PolicyWatch - CUTS Centre for Competition, Investment ... of people change that it did not involve...

In the epic Mahabharata, when Draupadi was being disrobed, the blindking Dhritarashtra �watched� it silently and unashamedly. He did not

stop Dushashan from this dastardly act, as the crown prince Duryodhan wasegging him on. Bhishma Pitamah sat still with deafening silence, and thewise minister Vidur protested when Draupadi shouted in anger.

We see a similar dramaunfolding, when the head ofgovernment claims totalhonesty but does notrespond to the charge thatall this was happening rightunder his nose. Whether itwas the 2G scam or theCommonwealth Games orthe cash-for-votes, can theperception of people changethat it did not involve thehighest authority in thecountry?

This is why the support for the Anna Hazare movement was spontaneous.People are hoping that the movement will bring about better governance inthe country. Corruption has now become a part of our DNA and is now apandemic. To amplify the systemic issues, the public distribution system isone such glaring example. Research shows that only 10 percent of the benefitsaccrue to the poor, while leakages are about 43 percent, and the rest goes tothe inefficient government system.

Another issue that has been raised in the current debate is whether theLokpal institution itself cannot be corrupted. One instance in early 1980scan amplify this issue. The peon, when requesting for a leave in a divisionalengineer�s office, was asked for a bribe of M150 to approve it. The peoncomplained to the Anti-Corruption Bureau, who caught the accounts officerred-handed. He paid a bribe to the bureau officials to get the case squashed.In a perverse sense, this was democratisation of corruption. The peon,otherwise a simple and honest man, started demanding bribes in order toaccess engineer�s office.

Today, the rates of bribe have gone up. In one instance, a patwari shockedan entrepreneur by demanding M50,000, instead of the usual M5,000, forissuing a patta for an authorised conversion of land from farm to commercialuse. These two instances point to lack of transparency and accountability inthe system and its monitoring. In both the cases, there was no system tocheck the progress of matter by superiors, and this is systemic.

With the movement now on the Lokpal Bill that has already had a salutaryimpact on our economy and the governance system, we need to start a similarmovement. Only then can we hope to arrest the pandemic of corruption.

PolicyWatchPolicyWatchVolume 12, No. 3 July-September 2011

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

Inclusive Growth,Here We Come� Sunil Jain .....................10

Governance and Growth� A VRajwade ................ 15

India�s DiscordantDemocrats� Arun Maira ..................22

India is too Corrupt tobecome a Superpower� Ramachandra Guha .....23

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

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

�The reformer has enemies in all those who

profit by the old order and only lukewarm

defenders in all those who would profit by

the new.� Machiavelli in The Prince

H I G H L I G H TS

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

TRAI Speeds up 4GAuction ..................................2

Market Price for LPGRefills ....................................4

Joblessness Falls Fasterin Cities ............................... 11

Welfare Measures morethan Reforms ..................... 14

Cash under FoodSecurity Act ......................... 16

Arresting thePandemic of Corruption

Satish cartoons

2 / www.cuts-international.org July-September 2011 PolicyWatch

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

VoIP to Get Nod from DoTThe Department of Telecom (DoT)

is considering opening up the Internettelephony segment and allowingunrestricted calls by consumers usingtheir Internet connections. In 2008, theTelecom Regulatory Authority of India(TRAI) made a recommendation toallow unrestricted Net telephony toall operators including InternetService Providers, without imposingany additional entry fee or licencecharges.

However, the DoT had rejectedthe proposal at that time on groundsthat it would disturb the level playingfield with incumbent mobile operatorsthat have paid M1,650 crore as entryfee. But now the DoT is having arethink since it is reviewing thetelecom policy in its entirety.

If unrestricted Net telephony isallowed, it will enable players such asthe Mukesh Ambani-promotedReliance Infotel, which recentlybought broadband wireless accessspectrum, to offer voice services alongwith data. Reliance Infotel had boughtthe spectrum on an ISP licence.

(BL, 21.07.11)

Draft ICT Policy SoonThe Department of Information

Technology (DIT) is all set to formalisetwo key policies � National

Communication Policy (ICT)-2011 andNational Policy on Electronics � whichwill not only help bring public utilitiesunder the information technology (IT)net but also make India the hub ofelectronic manufacturing forentertainment, defence, medical andeducational devices.

On the hardware front, somecomponents of the policy will besimilar to the recommendations madeby the IT task force in 2010, whichalso suggested making India theelectronic manufacturing hub forvarious sectors.

For the ICT policy, the Departmentis mulling the use of IT for monitoringprogrammes related to water wastage,value-added services and otherutilities. The draft National ICT Policywill be two pronged and based on�connected and unified government�and �empowerment of citizens�.

(FE, 11.07.11)

Integrated Post Service in PlaceFaced with the challenge posed by

the IT revolution, the Ministry ofCommunications plans to haveintegrated postal services in twoyears. The Union Minister of State forCommunications Sachin Pilotdisagreed with the view that with theinternet revolution spreading, thepostal services were losing clientele.

He said IT had progressed verywell with 2.6 million getting jobs in the

sector. The Speed Post Service hadgrown popular.

Pilot had ordered that 300 digitalsatellite phones be made available inborder areas where the people did nothave access to mobile phones. OnlyBSNL was offering telephone facilityin remote areas. (TH, 24.08.11)

Single Permit for Tele ServicesThe new telecom policy may allow

companies to offer all forms ofcommunication services under a singlepermit. The biggest beneficiary of themove could be Mukesh Ambani-controlled Reliance Industries (RIL),which can offer voice services andbecome a full-fledged telecomoperator.

Currently, telecom companies needseparate licences for each type ofservice such as GSM, CDMA, 3G,broadband wireless (4G), internet,Direct-to-Home and radio amongstothers. The new policy will delinkspectrum from the licence. It aims tomigrate all the different types oflicences to a unified one called an EndUser Service Provider permit, underwhich one can provide voice, data andbroadcast services. (ET, 26.07.11)

VAS under TRAI RegulationThe TRAI looks all set to bring the

M12,000-crore mobile value-addedservices (VAS) market under itsregulation, a long-standing demand ofVAS providers. The regulator hasissued a consultation paper asking allstakeholders to give their views on astring of questions centred aroundregulating the VAS industry.

At present, under the on-deckmodel, mobile phone user can onlyaccess the services of VAS providerswhich the telecom carrier chooses tooffer. Since the billing is done by thetelecom carrier it retains the lion�sshare of 60-65 percent revenue.

However, TRAI has explored theoption of the off-deck model underwhich the economics changesfavourably towards the VASproviders. Under the off-deck model,the content providers or the VASproviders sell the services directly tothe consumers by integrating withmultiple operators using a short codeassigned to them. (FE, 22.07.11)

TRAI Speeds up 4G Auction

The TRAI has identified at least six blocks of 20 MHz spectrum eachwhich can be auctioned to telecom companies for offering 4G services.

4G enables data speeds of 5-12 mbps on mobiles and is many times fasterthan 3G. The spectrum identified includes the 700 Mhz band as well as the2.5-2.6 gigahertz band. This means the government will be able to offer 4Gspectrum to eight companies, leading to tough competition.

The 4G road map which TRAIis working on envisagesallowing voice-over-internettelephony between mobileand landline networks. Atpresent, internet calls areallowed between PC and PC,but without any connectivityto a PSTN network.

Permitting voice-over-internet calls will open a new market, especiallyfor companies such as Reliance Industries, which have bought a pan-IndiaBroadband Wireless Access (BWA) licence but cannot offer voice calls untilthey tie up with a 2G operator. At present, they can offer only data services.

(BS, 15.07.11)

COMMUNICATION

www.cuts-international.org / 3July-September 2011 PolicyWatch


Highways Conversion LikelyThe plan to convert 10,000 km of

state highways into nationalhighways is unlikely to find favourwith the Ministry of Finance as thegovernment is facing a paucity offunds. The Department of Expenditurehas raised concerns over theadditional annual burden of M3,500crore that the Centre is expected toincur if the proposals materialise.

The Ministry of Road Transportand Highways (MoRTH) is currentlypreparing a list of state highwayprojects that can be connected to thenational highways network andbrought under the ambit of the Centrefor upgradation, operation andmaintenance.

Currently, the government has anannual fund allocation of M4,000 crorefor maintenance of highways otherthan those under the NationalHighways Development Programme.This amount is already ear marked forvarious roads and an additional M3,500crore will have to come from non-planfunds as plan funds are allocatedtowards creation of assets.

(FE, 02.09.11)

Panel to Resolve DisputesThe process to free up about

M11,000 crore of funds stuck indisputes between National HighwaysAuthority of India (NHAI) andcontractors could begin soon. TheHighways Ministry will set up acommittee headed by a retired HighCourt Judge to implement the disputeresolution mechanism as decided bythe B K Chaturvedi committee.

Many national highway developershare ongoing disputes with NHAIinvolving the contracts implemented.A total of 1,635 cases are pending inarbitration tribunals and courts � theyinvolve a total amount of aboutM11,000 crore.

There are 536 disputes pending incourts and 1,099 in arbitrationtribunals relating to highwaysdevelopment projects. The amountinvolved in each dispute ranges fromless than M1 crore to M69 crore beforethe courts; and from less than M1 croreto M1,514.32 crore in variousarbitration tribunals. (BL, 11.07.11)

TRANSPORT

AAI Defends JV DealsThe creation of joint ventures by

Delhi International Airport Ltd (DIAL)has not impacted its revenue share,says the Airports Authority of India(AAI). It has written a letter sayingso to the Civil Aviation Ministry andthe Airports Economic RegulatoryAuthority (AERA).

The clarification comes at a timewhen questions have been raised onwhether the formation of a JV by DIALled to revenue losses for AAI. BothAERA and the Comptroller andAuditor General (CAG) have raisedconcerns on the issue.

Delhi airport is owned by aconsortium. The GMR Group owns50.1 percent, AAI owns 26 percent,Fraport AG and Malaysia Airportshold 10 percent each, and IndiaDevelopment Fund owns 3.9 percent.DIAL (run by GMR) is supposed toshare 46 percent of total revenue withAAI. (BS, 27.07.11)

Pricing Model for AirportsThe AERA�s decision to adopt the

single-till pricing model for fixingairport charges could discourageprivate developers from biddingaggressively for the proposed NaviMumbai airport.

Private developers and investorssuch as GMR, GVK and KotakInfrastructure are concerned over

return on their investment in the faceof the regulator using revenues earnedfrom non-aviation activities for cross-subsidising airport tariff.

Under the new mechanism,revenues earned from activities likeretail, parking, hotel and cargo arecombined with aeronautical revenuesand charges are fixed based on this tokeep the user charges lower.

(FE, 26.07.11)

Aviation Policy on CardsTwenty years after India opened

its skies to private airlines, acomprehensive policy for the civilaviation sector is on cards. Thoughthe government routinely bails outstate-owned Air India, which is in direstraits, it cannot do the same fortroubled private airlines that arebruised in a price war amid soaring fuelcosts. With leading private airlinesrecording losses in the April-June2011, the government feels it is time totake action.

The rationale for a comprehensivepolicy and a financial cushion was feltdue to the sector�s increasing linkageswith the country�s economy. With airtravel turning affordable, a largenumber of small and mediumenterprises have structured theirbusinesses in a model where travel iskey. (FE, 14.08.11)

A Roadmap for Rural Connectivity

The government plans to connect all rural areas in the plains withpopulation between 500 and 1,000 and hilly areas, with population

between 250 and 500, with motorable roads under the PradhanmantriGram Sadak Yojana (PMGSY). In its approach paper for the 12thPlan, thegovernment said the broadening of criteria will promote inclusiveness.

Under this, thegovernment has setup a goal to provideconnectivity to allvillages with apopulation of atleast 1,000 persons(500 in the case ofhilly and tribalareas) with an all-weather road by2012.The problemareas includeinadequate institutional arrangements and limited contracting capacityin some of the states. (BS, 18.09.11)

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Petrol in India CostlierDiesel consumers in India pay

lower prices than their Americancounterparts. But, petrol due to thehigh tax component is priced higherin India than in the US. Petrol in Indiais sold at M20.88 a litre higher than inthe US, while diesel is cheaper byM4.55 a litre.

The Minister of State forPetroleum and Natural Gas, R P NSingh, informed Rajya Sabha, thatretail selling prices of PublicDistribution System (PDS) keroseneand domestic LPG in India are thelowest compared with theneighbouring countries.

The retail selling price of diesel iscomparable with prices inneighbouring countries and muchlower than the prices in Europeancountries. For petrol too the prices inIndia are much lower than prices inseveral European countries, he added.

(BL, 23.08.11)

Oil Prices Rise AgainThe increase in petrol prices by

state-owned oil refiners may befollowed by another hike by the endof September 2011, increasinginflationary pressures.

Indian Oil Corp. Ltd (IOC) israising its price by M3.14 per litre andHindustan Petroleum Corp. Ltd

(HPCL) by M3.16 a litre in Delhi. Afterthe latest increase, petrol will costM66.84 a litre at IOC outlets in Delhi,M71.92 in Mumbai, M71.28 in Kolkataand M70.82 in Chennai.

The refiners last raised petrolprices in May 2011 followed by thegovernment increasing diesel,kerosene and domestic cooking gasprices by M3 per litre, M2 per litre andM50 per cylinder, respectively, on June24, 2011. While the Congress party-led United Progressive Alliancegovernment decided to free petrolprices from state control in June 2010,refiners still sell diesel at agovernment-mandated price.

(Mint, 16.09.11)

Diversification Strategy in PlaceState-run Navaratna oil explorer

Oil India is chalking out an expansionand diversification strategy that couldalso include an entry into the city gasdistribution space.

�We plan to pursue a cautiousstrategy for our exploration initiative.We are looking for sure-bets, becauseexploration is a risky activity. Evenwhen it comes to domesticexploration, we intend to bid for thenext Nelp auctions very selectively,�Oil India Director for Exploration &Development Baikunta Nath Talukdarsaid.

The company is consideringentering the gas transportation

market, since it already has expertisein laying pipelines and transportinggas through pipelines. �We would liketo market our gas directly toconsumers. We may tie-up with a gasmarketing company for this,� Talukdarsaid. (FE, 28.08.11)

Coal India�s Wage Costs RiseState-run mining giant Coal India,

which is under pressure from labourunions for a salary hike, could see itswage costs rise by as much as 19percent this fiscal, investment bankingmajor JP Morgan says.

Four of the five trade unions ofCoal India have put up their wagedemands to the management,demanding salary hikes ranging from100 to 500 percent, which is likely toput severe financial pressure on thecompany.

The current average basic salaryof Coal India worker is about M8,320per month. While the Left-backed All-India Trade Union Congress (AITUC)has asked for a revised salary ofM16,000 per month, the Hind KhadanMazdur Federation has asked for aminimum revised basic salary ofM40,000 per month. (FE, 24.08.11)

Dual Pricing of DieselThe government is mulling dual

pricing of diesel wherein the luxurycar owners may have to pay marketrate and the sale of subsidised fuelwould be restricted only to farmers andtransport trucks.

Diesel is the most consumed fuelin the country but is sold at a discountto the cost of production. Dieselsubsidy currently is M6.82 per litre andon an annualised basis it wouldamount to M52,365 crore out of thetotal fuel subsidy estimated atM114,336 crore in the current fiscal.

The subsidised diesel is thepreferred fuel for the transport sectorand is also used in irrigation pumpsand other agriculture equipments.Luxury cars and SUVs too run ondiesel and so do power generators atmalls and telecom towers.

It has long been argued that richshould not get subsidised fuel and thatsubsidised diesel being used to lightmalls or power telecom towers is awasteful expenditure. (FE, 04.08.11)

OIL & GAS

Market Price for LPG Refills

Soon, all cooking gas consumersin the country will have to pay

the market price for refills, andthe government will transfer thesubsidy amount directly to thebank accounts of the needy.The proposal is part of plansto check diversion ofsubsidised LPG cylinders forcommercial use and ensurethat the subsidy reaches onlythose who deserve it.

The direct transfer ofsubsidy will be implanted inthe second phase of the planthat will utilise the�Aadhar�.This will be done by linking biometric details of the beneficiarywith their bank accounts.State-run oil-marketing companies will modifytheir consumer database and supply chain management to link thesewith the bank accounts of the beneficiaries. (ToI, 15.08.11)

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Consensus on Open AccessThe Power Ministry has managed

to evolve a consensus on thecontentious issues that have so farplagued attempts at opening up thepower market in India through openaccess. Open access allows largeusers of power to choose theirelectricity supplier. B K Chaturvedi,Planning Commission member isheading the inter-ministerialcommittee finalising the blueprint forimplementing the open accessscheme.

A major issue on which the fate ofopen access has been hanging fire iswhether or not to make it mandatoryfor a certain portion of the Centre�sunallocated quota of power to be soldthrough open access. This was arecommendation of an earlier taskforce on open access headed, again,by Chaturvedi. (BS, 18.09.11)

Lighting up with RenewablesThere is a scramble for energy in

India, which has had a negativeenergy balance since the 1980s.Consider these numbers: Indiaaccounted for 3.5 percent of the worldcommercial energy demand in 2003.The Planning Commission projectsthat dependence on energy importscould double to 53 percent ofcommercial energy consumption in2031-32 from about 25 percent in 2003-04.

The demand for electricity isestimated to grow at the rate of 7percent per year in India for thecoming decade. Note that 84 millionhouseholds lacked access to electricityin 2000, 57 percent in rural areas. Plus,49 percent of all households, mostlywomen and children, have to travel toget their drinking water. Typically,women living in remote rural areasspend an average of three hours justcollecting water; almost 50 millionwomen days are lost each year in theprocess. (FE, 17.09.11)

Biomass Power GenerationThe government is preparing a

national bio-energy mission to boostpower generation from biomass, arenewable energy source abundantly

available in India. The mission, to belaunched during the 12th Five-YearPlan, will offer a policy and regulatoryenvironment to facilitate large-scalecapital investments in biomass-firedpower stations.

It will also encourage developmentof rural enterprises. The nationalmission will aim at improving energyefficiency in traditional biomassconsuming industries, seek todevelop a bioenergy city project andprovide logistics support to biomassprocessing units. It will also proposea geographic information system (GIS)based National Biomass ResourceAtlas to map potential biomassregions in the country.

Nearly 70 percent of the country�spopulation lives in villages withmarginal access to electricity.Currently, India has a total installedcapacity of 3,000 MW of biomass-based power generation. (ET, 22.07.11)

PowerGrid Net Marginally UpCentral transmission utility

PowerGrid Corp said its net profit forthe quarter ended June 30, grewmarginally to M705 crore against M703crore in the same period previousfiscal.

However, the total income of thecompany rose over 11 percent atM2,044.14 crore as against M1,837.16crore in the corresponding period of

POWER Power Tariffs to go up

Amid rising concerns about the poor financial health of power distributioncompanies, electricity tariffs are likely to go up in many states, including

West Bengal and Karnataka, in coming months.Power distribution

companies (discoms) areestimated to have incurred awhopping loss of M70,000crore last fiscal on account ofthe mismatch between tariffsand the cost of producingpower.

The Central Governmentis also working on variousinitiatives to improve theperformance of discoms. Furthermore, the government is working on acommon rating system for discoms, which would help lenders extend loansonly to entities that meet certain criteria.

The Restructured Accelerated Power Development and ReformsProgramme (R-APDRP) is also expected to help bring down powertransmission and distribution losses to 15 percent from the current level ofabout 27 percent. (ET, 19.09.11)

the previous fiscal, the companyinformed the Bombay Stock Exchange(BSE). PowerGrid Corp plans to investM55,000 crore for adding 37,000 MWof inter-regional electricitytransmission capacity in the countryduring the 11th Five-Year Plan (2007-12). (FE, 02.08.11)

Coal Shortage Looms on PowerCoal Shortage Looms on PowerCoal Shortage Looms on PowerCoal Shortage Looms on PowerCoal Shortage Looms on PowerAt a time when the Power Ministry

is struggling to achieve revisedcapacity addition target for the 11th

Plan, a report prepared by Britain-based International EnergyConsultancy, Mercados EnergyMarkets India for Association ofPower Producers has warned thatcontinued coal shortages andenvironment hurdles could lead to�major default� in loans by privatepower producers to the tune of M1.35-lakh crore.

Already a cloud of uncertaintyhangs over the capacity additiontarget for the 11th Plan target. The targethas been revised from 78,000 MW to62,000 MW but the government is stillstruggling to achieve that.

Taking forward the concerns of thegovernment, the report notes that theshadow of acute coal shortage islooming large on the power sector.This could lead to a severe risk ofstranding of assets and theassociated contracts. (BL, 13.09.11)

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FinMinMulls Powers for CEIBThe Finance Ministry has decided

to empower and modernise the CentralEconomic Intelligence Bureau (CEIB)and wants it to be the main economicintelligence research and analysisthink tank of the government.

A senior finance ministry officialtold that economic intelligence datafrom different agencies were piling upand there was a need to quicklyempower a central agency for collatingand analysing the information forfurther use, in a manner required underthe changing scenario.

He said the revenue departmenthas been asked to review the reportof the S S Khan committee on thematter and suggest an implementationmodule. The Ministry�s plan is tostrengthen CEIB on the basis of themodel prepared by the revenuedepartment based on the Khancommittee recommendationsexpeditiously, so that effective toolscould be developed for curbing taxevasion. (BS, 22.07.11)

Banks Fined for Violating NormsAt a time when the government is

grappling with the black moneymenace, the RBI has penalised asmany as 48 small banks in just sixmonths, for lapses in implementingcustomer identification norms andvarious other violations.

On its part, the government hasadopted a multi-pronged strategyincluding setting up of special panels

and review of tax treaties with differentcountries, to curb black moneymenace. Most of the erring smallbanks were found violating guidelinesissued by the RBI on Know YourCustomers (KYC) norms and Anti-Money Laundering (AML) standards.

He said the central bank has beenregulating the financial pretty well andstrong vigil is good for the sector.

(BS, 10.07.11)

Bank Licences on Back BurnerCompanies with ambition of

setting up a bank will have to waitlonger. The much-hyped grant of newbank licences has been put on the backburner, as the government is not keento go ahead. RBI had framed draftguidelines for new bank licences andsubmitted these to the FinanceMinistry for its views. The ministry isyet to formally get back to RBI.

Following an announcement bythe Finance Minister in the Budget,RBI in 2010 initiated the process forissuing fresh licences by publishinga discussion paper inviting commentsfrom the public. The paper highlightedseveral issues such as the initialcapital requirement, promotershareholding and whether industrialhouses should be allowed to openbanks. (BS, 31.07.11)

RBI Not to Regulate MFIsThe RBI is not capable of

regulating microfinance institutions(MFIs) and needs to get equipped todo the job. The draft Micro FinancialSector (Development & Regulation)

Bill, 2011, said RBI will regulate theMFIs and will enjoy the power toframe policies for the sector.

Many believe that the absence ofa central regulator for these microlenders led to their downfall in recenttimes. Their businesses were growingunhindered without any centralregulation, before Andhra Pradeshslapped an ordinance on them torestrict their operation.

Since then, MFIs were gasping forcapital and banks virtually stoppedlending to them as recoveries came toalmost to a halt in the state. Banks arestill not lending to them freely.

(ET, 13.08.11)

BSE Gets Nod for SME ExchangeThe Securities and Exchange

Board of India (SEBI) grantedpermission to the Bombay StockExchange to launch the much awaitedSmall and Medium Enterprises (SME)Exchange.

BSE Managing Director and CEOMadhu Kannan said the BSE wascommitted to deliver the bestproducts, services, and asset classesto all stakeholders and look forwardto the success of the SME segment.SME have always complained ofdifficulty in accessing both debt andequity capital.

While the government has takenseveral measures to ease access tocredit, giving them easier access toequity is the next step in that process.The new exchange will be a facilitatorin raising funds for SMEs.

(BL, 28.09.11)

MIXED BAG

Come October and health insurancepolicyholders, dissatisfied with

the service of their insurer, can switchto another company and carry withthem their track record and no-claimbonuses.

The Insurance RegulatoryDevelopment Authority (IRDA) issuedfinal guidelines which providesinsurance companies directions onportability. In terms of the guidelines,a policyholder will have to approachan insurer 45 days before his policy withthe old insurer expires, to enable thenew company consider his application.The acquiring insurer will verify the

claims history from the commondatabase which will have two years ofclaims experience. Based on the data,the acquirer will decide whether toaccept the proposal and the price atwhich it will do so.

The old insurer will be bound toprovide additional data to the newinsurer within 7 days of receipt of theapplication and the new insurer will haveto either accept or reject the proposalwithin 15 days after receipt of data fromthe old insurer. If the decision is notcommunicated within a fortnight thenew insurer will be bound to accept theproposal. (ToI, 14.09.11)

Mediclaim Portability Starts in October


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

It is just as well that the Cairn-Vedanta deal is finally out of the way. The soapopera has dragged on for too long, 10 months to be precise, and it has done

nothing for the reputation of all those concerned with it � ONGC, theGovernment or Cairn Energy.

Of the three, the government has probably come out the worst from the episode,not just because it has shoved an unpalatable deal down the throat of a reluctantCairn Energy but also because of the way it went about its job as regulator ofthe industry ever since the deal was announced in August 2010.

If there is one fundamental problem that the Cairn-Vedanta drama has exposed,it is that of the government being the umpire and also a player in the oil industry.The government, as the dominant shareholder in ONGC, had to protect theinterests of the company and also fight for it. As the regulatory authority forthe industry, it also had to grant approval to the deal between two privatecompanies. Rather disappointingly, the decision to grant conditional approvalseems to have been influenced by the government�s position as owner ofONGC rather than by its larger role as industry regulator.

Unfair ConditionsHow else can one justify the two rather unfair conditions imposed on Cairn andVedanta for approval of the deal? The dispute over royalty could have beensettled legally and the government could have cleared the deal whilesimultaneously directing ONGC to proceed against Cairn through the courts.Cairn India, after all, will continue to be a legal entity, albeit with a new owner,in Vedanta and will be answerable for all contracts signed in the past.

The government has simply used its powers as regulator to push throughconditions that will benefit ONGC, where it is the dominant shareholder.

If the conditional approval is unpalatable in itself, the delay in granting it makesit worse. �In view of the huge implications, we took time�. We wanted to befair to the investors without sacrificing the interest of the Government of India,�said Jaipal Reddy, Petroleum Minister. What �huge implications� is he talking

about? This is, after all, a commercialdeal between two companies, wherethe underlying assets � Rajasthanand other oilfields � will remain inIndia. It is not as if Cairn or Vedantaare going to deprive the country ofthe oil and gas from the fields.

Needless DelayWhere was the need for thegovernment, including a Group ofMinisters and the Cabinet, to expendso much energy and time on what is astraightforward commercial deal?Surely, our senior, learned Ministershave more important matters to attendto than sit in judgement over the smallissue of a dispute on royalty paymentbetween two companies?

That said, Cairn Energy has also notplayed its cards well. The moment itsensed the government�s resistancea couple of months into the deal, itcould have renegotiated with Vedanta,the way it did this week, and sacrificeda part of the valuation. The deal wascertainly less than fair in terms of thenon-compete fee which Cairn Energystood to gain over other publicshareholders.

Yet, with some tactical thinking itcould have arrived at such anarrangement much earlier and beenricher by US$6.02bn by now. Thegovernment�s stance may have beenunfair but once assumed in public,there was no chance of Cairn havingits way on the dispute.

As for ONGC, the less said the better.Company officials are crowing aboutthe financial gain for ONGC from nothaving to bear the royalty but the factis that it is not a benefit securedthrough fair means. One expectedbetter from a US$26bn maharatnacompany than this.

* Abridged from an article that appeared in The Hindu Business Line, on July 02, 2011.

Cairn-Vedanta Deal:When Umpire Turned Batsman

� Raghuvir Srinivasan

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The decision to grant conditional approval to the

Cairn-Vedanta deal seems to have been influenced

by the government�s position as owner of ONGC

rather than by its larger role as industry regulator

The decision to grant conditional approval to the

Cairn-Vedanta deal seems to have been influenced

by the government�s position as owner of ONGC

rather than by its larger role as industry regulator

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DIPP Lifts FDI CapsThe government�s plan to remove

sectoral foreign direct investment(FDI) caps below 49 percent wouldcome with a set of riders as it wants toclosely scrutinise sensitive sectorslike insurance, news media anddefence once the liberal regime is inplace.

The Department of IndustrialPolicy and Promotion (DIPP) nowwants to make it mandatory for all jointventures seeking approval to increaseforeign investment to 49 percent tohave Indian citizens as their MD andCEO. Such firms should also have agovernment-nominated director ontheir boards.

The government will alsoscrutinise the balance sheets andother company statements to ensurethere are no changes in ownershipstructure or control. In case of JVs inthe defence sector, if the FDI is to theextent of 49 percent, such companieswill have to compulsorily go public.The government will also make lawsto restrict such joint ventures frommaking changes to initial investmentagreements. Other conditions couldbe a minimum lock-in of three yearsfor foreign funds before they can berepatriated. (FE, 21.07.11 & BL, 01.08.11)

FDI in Multi-brand RetailA panel of secretaries set the stage

for allowing overseas retailers suchas Wal-Mart, Tesco and Carrefour toopen stores in the country throughmajority-owned joint ventures. Theproposal will have to be cleared bythe Union Cabinet before the rules arenotified.

Sources opine that the committeeof secretaries headed by CabinetSecretary A K Seth approved theproposal to permit multi-brand retailersto hold up to 51 percent in Indiancompanies that would set up retailoutlets.

Allowing foreign investment inretail has been on the drawing boardfor six-seven years but thegovernment has dithered on openingup the sector to foreign competitionfearing adverse impact on local kiranastores. (ToI, 23.07.11)

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FDI WATCH Industry Rivals Push for GSTThe Goods and Services Tax

(GST) will create a common market inIndia where costs are likely to belowered by allowing firms to offset taxpaid on inputs, and consumers willknow the indirect tax rates. RivalsHindustan Unilever Ltd, India�slargest consumer packaged goodscompany, and Marico Ltd are joininghands for a shared cause � the GSTregime.

Under this regime, tax will be leviedand collected at the point ofconsumption. GST will havesignificant impact across companies,government machinery andconsumers. A big change it willcatalyse is the way companies locateand carry out manufacturing,operational and logistics activities.

It has missed an April 2011deadline; the government is nowworking towards implementing it inApril 2012. (Mint, 28.08.11)

Global Norms for MineralsA Ministry of Mines Committee

has suggested modifications torevenue and taxation policies toattract private investments inexploration of minerals other than coaland lignite. The panel chaired by S KSrivastava, Additional Secretary,Ministry of Mines, said regulationsdo not permit �junior explorationcompanies� to list on the stockexchanges and consequently raiserisk capital from the market.

The panel, which has submittedits findings to the ministry, hasobserved that the security of tenure

is currently not guaranteed under theexisting regulations. It called for anexpeditious grant of concessions andsimplification of procedures,transparency in transactions,application of e-governance intransactions, building trainingcapacity and strengthening the statedirectorates for taking up exploration.

According to the panel, statesshould facilitate mining activity byencouraging investors andentrepreneurs to exploit the mineralwealth by improving infrastructure,easing tax laws wherever possible andby enabling the forest clearanceprocess. (BS, 12.07.11)

Green Estates ConceptThe ministries of commerce and

environment may soon find commonground on the proposed NationalManufacturing and Investment Zones(NMIZ) with the latter proposinggreen industrial estates. Based onUnited Nations EnvironmentProgramme�s (UNEP) concept of greenestates, these would have only oneeffluent outlet for irrigation purposes.

Besides, regardless of the type ofindustries in the NMIZ, all units willbe connected to one treatment anddisposal system at the lowest contourof the estate zone. NMIZs will focuson establishing manufacturingfacilities for domestic and export-ledproduction, along with associatedservices and infrastructure. Theprocessing area may include specialeconomic zones, industrial parks,warehousing zones and export-oriented units. (FE, 21.07.11)

Environment Regulator Soon

In the backdrop of the controversy over environmental clearances to majorprojects, Prime Minister Manmohan Singh said an independent regulator

would soon revamp the process andhelp protect ecology without bringingback �the hated licence permit raj�.

This authority could lead to acomplete change in the process ofgranting environmental clearances.Staffed by dedicated professionals, itwill work on a full time basis to evolvebetter and more objective standards ofscrutiny.

The move to establish this authorityappears to have come in the wake of stalling of several industrial and miningprojects after the Environment Ministry, till recently led by Jairam Ramesh,had refused to clear the project. (Mint, 25.07.11)

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On inflation outlook...No doubt inflation is doggedly pursuing us. But, looking forward, weexpect headline Wholesale Price Index (WPI) inflation to come down tosix-seven percent by March 2012. The rates will remain relatively�sticky� and there could be a spurt between August-December 2011,but they will start to fall thereafter. However, global commodityprices remain high and will pressure imported inflation. Webelieve that rising and high global commodity prices insignificant part emanate from the consequences of very largeand sustained monetary policy easing in advanced economies.We hope that international commodity prices will moderate.

Do higher administered prices for agricultural crops make inflationworse?Some amount of inflation hardening will be there in the economy. Farmers will haveno incentive to produce more if the Minimum Support Price (MSP) is not raised. Atthe same time, there is a mismatch between demand and supply for agriculturalcommodities. Also, if we did not pass on some of the price increases, then the effectwould show up in the larger fiscal deficit that would cause higher general inflation,which is a worse outcome. Our preferred approach is to increase prices only gradually.

Is there a slowdown in demand and investment?There is a wrong impression that we (UPA-II) have given up. But look at the numberof Bills cleared by the group of ministers, like the MMDR, the Food Security Billwhich has more or less gotten a final shape, or the Bills on insurance, pension andbanking regulations that are already with the standing committees in Parliament.But I do realise that (foreign) investors look at an economy in comparison with itscompetitors and especially at how much of an investment-conducive environmentit is offering. At the same time, we have the compulsions of coalition politics butthere is no room for pessimism.

After the appointment of Sushil Modi, how far on track does the GSTplan look like?To implement it, we have set aside about M50,000crore as compensation for thestates. The states have to decide on how fast it can happen, though next year looksdifficult. Modi is a good choice, I feel, as he has been with the empowered committeefor a long time. He has rarely missed any meeting of the committee so his leadershipwill provide the direction the committee needs.

Is the government defensive in its role with the civil society?As I see it, every organ of the state has to play its assigned role. Otherwise, thereis a distortion. The problem is if the legislature does not do its duty of passing Billsand resorts to obstructionism, then the common man will seek other remedies. Thegovernment does not just administer land or resources but the aspirations of 1.2billion people. So, it has not been remiss in its role in trying to address the variousconcerns, including those of the civil society.

What are the chances of the government sticking to the growth anddeficit numbers this year?There is uncertainty in the global economy. It does not help us to project lowergrowth numbers now. As of now, I am sticking to the nine percent growth numberswe projected in the Budget in 2011. We will review them after the first quarter resultsin the mid-term review. As of date, there is no hard data on real GDP or its componentsavailable for the current year. The first quarter estimate is scheduled to be releasedon August 31, 2011. Therefore, the outlook for the current fiscal at this juncture hasto be inferred from movements of past data as well as from some higher frequencyproxy economic indicators.

There is no Room for Pessimism

* The news item appeared in theFinancial Express, on July 21,2011.

Finance ministerPranab Mukherjeewas clear thegovernment was notbeing defensive whenit met Ramdev;�Issues like de-monetisation werenever on. We wouldhave had to printcurrency notesabroad,� he said. Thegovernment was onlytrying tocommunicate betterwith all sections, hesaid about themeeting of thecontroversial godmanwith the former CBDTchief. On the overallissue of policystagnation and anti-inflation measures,Mukherjee said talksare going on to allowFDI in retail while foodinflation hasdecelerated to eightpercent now from 22percent in February.Excerpts from a selectmedia briefing

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

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

workers who are women, annual growth in wage rates rosefrom 3.5 to 14.6 percent; for urban women who were casualworkers, income growth was 2.8 percent per year in urbanareas in the first period and this rose to 11.8 percent in thesecond period.

This hike in employment growth and in wages, logicallyenough, led to a sharp hike in expenditure levels. In realterms, monthly per capita expenditure in rural areas roseby 0.2 percent per year between 1987-88 and 1993-94; thisrose to 0.8 percent in the 1993-94 to 2004-05 period, andthen to 1.4 percent per year in the five years from 2004-05to 2009-10. For urban areas, real per capita expendituresgrew by 0.98 percent in the 1987-88 to 1993-94 period, by1.47 percent between 1993-94 and 2004-05, and further to2.67 percent between 2004-05 and 2009-10.

As a result, poverty in 2009-10 is likely to have fallen to32.2 percent, which means poverty levels fell by onepercentage point each year since 2004-05. While povertyfell by one percentage point each year between 2004-05and 2009-10, it fell by 0.81 percentage points per yearbetween 1993-94 and 2004-05.

Equally important is the further improvement in healthindicators like infant mortality, maternal mortality and theunder-5 mortality rate � all go to show that most states arefocusing on health delivery. Nine states have a fertilitylevel that ensures no growth in population � in 12 years,that will be true of the entire country. As in other cases,there�s a long way to go but the improvement is steady.Pity the UPA�s not talking about what it has achieved.

Inclusive Growth, Here We Come� Sunil Jain

Take the jobs data first. This is the first time since thereforms began in 1991 that unemployment levels have

come down, and when 2009-10 was a drought year � indeed,the National Sample Survey Office (NSSO) has agreed todo another large survey for 2011-12 so that moremeaningful results can be derived. It is true that 401 millionjobs were created in 2009-10 as compared to 383 million in2004-05 and 338 million in 1999-2000 � that is, while theNDA government created 45 million jobs, the UPA createdjust 18 million. The reason why less jobs got created bythe UPA is that there was less demand for jobs.

Many argue this doesn�t wash, that since women are beingdiscriminated against and find it difficult to get jobs, theyare just not entering the labour force � so theunemployment numbers, the argument goes, aremisleading. Between 2004-05 and 2009-10, the participationrate of women is down from 22 to 18 percent and that formen is up from 53 to 54 percent. The figure for boys is 16million, implying that 28 million people are not in the labourforce out of choice. Indeed, this explanation of less peoplebeing available for employment is consistent with the risein wage levels. In the period 2004-05 to 2009-10, wagesand salaries have gone up by 72-102 percent for men andwomen in rural and urban areas.

For salaried women workers in rural areas, salaries grew at1.7 percent per year in the 1999-2000 to 2004-05 period ascompared to a whopping 12.8 percent between 2004-05and 2009-10; for urban women, the growth rose from 1.8 to15.1 percent in the same two periods. For salaried men inrural areas, salaries grew by 2.6 percent per year in thefirst period to 11.5 percent in the second period. For casual

* Columnist, Business Standard. The article appeared in the Financial Express, on July 13, 2011.

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We are so focused on berating ourselves, and often withgood reason, we are unable to focus on the good news.To be sure, India has a long way to go on anyparameter you can think of, but a series of goodnews coming out from two NSSO samples,one on employment and the other onconsumption. Both indicateeconomic growth has begun todeliver results, something eventhe government has beenunwilling to believe, given itssole focus on all manner of anti-poverty programmes


India�s Big Steps to Global CloutThe Indian government is ranked

fifth in wielding economic cloutglobally after the US, China, Japan andGermany, and ahead of Europeanpowers France and the UK, accordingto a study authored by chief economistadvisor Kaushik Basu.

The study suggests that Indiahas done well in the last decade. Ituses a new four-parameter Index ofGovernment Economic Power to rank100 countries from 2000 to 2009. Indiamoved up three notches from eighthin 2000 to fifth in 2009, thanks partlyto the sustained none percent-plusgrowth in the years preceding theglobal financial crisis that saw thecountry�s share in global GDP rise to5.4 percent in 2010 from 4.6 percent in2000.

The index, which uses three broadindicators to gauge a government�seconomic prowess, captures China�sstupendous rise on the globaleconomic landscape. The dragonovertook Japan in 2003 and is nowclosing in on the US. (ET, 15.07.11)

8.1% Growth for India in 2011In the midst of an anticipated

global slowdown to three percent in2011, the United Nations Conferenceon Trade and Development(UNCTAD) highlighted India as ashining star, projecting an economicgrowth of 8.1 percent � the fastest rateof expansion in the world after China.

UNCTAD stated that despite theslowdown in developed countries, theIndian economy is set to grow by 8.1percent in 2011 as against to 8.6percent in 2010.

UNCTAD said that the South Asiaregion is likely to be among the bestperformers globally, with a growth ofseven percent in 2011. As for India,UNCTAD noted that its growth storyis mainly on account of domesticdemand. (TH, 07.09.11)

4 lakh Millionaires by 2012The millionaire club is set to

witness a major boom as theirnumbers are expected to more thandouble to 4.03 lakh by 2015 on the backof a robust economic growth andimpressive returns from stock andproperty markets.

The total wealth of thesemillionaires, having minimuminvestible assets of US$1mn, is alsoestimated to more than double toabout US$2.5tr by 2015, a report onAsian wealth market said.

Investment banking major CLSAsaid in its report, entitled �WealthyAsia� that there were a total of 1,73,000millionaires in India at the end of 2010,with total wealth of US$949bn.

For 2015, the report forecasted thecountry to have as many as 4,03,000High Net Worth Individuals, whohave been classified as those havingminimum investible assets of US$1mn,with a combined wealth ofUS$2,465bn. (ET, 12.09.11)

India Slips in InnovationIndia slipped to 62nd position in

the 2011 edition of the GlobalInnovation Index rankings from being56th in 2010 and 41st in 2009. The 2011rankings were released by the leadinginternational business schoolINSEAD and its knowledge partners,Alcatel-Lucent, Booz & Company, theConfederation of Indian Industry,and the World Intellectual PropertyOrganisation.

Switzerland topped 2011�s list. Theothers in the top 5 are Sweden,Singapore, Hong Kong and Finland.The other major countries are; US (7),China (29), Brazil (47) and Russia (56).The Global Innovation Index iscomputed as an average of the scoresacross inputs pillars and outputpillars. (BL, 01.07.11)

No Access to InfrastructureScheduled Caste, Scheduled

Tribe and minority habitations havelimited or no access to publicinfrastructure, according to NationalInfrastructure Equity Auditconducted by Social Equity Watch �a non-Governmental Organisation.The audit says that there is continuedpresence of deep-rooted caste-basedinequity in the distribution andavailability of infrastructure.

Access to public infrastructureby different social groups wassurveyed in 124 gram panchayats ofAndhra Pradesh, Bihar, Karnataka,Orissa and Rajasthan covering 1,000caste and religious habitations.

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

There are many SC/ST habitationsthat are still officially uncovered, saysthe audit. Over 60 percent of grampanchayats surveyed had no healthcentres, schools, panchayat bhawansand post offices located in SC/ST andminority areas. (BL, 10.09.11)

JoblessnessFalls Faster

in Cities

India�s labour force increased by11.7 million to 428.9 million

in the five years between 2004-05 and 2009-10 on a currentdaily status basis while theworkforce grew a much higher 18million to 400.8 million,according to numbers from thelatest National Sample SurveyOrganisation study.

The higher growth ofemployment has helped pushdown the number of unemployedfrom 34.3 million in 2004-08 to28 million by 2009-10; a declineof 6.3 million unemployedduring the five-year period.

The substantial fall inunemployment as estimated ona current daily status basis, whichhas been used by the PlanningCommission in the Tenth Plan,is a major achievement as thenumber of unemployed hadsteadily picked up from 20.2million in 1993-94 to 26.7million in 1999-2000 and furtherto 34.3 million in 2004-05.

(FE, 01.07.11)


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

Over the past several months, there has been rising concern amongpolicymakers over declining inflows of FDI in India. The World Investment

Report, 2011 (WIR) issued by the UNCTAD shows that in 2010, when theemerging economies had recovered from the economic downturn, FDI inflowsinto India were below pre-crisis levels by as much as 42 percent.

But while the Government of India is engaged in formulating the policies thatwould be helpful in reversing the recent trends of FDI inflows, WIR providesuseful insights on the mode of operations of the enterprises that are the sourceof this form of capital, the transnational corporations (TNCs). Operations ofTNCs have been changing over the past two decades, and this change hasbecome a dominant pattern of their behaviour during the past decade. Insteadof making mega-sized investments in host economies, TNCs have been sub-contracting various parts of the value chains by establishing joint ventureswith local enterprises in a number of countries, thus establishing global valuechains (GVCs).

Advantages of GVCs have been seen in India�s neighbourhood. SoutheastAsian countries have long been involved in these GVCs that were first triggeredwhen Japanese firms moved away from their home country in search of morecost-efficient locations.

The extent of sub-contracting has varied across sectors: in case of toys andsporting goods almost 90 percent of the cost of the final products is obtainedthrough sub-contacting, while for consumer electronics, the correspondingfigure is 80 percent.

Where does India figure in the sub-contracting business? Evidence providedby WIR indicates that India is still lagging behind in terms of its engagementwith GVCs. As regards the major sectors that are witnessing the emergence ofsub-contracting, Indian firms seem to be performing better in the genericpharmaceutical sector where firms such as Piramal Healthcare and Jubilant LifeSciences are among the top 10 global players in contract manufacturing.

The performance of Indian firms in the IT-BPO sector has been disappointingas none of the leading Indian firms could find themselves in the global top 10.Although Tata Consultancy Services seem to have narrowly missed out frombeing counted in this list, the absence of any Indian enterprise should be

viewed with some concern,particularly because India considersitself to be a global leader in thissector.

Quite clearly, India has not yet beenable to provide globally competitiveenterprises that have in them to beincluded in the GVCs. How can thesituation be changed? Adoption of aproactive industrial policy, whichseems to have found favour withmany governments after years ofneglect, seems to be the right wayforward. There is evidence that mostemerging economies have opted foran industrial policy, which includespolicies to change the relativeincentive structure as between foreignand domestic enterprises with a viewto promoting the latter.

In India, the contours of such anindustrial policy would have to bewritten as a part of the manufacturingstrategy that is currently doing therounds. The objective of thismanufacturing strategy, as underlinedby the Union finance minister in hisbudget speech, was to increase theshare of manufacturing in the grossdomestic product from about 16percent today to 25 percent over aperiod of 10 years.

For the realising this goal,policymakers will have to adopt a two-pronged strategy. In the first instance,greater policy coherence will berequired to improve the ease of doingbusiness in the country. At the sametime, needs of the globally competitivesectors such as genericpharmaceuticals and IT-BPO, amongothers, and emerging sectors such asauto ancillaries would have to be keptin view. The government would haveto get the right mix of policies toensure that these frontline sectorsenjoy the right incentives to expandtheir businesses in the country.

* Director General, Research and Information System for Developing Countries, New Delhi. Abridged from an article thatappeared in The Mint, on August 02, 2011.

Reinventing India�s FDI Strategy� Biswajit Dhar*

Adoption of a

proactive industrial

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policy

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Public with Audit ReportsPrime Minister Manmohan Singh may not be happy with

the way the Comptroller and Auditor General (CAG) of India,goes public with its findings, but the office of the CAG isbracing up for more public interactions in the coming days.

CAG briefings, however, will not be on special auditssuch as 2G telecom spectrum allocation or CommonwealthGames expenditure, but on its observations on flagshipsocial sector programmes such as the Mahatma GandhiNational Rural Employment Guarantee Scheme (MGNREGS)and National Rural Health Mission, which cumulativelyaccount for over M80,000 crore annual spend from the centralexchequer.

It is for the first time in its 150-year history, it is preparingcommon man-friendly audit reports on social issues such asrural health, education, environment, rural asset creation,pollution and water-based issues, among others, with a clearobjective to sensitise the public. (BS, 02.07.11)

Civil Society-India Incto GuideAfter the government involved the civil society while

framing the important Lok Pal Bill, it is the turn of the nationalauditor to listen to the society at large and companies onhow to go about its job.

The CAG has set up a 15-member advisory board whichwill have civil society representatives to suggest how it canimprove its functioning.The move comes amid criticism ofsome of its recent findings as well as the leak of variousreports before they could be tabled in Parliament.

The main function of the board will be to advise CAG onaudit matters and suggest improvements. This will, however,be done within the framework of the Constitution and thestatutory mandate of CAG. (BS, 23.07.11)

Hits out at Kapil SibalThe CAG lashed out at Telecom Minister Kapil Sibal

saying it was �improper� for anyone to comment on a matterbeing considered by a parliamentary committee. Sibal faultedthe CAG�s report on the alleged 2G spectrum allocationscam, calling it �utterly erroneous�.

The government�s auditor said that when any matter isunder consideration of a Parliamentary Committee, noperson, including a Member of Parliament, should make orpublish a statement or comment about that matter.

Making public comments on the matter is highlyimproper and may even amount to contempt of the House,the CAG added. (www.news.worldsnap.com, 12.01.11)

Shipping Corp SlammedPulling up state-run Shipping Corporation of India for

not pursuing an ambitious acquisition policy to augmentfleet, CAG said it has not only resulted in M2,100 crore costoverrun, but also adversely impacted its business growth.

Shortfall in acquisition also delayed modernisation ofthe navratna company�s fleet capacity at a time when country�sseaborne trade was growing at a pace of 8.5 percent annually,preventing it to capitalise on it, the CAG said.

CAG also noted that average age of company�s vesselswas 15.63 years as against 11 years of their immediatecompetitor in the private sector. (FE, 05.09.11)

�Under Spending� in E-governanceA Parliamentary panel slammed the IT Department

on the �under utilisation of outlay� for National e-Governance Plan (NeGP). NeGP is an ongoing flagshipprogramme of the government, aimed at providingelectronic delivery of public services to the citizens.

The Standing Committee on IT noted that actualexpenditure in the first four years of the XIIth Planamounted to only about 36 percent of the totalbudgetary allocation approved for the full Plan period.

In its report, the committee observed that while theRevised Estimate allocation during the period waspegged at about M2,171 crore, the actual spending metso far during the first four years of the XIIth Plan wasonly about M1,795 crore.

The analysis of the data furnished by theDepartment in various documents revealed that duringthe XIIth Plan, M4,992 crore was provided, it said, addingthat the Budget Estimate allocation for five years wasabout M4,617 crore. (BL, 11.08.11)

E - G O V E R N A N C EC A G R E P O R T S

Nilekani Moots LPG Cap

The Nandan Nilekani task force on direct cashtransfer of subsidy on fuel and fertilisers has

recommended a system of real-time transfer of cashto the buyer�s bank account, which couldsubsequently be finetuned to cover only poorfamilies.

Finance minister Pranab Mukherjee had set upthe task force led by Unique Identification Authorityof India chairman Nilekani to recommend ways ofdirectly transferring cash subsidy on kerosene, LPGand fertilisers to the intended beneficiaries. Thepanel, which submitted its draft recommendations,proposed an IT-enabled core subsidy managementsystem (CSMS) to be implemented from March2012.

As a preparatory step, the movement ofsubsidised fuel and fertiliser through the supplychain should be tracked up to the buyer and thecustomer electronically identified at the time ofpurchase, the task force noted. (FE, 05.07.11)

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

Bolster Aam Aadmi�s ImageIn an attempt to bolster its aam

aadmi image, the government issetting up the Aajeevika Developmentand Financial Corporation (ADFC), afinancial institution to ensure easilyavailable funding for self-help groupsunder the National Rural LivelihoodMission. Problems in accessing creditfor families below poverty line havebeen a major hurdle for the livelihoodmission.

The Rural Development Ministry,which is promoting the AajeevikaDevelopment and FinancialCorporation, plans to formally launchthe financial institution on February02, 2012, which is the MahatmaGandhi National Rural EmploymentGuarantee Act Day.

Aajeevika aims at eliminatingpoverty by enabling the people belowpoverty line, particularly women, toaccess financial resources ataffordable rates and to ensuresustainable livelihoods. (ET, 10.09.11)

RTI: A Tool to Fight CorruptionThe right to information (RTI) is a

cherished right. Information and theRTI are intended to be formidabletools in the hands of responsiblecitizens to fight corruption and bringabout transparency andaccountability, the Supreme Courtheld.

A Bench of Justices while givingthis ruling said the RTI Act provisionsshould be enforced strictly and allefforts made to bring to light thenecessary information under Section

4 (4) (b) which �relates to securingtransparency and accountability in theworking of public authorities and indiscouraging corruption.�

The RTI Act should not be allowedto be misused or abused to become atool to obstruct national developmentand integration or to destroy peace,tranquillity and harmony among itscitizens. Nor should it be convertedinto a tool of oppression or intimidationof honest officials striving to do theirduty. (TH, 13.08.11)

Rural Scheme FailsNearly 40 percent of the

households who got work under thegovernment�s flagship rural jobsprogramme in 2010-11 did not completeeven 15 days of work. The MGNREGSpromises 100 days of work to each poorrural household. The programme wasstarted in 2006 and covers 619 of India�s626 districts.

Only 34.1 million of the 54.9 millionhouseholds that received work underthe scheme last fiscal completed atleast 15 days of employment. TheMinistry of Rural Development is thenodal agency for implementing thescheme. In most states, at least 20percent of the people employed underMGNREGS did not work for even 15days under the scheme. (Mint, 08.07.11)

2nd

Green Revolution for FoodWhile noting that the food

production has been increasingconsistently over the last few decades,Prime Minister Manmohan Singhstressed the need for a broad based

and sustainable second greenrevolution for meeting rising demandsof food and ensuring the nutritionalsecurity.

While calling upon agriculturalscientists to help augment thefoodgrain production to two percentper annum, Singh said the enormityof the task ahead is indicated by thefact that during the 10-year periodfrom 1997-98 to 2006-07, the country�sfoodgrain production had grown at anaverage annual rate of only onepercent. He stressed the need for asecond green revolution that is morebroad-based, more inclusive and moresustainable. (FE, 16.07.11)

Corrupt Babus Make LossesThe government is considering

making dishonest public servantscompensate the nation for lossesincurred on account of their actions.Corruption among public servants iscurrently treated as criminal offenceunder the country�s anti-corruptionlaws, but there is no civil liability orprovision for compensation.

The Group of Ministers oncorruption is also examining a proposalto bring private sector utility servicesproviders and non-governmentorganisations that receive substantialaid from the government into theambit of the Prevention of CorruptionAct, 1988. Law Minister VeerappaMoily, who is part of the ministerialgroup, first mooted these ideas as thechairman of the 2nd AdministrativeReforms Commission. (ET, 12.07.11)

Welfare Measures more than Reforms

India will complete 20 years of liberalisation today. The removal of the licencepermit raj was done with the hope that it would usher in a market economy.

The focus of the government in the last few years has been quite different. Incontrast to reforms that were meant to help India turn into a market economy, thegovernment has turned to providing benefits to people. Both are meant to reducepoverty but the basic philosophy of the two approaches is quite different. Whilethe former was meant to increase the pie, the present approach focuses not ongrowing but on redistributing the pie.

Can India afford this new approach? Are we rich enough to focus onredistribution? Will the fiscal cost of welfare programmes bring in a crisis?

These are serious concerns today when a few years of fast growth seem to haveconvinced the government that now it can turn towards large welfare programmes.Further, there are a number of issues including foreign investment, infrastructure,

taxes, and so on, for which a laundry list of reforms is available. What India is seeing today is not as much a lackof reforms, as a new philosophy. The Congress today emphasises on welfare programmes through various rightssuch as to employment, education, food, etc. which are redistributive in nature. (FE, 24.07.11)

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* A Risk Management Consulant, Columnist and Author. Abridged from an article that appeared in The Mint, on September28, 2011.

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

In his speech before the United Nations (UN), the PrimeMinister spoke of the balancing role India�s growth

may play in helping a slowing global economy. The factis that Indian growth has slowed for five successivequarters, and may well fall further. The Index of IndustrialProduction remains soft: indeed, it may fall further ascorporate investment growth continues to fall, as, forenvironmental reasons, ore and coal mines are orderedclosed affecting steel and power output and exports haveshown a large jump, but the veracity and sustainability ofthe numbers is questionable.

While much is made ofthe lack of policyreforms, the mostimportant problems areimproving governanceand accountability. Theproblem starts right atthe top with anunelected and non-accountable body (theNational AdvisoryCouncil, NAC) acting asa super-cabinet, whichloads ever greater socialresponsibilities on agovernment machineryunable to deliver even basic serviceswith a modicum ofefficiency and honesty.

Indeed, we have made governance and decision makingso complex as to almost ensure that decisions from thepurchase of new dustbins by the Mumbai MunicipalCorporation to the installation of CCTV cameras aroundthe Delhi high court, get delayed, and nobody isresponsible for the delays. The CAG criticised both themerger of Air India with Indian Airlines, and the hugeorder placed for the expansion of the fleet. At last count,the bodies of learned men involved in the decision-makingprocesses included the boards of the two companies, theMinistry, the Planning Commission, the ProjectInvestment Board, committees of secretaries, the CabinetCommittee on Economic Affairs, etc. How can poor PrafulPatel be blamed for the decisions?

But to come back to the NAC, at a time when we need toincrease investments to create jobs, ever more resources

Governance and Growth� A V Rajwade*

are spent on social programmes. God alone (hopefully!)knows the proportion of �outlays� leading to lasting�outcomes�. No wonder jobs growth dropped to just 2million in the last five years! The number of people with nostake in the proper functioning of the economy is risingrapidly, even as we talk of �inclusive� growth.

At one level, security forces are becoming ever more brutaland extortionate�a truck driver in Uttar Pradesh wasmurdered by the police because he refused to pay thedemanded bribe! At another, their working conditions are

becoming more intolerableevery day, despite anynumber of commissions andpious platitudes aboutreform. If the police andparamilitary forces join thefarmers in striking againstthe way things are, wherewill we be?

At a different level, withinthe BRICS (Brazil, Russia,India, China and SouthAfrica), we come outweakest in macroeconomiccomparisons of the currentaccount and consolidated

fiscal deficits � and the highest in inflation. Five years ago,the World Economic Forum gave India a competitivenessscore of 4.3, one notch below China�s 4.4. The latest scoreswere 4.3 for India and 4.9 for China.

In the Global Innovation Index, developed by INSEAD,India�s ranking has slipped from 23 in 2007 to 62 now, whileChina remains in the top 30. We rank equally low in theWorld Justice Project�s latest Rule of Law index. But then,who has time (or inclination?) to think about, to debate, torectify such issues? Our political masters often behave, andact, as if nine percent per annum of real gross domesticproduct growth has become the �new Hindu rate��persisting whatever we do or do not do. Is this a validassumption? I for one would not be surprised if, followingthe fortunes of the Indian cricket team, we register a sharpfall in our global ranking. As Pratap Bhanu Mehta asked ina recent article, �Is India an ungovernable economy now?�The answer, sadly, seems: �Yes!�

While much is made of the lack of policy reforms, the keyissues are improving governance and accountability


P A R L I A M E N T A R Y R O U N D U P

Right to Services on AnvilThe Punjab government will

implement the Right to Services Actfrom August 15 in the state, assuringthe residents prompt delivery of 67basic services.Deputy Chief MinisterSukhbir Singh Badal sought theircooperation to make the �path-breaking and historic Act�, which willfacilitate prompt delivery of serviceslike driving licences and ration cards,a great success.

He asked the DeputyCommissioners to set up a special cellat every Suwidha Kendra at the sub-tehsil level to receive complaintsregarding non-availability ofscheduled services within thestipulated time.

Expressing concern over reportedcases of touts operating inSuwidhaKendras,Badal asked allpresent to check this menace. He alsoemphasised the need for morecounters in the Kendras due to theincreasing footfall. (TH, 15.07.11)

National Sports DevelopmentThe Union Cabinet did not clear

the National Sports Development Billthat aimed at regulating thefunctioning of national sportsfederations and putting an age limiton their bosses.

The bill was discussed and anumber of ministers raised objections.Subsequently, it was decided that thebill should be re-worked by the SportsMinistry before it could be againconsidered.

The bill sought to bring inrevolutionary changes in thefunctioning of sports bodies in thecountry, which included putting anage limit of 70 years and tenurerestrictions besides bringing thesebodies under RTI. (PTI, 31.08.11)

Nuclear Safety AuthorityA bill to set up a new national

nuclear authority and other regulatorybodies to oversee radiation andnuclear safety has been introduced toIndia�s lower house, the Lok Sabha.

The Nuclear Safety RegulatoryAuthority Bill was drawn up inresponse to events at Fukushima andaims to establish several newregulatory bodies. A new Council ofNuclear Safety (CNS) would overseeand review policies on radiationsafety, nuclear safety and otherconnected matters.

The second major body to beestablished would be called theNuclear Safety Regulatory Authority(NSRA) and would be responsible forensuring radiation safety and nuclearsafety in all civilian sector nuclearactivities.

(www.world-nuclear-news.org, 09.09.11)

Land Acquisition Bill ClearedThe draft bill on land acquisition

and rehabilitation and resettlement ofland-owners, which provides forhigher compensation and widerdiscretion to the farmers to exercisechoice while their land is acquired,was introduced in the Parliament.

Rural Development MinisterJairam Ramesh introducedthe National Land Acquisition andRehabilitation and Resettlement Bill,2011, bill in the Lok Sabha. No memberopposed the introduction of the bill.

Ramesh said the draft bill tighteneddefinition of �public purpose� and madeprovision of �eminent domain�,meaning land acquisition would requireprior consent of 80 percent �projectaffected� persons where thegovernment acquires land for purposeof transferring it to private companiesfor stated public purpose.

(BS, 06.09.11)

A New Anti-corruption BillThe much-hyped �Lokpal Bill�

would allow citizens to approach anewly-created anti-corruptionwatchdog with complaints aboutofficials, including federal ministersand senior bureaucrats who areshielded under India�s current laws.

The ombudsman will be pickedfrom the highest levels of the judiciaryand supported by 10 other officialswho would be from the judiciary orpeople of �impeccable integrity�.

The scheduled version of the billhas been strongly criticised by civilsociety activists, who were allowedto participate in the drafting processbut complained that their views weremarginalised. (www.dawn.com, 04.08.11)

Women Demand ReservationWomen�s groups have got

together to demand the passage of theWomen�s Reservation Bill in the LokSabha. The Bill that seeks to reserve33 percent seats for women in StateAssemblies and Parliament waspassed in the Rajya Sabha in March2010 amidst pandemonium after morethan a decade of struggle to arrive ata consensus with various politicalparties on the draft of the Bill.

However, the Bill has not beentabled in the Lok Sabha as thegovernment still wants to reach on anagreement with other political partieslike the Rashtriya Janata Dal and theSamajwadi Party who are opposed tothe present draft of the Bill and aredemanding reservation withinreservation for Muslim and women fromthe backward classes. (TH, 29.07.11)

Cash under Food Security Act

Citing the diversion of foodgrains meant for public distribution, Biharand Delhi have urged the Centre to provide cash instead of foodgrains

for beneficiaries under the proposed National Food Security Act.The Union Food and

Consumer Affairs Ministry isready with the draft Bill that willbe soon placed before anEmpowered Group of Ministers(EGoM) on food. It aims toprovide legal right over highlysubsidised foodgrains to 68percent of the country�spopulation.

Under the new law, theMinistry plans to provide 7 kgof foodgrains per person per month falling under �priority household� categoryand 3 kg to a member of �general household� category. (TH, 04.07.11)

Satish cartoons


H E A L T H � N E W S B R I E F S

Cess to Fund Free HealthcareYou may soon have to pay more tax

since the government is considering aproposal to levy a surcharge to fundits ambitious plan of providing freehealthcare to every citizen in thecountry. The Planning Commission�sexpert panel has turned down theproposal for a securities transaction tax,and instead voted for a healthsurcharge on taxable income.

The move would complement thegovernment�s budgetary allocation and�obviate the need for user charges onthe rich�. Though the panel has notrecommended how much surchargeshould be levied, a one percent levywould yield over M9,000 crore for thisfiscal.

Now, the Planning Commissionpanel wants the government tointroduce a national health entitlementcard for every citizen that will guaranteefree access to a heath package ofessential primary, secondary andtertiary healthcare fully funded by theCentre. (ToI, 16.08.11)

Generic Drugs to be Promoted The Health Ministry fears the

takeover of Indian firms making genericdrugs by multi-national companies(MNCs) will push up the prices ofessential drugs. As per the rule,whenever a MNC wants to take overan Indian generic drug-making firm, it

In Search of theRight Medicine

Drug price regulation will bebetter served when the

Pharmaceuticals Policy sees thelight of day and takes structuralchanges in industry into account.The National PharmaceuticalPricing Authority (NPPA)shoulders the onerous task ofbalancing the interests of theconsumers who take medicinesand the companies that producethem.

With the estimated M1-lakh-crore drug industry seeingtumultuous change, especiallyover the last six years, the NPPAhas not really kept pace. Atpresent, 74 drugs on the list ofessential medicines are underprice control and the rest aremonitored if the price increaseis over 10 percent in a year.

The NPPA�s road ahead,though, can be re-defined onlywhen the long-pendingPharmaceuticals Policy sees thelight of day and aligns itself tothe structural changes in theindustry over the past decade. TheDrafts of 2002 and 2006 havelapsed, and the NPPA is left tooperate on the lines of the DrugPrice Control Order, 1995.

This is where NPPA has a roleto play. It is surely possible tocrack down on inordinate mark-ups, which are indicative ofmonopolistic or oligopolisticpractices. But NPPA lackssupport from the Centre and canhardly make a meaningful impactin delivering affordablehealthcare.

The root problem is theabsence of a policy frameworkthat reconciles regulation withcompetition, and therefore theinterests of consumers andproducers. But with medicinesbeing just part of healthcare, itis time for the government totrain its guns on other facets ofhealthcare cost, includingdiagnostic tests, hospitalfacilities and doctor fees.

(BL, 19.08.11)

Free Treatment to Poor

Private hospitals getting subsidised land cannot run away from theirresponsibility to give free treatment to economically weaker sections of

society, the Supreme Court said while asking them to work out a mechanismwith Delhi government for ensuring this.

A bench comprisingJustice R V Raveendranand Justice A K Patnaikpulled up some of thehospitals for not givingfree treatment to the poor.It asked the hospitals tosit with governmentauthorities to sort out theissue and work out ascheme to treat the poorpatients � 25 percentoutdoor and 10 percent indoor � free of cost.

In the meantime, the court said that patients from government hospitalsbe referred to such private hospitals which would provide free treatment.The state government told the court that out of 37 such hospitals 27 aregiving treatment to poor patients. (PTI, 26.08.11)

has to first apply to the ForeignInvestment Promotion Board (FIPB),who will look at what impact theacquisition would have for India�spublic health sector, and then give itsapproval.

This has led to a spate of buy-offsof Indian companies, whose effectwould be felt when 61 drugs worthover US$80bn go off the patent list inthe US between 2011-2013.Once thedrugs go off the patent list, domesticpharma companies in India would beable to produce their cheaper variants.

But if MNCs buy them, the pricewould still be high, and this wouldaffect the governments� efforts tomake generic drugs cheaper as againstbranded drugs. (ToI, 04.09.11)

Revamp Healthcare MechanismA government panel has

suggested path-breaking reforms torevamp the country�s healthcaresystem, including regulatorymechanism for the heath sector � bothpublic and private � to ensureaffordable and quality healthcare forall the citizens.

The expert group of the PlanningCommission aims to set up theNational Health Regulatory andDevelopment Authority, an apex bodyto keep an eye on both public andprivate healthcare providers.

(ToI, 12.09.11)

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w.chagloo.com


H E A L T H � I N F E A T U R E

Your peers GE, Phillips and Siemen have been extremely bullish on�reverse innovation� lately, innovating products for India in their R&Dhubs within the country and then scaling them up globally. J&J hasbeen relatively quiet on that front. Why?We have just not talked about developments on reverse innovation, but the truth isthere is a lot of India specific innovation happening in the company, which is findingmarket across the globe. Our glucometer � One touch Horizon, which is available forless than M1,000 here, was designed completely in India with the inputs of a distinguishedset of Indian doctors. The same is marketed in US under brand One Touch UltraMini ata comparable price point and actually became a hot-selling item in the US market.Similarly our surgical staplers Advant 55 was developed in India, but later found hugemarkets in China, Russia and Brazil. We will be launching by the end of the year aspecific technology that would make shifting patients from one bed to the other in thehospital much safer and much easier. You know the lengths such an innovation can goto in preventing accidents in hospitals. That technology is an Indian innovation fromscratch, in fact by a team with participation from AIIMS, IIT Mumbai and StanfordUniversity. And I am sure this would find takers across the world. Also, you would alsosee us upscaling our R&D efforts around Mumbai in times to come.

As an integrated healthcare company, what is the biggest challenge youhave faced in the Indian regulatory landscape?That we have no healthcare regulator and we have eight or nine ministries handlingfragmented bits of the healthcare continuum, which results in a complete lack of aconcerted national strategy to address healthcare issues.

All this ultimately leads to a single scary consequence � a dissatisfied patient andcaregivers. That is why we have proposed a �healthcare promotion board� on the linesof what Singapore government does. It would be a comprehensive body that coordinateswith different ministries on the entire gamut of issues related to healthcare � thehardware, software � starting from drugs, price control, health insurance, medicaleducation, patient grievances, medical ethics, even health tourism. In fact, we need aNasscom for healthcare industry, if a national level concerted healthcare strategy is tobe formulated.

In your capacity as the chairman of FICCI medical electronics forum,what are the some of the issues that you are taking up with the governmentfor medical technology firms?The one thing we are in talks now with the government, which concerns more with thelocal manufacturing industry is that in most cases imported products come out to becheaper than products which are manufactured within the country. That kills incentiveto set up manufacturing facilities and proves detrimental to the health of the localindustry. The revenue secretary has been apprised of the issue, is looking into it andmay resolve it favourably.

How are the public-private-partnertships with states coming up?Some states such as Tamil Nadu, Andhra Pradesh, Gujarat are doing a tremendous jobat it. Others such as Kerala, Maharashtra are doing good job, too.

But are those models sustainable in the long term?I think it is. We have just done thousands of knee replacement surgeries for the TamilNadu government under its below poverty line programmes. Maharashtra will be rollingsimilar schemes in near future. In such models, the margins of the health insurancefirms, may go down 5-15 percent, but they would still make money. But PPP is the right,may be the only way to answer the questions in healthcare. The government is betteroff being the payer than the provider in healthcare.

We Need a Nasscom-type Body inHealthcare Sector

A Vaidheesh

Managing Director

Johnson & amp;

Johnson Medical India

(J&J), shares

the strides his firm

has made in reverse

innovation. He also

talks about the

advantages India can

reap by following the

Singapore healthcare

model in the

regulatory space.

The interview appeared inThe Financial Express, onJune 03, 2011


Ground Realities in PolicyPolicy formation

must take into accountthe ground realitiesand evidence of howpeople are reacting toit, said NandanNilekani, Chairman,Unique IdentificationAuthority of India.

Speaking at a book discussion on �Pooreconomics: Rethinking poverty and the waysto end it� by Abhijit V Banerjee, FordInternational Professor of Economics at MIT,and Ether Duflo, Abdul LatifJameelProfessor of Poverty Alleviation andDevelopment Economics at MIT, Nilekanisaid that this applied even to the PDS system.

��The question is of grain or cashtransfers. But the real question is how toimprove the benefits to the people. Theinability to reach the people is the biggerproblem. For example, what happens if bankaccounts are far away from the people,� saidNilekani. There is a need to bring in trialsand experiments into policy, he added. Healso advocated the need for rapid feedbackgroups so that the policy-making bodies canlearn and self-correct. (FE, 23.07.11)

Infra Deficit is HugeAn estimated M54

lakh crore is needed forurban infrastructure,said the UnionMinister for UrbanDevelopment, KamalNath, emphasising theneed for a publicprivate partnership (PPP) model to bridgethe huge infrastructure backlog in thecountry.

�We have huge infrastructure deficitsand we have to bridge these deficits. In theprocess we are trying to catch up with thepast and not building for the future. Unlessthere is a unique partnership between thegovernment and the private sector, wecannot bridge the deficits,� said Kamal Nath.

About 60 percent of the GDP isgenerated by urban centres and this figureis estimated to increase over the next decade.�70 percent of the GDP will be generated byurban centres in the next decade andseventy percent of the new jobs are goingto be created in urban centres,� said Nath.

(BL, 23.09.11)

Compulsory Registration for SchoolsMinting money through setting up of private middle-level schools,

most of which are unregistered in Rajasthan, would no longer be anyone�scup of tea as the state government made it compulsory for all suchinstitutes to get recognition at least up to Class VIII.

As on date, there are more than 32,000 unregistered private middle-level schools running in the Rajasthan that follow no norms in fee fixation,infrastructural facilities or in appointment of teachers. According to thenew rules, every private school will have to pay a recognition fee ofM10,000 and will have to show a fix deposit of M50,000. They also have tofollow the norms and standard of Right to Education which has beenpartially implemented in the state from April 01, 2009. (ToI, 12.07.11)

Panel backs for-Profit InstitutesIn a potential game-changer for India�s education sector, the Planning

Commission suggested that the country allow establishing institutes ofhigher learning that could be run for profit.

The not-for-profit tag in higher education sector should perhaps bere-examined in a more pragmatic manner so as to ensure quality withoutlosing focus on expansion and equity. India should facilitate privatesector growth in higher education, particularly in technical subjects,and should explore and develop innovative public-private partnerships(PPP) in the 12th Five-year Plan period that begins on April 01, 2012.

The move comes at a time when the government has publicly acceptedthat India needs to scale up the education sector to reap demographicdividends, but the state alone will not be able to help fund all initiatives.The suggestion to permit for-profit institutes has come out of a publicdebate on the quality of higher education in the country.

(Mint, 29.08.11)

E D U C A T I O N S E C T O RE X P E R T C O R N E R

New NationalPolicy on Education

Prime Minister Manmohan Singh�s announcement on setting up acommission �to make suggestions for improvements at all levels

of education� has largely gone unnoticed amid the public focus oncorruption.

The commission is expected to be headed by an eminenteducationist, assisted by experts from the fields of higher, technical,medical, secondary, elementary, vocational and other sectors ofeducation. It will alsohave inputs from thereports of theNational KnowledgeCommission, theYashpal Committeeand the ValiathanCommittee.

As the existingNational Policy onEducation, 1986(NPE) was conceivedduring RajivGandhi�s tenure, it may be politically daunting for the UnitedProgressive Alliance Government to wish away its vital elements.Thus Singh�s announcement is expected to pave the way for a newpolicy after nearly two decades. (TH, 18.08.11)

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C O M P E T I T I O N I N S I G H T � N E W S B R I E F S

CCI Faces Staff CrunchThe Competition Commission of

India (CCI) is severely understaffed.While as many as 50 percent of thevacancies are yet to be filled up in thecommission, two-third of the DirectorGeneral�s office is also desperatelyseeking new appointments.

In order to overcome the immediateshortage, the Commission has beenhiring experts for short period, as perthe provision of the Act and theregulation. Since the Commission gotfully active from 2009 as many as 102cases have been decided out of a totalof 194 cases.

The other issue that also needs tobe tackled is whether the people beingfinally recruited have the domainknowledge of competition law.

(FE, 06.09.11)

DLF Seek Higher CompensationProperty developer DLF Ltd�s

customers, having succeeded ingetting India�s anti-trust regulator toimpose a M630 crore penalty on thecompany, are seeking to more thantreble that, but experts are questioningthe ruling itself.

The CCI imposed the levy on DLFfor abuse of its dominant position inhousing projects in Gurgaon. DLF isappealing the decision. DLF will likelycontest the order on the grounds thatCCI has wrongly interpreted therelevant market and thereby thecompany�s dominant position in thatmarket. It may also ask why a show-cause notice was not issued before thepenalty was imposed and submit that

it has been transparent in all its dealswith customers.

The complaints against DLFfocused on two key issues�increasing the number of floors from19 to 29, and delays in completion.

(Mint, 06.09.11)

Indian Cement Faces ProbeThe Ministry of Corporate Affairs

asked the CCI to further probecharges of cartelisation againstcement majors ACC, Gujarat Ambujaand UltraTech Cements. The Ministryhad ordered its investigations arm,Serious Fraud Investigation Office(SFIO), to probe charges of pricemanipulation by the three companiesbetween 2008 and 2010 under Section234 (6) of the Companies Act, 1956.

SFIO held the three manufacturersguilty of price manipulation andrecommended action against them.However, SFIO does not havejurisdiction to prove cartelisationcharges. It probed the threecompanies under the Companies Act,and now it is the job of CCI to usethat information and furtherinvestigate the matter under theCompetition Act.

The three companies controlalmost one-third of the country�s totalcement manufacturing capacity of 300million tonnes. (BL, 15.09.11)

Apple Sued Over DominanceThe CCI ordered investigations

into allegations that iPhone and iPad-maker Apple is limiting the availabilityof its products to a few service

providers using its dominant marketposition. The customer�s complaintwas admitted under the section 4 ofthe Competition Act, 2002.

Besides, Apple phones could onlybe serviced in Apple centres, whichin turn charge high rates for servicing.iPhone, the touch-screen handset thatacquired a cult status in the US andother western countries, was launchedfor the first time in India in 2008.

Smartphones are catching up fastin the Indian market, especially at atime more companies are rolling out3G services across the country. 3Gservices, which offer high-speedInternet access, have already beenrolled out by operators like Airtel,Vodafone and Aircel. (BL, 07.09.11)

No Curbs on FDI in PharmaA government panel said there

should be no restrictions on FDI inthe M47,000 crore pharmaceuticalssector, evoking strong oppositionfrom the DIPP and the Health Ministry.The panel, however, said all mergersand acquisitions in the sector shouldbe cleared by the CCI, as it fears that aspate of M&As in the sector may leadto increase in drug prices.

The Health Ministry, at whosebehest a restriction on FDI in thesector was mooted, also opposed thepanel�s recommendation. However,panel members from the FinanceMinistry and the PlanningCommission were in favour ofclearance coming from the CCI andnot the FIPB. They do not want anychange in policy that was put in place10 years ago. (ET, 28.09.11)

RIL�s Buyout of Bharti Stake

The CCI cleared Reliance Industries� (RIL) buyout of Bharti group�s74 percent stake in insurance joint ventures with AXA of France.

As per the competition law effective from June 01, 2011 the highvalue deals need to have clearance of the monopoly watchdog CCI.The merger deals will come under CCI radar if the combined turnoverof the two companies is M4,500 crore and above. The Reliance-BhartiAXA deal is first such deal to be cleared since June.

Bharti had entered into joint ventures with the AXA group in2006 and held 74 percent stake in both these ventures � Bharti AXALife Insurance and Bharti AXA General Insurance. RIL and itssubsidiary Reliance Industrial Infrastructure (RIIL) would own 57 and17 percent respectively in both the insurance companies and wouldbecome AXA�s JV partners in India. AXA holds 26 percent stake inthe JV in line with the foreign direct investment ceiling in the sector.

(PTI, 27.07.11)

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C O M P E T I T I O N I N S I G H T � I N F E A T U R E

* Partner at Bharucha & Partners, Delhi Office. The article appeared in the Business Standard, on August 29, 2011.

A policy is usually introduced withcertain objectives and goals

in mind, culminating in theintroduction of a law. TheConstitution providesfor the law to beenacted by theParliament, but itsinitial preparation restswith the executive,while enforceability ispart of the judicialsystem. In the Indiansystem, the kick startfor any policy/law is givenby the ruling party, taken up bythe respective ministers, when a white paper is produced,which usually forms the basis of the law. Public andstakeholders views are often invited, considered, and adraft bill, approved by the Cabinet Committee is tabledbefore the Parliament. A policy unless backed by a legalframework for implementation and enforcement isineffective, but does not necessarily become obsoletebecause the legal structure is in place.

On the contrary, policies represent continuity and have toconstantly evolve in reflecting changing trends, whichinclude updating laws. By and large, the Government andthe Legislature follow the above pattern, but there areexceptions, whether on an ad-hoc basis, or dictated bythe exigencies of a given situation, but neither explainsthe delay or the purpose in the introduction of theCompetition Policy in 2011.

Going back in time, the need for a functional CompetitionPolicy and Law for promoting competition in domesticmarkets was identified and recognised in the 1980�sIndustrial Policy. Pro-competition reforms, bringing aboutradical changes in the existing industrial and trade regimesformed part of the various policies mooted in the 90�sreforms � notably the Industrial Policy, 1991, whichvirtually removed licensing requirements and capacity andexpansion restrictions, in one stroke. The changes in theTrade Policy 1991 in the reduction of tariffs, quotas,adopting international controls, signing the WTOdocuments, and eventually removal of quantitativerestrictions on imports in 2001, represented the paradigm

shift in policyperspectives, as did theprivatisation anddisinvestment initiatives,in unshackling theinsulation which Stateowned enterprisesenjoyed in a protectedand subsidisedenvironment. There is

also no Consumer Policy,on the other hand there is a

robust and fairly effective law.Does that imply that consumer

interest does not require anyseparate policy? These are the issues

which a Competition Policy has to address.

The Act was introduced in 2002 subjected to several delays,and operational only in 2010. There is no rationale for thedelay in the introduction of Competition Policy. The Actlays down and implements the law in correcting andpenalising instances of dominance and other non-competitive market practices. But for a holistic and longterm vision and approach, in promoting and fosteringcompetition, a policy is imperative, of which the law is onlyone element. The Competition Advocacy envisaged inSection 49 of the Act, cannot be a substitute � it is a situationof the tail wagging the dog.

The Approach Paper in the 11th Five Year Plan hadrecommended promoting competition in the agriculturesector by abolishing mandi taxes, and proposing reformsin transport and FDI. The Act and the Policy both havetheir genesis in this Report, which led to the setting up ofa Working Group by the Planning Commission with highprofile members, and a detailed report submitted to thegovernment in 2007.

The draft policy in essence does not bring anything newon board which was not covered in the 2007 Report exceptissues of updation and language changes and emphasison government initiatives at all levels. The reference topromotion, encouragement and involvement of consumermovement is no different from the Working Group Report.It is indeed unfortunate that the entire exercise has to beduplicated de novo � the end result is only delay.

Bu

siness S

tand

ard

Old Wine in New Bottle - 2011Competition Policy

� KumkumSen*

Why introduce a Competition Policy, when the Act is in place, havingundergone a prolonged complex gestation? What purpose can the Policy

serve when the CCI is operational?

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S P E C I A L A R T I C L E

These rumblings we hear are thenoise of the world�s largest

democracy getting into higher gear,drawing on its reserves of power toclimb over obstacles to its progress.As economies grow, they evolve. Newindustries develop, which require newcapabilities for regulation. Theawareness of citizens about what isgoing on increases with advances ineducation, the growth of the middleclass, the expansion of media andaccess to information. Institutionalcapabilities for regulation andrepresentation must catch up withgrowth.

All citizens, and organisationsrepresenting them, have a right in ademocracy to advocate their causesto government. Indeed, they must beenabled to do this. Political parties area means for citizens to advocatecauses in elected assemblies andParliament. Hence they are necessaryand legitimate institutions indemocracies. And so are labourunions, that represent the cause ofworkers � as well as civil societyorganisations, that represent myriadinterests. In the same vein,corporations too must have rights topresent their views to the government.Therefore, contrary to some reports,the Planning Commission is notproposing any ban on corporatelobbying.

However, a problem with processesof advocacy in democracies is theunequal access to financial resourcesbetween corporations and otherinstitutions such as unions, civilsociety organisations and politicalparties. Corporations and otherbusiness organisations are the enginesof the money economy. They legallyget money from citizens for the manyproducts and services they provide,whereas for all other institutions,sources of their own revenue, are farsmaller than corporations� cash flows.Hence any system that requires moneyto pay for advocacy services, legally

all societies. What is the alternative,then, for advocacy to be encouragedin ways that are fair to all? One waywould be to strengthen institutionsthat represent the common man (andwoman), and to give these institutionsa larger role in the policy-shapingprocess. Indeed, the emasculation oflabour unions since the era ofPresident Ronald Reagan may havecaused the rising inequality in incomesbetween the top and bottom quintilesof American society, according toRobert Reich in his book,Supercapitalism: the Transformationof Business, Democracy, andEveryday Life.

Merely the rule of law does not makea just society. Who makes the rules,and how the rules are made, matterstoo. Deep democracy requiresdemocratic processes for framing laws.Constructive and representativeinstitutions are necessary for theprocesses to work. Therefore, politicalparties, civil society organisations,unions, and business associationsmust improve their internal democracy.

Moreover, the quality of publicdiscourse must improve too � to shiftfrom ringing alarms to developingsolutions; and from mutualrecriminations amongst citizens andinstitutions to a search for consensus.A better quality of discourse isrequired in Parliament, the supremecouncil for deliberations in ourdemocracy. And debates in our mediamust clarify issues for citizens, ratherthan confuse them with rhetoric. Indianeeds a well-conducted, participative,pre-legislative process.

Indeed, �second generation� reformson issues that affect manystakeholders, such as land, labour, andagricultural reforms, cannot beexpedited without better process. Forinclusive and faster growth, India�sdiscordant democrats must learn tolisten to each other and find commonground.

* Member, Planning Commission. Abridged from an article that appeared in Indian Express, on July 28, 2011.

or otherwise, puts corporations,especially the largest ones, at a greatadvantage.

The consequence of this unequalaccess to money power betweencorporations and other institutions,such as civil society organisations andunions, causes the apprehension in

India�s Discordant Democrats� Arun Maira*

When corruption grabbedpublic attention and AnnaHazare led a movement to

demand civil society�sinvolvement in the framingof the Lokpal Bill, severalpolitical commentators

raised alarms about �non-representative� groups

encroaching on thelegitimate space of elected

law-makers. Hazareclarified that civil society

merely wanted toparticipate in the drafting of

the laws, not in theirpassage, which is thefunction of the electedParliament. A similarconcern is now beingexpressed about the�interference� by the

Supreme Court (also inmatters of corruption) into

the government�slegitimate space


S P E C I A L A R T I C L E

* Historian whose books include India after Gandhi and Makers of Modern India. Abridged from an article that appeared in theFinancial Times, on July 19, 2011.

Throughout India�s history the manifestations of itschaos have been largely social and political: from

secessionist movements and sectarian pogroms, to itsenduring territorial conflicts with China and Pakistan. Thebomb blasts in Mumbai are but the latest example. Theperpetrators are as yet unidentified: like the 2008 Mumbaiattacks, they may have originated from Pakistan, butwhoever they turn out to be, this was a familiar example ofone of India�s pervasive and long-standing fault lines.

Yet the Republic of India today faces challenges that areas much moral as social or political, with the Mumbai blastshaving only temporarily shifted off the front pages thecorruption scandals that more recently dominated. Thesehave revealed that manner in which our politicians haveabused the state�s power of eminent domain, its control ofinfrastructural contracts, and its monopoly of naturalresources, to enrich themselves. Rectifying this is nowarguably India�s defining challenge.

These scandals implicate many of the country�s mostpowerful leaders. They include the large scale looting ofmineral resources in southern and eastern India; graftduring the organising of the Commonwealth Games in NewDelhi; the underpricing of mobile phone contracts to thetune of billions of dollars; and also numerous propertyand housing scandals in Mumbai. Corruption is not newin India, but the scale and ubiquity of these problems isgenuinely unprecedented.

This activity cuts across political parties � small and large,regional and national. It has tainted the media too, withinfluential editors now commonly lobbying pliantpoliticians to bend the law to favour particular corporations.But while journalists may collude, and many companiesand corporate titans have benefited, the chief promotersof this malaise have been the politicians themselves.

Surging growth is another proximate cause. Economicliberalisation has created wealth and jobs, and a class ofentrepreneurs unshackled by the state.

Over the past three decades, a series of commissions havehighlighted the need for institutional reforms, that, amongother things, would insulate administrators and judges frominterference by capricious politicians; prohibit criminalsfrom contesting elections; curb abuse of the power ofeminent domain; provide proper compensation for villagersdisplaced by industrial projects; make more efficient thenow mostly malfunctioning public health system.

Many, perhaps all, of these reports have been read byManmohan Singh, India�s scholarly prime minister; indeed,

several were commissioned by him. When Singh becameprime minister seven years ago, his appointment was widelywelcomed. He was seen as incorruptible, and with theadded advantage of a lifetime of public service. Tragically,in terms of concrete institutional reform these have beenseven wasted years.

To single out an honest and intelligent man whencorruption and criminality flourish may seem unfair. Singhhas been content to let things ride. He has not assertedhimself against corrupt cabinet colleagues, nor has hepromoted greater efficiency in public administration.Whatever the cause this inactivity has greatly damagedhis credibility, not to say India itself.

If nothing else, the current wave of corruption scandalswill put at least a temporary halt to premature talk of India�simminent rise to superstardom. Yet the truth is that India isin no position to become a superpower. It is not a risingpower, nor even an emerging power. It is merely afascinating, complex, and perhaps unique experiment innationhood and democracy, whose leaders need still toattend to the fault lines within, rather than presume to takeon the world without.

India is too Corrupt tobecome a Superpower

� Ramachandra Guha*

The sociologist Ashis Nandy once notedthat �in India the choice could never bebetween chaos and stability, butbetween manageable and unmanageablechaos�. He wrote this in the 1980s, adecade marked by ethnic strife, casteviolence, and bloody religious riots. Butit applies even more so to the India oftoday, and is being made worse by thesteady deterioration and corruption ofIndia�s ruling political elite

Satish cartoons

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

SOURCES

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

ReguLetter

The July-September 2011 issue of ReguLetter encapsulates �Google andFacebook: Competition Concerns to Watch Out for� in its cover story.

CUTS has recently filed two Preliminary Information Reports (PIRs) with theCompetition Commission of India (CCI) urging them to investigate theactivities of Facebook and more recently Google with reference to relatedrelevant markets in India. The PIR also marks innovation in legal process, anew instrument created by CUTS analogous to the FIR which allows the CCIto investigate a potential anti-competitive abuse without obliging them todo so.

A special feature by Joseph Kieyah states that while the intentions ofprice control are good, its implementation may adversely affects the veryvenerable Kenyans it purports to protect. Without guaranteeing the supply ofessential commodities, imposing arbitrary price control will lead to shortageand unemployment. Another special article by Michael Lind says thatAmerican antitrust law is a relic of 19th century agrarian populism.

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

Unholy Alliances in Healthcare Services

A number of state governments claim to be providing medicines for freeto consumers getting treated in public healthcare institutions. So, why is

it that they still have to buy drugs from private sources? CUTS has endeavouredto find answers to this in the project entitled, Collusive Behaviour in HealthDelivery in India: Need for Effective Regulation (referred to as COHED project,www.cuts-ccier.org/COHED). Analysis of information gathered from the statesof Assam and Chhattisgarh during the implementation of this project pointtowards the possibility of collusive practices between various actors in publichospitals/health system aimed at restricting the availability of medicines forconsumers, as was revealed in most of the public hospitals covered under thestudy.

This report tries to identify feasible solutions and strategies for addressingconcerns emanating from collusive practices in healthcare delivery in twostates of Assam and Chhattisgarh � and would form the basis for advocacyand ground actions in them. The ultimate goal is to contribute to the processof evolving consumer-friendly healthcare systems in these two and otherstates of the country.

This report can be viewed at:www.cuts-ccier.org/cohed/pdf/Unholy_Alliances_in_Healthcare_Services-COHED.pdf

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