is no fear of be able to enforce accountability that have shaken the faith of all exposure or imprisonment to constrain and prosecute malfeasance. thinking people. the many who can misuse their office. • Transfer all public lands that can The corruption that bedevils our Why have we reached this sorry be used for development to a politics and the bureaucracy is state? The usual excuses for political sovereign investment trust nothing new. But the 2G scandal corruption are the need for election mandated to manage them in the marks a new high in the amounts at funding and the “coalition dharma” public interest. stake and the Commonwealth Games that protects corrupt politicians scams show the brazen willingness whose support is needed by the • The two key institutions for to make money even when the honour ruling party. This gets combined with bureaucratic accountability, the of the nation is at stake. a no-holds-barred political CVC and the CBI, must be made contestation that leads to the independent on the lines As for the corporate sector, the Radia politicisation of the investigatory and recommended in several Supreme tapes and the subsequent spat prosecution machinery. Court judgments. between two business leaders who did command respect have shown The scope for political corruption lies • The corporate sector and their that we were right to never have in the role of ministers at the Centre lobbyists, the media and the public counted on their moral sense. In fact, and the states in the exercise of the relations industry also need to get the problem of corruption arises discretionary powers of the their act together with an because the Indian corporate sector government in the implementation of enforceable code of conduct. has not yet given up the Licence-Raj laws and the management of public mentality of seeking a competitive property, particularly public lands. Is there any hope that some of this edge through regulatory leverage. can be done in the present political Can we do something to salvage our climate? In the enveloping darkness, The real challenge to our self-esteem Constitution or shall we sit by as we there is one ray of hope. has been the assault on our drift further into the morass of amoral confidence that an independent governance? Here are a few We have a Prime Minister of judiciary and a free press would suggestions: unimpeachable integrity. He now has impose some standard of to accept that his greatest challenge accountability. Along come the • A Committee of Elders must be set today is to restore the faith of the charges levelled against the up to consider various proposals thinking classes in the major judiciary by the Bhushans, father and that are ready and recommend a institutions of governance. He will not son. As for the media, allegations fair system. get the support of the political class for about paid news and the Radia tapes this agenda of political reform. But he show how easy it is to manipulate • Make bureaucrats and regulators can force it on them as, right now, they them. independently responsible for need him more than he needs them.

* Former Under-Secretary General, UN. Abridged from an article that appeared in the Business Standard, on December 16, 2010.

October-December 2010 PolicyWatch 21 S P E C I A L C O L U M N Rotting Grain & Judicial Transgression – Ashok Khemka*

he mountainous state-owned food stocks lying in the open and rotting in the rain are in stark conflict with a failing public distribution system, hunger, malnutritionT and high food prices. The poor management of food stocks provoked the Supreme Court to transgress into executive domain when, on August 12, the court made certain directions like limiting procurement to covered warehousing capacity and distributing the rotting foodgrains free of cost to the poor. The directions were given with the noble intent to prevent the wastage of foodgrains and a feeling of empathy towards the poor and hungry.

As on August 1, 2010, the total food stocks with the FCI were 55 million tonnes (mt) as compared to the buffer requirements of 27 mt. Of this, 15 mt of wheat was lying in the open in Punjab and Haryana alone. As per estimates, 50,000 tonnes of food stocks have already deteriorated beyond human consumption as a result of long, improper storage.

There are two essential components to the management of food stocks: procurement and distribution through PDS. To ensure that stocks are available round the year for the PDS, different buffer stock norms are prescribed for

The Economic Times different points of time during the year. The storage ought to be in scientific warehouses to prevent damage. FCI’s losses are billed to the exchequer and are known as the food subsidy bill. The current If the stocks exceed the warehousing capacity, safe storage becomes a challenge. But state-managed if the stocks are lower than the buffer stock norms, the problem would be to meet the public requirements for PDS. This is addressed if FCI is mandated to manage the stocks as per buffer stock norms through open market operations of buying /selling. The efforts distribution of FCI to dispose of some of the excess stocks of wheat at a price of A1,240 per quintal system is corrupt (excluding VAT) in the recent past have met with abject failure since the price demanded was not commensurate with the quality of the stocks offered in addition to the beyond additional transactional costs in dealing with FCI staff. redemption and The solution also does not lie in fixing the open market scheme (OMSS) price way too costly. much below the market price. This will only offer the trader arbitrage opportunities in connivance FCI staff. Low OMSS prices had led to large-scale corruption in the FCI, The way out is to for which the government failed to pinpoint responsibility. have cash Unfortunately, the court’s directions to distribute rotting foodgrains free of cost to transfers/food the poor, no doubt appealing to the emotions, would suffer from the same malady. It coupons would lead to massive diversions due to arbitrage opportunities in active collusion with the FCI staff without benefiting the intended beneficiaries. Organised diversion of PDS stocks direct from government warehouses to private mills is rampant, with the differential pocketed between the transporters, the PDS shopowners and the government staff. The FIRs yield no concrete result, given the quality of investigation and prosecution and the interminable delays in judicial trials.

Chief economic adviser to the government has suggested offloading excess food stocks in small lots in order to depress market prices. The same was officially suggested to the FCI/food ministry two years back to dispose of the excess stocks by open and transparent domestic auctions in small monthly lots to reduce * IAS Officer. The article any arbitrage opportunities instead of disposals at fixed prices to selected parties. appeared in The Economic However, FCI continues to dither between exporting excess food stocks and domestic Times, on October 07, 2010. disposals at fixed prices.

22 October-December 2010 PolicyWatch F E A T U R E Do We Need NGOs? – Kanika Datta* oes India need non-profit D organisations to fuel social It’s a question development? It’s a question that is that is gaining gaining traction because these institutions have acquired a certain traction as NGOs critical mass and are increasingly have acquired becoming powerful voices in public discourse. ’s National critical mass and Advisory Council (NAC) partly are increasingly reflects this growing influence on policy in the form of the Right to becoming

Information Act, the controversial powerful voices www.samhita.org rural employment guarantee scheme and, now, the contentious food in public programme. But NGOs have discourse been increasingly vocal on a range of issues from Bt brinjal to the nuclear liability Bill, environment, land corporate India where, whatever the because those MFIs are ineffective acquisition, FDI and so on. motivations, philanthropy has or fraudulent – though there are some emerged as a compulsory virtue. Two, charlatans here as there are in every It would certainly be impractical to their growing presence represents the walk of life – but simply because these ignore the voice of civil society as failure of government to deliver countries suffer other structural amplified by NGOs because sheer meaningful human development. issues that are not within the domain numbers suggest that they are major Both are valid explanations but of micro-finance. players in the Indian polity. Earlier in despite its growing clout, the best of 2010, a study by the Ministry of intentions and some undoubted All the same, it would be illogical to Programme Implementation, the first achievements, it’s not the NGO sector argue that NGOs are redundant. of its kind by the government, that can transform India’s human Thousands of them do sterling work. estimated that there were 3.3 million development predicament. Their presence acts as a mirror to NGOs operating in India as at the end society and has occasionally of 2009. It is worth noting that despite the galvanised the government into growing size and power of the NGO positive action. For the most part, The study said just 41 percent of sector, India’s human development however, they remain external voices these are actually involved in social record has remained at sub-Saharan of opposition. services and philanthropic activities. levels – and sometimes below. This is Many of the larger foreign agencies not because NGOs are inept or In the NAC, Sonia Gandhi has found resemble well-heeled corporations. sinisterly corrupt but because their a creative way of co-opting them into One – uncorroborated – online transmission mechanisms for change public policy. But the NAC remains a estimate says NGOs raise between are limited, either by the size of their hotly debated association since it is A40,000 crore and A80,000 crore in organisations, their agendas or the affiliated to one person in one party funding annually. That isn’t huge amount of donor money they receive. and has no public accountability when set against India’s GDP, but it The current controversies over the though it uses taxpayer resources. Its is fair to say that India is among the micro-finance business, which has a prescriptions, too, have been ‘go to’ nations as recipients of donor quasi-NGO status, highlight some of questioned with economists arguing money. Foreign contributions have that dichotomy. that employment schemes and right risen steadily – they grew 25.9 to food create entitlements that the percent in 2005-06 and 56 percent in In countries like Bangladesh, India government cannot afford. 2006-07. and those in Africa, micro-finance has undoubtedly been a signal success Still, its representatives keep the There are two ways of explaining this in providing the poor access to credit issue of poverty and inequality NGO boom. One, it is a sign that India that larger, formal institutions cannot squarely in the public eye and that, has progressed far enough for some deliver. It has transformed some, even surely, cannot be a bad thing. sort of responsible civil society to many, lives. But it has not eradicated finally emerge. This is true of poverty in entire nations. This is not

* Columnist, Business Standard. Abridged from an article that appeared in The Business Standard, on October 28, 2010.

October-December 2010 PolicyWatch 23 P U B L I C A T I O N S

he October-December 2010 issue of newsletter, ‘ReguLetter’ encapsulates ‘Call for World Competition Day’ in its cover story, which state that cartels inT the air industry should be of concern to all stakeholders as they have a serious negative impact on efforts towards economic development and poverty reduction in developing countries. What is therefore apparent that competition authorities in developing countries also need to be in a position to join in and prosecute such international cartels once they are discovered. The lead story is followed by regular sections focusing on news, views and policies related to corporate restructuring, regulations of utilities and finances, corporate governance etc. of different countries in particular, the developing nations. Besides, annual roundup of competition laws, mergers & acquisitions, corporate issues etc. is another highlight of the edition. A special article by Frederic Jenny and David Lewis says that had a regional African competition law covering all African countries existed, the market-sharing agreement between Castel and SABMiller could have been prohibited and vibrant competition could have been preserved. Another special article by Jagdish Bhagwati argues that the attempt by some NGOs and activists to impose a straitjacket on CSR, reflecting their priorities, is misguided and must be rejected. About a Competition Law looks at the competition scenario in China, the institutions of competition law in the country and the scope of improvement in the law. This newsletter can be accessed at: http://www.cuts-ccier.org/reguletter.htm

Ongoing Project Collusive Behaviour in Health Delivery in India: Need for Effective Regulation (COHED) onsumer Unity & Trust Society (CUTS) with the support of Oxfam India has initiated a project to identify collusive and deceptive behaviour and advocateC for appropriate (policy and regulatory) interventions for enhancing access to affordable and quality healthcare in two states of Assam and Chhattisgarh. CUTS intends to document the nature and type of these practices on the ground and their implications for the consumers in partnership with local civil society organisations. Overall goal of the project is to “generate interest/awareness among the government, media and other stakeholders about the crucial relationship between incidence of anti-competitive practices in the healthcare sector and poor quality and affordability of healthcare services in India.” The objectives of the project are to perform advocacy among relevant organisations to garner support for research aimed at identification of deceptive and collusive practices in the healthcare sector; assess the scope and effectiveness of the present regulatory system, especially the Competition Act, 2002 to deal with anti-competitive practices in the healthcare delivery; make recommendations for better regulatory outcomes and spread awareness about these recommendations to lay the ground for their redressal. For more details, please visit: http://www.cuts-ccier.org/COHED/

SOURCES

BL: The Hindu Business Line, BS: Business Standard, DNA: Daily News Analysis; EI: Express India; ET: The Economic Times, FE: The Financial Express, HT: Hindustan Times, PTI: Press Trust of India, TH: The Hindu, ToI: Times of India

The news/stories in this Newsletter are compressed from several newspapers. The sources given are to be used as a reference for further information and do not indicate the literal transcript of a particular news/story. Complete reproduction without alteration of the content, partial or as a whole, is permitted for non-commercial, personal and academic purposes without a prior permission provided such reproduction includes full citation of the article, an acknowledgement of the copyright and link to the article on the website.