policywatch - cuts ccier · the department of telecom (dot) that ... west bengal is all set to have...

The Bimal Jalan Committee was appointed inFebruary 2010 to deliberate on governance,

ownership, listing of bourses and other issues.The Committee came out with a report on�Review of Ownership and Governance ofMarket Infrastructure Institutions� inNovember 2010. The report makes importantrecommendations pertaining to market entrynorms, fund raising and market exit, which arecritical determinants of the state ofcompetition in this relevant market.

An intense debate concerningcompetition amongst stock exchanges hasfollowed the publication of the report. It hasbeen alleged that the report is aimed at helpingthe National Stock Exchange (NSE) retain its monopoly for the next five years atleast and also work at permanently eliminating any competition. During publicmeetings, NSE�s competitiors � the Bombay Stock Exchange (BSE) and the MCXStock Exchange Ltd (MCX-SX) � has voiced that if the recommendations of theCommittee are accepted then they may be starved of funding and becomeinconsequential.

The first debate on ownership started in 2002 with Kania Committee. Nearly 19stock exchanges complied with this requirement by reducing the ownership ofbrokers to 49 percent and increasing public ownership to 51 percent. It was naturalto expect Jalan committee to take into account the progress made byrecommendations of Kania committee and then suggest the path for takingexchanges to the next level � for making exchanges independent for their resourcesas they get into new realm of expansion and technology absorption to becomeglobally competitive. However, sadly, the committee has taken the stock exchangesback to the era of a controlled economy as against the spirit of liberalisation andglobalisation that has been pursued since 1991.

Indian capital markets, which due to lack of competitive environment, have notbeen able to create a new generation of intermediaries in tier two and tier threecities with support system as good as tier one cities.

Hopefully, the policy makers will reason and consider the whole issue on thefollowing two moot points: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 percentgrowth and meet the capital needs of infrastructure, MSMEs and the industryat large?

2. What is the need for capital infusion in stock exchanges, depositories, clearingcorporations, brokerage houses and other ecosystem support agencies so asto address the gaps in this market and ensure its growth?

PolicyWatchPolicyWatchVolume 11, No. 4 October-December 2010

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

Focus on Rapid UrbanTransportation� M Ramachnadran ........... 8

Disseminating Good CorporateGovernance Practices� Neville Dumasia ............ 12

Ill Fares the Land� Nitin Desai ................... 21

Rotting Grain & JudicialTransgression� Ashok Khemka ............. 22

Published by Consumer Unity & Trust Society (CUTS), D-217, Bhaskar Marg, Bani Park, Jaipur 302016, IndiaPhone: 91.141.2282821, Fax: 91.141.2282485 Email: [email protected], Website: www.cuts-ccier.org

Printed by: Jaipur Printers P. Ltd., M.I. Road, Jaipur 302001, India.

�The reformer has enemies in all those who

profit by the old order and only lukewarm

defenders in all those who would profit by

the new.� Machiavelli in The Prince

H I G H L I G H TS

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

Telcos Set to �Steal�Subscribers ..........................2

No Deregulation of Diesel ...4

RTI Activists SeekTransparency ...................... 11

Failure of GreenIndia Plan ........................... 13

Police to Check MoneyLaundering ........................ 16

Cartels Behind OnionPrice Rise .......................... 20

Jalan Committee Report

Stifling Away Competition

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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

Mother of all ScamsIndicating that a court-monitored

probe was required in the 2G Spectrumscam, allegedly involving disgracedformer telecom minister A Raja, theSupreme Court said that the scam isthe mother of all scams put together.

A Bench comprising justices G SSinghvi and A K Ganguly said that�given the magnitude of amountallegedly involved in the scam, itmight need monitoring of theprobe�The case must beinvestigated efficiently, diligently andexpeditiously... This scam will put toshame all other scams put together.�

The court reserved its verdict ona plea filed by Subramanian Swamyseeking a direction to the PrimeMinister for grant of sanction toprosecute A Raja. (FE, 25.11.10)

Heat on Cold CallsThe Telecom Regulatory

Authority of India (TRAI) is all set tointroduce a new foolproof mechanismto bar these irritable calls from January01, 2011. Under the new system, to becalled Customer Call PreferenceRegistration (CCPR), if a subscriberregisters for not getting such calls andif a tele-marketer still tries to call thenumber, the call would be barred.

Further, a new 70-series numberwould be given to all tele-marketersso that commercial calls can be clearlyidentified. Also, commercial callswould be categorised � subscriberscan either choose not to get any callsor select certain areas where theywould like the calls to come. Therewould also be an option whether onewants calls or information only viamessages. (FE, 29.11.10)

Transparency in Tariff PlanThe TRAI will frame new

guidelines to make cellphone tariffsmore transparent and help customersmake informed choices about theirmobile plans. The regulator was alsoexamining if it should impose a capon the upper tariff limit for premiumSMSes to ensure that operators,broadcasters and other players do notfleece customers for this facility.

The guidelines will also aim tobring operators who issue misleadingtariff advertisements to task. Theregulator�s move to interfere in tariff-related issues is bound to irk theindustry, which largely believes thatall tariff-related issues should bedetermined only by market forces.

Justifying the move to launch aconsultation process on telecomtariffs, the regulator had received�several complaints andrepresentations from consumers andtheir representatives seeking furthereffective transparency measures�.

(ET, 15.10.10)

Broadband Network Soon!The TRAI recommended setting

up a �National Broadband Network�at a cost of about A60,000 crore toachieve 16-crore broadbandconnections by 2014.

Issuing its recommendations on�National Broadband Plan�, TRAI saidthe project would be financed byuniversal service obligation (USO)fund and the loan given by thegovernment. At present in India, thepenetration of broadband is 0.8percent as against the tele-density of60.99 as of September, 2010.

The number of broadbandconnections is only one crore asagainst a target of two crore by the

COMMUNICATION year 2010. Therefore, there is an urgentneed to facilitate rapid growth ofbroadband. (TH, 08.12.10)

USO Seeks AutonomyThe USO administration has told

the Department of Telecom (DoT) thatit was in favour of keeping the USOfund outside the purview of theCommunications Ministry and re-organised as an independent body. Ithas also told DoT that the new bodymay be headed by a Secretary rankedofficer and should be given completefinancial autonomy.

This is in line with therecommendations made by the TRAIin 2009. The regulator had suggesteda complete overhaul of the USO fundto make it more efficient andtransparent. (BL, 05.10.10)

Clash over Licence FeesThe six private Direct-to-Home

(DTH) operators are on course for alegal showdown with the governmentover the modalities of charging theirannual licence fees. This comes onthe back of the decision taken by theInformation and Broadcasting (I&B)Ministry to challenge a recent orderby the Telecom Disputes Settlementand Appellate Tribunal (TDSAT) incourt which had given relief to theDTH operators by allowing them topay their annual licence fees basedon adjusted gross revenue (AGR) asopposed to gross revenue.

Currently, all private DTHoperators have to pay 10 percent oftheir annual gross revenue to the I&BMinistry as licence fees. However, theTDSAT order also indicates that AGRwill be calculated at the rate of eightpercent. (FE, 12.11.10)

With the roll out of mobilenumber portability (MNP)

on a pilot basis in Haryana anda country-wide implementationexpected by December 31,telecom operators are losing notime in trying to wean awaysubscribers from competition,while at the same time, guardtheir own subscriber base.

The game plan is to step up promotions and educatesubscribers on the benefits of their services. Telcos have

Telcos Set to �Steal� Subscribersalready beefed up their networkfor giving their subscribers a betterquality of service and to churn insubscribers once MNP sets off.

MNP allows subscribers toswitch operators without changingtheir number in the same telecomcircle. With 95 percent of themarket on pre-paid services andthe dual-SIM phenomenon, the

impact of MNP will be restricted to only the post-paidsegment of the market. (FE, 13.10.10)

www.manjul.com

3October-December 2010 PolicyWatch


UMTA for BengalWest Bengal is all set to have its

first Unified Metropolitan TransportAuthority (UMTA), an agency thatwill look into the issues of publictransport management and faredetermination, in the city and in thestate.

The new authority will look aftertraffic management and transportationsystem in the Kolkata MetropolitanArea as well as in the State as a whole.Every form of transport that includesbuses, taxis, trams, railways, and river,will come under the purview of theproposed authority.

UMTA will also approve andintegrate action plans of all relevantdepartments and agencies regardingvarious traffic and transportationprojects and implement the same. Theauthority will also recommendeffective ways of traffic and transportmanagement in the city. (BL, 15.10.10)

New Regulator for AviationIndia will have a more autonomous

aviation regulator, the Civil AviationAuthority (CAA), in two years. Theaviation sector has seen substantialgrowth in recent years, leavingDirectorate General of Civil Aviation(DGCA) under pressure, particularlyin the face of high attrition.

Many employees have eitherretired or joined the better-payingprivate sector. Limited autonomy hasmade it tougher for DGCA to replacethem quickly. CAA will be have moreautonomy. Faster decision-makingwill make it better-suited to regulateIndia�s aviation industry. The changewill be brought in through an Act ofParliament. (Livemint, 22.10.10)

�Criminal� Tag on Fuel-guzzlersEnvironment Minister Jairam

Ramesh said the use of sports utilityvehicles (SUVs) and BMWs in Indiawas �criminal� and called for changesin diesel pricing to discourage peoplefrom riding fuel-guzzlers. He saidIndia�s SUV market was growing onsubsidised diesel, the ownersbenefiting from the subsidies intendedmainly to help farmers.

Ramesh spoke of a need to �put apenalty on the type of cars that you

don�t want to see on the roads suchas a diesel-driven car or SUV. Wecannot ask people to buy or not tobuy a particular car, but through aneffective fiscal policy, we can have animpact.�

People who have used SUVs saythey offer �higher levels of safety,higher ground clearance, and betterdriving�. (ET, 13.11.10)

Incentives for Public TransportUrban Development Minister S

Jaipal Reddy spoke against low exciseand customs duty for private vehiclesand stressed on the need to providemore incentives for public transport.He supported �disincentives� forprivate transportation.

Talking about sustainable urbantransport, he said excise duty shouldbe removed for buses to encouragepublic transport. Noting that theparadox of the urban mobility issuewas that everybody agreed inprinciple but very few implemented itin practice, Reddy said those whodrive public policy in India as well ascar owners must learn to travel inpublic transport. (PTI, 05.12.10)

Plans for Mobility CardSoon you may be able to travel

across the country carrying merely aswipe card that can be used on allmodes of transport. If plans by theUrban Development Ministry are

successful, the common transportcard, or �Common Mobility Card�/�India Mobility Card�, will be a realityby 2011.

These cards will functionessentially as e-purses. This meansthe money will be on the card � thesecan be swiped and the value would beautomatically deducted. This wouldhence obviate the need to buy tickets.These cards will cover all forms oftransport, including buses, trains,metros, ferries, taxis and even auto-rickshaws. The only sector notincluded is air travel. (FE, 31.10.10)

Industry See Losses on Toll CutsThe Road Transport Ministry�s

agreement with truckers to bring downthe toll for three-axle trucks by A1 perkm will lead to a loss of about A350crore annually to the NationalHighways Authority of India (NHAI).

The NHAI�s annual toll earning for2009-10 was in the range of A1,700crore from 141 public-funded tollplazas in the country. Urging the AllIndia Motor Transport Congress notto go on strike, the Ministry signedan agreement with the truckers tocreate a new category of toll collectionfor the three-axle trucks. Thiseffectively reduced toll rates for suchvehicles by one rupee to A2.40 per km.NHAI is still working on the details ofthe impact on toll collection.

(BS, 06.12.10)

TRANSPORT Airfares Leave Passengers in Dark

Airlines making airfares public have left travellers lurking in the dark asthere is no information on availability of seats in a particular price

range. In order to protectpassengers from an abrupthike in airfares and also tomake ticket pricingtransparent, the governmenthad asked all airlines to puta price band to airfares everymonth and publish them innewspapers or theirwebsites, after airfares shotup drastically, by about 200percent in a few sectors,post Diwali.

However, the fare charts on airlines� respective websites just give a rangeof basefares without the number of seats available in each fare category.Hence, they are not consumer friendly as the passenger cannot really knowwhat he or she has to shell out for a ticket. Experts do believe that it is a firststep towards transparency. (ET, 09.12.10)

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OIL & GAS

An Oil Board to be Set UpThe vegetable oil industry has

urged the government to set up anational body to protect the interestof all stakeholders � traders,processors and consumers. A centralbody, which could be called the OilBoard, on the lines of the SpicesBoard, the Coffee Board and TeaBoard, is needed to bring up trade-related issues to the government andsuggest solutions in consultationswith industry representatives.

A central body could negotiatewith the government on larger issueslike tariff fixation, import and exportduties and ways and means forincreasing domestic production. Thereis already a National Oilseeds andVegetable Oils Development Board, astatutory body, established in March1984, with the aim of integrateddevelopment of oilseeds and thevegetable oils industry. (BS, 05.10.10)

Gas Allocation Policy AmendedThe Group of Ministers (GoM) will

decide on a change in thegovernment�s gas allocation policyand allocate natural gas to powerplants that are likely to come up in thenext two-three years. Till now, theCentre has maintained that owing tothe scarcity of gas, it does not favourreserving gas allocation for plants thatare still to become operational.

But now it is ready to review thepolicy and make allocations to plants

that are likely to come up till 2012.These include the expansionprogramme of the Anil DhirubhaiAmbani Group�s Samalkot powerproject. (TH, 08.11.10)

A Lot of GasThe recurring demands for a

review of the gas pipeline tariff policy,where rate for transmission varies inproportion to the distance that gas iscarried or telescopic system, and thecall to replace it with uniform wheelingrates or postalised system is basedon a convoluted logic and needs tobe snipped.

The demand for a uniform tarifffails to take note of the disastrousimpact of the freight equalisationpolicies that deprived the states ofOrissa, Bihar and West Bengal thefruits of their large mineral resourcebase.

The current zonal tariffs whereevery network is divided into zonesof 300 km with all customers in thesame zone paying the same tariffs hasthe combined advantages of thetelescopic and postalised systems andcan be a forerunner to the use of moresophisticated tariff models at a laterstage. (FE, 08.11.10)

Pipeline Firms to Cut RatesGas transportation companies

such as GAIL and Reliance GasTransportation Infrastructure Ltd(RGTIL) may soon be able to charge alower rate than that determined by thePetroleum and Natural Gas

Regulatory Board (PNGRB) or thoseearlier approved on a cost-plus basis.

However, the new transportationrate would have to be non-discriminatory, is the idea. The Boardhas proposed amending the PNGRB(Determination of Natural Gas PipelineTariff) Regulations, 2008, and hasinvited comments from stakeholdersand experts. The issue came up in apre-bid conference for pipelines andsome bidders had wanted to know ifthey could offer a rate lower than whatwas determined by the Board.

(BS, 22.12.10)

Uniform Pricing for Natural GasThe Kerala government has urged

the Union Government to adopt auniform pricing policy for natural gasthroughout the country. When theLNG Project comes to a reality in Kochiby 2012, the Centre should ensure auniform price of natural gas.

The availability of natural gas willhave a tremendous potential in thedevelopment of power plant atCheemeni near Kannur, high speed railcorridor from Thiruvananthapuram toMangalore, industrial corridor fromKochi to Coimbatore, Titaniumsponge factory, Kannur airport andoverall industrial growth.

The laying of pipes from Kochi toCoimbatore, Mangalore andBangalore will bring greater benefitsfor Kerala which will be a boon forindustries as well as residentialconsumers. (BL,14.12.10)

India Offers O&G ExplorationIndia offered 34 oil and gas blocks

for exploration in the 9th round of NewExploration Licensing Policy (NELP).The blocks offered include 8 deep-sea,7 shallow water and 19 onland, Deorasaid. The onland blocks include 8small blocks for which there is atechnical qualifying criterion forcompanies to bid.

In the 8 rounds of NELP since1999, 235 blocks have been awardedtill date. This has resulted inenhancement of exploration coveragefrom 11 percent to about 58 percent ofIndian sedimentary basin between2000 and 2010. The 8th round attractedinvestment commitment of US$1.34bnfor 36 blocks that received offers.

(ET, 15.10.10)

No Deregulation of Diesel

The government would not free diesel pricesfrom its control in hurry as the move

would lead to sharp rise in price of fuel mostused in the transport sector. The government,on June 25, 2010 decontrolled petrol priceand said that diesel would move at free priceregime shortly. At that time, an ad-hoc M2 alitre increase in diesel price was affected.

Freeing of diesel prices now would meana further M2.01 a litre increase in rates whichwill have cascading effect on the already highrate of inflation. Since June 25, 2010 decision,petrol prices have been raised twice ... oncein September 2010 and second time inOctober 2010 to reflect the rising trend ininternational crude oil prices. (FE, 18.10.10)

TimesofIndia



POWER

Ministry Pulled Up on NEFA Parliamentary Panel has pulled

up the Power Ministry for failing toget the National Electricity Fund(NEF) � a critical funding interventionfor distribution projects � operational,especially when power distribution isproving to be a major roadblock forrealisation of investment targets in thecountry�s electricity sector.

The idea of creating the fund wasmooted over two years back to helpthe perennially-bankrupt stateelectricity boards (SEBs) improve theirfinances and reduce distributionlosses. The money raised by the fundwas to be loaned to these boards atlow interest rates.

The panel had made 12recommendations � including thoseregarding the lagging pace in powercapacity addition and unevenutilisation of funds � in its April 2010report. (BS, 05.12.10)

Steeper Plan Target�The Centre has targeted capacity

addition of 100,000 MW each in the12th Plan (2012-17) and 13th Plan (2017-22)�, said the Union Power Minister,Sushil Kumar Shinde.

He said about 65,000 MW wasslated to go online in the 12th Plan. Ofthis, nearly 50 percent of thermalplants would be subcritical while thebalance would have supercriticaltechnology.

In the 13th Plan, the Centre wouldensure that only supercriticaltechnology came up as it was abouttwo percent more efficient thansubcritical and consumed less coal,besides having a lower carbonfootprint. (BL, 09.10.10)

Power Capacity ShortfallIndia will again fall short of its

power capacity addition target onaccount of equipment supply delaysand other reasons, exacerbating anenergy deficit that�s seen as a keybottleneck in efforts to sustain andboost economic growth.

The government had set a targetof adding 20,359MW of powergeneration capacity this fiscal, butscaled it down to 18,600MW. Thecountry has commissioned a capacity

of 7,059MW so far in the current fiscal.In 2009-10, India added a capacity of9,585MW as against a target of14,500MW.

Projects are faltering because ofreasons as varied as shortage of powergeneration equipment, delayedinvestment decisions, contractualproblems, resistance to landacquisition, delays in environmentaland forest clearances, geologicalissues and natural calamities. This willaggravate the current 12 percent peak-hour power shortage.

(Livemint, 30.11.10)

Bills to Spike in MaharashtraThe power tariff across all

categories has gone up inMaharashtra. The regulator hasapproved an additional revenue ofR1,136 crore for Maharashtra StateElectricity Distribution Company Ltd(MSEDCL), resulting in an overall fivepercent increase in tariff across allcategories of consumers.

The additional charge would beeffective from December 01, 2010. InSeptember, MERC had allowed a tariffhike of three percent for MSEDCL byapproving R909-crore revenue for2010-11.

Hence, power consumers invarious categories would now berequired to pay more. MERC, whileapproving the additional charges, saidan error had occurred in calculatingthe revenue from the variouscategories of consumers.

Domestic consumers withconsumption up to 30 units per month

Blotches of Red Ink

Despite all talk of reforms and improvements in technical efficiencythe losses of SEBs continue to mount. Commercial losses made by

20 major SEBs have touched M58,235 crore in 2009-10 compared withM51,670 crore in 2008-09, an increase of 12.7 percent.

Among the biggest losers were the electricity boards of Rajasthan(M10,250 crore), Tamil Nadu (M8,555 crore), Andhra Pradesh (M5,639crore), Uttar Pradesh (M5,593 crore), Madhya Pradesh (M5,122) and Haryana(M5,104). The sole profitable SEB in the list was in West Bengal; thepower supplier made a profit of M344 crore.

The states shelled out larger subsidies to cover the huge losses andensure bare minimum liquidity to power generation companies. Thispushed up the states� subsidy bill from M15,915 crore to M20,409 croreover the last two years. The highest subsidy was paid by Punjab (M3,144crore), followed by Haryana (M2,803 crore) and Karnataka (M2,795 crore).

(FE, 20.10.10)

will have to pay 4 paise more per unit.Industrial consumers would have topay 26-33 paise more per unit,commercial consumers would have topay 24-46 paise more per unit for thepower usage. (EI, 03.12.10)

Increasing Renewable PowerThe Ministry of New and

Renewable Energy (MNRE) aims toadd another 4,700 MW of renewablepower by 2012 to the current capacityof 18,000 MW. The additionalinvestments expected would be closeto A28,800 crore.

Further, for renewable energygeneration, the Central ElectricityRegulatory Commission (CERC) hasnotified Renewable Energy Certificate(REC), which seeks to address themismatch between availability ofrenewable sources and therequirement of obligated entities tomeet their renewable purchaseobligations. The National LoadDispatch Centre is the nodal agencyfor implementation of RECs. The RECmarket is likely to be operationalisedby 2011. (BL, 26.10.10)

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MIXED BAG

New Water Policy SoonThe Planning Commission Deputy

Chairman, Montek Singh Ahluwalia,said that the government is preparinga new Water Policy, which is beingreadied by a Group of Ministersheaded by the Agriculture Minister,Sharad Pawar.

He also suggested a pricingmechanism for water, based onavailability in different regions tocontrol the �demand side� and help

reduce water consumption andcontain the shortage crisis.

Ahluwalia said that by improvingefficiency in water usage in agricultureby 100 percent, water supply as awhole could increase to 40 percent.Agriculture consumes about 80percent of the water resources.

(BL, 14.11.10)

RBI Head FSDC CommitteeFinance Minister Pranab

Mukherjee met financial sectorregulators to thrash out a broadframework of the proposed FinancialStability and Development Council(FSDC) � a council to deal with inter-regulatory issues. The council wouldalso be involved in prudentialsupervision of the economy.

The RBI Governor D. Subbaraowill head the sub-committee of FSDC.The decision to make the RBIgovernor head of the sub-committee,which will also look at inter-regulatoryissues, comes in the wake of the RBIexpressing apprehensions overbreach of regulators� autonomy by theproposed council. (HT, 12.10.10)

Draft Norms on Bank LicencesThe RBI is likely to issue draft

guidelines on new bank licensing byJanuary 2011. Meanwhile, the CentralBank would put up a gist of feedbackreceived from various stakeholders onits discussion paper, according to theRBI Governor, Dr D Subbarao.

The discussion paper listed a fewissues such as the initial capitalrequired, ways of diluting promoters�stake, whether to allow corporatehouses and non-bank financecompanies and the business modelthat should be adopted. A largernumber of banks would foster greatercompetition, and, thereby, reducecosts, and improve the quality ofservice apart from promoting financialinclusion. (BL, 09.12.10)

Committee on Infra Finance Recognising the need for a policy

to enable flow of resources forinfrastructure, the Centre constituteda 16-member High-Level Committee onFinancing of Infrastructure, whichwould have representatives fromvarious financial sectors, under formerRBI Deputy Governor Rakesh Mohan.

The committee will assess theinvestment to be made by the Centre,the state governments, public sectorundertakings (PSUs) and the privatesector in the 10 physical infrastructuresectors during the 12th Five Year Plan(2012-17).

The 16-member committee willhave representatives from banks, thePension Fund Regulatory andDevelopment Authority, InsuranceRegulatory and DevelopmentAuthority (IRDA) and Life InsuranceCorporation of India (LIC), amongothers. (BS, 19.01.10)

Infra Investment to Double�Infrastructure investment in the

12th Five-Year Plan would be to thetune of around A41 lakh crore�, theUnion Finance Minister�, PranabMukherjee said. He highlighted theinitiatives taken by the FinanceMinistry in enabling greater flow offunds to infrastructure sector and thechallenges that lay ahead.

The Finance Minister alsohighlighted the progress made so farunder �Bharat Nirman�, the FlagshipProgramme of the Central Governmentwhich aims to rapidly upgrade thequality of rural infrastructure in areassuch as roads, water, electricity andtelecom connectivity.

He said that more than 30 percentof the total funds envisaged ininfrastructure, during the 11th Planperiod, would go directly into buildingand upgrading rural infrastructure.

(BL, 27.10.10)

Promoting Financial InclusionCentral bank pushes banks to

provide basic banking services invillages. The RBI has urgedcommercial banks to open financialinclusion resource centres throughoutthe country. These would work as astore-house of all relevant informationpertaining to financial inclusion.

The RBI is pushing banks toprovide basic banking services invillages with a population of 2,000 andabove by 2012 and those with apopulation of less than 2,000 over thenext three to five years. The centralbank, which has opened such centresin Pune and Chandigarh, wasplanning to open two more, one eachin Kolkata and Mumbai. (BS, 07.12.10)

Agents to RecoverLoans with a Smile

Agents who recover loans, evenwhen they are arm-twisting

defaulters into paying up, have to doso with a smile now. The ReserveBank of India (RBI) has made itmandatory that from January 01,2011 those who have not completeda certificate course and 100 hours oftraining in behavioural skills from theIndian Institute of Banking andFinance (IIBF) cannot be employedby banks and their agencies as loan-recovery agents.

Recovery agents were hired onperformance-linked compensationand their tactics were seldomquestioned by banks. But in 2009,regulators and banks were forced totake a relook after a borrower wasdriven to suicide followingharassment by the recovery agentappointed by a large private bank.

The agents do not have the rightto harass the customer with constanttelephone calls. Moreover, he canonly speak to the person who hastaken the loan and nobody else inthe house. (ToI, 30.11.10)

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The report of the CAG documents how theMinistry ofCommunications andInformation Technologygave away spectrumworth A1,76,000 crorewhen, in 2008, it issued122 mobile licences inbarely a day, in brazendisregard of its ownnorms, and propriety.While it pursues theguilty, the governmentcan undo the potentialdamage to the sector bycancelling the impugnedlicences. It must do sowithout delay.

Spectrum, like land, is not an inexhaustible resource. Gettingthe spectrum back requires a simple withdrawal of licence touse it. Given the huge unmet demand for it, spectrum obtainedby stealth must be repossessed and such blatantly undeservedlargesse revoked. In the 85 cases where companies have liedabout their eligibility, cancelling the licences should be a no-brainer.

Cancelling others may be difficult but is no less important sincethe process for getting these licences, as the CAG shows, isseriously tainted. The same applies to the award of dualtechnology licences, where spectrum worth thousands of croresof rupees was handed out without a competitive process.

Public interest arguments against cancelling the licences arequite weak. The benefits of the low price of spectrum did notgo to consumers, as Raja had claimed. They went to thecompanies who promptly sold it at market prices. Someconsumers will inevitably be impacted if licences are cancelled.The TRAI must devise a scheme to help these consumers moveto operators of their choice without additional expense. This isstraightforward as well as cheaper to do.

A move to cancel licences will admittedly involve somecollateral damage. At least some companies whose licencesget cancelled will contest the decision in court and possiblywin. They may be due for some compensation from thegovernment or, in rare cases, be allowed to retain their licences.But this is unlikely to dent the billions expected from reallocatingthe recovered spectrum. If this happens, the government couldthank Raja, since it was the shortage of 2G that resulted fromhis arbitrary decisions that brought it the windfall from 3Gauctions.

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

It is patently obvious that the licences granted byDoT in 2008 by A Raja were neither as per policy

nor in line with prevailing economic conditions. Allrules in the book were bent to award these licences at2001 rates, though Finance Ministry and some DoTofficials advised against it. CVC has ordered anenquiry and CBI has registered a case.

Now, the events have been put in the public domainby the country�s highest audit body, CAG. Naturally,the next question that comes to mind is whether theselicences should now be cancelled.

The government should cancel the licences of allthose players who have not done anything so far,which means not rolled out their services as per thelicensing agreement. The government is well withinits rights to cancel these licences after settling lossesdue to no use or inefficient use of the spectrum.

But in case of players who have shown someperformance in terms of rolling out services, thegovernment should charge them the market-determined price for the licence and allow them tocarry on.

The government is well within its rights to changeterms and conditions of the licence GSM spectrum atthe 2001 rate. Why should they be allowed to pay theold rates and carry on? They must pay the market-determined rates to the government. The policy wastwisted to benefit them and is getting rewritten withsome hollow argument of a quicker rollout in an era ofinfrastructure sharing.

If the government adopts the above measures, itshould be able torecover themoney lost whileawarding theselicences. Andthe seriousplayers in thebusiness � whodid not enter thesector for quickgains � shouldnot have anyissues withpaying more inthis ever-growing Indianmarket.

Should TelecomLicences be Cancelled?

Theimmediatetask is torecoverthe M1.76lakh crorethe CAG

talks of. This can bedone only by cancellingthe licences andimmediately re-auctioning them toplayers who need thespectrum

Mahesh UppalTelecom Consultant

Licencesshould becancelledof thosewho neverrolled outtheirnetworks. Allow othersto function after theypay a penalty that takescare of the under-pricing

BK SyngalFormer CMD, VSNL

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


I N F R A T A L K

Focus on Rapid Urban Transportation� M Ramachnadran*

* Former Secretary, Urban Development, Government of India. The article appeared in The Economic Times, onNovember 13, 2010.

If cities are the engines of growth, it is the transportnetwork which keeps these engines working efficiently.

This is particularly relevant for poorer sections of thesociety, as studies show that around 20-30 percent of theirfamily incomes require to be spent on transport for mostof such families.

As cities grow and become richer, vehicle ownership anduse also grow more rapidly than the road space available,resulting in increased congestion, air pollution andconsiderable loss of time spent commuting.

A city like Delhi adds something like 1,200 new vehicleseveryday whereas Mumbai, Kolkata and Chennai add closeto 1,000 vehicles each day. As per a forecast, energydemand in the transport sector will grow at 5-8 percent perannum and the two-wheeler population, which was at 46.1million in the country in 2008, is to go up to 87.7 million in2015.

The number of cars and SUVs will go up from 8.8 million to18 million during the same period. As with prosperity anddevelopment, capacity to afford vehicles goes up, we haveto ensure that the role of public transport also has to keepimproving.

The fact that the importance of organised, affordable citytransport is not accepted and recognised across thecountry becomes clear from the fact that only 20 out of atotal of 87 cities studied, with a 50,000 or more population,have a formal public transport system in the form of a citybus service.

The National Urban Transport Policy announced in 2006suggests a clear roadmap for improving urban transport.But neither the states nor the cities, basically due to lackof clarity as to who has the assigned mandate for citytransport, have taken the required steps to convert thispolicy into action.

The public transport system is an efficientuser of space and energy. It is generallyaccepted that a city with a population ofone to two million should have a 50-60percent share of public transport and forcities with higher population, this will needto go up to 70-80 percent. Not only are weat these levels in most of our cities, but themodal split in favour of public transport isdeclining

While, on the one hand, public transport in general willhave to be prioritised for support and action, rail-basedmass transit systems also will have to be prioritised for thesame, the latter will also have to be thought of and plannedas such systems are less congesting and can be veryimportant for those who are peripherally located and havelong journeys to access employment.

Other than Kolkata Metro and now Delhi Metro, Bangalore,Chennai and Mumbai are in the process of adding metros,with Hyderabad and Jaipur also planning it. Ten cities areto have Bus Rapid Transit System (BRTS). Thus, otherthan seven of the total 35 cities that have a million-pluspopulation, no city has a definite plan to have a spread-out modern mass transit system.

If we need a good example of how a city has effectivelyand successfully addressed its city transport problems,despite constraints, Singapore would be a good case study.Its transport system is recognised as one of the best in theworld. Singapore of the 1960s had road length totallingonly 1,000 km, but since its population has more thandoubled and the vehicle population almost quadrupled,its transport system today has a network of more than3,000 km, 12 percent of its land is taken up by roads andthe number of daily motorised trips has gone up from amere 2.7 million in 1981 to 11 million today. Motorists inSingapore enjoy one of the highest urban traffic speeds of25 kmph.

Besides restraining vehicle ownership and usage,Singapore has invested heavily in infrastructuredevelopment for both public and private transport. Thenoteworthy feature of Singapore�s system is that in a periodof four decades, it could move from little or no systematictransport planning to problem-driven transport planningto vision-driven transport planning, achieving an effectiveland transport system that is integrated, efficient and costeffective.

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failed to throw up a solution onimplementing the new tax regime.

GST is India�s most ambitiousindirect tax reform, seeking to create acommon national market by bringingdown fiscal barriers between states.The constitution�s current provisionon the demarcation of the taxationpowers of the Centre and states hasto be amended to implement GST,which needs a wide-rangingconsensus among political parties.

The Centre had asked states tocome out with an alternative to theirproposal after many states feared theloss of fiscal autonomy.


India-EU Trade Next SpringIndia will open its trade in goods

and services with Malaysia, Japan andthe European Union in the first half of2011. India has already signed aframework agreement for theComprehensive Economic CooperationAgreement with Malaysia andconcluded negotiations for a similarpact with Japan

With the EU, which has a bilateraltrade of US$76bn with India,differences had cropped up on thelevel of opening of the market, dairyfarming, issues pertaining to childlabour and environment. India hadentered into comprehensive marketopening pacts with Singapore, SouthKorea and Association of SoutheastAsian Nations. (TH, 24.12.10)

FDI inflows in the first fourmonths of this fiscal (April-July 2010)were US$7.6bn, down 27.9 percentfrom US$10.53bn in the same periodof 2009-10. The country has got acumulative FDI of US$123.3bn fromApril 2000 till July 2010, of whichUS$101bn have come since 2006-07.

(BL, 05.10.10)

Haryana�s Industrial PolicyThe draft of new Industrial Policy

of Haryana is ready and likely to beannounced very soon. The new policywould provide for special facilities toentrepreneurs who set up their unitsat industrially backward areas in thestate.

It would lay focus on inclusivedevelopment for which new industrialestates and industrial clusters wouldbe set up at all districts to promoteindustrially backward belts. The newpolicy would not only acknowledgethe role of small and medium enterprise(SMEs) in state�s industrialproduction but there will be a separatechapter for SME sector in the newindustrial policy. It has been drawn inconsultation with the AsianDevelopment Bank. (FE, 22.12.10)

GST Make Little HeadwayNegotiations among states, and

between the Centre and the states onthe proposed goods and service tax(GST) were stuck after a meeting ofstate finance ministers in New Delhi

Hawkers Have Right to TradeObserving that hawkers have a

fundamental right to carry on theirbusiness, the Supreme Court hasasked the Delhi government to enacta law to regulate their trade keeping inmind also the right of commuters tomove freely and use the roads withoutany impediment.

A Bench of Justice G. S. Singhviand Justice A. K. Ganguly disposingof a batch of appeals filed by hawkerssaid �before June 30, 2011, theappropriate government is to enact alaw on the basis of the Bill mentioned{by the authorities} or on the basis ofany amendment thereof so that thehawkers may precisely know thecontours of their rights�.

The Bench was of the view thatthe fundamental right of the hawkers,just because �they are poor andunorganised, cannot be left in a stateof limbo nor can it left to be decidedby the varying standards of a schemewhich changes from time to time underorders of this court�. (TH, 20.10.10)

FDI in Multi-brand RetailForeign direct investment (FDI) in

multi-brand retailing is set to becomea reality, with a 26 percent cap. Withinfluential wings of the governmentincluding the PMO, Finance Ministry,Agriculture Ministry and the PlanningCommission lending support for thecrucial piece of economic reform,political backing was bound to come.

FDI in retail could transform theway agriculture produce is procured,stored, conserved and marketed in thecountry. Significant allies in the UPAlike the Trinamool Congress andoutside supporters BSP and SP hadresisted FDI in retail trade, which wasearlier proposed at 51 percent.However, even they are being pacifiedby the consensus formula of limitingthe FDI in the sector initially at 26percent. (FE, 18.11.10)

FDI Inflows to Surpass 2009The FDI into the country in 2010-

11 is likely to surpass the inflows seenin 2009. India had received FDI (equitycapital components only) worthUS$25.9bn in 2009-10, around 5.28percent lower than US$27.3bn in 2008-09 � the fall mainly attributed to theaftermath of the global financial crisis.

GDP Tops Expectations

The Indian economy expanded by more than expected in the Septemberquarter. The gross domestic product (GDP) rose 8.9 percent year-

over-year during the July-September 2010. The GDP growth was biggerthan the consensus forecast of 8.2 percent, but matched the previousquarter�s growth, which was upwardly revised from 8.8 percent.

Manufacturing outputgrew 9.8 percent in theSeptember quarter, but downfrom the 13 percentexpansion seen in the firstquarter. Meanwhile, farmoutput increased 4.4 percentafter increasing by 2.5percent in the previousquarter. During April-September 2010, theeconomy grew by 8.9percent compared to 7.5 percent in the same period of 2009.

(www.rttnews.com, 30.11.10)

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

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

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 Poverty� Surjit S Bhalla*

There is a lot

to cheer about

the pattern of

growth and

poverty

alleviation

In this winter of gloom, doom and corruption, the government can obtainsome warmth from data collected by its statistical agencies. Alas, these

agencies have yet to hire some basic data processing capabilities from minorcomputer firms, let alone agencies like Infosys. Perhaps Nandan Nilekani canloan some programmers from the Unique Identification (UID) project. So what�sthe issue, and what�s the evidence?

If ever my column title �No Proof Required� is applicable it is to the sorry andsad state of affairs regarding discussion of poverty in India. Anything goesand went � especially since the economic reforms were introduced in 1991. Thepoverty industry got a major boost to its market capitalisation by the reformsas economists, particularly of the left variety, vied for space and attention.Reforms could not possibly help the poor � they only made the rich richer andthe poor poorer. We have all heard it before, ad nauseam.

In India, the respected but painfully slow National Sample Survey Organisation(NSSO) collects data on households and in June 2010 completed the largesample survey for the period July 2009-June 2010. While there are still someeconomists, and policy makers, who think that India is overheating with a 8.5-9 percent GDP growth, the fact remains that for the last eight years, and includingthe crisis year of 2008-09, Indian GDP growth has averaged above 8 percent! Sowhat has happened to poverty alleviation over this period?

Some evidence is available from the NSS survey from July 2007 to June 2008. Itwas a �small sample survey� with 50,000 households rather than the regular120,000 households, but still large enough for calculations of poverty. Resultsare presented for two poverty lines � the official Planning Commission and thenew 20 percent higher Tendulkar line.

The results underline the dramatic improvement in poverty alleviation duringthe recent high growth period. Regardless of the poverty line used, or theregion, poverty has declined at about three times the earlier pace. For the oldofficial poverty line, the head count ratio of poverty declined by 0.9 percent ayear for the 22-year growth period of 1983 to 2004-05; in the subsequent threeyears 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 ppta year to 3.3 ppt a year.

The level of poverty indicated by the2007-08 survey is 14 and 27 percent,old and new lines respectively. To putthese numbers in perspective, theMillennium Development Goals targetof 15 percent poor was to be reachedby India in 2015. This suggests thatthe target was reached about a decadeearlier.

It needs to be emphasised that thesepoverty figures are as the raw figuresindicate, i.e. no adjustments havebeen made to the survey data. IndianNSS data are notorious for onlycapturing half of the per capitaconsumption that prevails in thecountry according to nationalaccounts data. If adjustments aremade, poverty will be considerablylower than even these low figures.

Two conclusions follow. First, it isvery likely that by the old definitionof the poverty line, poverty in India isin single digits. Equally true that weshould proceed towards substantiallyraising the poverty line, and do so inan objective rather than theconvoluted manner of the Tendulkarreport.

My calculations are that the povertyline in India should be raised to about30 percent higher than the old povertyline i.e. the urban poverty line in 2010should be A1000 per capita per monthand the rural poverty line should beA650 per capita per month. This willyield the result that approximately 30percent of the population is poor inIndia.

Still a large segment of the populationand a reduction to zero that Indianpolicy should target � but without thechest beating and the accompanyinglegislation of morality that UPA seemsto be so fond of.

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

others such as China and manySouth-east Asian nations on incomeindicators. The latest HumanDevelopment Report has also tried tolook deeper into the indicators toestablish various inequalities. Theseinequalities arise due to disparity indistribution of incomes, genderinequality and mutli-dimensionalpoverty. (ET, 05.11.10)

Dare to Dream High!Indians are most optimistic

globally about their job prospects forthe next one year, although theirconfidence and spending has notincreased in third quarter of 2010. Asper the Nielsen Global ConsumerConfidence survey, more than nineout of ten Indians (91 percent) areoptimistic about their job prospectsin the next 12 months.

The report, however, said after asteady increase in the first twoquarters of this calendar on a year-on-year basis, degree of optimism ofIndians on the state of the economyhas not grown, although the same fortheir global peers saw a dip. As perthe findings India�s index stood at 129as compared to global index of 90.

(EI, 01.11.10)

Then there were the CommonwealthGames scam, the Uttar Pradesh foodscam, and a host of others. All thesehave preoccupied Indians like neverbefore.

The survey, carried out byopinion research consultancyGlobescan, for BBC World Service,revealed that corruption wasconsidered the most serious problemin 21 out of 26 countries surveyed.Over 68 percent of people mentioncorruption as one of the most seriousproblems facing the world.

(ToI, 11.12.10)

India Ranks Low on HDIRapid economic growth of the

past decade has ensured India a placeamong the top 10 movers on GDPgrowth, but the country ranks a low119 among 169 countries on the 2010Human Development Index. China hasbeen ranked much higher at 89 on theindex published annually by theUnited Nations DevelopmentProgramme.

Yet India is a laggard, as manyothers have moved faster on themeasured indicators, some morerapidly on non-income ones while

New Jobs in India Q4Six sectors, including healthcare

and realty, are expected to create awhopping 2.3 lakh jobs in India in thelast three months of 2010, accordingto global consultancy Ernst & Young.Boosted by strong domesticeconomic recovery and improvedglobal sentiment, most local industriesare expected to increase theirheadcount in the coming months,E&Y said.

The healthcare industry alone isprojected to generate 60,000 jobs infourth quarter of 2010. Real estate andIT/ITes sector, each are expected tocreate 50,000 jobs. Education &training industry is projected togenerate 30,000 jobs. Manufacturingand BFSI sectors would each bechurning out 20,000 jobs in the 2010fourth quarter, E&Y said.

(ToI, 31.10.10)

IMF Pegs India�s GrowthThe International Monetary Fund

(IMF) projected that the Indianeconomy will grow by 9.7 percent in2010 and 8.4 percent in 2011, drivenby robust industrial production andmacro-economic performance.

However, neighbouring China isexpected to grow at an even fasterrate of 10.5 percent in 2010 and 9.6percent in 2011, driven by domesticdemand. Advanced economies, onthe other hand, are projected to growby just 2.7 percent in 2010 and 2.2percent in 2011.

The IMF report added that globaltrade is forecast to expand by 4.8percent in 2010 and 4.2 percent in2011, with a temporary slowdownduring second half of 2010 and firsthalf of 2011. (ET, 07.10.10)

Corruption on Top in IndiaA recent survey of people in 26

countries showed that the mosttalked-about topic in 2010 amongIndians was corruption. About a thirdof Indians reportedly talked aboutcorruption with friends, co-workersand family.

This year has seen the exposureof sleaze at an unheard of scale in thecountry, gathering all manner of thehigh and mighty in its sweep. Toppingthe charts is the gigantic 2G spectrumscam with its chaotic political fallout.

RTI Activists Seek Transparency

Five years after Right to Information (RTI) Act came into existence,information commissioners feel that there should be more transparency

in their appointments. A survey conducted by Parivartan, an NGO, amongCentral and state informationcommissioners, the finalappellate authorities for RTIAct grievances and complaints,has found that 66 percent ofcommissioners surveyed wanta transparent selection process.The survey found thatinformation commissionershad reservations about thecurrent appointment process.

The survey reveals that of44 information commissionerswho participated in the survey,29 favoured an open andtransparent process requiringproper application procedure.Of the 29 InformationCommissioners, 26 felt that such a transparent process can be followedunder the present RTI Act but remaining three felt that the Act would haveto be amended. (ET, 15.10.10)

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Post-Satyam, much of the debatearound corporate governance

has centered around independentdirectors and auditors. Corporategovernance practices evolve ascountries, economies and companiesbecome more mature.

It is important to consider corporategovernance as a by-product of theoverall governance ecosystem and,therefore, look at improvements in thecontext of the entire governance valuechain � promoters, executives/management, regulators/policymakers, institutions, investors,non-executive directors and auditors.

Around the world, there has been aspate of new regulations tostrengthen corporate governance.India too is seeing frenetic activity on the regulatory front� the Companies Bill and the Voluntary Guidelines releasedby the Ministry of Corporate Affairs (MCA) being keyregulatory developments to strengthen corporategovernance.

Through the Voluntary Guidelines, the MCA is alsoexperimenting whether corporate India is mature enoughto transition to a �Comply or Explain� model. The Ministerof Corporate Affairs has gone on record that the voluntarynature of these guidelines is a vote of confidence from thepolicymakers that corporate India is capable of voluntarilyadopting good corporate governance without the needfor having them enshrined in regulations. But there aresome very real and practical challenges in adopting theseguidelines and the time is ripe for some objectiveintrospection.

Voluntary adoptionThere is scepticism that a principle-based approach tocorporate governance will work in India. This view stemsfrom the lack of any precedence for successfulimplementation of principle-based regulations in India. Fora country that until two decades ago was used toconducting business within severe constraints imposedby the licence raj, it takes time to comply voluntarily.

On the issue of �Comply or Explain�, the bigger question iswhether companies will make disclosures on how they areimplementing the guidelines. Further, the capital marketstoday lack the maturity to monitor the adequacy and quality

of disclosures that listed companiesmake. Then there is also the issue ofwhether the disclosures are made insimple English for the averageinvestor to comprehend.

The business caseThe other question worthcontemplating is whether adoptionof these guidelines will make thecompanies better in terms ofperformance and positively booststakeholder perception. If this has tohappen, the ability of a companyboard to make a good promoter orCEO even better is critical.

If the expectation is that independentdirectors add strategic value beyondcompliance, they would have tospend more time interacting withmanagement to understand the

business, undertake site visits, immerse themselves instrategy sessions, have executive sessions and shape theboard agendas and discussions.

Are they prepared to do all of this? If yes, then five thingsneed to be in place � clarity around roles, highercompensation, better informed directors, the powers toseek independent advice and fewer directorships.

It is important for companies to align their strategic prioritiesto skills required in the boardroom and, accordingly, seekcandidates for non-executive positions on the board. Moreimportantly, it is also important to re-look at thecomposition of the board and work with the members toenhance their skill and awareness of the organisation andthe complexity in which it operates.

An art, not scienceWhen it comes to corporate governance, regulations areat best a good starting point, thereafter it is up to everycompany to decide the structure of governance that willbest serve its objectives in terms of sustainable growthand value creation. Due to these very reasons, corporategovernance is an art, not a science and hence cannot beimplemented with a box-ticking mindset.

It is important for companies to attempt implementing theseguidelines or undertake a robust impact assessment,highlight unworkable guidelines and participate in shapingthe country�s regulatory landscape.

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

Regulations are at best agood starting point, thereafterit is up to every company to

decide the structure ofgovernance that will best

serve its objectives

Disseminating Good CorporateGovernance Practices

� Neville Dumasia*

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


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

suffering losses due to the burden ofpaying higher salaries to teachers afterthe Sixth Pay Commission.

The auditor has alleged thataround 25 �elite� schools in Delhi weremaking the parents suffer the burdenof the additional costs of hiking thesalaries of teachers without botheringto utilise the cash reserve that theyhad accumulated by not implementingthe staff salaries as prescribed by thegovernment.

(www.indiaedunews.net, 07.12.10)

DoT SlammedThe DoT�s attempts to stonewall

queries from the Comptroller &Auditor General of India (CAG), usingan opinion from the Law Ministry thatpolicy decisions cannot be second-guessed by auditors, has failed todeter the national auditor.

The CAG has now sought anexplanation from the DoT for giving apan-India mobile permit to the EssarGroup-owned Loop Telecom, which itsaid did not fulfill �the eligibility criteriafor obtaining the permit�.

Corruption Exposed in AssamThe CAG found serious

discrepancy in the budget of theAssam government, which waspumping in more money than whatwas proposed in the budget for theNorth Cachar Hills AutonomousCouncil. The excess fund sent to theautonomous district council wasneither re-appropriated norsupplemented by the governmentthrough supplementary demand.

The CAG said that there was noevidence whether any supplementarygrant was provided or any re-appropriation was made on excessexpenditure.

(www.assamnewsonline.com, 04.12.10)

CAG Indicts Raja for ArbitrarinessFormer telecom minister A Raja

went ahead arbitrarily with the 2Gspectrum allotment in 2008, ignoringthe advice of Prime MinisterManmohan Singh among others andcausing a �presumed loss of A1.76 lakhcrore� to the exchequer, the CAG said.

The presumptive loss caused tothe government through spectrumallocation to 122 licencees and 35 dualtechnology licences in 2007-08 wasA1,76,645 crore. The figures werearrived on the basis of 3G auction heldearlier in 2010 in which the governmentcollected over A67,000 crore.

(BS, 16.11.10)

Top Schools CondemnedA report by the CAG regarding

private schools in Delhi has revealedthat they had been using the Sixth PayCommission as an alibi to make moremoney. Several private schoolscomplained that they had been

Failure of Green India Plan

Jairam Ramesh�s green activism may havemade him a darling of the environment

NGOs, but the CAG has put a spoke in thewheel by asserting these NGOs are notutilising government funds properly. The CAGhas pulled up the Environment Ministry�s planfor greening India and preserving ofbiologically sensitive regions.

The CAG report shows the Ministry hascost the government about A500 crore by notfollowing up with hundreds of non-governmental organisations to whom it hadgiven funds for projects like afforestation. The NGOs apparently took thefirst installments but did not return to show what they had achieved withthe money and the Ministry officials, too, did not ask them. (FE, 25.11.10)

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Prior to this, the watchdog hadalso asked the Department to explainwhy it overlooked several licenceconditions when awarding pan-Indiamobile permits to realty firm Unitech,which in turn ceded majority controlto Norway�s Telenor. (ET, 11.10.10)

Reduce Corporate TaxesIn its latest recommendation to the

government, the CAG suggested thatIndia should come up with an alternativelower corporate tax rate so as to preventseveral non-resident firms frommisusing the Double TaxationAvoidance Agreements (DTAAs) onaccount of higher levies in India.

CAG stated that in several countrieswith which India has signed the DDTA,tax rates range from 20-30 percent ofnet business income, where as in IndiaTDS ranges between 10-20 percent ongross receipts, which turns out to bemuch higher than taxes in othercountries. It also urged the governmentto introduce and implement such a ratealong with the direct tax reforms fromApril 2012. (www.taxworry.com, 13.12.10)

E-GOVERNANCE

E-auction for Govt PurchasesThe government is planning to adopt electronic

auctions for all non-strategic procurements, abandoningthe existing tendering system. The move is aimed atimproving transparency and eliminating inefficiencies.All ministries and public sector undertakings will haveto compulsorily follow the e-auction system.

E-auctions leave no scope for favouritism, checkingthe possibility of corrupt practices. The move alsopromises huge savings for the government as e-auctions cut out several layers of inefficiencies in thetendering system. (FE, 02.12.10)

UP Facing Power HurdlesUttar Pradesh, which is gearing up to launch e-governance

from January 2011 is facing challenges in the form of seamlessconnectivity hurdles and inadequate power supply on itspath. Although UP is one of the most promising states inNorth India on the e-governance front, connectivity andpower are proving to be the biggest impediments in its path.

Meanwhile, the Centre has asked public sector BharatSanchar Nigam Limited to provide broadband connectivityto the Common Service Centres (CSC) being set up all overthe country. In UP, CSCs are known as Jan Suvidha Kendra.

(BS, 03.11.10)


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

Lokpal to Curb CorruptionAfter several abortive attempts,

government is once again working ona law for establishment of theinstitution of Lokpal to go intoallegations of corruption againstpublic functionaries, including thePrime Minister.

The draft Lokpal Bill, 2010provides for filing of complaints ofallegations of corruption against PrimeMinister, ministers and MPs with theLokpal. According to the Bill, theLokpal shall consist of a Chairpersonwho is or has been a Chief Justice or ajudge of the Supreme Court. It will alsohave two members who have eitherbeen the judges of the Supreme Courtor the chief justices of high courts.

(www.dnaindia.com, 08.12.10)

Scarcity of Food GrainArchaic rules continued to hinder

effective food management despitethe country sitting on record grainstocks, but the government seems tobe in no hurry to make changes. Theproblems with food managementmanifested in the last 18 months inthe form of 20 percent-plus foodinflation, that too at a time when hugeamount of grain was rotting ingovernment warehouses.

The disbursement of grain tostates through the public distributionsystem in a particular year is basedon the average offtake for thepreceding three years. This rigidformula denies the governmentflexibility to quickly release grain totide over crisis situations.

The government is currentlytrying to raise gain storage capacityby roping in the private sector. Butthe question of efficient managementremains. (ET, 12.10.10)

Super Regulator ProposedThe government has proposed a

super-regulator that will oversee theworking of all tribunals, regulatorybodies and authorities, as it seeks toput in place an institutionalarrangement to ensure greatertransparency and accountability ofquasi-judicial bodies.

The proposal is expected togenerate intense debate, as it comessoon after a hotly-debated decisionby the finance ministry to create abody for regulator coordination. Theproposal faced resistance fromfinancial sector regulators, which felttheir regulatory autonomy would beundermined by the proposed body.

As many as 62 tribunals andregulatory bodies in areas such astelecom, taxes, insurance, railways,highways, human rights and the presscouncil are proposed to be monitoredby the division. (ET, 04.11.10)

Manufacturers in Question?The government is framing a new

law to amplify consumer rights. Theidea is to empower consumers to suemanufacturers and service providerswho dupe them by concealinginformation in a manner that theirpurchase decisions are wronglyinfluenced. Under the proposed law,the firms will also be prosecuted fornot issuing receipts of purchases toconsumers.

The government will create a�simple, inexpensive and quickerjustice delivery system,� where theconsumer can haul up any company� large or small � in a new court called�National Consumer Protection CourtAuthority.� The new judicial systemwill work on the lines of the US FederalTrade Commission. (FE, 18.10.10)

National Employment PolicyWith an eye on projected 2.5

percent annual growth in the jobsector, the government is in theprocess of giving final touches to anational policy to accelerateemployment growth. The draft of theproposed National Employment Policyis likely to be placed before theCabinet soon for its approval. Thedraft policy also favours an urban jobguarantee scheme on the lines ofNational Rural Employment GuaranteeAct (NREGA).

It also aims at improving thequality of jobs in terms of productivity,average earnings and protection ofworkers especially in the unorganisedsector. The policy has emphasised oninclusion of youth, women andvulnerable groups with their specificneeds of training and skilldevelopment. (PTI, 01.11.10)

Bihar Scraps MLA FundIn yet another move aimed at

nipping administrative corruption inthe bud, Bihar�s newly-formedNational Democratic Alliancegovernment announced its decisionto do away with the MLA Local AreaDevelopment (LAD) fund.

With this, Bihar becomes the firstState in the country to do away withLAD funds for its legislators. Layingbare a road map for the State�sdevelopment over the next five years,the Nitish Kumar-led NDA Cabinetoutlined 22 new resolutions which willaid in transforming Bihar into adeveloped State by 2015.

The LAD fund money, earlierrouted through the Rural WorksDepartment, will now be channelled viathe State�s Planning and DevelopmentDepartment. (TH, 15.12.10)

All Ministries Stay, Will Rejig Work

The government has rejected the Administrative Reforms Commission (ARC) suggestionto reduce the number of ministries at the Centre. However, it has agreed to reorganise

work within the ministries and reduce the number of levels in the bureaucracy.An empowered group of ministers, headed by Finance Minister Pranab Mukherjee,

has turned down the ARC recommendation to end the proliferation of ministries anddepartments since independence. ARC had also suggested opting for no more than 25ministries headed by Cabinet Ministers and assisted by other ministers.

However, the empowered group accepted the recommendation for a mandatoryscheme of delegation in each ministry. The core group on Administrative Reforms hasagreed to implement instructions that files should not pass through more than threelevels. (HT, 03.10.10)

Hindustan T

imes


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

The veil over the 2G spectrum scam seems to be slowlylifting. As it reveals its ugly face, the country becomes

more and more involved in speculating on the name of thenext character that will take centre stage in this sordid drama.We are also being treated to some excellent side-showsinvolving land scams in Maharashtra and the mining leasescams in Karnataka. All of this has come to light after thecorruption episodes that hogged newspaper coverageduring, and after, the Commonwealth Games. And newcorruption dramas will be enacted with a completely newset of actors.

No country has been able to completely get rid of corruption.What is remarkable in India is how widespread andsystematic it is. It is difficult to think of any one sphere ofour lives where we can say that we will not face any corrupt activity. The questionto ask is why corruption is so rampant here. And, the reason is a simple one � wedo not believe in professionalism; instead, we depend on �fixers� to get the jobdone.

Take for example the 2G scam. To begin with, the minister was not exactly a naturalchoice for this important ministry. The main fixer was not somebody who can inany way be described as a public or social policy strategist, or even someonewho could be remotely described as a technologist of some repute. Many of thecompanies that obtained licences at throwaway prices had no proven expertise inthis field and they promptly sold a part (or all) of their holdings at obscenepremiums to other players even before any market was developed by them.

Take the issue of land. Both in acquisition and distribution, all decisions are takenby politicians and their relevant ministries. The expertise on, say, urban planningor 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 shoulddemonstrate expertise on these specific issues before being asked to take decisionson them. Instead, lands are acquired, they are parcelled out among the loyal andfaithful and then grandiose development plans are worked out. So, those who gotcheap allocations become rich overnight because of their proximity to decisionmakers.

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 becomemore professional-oriented. Remember, our economy reformed in the ninetiesunder a finance minister extremely well-trained in economics leading a team ofother extremely well-trained economists in major official positions. The reforms ofthe nineties were not orchestrated by fixers and that has put us on the growthpath we are now experiencing. Professionals get their reputation from a job welldone, 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 expertsby sitting on committees; they should be sitting on committees because they areexperts. Public policy decisions should be undertaken after they have beenthrashed out in the public space by professionals. They cannot be left to bedrawn up in closed-door meetings of civil servants and politicians. Otherwise,fixers will continue to have a field-day and India will continue to be at the top ofthe list of corrupt countries.

Remedy for Corruption� Shubhashis Gangopadhyay*

* Research Director, IndiaDevelopment Foundation.Abridged from an article thatappeared in The BusinessStandard, on November27, 2010.

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Friendly Companies BillAmid the ongoing controversy

over 2G spectrum scam and lobbying,Corporate Affairs Minister SalmanKhurshid said the government wouldintroduce a corporate- and people-friendly companies Bill in the Budgetsession.

The Bill sets a cap on the numberof directorships an individual canhold, as well as prevents a subsidiary(of a company) to have another arm.The Parliamentary StandingCommittee had recommended that aprovision be made in the Bill forrotation of independent directors byrestricting their tenure in a company

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

to, say, five years. The Bill may haveprovisions relating to corporate socialresponsibility (CSR). (BS, 18.12.10)

Judicial AccountabilityA Bill seeking to strengthen the

institution of judiciary of the countryby making it more accountable and,thereby, increasing the confidence ofthe public in the institution wasintroduced in the Lok Sabha by theUnion Law Minister, Veerappa Moily.

The Judicial Standards andAccountability Bill 2010, introducedby the Law Minister amid melee overthe Opposition�s call for a JointParliamentary Committee (JPC) on the2G spectrum issue that has stalledproceedings for several days, seeksto repeal the Judges (Inquiry) Act,1968.

Previously, there was no legalmechanism for dealing withcomplaints against judges, who aregoverned by �Restatement of Valuesof Judicial Life,� adopted by thejudiciary as a code of conduct withoutany statutory sanction. (TH, 02.12.10)

Amendments to Seeds BillThe government approved

additional amendments to the SeedsBill, 2004 that includes raisingpenalties for offences like sale ofspurious seeds. The additionalamendments provided for submissionof seed related periodic returns tostate governments and enhancementin penalties of offences.

In March 2010, the Cabinet hadapproved the Seeds Bill, 2004 thatseeks to regulate the quality of hybridseeds and check the sale of spuriousseeds in the country, besidesincreasing private participation inseed production and distribution.

The Bill seeks to repeal andreplace existing Seeds Act, 1966, forit does not deal with the qualitycontrol of GM seeds, as they aregenerally not notified. (BS, 20.10.10)

Ports Get Rights to Set RatesThe 12 ports owned by the Union

Government may win back thefreedom to set their own rates if aproposed new law on India�s portssector is enacted by the Parliament.The new Indian Ports Bill 2010 wouldalso allow the government to convert

the 12 ports from trusteeships intocorporate entities.

The new Act, if it goes through,will replace the Indian Ports Act 1908and the Major Ports Trusts Act 1963.The proposed Bill is intended to meetthe current operational anddevelopmental requirements of theIndian ports sector. (Livemint, 20.10.10)

Uniformity in HealthcareThe Clinical Establishments Bill,

2010 passed in the Lok Sabha makingit mandatory for all clinicalestablishments in the country toregister as per the provisions of thenew statute. The Bill, which has beenpending for several years, aims to bringin uniformity in the healthcare deliveryand prescribes penalty for thedefaulting establishments.

The legislation is now applicableto clinical establishments under allrecognised systems of medicines ortreatment under Allopathy andAyush. It would apply to all thehospitals or clinics including singledoctor establishments, with or withoutbeds.

The Act includes any laboratory,which offers pathological,bacteriological, genetic, radiological,chemical, biological and otherdiagnostic or investigative services.

(raviverma24.blogspot.com, 05.11.10)

Introduction of Mining BillThe Union Government approved

the introduction of a Bill in theParliament to amend the Mines Act,1952 . The Bill proposes to amend thelaw relating to regulation of conditionof work and welfare of personsemployed in the mining sector. The Actwas last amended in 1983.

The Bill proposes that that everyperson who contracts for the servicesor operations in a mine, and includes acontractor and sub-contractor, shall beconsidered the �owner.� Considering therisk factors involved in mining, the billenhanced penalties by about 100 times,so that the offender is not let off with atoken penalty, as is mostly the case.

The Mining Bill has generatedintense media debate over its 26percent profit sharing clause and overthe proposal to separate the miningaccounts of integrated steel plants.


Police to CheckMoney Laundering

The Prevention of MoneyLaundering Act (PMLA)

amendment will lead to coordinatedinvestigation by agencies. In a recentchange of law, the police of everystate have been empowered toquestion anyone on suspicion ofmoney laundering or having incomethat is illegal or disproportionate tohis income sources.

This is after the amendment tothe PMLA, 2002. Section 66 of PMLAempowers local police, who willthen have to report to the FinancialIntelligence Unit, the CentralGovernment agency responsible formonitoring possible moneylaundering transactions.

The legal change is part of theeffort for the Government of Indiato become part of the FinancialAction Task Force, an inter-government body to combat moneylaundering and financing ofterrorism. (BS, 01.10.10)

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H E A L T H N E W S

There are many common brandnames used by separate pharmacompanies. Besides the same brandname, many companies use variantsof an existing brand that aredeceptively similar to a differentproduct.

The problem lies in multipleauthorities involved in grantinglicense to market and manufacture adrug. Drug marketing licences aregiven by national Drug ControllerGeneral of India after the efficacy andsafety of a medicine is established.

(ET, 21.10.10)

Health for All!Recognising the importance of

defining a comprehensive strategy foruniversal health coverage, thePlanning Commission has set up ahigh level expert group to develop a15-member blueprint and investmentplan for meeting the human resourcerequirements to achieve �health for all�by 2020.

The group is mandated to reworkthe physical and financial normsneeded to ensure quality, universalreach and access to healthcareservices, particularly in underservedareas and to indicate the role of privateand public service providers.

The group will suggest criticalmanagement reforms in order toimprove efficiency, effectiveness andaccountability of the health deliverysystem. (TH, 20.10.10)

place, which would disseminate lifesaving information about non-standard drugs or banned drugs tothe pharmacist. (ET, 29.11.10)

MCI Crackdown on QuacksCracking down on quacks

operating in the country, the Board ofGovernors of the Medical Council ofIndia has issued a circular to healthsecretaries of all state governmentsand superintendents of police of thedistricts among others to list medicalpractitioners covered by the Council.

�Allopathy, Indian system ofmedicine, homoeopathy and bio-chemic system of treatment isrecognised by law in our country.Apart from these systems of medicine[also excluding animal husbandry,surgery and dental services, there isno system of medicine recognised inthe country.

Electro-homoeopathy, alternativesystem of medicine, integrated systemof medicine and Indo-allopathy whichare being practiced as systems ofmedicine in our country are notrecognised by law�, noted the circular.

(TH, 15.10.10)

Drugs� Registration MandatoryThe government plans to make it

mandatory for drugmakers to registertheir brands to avoid marketing ofmedicines, used to treat differentdiseases under the same brand name.

New Regulator for Health SoonThe Bill to set up National Council

for Human Resource in Health(NCHRH) � the overarchingregulatory body for the health sector,which will replace the existing Medical,Dental, Nursing and Pharma Councilsof India � will be introduced inParliament soon.

The Bill will seek to create anenabling environment that will addressissues of quality, quantity andequitable distribution of medicaleducation resources.

The government is trying toaddress the lacunae of inadequatepublic provisioning for critical healthservices. The 11th Five Year Plan hasenvisaged an increase in publicexpenditure on health to at least twopercent of GDP. (ToI, 02.10.10)

Evaluating Drug PricesMore definitive contours on the

price control that governmentexercises on medicines are expectedto emerge with the revised NationalList of Essential Medicines (NLEM)expected in December 2010.

The revised NLEM will form thebasis of the policy on price control.At present, the NLEM comprises 354medicines, of which 74 are under pricecontrol. Under the Union HealthMinistry, the erstwhile List ofEssential Drugs was rechristenedNLEM and its last major revision wasin 2003. The development gainsimportance since the proposed newDrug Policy has been hanging fire foreight years now. (TH, 01.12.10)

SMS Alerts on Banned DrugsGujarat Food and Drug

Administration (FDA) has developedsoftware that would enable the FDAto send short messaging services(SMS) to all pharmacists in the stateon non-standard drugs and banneddrugs. If this happens, then the stateFDA would be the first to providewarning alerts through SMS in thecountry.

The FDA office had approachedsome of the telecom operators in thestate and will select those operatorswho have larger market share andprovide good services. Interestinglythere is no other state FDA in thecountry to have such a system in

Insurers to Detect Bogus Claims

The government has askedhealth insurance companies to

crack down on hospitals that raise falseclaims as it seeks to widen the scopeof Rashtriya Swasthya Bima Yojana(RSBY), the hugely successful publichealth insurance scheme for poorfamilies.

The Labour and EmploymentMinistry has issued guidelines toinsurance companies for hospitalsurveillance and de-empanelment ofhospitals engaging in fraudulent activities. It is also putting in place aprocess for dispute resolution between insurance companies and hospitals.

Claiming insurance money is easy for hospitals as they just have toswipe smart cards owned by the patients loaded with the sum insured.However, since data flows on a daily basis from hospitals empanelledunder the RSBY to the Central server, suspicious activities often stand out.

(ET, 25.10.10)

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E D U C A T I O N N E W S

Privatising Higher EducationSuggesting increased private

partnership as a viable financial modelto enhance investments in theeducation sector, the government hasrecommended raising fees in highereducation institutions and allowingschools to function as profit-makingbodies with a regulatory mechanismin place.

For students belonging to weakersections, there could be provision forfinancing grants for pursuing highereducation, repayable after studentsstart earning so as to ensuresustainability of the system.

The analysis says adequacy ofteachers � both in numbers and quality� remains a cause for concern.

(TH, 08.12.10)

Code of Ethics for TeachersLike doctors and lawyers, teachers

may soon be subject to a �code ofprofessional ethics�, which includesclauses for disciplinary action overcorporal punishment, private tuitionsand other �anti-community�activities.

If accepted by the government, theproposed code would apply to schoolteachers across the country, fromprimary to secondary and seniorsecondary levels, and acrossgovernment as well as private schools,with the aim of restoring �dignity andintegrity� to the vocation of teaching.

One of the most far-reachingrecommendations of the code is

setting up of a professional body likethe Indian Medical Association or BarCouncil of India, which applies toprofessionals in their respective fieldsand imposes penalties in case ofviolations of ethical practices.

(FE, 27.12.10)

HP Passes Education BillHimachal Pradesh Assembly

passed the key Private Institutions(Regulation Commission) Bill seekingto regulate the functioning ofinstitutions of higher educationincluding private universities.Himachal Pradesh was the first stateto bring such a Bill to regulate highereducation.

More amendments could be madeif needed with passage of time as thegovernment was committed toregulating higher education. The Billprovides for constitution of a three-member commission to regulate thefunctioning of private institutions anduniversities. It also empowers thecommission to impose a penalty uptoA5 crore for violation of guidelines setby government and other statutorybodies. (FE, 10.12.10)

Ordinance to Regulate FeesMaharashtra government is

planning to come out with anordinance to regulate fees charged byprivate schools. Earlier, Minister forSchool Education, Rajendra Dardainformed the members who raised theissue in the Assembly that the

government was formulating a policyfor the private schools and it wouldbe announced on the first day ofBudget session of the Legislature inMumbai.

Members, however, pointed outthat it would be too late by then asthe admission process in privateschools would be almost over by thenand argued the government shouldcome out with an ordinance.

Conceding the demand of themembers, Darda said the state wantedto wait for some time as the CentralGovernment is also coming out with apolicy on the same issue. (BL, 09.12.10)

Corruption & Primary SchoolsThe Bihar government is making

good its promise to confiscate theproperty of corrupt officials and turnthem into primary schools. That iswhat has happened at the home offormer motor vehicle inspector (MVI)Raghuvansh Kunwar at Chaira villagein Samastipur district. Thegovernment has already begun theprocess of setting up a primary schoolthere.

He owns property worth A80 lakhand was allegedly caught red handedaccepting a bribe of A50,000 when hewas MVI of Aurangabad district onSeptember 24, 2008. In the course ofinvestigation, vigilance officials foundhuge unaccounted for wealth. A caseof disproportionate assets wassubsequently lodged against him in2009. (DNA, 11.12.10)

Boosting Education�The government may come up

with a law in the coming years to makesure that all children must go fromelementary to higher secondaryeducation which is vital for the futureof the country�, Kapil Sibal said.

He said that while the Right ToEducation has now become afundamental right, a similar move iscrucial for the secondary educationso that there is a critical mass at theuniversity level who will create wealthfor the country.

He also ruled out fears that costof education will go up, saying 93percent of the education infrastructurein the country lies in public sector.

(BS, 20.11.10)

Vocational Education on Cards

The Union Government is planning to bringin a national vocational education

framework within one year, according toKapil Sibal, Union Minister for HumanResource Development.

A national policy on vocationaleducation was the need of the hour toensure that the parameters of each vocationwere well identified and benchmarked. Thevocational training programme could beprovided at various levels starting fromStandard VIII and could either be integratedwith the regular curriculum or be offered asstandalone courses, he pointed out.

The state governments could be asked to identify and devise vocationalcourses, standards of which would be decided at the national level. Thegross enrolment ratio was only 12.4 percent at present and the aim was totake it to 30 percent by 2020, he said. (BL, 20.10.10)

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M I C R O F I N A N C E S E C T O R

Regulator to Review SectorMicrofinance Institution Network

(MFIN) � the self regulatoryorganisation of the of the microfinance organisation � has demandeda comprehensive regulator for thesector to check indiscipline in thefunctioning of the sector.

MFIN comprises 31 non-bankingfinance companies (NBFC) MFIsincluding the top 10 MFIs. It is timethat the sector gets a regulator whichwill go beyond prudential regulationsand cover all aspects such asprevention of over-lending, excessiveprofit and coercive recoveries and alsogrievance redressal of clients.

The MFIs charge an interest rateof 24 percent per annum as against 30percent being charged by themoneylenders. As MFIs grow largerreaping economies of scale, theyshould pass on the cost of savings totheir clients in the form of lowerinterest rate. (FE, 21.10.10)

Doors Shut on MFIsThe Andhra Pradesh Micro

Finance Institutions (regulation ofmoney lending) Ordinance, 2010,approved by the State Governor, E SL Narasimhan seeks to regulate MFIs,making it mandatory to register withlocal authorities, while havingstringent punishment for coercivemethods of collection of dues.

The Ordinance passed in the wakeof nearly 40 deaths allegedly due toharassment by MFIs on loan dues,also has provisions to create fast-track courts in consultation with theHigh Court of Andhra Pradesh, withan express provision for disposal ofcases within three months. The MFIsnow have to register with the localauthority and display the interestcollected prominently. (BL, 16.10.10)

Credit to Weaker SectionsPrime Minister �s Economic

Advisory Council Chairman CRangarajan emphasised thesignificance of micro-finance as aninstrument for financial inclusion ofweaker sections and said linkagebetween banks and SHGs should bepromoted to provide credit on easyterms to small borrowers.

Dr. Rangarajan said micro-creditshould be an integral part of the model

for financial empowerment ofmarginalised sections of society andimprovement of their productivity. Heregretted that SHGs had not yet beengranted a legal status even though theRBI had given the mandate in 1992 toprovide loans to them.

The support to the bank-SHGlinkages as well as expansion ofbusiness correspondents programmewould ensure growth of bank-relatedmicro-finance sector even as otherforms of micro-finance institutionscontinue to grow. (TH, 06.10.10)

MFIs or Moneylenders?Private MFIs� vision of

�eradicating poverty� is far removedfrom reality, say finance experts. Theysay MFIs are no better thanmoneylenders, who lend to the poorat a higher rate of interest, or almostthe same as a moneylender, and turnthis into a profitable venture.

Banks, which are meant to reachout to the rural poor but choose tofund MFIs instead, have onlycontributed to the debt crisis the poorare facing in Andhra.

The MFI sector in the state haslargely three kinds of players: theSHGs which are governmentsupported MFIs, the private MFI firmsand non-profit NGOs. (ToI, 14.10.10)

Interest Rate to PlummetInterest rates in the microfinance

industry will fall with greatercompetition and the emergence of

Law to Cap Interest Rates

The Centre is planning tobring in legislation to put a

cap on the interest to becollected by the microfinanceinstitutions (MFIs), AndhraPradesh Rural DevelopmentMinister V Vasant Kumar said.

The state government hadbrought out an ordinance to reinin the MFIs whose coercivemethods have resulted in thesuicides of a large number ofpeople in the state. The women�s groups at the district level can speak tothe MFIs to reduce the high interest rate being collected by them. Self HelpGroups (SHGs) should be run in a fool-proof manner. The state governmenthas asked bankers to ensure that their loan disbursement targets with regardto the poor are met. (FE, 27.10.10)

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ordpress.comdisruptive business models that offersimilar services at far lower coststhrough process innovations. Asscale improves and the desiredefficiency numbers are reached, thecosts fall sharply.

Broadly, an MFI�s costs consistof four components. The first is therate of interest at which the MFIborrows. MFIs do not acceptdeposits; the rates at which they raisemoney thus form the base rate for themto be able to lend. The secondcomponent is the cost to the MFI ofrunning its operations. The thirdcomponent is the loan loss reserve foranticipated defaults. And the fourthis the cost of capital. (BL, 27.10.10)

Private Equity in MicrofinanceEven as investors await regulatory

clarity, allocation to Indian MFIswould not dip.

Though Indian private equityplayers are upset over the AndhraPradesh government�s stand againstthe state�s microfinance sector, theglobal investors that pump moneyinto the PE firms remain bullish on thesector. MFIs already face a shortageof funds as banks refuse to lend themmoney.

MFIs have posted over 500percent growth in 2010 as far as PEinvestments are concerned. In 2009,only five deals worth US$20mn tookplace, while 2010 witnessed about 18deals worth US$132mn in themicrofinance space. (BS, 19.12.10)


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 NSEThe Competition Commission of

India�s (CCI) investigation wing hasfound �predatory pricing� by NationalStock Exchange (NSE), the country�slargest and most diversified exchange,in the over two-years-old currencyderivatives segment.

According to an official source, theCCI Director-General�s probe on acomplaint by rival MCX-SX clearlyestablished that NSE enjoyed adominant position in the exchangemarket by virtue of its presence acrossverticals, and it abused this privilegedstatus by waiving transaction fee inthe fledgling currency futuressegment.

Predatory pricing is an anti-competitive behaviour that ispunishable under competition law.

(FE, 12.11.10)

Banks Mergers SealedA government panel has favoured

exempting crisis mergers betweenbanks from the CCI�s oversight, adecision that could boost theCorporate Affairs Ministry�s efforts toget speedy Cabinet approval for theproposed merger norms.

The committee of secretaries setup to clear the regulatory logjam overbank mergers, however, could notagree on the RBI�s view that allmergers between the country�s lendersshould be kept outside the purview ofthe competition regulator.

The move is in conformity withthe internationally accepted practiceof exempting crisis mergers from thepurview of competition regulators.

(ET, 09.12.10)

Competition Policy ReviewIndia said at the recently

concluded UN summit on trade anddevelopment that competition policyfollowed in various nations have tobe reworked so that it protects thecommon man�s interest in times ofeconomic crises.

�During these times (of economiccrises), it is the common man who isaffected the most, and therefore,competition policies have to bereviewed and re-oriented to ensure theinterest of the common man,� said CCIChairperson Dhanendra Kumar.

The meet reviewed themultilaterally agreed equitableprinciples and rules for the control ofrestrictive business practices.Besides preventing cartels,competition law tries to ensure thatthere are no entry barriers in aneconomy. (FE, 17.11.10)

CCI Favours Home LoanIn its first ruling, the CCI held that

lenders offering housing finance werenot being unfair in charging a fee onadvance repayment of home loans.The matter was taken up after anindividual filed a complaint with CCIagainst home lenders alleging that

they were abusing their dominantpositions in the market by chargingpre-payment fees on certain schemes.

CCI held by a 4-2 majority verdictthat the 15 banks and housing financecompanies (HFCs) involved in thecase were competing fairly and werenot being unfair in levying pre-payment charges.

Deutsche Postbank Home FinanceLtd, State Bank of India, Oriental Bankof Commerce and LIC HousingFinance Ltd were among thoseinvolved in the case.


Cartelisation by Cotton TradersThe State Cotton Federation has

launched procurement but not a singlefarmer has turned up to sell cotton atits collection centres because of thehuge gap between minimum supportprice and the open market rates.

But private traders are now beingaccused of cartelising in order to pulldown prices as it has become a buyers�market.

Nearly half a dozen incidents ofclashes between protesting farmersand traders trying to manipulatecotton and soyabean prices inVidarbha were reported from all overVidarbha. Traders who have a strongnetwork and faster means ofcommunication have allegedlyganged up. (ToI, 17.11.10)

Kingfisher Accused by CCIThe CCI, on November 21, 2010,

under Section 43 of the Act imposeda A1 crore (US$220,000) fine onKingfisher Airlines for not providingsufficient information in the CCI�sinvestigation of the airline�s alliancewith Jet Airways.

Subsequently on December 01,2010, Competition Appellate Tribunal(COMPAT) stayed the CCI orderimposing A1 crore fine on Kingfisherairlines.

COMPAT ruled against theimposition of a fine after it wasconvinced on the facts thatKingfisher had indeed furnished theinformation sought by the CCI in time.The COMPAT order is confined to thequestion of the fine alone with adecisive hearing scheduled to takeplace on January 20, 2011.

(BS, 22.11.10 & 02.12.10)

Cartels Behind Onion Price Rise

A few traders bought small quantities at high rates to signal a spike inprices. Price fixing by some traders acting together reportedly fuelled

onion price rise. They boughtminuscule quantities at high rates,sending a message that prices had goneup sharply.

On December 20, 2010 themaximum and minimum prices atAsia�s biggest onion market, Lasalgaon,were A6,299 and A1,200 a quintal,respectively, while the averagewholesale price was A3,800 a quintal.

Most farmers were deprived of thebenefits of the high prices quoted thatday. Prices were raised in the retailmarket on the basis of higher wholesale prices, as the Agricultural ProduceMarket Committee (APMC) announces the low and high prices. This gavewrong signals to retailers and other wholesalers. After the CentralGovernment�s ban on export, prices started declining. (BS, 29.12.10)

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S P E C I A L C O L U M N

This has been a bad year for therepublic. The economy may have

recovered with the revival of growthand our egos may have been boostedby the attentions of the great powers,but for practically every institution ofgovernance, this has been an annushorribilis with scams and scandalsthat have shaken the faith of allthinking people.

The corruption that bedevils ourpolitics and the bureaucracy isnothing new. But the 2G scandalmarks a new high in the amounts atstake and the Commonwealth Gamesscams show the brazen willingnessto make money even when the honourof the nation is at stake.

As for the corporate sector, the Radiatapes and the subsequent spatbetween two business leaders whodid command respect have shownthat we were right to never havecounted on their moral sense. In fact,the problem of corruption arisesbecause the Indian corporate sectorhas not yet given up the Licence-Rajmentality of seeking a competitiveedge through regulatory leverage.

The real challenge to our self-esteemhas been the assault on ourconfidence that an independentjudiciary and a free press wouldimpose some standard ofaccountability. Along come theexplosive charges levelled against thejudiciary by the Bhushans, father andson. As for the media, allegationsabout paid news and the Radia tapesshow how easy it is to manipulatethem.

Ill Fares the Land� Nitin Desai*

The current crisis of confidence in institutions ofgovernance is an opportunity for reform

We have laws and institutions thatare meant to enforce accountability �the Election Commission, the PAC, theCAG, the CVC, the CBI, theEnforcement Directorate and, ofcourse, the Law Courts. Yet impunityis the norm and hardly anyone ispunished. There is no fear ofexposure or imprisonment to constrainthe many who can misuse their office.

Why have we reached this sorrystate? The usual excuses for politicalcorruption are the need for electionfunding and the �coalition dharma�that protects corrupt politicianswhose support is needed by theruling party. This gets combined witha no-holds-barred politicalcontestation that leads to thepoliticisation of the investigatory andprosecution machinery.

The scope for political corruption liesin the role of ministers at the Centreand the states in the exercise of thediscretionary powers of thegovernment in the implementation oflaws and the management of publicproperty, particularly public lands.

Can we do something to salvage ourConstitution or shall we sit by as wedrift further into the morass of amoralgovernance? Here are a fewsuggestions:

� A Committee of Elders must be setup to consider various proposalsthat are ready and recommend afair system.

� Make bureaucrats and regulatorsindependently responsible for

implementing laws and this nexuswill be broken, and ministersanswerable to the legislature willbe able to enforce accountabilityand prosecute malfeasance.

� Transfer all public lands that canbe used for development to asovereign investment trustmandated to manage them in thepublic interest.

� The two key institutions forbureaucratic accountability, theCVC and the CBI, must be madeindependent on the linesrecommended in several SupremeCourt judgments.

� The corporate sector and theirlobbyists, the media and the publicrelations industry also need to gettheir act together with anenforceable code of conduct.

Is there any hope that some of thiscan be done in the present politicalclimate? In the enveloping darkness,there is one ray of hope.

We have a Prime Minister ofunimpeachable integrity. He now hasto accept that his greatest challengetoday is to restore the faith of thethinking classes in the majorinstitutions of governance. He will notget the support of the political class forthis agenda of political reform. But hecan force it on them as, right now, theyneed 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.

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Ill fares the land, to hastening ills a prey, where wealthaccumulates, and men decay

� Oliver Goldsmith


S P E C I A L C O L U M N

The mountainous state-owned food stocks lying in the open and rottingin the rain are in stark conflict with a failing public distribution system, hunger,

malnutrition and high food prices. The poor management of food stocks provokedthe Supreme Court to transgress into executive domain when, on August 12, the courtmade certain directions like limiting procurement to covered warehousing capacityand distributing the rotting foodgrains free of cost to the poor. The directions weregiven with the noble intent to prevent the wastage of foodgrains and a feeling ofempathy towards the poor and hungry.

As on August 1, 2010, the total food stocks with the FCIwere 55 million tonnes (mt) as compared to the bufferrequirements of 27 mt. Of this, 15 mt of wheat was lying inthe open in Punjab and Haryana alone. As per estimates,50,000 tonnes of food stocks have already deterioratedbeyond human consumption as a result of long, improperstorage.

There are two essential components to the managementof food stocks: procurement and distribution through PDS.To ensure that stocks are available round the year for thePDS, different buffer stock norms are prescribed fordifferent points of time during the year. The storage oughtto be in scientific warehouses to prevent damage. FCI�slosses are billed to the exchequer and are known as thefood subsidy bill.

If the stocks exceed the warehousing capacity, safe storage becomes a challenge. Butif the stocks are lower than the buffer stock norms, the problem would be to meet therequirements for PDS. This is addressed if FCI is mandated to manage the stocks asper buffer stock norms through open market operations of buying /selling. The effortsof FCI to dispose of some of the excess stocks of wheat at a price of A1,240 per quintal(excluding VAT) in the recent past have met with abject failure since the price demandedwas not commensurate with the quality of the stocks offered in addition to theadditional transactional costs in dealing with FCI staff.

The solution also does not lie in fixing the open market sales scheme (OMSS) pricemuch below the market price. This will only offer the trader arbitrage opportunities inconnivance FCI staff. Low OMSS prices had led to large-scale corruption in the FCI,for which the government failed to pinpoint responsibility.

Unfortunately, the court�s directions to distribute rotting foodgrains free of cost tothe poor, no doubt appealing to the emotions, would suffer from the same malady. Itwould lead to massive diversions due to arbitrage opportunities in active collusionwith the FCI staff without benefiting the intended beneficiaries. Organised diversionof PDS stocks direct from government warehouses to private flour mills is rampant,with the differential pocketed between the transporters, the PDS shopowners and thegovernment staff. The FIRs yield no concrete result, given the quality of investigationand prosecution and the interminable delays in judicial trials.

Chief economic adviser to the government Kaushik Basu has suggested offloadingexcess food stocks in small lots in order to depress market prices. The same wasofficially suggested to the FCI/food ministry two years back to dispose of the excessstocks by open and transparent domestic auctions in small monthly lots to reduceany arbitrage opportunities instead of disposals at fixed prices to selected parties.However, FCI continues to dither between exporting excess food stocks and domesticdisposals at fixed prices.

Rotting Grain & Judicial Transgression� Ashok Khemka*

The current

state-managed

public

distribution

system is corrupt

beyond

redemption and

way too costly.

The way out is to

have cash

transfers/food

coupons

* IAS Officer. The articleappeared in The EconomicTimes, on October 07, 2010.

The

Eco

nom

ic T

imes


F E A T U R E

Does India need non-profitorganisations to fuel social

development? It�s a question that isgaining traction because theseinstitutions have acquired a certaincritical mass and are increasinglybecoming powerful voices in publicdiscourse. Sonia Gandhi�s NationalAdvisory Council (NAC) partlyreflects this growing influence onpolicy in the form of the Right toInformation Act, the controversialrural employment guarantee schemeand, now, the contentious foodsecurity programme. But NGOs havebeen increasingly vocal on a rangeof issues from Bt brinjal to the nuclearliability Bill, environment, landacquisition, FDI and so on.

It would certainly be impractical toignore the voice of civil society asamplified by NGOs because sheernumbers suggest that they are majorplayers in the Indian polity. Earlier in2010, a study by the Ministry ofProgramme Implementation, the firstof its kind by the government,estimated that there were 3.3 millionNGOs operating in India as at the endof 2009.

The study said just 41 percent ofthese are actually involved in socialservices and philanthropic activities.Many of the larger foreign agenciesresemble well-heeled corporations.One � uncorroborated � onlineestimate says NGOs raise betweenA40,000 crore and A80,000 crore infunding annually. That isn�t hugewhen set against India�s GDP, but itis fair to say that India is among the�go to� nations as recipients of donormoney. Foreign contributions haverisen steadily � they grew 25.9percent in 2005-06 and 56 percent in2006-07.

There are two ways of explaining thisNGO boom. One, it is a sign that Indiahas progressed far enough for somesort of responsible civil society tofinally emerge. This is true of

Do We Need NGOs?� Kanika Datta*

It�s a question

that is gaining

traction as NGOs

have acquired

critical mass and

are increasingly

becoming

powerful voices

in public

discourse

corporate India where, whatever themotivations, philanthropy hasemerged as a compulsory virtue. Two,their growing presence represents thefailure of government to delivermeaningful human development.Both are valid explanations butdespite its growing clout, the best ofintentions and some undoubtedachievements, it�s not the NGO sectorthat can transform India�s humandevelopment predicament.

It is worth noting that despite thegrowing size and power of the NGOsector, India�s human developmentrecord has remained at sub-Saharanlevels � and sometimes below. This isnot because NGOs are inept orsinisterly corrupt but because theirtransmission mechanisms for changeare limited, either by the size of theirorganisations, their agendas or theamount of donor money they receive.The current controversies over themicro-finance business, which has aquasi-NGO status, highlight some ofthat dichotomy.

In countries like Bangladesh, Indiaand those in Africa, micro-finance hasundoubtedly been a signal successin providing the poor access to creditthat larger, formal institutions cannotdeliver. It has transformed some, evenmany, lives. But it has not eradicatedpoverty in entire nations. This is not

because those MFIs are ineffectiveor fraudulent � though there are somecharlatans here as there are in everywalk of life � but simply because thesecountries suffer other structuralissues that are not within the domainof micro-finance.

All the same, it would be illogical toargue that NGOs are redundant.Thousands of them do sterling work.Their presence acts as a mirror tosociety and has occasionallygalvanised the government intopositive action. For the most part,however, they remain external voicesof opposition.

In the NAC, Sonia Gandhi has founda creative way of co-opting them intopublic policy. But the NAC remains ahotly debated association since it isaffiliated to one person in one partyand has no public accountabilitythough it uses taxpayer resources. Itsprescriptions, too, have beenquestioned with economists arguingthat employment schemes and rightto food create entitlements that thegovernment cannot afford.

Still, its representatives keep theissue of poverty and inequalitysquarely in the public eye and that,surely, cannot be a bad thing.

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

ww

w.sam

hita.org

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

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 beused as a reference for further information and do not indicate the literal transcript of a particular news/story.

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

The October-December 2010 issue of newsletter, �ReguLetter� encapsulates�Call for World Competition Day� in its cover story, which state that cartels

in the air cargo industry should be of concern to all stakeholders as they have aserious negative impact on efforts towards economic development and povertyreduction in developing countries. What is therefore apparent that competitionauthorities in developing countries also need to be in a position to join in andprosecute such international cartels once they are discovered.

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

A special article by Frederic Jenny and David Lewis says that had a regionalAfrican competition law covering all African countries existed, the market-sharingagreement between Castel and SABMiller could have been prohibited and vibrantcompetition could have been preserved. Another special article by JagdishBhagwati argues that the attempt by some NGOs and activists to impose astraitjacket on CSR, reflecting their priorities, is misguided and must be rejected.

About a Competition Law looks at the competition scenario in China, theinstitutions of competition law in the country and the scope of improvement inthe law.

This newsletter can be accessed at: http://www.cuts-ccier.org/reguletter.htm

Collusive Behaviour in Health Delivery in India:Need for Effective Regulation (COHED)

Consumer Unity & Trust Society (CUTS) with the support of Oxfam Indiahas initiated a project to identify collusive and deceptive behaviour and

advocate for appropriate (policy and regulatory) interventions for enhancingaccess to affordable and quality healthcare in two states of Assam andChhattisgarh. CUTS intends to document the nature and type of these practiceson the ground and their implications for the consumers in partnership withlocal civil society organisations.

Overall goal of the project is to �generate interest/awareness among thegovernment, media and other stakeholders about the crucial relationship betweenincidence of anti-competitive practices in the healthcare sector and poor qualityand affordability of healthcare services in India.�

The objectives of the project are to perform advocacy among relevantorganisations to garner support for research aimed at identification of deceptiveand collusive practices in the healthcare sector; assess the scope and effectivenessof the present regulatory system, especially the Competition Act, 2002 to dealwith anti-competitive practices in the healthcare delivery; makerecommendations for better regulatory outcomes and spread awareness aboutthese recommendations to lay the ground for their redressal.

For more details, please visit: http://www.cuts-ccier.org/COHED/

Ongoing Project

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