Goveranance Today Magazine April 2015 by Governance Today

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April 2015 Vol.- 01 Issue - 07

NDA Government Brought Back Hope to Consumers and Industry

TIME TO TAKE OFF

April 2015

Governance Today

April 2015

Governance Today

Editor-in-Chief Ajit Sinha Editor Anand Mishra Senior Copy Editor Ramesh K Raja Reporting Team Ekta Srivastava Rahul Trivedi Ritika Bisht Graphic Designer Girdhar Chandra Fuloria Web Architect Farhan Khan Guest Writers & Contributors Shobhna Jha Sagarika Ranjan Santosh Kr. Biswal Dr Hina Khan CORPORATE OFFICE Strategy Head Ajay Kumar Accounts Executive Yogesh Chikara FOR ADVERTISEMENT CONTACT Stuti Bhusan stuti@governancetoday.co.in FOR SUBSCRIPTION CONTACT subscription@governancetoday.co.in ADVISORY BOARD Terry Culver Associate Dean, SIPA, University of Columbia Vinit Goenka National Co-Convener, IT Cell, BJP Amod Kanth General Secretary Prayas JAC Society Pratap Mohanty Former Dy Educational Advisor, MHRD, GOI Ranjit Walia Managing Counsel Walia & Co. Vol. 1, No. 7; Total No of pages 76 Editorial, subscriptions and advertisements: Odyssey Infomedia Pvt. Ltd. B-108, 1st Floor, Sector-63, Noida - 201301,UP, Phone: +91-120-4234008, Email: edit@governancetoday.co.in Printed at Avenir Enterprises A-7/105, Industrial Area, South Side G T Road, Ghaziabad, UP-201009 Governance Today does not necessarily subscribe to the views expressed in this publication. All views expressed in the magazine are those of the contributors. The magazine is not responsible or accountable for any loss incurred, directly or indirectly as a result of the information provided. Governance Today is published by Odyssey Infomedia Pvt Ltd @ All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, and mechanical, including photocopy. Or any information storage or retrieval system, without publisherâ&#x20AC;&#x2122;s permission editorial does not endorse the content Governance Today April 2015 4 of advertisements printed in the magazine

TIME TO TAKE OFF There is a gradual return of confidence in the Indian economy. Even though the growth has not scorched and industrial growth is still low, there is quite belief that the government is working on crucial economic issues. The NDA government has undertaken some crucial reforms such as Diesel price decontrol and FDI hike in insurance, which underscore the reformist nature of the Modi administration. However, there are sticky structural issues such as GST and labor laws which need sustained action. Hopefully, the government would use the strong electoral mandate to bring in Achhe Din.

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NDA GOVERNMENT BROUGHT BACK HOPE TO CONSUMERS AND INDUSTRY

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Yashwant Sinha, Former Finance Minister

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UNETHICAL MANAGEMENT BIGGEST SOURCE OF MISGOVERNANCE Prof. J.P. Sharma, Delhi School of Economics

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CAPTURING WELFARE AND SUSTAINABILITY MOVING TOWARDS FINANCIAL SECTOR REFORMS FROM ELEPHANT TO LION - HOW FAR CAN WE MAKE IT? BANKS SITTING ON BAD DEBT VOLCANO SUBSIDIES: THE BLOOD - SUGAR OF INDIAN ECONOMY AGRICULTURE UNDER DURESS FOR A STRONGER CORPORATE GOVERNANCE ROTTING FOOD STOCKPILE AS MILLIONS GO HUNGRY MAD RUSH FOR METROS? TREMORS IN TELANGANA POLITICS INDIA’S HEART DOESN’T BEAT FOR ELDERLY KILLING THE FUTURE RUMBLINGS AT NALANDA UNIVERSITY TOUGH MEASURES REQUIRED TO REIN IN ABSENTING TEACHERS THIS AIR IS KILLING PLAYING WITH THE PROFESSION? ART AWARENESS IS LOW IN OUR COUNTRY THE MAN WHO SYMBOLIZED A NATION

April 2015

Governance Today

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Odyssey Infomedia Pvt. Ltd. B-108, 1st Floor, Sector-63, Noida - 201301,UP, U.P. 201301 Phone: +91-120-4234008, | www.governancetoday.co.in Governance Today April 2015 For queries, call 91-120-4234008, or email at subscription@governancetoday.co.in

Editorial

EFFECTIVE CROP INSURANCE REQUIRED

armers committing suicide is not unusual in India. It happens almost every season. Unseasonal rains and strong winds that lashed the entire north-western region recently could be the latest trigger for the extreme step by farmers at margin. At least seven farmers have already committed suicide, and one farmer has suffered an instant heart attack on seeing his flattened wheat crop, in Uttar Pradesh. Ministry of Agriculture has estimated damage to standing crops in 50 lakh hectares in Punjab, Haryana, UP, J&K, Himachal Pradesh, Madhya Pradesh, Rajasthan and Maharashtra. The situation in Vidharbha in Maharashtra is worse from economic point of view, as the current distress came at a time when the rabi season was expected to offset the losses suffered on account of a shortfall in monsoon rains in the kharif season. That hope now stands dashed. About 20 per cent of the standing wheat crop and 30 per cent of mustard crop has been damaged, as per the Directorate of Wheat Research in Karnal. The unpredictable weather pattern and failing crops have underscored the need of effective crop insurance scheme for farmers. Even though the issue has been discussed for over three decades now, the successive governments have failed to work out a crop insurance system for farmers, especially small and marginal farmers who cannot pay the monthly premium.

Although a number of schemes were introduced on crop insurance, including for weather-related crop insurance, all suffered from the basic fault, the insurance is done on an area basis where the average of a village or a taluka is what determines the losses suffered. If 10 acres of a village is lashed by hail and the crop is completely damaged, the farmer will still not be able to get adequately compensated for his loss. The reason is simple: the average of the village does not reflect the severe damage few farmers were inflicted with. Also, the insurance schemes have been prepared keeping drought in mind. But farmers need to be adequately covered to offset damages from all extreme weather patterns. Insurance companies say they have not been able to come out with proper crop insurance schemes for the simple reason that the risk is too unpredictable; there is no historical data available on which any risk assessment model could be built. And they donâ&#x20AC;&#x2122;t want to take up any risk which they cannot measure. Since farmers are unorganised, the attempt to address the problem is also missing. Since the Narendra Modi dispensation has opened up for 49 per cent FDI in insurance, is it possible to make it compulsory for those companies entering the insurance sector in India to provide certain fraction of their coverage to the farming sector? The country has a huge section of population involved in agriculture and there must be a mechanism to insure their livelihood. That would be not only serve economic purpose, but also be a humane social intervention to afford poor farmers a decent life. The budget is out and the provisions have kicked in from April 1st. As government takes steps to boost growth, we take a look at what is the state of the economy. Even though the confidence in the economy is returning, weak spots are visible, for example in poor industrial growth. Read on. Best regards

Ajit Sinha Editor-in-Chief

April 2015

Governance Today

Governance Watch

‘Open Software Policy’ Soon, Says Ravi Shankar Prasad

n order to bring in increased transparency in administration, the government will soon notify the ‘open software policy’. The move will also help start-ups to participate in creating new open software source and generating jobs. Union Minister for Communications and Information Technology Ravi Shankar Prasad recently said, “Many big platforms like Facebook also run on open software source. Therefore, we are making India’s policy decisions to sync with the new movement world over.” Under the new policy, all future requests for proposals of e-governance projects shall include a mandatory clause for considering open source software (OSS) as a preferred option. The new policy will also help in bringing down the costs of the government’s ICT projects as a lot of licensing cost will be saved because of use of open source software. Usage of open source software (OSS) is cost effective, allows modification of source codes (key to any mobile/ computer programme or application) according to local needs and is free from royalty.

Policy for Adoption by Foreign Couples Simpler Now

n an endeavour to simplify adoptions by foreign nationals in India, the Ministry for External Affairs has asked all its passport department offices to accept the date of birth of the child mentioned in the court order and not insist for a birth certificate. As per the MEA circular, passport authorities can now accept the date of birth recorded in court order, attached with a copy of an NOC from the Central Adoption Resource Authority (CARA), which is the nodal body for adoption of Indian children and monitors in-country and inter-country adoptions, to issue passport. The development came after the Women and Child Development (WCD) Ministry wrote to MEA, highlighting that some abandoned and orphan intercountry adopted children are facing difficulties in obtaining birth certificate which is a mandatory requirement for obtaining passport. Indian government, as per the provisions of the Hague Convention, had asked all its passport department offices to expedite the process of issuing passports to inter-country adopted children. The MEA had also waived the requirement of police verification for such children in the past.

Governance Today

April 2015

Governance Watch

New National Education Policy by December

inistry of Human Resource Development is working on a new National Education Policy (NEP) which would be formed by December this year. Speaking on the sidelines of a convocation ceremony at a girls college in Punjab’s Jalandhar, Union HRD Minister Smriti Irani recently said, “Central government is guided by ‘education for all’ policy. We are working in this direction and NEP would be formed by December this year.” She said suggestions in this regard have been invited from the education ministers of all the states. “They have been asked to send their suggestions by November so that a universal education policy could be made for the whole country,” she said.

PM Rolls out Grievance Redressal Platform PRAGATI

rime Minister Narendra Modi recently launched his ambitious multi-purpose and multi-modal platform PRAGATI (Pro-Active Governance And Timely Implementation). PRAGATI is a unique integrating and interactive platform, which is aimed at addressing common m a n ’s grievances, and simultaneously monitoring and reviewing important programmes and projects of the Centre as well as projects flagged by the states. The PM said the whole world is now observing India keenly. It is imperative that governance in India becomes more efficient and responsive. He said the PRAGATI platform was a step in this direction. During the first PRAGATI interaction, Modi discussed issues relating to unseasonal rain and relief to farmers, public grievances, project implementation, Swachh Bharat and ‘ease of doing business.’ The PRAGATI platform uniquely bundles three latest technologies: Digital data management, videoconferencing and geo-spatial technology. It also offers a unique combination in the direction of cooperative federalism since it brings on one stage the Secretaries of Government of India and the Chief Secretaries of the States.

April 2015

Governance Today

Governance Watch

‘Farmer Suicide Under Insurance Cover’ Plan Likely in Maharashtra

he Maharashtra government is likely to bring farmers’ suicides under insurance cover to enable higher financial compensation to the victims’ families. The development comes at a time when the government is grappling with drought across 24,000 villages and an increasing number of farmer suicides is being reported from the Marathwada region. Statistics show that almost 85 to 90 cases of farmers suicides in the last three months have been reported from eight districts in Marathwada. Maharashtra Agriculture Minister Eknath Khadse recently said the government was planning an insurance cover of “up to Rs 5 lakh”, adding that there would be provisions to ensure that the system was not misused. He added that the government could tie up with private insurance companies for the purpose. The decision to provide insurance to families of farmers who have committed suicide has invited flak within the cabinet, with many fearing that suicide cases would go up if such a plan was introduced.

India’s First E-Ration Card Service Launched in Delhi

elhi Chief Minister Arvind Kejriwal recently launched India’s first e-ration card service. In this service, e-ration cards will be linked with Aadhaar cards and it would enable the beneficiaries of Public Distribution System (PDS) to get the cards online from the government’s web portal without hassles. The new service is expected to curb corruption and increase transparency in the system. The service would cut down the delays in preparation of ration cards and would ensure the fast delivery to the beneficiaries. As soon as an application for providing food security is approved by the Food Supply Officer concerned, a message will go to the cellphone number of the beneficiary informing him or her about approval of application and ration card. The beneficiary can go to the portal of the department, http:// nfs.delhi.gov.in, enter the ration card number and other basic information and get a password on cellphone. After entry of this password, the e-ration card will be generated which can be stored in the electronic form and used to get the ration supplies. It can also be printed by the beneficiary from anywhere.

Defence Expenditure

ndia would like to see early implementation of the 2010 IMF quota reforms. These quota reforms seek to provide greater say to developing economies in the IMF. The point was made by Finance Minister Arun Jaitley during his meeting with the visiting IMF Chief Christine Lagarde. The FM also elaborated on the reforms under way and the commitment of the Government to accelerate growth while adhering to the path of fiscal discipline. On her part, Christine Lagarde said India deserved a greater say in the global body but lamented that the US was “not ratifying” the quota reforms that would facilitate larger roles of emerging economies at the multilateral institution. The IMF was looking at alternatives to realign quotas that will put India into the top 10 shareholders, she said. As and when these reforms are implemented, India would be one of the top ten shareholders of the IMF. As per the current quota system, the US has 17.69 per cent while the voting right is 16.75 per cent. It is followed by Japan – 6.56 per cent with 6.23 per cent voting share. India has quota of 2.44 per cent, with 2.34 per cent voting right. 10

Governance Today

April 2015

Governance Watch

SC Stricture on Aadhar Card

he Supreme Court has come hard on the issue of mandatory status of Aadhar card. On Mar 16, the Apex court confirmed that the Aadhar card is not compulsory, and that the officials who insist on them will be taken to task. In an unusually strong stricture, a bench of justices J. Chelameswar, S.A. Bobde and C. Nagappan clarified that demands made by officials for Aadhaar card is in clear violation of the Supreme Court’s interim order of September 23, 2013. In the 2013 order, the apex court had directed that “no person should suffer for not getting the Aadhaar card, inspite of the fact that some authority had issued a circular making it mandatory”. The court was hearing a batch of petitions challenging the Aadhaar scheme as an encroachment into the public’s right to privacy. Of late, there has been much confusion about the validity and the compulsion of having the Aadhaar card to avail of government subsidies. There are over 750 million Aadhar numbers that have been generated so far.

Employability Linked Skill Development

inister of State (Independent Charge) for Skill Development & Entrepreneurship Rajiv Pratap Rudy has said that at the request of the National Skill Development Agency (NSDA), the World Bank has conducted an evaluation study of five central government sponsored national level Skill Development Programmes (SDPs). The objective of the field study, done between April and October 2014, was to understand and learn from the performance of these five SDPs in the states of Andhra Pradesh, Assam, Madhya Pradesh, Odisha and Rajasthan. As per the interim findings of the report, 27% of candidates enrolled in the above skill development programmes find employment. The final report is yet to be submitted. In a written reply in the Rajya Sabha, Rudy said, the Government of India has formulated over 73 skill development schemes, which focus on various sectors and are being implemented through over 20 GOI Ministries/Departments. The government endeavors to make these schemes outcomes based by emphasizing on placement post training. The performance of these would be measured in terms of percentage of persons actually placed in wage or self-employment.

Assessment of Pollution of Ganga

study for assessment of the pollution load caused by the major drains discharging into the river Ganga was undertaken by the Ministry for Water Resources, River Development and Ganga Rejuvenation for 118 river front towns on the banks of river Ganga. The scope of study includes assessment of status of Sewage Treatment Plants (STPs), need for modernization, availability of power for running the STPs, status of O&M of STPs, status of 144 Nallas and scope for River Front Development. The study team consisted of experts from six different organizations under this Ministry namely, National Institute of Hydrology (NIH), Central Water Commission (CWC), Central Soil and Materials Research Station (CSMRS), National Water Development Agency (NWDA), Central Ground Water Board (CGWB) and National Projects Construction Corporation (NPCC). The study team has submitted its report to the Ministry in December, 2014. Based on this report and in line with the action plan drawn under ‘Namami Gange’, the State Governments have been requested to submit DPRs to execute projects that will help arrest pollution influx into the river especially from 118 identified towns / ULBs on both the banks of river Ganga. This information was given by Union Minister of Water Resources, River Development and Ganga Rejuvenation Uma Bharti in a written reply in Lok Sabha. April 2015

Governance Today

Global Watch

Indiana Brings in “Religious Freedom Law”

ndiana Gov. Mike Pence has signed the controversial “religious freedom” bill into law. According to the Religious Freedom Restoration Act, the government can’t “substantially burden a person’s exercise of religion” and that individuals who feel like their religious beliefs have been or could be “substantially burdened” can lean on this law to fend off lawsuits. Civil liberties and gay rights groups assert that the law could be used by businesses to deny service to people based on their sexual orientation and justify that discrimination based on their religious belief. The law has businesses and civil rights groups up in arms and threatening to boycott the state. However, Governor Mike Pence has defended the new law that saying he had no plans to add extra protections but would consider new suggestions from state legislators.

Myanmar, Rebels Strike Ceasefire Deal

yanmar peace negotiators have agreed on the draft text of a nationwide ceasefire agreement, as the country edges closer to ending decades of conflict between ethnic minority groups and the government. The draft still needs approval from all of the 16 ethnic armed groups involved in the talks. The tentative deal, which comes as heavy fighting between the military and rebel groups continues to ravage a northern border area, sets out the framework for a countrywide ceasefire - a key target of the government as the nation heads towards crucial elections later this year. Myanmar has been racked by unrest since independence from Britain in 1948 which have been fuelled in part by tussles over the country’s rich resources. The quasicivilian government, which took power after decades of army rule in 2011, has made a peace agreement with an array of rebel groups a cornerstone of its political reforms.

Foreign Students Not Interested in English Course in Tokyo University

early 70 percent of foreign students accepted by the University of Tokyo for undergraduate degrees taught in English declined admission for the 2014 school year. The results are a setback for Japan’s efforts to attract a bigger share of foreign students to boost the international stature of its leading universities. Foreign students appear to prefer other colleges overseas because the University of Tokyo, known locally as Todai, offers a limited number of classes taught in English. The University of Tokyo launched its Programs in English at its Komaba campus in 2012, and has increased the number of students it accepts from 38 to 49, and then to 61 over the three academic years.

Governance Today

April 2015

Governance Today

Lead Story

Time to Take Off

| ANAND MISHRA

n her recent visit to India, IMF Chief Christine Lagarde said that because of the recent policy reforms and improved business confidence in the country, the USD 2 trillion Indian economy could overtake the combined GDP of Japan and Germany in the next four years. Earlier, in a report, the agency had forecast a growth rate of 7.5 per cent for fiscal 2015-16. There is a general sense of optimism among Indian and global investors, stock indices are booming, inflation is down, growth is looking up and deficits are under control. Broad parameters are therefore looking in shape. But how strong is Indian economy, 14

Governance Today

April 2015

Lead Story

Quarterly growth rate picks up after a sustained deceleration Image source: The Economist

and what are the challenges that it is facing? More importantly, what should be the reform agenda for the present government to keep the economy firmly on growth path? Along with corruption, if there is one factor that contributed to the demise of the UPA II last May, it is the economic despair. More than the loss of earning and joblessness, the hopelessness that it had brought for the people at large, contributed to the historic drubbing that the Congress Party got. But this also meant that the expectation from the new government was very high. After nine months in office and first full budget later, while impact of the steps taken by the government could be months from showing perceptibly, the noises and murmurs are indicating that the confidence of investors and consumers are looking up. Even though the growth rate envisioned by the IMF falls short of the Indian governmentâ&#x20AC;&#x2122;s target, the direction and optimism is unmistakable. According to the agency, the economy is reviving on back of â&#x20AC;&#x153;positive policy actionsâ&#x20AC;? and lower global crude prices. The new economic

survey underscores the revival in the economy after a prolonged period of tardy growth, which many believe was because the past government was indecisive and bogged down by various scams. Figures show that the economy has bounced from the trough in which it was languishing for almost three years. In a nearly 12-quarter phase of deceleration, economic growth averaged 6.7 percent but since 201314, it has been growing at 7.2 percent on average, the Survey reveals. More importantly, it says that the vulnerability of the economy has come down, which means it is in a better shape to absorb global or domestic shocks. The industrial growth, which is the main driver of urban employment growth, has however, been stuck in low gear with January IIP growing at 2.6 per cent, and has been declining after recoding a jump of 3.9 per cent in November 2014. For eight months till January 2015, the industry has shown sub 5 per cent growth rate. The Economic Survey has also given other figures to drive home the point that the economy is on path to revival.

It cites inflation which ran in double digit for a sustained period, has come down in lower single digit, thanks mostly to the dogged determination of RBI. While the longevity of the lower prices remains in question because of inefficient supply side dynamics and bad weather, it has given some elbow room to the central bank which has reduced interest rate twice over last quarter. According to the former Finance Minister, Mr. Yashwant Sinha, a big change since the time the Narendra Modi government assuming office has been that the confidence of investors, both Indian and global, has come back (read full interviews in later pages). This is reflected in the high portfolio investment of over Rs. 270,000 crores during fiscal 2014-15 (till Mar 20, 2015), which has pushed broad market indices to their all-time highs. The Nifty has scaled up 30 per cent from the beginning of the financial year till third week of March 15, which is among the best in the world. Experts widely acknowledge that this rise is backed by strong projected corporate earnings. The government, despite putting an additional ten percent of its revenues in the pockets of the states, has managed to remain within its fiscal constraints. What is more noteworthy is that the current account deficit (CAD) has come down sharply over last one year. For the quarter ending Dec 2014, it came down to 1.6 per cent compared to two per cent a quarter earlier. The Finance Minister Arun Jaitley hopes the figure will stay below one per cent of the GDP for the whole year 2015-16. While slumping global crude prices is a well-known factor for this decline, Sinha simultaneously points towards the massive reduction in the gold imports for the reduction in CAD which has come as a result of the return of confidence in the Indian economy. Moving forward, though, the country is likely to face volatile global situation which may not be as helpful as was the case in 2014. While declining crude was a crucial factor in keeping deficit figures in good shape in 2014, the April 2015

Governance Today

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which, according to the Economic Survey, has been a major component of overall foreign investment in the country in 2013-14. Some economists anticipate some outflow on this account this year. The euro area growth outlook is not rosy. The pressure on euro because of continued Greek problems can nip the nascent recovery that was seen in 2014. Already Greece and Spain are staring at deflation. In the east, easing oil prices allowed the Japanese economy to expand at 0.4 per cent in the last quarter of 2014 after two successive shrinking quarters, but the overall health of the economy is still weak. The crude prices, which have been the common explaining factor in global economic performance could bounce back this year on two factors. If the

frustrates entrepreneurs rather than encouraging them to invest. He cites the case of land acquisition lamenting that it is nearly impossible to acquire land and other approvals without greasing palms or closeness with officials. Lack of power increases the cost of productions. On top of all, the compliance is too weak, especially at state level. The archaic labor laws is a crucial area which requires immediate attention. It is very hard to hire and fire in tune with the market demand. To close or lay off workers, a unit has to take government permission if it has more than one hundred workers. To avoid such intrusive regulations, companies prefer to stay small, which is bad for the company, economy and ultimately to the workers as well, who are deprived of many benefits which

The budget has many new initiatives to boost growth

prices could have bottomed out and may bounce on a rise in demand from China. The Chinese economy has been slowing down for last few quarters as the government has tried to cool the economy to stave off inflation. Further, its financial system is still in mess because of hidden bad loan problems. Elsewhere, the recovery in the US is still looking shaky, though the IMF has revised its projected growth rate upward to 3.6 per cent for the year 2015. This is good news for Indian tech companies who can look forward for some improvement in the US demand. In the year ahead, a crucial area to watch for would be stance of Fed on monetary policy. So far it has maintained a low rate regime to foster growth. But if it starts to tighten up this year, which is likely, the interest rate differential between Indian and American assets would reduce fast, making debt investment in India less lucrative. This is especially true as Indian interest rates are likely to dive south this year. This could be bad news for debt portfolio investments in India 16

Governance Today

April 2015

MSMEs have not scaled up so as to avoid intrusive regulations

Chinese growth picks up this year or tensions rise in the Middle East, be it on Iran or ISIS issue, the prices could firm up which would not be a good news for India, which benefited immensely in 2014 because of low crude prices. However, experts say are the real source of worry for the Indian economyâ&#x20AC;&#x2122;s problems are mostly self-created domestic ones and not exogenous in nature. An economic analyst at a leading brokerage house in Mumbai said that the gargantuan regulatory structure prohibits and

accrue to workers in a large unit. Larger companies use temporary workers to avoid regulatory problems. Because of such inefficient norms, more than 80 per cent of the countryâ&#x20AC;&#x2122;s workforce has no legal job security. Over last three years, the Indian banking system has come under much duress. The pump-primming undertaken during last regime, to avoid a recession had led banks to provide loans to many undeserving projects which just could not pay back, stressing the balance sheets of banks. With deteriorating asset quality,

Lead Story

Because of subdued economic conditions in key markets, Indian exports have not realized strong growth of late

banks started to cut on fresh loan which according to Sinha has been a major factor for industrial slowdown. He further points out that to boost the economy, it would be important to get the stalled projects off ground, which got stalled primarily because of lack of approvals, lack of money and lack of environmental clearances. While the amount of money locked in these projects has come down because of approvals in last one and a half years, the lack of financial connectivity still haunts many projects. As for banks, they cannot wait for the stalled projects to start paying before starting to make fresh loans. They need capital infusion to have the capital adequacy to make fresh loans. While the government has made a Rs. 95.55 billion provisions in the budget

Pressing the Reform Button Reforms undertaken by NDA Govt.: • Deregulation of diesel prices • Cooking gas subsidy provided through direct transfers on a national scale • Setting up of the Expenditure Management Commission • Charting the GST implementation map • Jan Dhan Yojana for opening of bank accounts to ensure financial inclusion • Increasing FDI in defense and Insurance • Ordinance to make land acquisition less onerous • Innovative and cost effective social security schemes • Passing the Coal and Mining bill

for refinancing of state owned banks, the amount is just loo less to make any significant impact; banking system as a whole needs over Rs. 1.5 trillion (one trillion is equal to 1000 billion). Unless banks are healthy and are entertaining investors, industrial recovery cannot take place. It is not that the government is sitting idle. Since assuming office, government has taken multiple reforms towards structural reforms. Right from the beginning, the government has worked to tone up the bureaucracy which is legendary for its unprofessionalism and sluggishness. It has also been working on bringing the various processes and procedures online so that the scope of errors, delays and corruptions is minimized. For example, it has successfully April 2015

Governance Today

Lead Story

migrated the auctions of coal and spectrum, which were the two biggest scams of last government, online. Further, the highly convoluted fuel subsidies have been rationalized and the prices of diesel been completely freed of government controls. Indian taxation system is known world over for its complexity, exemptions and loopholes. Not only there are innumerable taxes and laws that govern them at central and state level, the rates are also very high. The

services. Secondly, in an effort to bring predictability in Indian tax system, the corporate taxes have been clearly set on a path to 25 per cent from existing 30 per cent over a period of four years. Inflation is perhaps the single biggest robber of purchasing power for Indian population. High and persistent inflation over last three years has forced the RBI to keep interest rates high. This month, the government inked an agreement with the central bank to formally keep inflation in

Over next decade, about 100 million young Indians are expected to join the work force. This presents India with a huge opportunity. It also presents a colossal policy challenge which is how to accommodate such a large workforce in the economic machinery. Because of poor social and educational infrastructure, majority of this workforce would be ill prepared to undertake high value addition work. As such, the government would have to create relevant job opportunity

Providing employment to a huge but poorly skilled young population is a challenge for India, Image source: WSJ

retrospective tax impositions of last government had baffled investors who are always in dark about the certainty and longevity of tax structure. The government has started working on the tax problems in two fundamental ways. First, it has pursued the Goods and Services Tax (GST), which has started being implemented from April 1, 2015. This would simplify the tax system in a big way besides removing massive bottlenecks in establishing India as a single market for goods and 18

Governance Today

April 2015

check. This would spare the RBI from constant hankering from politicians to drop interest rates besides bringing predictability in inflation and the interest rate movement, going forward. India has demography on its side. Half of its 1.25 billion population is under 25 years old. The data show that for next couple of decades, it would continue to be a young country, even as other emerging markets would see large fractions of their population cross the upper working age limit.

for this work force. While India does have a big and thriving IT services and allied industry, it is highly skill intensive which can obviously not accommodate so many people. The government has undertaken the make in India initiative to unleash the manufacturing potential of the country and compete with China in global manufacturing market. But here is the catch. As technology evolves, manufacturing requires lesser number of hands and more of infrastructure

Lead Story

The Indian stock markets have generated best returns among emerging market over last one year

to be competitive. Adding people on assembly line is no longer a ticket to prosperity. That is why it is important to undertake multiple reforms simultaneously. Massive investment is required to create world class physical infrastructure in form of highways, ports, power plants etc. to facilitate entrepreneurship. But even more important than creating physical assets is to ensure ease of business for which laws, regulations, procedures and norms would need to be simplified to such extent which do not frustrate investors. Entrepreneurs need to be encouraged to invest and small units need to be incentivized to scale up on size and productivity. This would be the key to generating jobs and making India competitive at the world stage. However, all of these efforts may yet come undone if the quality of human resource is not improved. Studies after studies have shown that Indian public education system is in shambles. A country as large and as poor as India cannot leave entire education on the private school system. Southeast Asia has shown how basic education, backed with decent universal healthcare can transform economies.

India needs to realize there is no way to bypass this grind. The government has to ensure sound basic healthcare and free basic education at the farthest corners of the country. Only then can it dream of having a workforce which can adopt new technologies and ratchet up productivity. By serendipity, India is finding itself in a comfortable position when other emerging markets are in trouble. China is slowing, Brazil and Russia are stuck in low growth. For the first time in over three decades, India has got a single party majority government with a decisive figure at the helm, who is supportive of free market led growth, vouches for reforms and is not bogged down by the socialist legacy. From here, India has two choices. First is that of moving on the old path of half-hearted reforms which tolerates private entrepreneurship, but frustrates it in the name of saving poor. It treaded this path for long. The reforms of 1991 were half hearted and therefore generated only partial profit of free market economy. The second option for Indian government is to boldly embark upon next generation of tough reforms, which may at times

create short term discomfort but yield very high returns over long term. Pumping investment in creating healthy and educated work force, removing infrastructural bottlenecks, opening up protected areas of businesses, creating social security network, ensuring transparent government procurement and bidding processes etc. constitute such reforms. So far, the government has shown spine in reeling out reforms on crucial areas such as land acquisition, FDI in defense and insurance etc. It needs to push through more. It has been proven globally that government can pull people out of poverty by redistributing wealth only when wealth has been created by providing conducive environment. India stands at a unique point in history. As a young, but poor nation, it has a lot of catching up to do which it is well capable of. The key is to believe in itself and push through what needs to be done. Indian entrepreneurship is known for its thrift, alacrity and prudence. It is time the government provides right environment so that the Indian economy can roar and leap like a lion, as the Make-in-India envisions.

April 2015

Governance Today

Lead Story Interview

Yashwant Sinha, Former Finance Minister

NDA Government Brought Back Hope to Consumers and Industry Hailed as one of the finest Finance Ministers of the country, Yashwant Sinha brought in what many experts term the second generation of economic reforms by rationalizing the labyrinthine indirect taxation system during Atal Bihari Vajpayee government. While he decided against running for Lok Sabha during last yearâ&#x20AC;&#x2122;s general elections, Mr. Sinha has been watching the economic developments in India and outside with a keen interest. In an interaction with Ajit Sinha and Anand Mishra, Sinha shared his opinions about a host of economic issues, ranging from the growth rate of Indian GDP and the newly formed NITI Aayog to the problems that industry is facing and what needs to be done to get the stalled projects going again. Edited excerpts: 20

Governance Today

April 2015

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ow do you assess the current status of the Indian economy? Also, how did you find the budget? The present government inherited a very difficult legacy. When it assumed office, the economy was in doldrums. There were more thorns than roses. The domestic investment and savings were both down, which is a complex situation. The demand had gone down despite all freebies doled out by the UPA government. This was basically because of the lack of confidence in Indian economy. Leave the foreign investors, even Indian investors were not willing to invest in India. The consumer had decided to curb his consumption and save less which is quite a contradiction in itself. Resultantly, the Indian economy, which is basically a domestic demand driven economy, had started to falter. This is the situation that the present government inherited. The first impact of BJP’s coming to power and Narendra Modi’s becoming the Prime Minister was that the confidence came back. The unexpectedly strong mandate brought back the positive sentiment. However, this sentiment had to be backed with positive government policies. Economically, Make in India has been the most powerful initiative of this government so far. But this initiative has to be supported by a number of steps. The government needs to work on them. The present government has been helped by some international factors. The crude prices, for example, came down by more than half over last one year, which helped the economy by bringing down the government’s subsidy bill by Rs. 25,000 crores. The return of confidence also ensured that gold imports came down, improving the current account profile. As for budget, the Finance Minister has stuck to the fiscal target given by Chidambaram and it appears he would achieve the target for 201415. The improvement on the fiscal and current account deficits has also boosted confidence. Everyone was looking forward eagerly to this year’s

Interview budget, which clearly has a number of very good things that can and hopefully will change the face of the economy as we go along. There has been a great emphasis on infrastructure development in which lot of money is expect to go into. The last point I would like to mention is the burden on banks which had amassed a large amount of NPA which in turn was the result of the slow growth during the UPA regime. The private sector was not in a position to invest. They did not have money and banks were not willing to finance their projects. The govt. had no money either and public investment could have stressed the fisc. The public sector, however, did have some investable money, about 2-2.5 lac crores. So, the emphasis had to be on the public sector investment which could trigger private sector investment. I am hopeful that moving forward, this strategy would lead to better growth. What I am not impressed by, is the new, revised growth figures that the government has come out with. While the approach is right as this is how most countries calculate growth, but I have my doubts about the competence of our statistical organizations to capture the value added. As such, the figures of 6.9 per cent and 7.4 per cent are not supported by other indicators of the economy such as industrial and agricultural productions, saving and investment etc. So, that is something which would need to be looked into. But in totality, I feel it is a positive budget and should spur growth. What is your opinion about the new NITI Aayog? Do you think states are going to benefit from the same, compared with the erstwhile Planning Commission? Because of the report of the 14th Finance Commission, which recommended devolution of a larger pool of resources to the states, the government was forced to revisit its approach towards the centrally sponsored schemes(CSCs). Even in the last Finance Commission, which I had headed, we had recommended

to restrict the number of CSCs to ten. It was suggested that the government should identify its flagship schemes and provide only for such schemes. For the rest, it was recommended that the central government should transfer the resources and schemes to states with the requisite authority to decide what they wanted to do with those schemes. The recommendation of the 14th Finance Commission basically forced the government’s hands and this has reflected in the new arrangement. I would have wanted the NITI Aayog to retain the authority to allocate resources for the crucial centrally sponsored schemes which has not been given to it. Under the new arrangement (in which the power to allocate funds has gone to the Ministry of Finance), my feeling is that too much power has got concentrated in the Ministry of Finance. Earlier, the Planning Commission used to differ with the Ministry of Finance on many issues, but the new body has been made a completely independent assessor, leaving Ministry of Finance with no counterweight. So, while the government has accepted the recommendation of the 14th finance commission on the devolution of resources, the approach for rationalization of the CSCs is somewhat missing. The Ministry of Finance had ample time to critically look into the schemes and think about what the abolishing of the Planning Commission would mean, in terms of power to allot funds, running of schemes etc. They could and should have come out with a fundamentally altered approach than has been the case. You mentioned about the make in India being an important initiative of this government. How to make it a successful program? I have a different take on this. In an article for an economic newspaper a few days ago, I wrote that during the Vajpayee government, we had followed a policy of make India to ensure make in India follows. What does make India mean? It means constructing thousands of kilometres of highways and rural roads, building April 2015

Governance Today

Lead Story Interview ports, implementing major irrigation projects, and undertaking rural and urban infrastructure projects; in all, developing overall infrastructure of the country. This would lead to things being made in India. for example, when we started the national highways program and the Pradham Mantri Gram Sadak Yojana, the heavy machinery which was required to build roads faster, was not made in India and has to be imported, for which we had provided custom waiver. However, as the highway project endured, these machines started to get built in India itself. Second aspect is that manufacturing needs investments, markets and easier clearances, or else entrepreneurs wonâ&#x20AC;&#x2122;t invest. We have to do a lot more to improve ease of doing business. Then there are labor laws which are considered as big source of impediment and as such need to be worked on. And while implementing reforms on all these fronts, the need is to work in the spirit of federal system. I would give you an example. When we introduced VAT, I had created the empowered group of state finance ministers which has endured. So we need to get states on board because ultimately, the factory or plant would be set up in some state. In this situation, questions like who provides the land, road and rail connectivity, power etc. becomes crucial. Since states are going to be doing all these, they must be involved in deciding how to ensure ease of business. As states provide infrastructure, which is essentially make India, the demand would be generated which would enable make in India. There is a large number of projects stalled. How to get them moving again? Well, the Economic Survey talks about projects worth some 9 Lac cores being stalled. Basically, the projects are stalled on account of three factors. First, the land was not provided; second, environmental and forest clearances were not given; and third, there was shortage of money. All these issues need to be addressed. The present 22

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April 2015

and last government did clear projects, and because of this, the amount stuck in the stalled projects came down from about roughly 19 Lac crores to the current level. But the financing part is still problematic. I would give you an example. In my erstwhile constituency of Hazaribag, a national highway project got stalled because the contractor was found involved in coal scam and his contract was cancelled. However, the new contractor has not being able to procure fund for project. As such, the project got stalled because of lack of financial connectivity. There must be many such projects which are stalled because of any or all of the three factors I mentioned. It is the duty of the government to provide clearances and finance to ensure that these projects get off the ground. Do you think UPA I & II squandered the

got stuck in tracks. This is the policy and governance paralysis that people have been talking about. No, you cannot do all of that in five years. But you can surely start working on them. For example, you can start building roads at say 20 km per day. Surely everything cannot be completed in five years, and thatâ&#x20AC;&#x2122;s why in this budget, the finance minister has said many things which would be completed only by the year 2022. The issue of GST has been hanging for long Well, we need to understand what all is involved in implementation. The makers of constitution had given certain financial powers to state governments. Through the GST, some of those powers are going to be taken away. There will be one tax. While this will be collected

NITI Aayog should have been given the authority to allocate funds for CSCs

opportunity to undertake big ticket reforms? Can things be sorted out in five years? Well, you have to think big when you are planning for the economy. But in a decade of UPA rule, you cannot find a single big idea as far as economy is concerned. While they carried on with the big projects that we had initiated, they did not initiate anything really big of their own. They did not come up with any big program to say, build ten big steel plants or a certain number of cement factories or ports. So much so, the projects that we had started, also

by the state governments also, but their taxation powers will more or less cease to exist after the GST. And so will be the case with the taxation powers of the government of India. This is a huge departure from the practice that we have been following since 1950 when the constitution came into being. There are many issues on which states have reservations. One big issue is compensation which the finance minister has taken care of by promising to compensate for three years. But compensation is only one part. Next major issue is that of procedures. First,

Lead Story Interview the government of India will have to get a constitution amendment bill passed from both houses of parliament. Then this bill will go to states and at least 50 per cent of the states will have to pass it. Then it will come to the President after whose approval, it will become part of the constitution. After that, the parliament of India will have to enact laws for implementation of the GST, because you cannot do it only on the basis of constitutional amendment. The states will also have to pass laws in accordance with the new constitutional arrangement. After the laws are passed, the rules must be framed. Then the acts will have to be notified. This will complete the legislative part. Then comes the administrative part. Multiple departments at central and state levels would have to be merged. This all will have to be done to create one single body for GST. Most importantly, a reliable GST IT platform would have to be ready, with the capability to scan through the trillions of transactions to verify the tax status of each transaction vis-àvis payment of taxes and inputs that can be claimed thereon. This is what had to be done when we introduced Cenvat. The Finance Minister has said he would implement GST from April 1, 2015. However, to complete the legislative part of the business and put the administrative machinery in place, both in states and at the centre, and start implementing it would be a very challenging task. I wish him luck. Opposition says that the allocation for social schemes has come down in this budget. But govt. says that with extra money devolved to states, they would have to take responsibility of such schemes. But considering the variation in quality of state administrations, do you think this is a prudent thing to have been done? The quality of state administrations

has varied in past and would continue to vary in future too. That is the reason why I am of the view that the NITI Aayog should have retained the authority to disburse funds for those crucial schemes which the government of India would continue to run with full funding. Even Nitish Kumar, who is politically not with the government of India, has said that it is the responsibility of the government of India to deal with backwardness. So,

there always are issues of equity which need to be dealt with in economic policy, and these issues can be dealt with only at national level because these are national problems. And when I am talking of equity, I am talking about backward and not-so-backward areas and populations, weaker sections etc. To ensure equity among regions and populations is the responsibility of the government of India and it can be dealt only with the national programs. As such, the government of India should have to run those schemes.

What is your take on the Govt’s agreement with RBI on inflation management? Don’t you think it would make RBI hawkish on inflation? The RBI has always been hawkish. That’s why we saw interest rates go up 13 times during UPA II. Now, with the agreement, it is being institutionalized. Earlier, it depended on the governor who had internal consultation. But now, there will be a monetary policy committee, as is the practice in many countries, including the US, and the governor would have to consult with this committee on the issue of monetary policy, including inflation. I think it is a good development; it clearly puts the responsibility to curb inflation on the RBI. What are your suggestions for the present administration to boost economic growth? My suggestion is that they should not only carry o n with the big projects that the previous Vajpayee government had initiated, they should embark upon newer, bigger projects. For example, they could start the river linking work wherever it is environmentally feasible; it is one big idea that has been pending since the last NDA government. Second, they should ensure that the heavy industry in the country is strong enough to export finished goods compared to the raw material. The export of finished steel against the export of iron ore is a classic example. Mineral sector is a huge opportunity which needs to be looked into; the recent Mines and Minerals bill is a good initiative. Apart from these, I would suggest the government to provide all possible assistance to the MSME sector because they are employment intensive and create jobs in rural and backward areas. While talking about MSMEs, the area where there is immense scope is the food processing and agro based industries. So, we should encourage investment in these sectors.

April 2015

Governance Today

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Capturing Welfare and Sustainability “The problem with following the herd is stepping in the crap it leaves behind” | SHOBHNA JHA

he GDP or the Gross Domestic Product has been all in news with its new methodology (GDP calculation at market price and reckoned on a new base year)—resulting in substantial jump in growth figures but in the process, creating a roadway to debate its authenticity. The Economic Survey (2014-15) predicts that India has now reached a “sweet spot” in history, with 7.4 per cent growth rate in the current fiscal which could go up to 8-10 per cent in following years. The Union Indian Budget 2015-16 projected that the economic growth will be 8.5 per cent in the next financial year. Growth will be perhaps in double digit figures in subsequent years, as put by the Union Finance Minister of India. But the question is where is this growth coming from? Our natural resources dependability and vast environmental degradation is highly pervasive by all records. The “natural capital” base is declining steadily. Even as pantheons are being sung for the high economic growth, not many are thinking in terms of who will take the blame of the crap of a ‘corroded environment’ in the future? Sometimes the herd mentality grips us totally that we forget what is right and what is not. GDP measures the macroeconomic size and health of an economy by aggregating the total value of final goods and services produced within a given country’s borders. It rightly represents economic growth and the production record of a country. However, treating it as the ‘best’ and exclusive parameter for economic growth and development seems flawed when India’s diverse population and rich democratic dividend is taken into percept. The roots of doubt are 24

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April 2015

embedded in the fact that higher growth rate is of no value if the economy’s growth is uneven and distribution among rich and poor is being ignored. Even the claim that India’s growth will outpace China’s in coming years seems more of braggadocio rather than economically explainable. While Chinese economy is slowing to a new normal, its productivity and industrial base is much stronger to sustain the growth level and ratchet up with lesser effort than is the case with India. Secondly, the growth rates being presented are Rupee

denominated. But the IMF looks at growth rate in US dollar (USD) terms, so the ‘impact’ of currency movement while comparing Indian and Chinese growth rate should not be ignored. According to Pronob Sen, Chairman, National Statistical Commission, it’s a “time to sense pride” for high GDP figure and the new methodology which captures GDP at market prices and reckons new base year altogether. The Economic Survey (2014-15) claims that the projection of India’s GDP growth for next year at 8.1-8.5 percent looks fairly reasonable considering that in majority perhaps, all sectors in the economy have tended to perform better in 2014-15 (FY15) compared with 2013-14 (FY14). CSO, which brings out these numbers, has clarified that GDP is based on value added at market prices which broadly refers to the returns to factors of production. GDP at factor costs is not capable of

showcasing the economic activity precisely. Other units as Gross value Added (GVA) at basic prices is an

international standard and mostly employed for sectoral level. Even the UN’s System of National Accounts (SNA) had said in 1993 that for a country, only GVA and not GDP at factor cost should be used. Admittedly, India has undergone a dynamic economic growth trajectory of highs and lows since liberalization. Over last few years, though, the clamor has been rising about growth cannot just be captured in terms of monetary

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worth of goods and services produced or in terms of monetary value added. Today, the alarm of sustainable development ringing globally has refused to merely exist as background music and it deserves support, voice and urgent attention. It needs to be adopted at both micro and macro levels of economic analyses. Particularly, in case of India, given its population’s huge natural resources dependability and existence still as ‘developing stage’, a sustainable development pattern is utmost essential for equitable

and just prosperity, in terms of both growth and well-being in the long run. A plausible solution which could account for economic activity of common people and elite statisticians and economists alike can be “Green Accounting.” If one thing we are definitely ignoring, it is the nature; call it ecology, environment or by any other term. The natural capital is abundant yet inevitably depleting today and it is precisely, what GDP is failing to capture – the ‘costs’ of economic growth. However,

we cannot simply jump into a “Green GDP” concept which the UNEP has proposed because hazards in these accounting need to be kept in mind. The example of China is worth noting here. It heralded its green accounting exercise first in 2006 estimating for the year 2004, and gave a figure 3.5 per cent as environmental pollution of its GDP but international experts claimed it was as high as 8-12 per cent. China also saw very low growth in that phase and abruptly halted the green accounting exercise in 2007. Needless to say, political pressure was more than the environmental concerns. In fact, we need to look beyond Green GDP as many economists and ecologists in India and abroad point out rightly and that must start at the conceptual level. For instance“Green Economy V/s Brown Economy” a la Gopal Kadekodi that points how Brown Economy strategy is one about intensification of fossil-oil based energy, development, and how that means just development, but not “sustainable development”. Thus the result is increased land, water, atmospheric exploitation and pollution. In contrast,

“Green Economy” concept was included in Rio +20 Summit in 2012. It is portrayed as an opportunity to enhance ecosystem services, enable sustainable development and livelihoods for the poor. Undoubtedly, we (the common man) all love growth. But experts have started to realize that over long run, a seven per cent growth rate which takes a minimum to no account of environmental costs and damages works much better than a five per cent sustainable growth rate which hopefully adjusts for such costs and takes care of environment, eliminating huge ecological costs in future. In this direction, there have been various upcoming initiatives globally such as the concept of “Net Adjusted Savings” introduced by World Bank in 2010 and “Inclusive Wealth” Reports 2012 and 2014 by UNESCO and MGIEP jointly worked upon by eminent economists, scholars and academicians from diverse fields. In conclusion, we may reiterate what Jairam Ramesh (Former Minister of State, Environment & Forests, Government of India) has conveyed through “The Hedgehog and the Fox”— that the fox knows many things, but the hedgehog knows one big thing. The way to a green economy is to ensure that it is not hijacked by any one type of hedgehog– the ‘environment - hedgehogs’ who know nothing but maintaining the environment in its pristine form or the ‘growth hedgehogs’- who can’t see beyond their GDP noses. All of us will have to become foxes, knowing many things. Unless we are foxes we cannot move beyond GDP. Thus, the Government of India really has to decide which measure to use for economic growth accounting for India. Most importantly, the costs need to be accounted too as the environmental/ecological limits can’t be ignored. The need of the hour is to opt for a sustainable and inclusive growth path, which would ensure economic well being for people and preserve what mother nature has endowed us with.

April 2015

Governance Today

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Moving Towards Financial Sector Reforms | Dr HINA KHAN

t is not even a question whether India needs a financial overhaul or not. The prescription is written all over the wall. Among the few immediate steps that the government needs to take are to deepen the equity and money markets while protecting smaller investors, the public sector banks have to be reformed in a major way and the insurance sector has to be strengthened to increase the flow of capital and protection of investment. The latest Economic Survey 201415 also repeated what needs to be done with the banking sector. It gave a four-pronged solution - deregulation, differentiation, diversification and disinterring. The survey called for gradual reduction in the statutory liquidity ratio (SLR) or the chunk of money banks need to mandatorily invest in government securities and the other liquid assets such as gold, to make available liquidity for lending for productive sectors. The amount, thus released from the shackles of the forced-government security investment, could be used freely by the public and private sector banks at their discretion. The Reserve bank of India under the Governor Raghuram Rajan has also been steadily attempting this. After the former International Monetary Fund economist Rajan took the helms of the India’s central bank, SLR has been reduced thrice by 150 basis points to 21.50 per cent. With the sector afflicted to double financial repression and misallocates capital to investors, the Survey sought correction in assetside repression. Asset-side repression is created by SLR requirement, while liability side is due to high inflation. 26

Governance Today

April 2015

RBI has been trying to get more money in the system by slashing SLR

The survey also highlighted the need for a proper Bankruptcy law in the country so as to help lenders recover some of their losses if a corporation runs out of business. Currently, the country does not have a proper bankruptcy law and the banks have to resort to either Corporate Debt Restructuring Cell – a place where the consortium of lenders discuss the feasibility of a sick company and study the case for moratorium on the loan repayment, or to the Board for Industrial & Financial Reconstruction (BIFR) – a government body to revive bankrupt companies. Both the units

have failed to offer quick solutions for banks struggling with bad loan problems or in even reviving the companies from their plight. Currently, toxic assets are over 10 per cent of the total loans given by banks, impacting their profitability. As the survey notes, “distressed assets hang like a Damocles sword over the economy and require creative solution.” Hence, a bankruptcy law is urgently required in the country. On the increase in the non-performing assets (NPA), the economic survey notes that as on June 2014, five subsectors - infrastructure, textiles, iron

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and steel, mining and aviation hold 54 per cent of the total stressed advances of government owned banks. The survey prescribes to do away with the one size-fits-all approach of the government when it comes to treating public sector banks and asked the authorities to look at differentiated solutions for differently sized state-backed banks. Currently, all the state-banks are treated the same way in appointing bankers, compensating policies, distribution of capital, or employee performance. These solutions have been harped by various central bankers and economists over the years, so Arvind Subramanian, chief economic adviser to Arun Jaitley, has just reinforced what has been said over the last one decade. Itâ&#x20AC;&#x2122;s the government which needs to take action. The latest Union Budget did promise a Bankruptcy Law along with reforms in the financial sector, but it is yet to be seen how soon the government can bring about these changes. The government has moved forward in some respects in the financial sector reforms by allowing state-backed banks to dilute government stake to 52 per cent and making sure amendment of Insurance Bill is passed in the Parliament. The new insurance law allows the foreign partners to hold 49 per cent stake in their Indian partnerships up from 26 per cent allowed according to old law. The passage of the new law will definitely get in some relief to the cashstrapped Indian insurance sector but the government still needs to completely free this sector to see a sharp rise. According to Minister of State for Finance Jayant Sinha, the move is estimated to rack in USD10 billion in the sector. While the statebacked banks can tap in markets to raise funds and improve their capital adequacy ratios especially when the stricter norms of capital adequacy under the Basel 3 norms will kick in fully by 2018-19. According to

Reserve Bank of India estimates, the banking sector will then require Rs. 2.4 trillion rupees. The Reserve bank of India has also been actively promoting granting of new license for banks following two applicants got approval in April, 2014 to set-up new banks in the private sector within 18 months. The RBI released guidelines and invited applications for setting up payments banks and local area banks as well. The government is also looking for ways to deepen the debt market and attempting to increase domestic flow into the Indian markets. To win

to revamp this segment. These steps would make the system internally more strong. The government is moving forward with a lot of proposals that are progressive and might be able to achieve the reforms that are required. The problem, however, for this government has been its inability to get laws passed in the upper house, where it does not enjoy a majority. Case in point has been the Land Acquisition Bill that the government has been unable to get through and has decided to reissue the ordinance for its continuation. The government

Insurance sector has been on the reform agenda for a long time

small investor confidence, Jaitley has announced setting up of a task force to establish a sector-neutral Financial Redressal Agency that will address consumer grievances against all financial service providers. The government is also aiming to remove unnecessary restrictions in the currency derivative markets, and has formed a committee on Indian Financial Sector that will submit a report to the government on proposal

has not been able to even table the Goods and Services Tax bill that look at unifying various taxes in the country under one umbrella. The question with the present government is no more the intent but the capacity to convert proposals into laws. There is serious need for tougher reforms in the financial sector, which would ensure sufficient money supply to the economy.

April 2015

Governance Today

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From Elephant to Lion How Far Can We Make It?

| SAGARIKA RANJAN

‘Manufacturing is largely challenged by stringent Indian labor laws that curb the fluid functioning of the industry. Archaic policies such as the Contract Labor Act & Minimum Wages Act need to be done away with.’ 28

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April 2015

here is hope in the air, the new hope of growing India. Our country has grown mature and so have the people and their needs. Change is therefore inevitable and to bring about this change Modi’s magic wand has deployed tools like smart cities, Niti Aayog, e-governance, Swacchh Bharat Abhiyan and the most remarkable – Make in India, to metamorphose the elephant to a lion. Budget 2015 has stressed that ‘Skill India’ needs to be closely coordinated with Make in India and that an upgraded skills mission has to substantially contribute in boosting the employability of the unskilled youth of the country. A more skilled workforce also contributes to higher productivity with same input. Truth, however, when viewed from the pragmatic lenses of the economic analysts is that the lion is still a gigantic yet fantastic manifestation for the skill-starved nation of ours. The Make in India initiative has identified 25 thrust sectors where the government believe Indian industry can compete with global manufacturing giants. The key focus areas being automobiles, chemicals, IT, pharma, textiles, ports, aviation, leather, tourism and hospitality, wellness, and railways. These sectors will see inflow

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of investments, sector specific FDI and other policies to generate maximum production. But the big question is where are the farmers and the cottage industry that are the backbone of the Indian economy? Undoubtedly, the plans do consider this and there are roadmaps that talk of developing the foundation but the question here is that is India prepared to take up the pressure? A shift from the aims and focus to the roadmap unleashes the challenges. Several analytical reports present a similar idea of how these plans do not, for now, fit into the frame of the Indian economy. A recent decision of the government to drop the idea of aiming at the three per cent fiscal deficit for next one year questions the viability of the aims.

needs to start from scratch. As Sanchit Vir Gogia, Chief Analyst & Group CEO, Greyhound Research puts it, “We believe that for Make in India campaign to be successful, the government will have to focus on formation of effective regulatory framework for transparency in decision making and ensuring timely implementation of projects.” ‘Make in India,’ yes, but what will the industry make, for whom and how India will benefit in the long run are some of the questions that appear hanging. Are we looking at the goals and benefits – job creation, foreign investments, competition that is expected to churn out better quality and fair prices? Surely these do paint a rosy picture but in the process are we failing to see the limitations and wearing off of the

Adequate push is required to encourage small and medium sized units

According to a report by the Greyhound Research, the campaign which is aimed to boost the country’s domestic manufacturing industry with initiatives like easing the process of industrial licenses, development of new manufacturing cities and logistic hubs will also create immense employment opportunities for low skilled workers in the country. However, the groundwork

brush – the infrastructure, our Indian infrastructure. And physical infrastructure such as roads, ports and power plants are not the only problem areas. Soft infrastructure is equally important and is in similar state of shambles and is the physical infrastructure. The case of Nokia plant in Tamil Nadu is a glaring example of this. The plant

that employed thousands in 2009, had to offer voluntary retirements for its employees, in their early twenties, as it was to draw the shutters due to ‘differences with the government.’ POSCO and ArcelorMittal had to scrap their multi-billion dollar projects because of the regulatory and land acquisition hassles. The flip side of the Make in India, as per extensive research by the Greyhound, is that the scheme will promote domestic manufacturing for International consumption, but what about our Indian markets? While the government has incentivized manufacturing for the economy, it has still not created any provisions to guarantee that majority output will quench the thirst for local demand. The purpose of Make in India is to give power to the small and medium manufacturing units; however it still lacks a framework which encourages domestic consumption. Then there are ecological concerns which need to be addressed while making a dash for manufacturing. “India must learn from the mistakes made by China. Policy and regulations to better manage environmental impact is critical. Also, we need to use a Cherry pick approach i.e. focus on niche segments where China hasn’t done well,” says Gogia. The ideas of reforming the pay commission, taxation, labor laws and push for laws to suit the plans and make congenial changes does not necessitates achievement. The ambition to revitalize the Indian economy seems rigged and full of overambitious projects. The present government aims to provide meaningful employment for the 10 million young Indians who will come of working age each year for the next 15 years. But this idea sounds utopian to many who point towards the non-enabling operating environment. The two factors which have become increasingly important in constraining the growth of organized manufacturing are the difficulties in securing environmental clearances and acquiring land. April 2015

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Manufacturing is largely challenged by stringent Indian labor laws that curb the fluid functioning of the industry. Archaic policies such as the Contract Labor Act (aimed at regulating and checking limited inflow of contractual labor) and Minimum Wages Act; need to be relooked at. These policies are not flexible and often cause labor unrest and disruption. GST, single window approval for projects, Swacchh Bharat Abhiyan, taking banking facilities to the people of the lower strata present etc. all paint progressive picture but where are we thorough with the foundational basics of these facilities? Surely these initiatives cannot ride on obsolete labor laws, red-tapism, the huge unorganized labor force or the gasping judiciary? Durgesh is a 12-year-old boy who sells flowers in Bengaluru. All he knows is to make these flowers to survive his long life. He fears that if the foreigners take over, “nobody will buy my products”. He says: “What will I do if these big factories come here? I do not know how to use the big machines. I will die of hunger.” Durgesh represents thousands from across India, who feel threatened by the possible onslaught of global industry. The answer to their fear is “skill development” which would equip them to coup with the changing market demand. The vision indeed is commendable but it’s not new. Such novel visions in the past have all come undone and the sufferers were invariably the working class. Taking a thread from POSCO’s process of setting up industry in Odisha, hundreds were ruined and all were downtrodden people with no scope of alternative livelihood. Forcible land acquisition led to widespread resentment, sparked protests and even led to deaths. The fear today is – what will happen when several POSCOs land on our soil? Is there a safety net? Tough questions begging answer. The land belongs to the farmers but the land acquisition laws and labor laws are allegedly being engineered to favor the industry. Profit-driven goals appear to be ignoring the welfare of a 30

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large number of people in lower strata of society. Yes, these farmers did get jobs at the factories but that is half the picture, the better half. The gray area was that these lords of their land and respectable tillers got the job of toilet cleaners, sweepers or at the most gate keepers for they are not skilled. The colossal promises of training the locals and employ them were restricted to the papers. “Make in India campaign should now align with the Ministry of labor and employment that has come up with the Smart Cards with unique

To ensure small and medium business units are able to operate and conduct smooth operations, the government has launched the eBiz portal, which will be the one stop portal for requisite government approvals. It offers only 14 services at the moment such as PAN registry, Certificate of Incorporation, Direct Identification Number (DIN) etc. The eBiz portal is envisaged to offer more than 200 services in the future to enhance ease of doing business for Indian enterprises. This, according to the greyhound research, will definitely prove to be a boon for manufacturing

There is a need for proper training of youngsters to make them employable

identification number under the purview of the Unorganized Workers Social Security Act 2008. Given the fact that majority of unorganized workers belong to depressed classes, the government has to be more effective in addressing this issue as it is as much social as economical,” suggests Gogia. He further says that an efficient business environment will be possible only when the administrative machinery in the country is effective. Easier approval of projects and hassle free clearance mechanism will help create a business-friendly environment.

units across India. Make in India is a really good vision for the nation. It acknowledges that a country with such a large fork force cannot progress only on strength of services industry and that large scale manufacturing is the only option to put so many hands at work. But to fully realize this vision, many tough questions would have to be answered, careful planning would be required and most of all, a humane approach will be needed because the initiative would touch millions of lives.

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Banks Sitting on Bad Debt Volcano

| RAMESH KUMAR RAJA

tate Bank of India, the country’s largest lender, recently took control of Kingfisher House, a prime property owned by Vijay Mallya’s Kingfisher Airlines in Mumbai, in an attempt to recover part of the money the airline owes to the bank. SBI claimed the property, spread over 17,000 square feet and which houses some of Kingfisher’s key offices, after securing a favourable ruling from a Mumbai court. Kingfisher owes over Rs 7,000 crore to a consortium of banks, including SBI. To be sure, the value of the Kingfisher House would constitute only a small fraction of Rs 2,000 crore the grounded airline owes to SBI. This is perhaps the first time in recent years that any public sector bank has taken such a tough step against a

big, influential business house. Also noteworthy is the fact a government bank could attach one of the prime properties of a prominent business tycoon and a politician, braving any interference – political or otherwise. SBI’s action, in that sense, could inspire lenders to take on wily promoters and cronies, who owe several billions to banks and have delayed payments for years. Although the over USD 1.8 trillion Indian banking system has got the potential to be the fifth largest banking industry in the world by 2020 and total asset size is poised to kiss USD 28.5 trillion by 2025, Indian banks are sitting on a bad debt pile that is close to Rs 3 lakh crore, a significant amount of which is an outcome of loans given to mid-sized and large companies. The number of wilful defaulters, or borrowers who wouldn’t pay back

even if they have the capacity to do so, has been on the rise in the recent years, prompting banks to start acting tough. Typically, in such cases a wilful defaulter diverts bank money to fund other purposes. It is clear that when loans taken are not repaid, much of the funds go out of the financial system and the cycle of lending-repaying-borrowing is broken. As a result, banks have to borrow to repay depositors and creditors and then banks become shy to lend further thus choking the entire system. It then negatively impacts the economic growth and development as fresh money flow to the wealth creation endeavors stops. Non Performing Assets and Bad Loans are thus quite terrible from the economic point of view. Kingfisher is just one of many companies that have been categorised April 2015

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as wilful defaulters by other staterun banks. Others include Winsome Diamonds and Jewellery, Zoom Developers, Koutons Retail and Mumbai-based Tayal Group-promoted KSL & Industries. Winsome Diamonds owes Rs 6,500 crore to a clutch of banks including Axis Bank, Canara Bank, Bank of India and Bank of Maharashtra. About Rs 900 crore is balance to PNB

loan levels of banks. Mallya’s Kingfisher is definitely a case in point. Even though Kolkata-based United Bank of India had tagged Kingfisher a wilful defaulter late last year, Mallya secured a stay from the Kolkata High Court on technical grounds. The recovery process, thus, often gets delayed for years and by the time banks manage to lay hands on the collateral, the value

celebrated as industry captains. It may be noted that public sector banks are more affected than their private counterparts by bad loans or the menace of non-performing assets (NPAs). One of the major reasons in this regard is that state-run banks have relatively high exposure to sectors like telecom, power, airlines and agriculture which have performed

Kingfisher House in Mumbai which has been taken over by SBI

going by the information from the bank. Zoom Developers, which owes about Rs 2,600 crore to banks, has an outstanding debt of Rs 410 crore to the Mumbai-branch of PNB, while Koutons owes Rs 88 crore. The Mumbai-based Tayal group, the former promoters of the erstwhile Bank of Rajasthan, which has interests in textile to real estate, still needs to pay around Rs 2,500 crore to various banks. Even as SBI’s ‘Kingfisher act’ would set an example, the involvement of influential politicians and industrialists, as well as legal interventions have indeed contributed to the rise in bad 32

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of the asset would deteriorate sharply. As per bankers, one reason why the state-run lenders have turned more aggressive in taking stringent action against the defaulters is a strong push from the Reserve Bank of India for faster recovery of bad loans. The RBI, in January last year, had come up with a roadmap on early recognition of bad assets, which incentivised banks making efforts for quick recovery and penalized those that delayed action. Later, RBI Governor Raghuram Rajan came down heavily on bad borrowers, saying they needed to be seen as freeloaders rather than being

badly over the last few years. Private sector banks, on the other hand, are more exposed to the retail sector with close to 35-50 per cent exposure whereas PSBs have just around 20 per cent retail exposure. The sectors that contributed significantly to the stressed advances are infrastructure, iron and steel, textiles, mining and aviation services. All of these sectors had received help during 2008-09 to avoid financial crisis in India. Hence, India’s state-run lenders, over the last few years, have steadily lost market share to rivals in the private sector due to mismanagement,

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careless lending and corruption. These banks are currently capital constrained, neck-deep in bad loans and lack autonomy in operations. Besides, hit by sluggish domestic growth and continued uncertainty in global markets that has leading to a drop in export of various products, including textiles, engineering goods, leather and gems & jewelry, the bad debts of public sector banks have surged to a 10-year high. Bad debts for all public sector banks reached 5.64 per cent of their total advances as of December 2014, the highest level since 2004-05, when they stood at 5.73 per cent. These numbers were disclosed in an agenda note for a meeting Finance Minister Arun Jaitley had with the heads of public sector banks and financial institutions last month. During the last few quarters, there has been a continuous rise in bad debts, making the situation alarming. NPAs were 4.72 per cent of total advances at the end of March 2014, and rose to 5.29 per cent by September-end before surging in the December quarter. According to the agenda note, “PSBs continue to be under stress on account of their past lending.” According to reports quoting Finance Ministry officials, both PSBs and the Centre can be expected to continue with measures to improve asset quality. Banks are also expected to move to improve risk management and asset quality. At the same time, the Centre is in the process of establishing six new debt recovery tribunals (DRTs) to speed up recovery of bad loans. Since the stalled projects have been adding to the NPAs of the banking sector, the government feels that clearing them will help in improving the loan situation of public sector banks. Finance Minister Arun Jaitley recently assured bank chiefs that the government is taking a number of measures to revive the Rs 8 lakh crore of stalled projects, most of which are languishing in the infrastructure sector. They said that resolution of the stalled projects will help public sector banks improve their asset quality. “During the period – April 2014 to

January 2015 – public sector banks received 88 new projects proposals with a total investment of Rs 1.41 lakh crore. These are in various stages of appraisal, sanction and stage-wise disbursements,” said the finance ministry in a release on its website. Even the recent Economic Survey had pointed out that unfavourable market conditions and delayed investments in last few years had resulted into an “alarmingly high rate” of increase in stalled projects, which, as of December-end, stood at a staggering Rs 8.8 lakh crore. On the bad loan issue, the banking sector data revealed that top 10 borrowers

banks have a significant role to play in building our nation, as they control about 75 per cent of the total banking business in the country. Hence, there is clear cut danger sign and the first minimum step government can take is to totally stop politically influenced lending. Also, the government should give banks free hand in recovering loans and reduce bad debts from corporate and strictly avoid putting any pressure on banks to go slow, due to lobbying by corporates. Timely and effective recovery of bad loans is very important. This happens to be the reason that debt recovery tribunals were brought into practice

High bad loans may force banks to cut short on fresh loans

accounted for Rs 28,152 crore of nonperforming assets of public sector banks. Meanwhile, the recently submitted budget for the year 2015-16 has been a big disappointment for public sector banks. These banks need capital infusion of about Rs 2.50 lakh crore till 2018; however the budget has allocated a meagre sum of just about Rs 9,550 crores towards this. The government should hasten the merger activity of banks; however there is also no visible movement in this regard. Needless to say, the public sector

to help financial institutions recover their dues fast without being subject to the long procedures of usual civil courts. The amount recovered from cases decided in 2013-14 under DRTs was only 13 per cent of the amount at stake i.e. only Rs 30,950 crore were recovered from outstanding value of Rs 2,36,600 crore. The government should seriously look into ways for speedy recovery of bad loans through DRTs. In fact, there is a need to strengthen the working and to restructure governance of the banks, PSBs in particular.

April 2015

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Lead Story

Subsidies

The Blood-Sugar of Indian Economy | AJIT SINHA

very year, as budget is presented on Feb 28, media tries to educate us about the budget and its provisions for direct and indirect taxes. They inform us as to how the budget would impact our pocket etc. Here, we are bringing on table, the issue of subsidies, which impacts economy as well as our pockets directly. It is important for people to know how the various types of subsidies affect them and economy. We taxpayers want Finance Minister to reduce Tax. Do we ever expect the government to pay higher taxes to us? Actually we do. How? By expecting government to increase subsidies which is inverse of taxes. Opposite to taxes which increase the government income, subsidies reduce governmentâ&#x20AC;&#x2122;s income. Subsidies play a very important role in any economy; country has various resources which are to be gainfully deployed for the benefit of the people of the country. Subsidies are provided to ensure equitable utilization of the resources for the people and they play

an important role in developing and underdeveloped nations. Developing nation provides subsidies for improving the living standard the vast majority of population and to ensure they are not derived of basic amenities of life which is the rationale for providing subsidies by governments of underdeveloped nations also. Subsidies represent a

Diesel Consumption

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April 2015

sizeable item of the centerâ&#x20AC;&#x2122;s non- plan revenue expenditure. In India, Food and fertilizers are the two main items subsidized by the government through budgetary support. The question arises why India needs subsidies? Is it fulfilling the purpose? Is it implemented without leakages? No doubt a developing country like India needs subsidies due to various reasons. Providing minimum consumption entitlement to the poor by subsidizing the items consumed by them is extremely important for the welfare of the largest section of population. However, the benefits can be maximized only when the subsidies are transparent, well targeted, and are designed for effective implementation without any leakages. These days, one can hardly see the benefits of the subsidies and often the government is criticized for granting subsidies which do not reach their target or are manipulated by the rich. The whole issue of granting subsidies or not has given rise to many questions which need

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Recognizing the need to reform subsidies, the Indian government, at different times, has appointed several committees to assess how best to address the issues related to fuel subsidies: Rangarajan Committee Report, 2006. This report recommended that international (or “trade parity”) prices be used as a reference for a more market-based approach to pricing of petrol and diesel. It also recommended that subsidized kerosene should be restricted to below poverty line (BPL) families and the retail price of LPG be raised, with any remaining subsidies financed directly from the budget. Parikh Committee Report, 2010. This report recommended that the prices of petrol and diesel be fully liberalized, both at refinery gate and at the pump. It also recommended that: (a) subsidized kerosene sold through the public distribution system be targeted to BPL families, and its price raised each year according to the growth in nominal agricultural GDP per capita; (b) the price of kerosene sold outside of the PDS system be set close to that of diesel to eliminate incentives for diversion; and (c) subsidized LPG should be quantity rationed, or replaced by direct cash transfers to BPL households with LPG prices fully liberalized. Nilekani Task Force Interim Report, 2011. This task force was set up to work out modalities for the replacement of in-kind fuel and fertilizer subsidies by direct cash transfers to households using the Unique identification (UID) system currently being rolled out nationwide. The report argued that this would substantially reduce the fiscal cost of subsidies by eliminating the leakage that exists under the current system. Kelkar Committee Report, 2012. This report set out a “roadmap for fiscal consolidation”, including a timeline for the reduction of fuel subsidies. It recommended the elimination of diesel subsidies over a two-year period followed by full price deregulation in 2014. It also recommended the elimination of LPG subsidies over a period of three years, and the reduction of more politically sensitive kerosene subsidies by one-third over the same.

to be answered by our government, economists and politicians as well. The subsidies on oil, especially on diesel is the biggest example. The breakup of the consumption of diesel shows that 16% in total used by the private vehicle. There is an old suggestion according to which the diesel used in private vehicles will have no subsidies. This would make a difference. As for food subsidies, despite continuously rising food subsidies, hunger and malnutrition prevails in the entire county. Due to faulty practices, people who are in the real need of subsidies- even for their sheer survival are being forced out of the system. A panel set up by Prime Minister Narendra Modi last month urged the government to lower the number of beneficiaries to 40 per cent from 67 per cent as part of efforts to trim the $18.64 billion food subsidy bill that is stretching state finances. The budget itself shows that in last 5 year the food budget has doubled and is increasing at an alarming rate, without making any significant impact on ground, thanks to poor governance in this sector. Fertilizer subsidy, another big burden on the country’s finances reveals the same picture. It is a very well known April 2015

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The Evolution Of Fertilizer Subsidy 1965-72 The Green Revolution is built around high-yielding crop varieties supported with the use of fertilizer. So the government woos the private sector, with the result of nine urea plants to come up. 1972-79 As oil prices increase, companies say they canâ&#x20AC;&#x2122;t sell at the government-set price in 1977, the Retention Pricing Scheme (RPS) is introduced: companies are reimbursed for their additional costs and a fixed profit margin. 1991-2009 The Retention Pricing Scheme begins to miss its objectives. Companies exploit its cost-plus formula. They prefer urea to other fertilizers. So do farmers, weakening the soil. Government gropes for an alternative to the RPS. 2010 Prices of all fertilizers except urea freed. Nutrient-based subsidy replaces RPS: companies are paid a fixed amount per nutrient irrespective of their cost of production. Next move: cash transfers to farmers. 2015 The subsidies to reach farmers directly as cash transfer through Jan Dhan Yojana.

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April 2015

fact that the hardly half of the subsidy benefits go to farmers, rest is cornered by fertilizer industry. If we take a look at the fertilizer subsidy and its origin, then we will come to know that the original purpose was to encourage spread of green revolution technology to new areas and farmers but this reason and motive has lost its credibility in the recent years. The fertilizer subsidies for the financial year 2014-15 has been increased by Rs. 2,000 cr (from Rs. 68,000 cr to Rs. 70,000 cr). The blanket application of fertilizer subsidy is another crucial area which needs deliberation. The subsidy for rich farmers do not serve any purpose. It has been suggested by various experts that the availability of subsidized fertilizer should be restricted to farmers who grow staple food and cereals as they need it the most and those farmers, who produce cash crops, do extensive horticulture or produce farm goods for direct exports should be kept outside the purview of subsidy regime. The most alarming aspect of the surging subsidies is not the size, but the manner and purpose of spending on them. Subsidies provided in India suffer from both inclusion error (wrong kind of people benefiting) and exclusion error (deserving people left out of subsidies). Efficient subsidies must be transparent, targeted and-in many cases-temporary. These are missing from most subsidies in India. There are some changes done time to time by the government to make subsidy transparent. The message goes to the policymakers, politicians and economists. The question is not whether to subsidies or not, but how subsidies effectively reach the person actually needing it. Traditional methods to ensure effective targeting has failed. The hope is that the new initiatives such as direct cash transfer, Jan Dhan Yojana, creative designing of subsidy products and better monitoring technologies would ensure that the money reaches the needy, makes the maximum impact and is not frittered away, as has been the case till now.

April 2015

Governance Today

Agro Economy

Agriculture under Duress | RITIKA BISHT

ver heard of a democracy dominated by a particular sector yet so powerless and exploited that none wishes to tread on the path which gives nothing and takes away all that is left. Sounds too grim but this is true plight of India’s agrarian population, that makes up more than 60 percent of the workforce but contributes just about 16 percent of the total GDP of the economy, and also contributes to the front page headlines for the issues they have been fighting since before the Independence. The “Anna Daatas” of this country have had enough of the laws made for them that promise fair compensation for their lands and profitable income for their produce. The most recent scenario is being witnessed where farmers from around 15 states have arrived at capital for a unison protest against Land Acquisition & Resettlement and Rehabilitation Act. These protesters have gathered to seek answers from the new government as to which new reform in the current law would finally put an end to their misery.

Agrarian Distress India’s farming community’s high dependence on agricultural produce for its survival is a never ending struggle with majority of farmers meeting an unfortunate end. One week after 22nd December, twelve farmers committed suicide due to crop failure 38

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in the Vidharba region in Maharashtra. According to a recent survey conducted by the National Sample Survey Organisation (NSSO), about 50 percent of country’s 90 million households were indebted. Leading this survey was Uttar Pradesh with 6.9 million indebted farm households, followed by Andhra Pradesh and Maharashtra with 4.9 million and 3.6 million families respectively, who had either taken loans from banks or money lenders. Distress in the farming community has become a permanent feature as global agriculture commodity prices have nosedived by up to 30 percent in the past few months. This means much trouble for the net income of farmers. On the flipside, India’s food grain production has been rising consistently to reach 264 million tonnes in 2014 which became possible due to introduction of new and better technological innovations. However, the original plan was to make the increased production directly proportional to the revenue and profit margins of farmers which obviously failed for reasons out of farmers’ control. During the election campaign, the ruling BJP had promised farmers a 50 percent profit margin over their cost

of production but now nobody seems to bring up the matter. Moreover, the government does not seem to have its impact as increase in Minimum Support Price (MSP) has been much less when compared with past many years. In a recent protest against the land acquisition bill, the government has been blamed for bringing in liberalization and opening markets to big international agribusiness via FDI in retail. Though the government says it wants to help the farming communities but many in opposition say that these are all indirect means to help multinationals at the expense of domestic agrarian community. The farming communities argue that the land meant for agriculture has been given to privateers in a bid to rake in profits leaving nothing for the farming family. With no assured income, a farmer has nothing but its land and compensation alone cannot be the only solution. Moreover, rising farm debts and increasing cost of cultivation add to the woes.

Budget 2015-16: Are New Changes Helpful? Before the announcement of the

Agro Economy

Budget 2015-16, various experts pointed as to how problems can be solved in agriculture sector. Enhancing crop yield by improving productivity and improving flow of credit to farmers at concessional rates were on top of their wish list. Finance Minister Arun Jaitleyâ&#x20AC;&#x2122;s prime focus was to solve the biting issue of declining agriculture income and farm distress. In the Budget 2015-16, Jaitley announced that the farm credit corpus would be increased from Rs. 8 lakh crore to Rs. 8.5 lakh crore. Moreover, a Unified National Agriculture Market would be set up to help farmers to get better price for their produce. This new market would act as a replacement to the state run Agriculture Produce Market Committees (APMCs). Though the measures announced during the Budget 2015-16 were announced to benefit the farmer community, experts believe that the finance minister failed to understand that new set up will be ineffective against the current issues. Many believe that increasing farm credit corpus is not enough unless its segregation is explained to benefit the ultimate beneficiary i.e. the farmer. Farm credit has expanded and includes retail chains and storage houses who take the advantage and chunk out the major subsidies for themselves. Instead of just increasing the farm credit corpus, the government should have also made sure that financial help must be given to those facing the real agrarian crisis.

Road Ahead This time around every listener wanted to hear what PM Narendra Modi had to say amidst protests against Land Bill. Not so surprisingly, Mr. Modi dedicated the 6th edition of â&#x20AC;&#x153;Mann ki Baatâ&#x20AC;? series on All India Radio to Indian farmers. Speaking directly to farmers, he assured that he would do everything in his power to eliminate the issues raised by them. The protesters have demanded a complete moratorium on land acquisition across the country, which includes acquisition of agricultural

land for non-agrarian purposes by private sectors. Moreover, they want to advocate compulsory panchayat consent before any acquisition. The government has managed to get the Land Acquisition Amendment Bill passed in the Lok Sabha, but the opposition parties have stalled the bill in the Rajya Sabha where the government does not have numbers to get the bill through. For any global economy, expeditious clearances, land acquisitions and policy

reforms are the primary elements to progress. The government is synchronizing farmer welfare with that of developmental needs of the country by bringing in new changes in the current land bill. Truth be told, Modi led BJP has to bring in smart changes to undo mistakes done by previous government; but they are running against time to resolve the problems that have been troubling farmers across the country for long.

April 2015

Governance Today

Legal Eagle

For a Stronger Corporate Governance | RAJ BHUSHAN

and effective governance to stop reprehensive corporate practices:

he Companies Act 2013 Act (â&#x20AC;&#x2DC;Actâ&#x20AC;&#x2122;) has brought significant changes in the Companies Act 1956 and has introduced several new aspects of company law thus adding new dimensions to the Act. The newly enacted legislation stipulates and defines many aspects of corporate governance keeping in tune with the corporate practices prevailing in India. New provisions have been inducted in order to cast responsibility upon the corporate to be part of socioeconomic development. Following are some of the basic changes suggested in the new Act which provide transparency

On the Issue of Directors

T 40

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Independent Director: The new Act endeavors to strengthen the corporate governance wherein it encourages greater shareholder accountability in companyâ&#x20AC;&#x2122;s Board of Directors. It requires every listed public company to have at least one-third of the total number of directors as independent directors who do not have financial or pecuniary interest in the company or any relationship with the company. The financial interests of independent directors in the company has often resulted in compromises by such independent directors.

Further, the central government in rules has prescribed the minimum number of independent directors in case of public companies with paid up share capital of INR 100 crore or more; or public companies having turnover of INR 300 crore or more or public companies which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding INR 200 crore. Independent directors serve up to two consecutive five-year terms. Independent Director will provide greater transparency, however directors must have the unquestionable integrity of financial information, to balance the conflicting interests of all stakeholders

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and, in particular, to protect the rights of the minority shareholders.

Women Directors This is paradigm shifting provision in the new Act according to which every public company that has paid–up share capital of one hundred crore rupees or more, or a turnover of three hundred crore rupees or more shall have at least one woman director. The Companies shall be required to comply with this provision within six months from date of incorporation under the Act and within a period of one year from the commencement of the Act if the company is incorporated under The Companies Act 1956. Though this new provision will be a shift towards gender diversity, but whether it will fetch the desired result remains to be seen.

Resident Director The Act incorporates the requirement of appointing a resident director, i.e., a person who has stayed in India for a total period of not less than 182 days in the previous calendar year. This provision ensures that boards of Indian companies do not comprise entirely of non-resident directors. This is expected to give more regulatory control to the government.

Number of Directors As per the section 149(1) of 2013 Act the limit for number of directorships that can be held by an individual increases from 12 to 15. Under The Companies Act 1956 public companies were mandated to obtain Central Government’s approval for increasing the number of its directors above the limit prescribed in its articles or if such increase would lead to the total number of directors on the board exceeding 12 (twelve) directors. The new Act allows greater flexibility to companies to appoint directors above the prescribed limit of fifteen by authorizing such increase through a special resolution. A Listed companies must have a minimum of three directors, and private companies require at least two.

Duties of Director

The Act codifies the duties of directors and they are more responsive. This brings about greater standards of corporate governance and stipulates higher duties and liabilities for directors. It is pertinent to note that all directors to comply with all duties required for the effective functioning of the company; they cannot be merely be directors of specified functions. Some of the directors as mentioned above also have obligation to perform in certain way for the effective governance of the company and not to act as a mere rubber stamp. Further, every director of the company needs ensure that it acts in the best interest of all the shareholders. These provisions become particularly significant in case of nominee directors appointed by private equity investors, who have been known to represent the interests of the investors appointing them in direct contravention of their duties to the shareholders as a whole.

On company Formation One Person Company (OPC) In an exemplary shift from the Companies Act 1956, the new Act introduces a new type of entity to the existing list i.e. apart from forming a public or private limited company, the Act enables the formation of a new entity ‘One-Person Company’ (OPC). This concept is one of the key features of the new Act wherein in a Private Company having only one Member and at least One Director can be floated. Such companies would have no compulsion to hold AGM. Conversion of existing private Companies with paidup capital up to Rs 50 Lacs and turnover up to Rs 2 Crores is permitted in this category.

On Incorporation The Act spells out the mandatory content for the Memorandum of Association and Article of Association as per the existing provisions of the 1956 Act. However, in order to provide better transparency in governance as against the existing requirement of the 1956 Act, the Act does not require the objects clause in the memorandum

to be classified as (a) The main object of the company (b) Objects incidental or ancillary to the attainment of the main object (c) Other objects of the company. In addition to the regular declarations, whilst incorporation to the company, an affidavit (self declaration) from the subscribers to the memorandum and from the first directors have to be filed with the Registrar of the Companies to the effect that they are not convicted of any offence in connection with promoting, forming or managing a company or have not been found guilty of any fraud or misfeasance, etc. This declaration would definitely impart transparency and thwart attempts by unscrupulous individuals to be part of the company. The Act imposes additional restriction on the alteration of the object clause of the memorandum for a company which had raised money from the public for one or more objects mentioned in the prospectus and has any unutilized money. The Act specifies that along with obtaining an approval by way of a special resolution, a company would be required to ensure that the resolution has to be published in two newspapers. Additionally, Exit Option can be given to dissenting shareholders by the promoters.

On Audit and Compliances Company finances must be audited regularly and auditors must change periodically. The company’s chief financial officer can now be held accountable for the contents of financial statements. In a quantum shift, efforts have been made under the Act to enhance scope and extent of the auditor’s liability. Now, the auditor is subjected to more stringent compliance. The auditor is now subject to oversight by multiple regulators apart from the ICAI such as The National Financial Reporting Authority (NFRA), and the body replacing the NACAS. The auditors are now required to investigate matters involving professional or other misconduct. Under the new Act, auditors are also subjected to monetary April 2015

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penalties, imprisonment and debarring of the auditor and the firm in case of frauds. The Standards on Auditing have been accorded legal sanctity in the Act and would be subject to notification by the NFRA. Auditors are now mandatorily bound by the Act to ensure compliance with Standards on Auditing. Act also states that any services to be rendered by the auditor should be approved by the board of directors or the audit committee. Additionally, the auditor is also restricted from providing certain specific services to the companies. Further, the Act has now provision of appointment of an internal auditor who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the

mandatory compliance requirement. The potent question here is whether CSR expenditures is treated as a liability and thus is the company under an obligation to create a provision for the same? Under the Act, the company can undertake CSR activities either by itself or through third parties. Noncompliance with this provision of the Act has to be intimated with a reasoned explanation. The non-spending and reporting thereof has to be used in a bona fide manner and the company should not make it a practice of evading from spending towards CSR activity. This paradigm shift in Act imparts corporate a platform to establish deep social connection a step towards achieving inclusive growth.

authority for the tribunal decisions. The new law clarifies the sorts of remedies they can ask for, and also allows them to seek compensation from company management for any financial losses faced because of management actions, or from the companyâ&#x20AC;&#x2122;s auditing firm.

On Closure of a Company The closing a business have been an obscure and complicated process in India which entails the appointment of an official company liquidator to oversee and sign off on the process. Under the new Act, attempts have been made to make the process a little more timebound. It has been contemplated that a concerned court must take action within 90 days on a petition from a creditor seeking the shutting down of a business that is past due on its debts. Once the tribunal issues an order for proceedings to move forward, the indebted company is supposed to provide a statement of its accounts within 30 days to 60 days. If it doesnâ&#x20AC;&#x2122;t do that, it forfeits the right to oppose the efforts to shut it down. This has made the winding up process more transparent. Thus, the Act introduces significant changes in the provisions related to governance, management, disclosure norms and auditors. However, there are lot of practical impediments in implementation of provisions. Ministry

New Company Law increases the female representation on board

functions and activities of the certain class of listed company.

On Corporate Social Responsibility The concept of Corporate Social Responsibility (CSR) is one of the salient features of the Act which makes it mandatory for the corporates. But while this new provision has entered the Indian corporate world, there are many unanswered questions with respect to CSR spending and 42

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On Investor Protection and Regulatory Framework The Act has taken strong steps to insure investor protection by allowing groups of investors to appeal to a National Company Law Tribunal (NCLT). The tribunal will be the main enforcing authority under the new corporate law, taking the place of the existing Company Law Board. Its decisions can be appealed in an appellate tribunal. The Supreme Court is the appellant

of Corporate Affairs has said the new Act provides the corporate sector an opportunity for self-regulation, while mandating greater transparency and enhanced disclosures for improve compliance. It surely does, but an equally honest attempt would also be required from corporates to foster transparent and ethical business practices. The writer is an advocate and specializes in corporate laws

Interview

Prof. J.P. Sharma, Delhi School of Economics

Unethical Management Biggest Source of Misgovernance Over last couple decades, corporate governance (CG) has emerged as a focal concern for policy makers as big companies have collapsed across the world. While not many big failures have taken place in India, there is hardly any scope of complacency. To understand the various issues involved, Governance Today spoke to Prof. J.P. Sharma, HOD and former Dean, Department of Commerce at the Delhi School of Economics. Edited excerpts:

orporate governance is still a relatively lesser known area in Indian business arena. Could you throw some light on its origins and growth? CG is a huge subject; it has various angles to it, such as regulatory, codes, reform, ethics, CSR etc. Let me give you a broad picture so you can see the issue in totality. Till about two decades back, this subject was relatively unknown in any part of the world. The matter assumed significance when in 1991, all of a sudden three major UK corporates collapsed. These were Maxwell Communications, one of the largest publishing houses, Bank of Credit and Commerce International, the seventh largest bank of the world and Polypack, one of the largest textiles April 2015

Governance Today

Interview

Prof. J.P. Sharma (born 1951) is a Professor of Law & Corporate Governance in the Department of Commerce, and currently Head, Department of Commerce, and former Dean Faculty of Commerce & Business at the Delhi School of Economics, University of Delhi. In the last over 40 years of his academic career, he has held several academic and administrative positions. He has authored 15 books and around 100 research papers/articles published in several national and international journals of repute. His book titled “Corporate Governance, Business Ethics & CSR” had its review written by Sir Adrian Cadbury who in 1992 gave the world its first code on corporate governance. He is/has been Visitor’s (President of India)/ Central Government Nominee on the University of Allahabad, BHU, NEHU, Sikkim, Tripura and HNB Garhwal University. Prof. Sharma is the recipient of “Shiksha Gaurav Puraskar” awarded by the Centre for Education Growth and Research, New Delhi. He is a Fellow Member of the ICSI and Member of several other professional bodies including ILI, ISTD, IMA, ICPS, and ICA. He is the Member of the Governing Body of St. Stephens College, Shri Ram College of Commerce (SRCC) and is/has been the Member/Chairman of IP College for Women, PGDAV College, and Guru Nanak Dev College under Delhi University. In 2012, he was invited by the Department of Management at the King’s College, London to deliver special lecture to PG students. In 2011, he was invited by the London based World Council for Corporate Governance & IOD to address the delegates in a three day Global Conventioncum-GOLDEN PEACOCK awarding ceremony held in London.

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April 2015

companies of the world. The failure of such huge companies forced the UK government to come into action, which set up a committee under Sir Adrian Cadbury to find out what went wrong and what should be done. The committee submitted its report in 1992 and made some 19 recommendations which were accepted by the UK government. The UK government incorporated these recommendations in the listing agreement as governance problems are mostly in listed companies as public has stake in them. After Cadbury committee report, numerous recommendations have been made across the world. Broadly, companies across the world have been complying with these recommendations. But again, during the three year period between 2000 and 2002, around two dozen major companies failed, primarily in the US. Prominent among these firms were Enron, Tyco, Global Crossing, Adelphia, and even the largest accounting firm of the world, Anderson. Elsewhere, big corporations such as Swiss Air, Vivendi France, Daewoo Korea, Parmalat Australia etc. failed. The primary problem that came to light was the collusion between management of these companies and auditors. As most companies failed in the US, the American government came into action and assigned the job of looking into the matter to Paul Sarbanes and Michael Oxley. Based on their recommendations, the US government enacted the Sarbanes Oxley Act in 2002. The world, including India adopted the provisions of this Act in-toto. You have worked extensively on Satyam collapse. Could you share your opinion on what went wrong with it? Well, Satyam is an intriguing case. Satyam was complying with all CG laws. In fact, it was awarded the Golden Peacock, the highest award for good corporate governance in 2008 and just months later, it failed.

Interview

That caught my attention and I decided to study what went wrong with the company. It took me about 9 months to complete the study, which was completely a personal endeavor. I presented my study in a conference on corporate governance in University of Birmingham. The company was set up in mid1987 when Ramalinga Raju returned from the US. The family was involved in five lines of businesses, namely spinning and weaving, constructions, homes, aquaculture and finally shoe upper. Raju prevailed upon the family and consolidated the business under two areas of IT and constructions. The IT venture was stated with just 20 employees. The company went public in 1991. This company was the fastest growing company and Ramalinga Raju was awarded the IT man of the year award in the year 2000. The company won the Golden Peackok award in Sept 2008 and in Jan 2009, it failed. The problem in the company started in 2008 when on Dec 16th it announced the buyback of two of its subsidiaries for USD 1.6 billion. The share prices of Satyam crashed by 55% and another 14% next day. Four out of six independent directors resigned. The World Bank, one of the largest clients, withdrew its contract and charged the company for data theft, blacklisting it for eight years. The Chairman of the company has no option but to put in his papers; he resigned. Broadly, Satyam is a classic case of CG failure. It is a classic example of unethical conduct. Four bodies were looking into Satyamâ&#x20AC;&#x2122;s case; CBI, local police, Enforcement Directorate (ED), Serious Fraud Investigation Office (SFIO) and Security and Exchange Commission (SEC) USA. According to ED, this family had floated 350 fake companies. Now, even if you have some common directors, you need hundreds of directors at least. So, the family put gardeners and drivers on the directors of these companies. As per the ED findings, documents of these companies were

Sir Adrian Cadbury gave the world first set of rules on corporate governance

found at places other the registered office these companies. The family opened six accounts in London, transferred huge amounts to these accounts and within a short period, those accounts were closed. This says about the culture. It was also found that bribery was very common in the company. The company was complying with every norm, it was rated very high by rating agencies, but still it failed. How? The answer given by Sh Narayan Murthy of Infosys is noteworthy. He said that any company promoting feudal characters is bound to fail. Any company that encourages democratic values is to succeed and progress. I feel human character is a major issue in all companies. So, Tatas have their own style of functioning that reflects the characters of founding members of the company, and so is the case with Infosys. Besides unethical conduct which other crucial factors were there in the Satyam saga? Besides unethical conduct, another big problem was accounting. According to SFIO, the company had fixed deposits of about Rs. 3,300 crores. But in reality, deposits of only Rs. 9.96 odd crores were found. So where is the rest? Fake FDs indicate collusion of banks with the company promoters. Further, there is an angle of insider trading. The

family of Ramalinga Raju offloaded its holdings long before the closure. The familyâ&#x20AC;&#x2122;s stake came down from around 25% to 3.4% when the company was sold. Sebi has now taken action against the promoter family under insider trading issue. Then, the conduct of board of directors is also suspect. Incidentally, the two promoter directors were not present in the meeting in which the decision to buy the two subsidiary companies was taken. So despite being independent as per book, they are at par with other directors in terms of remuneration. As such, their interests are clearly linked with those of the promoters. In my study published in my book in 2010-11, I recommended that the remuneration of independent directors be changed with a sitting fee. Second aspect is that of appointment of independent directors. As it is, independent directors are nominated by promoters. This could cause problems. So, I suggested that there should be a body which could prepare a panel of eminent people from which the chairman can pick up names. Both the recommendations have been taken care off in the new Company Law 2013. Not many companies have failed in India. Why? Surprisingly, despite suffering from similar problems, not many

April 2015

Governance Today

Interview

corporate failures have taken place in India. This is because for an Indian entrepreneur, his business is part of his identity. The concept of a company being separate from its promoters is not taken beyond accounting in our country. So, Indian promoters are emotionally much more engaged with their companies than western promoters who do not maintain such an emotional attachment with the companies floated by them. The basic issue here is that most of the companies in India are either family or friendly managed. For example, in TCS, promoters have 74% stake; in Wipro, Premji family holds nearly 80%. Only exception is Infosys where the promoterâ&#x20AC;&#x2122;s stake is hardly 16%. The promoters in India treat companies as their fiefdom and which has not been noticed in the developed part of the world. What about auditors? From my studies, I have found that a major source of problem is the collusion between management and auditors, which is all pervasive, regardless of the size of the company. In my study I recommended like directors, auditors should also be rotated. I am very happy that the new Company Law has provided for rotation of auditors every five years, besides rotation of audit firm every ten years. This is a good move and I support it. Could you share your opinion on the reforms brought in by the new Company Law? Broadly, the new Company Law undertaken reforms on concepts, incorporation of a new company, management of a company, on e-governance, CSR and finally on the winding up of a company. On conceptual front, the one man company has been introduced in the country. Secondly, the Key Managerial Personnel (KMP) concept has been introduced. When Satyam failed, regulators could not take action against managerial personnel because the company law had no 46

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such provisions. Now, under the new company law, the CE, CFO, even the Company Secretary has been named as KMPs. Very often it happens that in case of a corporate fraud, each person of management goes scot free because there is nothing that nails a specific person. Now, in case of any default or fraud, those KMPs will be held responsible. On incorporation front, the entrenchment clause has been introduced according to which, in order to protect the interests of minority shareholders, near total approval is required on matters which impact minority shareholders. Further, on governance front, the provision for having at least one female director is a positive development as studies show globally that company with higher women participation on board are better governed. European

E-voting and meeting through video conferencing have been introduced. Electronic circulation of documents have been allowed. These are all progressive provisions. In case of CSR, we are perhaps the only country of the world where it has been put in statute, elsewhere, these are either in form of guidelines or norms or part of listing agreements. While in France and Indonesia, it is in law, but in a very loose form against India where it is very tough and specifically designed. The new Company Law has introduced Class Action Lawsuit. How do you look at it? Class Action Lawsuit is a very powerful concept in many developed countries, including the US. In India, there used to be only the provisions for damages, not of compensation, which has been brought about by this new provision.

Satyam Computers collapsed within months of getting Golden Peackok

companies are leaders in this regard; they have sizeable number of women on boards of companies. It has been found that sometimes, the entire board of directors was of non-resident status. This used to create a lot of governance related problems, especially while interacting with regulatory authorities. So, the new law mandates that at least one director would have to be resident for better compliance. Then there are numerous initiatives in area of e-governance. For example, now notices and agendas can be sent through email.

In my study published in my book, I had recommended the introduction of this concept in India which I am glad has been brought about. So, under the new provisions, in case of a fraud, if 100 or more shareholders/depositor holders file a case against the management, the tribunal can award compensation and interestingly, there is no limit to the compensation. In case of Satyam, the new management settled a multimillion dollar class action suit filed against the company in US. So, this provision helps even the smallest shareholders.

April 2015

Governance Today

In Focus

Rotting Food Stockpile Millions go Hungry

| RITIKA BISHT

ver the years, food security has become one of the most controversial issues as developing countries, including India, have failed to provide basic food requirements to people leading to alarming increase in poverty and hunger. On Global Hunger Index of 2013, India stands at 63rd place out of 120 countries. Increase in food production needs to be directly proportional to increase in the population. The good news is that India is one of the largest producers of food in the world but disturbing fact, as per a study of Dr Sultan Singh Jaswal of Govt. College Dhaliara, Kangra, Himachal Pradesh, is that out of an estimated 1.27 billion population around 77 percent fails to get even a two square meals per day. The country produces more than 200 million tons of food grains a year; yet this does not seem to eliminate the problem of hunger and malnutrition. Government would say that the condition has improved since Independence, which is true but still millions in the country starve even as there is no knowledge of what is done with the excess food stock. Whatever food safety measures were adopted by the Government have proven unsuccessful as core problems like supply chain inefficiencies and huge post-harvest losses because of inadequate storage place were completely ignored.

Core Problems The problem of inadequate food supply is an issue that affects rural as well as urban areas. Thus, strengthening rural-urban supply chain is important not only for food security but also for 48

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income of those people who are part of this supply chain. In case of perishable farm produce, a strong supply chain is needed to connect production, processing and consumption centers. Lack of quality warehousing infrastructure is another hurdle. Food Corporation of India (FCI) keeps the produce in a manner that food that can feed a third of countryâ&#x20AC;&#x2122;s poor goes waste. Moreover, there is significant gap between the demand and supply of warehouse infrastructure. Hundred percent FDI was approved by the government for the warehousing sector to attract private players in order to meet the demands; however, private warehousing sector has hardly participated in this segment leaving the sector completely in governmentâ&#x20AC;&#x2122;s hands. Poor infrastructure has resulted in high food wastage in the distribution system as well.

Moreover, number of intermediaries coming in between the farmers and the end customers adds to inefficiency in the system. Then there is Public Distribution System (PDS) which was initiated with the aim to ensure food security to all the citizens, especially those living below the poverty line. PDS is one of those many schemes that was started with good intention to help the poor but eventually corruption found its way in. High inclusion and exclusion errors in the BPL category, high leakages, non-viability of the fair price shops and failure in providing the price stabilization are some of the reasons behind the inefficacy of the PDS. According to Central Vigilance Commission (CVC), due to excessive political interference, PDS came out as one of the most corrupt sectors in the country.

In Focus

Restructuring the Role of FCI In terms of food economy, FCI is responsible for providing food stock for the PDS, giving effective minimum price support (MSP) for farmers and maintaining buffer stocks for the food security. However, corruption within the Food Corporation of India has led to ignorance of its objectives as only 6 percent of farmers benefit out of MSP; PDS is vulnerable to huge leakages and buffer stocks are available more than the requirement resulting in huge costs during storing them with majority of stock left for rotting. In January 2015, High Level Committee submitted its report on Reorienting the Role and Restructuring of Food Corporation of India to Prime Minister Narendra Modi. The report called for cash transfers to eliminate the leakages in PDS. Gradual introduction of cash transfers in PDS starting from big cities and then moving to smaller cities. The same should be extended to grain surplus states and then to grain deficient states. Transparent liquidation policy would enable offloading of excess food stock which in turn would allow FCI to exercise greater flexibility when faced with this issue.

Moreover, government needs to redefine MSP policies which favors wheat and rice but in selected areas. Thus, authority needs to introduce better price support operations to pulses and oilseeds. The report also advised to bring down the coverage of the National Food Security Act (NFSA) from 67 percent of the population to 40 percent and subsequently increasing allocation of subsidized food grains from 5 kg per person to 7 kg. This makes it both profarmer and pro-poor. When it comes to restructuring the FCI, the report suggested that it should pass on all procurement operations of wheat, paddy and rice to states who have now built quality infrastructure. Instead, the Corporation should exercise their power to help states solve other issues. Negotiable warehouse receipt system (NWRs) should be introduced which would bring in more private players and would reduce cost of storage on government. In addition, FCI should plan to outsource its stocking operations on competitive bidding basis to both state and private agencies to bring down cost of storage and prevent unnecessary wastage of food grains.

Road Ahead

The government is unable to distribute excess foodgrains to poor people

The country has succeeded in achieving economic progress but at the cost of social justice. We cannot thrive on such progress where one section of population is left with nothing and other section keeps on extracting out undue advantage and keeps on robbing the poor. No matter how many acts and regulation we bring in, the countryâ&#x20AC;&#x2122;s overall delivery system is deep rooted in corruption which makes it impossible to provide subsidized food to the ultimate beneficiaries. Food security policies for long have included extensive intervention from the government. It is time to bring in transparency to the system to minimize the corruption and achieve equal distribution of the food stock across every strata of the society.

April 2015

Governance Today

Smart City

Mad Rush for Metros? | RITIKA BISHT

ith the means to establish efficient urban transport system, metro rail projects have become the first choice of any city who wishes to move up the development ladder. New Delhi is the quintessence city in the country that has proved how a wellplanned metro rail project can become a lifeline for residents. Last year, Finance Minister Arun Jaitley, supported the need to bring in Metro Rail network to all the â&#x20AC;&#x153;two million plus citiesâ&#x20AC;? as he feels that Urban Metro Projects have proved their worth. Initially, only cities with three million plus population were considered for metro projects. After New Delhi, Kolkata and Bangalore, cities like Hyderabad, Ahmedabad, Bhopal, Indore, Chandigarh, Ludhiana, Jaipur, Kochi and Pune will come under metro projects. As mentioned earlier, ambitious as this project sounds, still there are issues 50

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that need to be thought on at broader level.

New Delhi V/s Other Indian Cities Treading on the similar path as Delhi, other cities in the country also want to repeat the DMRC success story. However, the question that begets answer is whether investing in metro rail projects the best option, given the fact that other cities are not same as Delhi and differ in demographics, settlement patterns and transportation infrastructure. That is why many policymakers have raised doubts over the importance of setting up a metro rail project for the cities who can actually do and survive without it. There is a perception that metro rail comes with higher level of comfort, speed and efficiency along with achieving greater capacity to carry passengers when compared to buses. This is true but, when considered along

with other facts, choosing metro rail over other mass transit options may not always be a viable option. Expanding population calls for a transport mode that reduces traffic on road along with increasing ease of travelling. If government is able to bring in such system then it would automatically be able to take off from roads those people who are presently forced to travel with their own mode of transportation, or are taking road based public transport, in turn reducing congestion as well as pollution levels. However, as per a survey done in low and middle income countries which have introduced metro rails, the usage of metro is less than expected which results in less than expected reduction in road traffic and air pollution.

The Success with Hidden Flaws Metro rail projects require capital

Smart City

intensive construction, high operation cost and long gestation periods. Thus, while undertaking the decision to introduce metro railways, financial support from the state as well as central government and in the form of foreign loans are required to back up such project. Now, with billion dollar investment in line, is it not imperative to first explore the financial sustainability of metro railways as a means of public transportation in a particular city. After studying the negatives impacts of Delhi metro in the city, other cities also need to take in consideration the implications as well before embarking on this high investment journey. To start with, the fare collected from passengers contributes less than 50 percent of the total cost of the Delhi Metro. Thus, metro transport mode cannot sustain on fare collection; it is therefore not self-sustainable and thus has to rely on real estate development on DMRC property and in areas in close proximity to metro rail lines. Findings of a United Nations Environment Programme (UNEP) report of June 2014 show that DMRC has a current debt of USD 3 billion, thus debt repayment increases the cost of operations. As things stand, cost would keep mounting as its network expands further. The study also shows that actual ridership of the Delhi Metro stands at barely onefourth of the estimated ridership, resulting in an overestimation of the benefits. Thus, during the planning phase, the authorities in various cities should carefully simulate the demand to correctly estimate the revenues from the proposed metro venture they are planning to embark upon. Passengers prefer travelling by metro for long trips (10 km or more). However, for shorter trips, the UNEP study revealed, passengers choose to commute by bus or non-motorized transport (NMT). Eighty percent of all the distances travelled in the capital as well as in other cities include shorter trips. Thereby, improving on NMT and bus transport services would be

a better plan instead of choosing high investment metro projects. Moreover, construction of metro projects is a polluting exercise in itself. Further, additional energy consumption because of metro projects leads to extra CO2 emissions. In short, as compared to CNG-run buses, metro rails cause a higher negative impact on the environment. Cities need to take into consideration the overall adverse impacts of metro construction on the environment. According to research agency

Delhi has struggled with these issues. The point of discussion here has not been to negate metro rail projects as a mass rapid transit systems but to ask whether other non-metropolitan cities, with population less than 3 million, really need such high capital intensive transportation projects. Mumbai metro and Pune metro had earlier faced the criticisms for introducing metro plans without thorough analysis of cityâ&#x20AC;&#x2122;s transport system and traffic. Now, with Kochi, a major port city, too being included in

Many non metro cities have gone ahead with metro plans without careful analysis

Flyvbjerg, big projects with large capital investment, across different nations, had been able to justify their billion dollars project only after they presented exaggerated benefits along with underestimation of costs. Flyvbjerg had surveyed more than 210 transportation infrastructure projects and they found out that these factors had been very common when justifying the return on investment for rail-based projects.

Invest Wisely Tax waivers and subsidies, revenue sources, cost and debt burdens, ridership, displacement of households, labor fatalities and other aspects need to be well studied as even a place like

the ambitious metro projects, similar questions will be raised as to what is the need for a metro when the city can do very well with a strong ferry systems along with improved bus and local train mode. Metros built in Europe in the 20th century were undertaken as they had centralised business districts. However, Indian cities, including New Delhi, do not share the similar pattern which leads to escalated costs along with poor revenue collection. That is why upcoming cities inclined towards setting up metro infrastructure projects may fail if overall demographics and transportation patterns are ignored.

April 2015

Governance Today

Smart City

Investment Key to Improve Indian Ports

| RITIKA BISHT

ndia has one of the largest coastlines in the world expanding over 7500 kilometres that are serviced by 13 major ports and 200 minor ones. Almost 90 per cent of India’s foreign trade goes through sea ports, of which nearly 57 per cent is handled at major ports. Yet, the sector is weighed down by congestion and capacity constraints. Government owns 12-13 major ports of the nation and is working at 85 per cent capacity, way above the global standard of 70 per cent. There is a high concentration of activity at Mumbai’s Jawaharlal Nehru Port (JNPT), the largest in India for solid cargo, where it is working at over 100 per cent capacity. Overcapacity increases the average time for clearing by nearly 6 times compared to most major economies. In addition to that the major public sector ports have also been losing out to private sector ports like Adani Port that are slightly more efficient than those that are run by the government-owned companies. The move gains significance especially in light of the fact that major

ports had a 90 per cent market share of cargo handling in 1996. This has fallen to 57 per cent in 2014. According to a Citi Research report, major ports’ share of cargo handling may slip to 50 per cent if corrective steps are not taken. The problem in the sector are

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April 2015

numerous but the major problem is underinvestment by both private and public companies. Even though private ports have been quickly gaining market share from their public sector counterparts but they too have their own problems. Essar Ports, for example, was saddled with about Rs 5,836 crore ($950 million) debt at the start of this fiscal. Another minor port, Krishnapatnam port was grappling with a debt of around Rs 3,890 ($600 million) crore in 2013. The government has allowed 100 per cent FDI in the sector. Global operators such as APM Terminals and DP World have already established presence in the country. While APM Terminals operates a port in Gujarat, DP World owns a number of terminals at major ports in the country. But more investment is required and the existing Indian companies have to lead the way.

Government Stepping Up the Game? Recently, the government gave inprinciple approval for the concept

and institutional framework of Sagarmala and the prime objective is to “promote port-led direct and indirect development and to provide infrastructure to transport goods to and from ports quickly, efficiently and cost-effectively.” Under this plan, a comprehensive and integrated planning for Sagarmala

for the entire coastline shall be prepared within six months which will identify potential geographical regions to be called Coastal Economic Zones (CEZs). As per the second decision of the Cabinet, a SPV would undertake projects of last mile connectivity to major ports; modernization of evacuation infrastructure in ports; to operate and manage internal port railway system and to raise financial resources for funding port related railway projects. Major ports have identified a shelf of nearly 40 projects which includes the last mile connectivity projects and internal port rail projects that would require Rs 2,372 crore investment. The proposal is expected to partly solve decades old problem of the sector. India’s ports have suffered from chronic under-investment and a lack of strategic planning, including inadequate linkages to railway and road transport networks. In another official release, the government said that the proposal to develop 101 new national waterways will create a logistic supply chain with intermodal (rail, road and waterways) connectivity. It added the proposal would positively contribute to the GDP by opening up business opportunities in the area of dredging, barge construction, operation and repair facilities, terminal construction and operation, storage facilities, providing modern aids to day and night navigation, tourist cruise, consultancy, training of manpower for manning barges, hydrographic survey, and so on. Separately, Finance minister Arun Jaitley proposed to work towards converting 12 public port trusts in India into corporations under the Companies Act to bring greater efficiencies in operations, raise funds for growth and compete better with their private sector counterparts. But the revival of the sector depends upon the turnaround time the proposals take and if they really materialize from concepts papers in to something concrete

Politics

Tremors in D Telangana Politics

| SANTOSH KUMAR BISWAL efying all speculations, N. Ramachandra Rao, backed by the Bharatiya Janata Party (BJP) and Telugu Desam Party (TDP) swept recent MLC election from the constituency comprising Mahabubnagar, Hyderabad and Rangareddy districts, dealing the jolting message to the ruling Telangana Rasthra Samiti (TRS). On the other hand, Palla Rajeshwar Reddy from TRS won the MLC seat in the constituency comprising the districts of Warangal, Khammam and Nalgonda. These verdicts indicate fluid political domain of the state. Endorsing its win over TRS, the BJP accused the TRS government by stating that the TRS government had failed to provide good governance and the developments in new state had been lopsided. The winning candidate openly stated, “My victory is people’s victory and TRS government’s defeat.” He also declared that people were not satisfied with the administration of the ruling party and had displayed their anger through ballots. It was the first local political battle after the legislative assembly election in which the TRS led by K. Chandrashekar Rao had grabbed 63 of the 119 Assembly seats last year. Several political analysts assert that the result of the MLC elections were the verdict of people on the new government’s performance and that new political equations in were in offing in the state. As proof, they point towards growing proximity between TDP and BJP. The alliance has stolen a seat from the KCR’s bastions and this will have repercussions for the broader political landscape. In this light, the forthcoming Greater Hyderabad Municipal Corporation (GHMC) election has assumed great significance.

Political Gimmicks V/s Good Governance

The recent MLC elections indicate not all are happy with KCR’s government

Political watchers say that while money and muscle were driven in full strength during these elections, issues related to basic amenities like shelter, drinking April 2015

Governance Today

Politics

water and healthcare facilities took back seat, as usual. Abject poverty is all pervasive in most regions which voted for these two seats. Government and public services suffer from severe inefficiencies. The constituency comprising Mahabubnagar, Hyderabad and Rangareddy districts has been grappling with several civic problems. Even Hyderabad is no exception. With the depletion of ground water level, Mahabubnagar has been facing water crisis for drinking and agricultural works. The dams – Jurala, Koil Sagar and Sarala Sagar - in the district are yet to be optimally utilized. Subsequently, their agricultural patterns have shifted to the crops which demand less water. Rangareddy district, the outskirt of the city of Hyderabad, is also not free from water woes. The issues of child labor in cottonseed production, which is quite accentuated in Parigi, Pudur, Kulkacharla and Doma mandals, has been left unaddressed over the years. The constituency covering the districts of Warangal, Khammam and Nalgonda is not in comfort zone either. Traffic snarls, poor roads and farmers’ problems indicate shoddy pace of development in Nalgonda region. Needless to say, efficient and effective government intervention is the need of the hour.

which has crippled the governance to its citizens. Expressing displeasure over the inordinate delay in holding polls to the corporation, the High Court had directed the state government to inform it when the elections would be conducted. People in many areas where elections are being held are finding it hard to get even the basic amities like food, shelter, power, water and education but these have hardly found space in popular political discourse, which has been dominated by political favoritism and caste politics. Several activists claim that the pensions have been curtailed and scholarships have been stalled. The people from SC/ST and BC communities are becoming more vulnerable along

P. Mukhesh, a research scholar at Osmania University, Hyderabad, said, “This is the first local election after the formation of the state. However, the recent MLC election results do not purely indicate the people’s reaction to the ruling government. But the state of Telangana has been grappling with poor governance and it is high time for the winning MLCs to put in every possible effort for the betterment of people. The state government machineries should not be seen as failing on the basic governance issues.” “The government should adhere to more pragmatic approach for laying and maintaining transparent governance for the entire state to realize a harmonious standard of living,” Mukhesh adds.

GHMC Election Crucial Needless to say, the forthcoming election of the GHMC will be a tough political fight, and would be watched closely after the result of recent MLC elections. Some political analysts have already predicted that the result of MLC elections will have major bearings on the election of the GHMC. The GHMC has many success stories in its kitty. It has achieved several feats such as best award for civic management of a tourist destination in India, mBillionth Award South Asia, E-Gov Champion award, INTACH Heritage Award and best city award. All these reflect effective governance despite prevalence of high level of nepotism and red-tapism within the body itself. People from several quarters criticize the delaying the poll 54

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The new state was formed with a lot of hope for the backward regions

with growing levels of farmers’ distress. It would be clear only after elections whether these problems are addressed through pragmatic governance.

Public Policy and Clean Governance With a view to achieve development, the programs like Telangana Rural Inclusive Growth Project (TRIGP) and Palle Pragati are in progress but political parties along with administrative officials have failed to a large extent in delivering even the basic of facilities. As a result, citizens are bearing the brunt of crony capitalism and unethical politics. When asked about the recent political developments in the state,

The issue of unemployment is a test case here. Currently, the youth of this state are expressing anger and forming Nirudyoga JACs and fighting for government jobs. The new state was formed with a vision and dream of bangaru (Golden) Telangana. The dream should not wither under the weight of inefficient and unresponsive government. The MLC results have served a wake-up call to the government which needs to get its act together before its too late for them. The writer is a research scholar at Osmania University, Hyderabad

Twilight Zone

India’s Heart Doesn’t

Beat

for Elderly

| RAMESH KUMAR RAJA

unita, 70, is a widow, is illiterate and is living in her own house with her sons in Delhi’s Burari locality. Her only source of income is pension. She is also financially dependent on her children. She needs assistance for her daily routine activities due to her physical disability. Her daughter-in-law provides assistance in her daily activities like in-house movement, cleaning, washing, going out etc. Sunita says, “Even though my daughter-in-law assists me in all the activities, she does it grudgingly. She always speaks in loud voice and uses foul language.” The daughter-in-law often tells her “Budhiya Marti Bhi Nahi Hai” (the old woman does not even die) to her face and to others in the community”. Hundreds of kilometres down south in Bengaluru, 68-yearold Ramanna says, “Our financial dependence on our son and daughter-in-law has turned us into their servants.” Once a flower seller with his own income, advancing years forced him to give up his occupation and move in with his son and April 2015

Governance Today

Twilight Zone

daughter-in-law. What followed has been years of abuse at their hands. Stories may be different, but the issue is same and that is the growing menace of elder abuse across the length and breadth of the country. Half the elderly population in the country faces abuse of various kinds, as per the study names Elder Abuse in India, conducted by HelpAge India, a leading charitable organization working with and for older people in India for the past 36 years. While India is today home to 100 million senior citizens, their number is expected to increase to 324 million by 2050 when they would constitute 20 per cent of the total population. This comes close on the heels of a UN-backed study in which India stood at a dismal 73rd in the list of 91 countries on wellbeing of the elderly. While the report findings indicate an unsettling future for India’s elderly, it aims to find out the existence of elder abuse, the reasons for its occurrence, its extent and what as per elderly were the most effective measures to deal with the problem. The survey, conducted in six tier I and six tier II cities of the country, reveals women to be more vulnerable with 52 per cent of them facing abuse as against 48 per cent men. What was most disconcerting was that the abuser was a trusted source from within the elder’s family, with the daughter-in-law (61 per cent) and son (59 per cent) emerging as the topmost perpetrators. A trend that is continuing from the previous years. Not surprisingly, 77 per cent of those surveyed, live with their families. An unsuspecting entry amongst the “top three abusers” is now the daughter as well. Though the national capital, Delhi, ranked the lowest in elder abuse with 22 per cent amongst tier I cities, it also indicated a marginal increase of the same from 20 per cent the previous year, showing a slow but disturbing growth. Bengaluru ranked the highest at 75 per cent within the tier I cities surveyed, while in the tier II cities Kanpur was the lowest (13 per cent) and Nagpur highest at 85 per cent. Verbal abuse (41 per cent), disrespect (33 per cent) and neglect (29 per cent) 56

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April 2015

were ranked as the most common types of abuse experienced by the elderly. While abuse has gone up, unfortunately still 41 per cent of those abused, did not report the matter to anyone. “Maintaining confidentiality of the family matter” was cited to be the major reason behind not reporting abuse (59 per cent). “It is a subject often pushed under the carpet. Most elders become silent sufferers and don’t talk about it as it

The HelpAge report, released last July, revealed that though 64 per cent of the victims were aware of the police helpline, only 12 per cent approached them. Most preferred approaching a relative (53 per cent) or friends (42 per cent). An interesting observation about the reasons for not reporting abuse was “lack of confidence in the any person or agency to deal with the problem.” Another big reason was that

becomes a matter of family honor for them. Since many live with their abusers, making a complaint only worsens matters as per them. The problem needs to be dealt with at its root. The degeneration of our value system has heightened this problem. Children are turning abusers. There is a dire need to sensitize them, starting young. We have started a unique HUG campaign which stands for Help Unite Generations, aiming to do just that,” says Mathew Cherian, Chief Executive Officer, HelpAge India.

many elderly people “did not know how to deal with the abuse”. “fear of retaliation” appeared as the dominant cause in three out of six tier II cities. Interestingly, the “top three reasons” for abuse were: Emotional dependence of the victim on the abuser (46 per cent), economic dependence of the victim (45 per cent) and economic dependence of the abuser (30 per cent) on the victim. While 17 per cent of those abused faced it daily, 35 per cent face it at least once a week. Elders who faced abuse ‘almost daily’ in tier

Twilight Zone

I cities, was highest in Hyderabad (42 per cent) and lowest in Mumbai (26 per cent), while those in tier II cities was highest in Guwahati (71 per cent). The survey also points to poor awareness levels among the victims about the law such as Maintenance and Welfare of Parents and Senior Citizens Act 2007 to protect senior citizens from harassment and abuse in the hands of their carer. It aims to empower them and give them the strength and to fight for a dignified existence.

deteriorating physical strength and other geriatric illnesses add to their difficulties. Even though India is home to one in every 10 senior citizens of the world, the country spends a mere 0.032 per cent of its GDP on them and they are subjected to neglect and isolation, according to the study. “There are not enough dependable community support systems matching the growth of senior citizens,” says Cherian. According to Justice Leila Seth, “Losing

The budget for senior citizens has been increased from Rs 45 crore to Rs 50 crore with emphasis on construction of old age homes

As per the Act, abandonment of the elderly is now a cognizable offence. If anyone responsible for looking after or protecting the senior citizen, leaves him/her in any place with the intention of wholly abandoning, shall be punished and fined. The Act not just provides for maintenance of the elderly but also, for welfare measures: such as better medical facilities, protection of life and property, and old age homes in every district. So far, 23 state tribunals have been set up and more are underway. The misfortune is that today’s rapid urbanization has overtaken the traditional value-system and shifted their socio-economic priorities. Sons and daughters and their children find no time for the senior citizens in their family. The elderly, who have provided their services and support to the society, feel unloved and neglected in twilight years of their lives. Their

one’s dignity can harm you more than ageing. Lack of love can be a bigger evil than lack of laws to protect you. Though elderly continue to face troubles across various strata, the problem worsens when poverty is thrown in.” The report also talks about the need for an effective pension system and states that the ongoing National Programme for Health Care for Elderly is being implemented in only 13 out of the nearly 600 districts of the country. Even the Supreme Court recently sought response from the Centre on setting up old age homes in every district to take care of the elderly left to fend for themselves by their children. Thanks to Finance Minister Arun Jaitley’s recent offerings in the general budget, the elderly populace can now heave a sigh of relief. Jaitley proposed using huge amounts of money from unclaimed deposits of Rs 3,000 crore and PPF

deposits of Rs 6,000 crore to provide health care to the aged, pensioners and the underprivileged. Under the senior citizen’s fund, a new scheme will be started to provide physical aid and assisted-living facilities to those who need help, especially those below the poverty line. The budget for senior citizens has been increased from Rs 45 crore to Rs 50 crore with emphasis on construction of old age homes. “These social security schemes reflect our commitment to utilise the Jan Dhan platform to ensure that no Indian citizen will have to worry about illness, accidents or penury in old age,” Jaitley said while presenting his budget. Another benefit for the elderly has to do with increase in deduction in health insurance premium and medical treatment. While the budget has raised tax deduction under Section 80D for individuals below 60 from Rs 15,000 to Rs 25,000, for senior citizens it has been increased to Rs 30,000. Besides, under Section 80DDB, which allows a deduction of Rs 60,000 for treatment of specific diseases like cancer, AIDS etc, the amount for senior citizens has gone up to Rs 80,000. But are these measures enough to contain elder abuse at home? Definitely not because the problem is only part economical. Larger part of the malaise is social. Even though India is progressing economically and major steps are being taken to enhance education standards across the country, somewhere along the way, people seem to have lost sight of their value-based social understanding, which need to be inculcated in children with as much effort as modern education. There is no denying that policies such as the new National Policy for Senior Citizens – which is under finalisation, would go a long way in ensuring the financial wellbeing of elderly people. But a greater effort in form of human emotion and familial togetherness is required from the young generation who needs to realize that they are only a couple of decades from their own twilight zone. They should not mete out a behavior that they don’t want to receive.

April 2015

Governance Today

Child Labor

Killing the Future One of the fastest growing economies, the biggest democracy, India, a country of more than 1.25 billion population has its own paradox. Recently, Labour and Employment Minister said that the total number of child labor in the country has reduced by 65 per cent as per the Census 2011, however, situation seems to same. We are a country of 60 million child labor. Children, all under the age of 14 years, some as young as 4 or 5, all striving hard just to get a square meal and helping their families financial status. | EKTA SRIVASTAVA

ed and yellow seem to be his favorite colors. His t-shirt has always these colors. He has strong voice and his words and lips move in modern day street language; he is always careful to not to speak anything that could show his feelings or emotions. He is all of 12 years, but his face has lost innocence though his liquid eyes have a sparkle that only children are blessed with. His toothy wicked smirk, belies the fact that while other children of his age are either playing or being schooled, he is forced work thousand kilometers away from his family so that his younger siblings do not go hungry. Bullet Kumar- sounds tongue-tied name- serve tea from one office to another, thrice in a day and his chore goes with cheerfulness. His work starts at 7 in the morning and last till 9 in the night. If he knows that he has been deprived of the right to childhood or of the joys of being a goofy kid or to fulfill his true 58

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Child Labor

Non-governmental organizations working towards eradicating child labor in India say that: Two out of every three working children are physically abused. Over 50 percent children were being subjected to one or the other form of physical abuse. 50.2 percent children worked seven days a week. 53.22 percent children reported having faced one or more forms of sexual abuse. 21.90 percent child respondents reported facing severe forms of sexual abuse and 50.76 percent other forms of sexual abuse. Every second child reported facing emotional abuse. Some children are forced to work up to 18 hours a day, often never leaving the confines of the factory or loom shed

potential, he disguises it well behind his infectious smile. It takes a lot of cajoling to get him reveal that he earns Rs. 3000 per month and stays in Delhi NCR with his uncle. However, when asked more about his family and life, he outrageously said, why you are enquiring so much? Do you want to call police? Adamant to not to take his photograph he further says that his mind works much smarter and fast than our fingers in keyboard. Or maybe his owner has threaten him in many ways and the child has no way out but to lie to keep his â&#x20AC;&#x153;job.â&#x20AC;? He has no idea of what the future holds for him nor does he seem to care. He is just too busy trying to earn enough to send money to his family. The case of Bullet Kumar is not isolated. There are millions of Bullet Kumars, in this IT giant country which keeps on boosting about its economy and technology. They all are of same age, around 14 or less and work far from their hometown and work in bidi making units, construction sites, as domestic works, in spinning and weaving sector, in roadside dhabas and small auto repairing shops. Even

sectoral disaggregated data on child labor from 2011 Census is not available. So much for caring for children. Working seven days a week, these kids are not just being robbed off their right to normal physical and mental development, to education and to happy prosperous life but of their childhood, which is most natural of their existence. Some children are forced to work up to 18 hours a day, often never leaving the confines of the factory or loom shed. Even after working so hard, they are forced to stay with inhuman conditions in cramped, dim rooms, breathing toxic fumes, and every now and then being subjected to verbal and physical violence by their employers. These young children work for hours on end, suffering from constant fatigue. While some get paid and there are some who just food to survive. A recent report, produced by the International Confederation of Free Trade Unions, says that there are more children under the age of 14 in India than the entire population of the United States. And children under 14 years of age account for about 4

percent of the total labor force in the country. Of these children, nine out of ten work in their own rural family settings. Even though the urban centers see many child laborers, estimates say that about 80 percent of child laborers reside in rural India, where they are forced to work in agricultural activities such as fanning, livestock rearing, forestry and fisheries. Nearly 85 percent are engaged in traditional agricultural activities compared to less than 9 percent in manufacturing, services and repairs. About 0.8 percent works in factories.

Poverty the Main Driver Poverty is the biggest reason for child labor in India. Absence of even rudimentary education at the primary level, parental ignorance regarding the bad effects of child labor, poor implementation of child labor laws and penalties, non-availability and non-accessibility of schools, boring and impractical school curricula and cheap child labor are some other factors which lead to child labor. Taking advantage of familyâ&#x20AC;&#x2122;s poverty April 2015

Governance Today

Child Labor

and helplessness, there are many employers who provide money to parents instead of their children. Even these businesses save money as child labor is cheap and kids can be easily exploited. This further spurs the rise of child labor in the country. Factories find loopholes and get round the law by declaring that the child laborer is a distant family member or is above 14 years of age. Today, thousands of wealthy young couple hire youngsters for household chores and to look after their own kids, under the pretext of providing some money to the parents and of offering a better life than he/she would normally have had.

up a working group that said child labor should be forbidden until 14 and regulated between 15 and 18. But the suggestion was opposed by the labor ministry that believed it would hinder exports and hamper agricultural and artisanal communities who need to teach children from a young age.

Statement from Government The government recently said that elimination of child labor was its “priority”. On the other hand, it also said as per the last Census of 2011, more than 26,000 children were working in Delhi in the age group of 5-14 years. Replying to separate questions in

group of 9-14 years are rescued from hazardous occupations and enrolled in NCLP special training centers which have provisions for bridge education, vocational training, mid-day meal, stipend, health care and others before being mainstreamed into formal educational system. Due to economic factors, many of the law’s goals are difficult to meet. The law, for example, does nothing to protect children who perform domestic or unreported labor. In almost all Indian industries girls are unrecognized laborers because they are seen as helpers and not workers. Girls are thus not protected by the law.

What Law Says Child labor is not completely outlawed in India. Children below the age of 14 are permitted to work as long as their work is in non-hazardous environments. In 1986, India introduced the Child Labor Act that allowed children below 14 to be involved in “non-hazardous” work such as working on farms and making handicrafts. In 2012 an amendment to the law was proposed to prohibit children below the age of 14 from working in any industry. The new bill, called the Child and Adolescent Labor (Prohibition and Regulation) Bill, also stated that children under the age of 18 shouldn’t be employed in hazardous work. The amendment was introduced in India’s upper house of Parliament in late 2012. It was referred to a special standing committee where it is still pending approval. Child labor laws in India only cover children up to the age of 14. Child laborers between 15 and 18 are covered by another law–the Juvenile Justice Act (2000) – which allows prosecution of employers who employ anyone under 18 in hazardous jobs, keep them in bondage or withhold their earnings. But when children at work have accidents, they are not covered under the country’s labor protection laws which apply only to those over 18. The National Advisory Council that advised the previous government set 60

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April 2015

In almost all Indian industries girls are unrecognized laborers because they are seen as helpers and not workers. Girls are thus not protected by the law

Rajya Sabha on Child Labor, the Labor and Employment Minister said that the total number of working children in the country has declined from 1.26 crore as per the Census 2001 to 43.53 lakh as per Census 2011 which shows 65 per cent reduction. “Efforts to eliminate child labor especially in hazardous occupations and processes continue to be a priority of the government,” he added. Further the government is implementing the National Child Labor Project (NCLP) scheme since 1988 in areas of high concentration of child labor. Under the scheme, children in age

This is a high time for all of us to raise our voice against such monstrous crime against children. Children, are the future of our country and building blocks of our dreams. Say it a fortune of the country, that we receive the Noble Prize for making change in our weakest link. This year the Nobel Peace Prize was awarded to Kailash Satyarthi who has worked to end child labor and slavery. Maybe in near future or so we will be able to eradicate such an evil from this country, not with just one Kailash Satyarthi but many who were already born or will be born.

Unacademic

Rumblings at Nalanda University | RAMESH KUMAR RAJA

alanda University, a global institution set up under an act of parliament in Bihar’s Rajgir district, has been in controversy for quite some time now. Nobel laureate Amartya Sen is peeved that the Narendra Modi-led NDA government is no hurry to extend his tenure as Chancellor of the university, created as a revival of an ancient centre of learning at Nalanda. The university began its first academic session in September last year with 15 students. In a letter to the governing body of the university, which is dominated by many international names, Sen withdrew his candidature for a second term as the chancellor. His term as the chancellor ends in July this year. The letter speaks volume about Sen’s annoyance at not being nominated for the top post. “It is hard for me not to conclude that the government wants me to cease being the chancellor of the Nalanda University after this July, and technically it has the power to do so,” Sen says in the letter. While sending the letter, the eminent economist also could not resist taking pot-shots at the Centre: “I am also sad, at a more general level, that academic governance in India remains so deeply vulnerable to the opinions of the ruling government, when it chooses to make political April 2015

Governance Today

Unacademic

use of the special provisions. Even though the Nalanda University Act, passed by the Parliament, did not, I believe, envisage political interference in academic matters, it is formally the case - given the legal provisions (some of them surviving from colonial days) - that the government can turn an academic issue into a matter of political dispensation, if it feels unrestrained about interfering.” Surprisingly, the eminent economist failed to see the possibility of abuse of power till the time of extension of tenure. This statement, however, is not the

during the preceding UPA regime. And Sen himself kept making political comments in favour of his “friend” Manmohan Singh, and, famously, said that he would not like to see Narendra Modi as the Prime Minister of India. While the Nobel laureate has been a bitter critic of Modi and BJP dispensation, his relative quietness on corruption during the UPA regime, it would seem, was unwavering. There are many who feel that he has been a beneficiary of the UPA’s arbitrariness and distribution of favours to ensure total control over the Nalanda

by him, elected him as the chancellor in a meeting which was held in Beijing in 2011. Although he does protest too much, Prof Sen appears to have done little to distinguish his tenure as chairman of the board (and de facto chancellor) by setting any great example of high-minded governance. The key appointments to the university have, in fact, been dogged by controversies relating to nepotism and nontransparency. For instance, the ViceChancellor, Gopa Sabharwal, was just a reader at Delhi’s Lady Shriram College

While the Nobel laureate has been a bitter critic of Modi and BJP dispensation, his relative quietness on corruption during the UPA regime, it would seem, was unwavering

whole truth. As of now, there is no evidence whatsoever that the central government meddled with academic matters – unless its (apparent) reluctance to appoint Sen is deemed as one such interference. Although he is right to raise political intervention as a big issue in Indian academics, one wonders why he thinks his own appointment as chancellor of the NU was not political in nature. There is little doubt that Prof Amartya Sen was the intellectual father of many of social spending schemes mooted by Congress president Sonia Gandhi 62

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April 2015

University project, which has been dogged by controversies right from the beginning. The NU, some believe, had become a private domain with public money in the name of autonomy. Many questions have been flagged in the past on the manner in which this university was governed. It is believed that Sen had not bothered to submit even in three years the detailed project report expected of him in nine months nor had prepared a financial estimate for the project. Yet he was made Chairman of the NU’s governing board. And finally the board, chaired

when she was appointed to the top job and given a salary of Rs. 5.06 lakh per month. While this may not be objectionable in a university that has a global mandate, this salary was nearly twice what the Delhi University VC was getting. The slip-up forced her to take a cut. Notwithstanding the fact that the NU is based in Rajgir, where a 450-acre campus is being planned, VC Sabharwal reportedly preferred to operate out in Delhi. She also had to face academics’ protest as she had nothing to do with the Buddhist studies which is supposed to be the major focus of the university.

Unacademic

According to reports, many key appointments appeared to point to the influence of Upinder Singh, a historian and daughter of Sen’s friend Manmohan Singh. As soon as Sabharwal was appointed VC, Upinder was appointed as guest faculty at the university. VC Sabharwal appointed another friend, Anjana Sharma, as “officer on special duty”, again with a hefty salary of Rs. 3.3 lakh without any requisite public notice. Although they are eminent scholars well established in their fields, the process of appointment and proximity to Prof. Sen and the then government only fuelled the allegation of nepotism in the appointment process at the NU and dented the image of the university. Another controversy that rocked the campus when the then President, APJ Abdul Kalam, declined to become its First Visitor, an honorary position, as he felt that the university needed a full time chancellor and VC and not someone with other preoccupations. This implies that he did not think highly of the appointment of Prof Sen as chancellor, or his VC. It may be noted that it was Kalam who first mooted the idea of reviving Nalanda’s past glory in 2006. President Pranab Mukherjee is now the First Visitor of the university. In a letter to the then External Affairs Minister, SM Krisna, Kalam slammed Sen for forcing him out of his brainchild project. Although he chose not to create a public controversy even while writing to Krishna, the former President was disappointed the way the project was being handled and hence he couldn’t remain associated with it any longer. “Having been involved in various academic and administrative proceedings of the Nalanda University since August 2007, I believe that the candidates to be selected/appointed to the post of Chancellor and Vice Chancellor should be of extraordinary intellect with academic and management expertise,” Kalam wrote. He advocated that the Chancellor and VC were supposed to personally involve themselves full-time in Bihar, so that a robust and strong international institution is built.

Former President APJ Abdul Kalam declined to become NU’s First Visitor as he felt that the university needed a full time chancellor and VC and not someone with other preoccupations

It may be noted that the Ministry of External Affairs is the nodal ministry in the governance of NU, given its proposed international character, even while Kalam kept insisting that it should better be handled by the Ministry of Human Resource Development, which has experience in the field of education. According to reports, the government tried to suppress Kalam’s damning letter as it was taken on record in the NU governing board meeting, but was not made public until a Bihar journalist wrote to him to get the truth out. While Kalam felt sad at finding no efforts to re-enact the glory of the ancient university in which students from all over East Asia came for studies and had Pandits such as Arya Dev and Dharmapala who spent their lives for the sake of the institution, Sen, having been at Oxford, Cambridge and Harvard viewed the university through that prism. According to academics, the fault lies in the government for entrusting the task of reviving NU to Sen as an evidence of India’s sycophancy, despite Kalam repeatedly warning them against it.

Considering all these facts, there is a significant body of opinion against a second term for Sen. To claim that the government’s apparent decision to not recommend extending his tenure as the NU chancellor is a purely political, spiteful move glosses over Sen’s actual record at the institution, which is not less than defects. Any extension of profile for the Nobel laureate would have to cover his performance over the course of NU’s short history, and on this front, he is standing on thinner ground. There are good reasons to consider other options beyond Sen once his term ends. The eminent economist is well around 82. Why should someone this old be running a young institution? When the university formally opened for its first academic session last year, Sen didn’t turn up for the event. Nalanda University, whose modern campus is expected to be finished by 2020 with the central fund to the tune of over Rs 1,000 crore, deserves someone younger and more committed to the idea of reviving its past glory as a knowledge centre.

April 2015

Governance Today

Missing in Action

Tough Measures Required to Rein in Absenting Teachers | RAMESH KUMAR RAJA

n what may be called a record of sort for staff absenteeism in India, a Madhya Pradesh school teacher was recently found to be absent for 23 years of her 24-year career. Sangeeta Kashyap was recruited as a biology teacher in Indore’s Government Ahilya Ashram School in 1990. School authorities said they did not know when she was last paid a salary, but she was still listed as an employee until the news broke out. The school is allowed to have three biology teachers, but only two were filled - with the third held by the absentee teacher. Kashyap spent her first year teaching in a school in the town of Dewas, after which she took three years of leave. In 1994, she was transferred to the Indore school but then applied for maternity leave and has never turned up for work. The fact her post remained empty for so 64

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April 2015

long says a lot about the competence of education officials. Although the state education department promised contemplating action against Kashyap, which of course is removal from her post, the case in point shows how the Indian education system is plagued by teacher absenteeism at all levels of schools – primary, secondary and higher secondary. A recent study led by Karthik Muralidharan of University of California, San Diego, pegs the fiscal cost of such teacher absence to more than $1.5 billion per year in India. The Indian government has indeed spent enormously on primary education, namely the Sarva Shiksha Abhiyan, which was financed by a special education tax. Improving infrastructure and teacher quality have been the main goals of this program. The study points out that if teachers don’t even show up to work, all these

efforts go in vain. Since teacher salaries are the largest component of education spending, high levels of teacher absence means considerable waste of public funds. According to a World Bank study based on unannounced visits to government schools, 25 per cent of teachers were absent from school, and only about half were teaching. Absence rates varied from 15 per cent in Maharashtra to 42 per cent in Jharkhand. A number of Indian states, however, fare a lot better. While Maharashtra, Gujarat and Madhya Pradesh had relatively low rates of absenteeism among teachers, the 100 per cent literate state of Kerala reported an abnormally high figure of 21.2 per cent. On the flip side, the economically prosperous state of Punjab reported 34.4 per cent absenteeism. Similarly, 38 per cent of teachers were found to be missing from their classrooms

Missing in Action

at government-run primary schools in Bihar. Survey teams paid three unexpected visits to each targeted school before concluding that the teachers were chronically absent. They recorded that, on average, 19 per cent of teachers weren’t at work on the surveyed day. The project surveyed 3,700 schools in 20 Indian states. It may be noted that the World Bank research was also conducted in five other countries – Bangladesh, Ecuador, Indonesia, Peru and Uganda – to measure how widespread the problem is. Another significant finding of the World Bank project was that teachers are extremely unlikely to be fired for being absent -- only 1 in 3,000 head teachers had ever fired a teacher for repeated absenteeism. While few teachers are subject to much risk of being fired, the costs and benefits of attending school on a given day could vary among teachers depending on working conditions, as well as on their vulnerability to sanctions (such as receiving undesirable postings). The vulnerability of teachers to those sanctions presumably depends both on the monitoring regime and on the teacher’s level of power. Interestingly, salary is not the determining factor of teacher absence.

The research revealed that better pay doesn’t lower absenteeism. Older teachers, more educated teachers and head teachers have better salaries but are also absent more frequently, according to a related research paper. Also, contract teachers are paid much less than regular teachers but have similar absence rates. According to Halsey Rogers, senior economist at the World Bank’s Development Research Group and one of the authors of the report, prepared in association with Harvard University: “Absenteeism among teachers and medical personnel is widely cited in development literature as a barrier to improving education and health levels in developing countries. Governments and donors may construct school buildings and supply textbooks, but if teachers are repeatedly absent students are unlikely to learn. Developing countries often spend between 80 per cent to 90 per cent of their education budgets on teachers, without getting the most basic of returns -- getting teachers to show up for work.” Working conditions are more likely to influence teacher absenteeism than fear of losing pay. The research found a clear association between better infrastructure and lower absence. “If the facilities are better – if they have, for example, functioning toilets and a roof – they are going to be more enthusiastic about going to work and working in those better conditions,” Rogers observes. Other working conditions that might be expected to affect teacher motivation are the remoteness of the school and the teaching conditions. Circumstantial evidence shows that many teachers prefer less remote schools. Teachers in schools that are far from a paved road are less likely to be in school than those closest to a road. Schools whose teachers have to simultaneously teach multiple grades (multigrade teaching) have a slightly higher rate of absence, although the effect is not significant when state fixed effects are included. Although inspections in India are

often considered toothless, teachers in schools that had been inspected in the three months prior to the visit were about 2 percentage points less likely to be absent. State government officials told those conducting the study that they could not inspect institutions because high crime rates made inspections dangerous, and there were no funds for petrol for teams to go on inspection tours. Local communities could potentially provide an alternative source of monitoring. One way to interpret the lower absence rates in schools with more educated parents and high pupilteacher ratios is that local monitoring is more effective when parents are more educated and more parents could potentially complain about absence. Similarly, schools with PTAs (parentteacher associations) that have met in the past three months have lower absence. This could reflect either the importance of local community or a tendency for more conscientious teachers and headmasters to organise PTA meetings. Studies suggest it may be worth exploring a variety of potential reforms. These range from improving school infrastructure to increasing the frequency of inspections and experimenting with new, potentially more effective forms of local control or contracting with teachers. There have also been suggestions to increase the penetration of private schools. However, in order to assess the impact of any of these reforms, rigorous randomized evaluations should be put in place. Revisiting the rules and associated administrative policies will, however, not be easy. It requires political will, supported by beefing up of the infrastructure to induce better teachers’ presence on one hand and effective monitoring and punishment structure on the other. Public money has long gone down the drain in form of absent teachers, lost classes, and most painfully, unlearned lessons. It is high time to put teachers in class to do what they are supposed to – teach.

April 2015

Governance Today

Healthcare

This Air is Killing A It’s not just about breathing bad air. This pollution is a host of diseases like cardiovascular problem that lead to heart attacks and strokes, respiratory infections and lung cancer and finally to death of several. A World Bank report last year that surveyed 132 countries ranked India 126th for environmental performance and worst for air pollution. 66

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April 2015

| EKTA SRIVASTAVA

ccording to World Health Organization, air pollution has become the world’s single biggest environmental health risk, linked to around 7 million – or nearly one in eight deaths in 2012. As per the last analysis drawn from, “The Global Burden of Diseases, Injuries, and Risk Factors Study for 2010,” outdoor air pollution in the form of fine particles contributed to 3.2 million deaths globally in 2010, up from 800,000 just 10 years earlier. The sweeping worldwide study published in December involves 450 experts. The new figures are more than double previous estimates and suggest that outdoor pollution from traffic fumes and coal-burning, and indoor pollution from wood and coal stoves, kills more people than smoking, road deaths and diabetes combined. Around 80% of the 3.7 million deaths from outdoor pollution came as a result of stroke and heart disease, 11% from lung diseases and 6% from cancers. The vast majority was in Asia, with 180,000 in the Americas and Europe combined, said the WHO. Indoor air pollution led to 4.3 million deaths, of which 34% were caused by strokes, 26% heart diseases and 12% respiratory disease in children. Only 19,000 of these deaths were in rich countries, with the vast majority being in low- and middle-income countries. Because many people are exposed to both indoor and outdoor air pollution, the WHO said deaths attributed to the two sources cannot be added together. South-east Asia, said the WHO, is now the most polluted region in the world, with 3.3 million deaths linked to indoor air pollution and 2.6 million deaths related to outdoor air pollution. This reflects the explosive growth of cities and industrial development in China and India, as well as continuing deep poverty in rural areas. Back home, India has seen this thick haze of air pollution emerge as the fifth-largest killer after high blood pressure, indoor air pollution, smoking and poor nutrition, according to study presented by the Boston-based Health Effect Institute. In 2010, outdoor air pollution contributed to over 620,000 premature deaths in the country, up from 100,000 in 2000. Given the weight of the evidence, the question now is how to reform national policy, when enforcement is notoriously weak. India’s ministry of environment and forests

Healthcare

has recommended upgrading vehicle fuel to low-sulfur diesel, retrofitting old vehicles, drafting guidelines on cleaner construction methods and other measures. But as is the case in everything else, best intentions and plans have stayed on papers.

Pollution and Pollutants Pollutants are present everywhere in our environment and enter our body through the air we breathe (respiratory system), the food we eat and water we drink (gastrointestinal system), or through skin contact. A simple definition of pollution could be the presence of high quantities of any entity in the wrong place. This indicates that a specific substance cannot in itself be labelled a pollutant. It becomes a pollutant when concentrations of the substance are too great to sustain health in any given place. For example, high concentrations of respirable particulate matter in lung tissue harm the respiratory system. Another example is inorganic arsenic. When concentrations of inorganic arsenic exceed 10 micrograms/L in the groundwater, significant adverse health effects occur in people who consume that water. High Arsenic content in ground water has resulted in a large number deaths in West Bengal in India and in Bangladesh.

Health Effects Pollutants affect our health in several ways. These include direct irritation of target organs or metabolic changes within cells. For example, exposure to too much smoke, fumes or dust evokes a burning sensation in the airways, tightness in the chest and possible suffocation. Sometimes, the effects are subtler and may take years to develop.

Asbestos fibres, for example, are small needle-shaped silicate crystals that penetrate deep into lung tissue and evoke reactions. It takes around 20 years for some illnesses to manifest. Other health effects involve metabolic pathways in our bodies -pathways of chemical reactions in our cells -- where they may interfere with energy production or cellular repair mechanisms. For example, exposure to inorganic arsenic is common among people who work in copper smelters or live around them. Exposure to inorganic arsenic also occurs among people who consume water from shallow tubewells in areas where the groundwater contains high levels of inorganic arsenic. When it enters the body, inorganic arsenic is transformed through the same chemical reactions that are necessary to maintain the repair processes of DNA molecules within the cells. As a result of excess exposure to arsenic, and demands on these reactions, faulty repair of DNA molecules causes tumours to form.

Capital, The Dirtiest of 1600 Cities Nevertheless, if we talk about the capital, World Health Organisation study finds that it has the dirtiest atmosphere of 1,600 cities around the world for PM 2.5 particles, i.e. particles of size of 2.5 microns which stay suspended in air for long time. Indiaâ&#x20AC;&#x2122;s state air monitoring center has admitted that pollution in Delhi is comparable to that of Beijing, but disputed a World Health Organisation (WHO) finding that the Indian capital had the dirtiest atmosphere in the world. Other Indian cities of Gwalior, Patna and Raipur reported 144, 149

and 134 respectively. These extremely fine particles are linked with increased rates of chronic bronchitis, lung cancer and heart disease as they penetrate deep into the lungs and can pass into the bloodstream The small particles blighting the air of Delhi and other leading developing cities around the world are often dust from construction sites, pollution from diesel engines or industrial emissions. The Indian capital also suffers from atmospheric dust blown in from the deserts of the western state of Rajasthan, as well as pollution from open fires lit by the urban poor to keep warm in winter or to cook food. Though, New Delhi defied all expectations when its buses and taxis and more than 50,000 autorickshaws began converting to cleaner-burning compressed natural gas in 2001 as a result of a Supreme Court mandate for commercial vehicles. But the substantial reduction in air pollution after the switch to C.N.G. has since been canceled out by the sheer number of vehicles added to the cityâ&#x20AC;&#x2122;s roads, including older, highly polluting vehicles like overloaded trucks that spew exhaust. There are various studies that inform of the man years that are lost in developing countries such as India because of pollution. There is no effort to find out how much that means in terms of lost economic activity and money. Unless that is known and is factored in the economic decision making, perhaps all the growth would be only half truths. The fear is that by the time enlightened minds wakeup in corridors of power, it may be too late for countries such as ours.

April April 2015 2015

Governance Today

Healthcare

Playing with the Profession? RMP’s- Rural Medical Practitioner, is what they are known as in places where people are unaware of their reality and these quacks are playing with the lives and health of many in a country when health is one of those pertinent factors which can either help or hinder the process of national development. | EKTA SRIVASTAVA

ealth as a matter of right is recognized throughout the world for its intrinsic value. India as a signatory to the Alma Ata declaration is committed to provide ‘Health for All’ without any discrimination on the grounds of rich or poor and urban or rural. The national health policies are formed on the basis of this very principle. But inequality of opportunities, the gross mismatch between the stated objectives and the resources available and the inability of the state to bring quality health care within the reach of all has increased the vulnerability of the people, particularly the rural areas and has led to the emergence of a new tier of physicians, who run a parallel health care system and play a formidable role in the rural 68

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health care market as rural healthcare providers. This group of quacks manage certificates from unauthorized and unrecognized institutions. ‘Quack’, according to the Supreme Court are defined as, ‘a person who does not have knowledge of a particular system of medicine but practices in that system’. These quacks have neither MBBS degrees nor license to practice medicine, yet they run their dispensaries in remote areas with impunity. But thanks to the failed formal healthcare system, innocent rural population fall prey to the ‘magic pills’ prepared by these practitioners. Further, adding to the problem is the imprudent act of these quacks to use names of boards of qualified practitioners to run their business. According to rough estimates, on average, there are 12 RMPs per 10,000

populations. About 90 percent of the RMPs are from the deprived social groups. They are relatively young and a majority of them have more than 12 years of education. Being the first contact in the medical emergencies, their popularity is very high in rural areas and urban slums. Indian Institute of Health Management Research undertook a study in Sundarbans which manifested that ’80 percent of children were treated by quacks and less than 10 percent were referred to qualified doctors.

Are They Authorized? Despite so many allegations, selfacclaimed practitioners are functioning in every nook and corner of the villages, without any resistance either from the community or the authorities. It would

Healthcare

not be redundant here to reflect on how do these people are indomitably functioning as part of the rural health care market along with the other providers of health care. For so long these untrained practitioners are playing with the lives of people, but governments still fail to set up an authorized council or statutory body to regulate their activities. Shockingly, quacks have a protective boundary called RMP Welfare Association at district, state and national level. These practitioners, who donâ&#x20AC;&#x2122;t have rights for writing prescription, are fearlessly using â&#x20AC;&#x2DC;Drâ&#x20AC;&#x2122; before their names. Especially, brought up for providing first aid treatment like wound dressing, they are prescribing drugs, and some RMP doctors are involved in surgeries like Hydrocele and Hemorrhoid surgeries. Such malpractices are hurting the genuine professionals. Once these qualified doctors through Indian Medical Association (IMA) filed a petition against these illegal practices in Supreme Court, but ironically, qualified professionals lost to these non-qualified doctors. In the ruling, Supreme Court said RMP doctors are not authorized prescribers but they are health care providers of rural India in respect of First Aid Treatment. Supreme Court has given certain boundaries to RMP doctors, to run First Aid clinics within certain boundaries as mentioned bellow. RMP should not prescribe drugs or medicine, even should not recommend more than two doses of OTC drugs. RMP should not deal legal, pregnancy, emergency cases. RMP should not terminate pregnancy. RMP should not administer injections.

Why Rural Patients Prefer to Go to Them? In spite of knowing that they might be getting cheated in hands of these quacks, rural patients still prefer to visit them rather than government health care institutions despite the fact that they both are cheap. The fact that

quacks run a formidable parallel health care system compared to a benumbed public health care delivery system is what encourages many rural people to run to them. Conclusion It is a bizarre that despite the fact that these people lack the necessary educational background, expertise, proficiency required for practicing medical science, exhibit fake certificates, cultivate commercial relationship with the qualified doctors and medical representatives, follow faulty treatments protocols, impair the sanctity of the profession, they are resolutely functioning as medical practitioners in different villages in India. It is the basic necessity of healthcare that empowers them and which transgresses the question of legality v/s illegality. It is unfortunate that development has remained so lopsided that even basic services are inadequate at the grass root level. Quacks fill this vacuum. It is unlikely that in the near future, the government would be able to provide alternatives sources of treatment for the poor in the rural areas. It is therefore necessary to train the educated RMPs in the basic curative care and safeguard

the interest of people in rural areas. The training in basic medicine is to discharge unnecessary injections, and inappropriate and incomplete doses of antibiotics. They can be trained in minor problems and in identifying serious problems for referring to qualified doctors. It is a primary duty of the state to safeguard provide basic healthcare to its citizens. But the state seems to be in a dilemma so far quackery and quacks are concerned. Ground realities of the country warrant that quacks should continue, irrespective of the fact whether they are qualified or not, legal or illegal. State also seems to have compromised with the situation. With its inability to render adequate healthcare services, it has grudgingly accepted the existence and functioning of a third tier of quack physicians running a parallel healthcare system, even though it runs against the basic grains of ethics. Since they cannot be wished away, it is in the public interest to train the educated RMPs and regulate their services. But over long-term, there is no alternative but to put in place a functioning formal healthcare system and government cannot shirk this responsibility.

April 2015

Governance Today

Education

Need for Skill Based Education | SANJAY SHIVNANI

iven the sheer size of her 480 million plus workforce, India can be the driving force behind a global skillsbased economy. The one challenge that is repeatedly tabled at every industry/employer forum is the acute shortage of skilled workers that the Indian industry is facing. A recent study by the Manpower Group found that 67 per cent Indian employers are struggling to find resources that match their requirements. Take, for instance, the infrastructure sector; they build bridges, highways, railroads, airports, malls, and buildings. Companies in this sector can’t seem to find enough appropriately skilled welders, masons, supervisors etc. The important thing to note here is that the shortage is not of manpower for physical labour but one of appropriately skilled and qualified talent. A decade ago, India’s huge population was perceived to be her biggest problem. It was believed to be the main reason for the all-pervasive poverty in the country. Today, we have a different perspective of these teeming masses; India’s population is now considered to be her biggest strength and is expected to be a source of competitive advantage. And the icing on the cake is that our population is primarily young; of its more than 1.26 billion-strong population, close to 600 million are below the age of 35. If we can effectively capitalize on this ‘demographic dividend’, it can bring us great returns, economic growth and prosperity. But only if we can successfully put in place and execute a countrywide vocational or skills education strategy. International studies have indicated that by 2020, the western world will be deficient in skilled manpower to the tune of 50 million people and India is probably the only country that will have as many in excess. So, it is not unthinkable that someday, our largest 70

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export may be skilled human capital. However, there is a huge gap between what can be and what is. While we may have a mammoth workforce, most people lack relevant skills to do their jobs effectively at their workplace. National Service Scheme data (61st round 2004-05) indicates that India’s youth severely lacks vocational training. In the 15-29 age group, only two per cent have undergone any sort of formal vocational training and only about eight per cent have received nonformal vocational training, according to the National Knowledge Commission Final Report 2006-2009. In a bid to meet this skills deficit, the Government of India has launched various schemes to promote vocational education. Getting down to technicalities, let’s differentiate between vocational training and vocational education. While the former focuses on imparting training/skilling after formal education is over, the latter is all about ‘Catch them early and prepare in depth for a profession.’ Let’s focus on vocational education (VE).VE essentially refers to skills based education within the mainstream K-12 education system geared towards enabling an individual to acquire skills alongside knowledge. Like any form of education or training, it is best if vocational education starts early in school. The appreciation for amassing skills alongside knowledge must be developed in the formative years. Hence, vocational courses must be introduced in mainstream school curricula across all school boards. Skill-based education is most appropriate from Class VIII onwards, though some may argue that it could begin even earlier and help address the problems of school dropouts. There is evidence to prove that vocational programs in school curricula can help push up attendance rates and encourage deeper participation from students. Vocational education is currently offered at the senior secondary level (Classes XI-XII). However, most

students who reach this level aspire to go for formal higher education. Only about 3 per cent students in Classes XI and XII opt for vocational education. Overall, about 6,800 schools enrol 4,00,000 students in vocational education schemes, utilizing less than 40 per cent of their total student capacity. Vocational education is just not motivating enough for learners and of course the stigma attached to VE is yet to be addressed. A crucial aspect of creating a skilled workforce is refinement of the education impacting apparatus. Unfortunately in India, the improvement in curricula in any stream is very weak. ITIs are a good example of this. The curricula is ITIs are hardly in sync with the demand of Indian industry forcing these industries to retrain the workforce that hire. Teaching of technical aspect is, however, only one aspect of skill development. Concepts such as dignity of labour need to be hardcoded into our curricula, besides occupational skills and competencies. In addition, school education should embrace soft skills, also called ‘21st century skills’ — empathy, collaboration, teamwork, peer management, IT skills, communication, negotiation and the like. These skills are essential for positive, workplace-ready, sought after social behaviours. Our education system must focus equally on knowledge and skills. This will induce a shift from ‘telling what I know’ to ‘showing what I can do’. The idea is to ‘demonstrate learning’ rather than ‘vocalise knowledge’. The main purpose of education is empowerment enabling one to earn one’s livelihood and live a life of dignity. Skill-based education, if taken and promoted seriously, can provide this empowerment to our huge, unemployed labour force and help India emerge as key contributor to a global skills based economy. The writer is Business Head & Vice President, Vocational, Pearson India

Art & Culture

C Prasanta Sahu

Art Awareness is Low in Our Country Prasanta Sahu is not a run of the mill artist. Born in a small village in Orissa, roughly 50km from the district headquarter, Balasore, he went to an engineering college after his Higher Secondary studies, as his parents desired. After completing his engineering course in electrical discipline, he realized that his real interest was in arts. He came to know about the art institution in Santiniketan and got himself admitted in the BFA course there. This, he says, was the biggest challenge of his life; to shift from one discipline to other at such a late stage. However, he persevered and followed his bachelor with Masters in Painting from MS University, Baroda. Presently, Prasanta is a professor at department of Painting, Kala Bhavana, Visva Bharati University, Santiniketan, West Bengal. He also has a studio in Santiniketan. Governance Today spoke to Prasanta Sahu to know about his works and his opinion about art scene in the country. Edited excerpts:

ould you let our readers know about your works and art style, etc. Confronting my locus as an artist vis-à-vis the characteristics of the times, I find my major area of interest in working with real references and documenting my surroundings. My role as an artist is to work as a mediator between society and art. Thus, in my art, I try to execute things as they appear in reality, and give them a different meaning by juxtaposing images from dissimilar areas. I usually create project based series which deal with different issues. For the last two years my main focus of interests has been based on working class people, their contribution towards the development of the society and also the issue of human transmigration. As a developing country, we are confronted with a rapidly changing social structure. Mass exodus of the rural class towards urban locales is a reality that exposes the growing chasm between the advantaged and the under privileged. A recent work that deals with the issue of changing social values is done in an unusual medium of Sara (clay plate), which is traditionally used for decorative purposes or painting images of gods and goddesses. The work titled “Split” shows a group photograph of a family from rural India/Orissa. A crack divides the plate vertically in two parts. This crack is part of the work. It is symbolic of the way our traditional family structures and systems are slowly eroding away. Behind any developing nation as I understand there are two prominent groups. The one which plans, visualizes, conceives and the other group which executes. In the process of change, society becomes complex, compartmentalized and is divided into sections, and unfortunately we never remember the workers who execute and turn the urban concept into reality. For me both the groups are equally important. But where the prior group gets easy recognition the latter are never celebrated. Earlier this year for a show entitled “Shrom O Shramik” ( Labour & Labourers), I have created a series of work based on this particular issue. A sculpture April 2015

Governance Today

Art & Culture

installation titled “The Pillars” consists of three pairs of feet from which arise pillar like metal armatures. These bony feet, with raised veins and rough hard skin, are sculpted to resemble feet of working class people. Patches of plaster which were a part of the moulding and casting process, mimic the dirt on the feet of construction workers. Steel armatures which are usually used for construction of concrete pillars, emerge from each foot. The upper part of the work resembles a cityscape with incomplete structures which instead of being connected to the ground rise out of the feet. This whole arrangement is displayed on the ground and

Title: “Split” Medium: Acrylic on fired clay

may be read as a recognition of the role of working class people in the construction of a new India. I enjoy working in different mediums. I feel certain ideas demand certain mediums i.e. some thoughts are good for a sculptural project and some are good for painting, print, installation etc. I also enjoy working with different subjects. I don’t believe in spending one artist’s whole life just with one issue or one subject. For me it’s a breathless feeling. I love to work with different subjects, different issues, which are relevant in different times. How is the art scene in the country, especially in your field? It is changing. Since last 20 years it has been taking a different direction. Art is no more a romantic idea where 72

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artist lives in a dream world and creates images of romantic stuffs from imagination. Rather, present artists are actively participating in sociopolitical areas and the role of artists now a days is more like artist- activists. Artists have entered into many sectors of society and creating works by using other disciplines as resources. Now contemporary art in our country is more a kind of Inter-disciplinary practice. Of course the change is taking a positive direction. In my works also you will find images, data taken from different sources, like in some work I have used some blueprint of a shopping mall and in some other work have used image

hardly know about fine art. Eventually you find less people coming to see any art exhibition or related events. Art awareness and exposure in school level is very important which can give the coming generation a vision to appreciate art in general. My own journey can give the reader an idea about the cultural environment in our country. Due to lack of awareness in my state, I came to know about fine art course and institutions and fine art as a carrier option at the age of 24, after completing my engineering studies. I struggled a lot to change the discipline and that was not easy.

Title: “The Pillars” Medium: Fibreglass, Plaster and steel

of a farmer’s family which I borrowed from a daily news paper. I enjoy this process where I re-work on the real references. According to you, what is the art awareness in the country? In our country, at the basic level, there are many problems. Poverty, health, education for all are few among them. As I can see creating awareness about art among the common mass is a bigger challenge than improving the condition of art and artist in the country. In western countries usually school children visit museums, art galleries and art fairs on a regular basis and with time they develop a sense to appreciate contemporary art. But unfortunately in our country this practice is not there and people

Any interesting experience you would like to share Recently I and my wife Ushmita Sahu, who is also a practicing artist, were invited to visit Fine arts department, Burapha University, Thailand as visiting faculties where we spent almost a month. The experience was really wonderful and different. I found the students very disciplined and the infrastructure of the institution really up to date. They have all the facilities like multimedia lab, projection room, spacious studios with all modern facilities, good libraries and internet facilities. I conducted a workshop with the students and later both of us had a two person show at their university gallery.

Obituary

The Man Who Symbolized a Nation

Massive crowd braved rains to pay homage to Lee (Image: Asiaone news)

| ANAND MISHRA

ower corrupts and absolute power corrupts absolutely. The adage has remained true for most part of history. But Lee Kuan Yew, the man who symbolized Singapore for most part of the city stateâ&#x20AC;&#x2122;s history, and catapulted the country from a third world island to a dynamic first world city state, was a rare exception. The man who oversaw the governance of the country from 1959 till 2011, when he moved out of cabinet, towers above all other global statesmen of the last century on two accounts. First, he ensured that the

country, its bureaucracy and political system remained scrupulous despite being in a one party rule. Second, he never allowed mediocrity seep in the governance system of the country. Both run counter to what we have seen in India. Personality and turbulent birth of Singapore In an interview with Fareed zakaria, Lee once spoke on what he thought of the basic difference between western and eastern government systems. According to him, while in west, governments try to compensate individuals for the absence of family, the eastern societies believe that the

individual exists in the context of his family, which in turn is part of the extended family, and the wider society. This to a large extent explains the basic social mores of the man, who despite having a western education, stayed true to his roots and cultivated the character of a society to develop a nation. Not agreeing to the principle of individuality above all else, he preferred order to absolute freedom, which has been the basic philosophy of maintaining law and order in Singapore. Success without resources Lee inherited a nation which had no natural resource sans human resource. He had to make good with just this April 2015

Governance Today

Obituary

resource to create national fortune. So, he pursued twin pronged approach to enrich available resource and create a system that enabled money making endeavor, for all who wanted to invest, in Singapore. This was manifested in two crucial ways. First, he went about creating a workforce, which was skilled, disciplined and which echoed the philosophy of eastern family values. This is the root of the unflinching dedication to meritocracy, which ensured equal opportunity for all without favoritism towards any. Again, Indian governments have practiced exactly opposite, to disastrous effect. Secondly, Lee went against the socialist import substitution economic policies and embraced free market economic model which worked wonders for the country. But for that, he needed to ensure top notch governance which he did, based on transparent and prudent policies delivered by an efficient and honest bureaucracy. His ministers were the highest paid in the world, and were frequently taken from the corporate world. It was because of this basic economic thought that the country grew at around 7 per cent for nearly four decades at a stretch, propelling the country from a per capita GNP of roughly USD 400 to present USD 55,000. Today, Singapore’s per capita GNP is higher than that of US and UK. No other country has created so much wealth for its citizens in just one generation. At a personal level, what differentiated Lee from other leaders of the time was his extreme honesty and prudence. He was never interested in amassing money for himself, which kept him scrupulous and dedicated to cause of nation building. He never lost sight of the fact that entrepreneurship thrives in an honest, enabling environment and that needs to be visible at the top. Lessons on governance There are a few key lessons that all leaders can learn from Lee’s governance philosophy. First and foremost, weaknesses and disadvantages can be converted into strengths provided you have the acumen and courage 74

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to do what’s right. He created world class institutions and laws to incentivize investors, who came in droves and set up bases in Singapore, lifting people out of poverty. Secondly, he went about creating a healthcare and education system which churned out healthy, educated and skilled working class. Modi is trying to do both, but the basic zeal is yet to be seen beyond rhetoric. Corruption and rule of law is another aspect where much can be learnt from Lee. Singapore adopted a strict rule of law with no tolerance for corruption. Lee believed that fear of retribution works better in deterring crime. Most other Southeast Asian countries, and India tolerated and co-opted corruption which resulted in lost productivity and wealth.

opposition leaders subdued with legal notices to preserve one party rule. But Lee delivered an efficient government which supervised an economy that provided ample and equal opportunity to its citizens and a state which worked on the rule of law. That is about the most that governments are supposed to do. To a large extent, his philosophy was shaped by the turbulent birth of Singapore, which was thrown out by Malaysia and was dependent on the neighbor for as basic necessity as drinking water and on US and UK for security. Further, the country had to manage a mixed race population with very little shared history. “How were we to create a nation out of a polyglot collection of migrants from

Lee with supporters after 1963 election results which PAP swept

The sum and substance of Lee’s governance style was the result. He once said “the acid test of any legal system is not the greatness or the grandeur of its ideal concepts, but whether, in fact, it is able to produce order and justice.” Lee’s Singapore does not practice what democracy and freedom means to most in west and some on east. At multiple occasions, individual freedom have been suppressed, physical punishments meted out to people, and

China, India, Malaysia, Indonesia and several other parts of Asia,” Lee asked once in retrospect. Race riots in the 1960s, in Singapore and Malaysia, had impacted Mr Lee’s thinking for good. Public housing program under HDB initiative, one of the city state’s greatest successes, was deliberately designed with ethnic quotas to prevent Malays and Indians from feeling isolated. This goes diametrically opposite to India where communities have been scared by politicians to become ghettoised.

Governance Today

April 2015

Governance Today

April 2015