Easing troubles in the long run

While assuaging the fears of foreign investors, the government must also consider capital controls to weather the gradual withdrawal of stimulus measures by advanced economies
Indias policymakers have been at pains to assure foreign investors that there will be no return to capital controls. This followed a lowering of the annual limit on foreign remittances of Indian nationals from $200,000 to $75,000. The move is said to have triggered a rush of outflows on the part of foreign investors fearful that their own investments too might soon be subject to capital controls. These assurances might make sense in the present turbulent conditions where it is necessary not to further rattle foreign investors already upset by the steep depreciation in the rupee in recent months. On a longer view, however, capital controls may not be as unthinkable or reactionary as they are now thought to be. The pendulum in both academic and policymaking circles appears to be swinging further away from a whole-hearted embrace of financial globalisation. This swing is the result of the convulsions caused by the impending reversal of quantitative easing (QE) in the United States. Battered currencies The currencies of several emerging markets India, Indonesia, South Africa, Brazil, to name a few have been battered in recent months as foreign investors have withdrawn capital in anticipation of a reversal of QE. Under QE, which the U.S. Federal Reserve commenced in response to the financial crisis of 2007, the Fed starting buying up long-maturity bonds in order to keep long-term interest rates low. We are now into the third round of QE. In the current round, the Fed has been buying up $85 billion of bonds every month or over a trillion dollars in a year. These purchases expand the flood of dollars in the U.S. market. Since not all of it can be absorbed within the U.S., a big chunk spills into other countries, including emerging markets. The flood of dollars has helped finance low-cost investment in the emerging markets and led to appreciation in their currencies. A reversal of QE spells a flight of funds and a steep fall in currencies. At St Petersburg, emerging market leaders made a strong plea for calibrating the winding down of monetary stimulus in the advanced economies so as to take into account the impact on emerging markets. Leaders of the advanced world stopped short of giving such categorical assurances. Instead, they urged emerging markets to put their houses in order by pushing through badly needed structural reforms. Some commentators have pointed out that it may be illegal for central banks in advanced economies to be guided by considerations other than those of their domestic economies. The best that emerging markets can hope for is that conditions in the advanced economies may themselves warrant a gradual withdrawal of monetary stimulus and, perhaps, a delay in the withdrawal. The U.S. Fed is expected to make its stance more clear on September 18. Tapering of stimulus

The Fed will start withdrawing the stimulus when it becomes clear that economic growth is stronger. The unemployment rate target is 6.5 per cent but the trigger for a tapering, the Fed has indicated, could be an unemployment rate in the vicinity of 7 per cent. The August jobs data for the U.S. shows a fall in the unemployment rate to 7 per cent. So, some analysts believe the Fed will withdraw the stimulus right away. That would be bad news for emerging markets. Others believe that the Fed wants the interest rate to remain low until 2016. This would imply that any tapering of the stimulus would be very gradual. That would be excellent news for emerging markets. We should know later this month. There are two issues that are relevant to India. First, how do we deal with the inevitable tapering in the immediate present? Secondly, how do emerging markets in general cope with the flows and ebbs in money supply emanating from the advanced world? In respect of the first, we have seen a flurry of activity. On assuming office, RBI Governor Raghuram Rajan announced a concessional window for hedging the foreign currency risk for banks bringing in NRI deposits in dollars. This move is estimated to bring in about $5 billion-$8 billion over the next six months. Earlier, the RBI had announced that it was opening a swap window to sell dollars to oil marketing companies. This is expected to ease the demand for dollars in the market and hence the downward pressure on the rupee. Further, at the G-20 summit, India and Japan agreed to enhance their bilateral currency swap agreement from $15 billion to $50 billion. This, in effect, enhances Indias forex reserves in the event of a major flight of funds. Again, at the G-20 summit, the BRICS countries announced the creation of a $100 billion fund to fight currency shocks. China will contribute $41 billion, with Russia, India and Brazil each adding $18 billion and South Africa providing $5 billion. These announcements have already led to an appreciation in the rupee in recent days. Fund exodus So far, so prudent. The crucial question is: will these measures be adequate to deal with a massive exodus of funds? That depends on just how massive the exodus will turn out to be. FII investments in debt in India stood at $28 billion on September 6; those in equity at $137 billion. Since the end of May, when the Fed announced its plans to taper QE, we have had an exit of $9 billion in debt but only $3 billion in equity. This does indicate that it is debt investments that will be primarily in jeopardy once the Fed commences its tapering. These are clearly of a magnitude that India can deal with. Some commentators have argued that we are in for a repeat of the East Asian crisis of 1997 and that India cannot escape mauling this time. Such pessimism is misplaced for several reasons. First, the flight of funds in 1997 was primarily on account of loans made by foreign banks and domestic residents taking their savings abroad. FII outflows were a relatively small factor in the flight. Secondly, banks in East Asia were vulnerable because they had borrowed from abroad to finance a domestic property boom. This is not true today of India or, for that matter, the East Asian economies. Thirdly, East Asian economies learnt that the way to deal with the impossible trinity in an open economy an independent monetary policy, free flows of capital and fixed exchange rates is to let

go of exchange rates. Floating exchange rates provide a natural corrective to volatile flows. Lastly, foreign exchange reserves in East Asia as well as India are at a higher level than in 1997 relative to imports. 1997 crisis One other lesson from the crisis of 1997 was that it makes sense for emerging economies to go slow on full capital account convertibility. India and China both won plaudits for having done so. The IMF, which had forcefully advocated full convertibility until then, has undergone a significant conversion since. Is that all there is to coping with volatile capital flows? Alas, the financial crisis of 2007 has brought fresh revelations. At a conference at Jackson Hole in the U.S. last month, a professor at London Business School, Helene Rey, argued that, given the present scale of financial globalisation, even floating exchange rates may not offer emerging markets adequate protection. Monetary policy in these economies will be at the mercy of the policies of central banks in the main centres of global finance. What emerging markets face is not so much the classical trilemma posed by the impossible trinity but a dilemma: to have an independent monetary policy or free capital flows. They cannot have both. Rey thinks it unrealistic to expect central banks of advanced economies to do much to prevent spillovers of their monetary policies to the rest of the world. That leaves emerging markets with three options. One, curb the expansion of credit at a time when money comes flooding in. Two, impose limits on the leverage of financial intermediaries. These two measures fall within the category of macro-prudential measures. However, macro-prudential measures are not easily put in place or in time. There may be no escape, therefore, from the third option, namely, imposing capital controls. The challenge for policymakers in emerging markets in the years to come may well be to focus on a set of capital controls that will work, at least for short periods.

The weak rupee opportunity

Weaker rupee is just a mirror. We must use it to provide a fillip to reforms It needs courage to write yet another article on the rupee-dollar rate this month. Yet a friend's email providing me some interesting historical data served as the required prompt. The mail brought out the interesting factoid that in 1917, one rupee was equal to $13. At the same time, Re 1 bought you 10 grammes of gold. So if one did some basic calculations to the current rates, where Rs 60 gets you a dollar and Rs 26,700 buys you 10 grammes of gold, you find that the rupee has depreciated 670 times against the dollar but 57,000 times against gold in the last 96 years. What does this tell us? Either that the rupee is grossly overvalued currently against the dollar, or that gold as an asset class is highly overvalued, or possibly a bit of both.

Text books on economics teach us that an exchange rate is a function of the supply and demand dynamics of a currency. Quite simply, the exchange rate is a function of trade balance, the interest rate differential and differential inflation expectations between the two countries. So if we take the 20-year period, 1993 to 2013, the rupee depreciated from Rs 25 to Rs 60 to a dollar. During this period, the rupee appreciated against the dollar between January 2004 to about July 2007, touching its peak of under Rs 40 to the dollar, before 2008, whereafter it fell rapidly to below Rs 50. All through this period, India's trade balance was adverse, along with higher inflation. Future expectations could have been positive, because India's growth rate was vastly higher than the US's during this period. However, if we dig deeper, we find that FII flows swamped any other underlying factors. What happened between January 2004 and July 2007 was that we received FII inflows of over $8.5 billion a year, which increased to $17.8 bn in 2007. This strengthened the rupee to below Rs 40, despite a negative trade balance and higher inflation. The outflow of $12.2 bn in 2008 took the rupee to over 50 to the dollar. The daily trading volumes on the global currency markets are over $4 trillion a day and can easily swamp any action that we take in India. In fact, just the quantitative easing (QE) under way in the US currently is in the order of about $85 bn a month, or at $ 1.2 tn a year, is almost 65 per cent of India's GDP. Thus, when Ben Bernanke talked of a reduction in QE, it hit India like a tsunami, threatening a sharp reduction in the supply of dollars, and the Indian rupee immediately fell below Rs 60 to the dollar. The sharp volatility in the exchange rate, more than its level, is very problematic for business, but our negative trade balance has climbed to $190 bn a year, up from $130 bn in 2011, and the current account deficit (CAD) of $88 bn, is up from $46 bn in just 2011. Taking a 20-year view, between 1993 and 2013, inflation in India on average was 4.83 per cent higher than the US (India 6.33 per cent to US 1.5 per cent) so one could simplistically say the rupee could be at 64.2 to the dollar to just reflect pure inflation differential. This, of course, is simplistic. But a weaker rupee is not good or bad it is just a mirror. The Japanese fought the Americans in trying to devalue the yen to support exports; often the same is said of the Chinese. So why do we hate a weakening rupee? First, sharp currency movements disrupt business planning, but second, FII flows have a strong correlation with the Sensex. Both the rupeedollar rate and the Sensex move together with FII flows. Inflows support the Sensex and strengthen the rupee, and outflows drop the index and devalue the rupee. Thus, sentiment related to the Sensex spills over to the rupee-dollar rate. A more structural review of our CAD highlights the importance of key import categories oil, coal, ore and gold. I understand the negative impact of a weak rupee on oil, but for the

other categories, rupee depreciation may actually help us to tackle some of these issues. We have a shortage of coal and ore due to self-created internal problems, and we are buying gold above our long-range average, primarily as an alternative investment vehicle to cushion against underperforming alternative Indian asset classes. So a smooth weakening of the rupee can help us with our underlying competitiveness. Further, our current policy stance inhibits FDI and favours FII, which increases short term exchange rate volatility. We get $23 bn of FDI, compared to China's $250 bn and Brazil's $65 bn. This needs to change. So, to address the rupee-dollar rate, we need to affect the underlying demand-supply dynamics, that is, shift away from an over dependence on FII, encourage FDI, and use the weak rupee to address some of the problems that stymie reform in coal, ore and improving manufacturing competitiveness. There is one more idea for the short term. As gold imports have spiked in the last few years on the basis of investment and not jewellery demand, we need to consider measures to use the investment in gold in the country. Investors will accept a good deal. Let us get the RBI to accept gold deposits, repayable in gold in India, and offer a lower interest rate than what we might offer on a sovereign bond. We could convert the gold into dollars and buy it back in the forward market to hedge our position and create some short-term dollar liquidity. In the meantime, the weaker rupee could provide a fillip to reforms on coal and ore and improve manufacturing and services competitiveness. That would structurally help the CAD. Now that would be a real blessing from a weak rupee.

Next steps
Five measures the finance minister could take to make things better. Finance Minister P. Chidambaram acknowledges the necessity of taking steps to restore confidence in the economy. He has a difficult task ahead. When he was brought back as finance minister, the markets demonstrated their faith in him and surged, hoping to see reform and a return to the path of investment and growth. But the slow and increasingly paralysed UPA did not deliver on the much-needed reforms that could restore investment. The government's interference in the rupee market and its attempts to defend it have only made matters worse. What should the finance minister do next? A crucial element of his strategy should be to win back the confidence of the market himself, as a pro-reform leader. This is important, because, by all accounts, the change in the perceptions about a leader seen as one of the few

liberals in the UPA was the last straw for foreign investors who had been clinging to hopes of higher growth in India. From the menu of options before him to restore confidence in the India growth story, Chidambaram can pick five things to do. One, he can announce measures that address long-term growth, such as the problems of coal and iron ore imports, as those are among the main causes of the deterioration of the current account deficit. But the credibility of his cabinet colleagues is a constraint and sentiment is unlikely to change much with these. Two, he can stop trying to prevent rupee depreciation, as that is almost the only adjustment mechanism in place for the correction in the current account deficit. Three, he can reverse the restrictions on the currency market so that the impact of a negative sentiment is smaller. The RBI has taken a number of steps to reduce the size of the INR derivatives markets. As a consequence, the impact of a billion dollars of rupee sales is much bigger than when the market was larger. Four, Chidambaram can reverse all the retrograde restrictions on imports that his government and the RBI have taken in the last one month. When Manmohan Singh faced an exchange rate crisis in 1991, he went in exactly the opposite direction than that taken by Chidambaram. Liberalising imports, including those of gold, removing quantitative restrictions and letting the rupee float were bold steps, and they delivered economic growth and a stable rupee. Five, he should persuade Sebi and the RBI to remove all restrictions on rupee denominated debt. Today, the caps imposed on these are fully utilised. These are low risk for India as the currency exposure is held by foreigners. Ultimately, there are no short cuts available, but these would be steps in the right direction.

Fixated on the rupee

The defence of the rupee has caused damage. Time the government prioritised growth The decline in the index of industrial production in June, by 2.2 per cent compared to last year, is a sign of extreme stress in the economy. The economy is no longer in the midst of a slowdown. It is witnessing a contraction. If the monsoons push up agricultural production, and good news comes in on the GDP front, that would be the doing of the rain gods. Meanwhile, the man-made disaster continues, in which we are unable to solve the problems that are hurting manufacturing, power and infrastructure. Clearly, the government's response has been inadequate. Not only has it been unsuccessful in private project clearance, today its own activity, such as on new infrastructure projects, has collapsed. By now, prevarication and delay have weakened most companies and bank balance sheets.

Industrial contraction, persistent inflation and weak prospects for growth have reduced capital inflows, and created outflows in the form of purchase of gold and investment abroad, putting pressure on the rupee. The government has announced a number of steps to prevent further rupee depreciation. Some of these, such as increasing import duties on gold and silver, are aimed at reducing the current account deficit. Others, such as borrowing by PSUs, removing restrictions on NRI deposit interest rates and relaxation of ECBs, are aimed at increasing debt inflows on the capital account. At the same time, the RBI is continuing the interest rate defence of the rupee by selling government cash management bills every week. This would pull liquidity out of the system, making credit expensive. There is a clear conflict between a policy of defending the rupee and one of promoting growth. The main question is: will the economy be better off with the rupee at 60, or with higher interest rates that risk hurting growth further through a tight money policy? The government is according priority to the rupee. But these short-term steps all move the country away from the path of reducing external debt, lowering import duties and building a profit maximising public sector. Indeed, these steps send out the signal that India's commitment to reforms is fragile and the government is willing to move away from reforms on the flimsiest of pretexts. Raising rates and attracting dollar debt is not the solution to India's problems, not even in the short term. Even if the rupee is at 60, it will be at a cost too high. Expected core inflation has declined. With falling output, it would decline further. The RBI should cut rates. The government should withdraw all these short-term measures. The defence of the rupee has already caused much damage. It should stop before it causes further damage.

All close down

Tightening of capital controls signals a choice of strategy that will lead the way back in time. In another retrograde move to defend the rupee, the RBI has tightened capital controls, placing restrictions on Indian households and firms investing abroad. This panic signal has done nothing to reduce the pressure on the rupee, which plunged to Rs 62/dollar. Imposing capital controls to defend the exchange rate is a statement of the monetary policy's failure to manage the impossible trinity. As an economy matures, it cannot have all three an open economy, an independent monetary policy and a pegged exchange rate. High exchange rate volatility is the price an economy pays when it opens up. The government has made it clear that it does not want currency volatility. So there are two options either lose monetary policy independence or close the economy. The finance minister has said that growth should be one of the objectives of monetary policy, suggesting that the RBI should lower interest

rates. This means monetary policy should be independent of the US policy, which will raise rates in the near future. In that case, the only option available to the RBI is to close the capital account. The rupee-dollar market today is so large that the logical outcome of this choice of strategy will be to reduce all dollar flows, whether on the capital or the trade account. This can be done using the FEMA, which gives the authorities powers to restrict all flows. A much more closed economy will have a smaller currency market. At the same time, the derivatives markets will have to be destroyed so that they do not allow expectations of depreciation to be visible. Then, the RBI can intervene and prevent depreciation without losing much of its reserves. Meanwhile, these steps will scare off that element of capital inflows that came into the country based on India's growth prospects. The breaking down of barriers to trade and the capital account were among the most important steps taken in the post-liberalisation years and a reversal of these is not a sign of health and expected prosperity. This framework favours debt dollar inflows from NRIs, into PSUs and through ECBs. In an already vulnerable situation, a shift in dollar inflows from non-debt to debt flows could have a negative impact on expectations about growth and stability in India. Credit ratings could go down, equity capital flows could either slow down or reverse, FDI inflows may not pick up despite the more liberal norms and Indian capital could try to find ways to go abroad. The chosen strategy is wrong for India. Destroying the derivatives markets and imposing capital controls is not going to give us growth. Policymakers must, instead, accept rupee flexibility and keep the economy open.

Sliding back
It isn't just the RBI's rupee rescue act. The current crisis is made up of a reversal of reforms across sectors. Given the increasing panic that accompanies every government move to control the rupee whether by the RBI, Sebi or the finance ministry the ministry would appear to have done well to remind foreign investors that India has never prevented repatriation. Soothing currency markets, however, which have lost Rs 1.75 to the dollar since the RBI came out with its rupee-support measures, is going to take more. To be sure, the RBI's new governor will need to revisit the extraordinary monetary tightening. But in several other areas, India is not just visibly falling behind in pushing the reforms agenda, it is actually reversing it.

Some part of this is due to genuine anti-reformism registering victories. In cases like the oil sector subsidies, the rupee's weakening has brought things back to where they began eight months ago when diesel prices were hiked a fifth of consumption was linked to marketvalue immediately, and for the rest, a 45 paise monthly price hike was put in place. As a result, overall oil under-recoveries, which rose from Rs 389 crore a day in January to Rs 454 crore in February, began falling to Rs 252 crore in May they are now back to Rs 389 crore. For diesel, under-pricing which had fallen from Rs 9.03 a litre in January to Rs 3.8 in May, is back to Rs 10.22. Given that the budget has only provided for Rs 178 crore subsidies per day, the balance has to be borne by oil PSUs, making their balance sheets collapse and ensuring they have no funds to invest. A sharp Rs 3-4 hike in diesel prices will not only bring back some semblance of normalcy to public finances, it will give investors the muchneeded reassurance that India hasn't given up on reforms. In the roads sector, with the government not providing clearances on time or finalising a renegotiating framework to help revive projects that look unviable amid collapsing growth, India has moved away from PPP to old-style fixed-rate contracts for roads where the private sector is no longer taking any risks. In aviation, while clearing more bilaterals and the JetEtihad deal, the ministry wants to examine whether air fares are excessive; in pharmaceuticals, despite 30 per cent of the industry being under stringent price controls, the government wants to bring in more controls on FDI. In the oil sector, despite the hike in gas prices, there is a reversal of the stated policy to allow free-market prices. Convincing investors that India is more pro-reform than anti-reform will require resolute course correction across sectors, not just by the new RBI governor.

The needless battle

Rupee defence strategy has deepened the gathering gloom on the India growth story. The defence of the rupee is going horribly wrong. It has damaged two sources of hope for a growth pick-up in India monetary policy easing and India's commitment to economic reform. When Chairman Ben Bernanke of the Fed talked about tapering quantitative easing in the US, it was expected that there would be pressure on emerging market currencies. Countries with weaker economies, and with larger current account deficits were likely to see more currency volatility. Instead of talking about this source of pressure, which all emerging markets faced when the dollar started appreciating, the government decided to step in to defend the rupee.

Evidence from across the world shows that a currency defence often fails. Every government trying to stabilise a currency is, therefore, fully aware of the chances of failure. A careful cost-benefit analysis of its strategy is thus an important pre-condition to initiating a defence. Since the global currency turmoil started, the government has been rolling out measures such as currency market controls, import duties on gold and silver, bans on purchase of gold coins and tightening of capital controls to stabilise the rupee. These dirigiste solutions seem oblivious of their likely impact on market expectations. They are based on central planning notions of bans and restrictions being the solutions to the economy's problems. First came restrictions on currency derivatives markets by Sebi and the RBI. These markets inform people of expectations about the currency. This information may be unpleasant. The government may disagree with it. But instead of listening to what the market was saying, the authorities chose to try to silence it. Restrictions reduced the extent to which people could hedge their currency risk. This was a bad move, especially since the rupee was expected to become more volatile. It made investors less willing to buy rupee assets. Trading volumes on domestic currency derivatives markets fell sharply and the cost of hedging increased. Instead of making rupee assets more attractive, these measures have made them less attractive. Further, the restrictions have undermined the market's confidence about the government's commitment to financial market liberalisation. Next came the liquidity squeeze and an increase in short-term interest rates. The complicated strategy hoped to keep long-term interest rates low. This, too, failed. When the rate hike saw a transmission of higher rates to treasury bill rates, long-term bond yields and deposit rates, it became increasingly clear that sooner or later bank lending rates would go up. To prevent that, the RBI kept the repo and CRR rate unchanged. This left the market in complete confusion. Were interest rates going to rise or fall? Statements by the authorities that the tightening was temporary till the rupee stabilises provided little comfort. Could the currency stabilise before US monetary policy went back to normal? How long was "temporary"? In an environment in which a monetary easing was expected to help push up growth, this sudden tightening was a shock. Interest rates are still high. The measures have undermined confidence about monetary policy easing. After the liquidity squeeze failed to restore rupee stability, came tariff hikes and restrictions on gold and silver imports and tightening of capital controls under FEMA. Restrictions have been imposed on capital outflows by firms and households. Already, firms were suffering from the difficulties of the policy environment. If some of them were going to stay healthy by investing abroad, that was made more cumbersome. Hardly any money was going out by

individuals investing abroad. But putting a restriction on these trickles sent out a bad signal to an already nervous market. These measures did not inspire confidence that the government's focus was investment and growth. Worse, they suggested that India's economic reforms are not deep-seated and can be reversed for short-term ends. With the opening up of trade and the capital account, the currency market has grown very large. Old solutions, like selling a few billion dollars from our reserves to prevent appreciation, no longer work. Out of the three corners of the impossible trinity, a country can choose only two. For the last two decades, India had chosen to move towards an open economy and a flexible exchange rate. In the face of the QE tapering, it means choosing between rupee stability and lowering interest rates. But the government did not like having to make the choice. It wanted both. The only way to control the currency in such a situation is to close the economy. When the size of the market has shrunk adequately, the RBI can intervene and prevent depreciation without much loss of reserves. If the rupee remains volatile, the government has to choose to either roll out the next measure it has on its list, or to find an exit route. FEMA allows the RBI and government to shut off all cross-border transactions for sale and purchase of assets. The market believes that as long at the rupee defence strategy remains in place, the authorities might impose restrictions on various other capital flows. This expectation has caused further gloom. We should not lose sight of the big picture of Indian economic policy. The story of the last 20 years is one of slow but steady economic reform resulting in 7 per cent trend GDP growth. The day we walk away from the promise of slow but steady reform, the expectation of future productivity growth is shattered. This adversely affects the credit rating of India, stock prices, investment in India by locals and by foreigners, and capital flight from India. The needless battle the government has picked on the rupee, and the measures it has taken, have reinforced the already growing despondence about economic reforms. It has raised new questions on the India growth story. The government must immediately undo all the steps that have reversed economic reforms of trade or finance or capital account liberalisation. Otherwise, we will suffer deeper damage to the prospect of high GDP growth.

Easier ECB norms: Are govt & RBI storing up problems for future by allowing more foreign debt?
On March 5 this year, the Reserve Bank of India (RBI) made an interesting tweak to its policy under which it allows Indian corporatesto raise foreign currency loans in international markets. Under the norms at that time, corporates under investigation by law-enforcement agencies like the Enforcement Directorate were not allowed to raise such loans under the "automatic route' put simply they needed the RBI nod every time. In its March circular, the RBI did away with that restriction and allowed such companies to access the global markets, with the rider that the bank through which they were raising the loan had to inform both the RBI and the investigative agency concerned. At a time when external finances are under strain and the rupee is sinking, the RBI and the finance ministry follow a standard playbook of measures, which gradually increase in intensity. To encourage capital inflows, they make it easier for corporates and individuals to invest money in the country, or require exporters who park earnings abroad to repatriate it. They also make it more difficult to take money out witness the tightening of controls on the amounts of investment that corporates can make abroad, and that individuals can take out of the country. ECBs, and flows of foreign debt in general, are a cornerstone of this strategy. At a time of 'global risk aversion', when investors are fleeing to safe havens, it becomes difficult to attract equity flows to a country like India, especially one with a weak currency, shaky current account, and uncertain macroeconomic outlook. Attracting investment through the ECB route becomes an instrument of choice. Wooing Investments Specifically, it is foreign currency loans by corporates, and encouraging investments by non-resident Indians (NRIs) into foreign currency deposits offered by Indian banks, that are the focus of attention. That's been the case this time round as well. Finance

minister P Chidambaram has announced easier norms for ECBs, and more leeway to banks to offer higher rates to NRIs. It's a strategy that may be driven by necessity, and the need to get money into the country in the short term. "But such strategies are quick fixes," says DK Joshi, chief economist of Crisil, a ratings firm. "They need to be backed by real reform." "A strategy to sustainably reduce the current account deficit the fundamental problem is missing and the focus remains on garnering more debt inflows to finance the current account deficit," says economist Sonal Varma of Nomura in a recent research report. "This strategy has already been tried and tested over the last few years and has resulted in the country accumulating larger external liabilities the price of which is being paid now. More of the same is unlikely to result in a different outcome." The government's ECB policy was heavily liberalised in 1999, which led to a burst of debt inflows from 2000 to 2001. Following this, the policy was rationalised, splitting such borrowings into two parts those allowed under the 'automatic' route for which permission was not required, and those under the 'approval' route for which companies had to take the RBI's nod. The Big Irony Between 2002 and 2006, ECBs as a share of overall external debt actually fell from 24% to 19%. But starting from 2007, and faced with the onset of the global financial crisis, the finmin opened the flood gates it raised the maximum rate at which companies could borrow, allowing smaller, and weaker, ones to raise funds abroad. The range of end-uses to which ECBs could be raised was also expanded. In 2011, the maximum amount of loan that could be raised under the auto route was raised to $750 mn. As a result, the share of ECBs in overall debt rose from 19% to 31% between 2006 and 2013 (from $26 bn to $121 bn). "One of the challenges regarding ECBs is the ever increasing demand to liberalise the terms of end-use and eligibility vis-a-vis the sustainability of external debt," wrote the RBI in its annual report for 2012. Corporate India too has an increasing incidence of highly public defaults from instruments like foreign currency convertible bonds from Wockhardt to Suzlon. It's the forex debt binge of the last few years that has been one of the reasons for India's

current weak external finances. That the government and the RBI should be relying on precisely this tool to bring dollars into the country is a huge irony.

A misnomer called food security

The proposed bill makes false promises. The need is to directly address problems of drinking water availability, sanitation, maternal health and childcare The Food Security Bill (2013, FSB) promulgated recently by an ordinance is expected to be debated in Parliament soon. The intention behind the FSB is noble, to eradicate hunger from the country, but the means adopted need serious reconsideration. FSB, under the targeted public distribution system (TPDS), aims to provide doorstep delivery of subsidised food to nearly 75 per cent of the rural and 50 per cent of the urban population. It also seeks to empower women in households. The thrust of the criticism against the FSB has been on issues like procurement, storage, transportation, distribution, identification of beneficiaries and pricing of foodgrains covered under the scheme. The FSB is motivated by two significant facts. First, disturbing statistics: according to the National Family Health Survey 2005-06, 43.5 per cent of children under the age of five are underweight, 33 per cent of women in the age group of 15-49 have a body mass index below normal and 78.9 per cent of children in the age group of 6-35 months are anaemic. Second, the influential Global Hunger Index (GHI) developed by the International Food Policy Research Institute (IFPRI), which has successfully galvanised policymakers across the world. The IFPRI has computed a GHI of 22.9 for India in 2012, with countries like Libya, Iran, Mexico, Brazil, Sri Lanka, Pakistan and many others recording much better performance. Unfortunately, the term "global hunger index" is a misnomer as it does not, in its construction, take into account the "hungry". Actually, the term "hunger" itself is very confusing and means different things to different organisations and policymakers. First and foremost, it evokes images of the extreme discomfort associated with lack of food. On the other hand, the United Nations Development Programme defines it as a condition in which people lack the basic food intake to provide them with the energy and nutrients for fully productive lives. The GHI takes into account, in equal weights, undernourishment, child underweight and child mortality. The indicator, undernourishment, is based on the share of the population with insufficient (relative to a norm) calorie intake. Child underweight is defined in terms of

wasting and stunted growth and child mortality in terms of death rates, both reflecting an unhealthy environment. It is much too simplistic to assume, without evidence, that either being underweight or mortality is due to undernutrition (signifying deficiencies in energy, protein, essential vitamins and minerals). Child stunting and wasting, and mortality, is equally if not more likely to be due to infections and illnesses due to insanitary conditions that result in inadequate absorption of nutrients. These in turn may be linked to inadequate maternal health or childcare practices, inadequate access to health services, safe water and toilet facilities. Thus, supply of food may be a necessary but not a sufficient condition for the improvement of a part of the hunger index. The GHI is too simplistic and does not take into account the complexities of the problem, but sways opinion-makers in developing countries. It is already a much accused and abused index which has lost respectability because of its various deficiencies, including the weighting priority and database used. The index is also prone to dramatic change in case of unreliable data of even a single partial indicator. For example, the cause of such a dismal GHI for India is mainly data on child underweight, which is the worst, next only to TimorLeste. To improve India's ranking on the GHI, we have to identify the causes of stunting and wasting and to eliminate them. Thus the solution is to improve the supply/ availability of clean-safe drinking water; improved sanitation, preferably piped sewerage system, septic tanks or pit latrine with slabs, to avoid the outbreak of waterborne diseases like diarrhoea, dysentery and cholera; and improved personal hygiene. According to the WHO, less than 30 per cent of households had access to piped drinking water and nearly 60 per cent of Indians still practised open defecation in 2006. We also need better governance of medical facilities in rural areas, providing more effective primary health centres for maternal and childcare. Even with respect to food, though per capita availability of cereals has improved, that of pulses has declined from 69 grammes per day in 1961 to 39 grammes in 2011. Pumping free cereals into a leakage-prone system will not improve even calorie intake as these have a near-zero price elasticity and low income elasticity. The need is to directly address these serious issues and not the imposition of a simplistic FSB that is driven more by ideology than pragmatic problem-solving. As there is no free lunch, a huge hike in subsidy would either lead to higher taxes or higher debt or lower capital expenditure. It also detracts attention from the really "hungry" who constitute less than 2 per cent of the population but are dispersed across the country in remote, hilly locations and need to be painstakingly identified and reached directly.

Food Security Bill

The government of Gujarat has noted with serious concern the final formulation of the National Food Security Ordinance promulgated by the Central government recently. In my clear view, this does not contain the basic tenets which any food security legislation should meet, and is unlikely to achieve the objectives for which the Union government has taken this step. I would like to bring to your notice the following major deficiencies in the ordinance: One, this is the first time any law has attempted to fix the number of beneficiaries in macro terms first, and then cast on the states the responsibilities to specify eligibility criteria and fix individual entitlements so as to reach the macro figure fixed by law. Any logical legislation should provide for the fixation of criterion first and the identification of the citizens who are food insecure, and then come to a conclusion about the total eligibility at the state level in terms of numbers. This legislation actually does the reverse by not providing criteria or entitlements to ensure food security of insecure families and individuals. It is clear that each state will lay down identification criteria specific to the state to reach the numbers prescribed by the ordinance. There could be wide regional disparities. Such variations would be open to judicial scrutiny and would create confusion. I would like to add here that none of the drafts had this provision. Even the standing committee of Parliament had recommended, as recently as January 2013, that the government should formulate eligibility criteria in consultation with state governments. Two, I have noted with deep concern the fact that the ordinance proposes to reduce the entitlement of BPL families from 35 kg per family to only 25 kg per family of five persons. Surely, this cannot be the objective of any food security legislation, which reduces the entitlement of those who had been identified as being below the poverty line. Without the statutory "right to food", BPL families were so far already getting 35 kg per month, and the food security ordinance proposes to reduce it to 25 kg. Three, I am further saddened to note that as per the proposed pricing structure for the grain, the BPL family will now have to incur Rs 85 more net expenditure per month for availing 35 kg [of grain], which they were getting without the "right". Four, I am also pained to note that the food security ordinance does not assure an individual of having two meals a day. I fail to understand how food security for the individual is being assured. The proposed entitlement of 5 kg per month per person implies the supply of only 165 gm per person per day. Persons involved in labourintensive activities require about 2,500 calories per day, as per NIN 2009 recommendations. As 100 gm of food grain gives about 350 calories, 165 gm would provide only 500 calories per day, which is hardly 20 per cent of his daily calorie

requirements. Even in the midday meal scheme administered by the ministry of human resource development, Government of India, school-going children are entitled to about 150 gm of food grain and 30 gm of dal for one meal, that is, about 180 gm of grain. As against this, an adult food insecure person is proposed to be given only 165 gm for two meals per day. This does not address even the calorific security, not to talk about nutritional security, which is the main objective of food security. This, I am sure you will agree, is totally unacceptable if providing adequate food security is the objective of the ordinance. Five, I also note that while on one hand, the Central Planning Commission has been claiming the reduction of numbers below the poverty line, on the other, the Central government has deemed it fit to provide food support to about two-thirds of the population. This illogicality is not understandable and is required to be discussed with states. Looking to the issues raised above, it is clear that the National Food Security Ordinance, 2013, has been brought about with undue haste and has major flaws. As it is going to have far-reaching implications for the citizens of this country and also on the agriculture sector, it would have been more appropriate to have the issue suitably debated and discussed at proper forums. A meeting of the chief ministers of states needs to be called before the matter is finalized by Parliament, a step which should have been taken on such an important Centre-state issue, and which has not been taken so far.

Food for politics

We need to more fully confront the malnutrition problem, learn from the success stories Malnutrition is back on India's development agenda, and this is a welcome change. However, words are not enough when millions of Indian children have already lost opportunities for a successful future because they, and their mothers before them, did not receive proper nutrition in the critical first 1,000 days of their lives. The time for action was yesterday, and what needs to be done is clear enough. The health journal The Lancet recently released its 2013 Maternal and Child Nutrition Series, and the articles highlight, first, that poor nutrition is the single biggest contributor to child mortality. The estimates also indicate that poor malnutrition in the womb is a particularly difficult challenge, contributing to a substantial proportion of both mortality and stunting. Even as the series offers evidence that scaling up coverage of nutrition-specific actions will reduce one-fifth of the burden of under-nutrition, it emphasises the need for cross-sectoral approaches to create the underlying conditions children need to grow well.

This includes healthy and educated mothers, food-secure and income-secure households and clean household environments. The series also reminds us that addressing nutrition requires attention to politics and governance both significant challenges in India. At the same time, the series also shows us that India is not without success stories. In 2006, the state of Maharashtra created a state nutrition mission and used political and bureaucratic leadership for the mission to bring together actors from two sectors to tackle under-nutrition. By 2012, the combination of economic growth in Maharashtra and the focused scaling up of interventions by the state departments of health and women and child development, for the first 1,000 days, led to a decline in childhood stunting, from 39 per cent to 23 per cent. While the ministries of health and women and child development must indeed take the lead in many nutrition initiatives, other sectors must also take up this challenge. Indeed, as the series notes, the potential for nutrition-sensitive programmes in agriculture and social protection goes largely untapped. Despite greater availability of food grains, progress in supporting diet diversity, a key element of adequate nutrition, has slowed. And despite campaigns, sanitation conditions in much of India remain poor. Paper 3 in the series shows us that better nutrition can be achieved by raising incomes of rural families and empowering women. Transfers of both the food and non-food variety could help improve nutrition and reduce child mortality, but for maximum impact, they need to be more narrowly targeted to the first 1,000 days, and supported by quality health and sanitation services. Similarly, improved girls' schooling will go a long way in empowering future caregivers to make informed choices, keeping them in school and delaying marriage and childbearing. The fourth article, however, reminds us that in the end, nutrition is a political issue, and that ignoring the politics behind nutrition is self-defeating. Nutrition will not advance unless governments create an enabling environment and take action to tackle malnutrition. The ingredients for such an enabling environment include marshalling knowledge and evidence, coordinating diverse stakeholders, strengthening good governance, nurturing nutrition leaders, and ensuring better capacity and sustained financial resources to translate words into actions. India must forge ahead to change the precarious conditions in which too many young children grow up. The devastating combination of poverty, poor status of girls and women,

food insecurity, especially in vital nutrient-rich foods, poor health services, and abysmal sanitary conditions simply cannot sustain healthy child growth and nutrition. Along with continuing to foster economic growth, India now needs to to do the following. One, confront and quantify the problem itself. It needs to collect routine national and subnational surveillance data, at least every two to three years, and use programme-monitoring data effectively. Two, strengthen implementation systems and reduce leakages in all programmes the Public Distribution System, Integrated Child Development Services, the National Rural Health Mission and more. Three, layer and focus nutrition-specific and nutrition-sensitive interventions that already exist in India in the places that need them the most. Four, address the politics of nutrition head-on by continuing to bring diverse stakeholders together, being transparent about evidence, and completing the feedback loop from evidence to action. The writers are senior research fellows at the International Food Policy Research Institute and co-authors of two of the Lancet Nutrition Series papers

The costs of no food security

India is at the point where a low income democracy cannot afford to ignore the hungry Is India's food security ordinance supportable? The debate has been vigorous. It will help to separate the questions of process from those of principle. Whether an ambitious scheme of this magnitude should have been brought in as an executive ordinance or as a new law after parliamentary debate, is basically a procedural question. It is not unimportant, but it does not tell us whether food security is inherently desirable in India. Once we have probed desirability, it would make sense to ask whether food security is affordable, even if desirable. There is also the question of whether the Indian

state has the capacity to implement an ambitious welfare programme. Lumping all of these issues together process, desirability, affordability, implementability muddies analytical waters. But one might begin with a different issue altogether. It has been vociferously argued that the government has promulgated the food security ordinance to enhance its electoral prospects. It is unclear why that is an unworthy impulse. Democratic politics cannot easily be envisioned without the idea of winning power. Power is embraced in democratic politics, not shunned. Even a dying government thinks of rebirth. One's liking for or dislike of UPA 2 should be separated from one's judgement of food security. Few who were opposed to the NDA objected to Vajpayee's peace moves towards Pakistan or his road-building projects. The key analytical issue is whether good ideas are being married to the pursuit of power. Moreover, the debate over legislative versus executive paths to welfare programmes seems rather misdirected, especially if Parliament does not fully function. Even otherwise, an ordinance will cease to exist if it does not receive parliamentary approval. Food security without legislative endorsement will be stillborn. The biggest issue is this: can a democracy avoid being a welfare state for long? No modern democracy relies entirely on the market forces to care for the needy; it allocates public resources for them. European democracies first developed this principle. But even in the US, the most market-driven economy in the world, the government has welfare programmes for the poor, the hungry, the old, the handicapped, the indigent. Why can't mass welfare be left entirely to the markets? Debated for decades in the field of political economy, this question has a well-known answer. A built-in paradox marks the functioning of markets. To stifle markets is to impair the long-term enhancement in human welfare, but to believe that markets alone can take care of all is to embrace an illusion. Markets are necessary for mass welfare, but not sufficient. Further, there is also a built-in tension between markets and democracy. Markets don't work on a one-person-one-vote principle, as democracies do. What one can get out of the marketplace depends on one's endowments, skills, purchasing power and the forces of demand and supply. Markets reward individual initiative and skill, and may also lift many from the bottom rungs of society, but some people never get the opportunity to develop skills that markets demand: they are simply too poor, too handicapped, too sick. Or, skill formation takes too long, while life, if poor, to paraphrase Thomas Hobbes, remains nasty and brutish in the short to medium run. By creating jobs, markets may be able to help even

unskilled people, but capitalism has always witnessed bursts of unemployment, open or disguised. The prevalence of unemployment punctures the idea that a rising tide will lift all boats. Markets lift many boats, but not all. Government programmes (or philanthropic interventions) are needed for those left behind, some for no fault of theirs. If this is true of richer economies, what of societies like India? India's contemporary economic structure has three pillars. India has the fifth largest concentration of listed dollar billionaires (after the US, Russia, China and Germany); the third largest middle class (after China and the US); the single largest concentration of the poor. The first two pillars are the principal drivers of economic growth. But the third pillar, not an economic driver, is a significant driver of politics. The bottom third of India does not get enough calories per day. (Extreme poverty is defined in caloric terms, not in terms of the quality of nourishment.) Being underfed, the bottom third is also routinely sick. The hungry and the sick can't be productive workers, even if they want to. Markets can't help them all that much. The poor, if fed or nourished better, also do better in the marketplace. They lift themselves and contribute to society. This is, in part, the argument of Amartya Sen, considered the intellectual father of India's food security push. He is right. Returning to voting, the drivers of Indian politics are, of course, larger than the bottom third. The first two categories, the supremely rich and the middle class, constitute a third of India. The extremely poor constitute another third, and a fourth of the population is not too far above the line. The last two groups, thus, add up to about 60 per cent of the electorate. These two groups are the targets of food security. Unlike the first four decades of Indian democracy, these groups now vote more than the middle class does. India's democracy, as a result, is acquiring a plebeian thrust. In the West, a welfare state emerged only after societies had become rich. While democracies might have been instituted in the late-18th or early-19th century, universal franchise came a century later. Unlike the West, independent India has had universal franchise right from the beginning, despite mass poverty. After six and a half decades, the pressures towards a welfare state are being felt all over the polity. Just as India's lowincome democracy is a historic novelty, the welfare state is also emerging at a low per capita income. No political party opposed NREGA; virtually none will oppose food security in principle. The SP's opposition, if it survives, will stand in splendid solitude. The logic of the vote is undeniable. The question of affordability remains. Is food security desirable but unaffordable? Will fiscal deficits only widen, bringing inflationary pressures and lower sovereign credit ratings,

affecting investment? Depending on which economist one talks to, the answer differs. Some believe that food security will cost only 1 per cent of the GDP, others cite a figure of 3 per cent. If it is the former, it will certainly not break the bank. Surely, some of the subsidies to the middle class and the rich can be cut. Moreover, if high growth returns, greater revenues for government programmes will be generated. If the cost of food security is 3 per cent of the GDP, then a serious debate about affordability is necessary. That is too large a sum. Some attempt will have to be made to trim the scope of food security as well as cut the subsidies that go to the middle class and the rich. Finally, there are questions about implementability. India's government programmes are riddled with corruption and leakage. Food security, it is argued, requires state capacity that does not exist. Can corruption be the reason to oppose feeding the underfed and the sick? Our intellectual energies ought to be devoted to devising programme designs that minimise leakage and corruption. Moreover, if states like Chhattisgarh and Tamil Nadu already have roughly similar programmes, functioning reasonably well, we ought to figure out whether their programme designs are transferable to other states. India is moving towards a rights-based conception of development, along with the promotion of market forces. It is not one or the other. This two-legged approach is not only desirable, but also more or less inevitable. The hunger and emaciation that one sees all around is embarrassing and must go down. It is also hurting economic growth. Markets can ignore the hungry, but poor democracies cannot do so beyond a point. India's democracy appears to be reaching that point. Food security is the price India's rising capitalism might have to pay for functioning in a low-income democracy.

The Need for Impatience

Jean Dreze and Amartya Sen are well-known for their distinctive viewpoint on development that departs substantially from mainstream economic wisdom, but also incorporates much that is of value in it. They have collaborated several times, but their newest offering is far and away their best work on India yet. An Uncertain Glory is a remarkable combination of philosophical depth, economic reasoning, empirical thoroughness and policy relevance.

They render complex ideas in lucid prose, aiming to reach audiences well beyond the technical circle of economists and development specialists. They underline "the need for impatience", for they believe that the balance sheet of India's achievements and failures will tilt more towards the latter if their ideas are ignored. Writing as public intellectuals, they seek to agitate minds, provoke deliberation and inspire action, while not compromising the seriousness of their arguments. Economically, say the authors, the first three decades since Indian independence were lost decades, when the economic growth rate was too sluggish and "there was virtually no reduction of poverty". Since 1990, India's economy has grown at a rate second only to China's, a phenomenon they clearly attribute to the economic reforms inaugurated in 1991. However, despite spectacular economic growth, India continues to rank near the bottom of the world tables on literacy and public health. In 2010, 43 per cent of children below the age of five years were underweight, 48 per cent were stunted and, what has become the new negative statistical icon of India's social performance, half of India's households had to resort to "open defecation" in 2011. Indeed, on social indicators, a comparison with Bangladesh is more revealing than one with Brazil, Russia and China, part of the so-called BRICs, with whom India's economy is often compared. Since 1990, India has grown much faster than Bangladesh. By 2011, India's per capita income was twice as high. But life expectancy at birth, roughly similar in 1990, was higher in Bangladesh in 2011; Bangladesh's infant mortality rate, substantially worse than India's in 1990, was considerably better in 2011; only 44 per cent of 1-2 year old children were immunised in India, as against 82 per cent in Bangladesh (2005-7); and only 8 per cent of Bangladesh households practised open defecation, as opposed to half of India's population. Indeed, India is "falling behind every other South Asian country (with the exception of Pakistan) in terms of many social indicators". Dreze and Sen argue that while high economic growth can indeed be a virtue, "unaimed opulence" simply cannot be celebrated. Until very recently, India has overemphasised economic growth, assuming it will take care of literacy and health. But that is a mistake. "The centrality of education" is common to all countries that have sustained high growth rates for long periods Japan, South Korea, Taiwan, Singapore and, most recently, China. These countries did not wait to reach a particular level of income before educating their citizens; rather, they invested in mass literacy without which "widespread participation in a global economy would have been hard to accomplish". A similar argument, they say, can be made about health. Markets cannot use the unskilled and the unhealthy beyond a point. Expecting markets to lift everybody up might simply take too long, or might not happen at

all. For the underprivileged to use markets well or quickly, their capabilities need to be enhanced. Of all the arguments made in the book, the one that connects capabilities, markets and growth deserves the greatest attention. Are Dreze and Sen right? If you don't believe their reading of the Asian growth miracles, consider a micro story from India. Ubuntu At Work (Ubuntu for short) is a non-profit organisation that helps poor women escape poverty by linking them to markets. Today, Ubuntu women are producing thousands of cloth and paper bags for the duty-free shops of Bangalore airport. The women did not automatically tap into the demand generated by the ban on plastic bags in Bangalore. They neither understood the market potential of such a ban, nor how to connect to the markets so created. Ubuntu taught them skills to produce standardised bags, provided contacts, and arranged orders. Now, the bags produced by the women of Kodagali, just outside Mysore, who had never stepped beyond their village, are being used by thousands of international passengers flying into and out of Bangalore. Ubuntu women are making money, but only after skills have been imparted, confidence given, contacts provided. This is an example of how markets and public action can be combined, each working in tandem, neither sufficient in and of itself. To my mind, Dreze and Sen have a compelling argument about how an enhancement of the capabilities of the poor, through education, skills and health, can be joined together with markets to generate a more sustainable economic future for communities and nations. An inevitable next question follows: How should we achieve this goal? Should the project of capability enhancement be led by governments, by non-governmental organisations funded by governments, foundations and/or businesses, by private market-based organisations, or by a combination of these? The book heavily favours government intervention, but that leads to questions about whether beyond Kerala, Tamil Nadu and Himachal Pradesh, state governments have the capacity to deliver education and health, or whether such capacities can be created. Dreze and Sen have offered their reasoning for why government intervention is both necessary and desirable. But further debate is necessary. Which organisations and methods will most effectively provide education, health and skills to the toiling masses? One thing, however, is clear. Markets, while necessary, will not do this on their own, or will only do it very slowly, while many precious lives will be stunted or lost. If there is one thing that all of us can learn from this impressive book, it is this: the project of capability

enhancement is not simply an ethical imperative, but also a necessity for long-term growth. Indeed, using the history of citizenship, one can add a third argument. Without viewing citizens as rights-bearing fellow human beings, it is virtually impossible to build cohesive societies. Modern societies are not only built by markets, but also by citizenship.

Affordable housing
Major schemes meant for providing affordable housing to urban poor will soon be modified to make them more people-friendly, said Girija Vyas, minister for housing and urban poverty alleviation and invited the private sector to contribute more actively in this. Vyas said her ministry is modifying all the major schemes including the Rajiv Awas Yojana (RAY), Rajiv Rinn Yojana and the, Affordable Housing in Partnership scheme and added enormous budgetary support has been earmarked during the current Plan period. Vyas said there was a need for private developers to develop economic models to foster affordable housing for economically weaker sections and lower income group households in urban areas as government efforts in this direction needed to be supplemented.

Untapped potential of low-income segment housing

Amid the current slowdown in the real estate sector where developers are struggling to sell their inventory, the low-income segment of the residential market has shown steady growth, according to a report. During the period from June 2011 to January 2013, there were 132 projects launched across 22 cities that offered at least 30,500 units priced under Rs 10 lakh. The absorption too, has been high, with an average of 70 per cent for projects launched between June 2011 to May 2012, and 45 per cent for the six-month period beginning May 2012. This comes at a time when the average absorption rate for mid- and high income group residential projects fell to below 15 per cent during the same period, according to real estate consultancy Jones Lang LaSalle. Low income housing is no longer a subject confined to seminar rooms and academic studies it is a viable business opportunity, says Monitor Deloitte, a unite of consulting firm

Deloitte that has brought out the report State of the low-income housing market, after extensive surveys in tier I, II and III markets. A key finding of the report is that the market is beginning to serve the low-income customer. No longer is it a corporate social responsibility initiative on the part of large developers to venture into low income housing. There has been an emergence of developers who are catering exclusively to this segment, says Vikram Jain, head-low income housing practice, Monitor Inclusive Markets, a unit of Deloitte India. Among the cities surveyed, Ahmedabad, Mumbai suburbs and Indore have the maximum number of such projects. Among the developers surveyed, over 90 per cent intend to continue developing houses for the low income segment, and with good reason. At least 80 per cent of the inventory is sold within 12 months. There are, however, several challenges to unlocking this fortune at the bottom of the pyramid. The first is land prices. This is the reason why the number of units on offer has come down, an average of 500 units after 2010, even as the number of projects increased. Developers are resorting to mixed developments where a portion is low-income while the others are middle-income offerings. Prior to 2010, the average number of units offered stood at 3,000. Finding parcels of land at affordable rates is getting increasingly difficult to find especially in the vicinity of metros such as Mumbai, which means going further into the suburbs, which comes with its own set of problems. A buyer would factor the travel time from the home to the workplace. Next comes approvals, for they take 24 months on an average. For a developer in this segment, keeping costs low is the key, and longer approval times mean cost escalation, says Sachin Kulkarni, MD, Vastushodh Projects that has projects in Navi Mumbai, Pune and Kolhapur. The buyer also faces one challenge: access to finance. The report cites the presence of several housing finance companies who are funding such buyers, but their numbers are few and restricted only to a few markets. The key issue is to get banks to finance such buyers. When I began developing my project, I found that buyers were queuing up but only a minuscule number could get a home loan. The others could not, as banks had tailored their scoring mechanism to the high income buyer, says Raghav Garg, MD, Garg Group that is

developing a low-income housing project in Pilkhuwa, located 20 kilometres from Ghaziabad in Uttar Pradesh. Garg had to persuade the State Bank of India to change its mechanism, which it did. This has now got the housing ministry interested and is exploring on ways to get other banks to come up with a mechanism that takes into account the situation of a low-income borrower. The other issue is that local governments are not sufficiently sensitised to the need for private sector developers to enter this space. The first question we were confronted was, why are you developing such houses? It is the job of the state government, says Garg, about his interaction with the local authorities at the time of applying for approvals. Ghaziabad, where I am based, has several slums that keep sprouting up, that are then regularised. But I find it difficult to offer housing for the low-income population. A related challenge is the lack of master plans for areas where such housing typically comes up. Banks are willing to finance only those projects that come up in areas with a master plan. There are several towns and cities where the demand is high, but we are not able to venture for they lack master plans, says Getamber Anand, president-elect, Confederation of Real Estate Developers Associations of India (Credai). The next issue is regulation. Currently the policy direction is tailored towards increased FSI (floor space index), with high rises being seen as a solution to the problem of affordability. FSI does not work in all markets, says Kulkarni. Regulations being followed for a usual middle/high income project is being followed for such projects as well. What purpose does it serve when I am building two low rise developments with small units separated by a 70 feet road? We need a new set of rules for such projects, says Garg. Kulkarni calls for a special environmental certification mechanism for low-income projects so that more supply can enter on larger tracts of land and would not get caught in environmental clearance tangles due to the threshold norms. There has also got to be a mechanism for reserving lands in non-metros for such projects, says Kulkarni. Developers in this space are exploring new technologies that bring in a manufacturing mind set to housing projects. However, they are not taking off since projects are scattered and havent reached numbers that can afford economies of scale. There is also the issue of

excise duty. The raw materials are taxed, and so is the finished product. This has to be rationalised, says Kulkarni. With nearly 49 per cent of such home buyers being under 35 years, there is a huge opportunity waiting to be tapped, says the report, and identifies enabling environment as a key deliverable from the government to enable home ownership.

Does nuclear power have a future in India?

India cannot but be affected by the gloomy nuclear energy scenario around the globe. The development of nuclear power in India is driven as much by fantasy and romance as by scientific and strategic calculations. Like its foreign policy, planning and scientific temperament, Pandit Nehru bequeathed nuclear policy to India, on which there has always been a national consensus. Homi Bhabha is a national hero and his tragic death in an air crash is considered part of a conspiracy against India. Extreme secrecy surrounds nuclear policy and programs in a country, which is brutally open about other matters of national importance. Even when prophecies and projections are proved wrong and official actions become inexplicable, no system exists to explain the unforeseen developments, which may have altered the course. Sanctity is attributed to policies formulated and projects launched many years ago and course correction, even when it is made, is projected as business as usual. Much has happened in the nuclear arena, but India is, by and large, committed to its nuclear future. A quick and direct answer to the question that we ask ourselves today is, therefore, yes, India will have nuclear power for the foreseeable future. It will certainly grow despite dire predictions to the contrary and the fact that public opposition is growing both on account of safety considerations and new scientific information, which calls into question the feasibility, the cost effectiveness and the wisdom of long term reliance on nuclear power. The way India has dealt with the issues arising out of the India-US nuclear deal, Kudankulam and Fukushima confirms that its faith in nuclear power still abides. The threestage nuclear power development program, adopted more than half a century ago, is alive and well, though the pace of progress from the second to the third stage has been slow and the envisaged use of thorium has not become viable as yet.

Many of us in this room have been champions of the India-US nuclear deal and some, like our moderator today, Ashley Tellis, are its architects. The bewildering twists and turns in the negotiations and the political storm it created in both countries are evidence of its complexity. The steadfast pursuit of the deal on the part of President Bush and Prime Minister Manmohan Singh was admirable. For diplomats like me, who worked at the IAEA, with just Pakistan and partly Israel for company, it was a dream come true. India emerged out of its isolation in the nuclear community and it became possible for India to import nuclear fuel and other materials for its nuclear power industry. We paid a heavy price for it, but it was considered small to usher in a brave new world of international nuclear cooperation. But as of today, no new imported reactor has been commissioned, no dramatic increase has been achieved in power generation and our non-signatory status in NPT and CTBT regimes is still an impediment, when it comes to bilateral agreements or membership of bodies like the NSG. Some frontiers of nuclear science are still closed to us. No nuclear trade has started with the US, the prime mover and an intended beneficiary of nuclear trade with India. Indeed, everyone knows that the villain is the Indian liability law, which makes the supplier liable to damages in the event of an accident, in contravention of the existing international practice. In reality, the opponents of the nuclear deal, particularly its provisions for trade with the US, achieved with the liability law what they failed to achieve by opposing the deal. They created an aura of sentiment around the issue by invoking the plight of the Bhopal victims and got the law passed. It is arguable that the existing laws were quite sufficient to deal with the liability issue, if it ever arose. I suspect there may be other reasons for the nuclear deal not being able to deliver the deliverables. In August 2009, after a visit to Washington, I wrote an essay for Rediff.com, with the title, 'The US may not have nuclear trade with India'. I quoted unnamed sources, which told me then that the US had no intention to export nuclear reactors and technology to India. The US had not developed a reactor for more than thirty years and India had nothing to gain by such trade. The US would be quite happy to see India securing energy security, but it would not want to be party to India developing technology that might directly or indirectly support its nuclear arsenal. I was told that President Obama was not willing to dilute his commitment to non-proliferation for the sake of commercial benefits. The quid pro quo that the US expected for the deal was purchase of defence equipment, not nuclear trade, I said. Except for some bewildered enquiries from US companies, I saw no attention being given to such straws in the wind. Today, neither side has disavowed nuclear trade, but no way has been found to get around the Liability Law and other issues.

The story of Kudankulam has demonstrated the perils of setting up an imported nuclear power plant. The signing of the Kudankulam agreement with the Soviet Union barely two years after Chernobyl had raised eyebrows and finding a location for it was not easy. Subsequent developments, particularly Fukushima, have added fuel to the fire. Today, after years of planning and huge expenditure, Kudankulam stands uncommissioned even after the Supreme Court decreed that the project should go ahead. Dismissing a petition challenging the Madras high court's earlier order in favour of the plant, the Supreme Court termed the operationalization of Kudankulam nuclear power plant as necessary for the country's growth. The court stressed that development of nuclear energy is important for India and said, "While setting up a project of this nature, we have to have an overall view of larger public interest rather than smaller violation of right to life guaranteed under Article 21 of the Constitution." The court dismissed the risk element by stating that we have to balance economic and scientific benefits with that of minor radiological detriments on the touchstone of our national nuclear policy. "Public money running into crores and crores of rupees has already been spent for the development, control and use of atomic energy for the welfare of the people and, hence, we have to put up with such minor inconveniences, minor radiological detriments and minor environmental detriments," the court said. The delays, allegations of corruption in Russia and the local protests have combined to make the future of the Kudankulam plant uncertain. But the Government is committed to commission the plant and expand it further as soon as the technical hitches are removed. It is imperative at this point of time that the trust deficit is tackled in some way or the other. Apart from an international inspection of the safety features of the plant, adequate provision should be made for medical facilities, evacuation areas and disaster management. The situation will be replicated in other locations of new nuclear power plants and delays will be inevitable in the nuclear program. The crippling effect of the Fukushima disaster on the future of nuclear power has not been fully comprehended in India. Fukushima has dealt a severe blow to the nuclear renaissance envisaged in the IAEA 2020 report. The responses have ranged from outright rejection of nuclear power to uneasiness and delays. Reduction of reliance on nuclear power has been felt globally and even countries, which swear by nuclear power would not remain unaffected and India will be no exception. The initial official reaction in India that Fukushima would be forgotten like Chernobyl, where there were many more deaths and greater devastation, is giving way to anxiety and efforts to find alternatives.

According to the Nuclear Intelligence Weekly of May 31, 2013, the renewables program is rapidly overtaking nuclear power generation in India, with renewables generating 72 % more electricity than nuclear plants. The Weekly avers that India is unlikely to attain the goals set out in 2005. Nuclear power still accounts for just 2% of India's total installed power generation capacity. The latest data covering April-August 2012 shows nuclear power at 13.72 billion Kilowatt-hours, compared to 23.6 billion Kilowatt-hours for renewables. The slow growth in nuclear power is attributed to the Liability Law, the protests and administrative delays. It also makes a big difference, as nuclear power is in the hands of the Government, while renewables attract a high level of private investment, lured by tax holidays and other incentives. But renewable energy is still priced higher than nuclear energy in India as the investments in nuclear energy is not fully taken into account, while calculating costs. M V Ramana argues in his significant, but combative book, 'The Power of Promise', "projecting nuclear capacity has always been easy. Translating those forecasts into reality, however, proved impossible and the installed capacity in 2000 was only 2720 MW. Understanding the reasons for this enormous gap between achievements and projections is crucial for judging whether the setting up of hundreds of GW of nuclear power capacity by mid-century is feasible." India cannot but be affected by the gloomy nuclear energy scenario around the globe. It is becoming increasingly clear that targets cannot be achieved, the anti-nuclear lobby is gaining strength and the cost of nuclear energy will be higher if all the hidden costs are taken into account. The costs of waste disposal and the clean up costs in the event of an accident are enormous. Indian public opinion is divided between a majority that has abiding faith in nuclear power and a minority, which opposes it. In my view, which does not seem to have any takers now, is that we should gradually alter our energy mix to reduce our dependence on nuclear power for generation of electricity with the long-term intention of eliminating it. As of now, India cannot abandon nuclear power as a means of production of electricity as the policy followed so far cannot be reversed. But if greater attention is given to research and development of alternate sources, it should be possible for us to make a transition within a time frame. This will mean freezing the use of nuclear power at the present level and reducing it gradually, as we develop alternatives. For the small component of nuclear power that we envisage in our energy mix, we should find viable alternatives, which are already available. More than anything else, such a step will remove the fear that, for generations to come, India will face the danger of nuclear accidents, a fear that fuels the agitation against nuclear plants in India.

Indeed, the policies of every government that has come to power in India and the popular sentiment in India have coincided in favour of nuclear power being an important part of the energy mix for the foreseeable future. In fact, the global trend against nuclear power has presented opportunities for India in terms of prices and availability of nuclear plant and material. But the nuclear power scene in India cannot but be influenced by new scientific research on nuclear power, including its costs and dangers, as well as on availability of safe and efficient alternatives.

In nuclear slowdown, smaller is better

The U.S. is looking beyond its shores, including at the Westinghouse deal with India, to revive an industry that is not doing as well as its supporters project
The future of energy is nuclear so goes a pithy one-liner meant to promote this multibillion dollar industry in the United States, considered a world leader in the field from the standpoint of its safety record and export of high technology equipment. That promo by the Nuclear Energy Institute, a U.S. think tank-cum industry lobby, would sound logical considering that energy shortages are affecting millions of people, both in the developing and developed world. This lobby would have us believe that a new wave of construction nuclear plants will begin after 2020, depending upon the success of the handful being built now. Reality is different The reality is different. The graph of nuclear power generation is headed downward. According to David M. Farr, Director of the Atlanta Centre of World Association of Nuclear Operators (WANO), though it would be wrong to sound the death knell for the industry, the fact remains that between two and five nuclear energy units may close down within five years. Two units of the San Onofre plant in California and one unit (550MW capacity) of the Wisconsin plants are presently being shut down as the cost of replacing the outdated or damaged equipment simply does not make commercial sense. At present, only five nuclear power units are under construction two each in Vogtle and South Carolina and one in Tennessee. Nobody in the U.S. is talking of building large new nuclear reactors costing $8 billion apiece. Rather, the way forward could be small and marginal reactors costing half that amount. In fact, the Westinghouse-led consortium is manufacturing 23 reactors in China, in an apparent attempt to rein in costs. A variety of reasons which India is watching closely are responsible for the U.S. nuclear slowdown, a significant one being the absence of subsidy as in Russia and India where the industry is totally in the public sector. The turning point for the nuclear power industry was the Three Mile Island accident in March 1979 which triggered a plethora of controls, rigorous licensing systems and a complete rethink about the

way the U.S. looks at nuclear energy. For instance, the combined construction permit and operating license (COL) for a plant can take up to 10 years now. With safety and security reaching the point of obsession, most of the 100 plants in the country today are those that were licensed in the 1960s and 1970s. Other energy sources No less is the challenge being posed by the discovery of huge reserves of natural gas estimated at 24.4 trillion cubic metres (TCM). Its price has fallen from $8-12 to $2-3 per mmbtu (million metric British thermal units), a cost that makes nuclear power uncompetitive, though shale gas production is encountering issues of safety and environmental protection. We are a dirty America, said Mr. Warr, adding on a more serious note that the U.S. did not want to place all its eggs in one basket either nuclear, natural gas or coal. Its best bet in the unfolding energy scenario was to spread its resources. Storage An already complex situation in the U.S. has been compounded by the lack of consensus on how to store 68,000 tonnes of spent fuel lying in concrete casks on the premises of nuclear plants. Worse still, this quantity is increasing by 2,000-3,000 tonnes every year. Although a sum of $28 billion is available in a trust fund created to tackle this problem, a move to store the fuel in a repository in the Yucca mountains in Nevada State failed. The failure is blamed on politics. While U.S. President Barack Obama has since constituted the Blue Ribbon Commission to recommend ways to store/dispose of nuclear waste, it may take decades to translate the proposals into action. These issues naturally make Americans look beyond their shores to market nuclear power equipment, especially the AP1000 unit being built by Westinghouse in China. It has a unique design for safety mechanisms to kick in even if auxiliary power fails as it happened at the Fukushima Daiichi plant in Japan. India is obviously seen as a huge market for these reactors. Liability Act During U.S. Secretary of State John Kerrys India visit earlier this year, the American side barely hid its disappointment over the slow pace of progress in reaping the benefits of the India-U.S. civil nuclear energy deal. On top of this, there is the Nuclear Liability Act though criticised for being subsequently diluted under U.S. pressure which holds the equipment and fuel supplier liable to pay damages in the event of an accident. Yet, as international diplomacy has to factor into Indias domestic compulsions, the joint declaration just said that over the past year, negotiations leading to the construction of nuclear power plants in Gujarat (Mithivirdi) and Andhra Pradesh (Kovvada) have continued with notable progress being made in land acquisition. The U.S. Nuclear Regulatory Commission would assist Indias Atomic Energy Regulatory Board (AERB) to certify and licence the operations in India of U.S.-origin nuclear power plants. What does all this mean to India where power shortage for 2013-14 is estimated at 6.7 per cent but where there is stiff public resistance to new power plants? Is the U.S. fazed or frustrated by these

developments in the attempts of its companies to push reactor business, more so after the two countries signed the 123 nuclear agreement some years ago? Hardly, says Dick Stratford, Director, Office of Nuclear Energy, Safety & Security at the U.S. Department of State. Issues need to be resolved. I wouldnt say we are frustrated but the U.S. Government and suppliers want progress. The French too have problems with the Act as it pushes up the price of construction as do the Russians. The latter, however, say that existing agreements with India insulate them from liability. We are engaging in a dialogue with India, he said. Stratford is a key figure in the U.S. nuclear think tank which was at the centre of discussions with India on the nuclear deal. Other officials are more blunt in their opposition to the Act for several reasons. It will push up the cost of power; the suppliers, including Indian, will be made liable to pay millions of rupees for a long period for faulty equipment that cost just a few hundreds of rupees, and lastly, the liability fixed is well above the guidelines laid down in the Vienna convention. It is the plant operator and not the supplier who should be made liable, they say. On a broader plane of India-U.S. relations, American officials say that they do not see the liability Act and issues like the slowdown in FDI as stumbling blocks. Our cooperation is deeper and goes much beyond nuclear issues. We have 30 dialogues going and six working groups, across the spectrum. Bilateral trade is now $100 billion which the U.S. wants to increase fivefold in 10 years, an official told a group of visiting Indian visiting journalists against the backdrop of Prime Minister Manmohan Singhs visit to the U.S. in September. Against this web of nuclear energy-related issues, the leak of radiation-contaminated water at a damaged plant at Fukushima Daiichi recently raises new safety questions because the U.S. nuclear establishment has been fully engaged with Japan in containing the fallout of the tsunami-triggered disaster since 2011.

Direct Benefit Transfer: Lack of clarity on funds flow

The Congress-led government may be readying to use the Direct Benefit Transfer (DBT) as its next big-ticket scheme in the 2014 Lok Sabha elections, but confusion about direct transfer of funds and logistical constraints plague its implementation. Related: Govt must not ignore hurdles in DBT race According to minutes of a high-level meeting on DBT, several ministries and states objected to direct transfer from the Centre and stressed it should be through states. The minutes point towards lack of digitisation of database, low Aadhar enrollment and low seeding of Aadhar numbers, pre-requisites for the successful implementation of DBT.

Set up mechanism to monitor DBT: RBI tells banks The National Committee meet on DBT was chaired by Prime Minister Manmohan Singh on August 5 and attended by senior Cabinet ministers, including Finance Minister P Chidambaram. The scheme ensuring money directly reaches beneficiaries was rolled out in 43 districts on January 1 and in 78 districts on July 1, thus covering 121 districts for 25 selected schemes and three pension schemes. Related: Aadhaar vs direct benefit transfer At the meeting, Principal Secretary to PM Pulok Chatterji pointed out a "need for clarity on funds transfer goal of DBT". "The National Committee has to decide whether fund flow to beneficiary should be directly from the centre or through the states or other intermediate levels." On one hand, there was view that transfers from the centre "will slow down DBT roll-out", and on the other, it was said "DBT was clearly conceived as a scheme for routing funds directly to the beneficiaries from the centre". The PMO favours DBT directly from the centre, as seen in Chatterji's presentation where he says this has advantages in that "there is a clear identification of the benefit with the central government, schemes can be tracked better and scholarships and pensions released more often and in a timely manner." Ministries like Tribal Affairs, Rural Development, Health and Family Welfare and Social Justice and Empowerment have objected to direct transfer from the centre. Rural Development Ministry has said "direct flow from centre will send wrong political signals." Tamil Nadu said direct transfer will "divorce responsibility from accountability". Andhra Pradesh said they "have a better way of implementing DBT at state level." The minutes show that in the 121 districts where DBT is being implemented, 56 percent beneficiaries have bank accounts, one fourth have both Aadhar numbers and bank accounts and a mere 9.62 percent bank accounts have been seeded so far (till July 31). The government admitted "there are many problems and inadequacies that still need to be addressed" and it is time to "crack the whip and move faster." The Executive Committee will make its recommendations within September.

The unaccounted costs of targeting

A degree of targeting is useful in ensuring that policies are effective in reducing poverty. But we have to be careful how this is done. Martin Ravallion With the right policies, India has a good chance of seeing accelerated poverty reduction in the coming decades. As I have previously argued, this will require that India does a better job in reaching the country's many poor people through its social policies. However, that does not necessarily mean that those policies need to be better "targeted" in the usual sense of concentrating benefits on the poor by avoiding leakage to the non-poor. One of the most common mistakes in social policymaking across the globe is to confuse better targeting with greater impact on poverty. They are not the same thing. Targeting can help, but it is not the objective. Targeted policies typically impose costs on poor people, and policymakers do not always take proper account of those costs. One such cost is the loss of benefits, in kind or cash, when incomes rise from other sources, which determine the incentives faced by people in trying to do better economically. Think about what happens when we take targeting to the limit. This would entail a perfectly targeted set of transfers to poor families meaning that the transfers bring everyone up to the desired minimum income. This would impose a 100 per cent marginal tax on recipients. There would probably be little or no point in taking on extra work to earn an extra Rs 500 (say) if your transfer receipts fall by Rs 500. Such high costs of targeting will undermine the incentives for poor people to escape poverty by their own means. This is unlikely to be the best we can do from the point of view of poverty reduction. Consider, instead, the other extreme of no targeting universal basic schooling or healthcare or, when talking about transfers in cash or kind, a "basic income scheme" in which everyone gets the same amount, whether poor or not. Uniform provision entails zero marginal cost in taking on extra work, or some other income source. The incentives for promotion from poverty are excellent. Most social policies fall between these extremes in practice. Starting from a basic income scheme, it is likely that some degree of targeting will enhance the impact on poverty that can be obtained with given public resources. But we have to be careful about how this is done. Some of the ways we can achieve better targeting entail costs that are not always obvious, but matter greatly to poor people.

Consider, for example, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). This is probably the most ambitious direct intervention against poverty that any developing country has ever tried. The scheme promises 100 days of work per year to all rural households whose adults are willing to do unskilled manual labour at the statutory minimum wage notified for the programme. Work is to be made available to anyone who asks for it within 15 days of completing an application to work, failing which the state government is liable to pay an unemployment allowance. Over 50 million households participate. It is likely that a scheme such as MGNREGS will be better targeted to poor people than a basic income scheme. But that does not mean that MGNREGS will have greater impact on poverty. That depends on many other factors, including both benefits and costs to poor people from the scheme. MGNREGS can have huge benefits if it works well. It can provide much needed social insurance, as long as people can get help from the scheme when they need it. Alas, the extensive rationing found on MGNREGS (especially in some states) is not encouraging in this respect. Creating assets that benefit poor people can also be a big plus, though there have been concerns as to whether MGREGS gives sufficient attention to such asset creation. Workfare schemes such as MGNREGS illustrate well the point that even a well targeted scheme can be dominated by untargeted transfers when one takes account of all the costs involved, including the other income forgone by participants. There has been evidence of non-negligible dead-weight losses to participants in such schemes in India, so much so that a basic income scheme would have been more cost-effective in simply transferring money to poor people. (Puja Dutta, Rinku Murgai, Dominique Van De Walle and myself show this in our forthcoming book, Rozgar Guarantee?) Of course, MGNREGS tries to do more than simply transfer money to poor people. But how we assess the programme depends a lot on those other benefits, and it would be fair to say that they are not as yet fully evident in MGNREGS. The scheme needs reform to achieve its potential. Some degree of targeting will no doubt remain useful in assuring that social policies are effective in reducing poverty. But more universal provisioning in education, health and social protection deserves a closer look in India. The cost to the budget, and how it is financed, is of course hugely important. But there appears to be scope for financing a decent level of basic income in India by cutting other spending, especially subsidies favouring the non-poor, as Pranab Bardhan and others have argued. The idea has spanned both rich and poor countries. The negative income tax advocated by Milton Friedman and others can be thought of as a basic income scheme financed by a progressive income tax. This type of

scheme would dominate many policies found in practice today. It would clearly yield a better incidence than subsidies on the consumption of goods that the rich consume more than the poor. And a basic income scheme could have broad political support, which would help assure its sustainability. In terms of its impact on poverty, it may also dominate seemingly well targeted schemes, once all the costs to poor people are considered.

Govt must not ignore hurdles in DBT race

As the government begins the second phase of rollout of Direct Benefits Transfer in 78 districts from July 1, it would do well to look back at the rather shaky experience of the scheme's implementation in the past six months, and whether it is in fact prepared to bring in more areas under the scheme's ambit. The ambitious plan, that aims at eliminating middlemen and ensuring money reaches beneficiaries directly, has been plagued by multiple teething and operational issues. Prime Minister Manmohan Singh has himself acknowledged the problems while Finance Minister P Chidambaram recently sounded a note of caution even while "recognising the enthusiasm" for the scheme as a whole. Recent meetings of stakeholders, including those convened by the Planning Commission, have reflected a range of concerns. To begin with, there seems to be significant confusion about the biometric enrollment of beneficiaries an element that is perhaps at the heart of the scheme's implementation. District collectors seem unsure of who should be bringing beneficiaries to enrollment centres and beneficiaries themselves may not be incentivised enough to enroll. As a result, enrollment figures are far from satisfactory in several districts. Further, seeding with Aadhar numbers continues to remain an area of concern with huge gaps being reported between seeding and payments through an Aadhar-based system. There is also the problem of some banks being unwilling to open no-frills accounts, not to talk of areas that don't have banking facilities. The concept of having the bank at your doorstep through a "business correspondent" which was an integral part of the DBT scheme has not been implemented effectively. The Planning Commission has admitted that these issues need to be "looked into".

While these may well be initial hiccups, the question is whether the government should be rushing into expanding the scope of the scheme. The hurry appears inspired by the general election, where the Congress hopes to use it as its big ticket reform card. Given that the idea behind the DBT is sincere, the government may be doing more of a disservice to the scheme in this haste.

Govt readies to expand DBT but concerns linger

Just weeks before the UPA government expands its ambitious Direct Benefits Transfer scheme to 78 more districts on July 1 and more than five months after it was piloted officials are confused about basic logistical and operational issues and are thus, clearly unprepared. The Congress has touted DBT as its big ticket welfare reform ahead of the Lok Sabha election due next year. The scheme, however, has come under increasing criticism and is bogged down by several bottlenecks. Not least, according to the minutes of a review meeting convened by the planning commission on June 6, the confusion about who would be responsible for biometric enrollment of beneficiaries. Of the 78 districts, the Registrar General of India is responsible for enrollment in 33. The RGI has, however, emphasised that the onus of getting beneficiaries to enrollment centres should not be on it because "unlike UIADI, it does not have the funds to incentivise enrollment". The secretary, planning commission, is learnt to have said that mobilising beneficiaries was neither the responsibility of the RGI nor the UIADI but of concerned ministries. The commission has also advised targeted rather than universal enrollment. "Ministries must only target beneficiaries availing of benefits under the identified schemes in these 121 districts. The onus of implementation is completely on them," the minutes read. The meeting also flagged several other problems facing DBT. The rural development ministry pointed out that of the 49 lakh beneficiaries of its National Social Assistance Programme, only 14 per cent have bank accounts, 40 per cent have post office accounts and only nine percent have Aadhar. The planning commission, however, maintained that "irrespective of mode of disbursement, Aadhar enrollment is mandatory".

DBT is in place in 43 districts and covers 25 schemes as of now. But its implementation has been far from satisfactory. The women and child development ministry, whose Indira Gandhi Matritva Sahyog Yojana is part of DBT, told the June 6 meeting that though 45 per cent of the scheme's beneficiaries have bank accounts, 40 per cent have post office accounts and 21 per cent have both bank accounts and Aadhar. Seeding has been done for only 11 per cent and just 3.4 per cent of the beneficiaries have received payments through Aadhar Bridge Payment System so far. To this, the plan panel said that the gap between seeding and payments through Aadharbased systems needed to be "looked into". The financial services department said the progress of seeding was being "hampered due to poor quality" of databases: wrong entries, same Aadhar number for several beneficiaries, duplication of bank account numbers. The health and family welfare ministry pointed out that banks were unwilling to open nofrills accounts because they have not received guidelines for opening such accounts. The plan panel has been holding periodic meetings with collectors and other officials to review the DBT's progress, which hasn't been satisfactory so far. Experts blame lack of adequate planning for the lackluster performance. "The government just went ahead with the scheme without planning. Enough preparatory work was not done. Enrollment has been very low even in pilot districts and, in fact, DBT has caused disruption in payment of pensions," economist and activist Ritika Khera said.

In better company
But the new Companies Bill will not, by itself, improve corporate governance. After 57 years, we will finally have a modern Companies Act. Although the government has not yet enacted the Companies Bill, 2013, into law, it has been passed by both Houses of Parliament. The new act will be a milestone in achieving the ministry of corporate affairs' vision "to facilitate corporate growth with enlightened regulation". Among the new provisions, the one related to corporate social responsibility (CSR) is in the limelight. The bill requires large and profitable companies to spend 2 per cent of their average net profits from the previous three years in CSR-related activities. According to the bill, a company should ideally undertake CSR activities in its area of operation. A list of approved CSR activities outlined in the bill includes those aimed at building relationships

and social capital, developing skills through vocational training, ensuring environmental sustainability and social business projects. This suggests lawmakers do not consider CSR to be purely philanthropic. Interestingly, the law has only established a benchmark for CSR expenditure. A company may decide not to spend or spend less than 2 per cent of its profits on CSR activities. No penalty will be imposed on that company unless it fails to explain the reasons for its inability to spend 2 per cent of its net profits on CSR. This is a shift in the regulatory approach. It is for independent directors and investors to evaluate whether a "fail and explain" approach will expose the business to reputational and other risks. This experiment is likely to succeed, with an increase in institutional investment in companies and the emergence of proxy advisory firms. However, success will not come overnight. The provisions on independent directors seem to look ahead. So far, independent directors, on average, have not done anything remarkable to improve corporate governance. The system has inherent weaknesses. However, research shows that the presence of independent directors on boards improves corporate governance to some extent. In the absence of a better alternative, independent directors occupy a central position in corporate governance. The bill aims to strengthen this institution. One provision mandates a separate meeting of independent directors to review the performance of non-independent directors and the chairman and the board, as well as to evaluate the effectiveness of the board process. It is unlikely that this requirement will yield results in the near future as the concept is new, and independent directors often fail to protect their independence from subtle pressures, particularly in companies with concentrated ownership. However, in the long run, the strengthening of this institution should yield the desired result. The bill has capped the tenure of independent directors to protect their independence and to ensure that new blood is periodically injected. This will yield results only after a decade, because the existing independent directors can continue to hold office for the next five years, and with the approval of two-thirds of the shareholders, they can continue for another five years. The bill empowers the government to prescribe the appointment of at least one woman director in certain classes of companies. This is in line with contemporary ideas of corporate governance. The bill aims to improve audit quality. Perhaps the most controversial provision is one that stipulates that auditors should be rotated. Many believe that such a measure could not be included in US corporate law due to pressure from the big four audit firms, although regulators and investors realise the benefits. An audit firm shall not hold office for more

than 10 consecutive years and an individual auditor shall not hold office for more than five years in listed companies. They will be eligible for re-appointment after a cooling off period of five years. A National Financial Reporting Authority will be set up to oversee audit quality and take disciplinary action against erring auditors. This will go a long way in improving audit quality. The bill gives extensive powers to the government to frame rules under various provisions. It will help bring necessary changes within the overall structure of the bill to keep the law contemporary and incorporate global best practices as they emerge. It will also help revise rules, based on the experience of implementing the bill. Still, there is a concern that this rule-making power might be abused. By itself, the bill will improve neither corporate regulation nor governance. The mindset of regulators and those in charge of the governance of companies has to change to achieve the desired result. All stakeholders must work towards reducing the trust deficit between investors and promoters, companies and external stakeholders, regulators and companies. It is a long and difficult process, but achievable.

Framework of Forward Contracts in India and FCRA Amendment Bill

The Forward Contract is a contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today. How does it work? We take an example. We suppose that Suresh wants to buy a house in next year October. At the same time, Ramesh has a house worth Rs. 15 Lakh and he plans to sell it in October next year. Since the current price is Rs. 15 Lakh, Ramesh and Suresh enter into an agreement via which Suresh will buy that house in October 2013 in Rs. 17 Lakh. This would be called a Forward Contract. The price agreed upon would be called Delivery price. Since Suresh is buying it, for him, it would be called Long Forward Contract. On the other side, Ramesh is selling it; it would be called Short Forward Contract. Now, we suppose that in next year October, instead of Rs. 17 Lakh, the market price of that house becomes Rs. 20 Lakh. Since Ramesh is already in contract with Suresh to sell him the house in Rs. 17 Lakh, Suresh would earn a profit of Rs. 3 lakh. Ramesh would lose Rs. 3 Lakh. Here we note that forward contract is in contrast with the Spot contract. Spot contract is an agreement to buy or sell an asset today. There is one more term related to Forward Contracts called NDF or Non-Deliverable Forward. Non-deliverable forwards are over-the-counter transactions settled not by delivery but by exchange of the difference between the contracted rate and some reference rate such as the one fixed by the Reserve Bank of India. For example, if Ramesh pays Suresh Rs. 3 Lakh without delivering the actual house, it would be called NDF. The same is basic funda for commodity forward contracts and currency forward contracts. In this article, we are discussing about the Forwards contracts related to Commodities in India. Role of Future Markets in Economy There are two important roles of the Futures markets. Price Discovery: Price discovery is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. The forward markets provide the collective assessment of a large number of

individual market participants about the direction and price trends of a commodity in future. The price discovery is affected by the internal knowledge about the likely production, crop size, weather projections etc of the buyers and sellers. The benefit of forwards is that the producers of commodities such as farmers can plan production and to shift acreage or production facilities from one commodity to another. The fight for acreage between wheat, soya bean and corn is an example of the demand forecast given by futures against the backdrop of complex interplay of forces like by forces bio-fuel demand, meat consumption (giving rise to larger utilization of feed to animals- in turn larger demand) etc. Hedging of price Risk: if a producer or buyer has a general sense of the likely future price, the he can lock the produce so that his risk of price or for that matter availability is mitigated. However, Speculators are one of the biggest segment of future markets participants. The speculative investors pour their money into the futures markets and thus are held responsible for increased volatility in commodities. In any case, the social utility of futures markets is considered to be mainly in the transfer of risk, and increased liquidity between traders with different risk and time preferences. However, it does not take much time to convert the hedger into a speculator. History of Commodity Forward Contracts In our country, the Commodity Futures market dates back to more than a century. The first organized futures market was established in 1875, under the name of 'Bombay Cotton Trade Association' to trade in cotton derivative contracts. This was followed by institutions for futures trading in oilseeds, foodgrains, etc. The futures market in India underwent rapid growth between the period of First and Second World War. As a result, before the outbreak of the Second World War, a large number of commodity exchanges trading futures contracts in several commodities like cotton, groundnut, groundnut oil, raw jute, jute goods, castorseed, wheat, rice, sugar, precious metals like gold and silver were flourishing throughout the country. In view of the delicate supply situation of major commodities in the backdrop of war efforts mobilization, futures trading came to be prohibited during the Second World War under the Defence of India Act. After Independence, especially in the second half of the 1950s and first half of 1960s, the commodity futures trading again picked up and there were thriving commodity markets. However, in mid1960s, commodity futures trading in most of the commodities was banned and futures trading continued in two minor commodities, viz, pepper and turmeric. The FCRA 1952 & FMC In 1952, an act to provide for the regulation of certain matters relating to forward contracts, the prohibition of options in goods and for matters connected therewith was enacted that we know as Forward Contracts (Regulation) Act, 1952. This act makes provision that Central Government may, by notification in the official Gazette, establish a Commission to be called the Forward Markets Commission for the purpose of exercising such functions and discharging such duties as may be assigned to the Commission by or under this Act. However, the commission was basically an advisory body whose main work was to advise the Central Government in respect of the recognition of or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of this Act. FMC as an advisory, statutory body set up in 1953 under the provisions of the FCRA. Form 1953 till 2008, FMC had no regulatory powers like those of SEBI. It also did not have the financial autonomy as it depended on budgetary allocation and its administrative autonomy was also restricted as it was subject to rules and regulations of the Government in matters including recruitment of staff. Reviving of the Futures Trading For many years, the theme of regulation of Forward markets in India remained "prohibition" rather then "regulation". Since a blanket ban was not in favour of the producers, some committees were established to recommend how to go about the regulation. In 1980, the Khusro Committee recommended for reintroduction of futures trading in most of the major commodities, including cotton, raw jute and jute goods. The committee also suggested that steps may be taken for introducing futures trading in commodities, like potatoes, onions, etc. at appropriate time. From

1980 to 1992, government allowed futures in many more commodities. After the economic liberalization, government set up the K N Kabra committee in 1993, which recommended the futures trading almost all commodities that are traded today. The Kabra committee recommended that the existing Commodity Exchanges should be upgraded. However, by that time, India was not open for Options in Commodities. What are Options? Options in goods is an agreement under which buyer of the option (applier) pays a premium to the seller of option (writer) for acquiring from him right to buy or sell the goods at a mutually agreed rate (strike price), in respect of which the premium amount is paid. It is possible to acquire rights both to buy and to sell the goods; but in this case higher premium amount would have to be paid. The buyer acquires only right, i.e. he is under no obligation to buy or sell, as the case may be, at the mutually agreed price. Options were prohibited under section 19 of the FCRA Act. Options have been permitted now as it allows hedgers such as farmers or their representative bodies (association, societies etc.) to take advantage of upward movement in the prices while protecting them against downward movement in the prices. Prices & Futures: Abhijit sen committee The futures markets have been connected to the rise in prices of essential commodities. However, experts have divided opinion upon this. The level of prices of commodities is determined largely by a variety of factors operating on the demand and supply side. These include domestic production, arrivals in the market, quantity of imports, international prices, consumption requirements, expectations regarding behaviour of prices etc. Therefore, it is difficult to segregate the impact of one factor on the level of prices. In the context of discussion regarding whether and to what extent futures trading has contributed to price rise in agricultural commodities in recent times, the Government had set up an Expert Committee in 2007under the Chairmanship of Professor Abhijit Sen. The Abhiit Sen committee could not conclusively say that futures impacted prices. The committee noted that the foodgrains had at no point accounted for more than 6% of total volume of futures trading in agricultural commodities. Thus, the panel made a case for actually enlarging futures trading. The farmers take advantage of the price signals emanating from a futures market. Price-signals given by long-duration new-season futures contract can help farmers to take decision about cropping pattern and the investment intensity of cultivation. Direct participation of farmers in futures market to manage price risk either as members of an Exchange or as non-member clients of some member - can be cumbersome as it involves meeting various membership criteria and payment of daily margins etc. Current Position The FMC is the futures market regulator in India. Currently 5 national exchanges, viz. Multi Commodity Exchange, Mumbai; National Commodity and Derivatives Exchange, Mumbai and National Multi Commodity Exchange, Ahmedabad, Indian Commodity Exchange Ltd., Mumbai (ICEX) and ACE Derivatives and Commodity Exchange, regulate forward trading in 113 commodities. Besides, there are 16 Commodity specific exchanges recognized for regulating trading in various commodities approved by the Commission under the Forward Contracts (Regulation) Act, 1952. Allowed Commodities The commodities traded at these exchanges comprise the following: Edible oilseeds complexes like Groundnut, Mustardseed, Cottonseed, Sunflower, Rice bran oil, Soy oil etc. Food grains Wheat, Gram, Dals, Bajra, Maize etc. Metals Gold, Silver, Copper, Zinc etc. Spices Turmeric, Pepper, Jeera etc. Fibres Cotton, Jute etc. Others Gur, Rubber, Natural Gas, Crude Oil etc. Out of the 113 commodities, regulated by the FMC, in terms of value of trade, Gold, Silver, Copper, Zinc, Soy Oil, Jeera, Pepper and Chana are the prominently traded commodities. The cumulative turnover of the commodity exchanges is about ` 80.30 lakh crore till September 15 of the fiscal year 2012-13. Banned Commodities As of October 2012, futures trading in urad, tur and rice remain suspended. The ban on rice, tur and urad was imposed in early 2007 following a steep rise in prices. In March 2012, FMC had banned futures trading in guarseed and guargum, which is

increasingly used in oil and gas industry, to curb price volatility and speculation. Guar gum is extracted from guar seed, production of which is around 10 lakh tonnes in the country. India is the world's biggest exporter of the commodity. The proposed FCRA Amendment Bill Giving a reform boost to commodity markets, the government has recently approved the FCRA Bill that seeks to provide more powers to sectoral regulator Forward Markets Commission (FMC) and allow a new category of products. Here are some notable points: The amendment will give more teeth to FMC; it also aims to provide financial autonomy to the regulator. FMC can become selfsufficient by collecting revenues in form of fees from exchanges after the bill is passed. The retirement age of FMC Chairman and its members will go up to 65 years from 60 years. The number of members in FMC has also been proposed to increase from four to nine. The Bill also seeks to facilitate entry of institutional investors and pave the way for introduction of new category of products, like Options. The Bill seeks to increase penalty on defaulters to Rs 50 lakh from the existing Rs 25 lakh. If the Bill is passed in parliament, FMC will get powers to permit derivative trading in indices and options in commodities and indices like in the futures and options (F&O) segment in the stock exchanges. This will give it more depth and volumes. Options are the cheapest instruments to hedge commodities. The buyer of an option will risk only the premium amount. For example, an importer of edible oil enters into a contract to import oil with an overseas supplier, delivery comes after a month or so and market situation at that time is not known. In that case he can buy the put option and protect the down side. Now, he has to sell the quantity in the far month futures. In several commodities, far month futures do not have enough breadth.

New bank, old insecurities

Why arguments against issuing bank licences to industrial houses don't hold There have been numerous articles cautioning the RBI to not issue bank licences to industrial houses. Essentially, four arguments have been made. The first argument is that allowing industrial houses to own banks goes back to pre-World War II Japan and its Zaibatsu system. Since then, there has been a firm Washington Consensus to deny industrial houses bank licences and permit only banks with dispersed share-holding, such as those that exist in the US and UK. The fear is that industrial houses will use depositor money to fund their enterprises, creating big risks for depositors. The second argument is the assertion that the RBI is a weak regulator. Till date, the RBI has never been accused of being a venal institution, and this is because it does not have to deal with "real" India. The argument runs, true there are worthy industrial houses that could be given bank licences, but the RBI does not or will not have the autonomy or strength to deny the unworthy industrial houses bank licences and so, in balance, it should give none of them a licence. The third argument is a bit different. It states that India does not need new banks, just bigger banks and a privatisation of its state banks. The sector is currently hampered by the existence of state-owned banks that are inefficient and hamper financial deepening. Finally, a new fourth argument has been made: Elections are around the corner, and political parties

will use the issue of bank licences to collect money from potential candidates, like alleged in the telecom sector, with the allocation of spectrum. So, the RBI should be wary and not issue new bank licences to avoid a controversy at this time. Thus, do not issue bank licences and if you do, certainly not to industrial groups. Let me challenge each of these arguments individually and then close with a broader, collective comment. While much attention is being given to the Japanese experience and the possibilities of depositor fund diversion, there is not much discussion of the recent global financial crisis. The Anglo-Saxon model, with dispersed bank ownership, which is being held up as a role model, caused one of the greatest financial crises in human history, from which the world is yet to recover. In fact, between 1985 and 2007, the financial sector in the US increased its share of corporate profits from 15 per cent to 44 per cent, out-lobbying anything that stood in its way regulators, Congress, the US government, academics, credit rating agencies and earned the most egregious private profits while impoverishing the world. All the big US banks, like Citigroup, Bank of America and Wells Fargo, went bust. The taxpayer was asked to bail them out. Much of the rest of the world allows industrial groups to promote banks, even Canada, whose banks were unaffected by the crisis. Further, the current RBI guidelines prohibit inter-group transactions anyway. The second argument is that the RBI cannot stand up to industrial houses, so it should not licence them. Somehow, no one talks about the non-bank financial companies (NBFC) sector that the RBI regulates. Many of the biggest NBFCs are owned by industrial houses. Over the past few years, the NBFCs have been complaining about the tightness of RBI regulations and have not been able to get much relief. But the belief is that when NBFCs become banks, where the RBI has much broader powers of regulation, it will suddenly get weak in the knees and cave in to their every misdemeanour. The third argument, which at one time people believed had been the RBI's internal position, was that India does not need new banks. It just needs bigger banks and more branches. Empirically, since new banks were given licences in 1994, the sector has undergone a profound transformation. New private banks spurred a massive improvement in the operations of the entire sector, including public sector banks. Today, not only does India's banking sector have one of the lowest cost-income ratios of 45, its debt equity (not CRAR) ratio of 12 to 1 is low, and return on assets of close to 1 per cent is higher than many parts of Europe, UK and the US. This is not to say that we don't need bigger banks, but just that we must avoid the creation of clubby environments that allow enormous gains to the incumbents at the expense of the retail customer. We need more banks, new banks, big banks and across ownership forms, but all under a strong regulatory umbrella.

A recent last point that has been made is to avoid issuing licences just before an election, because the need for electoral funding will compromise the review process. I have written elsewhere about the need for India to sort out election funding. We cannot prize our democracy without paying for it. Currently, we don't. That is why, as election costs and the price of running political parties has risen, the need for money has gone up and all deals involving land, spectrum, mineral rights, etc are getting compromised. The issuance of bank licences by the RBI was not mired in controversy in the past. This time around, it has made its guidelines clear, tough and even unpopular, and created a process that is fairly transparent, so if there is one place where corruption is less likely, it is here. But more broadly, just because we have a democracy that has not worked out election funding, do we stop taking all important decisions in India? If we do, we will continue to be in the funk that we are in today. The need in India is to increase access to financial services for about half our population, which is currently excluded. There is also a need to encourage innovation in banking using technology and new forms of partnership. New banks allow us to challenge the existing paradigm. Let nothing come in the way of national interest certainly not vested interests.

We shale overcome We shale overcome

Bhaskar Dutta : Fri Jun 28 2013, 01:05 hrs

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A shale oil and gas revolution will lower energy costs, rearrange global geopolitical equations The external value of the rupee sinks ever lower, reflecting at least partly the continuing trade deficit. Indian exports simply cannot keep pace with the ever growing demand for imports. An important component of the total import bill is on account of crude oil imports. Unfortunately, in the foreseeable future, there does not seem to be much hope of being able to reduce oil imports while the demand for energy must inevitable go up with a rising GDP, there is little chance of any large increase in domestic production of petroleum.

Fortunately, the international oil market is on the brink of a dramatic transformation. What has been labelled the shale oil and gas revolution, involving the extraction of oil and gas from the organically rich mineral called oil shale, promises to be beneficial to all but a handful of countries. This promises to add vast amounts of oil and gas reserves to the current provable reserves, and will surely ensure that global oil prices remain relatively low. Indeed, the numbers being quoted in various official and semi-official documents are truly mind-boggling. For instance, the International Energy Agency (IEA)estimate, based on data from 41 countries, suggests that shale gas will increase the world's potential reserves of gas by 47 per cent. The increase in world reserves of crude oil is a less dramatic but still significant 11 per cent. And even these figures could be gross underestimates because some countries have not been included in these estimates. Moreover, improvements in extraction technology may also help increase both oil and gas reserves. As a matter of fact, it is precisely technological progress that has brought about the shale revolution. As recently as 2011, some departments of the US government questioned whether the extraction of shale oil was commercially viable. However, the threat of increasing dependence on crude oil imports and that too from countries that are typically not favourably disposed towards Western countries obviously provided strong incentives to explore alternative sources of energy. This essentially "political" reason was reinforced by an economic one the global demand for crude oil has increased several fold partly due the spectacular rate of growth achieved in China, but there has not been any commensurate increase in supply. So, oil prices have naturally increased quite sharply. Thanks largely to tax incentives, the US oil industry has been in the forefront of efforts to extract shale oil. It has pioneered new technologies such as horizontal drilling and hydraulic fracturing, commonly known as fracking, which involves the fracturing of rock by means of pressurised liquids. These new technologies have made the extraction process commercially viable, and have made the US the dominant player in the shale revolution. The IEA estimates that the US will, in a few years' time, become a net exporter of energy, a far cry from the current situation where it imports a sizeable fraction of its crude oil requirements. The increase in global oil and gas supply could not have come at a better time. It has ensured that energy prices remain in check. Hopefully, stable and reasonable crude oil prices will ensure that the recovery from the global recession will come sooner than later. Of course, if and when the major economies such as the US, China, Japan and the eurozone countries recover, their demand for energy will also increase significantly, since their economies perhaps with the exception of China are very energy-intensive.

However, there are strong possibilities that other countries will challenge the dominance of the US by playing a more active role in the shale revolution because they too will have to confront the problems posed by rising energy costs. Estimates of the geographical distribution of shale oil reserves suggest that several countries do have large reserves. In fact, Russia, which is the second largest producer of oil from conventional reserves, also has the largest shale reserves in Siberia. Argentina and Algeria are some of the other countries with significant reserves. Further improvements in extraction technology will surely enable these countries to join the club of shale oil and gas producers. This geographical spread has an important geopolitical implication. The larger the number of oil-producing and exporting countries, the larger must be the size of any cartel controlling a significant fraction of global oil supply. Since it is more difficult to get a large number of countries to unite after all, they are likely to have very different goals and objectives that transcend their common interest in the oil market it is unlikely that groups like OPEC can cause sudden disruptions in global oil supply. This is particularly important for developing countries like India, since they are obviously more vulnerable to fluctuations in oil prices. The Indian effort in exploiting non-conventional sources of energy has focused mainly on solar energy and wind turbines. However, the existing technologies in these areas are still relatively undeveloped so that the final cost of energy through these sources turns out to be quite high. Since it is also a costly proposition to develop new technologies, it makes sense to "free-ride" on the efforts of other countries. The success of the shale revolution may result in countries, such as the US and Russia, focusing resources on the development of better technologies in shale oil extraction, perhaps by diverting resources away from development of technologies in other forms of non-conventional sources of energy. This suggests that India too should think seriously about exploring shale deposits that exist in some regions, such as Assam, Rajasthan and some coastal areas. The shale revolution does have its detractors, all of whom are concerned with its implications for the environment. Strong lobbies have been created to ban fracking, since they fear that the injection of vast quantities of water, gas and various chemicals can cause a significant increase in environmental pollution. While this school of protesters draw a direct causation between environmental pollution and shale oil extraction, other protesters have a more sophisticated argument against the shale revolution. They contend that if energy costs are driven down because of the success of the shale revolution, then countries will cease efforts to develop cleaner and less energy-intensive technology. And so the continued use of dirtier technology will result in more pollution. Given the widespread desire for lowering energy costs, this argument is unlikely to find a large number of supporters.

The youth unemployment bill

Why the proposed national minimum wage is the wrong answer to questions of unemployment and poverty The recent national labour conference a trade union love fest with little real employer participation demanded a national minimum wage. The trade union demand is a predictable positioning of narrow self-interest as national interest but the government's acceptance of their demand is unfair, delusional and economically stupid. Unfair, because it pampers a small, organised and vocal minority by imposing costs on a silent unorganised majority and blunts the ability of chief ministers to forge their local labour market habitats. Delusional, because, currently, the Indian state does not have the capacity to enforce current labour laws for 90 per cent of workers and laws that are not enforced are corrosive. Economically stupid, because the cost of living varies greatly nationally and a single rate hurts young job seekers more than old ones. Legislating a national minimum wage is like trying to treat obesity by mandating small sizes; it doesn't work. India's national floor level minimum wage of Rs 115 per day is currently non-binding on states. The new proposal will expand the power over minimum wages for the Central government from the current 45 industries to the 1,679 industries currently set by state governments. Monthly minimum wage rates vary from Rs 11,969 in Delhi for skilled to Rs 3,569 for unskilled in Sikkim. More importantly, state governments can and do exercise wide discretion, based on geography, skill levels, academic qualification, frequency of payments, and much else. If the current proposal is implemented, between 14 and 20 states will have to fall in line with the Central government diktat. Legislating high minimum wages is popular with politicians all over the world because voters believe it is a "free lunch", that is, it is an inexpensive alternative to higher taxes, has no real costs and helps the poor. But setting a national minimum wage for India has real costs. One, an academic review of more than 100 major academic studies on minimum wages says that 85 per cent of them find a negative effect on jobs for young and low-skilled workers. Two, 100 per cent of net job creation since 1991 has happened informally and artificially higher minimum wages will increase informal employment. Three, higher inflation, because most companies in India will pass on any "above productivity" wage increases to customers. Four, lower skill development, because we have not figured out how to fund skill development for informal employment. Five, a single national rate is more

vulnerable to trade union capture. And six, reduced competition between states for jobs. The last point is critical because it is an unfortunate accident of history that labour is a concurrent legislative subject. It should be a state subject because policy must do all it can to foster competition between chief ministers. Taking away the minimum wage decision from state governments goes in the wrong direction. The single national minimum wage rate demand must be rejected just like the demand for minimum wages in the MNREGS was. The MNREGS already distorts the labour market for unskilled work because its wage levels act like the LIBOR rate used to price loans a benchmark for unskilled wages that employers are forced to price off. And just like the manipulation of LIBOR led to massive mispricing, the wholesale manipulations of wages in India by the MNREGS have greatly distorted the incentives, availability, and redeployment of labour. Not to mention that a 100-day job under the MNREGS violates more than 20 labour laws (PF, ESI, etc), does not create productive assets, and does not create skills. Aruna Roy resigned from the NAC on the MNREGS minimum wage issue. I hope she understands that most employers agree that the objective of economic reforms is higher wages and not goofy rich people buying Gucci bags or Mercedes cars. However, higher wages don't create productivity but are a consequence of it. And economy-wide productivity will not rise till 15 per cent of our GDP comes from 55 per cent of the labour force deployed in agriculture. Some Chinese provinces have been able to raise minimum wages every quarter for the last three years because they have run out of farm labour to staff the workshop of the world. Foxconn the maker of the iPhone is setting up new factories thousands of kilometres inland from the coast, not for lower costs they are going to pay the same wages deep inside the country that they pay their million employees on the coast but because they can no longer get people to migrate from rural areas for jobs. China's exponential productivity increase (20 people now produce the same GDP that 100 people used to produce in 1990) has combined with a massive migration to non-farm employment (640 million since 1978) to produce the most effective minimum wage legislation the world has ever seen. India cannot raise minimum wages without increasing manufacturing employment stuck at 12 per cent of total employment since 1991. The limits of service sector growth are amply demonstrated by the kind of jobs taken by many of our 1.2 million engineers produced every year. Increasing manufacturing jobs needs many things hard infrastructure, labour law reform, and a tighter coupling of education and employment but minimum wage fudging is not going to help.

It is baffling that the rhetoric in the last election largely ignored unemployment and unemployability. The only explanation involves paraphrasing Stalin: a single unemployed person is a tragedy but millions of unemployed are just a statistic. 2014 is the first general election where first-time voters will have no memory of pre-reform India. The "rights thought world" of the last decade has not delivered and the proposed national minimum wage legislation has nothing do with poverty or unemployment. But there is a real danger for our youth that this minimum wage diktat will not lead to a higher wage but a wage that will be zero.

Dance no bar
The ban on dance bars underscored all that has gone wrong with politics and policing in Mumbai The Supreme Court has finally undone an unfair and hypocritical ban on dance bars in Mumbai. In 2005, the Maharashtra government, led by Home Minister R.R. Patil, worked itself into a fine fury about these establishments, alleging that dance bars bred prostitution and crime, declaring that the state was prepared to forgo excise revenue for the sake of a greater virtue. Though the Bombay High Court struck down the ban in 2006, the state appealed to the Supreme Court, and meanwhile, because of a court stay, hundreds of bars closed, the women working in them were pushed into even more straitened circumstances, while elite versions of the same pleasures carried on. While the state destroyed the livelihoods of those who worked in the dance bars, it had no way to ensure them access to more "acceptable" jobs. The Supreme Court has rightly ordered the state to concentrate on regulating these establishments better. After all, if it is genuinely concerned about crime and prostitution, it should be making sure the women who work in these bars have greater protections, and it should focus police efforts on crime control, rather than moral oversight. The big city vitality of Mumbai, the mingling of diversities that made the space so magnetic, is long gone. Maharashtra's political parties have tried to outdo each other in blighting the metropolis, with no one to articulate a liberal vision of the city's future. The Shiv Sena and MNS base their politics on exploiting popular cultural anxieties, but the greater blame goes to the Congress and NCP that have ruled the state for long, and have not only acceded, but taken the lead in creating these repressive conditions. Mumbai's moral caretakers have frowned upon "US-style cheerleaders" at sports matches, harassed young lovers, stopped sex education for fears of "love gurus", found themselves unable to look at underclad mannequins.

The war on vice has increasingly consumed Mumbai police, even as its primary professional duty of maintaining a fair order recedes as a priority. The force has been coopted by political powers, through control over transfers and postings and in fact, R.R. Patil, the moving force behind many of the bans, is also responsible for warping the mandate of the police. As home minister, he encouraged and stood up for ACP Vasant Dhoble, who raided parties and pubs, enforcing archaic laws by wielding a hockey stick. While these political leaders may be trying to pander to Mumbai's conservative strains, they must realise that they are sacrificing freedoms in which all citizens have a stake.

Two much in one

The Delhi Airport Metro project frames the distortions in PPP projects where construction and operational activities are bundled into one contract Some recent performance audit reports of the Comptroller and Auditor General (CAG) of India have been acclaimed for their exposure of egregious corruption. A more important but less-discussed contribution has been to shine a light on critical instances of largescale incomplete contracts with private agencies in the infrastructure sector. The just announced end to the tortured relationship between the Reliance-Infrastructure-promoted Delhi Airport Metro Express Private Ltd (DAMEPL) and the Delhi Metro Rail Corporation (DMRC) is a case in point. In a recent audit of the DAMEPL, the CAG has found large equity dilution by the private concessionaire. Similar equity restructuring has been observed in projects in other states too. This is representative of the distortions that arise in public-private partnership (PPP) projects where construction and operational activities are bundled into one contract. The 22.7 kilometre metro rail linking the Indira Gandhi International Airport was built as a PPP at a cost of Rs 5,780 crore, of which nearly 54 per cent was financed by the government and 46 per cent by DAMEPL, a private consortium led by Reliance Infrastructure. Operations started in February 2011. The CAG has found that DAMEPL had diluted its debtequity ratio from the mandated 70:30 to 43,218:1, 2,30,907:1 and 2,75,205:1 for 2009-10, 2010-11, and 2011-12 respectively. Thus, the project had been leveraged to an extent farbeyond what was initially envisaged, and indeed far beyond any prudent level. Reliance Infrastructure, for its part, contends that the concession agreement allows the concessionaire to restructure its equity holdings after two years of the agreement. The significance of this equity dilution goes beyond concerns that the concessionaire now has limited financial exposure or fears that Reliance Infrastructure may slowly exit the project itself. An important lesson is that since the returns on project investments, both debt and equity, have been calculated assuming a debt-equity ratio of 70:30, any dilution of equity will benefit the equity holder. Consider the example of a metro rail project awarded to a private concessionaire on a 30year Build-Operate-Transfer contract. The project has been structured with a 70:30 debt-toequity ratio, and returns to equity and debt of 18 per cent and 14 per cent, respectively. After operations begin and the project stabilises, its long-term regulated revenue stream (like passenger revenues) now shorn of risk from construction delays and cost overruns, and

protected by a strong regulatory regime from any threat of expropriation by the government immediately attracts the interest of debt market investors. The concessionaire has the opportunity to replace his equity with debt by various means, and thereby make easy profits from the interest differential. Therefore, once these risks are sufficiently addressed, there is limited reason for equity to command a hefty premium on return over debt, and that too for the long lifecycle of the project. The true price of the risk is reflected in the market's willingness to replace higher cost equity with lower cost debt. The equity holder continues to enjoy the equity return over the project cycle while accessing capital at lower cost, thereby earning a virtual "risk-free" rent. When viewed in this context, Reliance Infrastructure was merely doing what any private concessionaire would have done. It is, of course, another matter that prudent lenders would normally not have allowed such a massive debt-equity ratio how that happened is a riddle that is beyond the scope of this article. In the absence of regulatory due diligence, the market effectively forces the revised financial structuring. But it comes at considerable public cost. It is possible that in this case, the contract with DAMEPL minimised such profiteering opportunities. But such deficiencies are pervasive in large end-to-end contracting of utility services across the world. Further, stripped of its equity portion, the project assets get effectively securitised in the debt market. Left with no skin in the game by way of sunk costs and having made handsome upfront profits from equity dilution, the concessionaire now has limited incentive to invest for the long-term health of the project. Safe in the realisation that he could easily walk away with minimal losses at any time, the operator's incentives get aligned towards minimising operation and maintenance (O&M) and capital expenditures, running down existing assets, and cutting corners on quality. This consideration doubtless played a part in DAMEPL's exit from the Delhi Airport metro project. Dieter Helm, one of the leading British infrastructure regulation experts, has highlighted several such instances in Britain. He estimates such financial arbitraging to cost British customers more than a billion pounds every year. He therefore advocates splitting the asset creation part of any such large project from its operation, maintenance, and coordination activities. Such risks are more prevalent in distributed asset projects like mass transit and urban civic utilities, where asset creation and O&M are evidently distinct activities. In India, in any

case, since the major portion of construction financing for such projects comes from nationalised banks, such projects effectively become a form of public financing. In the circumstances, it is imperative that appropriate regulations be put in place to preempt such perverse incentives. One way to address this would be to explicitly mandate a floor-level debt-to-equity ratio for the project, which cannot be breached, and which financial institutions too have to monitor. Another approach, like that followed in the UK, would be to force the concessionaire to share profits from any such equity dilution with the government. Finally, in view of all these, it does raise the question of whether a more effective approach to structuring such projects should explicitly seek to split asset creation from its O&M activities. This is important to mitigate moral hazard concerns and eliminate easy financial arbitraging at public cost. Natarajan and Somanathan are members of the IAS, from the 1999 and 1987 batches respectively. Views are personal

A relationship that works

Public-private infrastructure projects should be restructured to enable better distribution of risk, more efficient and transparent price discovery The Planning Commission estimates investments worth $1 trillion to flow into the infrastructure sector over the 12th Five Year Plan. At least half the investments are expected from private sources. Accordingly, governments have been aggressively pursuing publicprivate partnerships (PPPs). However, experience from across the world suggests a need for caution. A comprehensive study of more than 1,300 infrastructure concessions and PPPs in Latin America and the Caribbean by World Bank economist J. Luis Guasch finds that renegotiations are the norm, even when awarded through competitive bids. The same could be said about India. In recent months, a number of large road and power projects have either been terminated or gone for renegotiation. In all these contracts, the developer either badly overshot the construction period or miscalculated heavily on revenue streams. Similarly, bank balance sheets have come under strain in the face of unsustainably high exposure to infrastructure projects and a rise in the restructuring of debt advanced to the sector.

In these circumstances, a more effective way to finance these projects may be through a twostage process. In the first stage, a professionally managed special purpose vehicle (SPV) could be established to construct the project using short-term bank loans or through takeout financing by a consortium of banks. This may require the government to provide some form of guarantee or credit enhancement. Once the construction risk is offloaded, short-term loans can be swapped for long-tenor debt. Private participation can be introduced either through long-term concession grants to operate the entire project or parts or it, or by outsourcing certain services. Another strategy would be to capitalise the assets by taking the SPV public. This arrangement is likely to be effective in sectors like water and sewerage, solid waste, power transmission and distribution, and public transport, where the project construction and stabilisation risks are substantial and most often outside the control of the private developer. Historically, such projects suffer inordinate delays due to problems in acquiring possession of site and right of way, protracted litigation and regulatory uncertainty. This approach has many benefits. First, the fundamental principle of any project structuring is the allocation of risks among those most capable of bearing it. The typical construction risks are beyond the control of the private participant and can be mitigated only by the government. The inordinate delays due to problems with site handing-over and environmental clearances that are commonplace with road and power projects in India are a reminder of this. Second, it would help bridge the information asymmetry that characterises such long-term projects. Once the project is commissioned and stabilises, it minimises, or even eliminates, many uncertain elements, and enables all sides to more reliably assess commercial prospects and thereby facilitate efficient price discovery. Third, it is certain to reduce the need to renegotiate contracts. Post-construction concessions or service contracts have much less uncertainty and risk, and are, therefore, likely to result in more complete contracts. Fourth, it is well established that public systems are less effective at efficiently managing and expanding large infrastructure projects, whereas the private sector is more efficient in these activities. The security of tenure and service conditions of the public sector are based on the civil service, and not well tailored to the very different needs of efficient operation of an infrastructure facility. It is therefore appropriate that the project be structured in a manner that leverages the private sector's comparative advantage.

Fifth, it would help catalyse the development of the much-needed long-term debt market in India. Once the construction and other related risks are offloaded, the developer is left with the more predictable market risks. This, coupled with the long-term nature of a less uncertain project revenue stream, makes such debt attractive for bond market investors. Sixth, related to the earlier point, the development of a long-term debt market will ease the current unsustainable burden on banks. With long-term debt being raised through bond offerings, banks would only need to finance the shorter-term construction loans. It will reduce the asset-liability mismatches in bank balance sheets. Finally, all these advantages would work to ensuring the most cost-effective financial structuring. The government would be able to raise construction capital at a much lower cost than any private contractor. The swap would help access the cheapest long-term funding option for the project. Critics would argue that this model is a throwback to a bygone era of public development of infrastructure works. But they overlook the fact that when faced with risks that cannot be effectively mitigated and in conditions of considerable information asymmetry, inefficient contracts are inevitable. Careful structuring of the project in a manner that bridges information asymmetry, effectively allocates risk and enables transparent and efficient price discovery therefore becomes critical to its sustainability and cost-effectiveness. The success of this model will depend critically on the project design. A deficient project design would render it unattractive to private participants, thereby increasing the risk of creating further "white elephants". This highlights the importance of professional project conceptualisation and construction management processes. Fortunately, since all major projects are today designed with external professional expertise, it is easier to structure them in a manner that facilitates post-construction private participation. The Indian Infrastructure Finance Company Ltd and similar market facilitators could accordingly help arrange for construction financing. Experience from across the world shows that PPP projects generally run into problems either because the private partners make excessive profits, thereby provoking political opposition to revoke the contract, or make large losses, forcing them to seek renegotiations. The complex nature of underlying risks, especially those related to construction and project stabilisation, are not readily deciphered at project conceptualisation. In these circumstances, the PPPs structured after project construction or commissioning are more likely to succeed with the partnership.

The patent truth

The US Supreme Court's judgment on gene patents is fair to patients Last week, the US Supreme Court ruled that naturally occurring genes cannot be patented, reversing a trend that has allowed over 20 per cent of the human genome to be patented by biotech companies. The case was brought by the American Association for Molecular Pathology and other interested parties against Myriad Genetics, a company that owns patents on two human genes, BRCA1 and BRCA2. Mutations in these genes can cause an increased risk for a woman to develop breast or ovarian cancer. Over the last two decades, advances in genetics have made it possible to pinpoint the stretches of DNA in a human cell that are responsible for proclivity to certain diseases. Detecting mutations in these DNA segments, which signify higher risk of a particular disease, allows for preventive therapies to be offered to the patient. Recently, the Hollywood actress Angelina Jolie underwent a preventive mastectomy, or removal of breast tissue, in order to prevent the future occurrence of breast cancer. She tested positive for mutations in the BRCA1 gene, which increased her risk for breast cancer from about 12 per cent to about 87 per cent. It is this same BRCA1 gene that was under the scanner of the US Supreme Court in the recent case as well. Myriad Genetics, a molecular diagnostics company based in Utah, patented the BRCA1 and BRCA2 genes in 1995. According to the laws of intellectual property protection in the US, this granted Myriad monopoly rights to develop and sell diagnostic tests that determine the presence of a mutation in BRCA1 or BRCA2. No other company could develop such diagnostic tests. The price of the Myriad diagnostic test for BRCA1 and BRCA2 ranges between $3000-$4000 per test, which puts it beyond the reach of most patients even in the US, let alone the rest of the world. In the case before the US Supreme Court, the complainants argued that genes should not be patented by companies, as they are naturally occurring substances in the human body. The court concurred with this viewpoint, against the claim of Myriad Genetics that isolating these genes for use in laboratory conditions made them a patentable product. The court did concede to part of Myriad's claim by allowing certain types of DNA to be patented: synthetic genes, which are segments of DNA invented by scientists in the lab, and cDNA, an artificially created form of DNA used in genetic engineering. The court further stated that invented methods of isolating DNA were patentable as well. To put it another way, tea

leaves are natural products and hence cannot be patented, but the method of converting them into tea bags is an invention, and can be patented. The implications of this ruling are critically important for biotech companies, medical research, doctors and patients. Several more companies will now enter the field of diagnostic testing for breast and ovarian cancer, which will bring down the cost of the test and increase access for patients. This is great news for Indian patients, as reported rates of breast cancer have doubled in India in the last decade. Further, the high profile nature of this case has brought increased attention to the issue of over-patenting by for-profit companies. Zealous patenting and patent protection via litigation has allowed inflated pricing and has blocked innovation by other companies, much to the detriment of patients in need. Recently, the Indian government and judiciary have taken up several major cases around patent protection of life-saving cancer drugs. Most recently, Novartis's drug, Glivec, was denied patent protection by the Indian Supreme Court as it was found to be materially similar to an earlier version of the drug, whose patent protection had expired. This move was hailed by patient advocates as it allows cheaper, generic versions of the drug to be sold in India. It also enables lifesaving inventions to come into the public domain for the benefit of patients, without being held hostage to over-patenting and litigation by companies. The US is often seen as being held captive to the interests of patent owners with vast resources, leading to patent proliferation and decreased competition, which in turn drives costs skyward. Emerging economies like India and Brazil have challenged the patent proliferation that exists in advanced economies in the interest of having affordable healthcare products for their citizens. A reassessment of patent monopolies, especially in the case of lifesaving products, is essential if access is to be broadened beyond wealthy patients. The Myriad Genetics case in the US Supreme Court is a welcome shift in the direction of honouring only real inventions with patent protection, and allowing other products to remain in the public domain. The writer is a medical technology professional focusing on medical technology innovation for emerging markets and a former Stanford-India Biodesign Fellow. Views expressed are personal.

India, China and a growing gap

Unlike India, China did not miss the lesson of Asian economic development, about the economic returns that come from bettering human lives MODERN India is, in many ways, a success. Its claim to be the world's largest democracy is not hollow. Its media is vibrant and free; Indians buy more newspapers every day than any other nation. Since Independence in 1947, life expectancy at birth has more than doubled, to 66 years from 32, and per capita income (adjusted for inflation) has grown five-fold. In recent decades, reforms pushed up the country's once sluggish growth rate to around 8 per cent per year, before it fell back a couple of percentage points over the last two years. For years, India's economic growth rate ranked second among the world's large economies, after China, which it has consistently trailed by at least one percentage point. The hope that India might overtake China one day in economic growth now seems a distant one. But that comparison is not what should worry Indians most. The far greater gap between India and China is in the provision of essential public services a failing that depresses living standards and is a persistent drag on growth. Inequality is high in both countries, but China has done far more than India to raise life expectancy, expand general education and secure healthcare for its people. India has elite schools of varying degrees of excellence for the privileged, but among all Indians or older, nearly one in every five males and one in every three females are illiterate. And most schools are of low quality; less than half the children can divide 20 by 5, even after four years of schooling. India may be the world's largest producer of generic medicine, but its healthcare system is an unregulated mess. The poor have to rely on low-quality and sometimes exploitative private medical care, because there isn't enough decent public care. While China devotes 2.7 per cent of its GDP to government spending on healthcare, India allots 1.2 per cent. India's underperformance can be traced to a failure to learn from the examples of so-called Asian economic development, in which rapid expansion of human capability is both a goal in itself and an integral element in achieving rapid growth. Japan pioneered that approach, starting after the Meiji Restoration in 1868, when it resolved to achieve a fully literate society within a few decades. As Kido Takayoshi, a leader of that reform, explained: "Our people are no different from the Americans or Europeans of today; it is all a matter of education or lack of education." Through investments in education and health care, Japan simultaneously enhanced living standards and labour productivity the government collaborating with the market.

Despite the catastrophe of Japan's war years, the lessons of its development experience remained and were followed, in the post-war period, by South Korea, Taiwan, Singapore and other economies in East Asia. China, which during the Mao era made advances in land reform and basic education and healthcare, embarked on market reforms in the early 1980s; its huge success changed the shape of the world economy. India has paid inadequate attention to these lessons. Is there a conundrum here that democratic India has done worse than China in educating its citizens and improving their health? Perhaps, but the puzzle need not be a brainteaser. Democratic participation, free expression and rule of law are largely realities in India, and still largely aspirations in China. India has not had a famine since Independence, while China had the largest famine in recorded history, from 1958 to 1961, when Mao's disastrous Great Leap Forward killed some 30 million people. Nevertheless, using democratic means to remedy endemic problems chronic undernourishment, a disorganised medical system or dysfunctional school systems demands sustained deliberation, political engagement, media coverage, popular pressure. In short, more democratic process, not less. In China, decision-making takes place at the top. The country's leaders are sceptical, if not hostile, with regard to the value of multi-party democracy, but they have been strongly committed to eliminating hunger, illiteracy and medical neglect, and that is enormously to their credit. There are inevitable fragilities in a non-democratic system because mistakes are hard to correct. Dissent is dangerous. There is little recourse for victims of injustice. Edicts like the one-child policy can be very harsh. Still, China's present leaders have used the basic approach of accelerating development by expanding human capability with great decisiveness and skill. The case for combating debilitating inequality in India is not only a matter of social justice. Unlike India, China did not miss the huge lesson of Asian economic development, about the economic returns that come from bettering human lives, especially at the bottom of the socio-economic pyramid. India's growth and its earnings from exports have tended to depend narrowly on a few sectors, like information technology, pharmaceuticals and specialised auto parts, many of which rely on the role of highly trained personnel from the well educated classes. For India to match China in its range of manufacturing capacity its ability to produce gadgets of almost every kind, with increasing use of technology and better quality control it needs a better-educated and healthier labour force at all levels of society.

What it needs most is more knowledge and public discussion about the nature and the huge extent of inequality and its damaging consequences, including for economic growth.

How New Delhi manages Kashmir

It doesn't talk to it, or listen. Political initiatives are launched to tide over moments of crisis, to be abandoned as soon as they pass When Prime Minister Manmohan Singh and UPA chairperson Sonia Gandhi recently visited Kashmir, there was hardly any hope that they would bring along a fresh political initiative. The official aim of this visit, too, was administrative: to inaugurate a railway tunnel and a power project. A deadly militant attack on an army convoy inside Srinagar that killed eight armymen on the eve of the visit had brought it into focus. Singh condemned the attack, vowed that the country is united in the fight against terrorists, and emphasised the need for peace to ensure development. The prime minister is right to say that development is not possible unless there is peace. The problem, however, lies in how peace is defined by New Delhi. New Delhi views the lull in Kashmir, especially after the government crushed the 2010 summer protests, as "peace", and mistakenly hopes that the calm will automatically help erase the demand for "azadi". For Kashmir, it has been a calm triggered by hopelessness and there is a growing sense that it is only a pause destined to lead to another phase of strife. There are indications that restlessness has already set in among the youth. Though the number of active militants has not increased to a level that it could be described as a new phase of militancy, the backgrounds of the local young men who were killed after joining militant ranks shows that there is a real chance that the ground may shift again. Even Chief Minister Omar Abdullah voiced the apprehension that the implications of the Taliban's return to centrestage and the US withdrawal next year from Afghanistan may have a spillover effect in Kashmir. Why does Kashmir return to this familiar brink so often? Why aren't the phases of calm turning into an unhindered era of peace? The answer is not difficult to find. A look at the history of New Delhi's peace efforts clearly show that each time Kashmir erupted, a political initiative was launched to tide over the immediate crisis. The aim has never been to listen to Kashmir and resolve the conflict, but only to cool tempers and manage an immediate crisis.

When Kashmir erupted in 1990, Rajiv Gandhi led New Delhi's first political initiative. A police officer deputed to assist the delegation told me that they had to present a few safai karamcharis working at official guest houses as a political delegation. Then, Rajesh Pilot tried to break the impasse by presenting a "people friendly" face to begin a political process. Pilot could not even keep his promise of informing the family of an arrested person within 24 hours. In 1995, the then prime minister Narasimha Rao declared that the "sky is the limit" for Kashmir. It was only to cajole Farooq Abdullah to agree to contest the 1996 assembly polls. The election was taking place after nine years, Farooq was reluctant to return to Srinagar empty-handed and New Delhi needed the National Conference to provide a semblance of credibility to the process. He contested and the NC has stayed empty handed, its autonomy proposal dumped even after the J&K Assembly passed it with a two-third majority. The then home minister S.B. Chavan met a few former militant commanders in 1996, ostensibly to begin a "dialogue". This turned out to be a mere photo op. With the NC replacing governor's rule, New Delhi managed a Kashmiri political face in the state without upsetting the status quo. By now, it was clear that the aim behind New Delhi's initiatives wasn't to resolve the conflict but to manage it. These periodic overtures were used as delay tactics to help maintain the status quo. Leave aside a bargain with the pro-azadi leadership, New Delhi never intended to entertain even the demands of the pro-India political dispensation. A ruthless force within the J&K police was encouraged to give a local face to counter insurgency. Once New Delhi consolidated its military gains, it downgraded the status of its Kashmir emissaries, and retired bureaucrats replaced senior politicians. In April 2001, K.C. Pant was sent to Kashmir but his brief was so ambiguous that the initiative failed even before it was launched. In 2002, a Kashmiri Committee kept the Valley guessing. N.N. Vohra replaced Pant as New Delhi's new point man in February 2003. This cycle continued till PM Manmohan Singh launched a roundtable dialogue on Kashmir in 2006 and formed five working groups. The working group that was set up to broadly look into ways for a political resolution, led by retired Supreme Court Judge Justice Saghir Ahmad, filed a report in 2009 and recommended autonomy, though substantially watered down in its quantum. While the autonomy resolution passed by the J&K Assembly in 2000 was summarily rejected by New Delhi, the Saghir report was dumped even before its acceptance.

Another working group, led by Vice President Hamid Ansari, had recommended repeal of the Armed Forces Special Powers Act, saying it impinged upon the fundamental rights of citizens. The group had sought to develop a mechanism to fix responsibility for human rights violations and punish derelict officials, besides strengthening the SHRC. Omar Abdullah amended the repeal demand and instead requested for the withdrawal of the law from a few select areas. New Delhi didn't agree. Despite this consistent lack of sincerity on addressing Kashmir politically, and the continued acts of obfuscation and denial on the part of New Delhi, there was a unilateral shift in Kashmir in 2008, when people opted for non-violent protests to register their demands. The gun had been replaced by slogans, and militants were forced to halt their activities to allow a peaceful struggle to dominate Kashmir's azadi discourse. New Delhi's reaction did not change and there was no attempt to listen to this groundswell. Instead, curfews and arrests were again used to quell these protests. In 2010, when Kashmir was simmering for a third consecutive year, New Delhi again came up with its tested remedy. A new set of interlocutors was engaged to achieve a "unique solution" for a "unique problem". Their report was not even acknowledged as an outcome of a government sponsored exercise. New Delhi's use of elections in Kashmir has been selective. While this process is projected as a democratic alternative to plebiscite, the representatives elected through it are snubbed on important issues. The autonomy resolution passed by the assembly was summarily rejected. The PDP's self rule or Sajjad Lone's Achievable Nationhood wasn't even considered for a debate. For years, New Delhi's position was that violence is the major hurdle in starting a resultoriented dialogue. But once militant presence came down to a negligible number, the protests were termed as "agitational terrorism" and criminalised. In 2010 alone, 127 youngsters were killed when police opened fire to quell protests. While New Delhi insists that the army is in Kashmir to fight the militants, the dwindling militant numbers have never led to any change in the heavy security presence. Official estimates put the number of active militants at less than a hundred in Kashmir during the last two years of calm. Yet as the militants' guns went silent, New Delhi's goal post shifted again and "opposition" to violence, not merely shunning it, became the new pre-requisite for engagement. Several Hurriyat leaders did reciprocate New Delhi's dialogue offer, risking their own and their families' safety. They failed to secure even small changes on the ground. The overwhelming understanding in Kashmir is that New Delhi wants to avoid any serious

movement towards a political solution and wants to substitute it with "development", administrative measures and an overwhelming military presence to ensure the status quo.

Understanding Article 370

Article 370 was and is about providing space, in matters of governance, to the people of a State who felt deeply vulnerable about their identity and insecure about the future. At the Bharatiya Janata Partys recent Lalkar rally in Jammu, its prime ministerial candidate, Narendra Modi, called for a debate on Article 370. This is encouraging and suggests that the BJP may be willing to review its absolutist stance on the Article that defines the provisions of the Constitution of India with respect to Jammu and Kashmir. Any meaningful debate on Article 370 must, however, separate myth from reality and fact from fiction. My purpose here is to respond to the five main questions that have already been raised in the incipient debate. Why it was incorporated First, why was Article 370 inserted in the Constitution? Or as the great poet and thinker, Maulana Hasrat Mohini, asked in the Constituent Assembly on October 17, 1949: Why this discrimination please? The answer was given by Nehrus confidant, the wise but misunderstood Thanjavur Brahmin, Gopalaswami Ayyangar (Minister without portfolio in the first Union Cabinet, a former Diwan to Maharajah Hari Singh of Jammu and Kashmir, and the principal drafter of Article 370). Ayyangar argued that for a variety of reasons Kashmir, unlike other princely states, was not yet ripe for integration. India had been at war with Pakistan over Jammu and Kashmir and while there was a ceasefire, the conditions were still unusual and abnormal. Part of the States territory was in the hands of rebels and enemies. The involvement of the United Nations brought an international dimension to this conflict, an entanglement which would end only when the Kashmir problem is satisfactorily resolved. Finally, Ayyangar argued that the will of the people through the instrument of the [J&K] Constituent Assembly will determine the constitution of the State as well as the sphere of Union jurisdiction over the State. In sum, there was hope that J&K would one day integrate like other States of the Union (hence the use of the term temporary provisions in the title of the Article), but this could happen only when there was real peace and only when the people of the State acquiesced to such an arrangement.

Second, did Sardar Vallabhbhai Patel oppose Article 370? To reduce the Nehru-Patel relationship to Manichean terms is to caricature history, and this is equally true of their attitude towards Jammu and Kashmir. Nehru was undoubtedly idealistic and romantic about Kashmir. He wrote: Like some supremely beautiful woman, whose beauty is almost impersonal and above human desire, such was Kashmir in all its feminine beauty of river and valley... Patel had a much more earthy and pragmatic view and as his masterly integration of princely states demonstrated little time for capricious state leaders or their separatist tendencies. But while Ayyangar negotiated with Nehrus backing the substance and scope of Article 370 with Sheikh Abdullah and other members from J&K in the Constituent Assembly (including Mirza Afzal Beg and Maulana Masoodi), Patel was very much in the loop. And while Patel was deeply sceptical of a state becoming part of India and not recognising ... [Indias] fundamental rights and directive principles of State policy, he was aware of, and a party to, the final outcome on Article 370. Negotiations Indeed, the synergy that Patel and Nehru brought to governing India is evident in the negotiations over Article 370. Consider this. In October 1949, there was a tense standoff between Sheikh Abdullah and Ayyangar over parts of Article 370 (or Article 306A as it was known during the drafting stage). Nehru was in the United States, where addressing members of the U.S. Congress he said: Where freedom is menaced or justice threatened or where aggression takes place, we cannot be and shall not be neutral. Meanwhile, Ayyangar was struggling with the Sheikh, and later even threatened to resign from the Constituent Assembly. You have left me even more distressed than I have been since I received your last letter I feel weighted with the responsibility of finding a solution for the difficulties that, after Panditji left for America ... have been created without adequate excuse, he wrote to the Sheikh on October 15. And who did Ayyangar turn to, in this crisis with the Sheikh, while Nehru was abroad? None other than the Sardar himself. Patel, of course, was not enamoured by the Sheikh, who he thought kept changing course. He wrote to Ayyangar: Whenever Sheikh Sahib wishes to back out, he always confronts us with his duty to the people. But it was Patel finally who managed the crisis and navigated most of the amendments sought of the Sheikh through the Congress party and the Constituent Assembly to ensure that Article 370 became part of the Indian Constitution. Third, is Article 370 still intact in its original form? One of the biggest myths is the belief that the autonomy as envisaged in the Constituent Assembly is intact. A series of

Presidential Orders has eroded Article 370 substantially. While the 1950 Presidential Order and the Delhi Agreement of 1952 defined the scope and substance of the relationship between the Centre and the State with the support of the Sheikh, the subsequent series of Presidential Orders have made most Union laws applicable to the State. In fact today the autonomy enjoyed by the State is a shadow of its former self, and there is virtually no institution of the Republic of India that does not include J&K within its scope and jurisdiction. The only substantial differences from many other States relate to permanent residents and their rights; the non-applicability of Emergency provisions on the grounds of internal disturbance without the concurrence of the State; and the name and boundaries of the State, which cannot be altered without the consent of its legislature. Remember J&K is not unique; there are special provisions for several States which are listed in Article 371 and Articles 371-A to 371-I. Fourth, can Article 370 be revoked unilaterally? Clause 3 of Article 370 is clear. The President may, by public notification, declare that this Article shall cease to be operative but only on the recommendation of the Constituent Assembly of the State. In other words, Article 370 can be revoked only if a new Constituent Assembly of Jammu and Kashmir is convened and is willing to recommend its revocation. Of course, Parliament has the power to amend the Constitution to change this provision. But this could be subject to a judicial review which may find that this clause is a basic feature of the relationship between the State and the Centre and cannot, therefore, be amended. Gender Bias Fifth, is Article 370 a source of gender bias in disqualifying women from the State of property rights? Article 370 itself is gender neutral, but the definition of Permanent Residents in the State Constitution based on the notifications issued in April 1927 and June 1932 during the Maharajahs rule was thought to be discriminatory. The 1927 notification included an explanatory note which said: The wife or a widow of the State Subject shall acquire the status of her husband as State Subject of the same Class as her Husband, so long as she resides in the State and does not leave the State for permanent residence outside the State. This was widely interpreted as suggesting also that a woman from the State who marries outside the State would lose her status as a State subject. However, in a landmark judgement, in October 2002, the full bench of J&K High Court, with one judge dissenting, held that the daughter of a permanent resident of the State will not lose her permanent resident status on marrying a person who is not a permanent resident, and will enjoy all rights, including property rights.

Finally, has Article 370 strengthened separatist tendencies in J&K? Article 370 was and is about providing space, in matters of governance, to the people of a State who felt deeply vulnerable about their identity and insecure about the future. It was about empowering people, making people feel that they belong, and about increasing the accountability of public institutions and services. Article 370 is synonymous with decentralisation and devolution of power, phrases that have been on the charter of virtually every political party in India. There is no contradiction between wanting J&K to be part of the national mainstream and the States desire for self-governance as envisioned in the Article. Separatism grows when people feel disconnected from the structures of power and the process of policy formulation; in contrast, devolution ensures popular participation in the running of the polity. It can be reasonably argued that it is the erosion of Article 370 and not its creation which has aggravated separatist tendencies in the State. Not surprisingly, at the opposition conclave in Srinagar in 1982, leaders of virtually all national parties, including past and present allies of the BJP, declared that the special constitutional status of J&K under Article 370 should be preserved and protected in letter and spirit. A review of its policy on Article 370, through an informed debate, would align todays BJP with the considered and reflective approach on J&K articulated by former Prime Minister Atal Bihari Vajpayee. Only then would the slogans of Jhumuriyat, Kashmiriyat and Insaniyat make real sense.

Not only Telangana

UPA has missed the moment to set up a second states reorganisation commission. Should Telangana be India's 29th state? My answer is two-fold. Telangana deserves statehood, but the process followed was wrong. Though the demand for Telangana is old, the government's decision appears to be electorally driven. Of the six largest states Uttar Pradesh (80 seats), Maharashtra (48), Andhra Pradesh (42), West Bengal (42), Bihar (40) and Tamil Nadu (39) the Congress party is politically significant only in Andhra Pradesh and Maharashtra. Indeed, with 33 seats won, Andhra was the single largest prize for the Congress in 2009. A separate Telangana can potentially save half of those seats for the party in 2014; otherwise, statewide erosion is more likely. Could the electoral logic be clearer? We know that public policies are often linked to electoral motivations in democratic politics, but that is not a defensible reason to restructure political institutions. A distinction between policies and institutions is usually drawn in scholarship. By and large, policies tend to be

more amendable than institutions. Once made, it is very hard to unmake institutions. A food security bill is not the same as forming a new state. To evaluate Telangana's case, we must begin with the original principles of Indian federalism. India's freedom movement had committed itself to language-based federalism in 1920. Gandhi could clearly see that India's linguistic communities were too deep-rooted to be erased into an undifferentiated Indian nation. Unlike Europe, which had a onelanguage-one-nation formula, India would be a multilingual nation. Indians would have hyphenated identities: Tamil Indians, Bengali Indians, Gujarati Indians etc. In Europe, each of these linguistic communities would have been a separate nation. Gandhi and the Congress party delinked nation from language. Despite this larger understanding, Nehru was unsure about the idea of linguistic states after Independence. Partition violence had been horrific: Nehru became wary of social identities that might unleash mass passions. He wanted economic interests to form the bedrock of politics. Economically constructed politics would bring modernity; politics based on identities would set the nation back. In 1952, when intense rioting followed the death of an Andhra leader fasting to separate the Telugu-speaking parts of Madras, a moment of truth arrived. Delhi created a new Andhra state. Nehru explained the rationale thus: "I am quite sure that it is not a good thing for the Telugu-speaking areas to be formed into a separate state. Their state will be backward and financially hard up... However, that is their lookout. If they want the state, they can have it on the conditions we have stated." Nehru thus conceded the primacy of the democratic principle over personal belief. More importantly, he did not confine himself to an individual decision; recognising the larger implications of an Andhra state, he set up a State Reorganisation Commission (SRC) to advise the government on how to reorganise India's states. A linguistic reorganisation of Indian federalism followed. Logically speaking, the creation of Telangana cannot be a stray decision, as there are several such demands Gorkhaland, Bodoland, Vidarbha. UP too is a geographical monstrosity. The BSP recommends splitting it into four states. By not taking the Nehruvian step towards considering larger institutional restructuring, the UPA has opened itself to the charge of electoral servility. In 2009, when the Telangana movement was at its peak, a new SRC could have been formed. It would have given its report by now.

Do the original principles of Indian federalism support a Telangana state? Telangana does not have a linguistic foundation distinct from Andhra. Both are Teluguspeaking. It is sometimes said that Telangana Telugu has a lot of Urdu words, whereas coastal Andhra's Telugu is "purer". But this can't be an argument for linguistic distinctiveness. Varanasi's Hindi is heavily Sanskritised, Lucknow's Hindi is Urduised. Both are simply two different varieties of Hindi. A linguistic community is often a large family. Not all children will be identical. More to the point, the linguistic principle has virtually, if not wholly, lost its relevance by now. All of India's major languages already have a territorial home. The latest round of state-making yielding Chhattisgarh, Jharkhand and Uttarakhand in 2000 was not linguistic. In the 1950s and '60s, along with religion, language was seen as India's greatest faultline. "Language riots" were endemic. In 1960, Selig Harrison predicted India's break-up along linguistic lines. As it turned out, once linguistic states were born, language riots virtually disappeared. Survey data show that national feeling is very strong in India today; instead of undermining faith in India, linguistic states pre-empted political alienation and facilitated greater mass participation in democratic politics. Political scientists are convinced that the linguistic reorganisation of India was a great success. David Laitin, a leading scholar of language politics, has written that if Europe ever turned into a more integrated political union, India's three-language formula would be a model to follow. But if language has ceased to be the larger criterion for state-making in India and Telangana does not have a distinctive linguistic identity either, what could be the grounds for Telangana's separation? Three arguments are worthy of consideration: economic, political and cultural. The economic argument is about Telangana's underdevelopment. Telangana, the heart of the Nizam's Hyderabad state, was part of princely India; coastal Andhra was in the directly administered British India. The Nizams showed no interest in industry or mass education, concentrating instead on aristocratic privileges and palaces. This was tragic, for unlike their Northern counterparts, Southern princely states Mysore, Travancore, Cochin were ahead of British India on literacy.

In 1951, Telangana (excluding Hyderabad city, always a special case) had a literacy rate of 5 per cent, when coastal Andhra's literacy rate was three times as high. In 1956-7, only 19 per cent of Telangana's cropped land was irrigated, as opposed to 43 per cent in coastal Andhra. Telangana was also less urbanised and industrialised. By now, Telangana has more or less caught up. Comprising roughly 37 per cent of the state's population, it has 38-39 per cent of the state's primary schools, 46 per cent of high schools, 36 per cent of hospitals, 45 per cent of panchayat roads, 36 per cent of state roads and 44 per cent of power consumption. Excluding Hyderabad, its per capita regional product is roughly 7 per cent lower than coastal Andhra's. Instead of the great historical backwardness, Telangana now has a small lag, and the gap is narrowing. The political and cultural narratives are more compelling. Since the formation of Andhra Pradesh, chief ministers from Seemandhra coastal Andhra and Rayalaseema have ruled the state for 47 years; chief ministers from Telangana, only nine years. Especially since 1983, N.T. Rama Rao, Vijaya Bhaskara Reddy, N. Chandrababu Naidu and Y.S. Rajasekhara Reddy, all from the Seemandhra region, have dominated state politics. The current chief minister is from Rayalaseema. The cultural narrative is also striking. Charles Taylor, an influential political philosopher, has famously argued that "contemptible images" of a cultural community, consistently projected by a dominant group, can be legitimate ground for the politics of cultural assertion by the subordinate group. Telangana fits this description. Andhra's popular culture is dominated by its cinema, which is, in turn, controlled by coastal Andhra. Telangana intellectuals argue that thieves, hoodlums and idiots are the only characters who speak Telangana Telugu in Andhra films. The heroes and heroines are always coastal. Condescension and humiliation are systemic in politics, too. The Telangana movement simply represents the politics of dignity. In short, Telangana may have caught up economically, but the political and cultural marginalisation is acutely felt. It is a feeling likely to resonate in Gorkhaland and elsewhere. To resolve these arguments on a systemic basis and to set up the contemporary grounds of state formation, India needed a second SRC. In 2000, the NDA lost an institutional moment to do so. In 2013, the UPA has repeated the mistake.

By setting unreasonable limits

Limits on election spending only empower the politically connected and further marginalise those with no resources Gopinath Munde's revelation about spending Rs 8 crore for his election during the 2009 elections has opened an important and necessary debate on campaign finance in India. The Election Commission, given the law of the land, has served him a notice to explain, within 20 days, the difference in the amount he filed as his account of election expenditure (Rs 19.36 lakh) and his "publicly admitted" amount on June 27. The income tax department has also sent him a notice. Munde and his lawyers will look for ways to produce a written explanation that will try to save him from disqualification or other punishment stipulated by law. However, even if they succeed in clarifying the expenditures made by Munde, it is still an open question as to where he got the Rs 8 crore to spend on campaigning, when his affidavit filed in 2009 suggests that he had assets worth Rs 6.2 crore and approximately Rs 4.5 crore in liabilities. Our concern is very different from the legal issues raised by the case. We believe that given Munde's political experience, his statements have to be taken seriously when he points towards an obvious problem in the limits placed on campaign expenditures set by the government of the day in consultation with the EC. In our opinion, a limit on election expenses set by the government should be reflective of the actual cost of campaigning. Ideally, every candidate should have the ability to reach every voter in a constituency. After all, shouldn't voters make informed choices? Many civil society activists have argued that the limits on campaign expenditures are often exceeded because candidates are parachuted to contest in a constituency by a party from some other place. Candidates, therefore, have no idea about their constituency, and do not have enough workers on the ground during election season. Well, it would be hard to charge Munde with this. He was born in Beed, began his political career much before Emergency was declared in 1975, contested his first state assembly election in 1977, got his first electoral success in 1978 in the zila parishad election in his hometown, won the Renapur state assembly seat in 1980, was president of the Maharashtra unit of the BJP's youth wing and in 1986, became the youngest state president of a political party. Munde has been an MLA for five terms, the leader of the opposition in the Maharashtra state assembly, the state's deputy chief minister between 1995 and 1999, and is currently the deputy leader of the opposition in Lok Sabha. Given Munde's political stature in a career spanning a little

more than four decades, it should not be hard to imagine the team of volunteers he must have at his command. Munde is hardly alone in reporting election expenses that are far lower than the limit set by the government and enforced by the EC. Table 1, drawn from election expenditure collated by the Association for Democratic Reforms (ADR) suggests that Munde's expenses are not very different from those of other leaders. A brief look at the table suggests that most politicians report spending between 10 paise and just over Re 1 per voter in their constituency. The low level of expenditure reported to reach each voter is, quite frankly, too low to be real. There are two ways to observe the impossibility of the low numbers used by politicians for their campaigns. First, the EC spends far more per constituency on average to conduct elections than the government permits each candidate to spend in a constituency. Estimates suggests that the EC spent Rs 1,300 crore on the 2004 general elections. In short, the EC spent approximately Rs 4 crore per Lok Sabha constituency, despite the fact that it doesn't have to bear costs such as rent for school or panchayat bhavan premises, which are used as polling stations, or to hire poll workers. Candidates not only have to rent election offices and vehicles, pay some basic amount to their volunteers, print posters and banners, but also bear other miscellaneous costs. To put this in the context of Munde in 2009, his constituency, Beed, had an electorate of approximately 16.5 lakh and 2,128 polling stations. Whether Munde should have spent Rs 8 crore is a different matter altogether. But in no possible way could he have run a campaign in Rs 25 lakh (the limit during the 2009 elections), or have spent less than the average cost the EC had to bear in Beed. While we do not have the actual expenditures incurred on the conduct of elections in the past few years, the Comptroller and Auditor General's report details expenses incurred for elections from 2008-09 through 2010-11 (Table 2). This data suggests that the conduct of elections costs more than the amount allocated to each candidate to contest an election, when there is no reason to believe that the expenses incurred by candidates should be lower than those of the EC. Second, in an ideal world, each candidate would reach every voter in a constituency to offer voters an informed choice. Survey researchers normally charge about Rs 350 per respondent interviewed. Contacting a voter should, understandably, be cheaper than interviewing a voter. Yogendra Yadav estimates that it would cost Rs 100 for a candidate to reach a voter (Yadav argues for state funding of elections and estimates the cost to the exchequer to be around Rs 8,000 crore if 80 million voters turn out to vote during an

election cycle). If we take the Rs 100 at face value, it would cost about Rs 15 crore to mobilise all voters in a constituency with an electorate of 15 lakh. Of course, the costs would be different in more densely populated areas. The level of expenditure associated with running a campaign does raise moral concerns about the role of money in elections in a poor country. The government and the EC have imposed these limits ostensibly to ensure a level playing field among all contestants. It is hard to level a playing field by limiting expenditures, especially when governing parties use their incumbency advantages by allocating state resources to voters through government schemes or through MPLADS or MLALADS. To conclude, no one can argue against trying to increase transparency and accountability in our political system. But we urge the government to think seriously about unintended consequences before enacting new rules. If the limits set for election expenses are lower than they should be, it is important that the government, in consultation with the EC, revise them. Setting unreasonable limits only leads to unaccounted funds entering the political arena. Those who benefit from access to politicians are more than willing to supply these funds under the table. Civil society activists may demand new laws in the name of the "aam aadmi" to curb the role of illegal money in politics, but often, those demands, as with limits to election spending, only empower those who are politically connected, and further marginalise those with no resources or enthusiasm for the tumult of electoral politics.

What Caused East Asias Financial Crisis?

The collapse of the Thai baht in July 1997 was followed by an unprecedented financial crisis in East Asia, from which these economies are still struggling to recover. A great deal of effort has been devoted to trying to understand its causes. One view is that there was nothing inherently wrong with East Asian economies, which have historically performed very well. These economies experienced a surge in capital inflows to finance productive investments that made them vulnerable to a financial panic. That panicand inadequate policy responsestriggered a region-wide financial crisis and the economic disruption that followed (Sachs and Radelet 1998). An alternative view is that weaknesses in Asian financial systems were at the root of the crisis. These weaknesses were caused largely by the lack of incentives for effective risk management created by implicit or explicit

government guarantees against failure (Moreno, Pasadilla, and Remolona 1998 and others cited below). The weaknesses of the financial sector were masked by rapid growth and accentuated by large capital inflows, which were partly encouraged by pegged exchange rates. While the two views are not mutually exclusive, their policy implications vary greatly. If a panic unrelated to fundamentals fully explains Asias financial crisis, reforms in the economic structure or in financial sector policy are not essential in planning Asias recovery. If, however, weaknesses in the financial sector were important contributors to the crisis, reforms are indeed essential. To shed further light on this question, this Economic Letter briefly reviews Asias recent financial crisis and the two alternative views of its cause. Boom and bust in Asia Operating in an environment of fiscal and monetary restraint, most of East Asia enjoyed high savings and investment rates, robust growth, and moderate inflation for several decades. Starting in the second half of the 1980s, rapid growth was accompanied by sharp increases in asset values, notably stock and land prices, and in some cases by rapid increases in short-term borrowing from abroad. After the mid-1990s a series of external shocks (the devaluation of the Chinese remnimbi and the Japanese yen and the sharp decline in semiconductor prices) adversely affected export revenues and contributed to slowing economic activity and declining asset prices in a number of Asian economies. In Thailand, these events were accompanied by pressures in the foreign exchange market and the collapse of the Thai baht in July 1997. The events in Thailand prompted investors to reassess and test the robustness of currency pegs and financial systems in the region. The result was a wave of currency depreciations and stock market declines, first affecting Southeast Asia, then spreading to the rest of the region. In the year after collapse of the baht peg, the value of the most affected East Asian currencies fell 35-83% against the U.S. dollar (measured in dollars per unit of the Asian currency), and the most serious stock declines were as great as 40-60%. Disruptions in bank and borrower balance sheets have led to widespread bankruptcies and an interruption in credit flows in the most severely affected economies. As a result, short-term economic activity has slowed or contracted severely in the most affected economies.

Interpreting the crisis The economic shocks affecting East Asia were not followed by a normal cyclical downturn, but what some describe as runs on financial systems and currencies. Some argue that these runs reflected a classic financial panic that did not reflect poor economic policies or institutional arrangements. As is well known, even well-managed banks or financial intermediaries are vulnerable to panics, because they traditionally engage in maturity transformation. That is, banks accept deposits with short maturities (say, three months) to finance loans with longer maturities (say, a year or longer). Maturity transformation is beneficial because it can make more funds available to productive long-term investors than they would otherwise receive. Under normal conditions, banks have no problem managing their portfolios to meet expected withdrawals. However, if all depositors decided to withdraw their funds from a given bank at the same time, as in the case of a panic, the bank would not have enough liquid assets to meet its obligations, threatening the viability of an otherwise solvent financial institution. As pointed out by Radelet and Sachs (1998), East Asian financial institutions had incurred a significant amount of external liquid liabilities that were not entirely backed by liquid assets, making them vulnerable to panics. As a result of this maturity transformation, some otherwise solvent financial institutions may indeed have been rendered insolvent because they were unable to deal with the sudden interruption in the international flow of funds. However, it is apparent that this is not the entire story, as the impact of the crisis varied significantly across economies. In particular, as investors tested currency pegs and financial systems in the region, those economies with the most vulnerable financial sectors (Indonesia, South Korea, and Thailand) have experienced the most severe crises. In contrast, economies with more robust and well-capitalized financial institutions (such as Singapore) have not experienced similar disruptions, in spite of slowing economic activity and declining asset values. Indeed the collapse of the Thai baht in July 1997 and of the Korean won in the last quarter of 1997 were preceded by signs of significant weaknesses in the domestic financial sector, notably an inability by domestic borrowers to service their debts. In Indonesia, it became apparent after the crisis that domestic lenders could not monitor adequately the financial condition of their borrowers, a situation that worsened the severity of the crisis. This suggests that understanding what factors contributed to weaknesses in the financial sectors of the most affected economies may help make them less vulnerable to financial crises in the future.

Lack of incentives for risk management Two characteristics common in countries that have experienced financial crises were present in a number of East Asian economies. First, financial intermediaries were not always free to use business criteria in allocating credit. In some cases, well-connected borrowers could not be refused credit; in others, poorly managed firms could obtain loans to meet some government policy objective. Hindsight reveals that the cumulative effect of this type of credit allocation can produce massive losses. Second, financial intermediaries or their owners were not expected to bear the full costs of failure, reducing the incentive to manage risk effectively. In particular, financial intermediaries were protected by implicit or explicit government guarantees against losses, because governments could not bear the costs of large shocks to the payments system (McKinnon and Pill 1997) or because the intermediaries were owned by Ministers nephews (Krugman 1998). Krugman points out that such guarantees can trigger asset price inflation, reduce economic welfare, and ultimately make the financial system vulnerable to collapse. The importance of implicit government guarantees in the most affected economies is highlighted by the generous support given to financial institutions experiencing difficulties. For example, in South Korea, the very high overall debt ratios of corporate conglomerates (400% or higher) suggest that these borrowers were ultimately counting on government support in case of adverse outcomes. This was confirmed by events in 1997, when the government encouraged banks to extend emergency loans to some troubled conglomerates which were having difficulties servicing their debts and supplied special loans to weak banks. These responses further weakened the financial position of lenders and contributed to the uncertainty that triggered the financial crisis towards the end of 1997. Why a crisis now? Since weaknesses in East Asian financial systems had existed for decades and were not unique to the region, why did Asia not experience crises of this magnitude before? Two explanations are likely. First, rapid growth disguised the extent of risky lending. For many years, such growth allowed financial policies that shielded firms that incurred losses from the adverse effects of their decisions. However, such policies would make economies highly vulnerable during periods of uncertainty. Second, innovations in information and

transactions technologies have linked these countries more closely to world financial markets in the 1990s, thus increasing their vulnerability to changes in market sentiment. Closer integration with world financial markets adds dimensions of vulnerability that are not present in a closed economy. In a closed economy, bad loans caused by risky lending may not lead to a run because depositors know that the government can supply enough liquidity to financial institutions to prevent any losses to depositors. In an open economy, that same injection of liquidity can destabilize the exchange rate. As a result, during periods of uncertainty, runs or speculative attacks on a currency can be avoided only if the holders of domestic assets are assured that the government can meet the demand for foreign currency. Those East Asian economies where foreign exchange reserves were large relative to their short-term borrowing (Philippines, Malaysia, and Taiwan) were in a better position to provide such assurances than those economies where such reserves were relatively low (South Korea, Indonesia, and Thailand). (Singapore and Hong Kong are excluded from this comparison because their role as offshore financial centers clouds interpretation of the data.) Financial sector vulnerability was accentuated by a tendency not to hedge foreign currency borrowing in countries with pegged exchange rates. Market participants may have interpreted currency pegs as implicit government guarantees against the risk of currency volatility (Dooley 1997), backed by foreign reserves that would be made available through central bank currency intervention. While the absence of hedging significantly lowered the cost of funds (in the short run) for those firms with access to foreign credit, the consequent mispricing of foreign credit contributed to excessive capital inflows and the vulnerability of borrowers with heavy exposure to foreign currency loans. The lack of hedging also added to the instability in Asian financial markets once the crisis hit. The high cost of abandoning currency pegs induced policymakers to adopt harsh contractionary measures (involving skyrocketing interest rates) to defend the exchange rate, even when the pegs were unsustainable in the face of adverse market sentiment. The efforts of market participants to cover previously unhedged foreign currency exposure after the onset of the crisis further weakened Asian currencies. After the pegs collapsed, borrowers who had not hedged their foreign currency borrowing had difficulty servicing their debts and, in some cases, went bankrupt, thus worsening the crisis.

Conclusion A review of East Asias experience suggests that while a classic panic may have played a role, financial sector weaknesses were a major contributor to the recent financial crisis. Such weaknesses appear to reflect the inability of lenders to use business criteria in allocating credit and implicit or explicit government guarantees against risk. This implies that it would be prudent to accompany efforts to spur recovery in East Asia by reforms designed to strengthen the financial system.

The meaning of Tahrir

It is now a reference for a flawed, dangerous but ever popular inclination. The Arab Spring, such as it has been, began with the self-immolation of a Tunisian street vendor, but its epicenter has been nowhere else but Cairo. Ever since early 2011, to utter the word "Tahrir" was to reference not just a square in Egypt's capital, but the resolve of a people anywhere in the world to force their government to bend to the voice from the street even with the Occupy movements in mature democracies, including New Delhi's own Jantar Mantar sit-ins. The reference almost became trite. But that was then. Because one fine June day this year, Tahrir Square filled up with Egyptians seeking to put Mohammed Morsi, their first democratically elected president, on notice, paving the way for his dismissal in what they still refuse to call a military coup and arguably foretelling these past hours of a dreadful bloodbath. Is this, the outright assumption of power by Egypt's anyway deeply entrenched military, only a blip in the longer arc of democratic change in the country, or is it a firm end to the promise of representative government that followed from Hosni Mubarak's overthrow? Who can say yet? It does, nonetheless, fall into a pattern tracked in a recent study of democracy worldwide. The title of Joshua Kurlantzick's book sums up his thesis: Democracy in Retreat: The Revolt of the Middle Class and the Worldwide Decline of Representative Government. It brims with phrases like "democratic meltdowns", "freedom recession", "democratic recession", "highly deficient democracies", sourcing diverse studies to make the point. One of them is especially relevant to the Arab Spring after this week's events: "One of the key factors in determining whether a country will democratize is the international and regional climate... when powerful countries fail to democratize, this diffusion works in reverse, hindering the cause of democratic change in the entire region." The prospect of destabilizing polarization in Egypt is obvious, but given the country's centrality in Arab

politics, the effect for the opening up of its neighbors is, too no wonder the dominant monarchies in the region seem so relieved. The middle class is a variegated category, and it is dangerous to make comparisons across societies. But may we make the argument that, after the "mandate" the mid-July gathering gave General Abdel Fattah el-Sisi for his post-Morsi manoeuvring, Tahrir, post-June, is now a reference for a flawed, dangerous but ever popular inclination? That it caps a rising tendency to use the headcount from the street to try to undermine the representative mandate of democratically elected governments? It happened in Brazil this year, it is a sporadic affliction in Thailand (once the poster case for the democratization of Southeast Asia), and of course el-Sisi uses this false equivalence for the military's power grab in Egypt. Taken together, the three reflect the importance of institutions of viable checks and balances in mediating in a legitimate way a resolution and keeping every stakeholder accountable. They also ask the depressing question whether those polities that are behind the curve on working out an institutional balance can actually even hope to catch up whether, indeed, the current wave of "Arab Spring" democratization is doomed, at least for now. To say that Brazil's leaders were caught unawares at the speed with which the protest on public transport spread to encompass attempts to rewrite the social contract would be an understatement. But President Dilma Rousseff, staggering as it must have been for her to see constituencies that had been hers in open revolt, dug deep and offered to open the possibility of political reform to include the concerns voiced on corruption and public spending. Her approval rating is rising once again, and it would not be a risky wager to say the system may emerge stronger yet. In Thailand, the battle of the so-called Red and Yellow Shirts still simmers. As Kurlantzick shows, the country is the most fascinating site for anybody even remotely interested in the mechanics of determining representativeness in a democracy. The colour-coded battle denotes the struggle between the numerically greater Red Shirts (supporters of Thaksin Shinawatra, long in exile while his sister Yingluck is currently prime minister) and the Yellow Shirts (basically the Bangkok- centric middle and upper classes, with deep connection to the ever-powerful palace and military). Thaksin and his proxies have the confidence of winning any election outright, coasting on a populist programme but also harnessing the anxieties in the countryside of political exclusion by Bangkok; the Yellow Shirts, in turn, seek a reduction in the number of elected seats in the parliament, so that the

presumably wise counsel from the palace/ army can restrain populist impulses besides keeping the elite's interests unharmed. Each side has the staple tactic of occupying Bangkok's already clogged streets to make its point. The sad fallout is not just that Thai society is divided horizontally, but that the polarisation obstructs an inclusive conversation that would address the rightful legitimacy of electoral majorities, as well as the need for institutional checks on the overreach and creeping authoritarianism of those who rule in their name. Both camps are still in the game, and its progress will be illuminating. But Egypt. Has the blunt instrument of military coup and then police action ended the country's chance at representative rule? Morsi may have a lot to answer for on his missteps, but right now, the interrogative spotlight must be on the military.

The clash within

The Arab world is entering a long period of intra-state and intra-regional instability Thomas L. Friedman I guess it's official now: The term "Arab Spring" has to be retired. There is nothing springlike going on. And so the strategist Anthony Cordesman is probably right when he argues: It's best we now speak of the "Arab Decade" or the "Arab Quarter Century" a long period of intra-state and intra-regional instability, in which a struggle for both the future of Islam and the future of the individual Arab nations blend together into a "clash within a civilisation." The ending: TBD. When the Arab Spring first emerged, the easy analogy was the fall of the Berlin Wall. It appears that the right analogy is a different central European event the Thirty Years' War in the 17th century an awful of mix of religious and political conflict, which eventually produced a new state order. Some will say: "I told you so. You never should have hoped for this Arab Spring." Nonsense. The corrupt autocracies that gave us the previous 50 years of "stability" were just slowmotion disasters. Read the UN's 2002 Arab Human Development Report about what deficits of freedom, women's empowerment and knowledge did to Arab peoples over the last 50 years. Egypt, Tunisia, Libya, Yemen and Syria are not falling apart today because their leaders were toppled. Their leaders were toppled because for too many years, they failed too many of their people.

Also, "we" did not unleash the Arab Spring, and "we" could not have stopped it. These uprisings began with fearless, authentic quests for dignity by Arab youths, seeking the tools and freedom to realise their full potential. But no sooner did they blow the lids off their societies, seeking governments grounded in real citizenship, than they found themselves competing with other aspirations set loose aspirations to be more Islamist, more sectarian or to restore the status quo ante. Still, two things surprise me. The first is how incompetent the Muslim Brotherhood has been. In Egypt, the Brotherhood has presided over an economic death spiral and a judiciary caught up in idiocies. Every time the Brotherhood had a choice of acting in an inclusive way or seizing more power, it seized more power, depriving it now of the broad base needed to make necessary but painful economic reforms. The second surprise? How weak the democratic opposition has been. The tragedy of the Arab centre-left is a complicated story, notes Marc Lynch, a Middle East expert at George Washington University. Many of the more secular, more pro-Western Egyptian political elites who could lead new centre-left parties, he said, had been "co-opted by the old regime" for its own semi-official parties and therefore "were widely discredited in the eyes of the public." That left youngsters who had never organised a party, or a grab bag of expatriates, former regime officials, Nasserites and liberal Islamists, whose only shared idea was that the old regime must go. The old sources of stability that held this region together are gone. No iron-fisted outside powers want to occupy these countries anymore, because all you win today is a bill. No ironfisted dictators can control these countries anymore, because their people have lost their fear. The first elected governments led by the Muslim Brotherhood have the wrong ideas. More Islam is not the answer. More of the Arab Human Development Report is the answer. But the democratic opposition youths don't yet have leaders to galvanise their people around that vision. Given all this, America's least bad option is to use its economic clout to insist on democratic constitutional rules, regular elections and political openness, and to do all it can to encourage moderate opposition leaders to run for office. That is the only way these societies can give birth to their only hope: a new generation of decent leaders who can ensure that this "Arab Quarter Century" ends better than it began.

Seeds of change
Sharad Pawar's pitch for GM crops is well timed and persuasive. Union Agriculture Minister Sharad Pawar presented a strong argument in Lok Sabha on Tuesday on why it makes no sense to stall on the careful introduction of genetically engineered crops, given the demands of food security. Even as the Supreme Court ponders the question on scientific open field trials of these crops, there are sharp differences in the technical expert committee it set up. Meanwhile, the Biotechnology Regulatory Authority of India (BRAI) bill is waiting in the wings. Fears about genetically engineered plants have been swirling for years, but the big scares around public health and environmental impact have been steadily busted be it about pesticide-resistant superweeds, or such plants contaminating their "natural" neighbours and eradicating biodiversity. On the other hand, their demonstrable upsides improved yields and resistance to pests have made many farmers opt for Bt crops, even pirating them when they are not available. Bt cotton is what converted India into a cotton-exporting country. As Pawar stressed, farmers' enthusiasm for these seeds speaks for itself. What's more, over 350 million people in North America have been consuming GM foods for over 15 years. But despite having been a big biotech beneficiary in the 1960s, with the Green Revolution, India has been the site of bitter resistance to the idea. "Green" activists, suspicious of both technology and capitalism, continue to be absolutist on the matter, dismissing peer-reviewed scientific arguments, alleging corporate plots, declaring regulation untrustworthy. To make matters worse, policymakers have played right into this fear-mongering. The environment ministry went to the extent of instituting public hearings where activist prejudices were given the same credence as rigorously tested scientific evidence, and imposing a moratorium on Bt brinjal. The point is, scrupulous and disinterested scientific farm evaluations are the only way to find the facts, to test the claims of industry data as well as NGO orthodoxy. What is needed is comprehensive, case-by-case study of each GM crop, an analysis of risks and benefits, not a panicky ban. Given the rising burden of food security, and the pressure on land and water, science must be harnessed to improve agriculture and raise yields and those who are still wary of genetically engineered crops are free to choose the organic alternative. Ideology has no place in this debate, regulation does.

Keep the pause button on GM pressed

Questioning a technology, especially of the kind that has serious unknowns and lacks clear social benefits, is not an attack on science
Jairam Ramesh, former Environment Minister for India, made the brave decision in 2010 to tell his then apex regulator of genetically modified organisms (GEAC) that it had failed to properly use available science to determine the safety to human health and the environment of Bt brinjal, created using genetic modification (GM). His decision followed careful evaluation of the science. I was involved in Rameshs review. I read first hand the scientific evidence in my area of expertise provided to the GEAC and its responses. I was heartened to see that his decision was validated by the esteemed scientists that made up the Supreme Court Technical Expert Committee who have advised the Court on the need for better research and better process before continuing to release GM crops into the environment or using them as food. Creating confusion G. Padmanaban (Sow the wind, reap a storm, The Hindu, September 2) believes that the events surrounding the evaluation of Bt brinjal and now extending to other kinds of GM plants is an assault on science. He confuses science with technology. Science is the process of knowledge creation (or discovery) whereas technology is the means of knowledge application. This confusion causes some scientists to defend technologies that are questioned because they perceive questions on the technology as an attack on science. It is not. There is much knowledge discovered or to be discovered that cannot be applied wisely at least not now. GM plants are among the technologies that have both serious scientific unknowns and lack a clear social benefit at least for now. For over 30 years, GM has been promised to produce plants that will resist the stresses of drought, heavy metals and salt, that will increase yield, reduce the use of toxic pesticides and even fix their own nitrogen. To be fair, some GM crops have reduced the use of some toxic insecticides for a brief period. To be precise, though, none of these promises has been sustainably delivered to farmers. Why not? Well, it isnt complex regulation holding them back. By the year 2005, over 1,000 applications were approved to field trial stress-tolerant GM plants in the United States alone. None ever progressed out of the testing phase. The explanation for this is likely because stress tolerance is not a solution to the causes of stress. No matter how tolerant you make the plant to drought, using it in soil low in organic matter and unable to hold water will eventually further deplete the soil of moisture and the plant will struggle or die. GM is an attempt to use genetics to overcome the environment. This never works for long. That is why some call GM a distraction from investing in real solutions to the problems faced by real farmers. A symptom Herbicide use is increasing in the U.S. since it adopted GM maize (corn), soybeans and cotton. Insecticide use is down by a small bit, but extremely high compared to countries such as France which do not use GM crops. Western Europes maize yields match or exceed the U.S. yields using less pesticide. The yields in wheat and oilseed rape are increasing at an even faster rate in Western

Europe than in the U.S. and Canada. This indicates a dangerous trend: those countries choosing to innovate in agriculture using GM are demonstrating lower productivity increases and greater dependence on chemical inputs in all crops compared to economically and environmentally comparable countries choosing to not use GM crops. What is it about investing in GM products that seems to undermine other technologies in agriculture? GM products attract the strictest intellectual property (IP) rights instruments possible in agriculture (e.g., process patents). The use of those instruments concentrates investment and drives out simple but even more effective technologies. Now every government research centre and public university seeks to compensate for the fall in direct public investment through licensing royalties from IP and the creation of partnerships with the private sector. This necessarily changes the kinds of questions they favour being asked by their researchers, the kind that will be supported by institutional resources or rewarded with promotion. With these policies in place we shouldnt be surprised that every problem looks like it has a GM solution even to researchers who claim to have no entrepreneurial motivations. Prof. Padmanabans ambition for a crop that provides all nutritional needs and grows everywhere demonstrates the poverty of the GM approach to hunger and malnourishment. Such a crop would quickly become obsolete as it would also serve as a wonderful meal for every conceivable form of pest. Meanwhile, it would undermine both biological and agricultural diversity as it became a weed in its own right. Instead of that approach, supporting communities with education on nutrition and farmers with technologies that build up their soils, manage pests with little or no application of pesticide and manufactured fertilizers gives them the means and independence to grow a variety of crops and livestock to meet their dietary needs and sell their surplus in local markets. This investment in agriculture is not as good at making intellectual property, but better for growing food. To properly support Indias mainly small holder farming requires removing the penalties and incentives on the public scientist to develop primarily technologies that bring direct revenue to their institutions. Instead, invest in them with public money and measure their success by the yields of farmers, the reduction of pesticides and fertilizer they use, and the increase in their wealth and health. No missed opportunities India is not missing out on the benefits of GM. So far, there havent been any proven to exist, or proven to be sustainable. GM crops are not designed to increase intrinsic yield and the largest scale and longest term studies bear out that they dont yield more. Meanwhile, the cost of GM seeds is the fastest growing expense for U.S. farmers who are simultaneously suffering from weeds resistant to the herbicides excessively used on GM crops and pests resistant to the insecticides over-used in Bt crops. That likely would be Indias experience had it commercialised Bt brinjal which was developed with the least effective form of Bt for the target pest.

In addition, the safety issue still lingers over these products. It shouldnt. The science needed to establish their safety exists and is affordable but it must be applied dispassionately and transparently. That is all Jairam Ramesh asked. Claiming that GM crops are demonstrated safe by the absence of specific health claims from Americans is glib. There are no validated health surveillance programmes in the U.S. which could both detect and diagnose the cause of the most likely manifestations of harm if they do exist. Meanwhile, more research studies accumulate with evidence of adverse effects, some quite serious. These studies require replication, but they run into roadblocks or fail to find new funding. Most often these studies report low level health effects using animal feeding studies, so it is not clear whether the effect would be the same, more or less in humans and more or less likely to be caused using GM plants cooked and processed, as humans eat them, rather than raw or processed the way they are provided to test animals. Hunger, pestilence, and economic failure are the images of fear increasingly being used to drive acceptance of GM crops. Ignorance, anti-science, ideology and hypocrisy are the insults used to counter questions about the safety of GM crops coming from scientists and the public. What is right for Indias agriculture is too important a question to leave to fear and insult to decide. I think that both Ramesh and the scientists of the Technical Expert Committee knew this when they asked India to pause on the use of GM products. Pause so that all voices can be heard. Reflect on what the problems are and whether technologies solve them or mask them for a time, or even make them worse later.

259 million tonnes foodgrains could grow on our fields

Government has set a target of 259 million tonnes of foodgrains production in the year 2013-14. Various crop development programmes/schemes are underway to help State Governments for achieving production targets of various crops. Programmes like Rashtriya Krishi Vikas Yojana (RKVY), National Food Security Mission (NFSM), Integrated Scheme on Oilseeds, Pulses, Oil Palm and Maize (ISOPOM), Bringing Green Revolution to Eastern India (BGREI), Initiative for Nutritional Security through Intensive Millets Promotion (INSIMP), Nutri-Farms Scheme, Special Programme on Oil Palm Area Expansion (OPAE), Crop Diversification Programme, etc. are being implemented for increasing production and productivity of different field crops. Under these programmes, various activities are being taking up, including demonstration on high yielding varieties/hybrids, distribution of seed of improved varieties/hybrids, need based plant protection and soil amendments, resource conservation techniques/ energy management, efficient water application tools, and cropping system based trainings.

Food-Security-Bill- 2013
On Monday, August 26, 2013, the Lok Sabha passed the Food Security Bill, initiated by the ruling party Congress, worth almost $18 billion. This bill was passed after intense deliberations and discussions between various parties in the house. The Food Security Bill seeks to provide cheap foodgrains to almost 82 crore people in India. All states were consulted while drafting the bill and recommendations have been duly taken into consideration.

Once the bill gets approved in Rajya Sabha, India will join the league of countries that provide guaranteed foodgrains to majority of its population. Surveys held last year estimated that 40 percent of children in the country are malnourished. At Rs. 1,30,000 crore, this food programme would be the largest in the world and would require about 62 million tonnes of foodgrains. Titled the game-changer, the scheme provides 67 percent of the population (including 75 percent rural and 50 percent urban) would get subsidized grains under the Targeted Public Distribution System (TPDS). The rates at which it would be available is Rs.3 for rice, Rs.2 for wheat and Rs.1 for bajra, jowar. Its cost of Rs. 1.3 lakh crore is a considerable increase from the current food subsidy bill of Rs. 75,000 crore of 2012-13. About 2.43 crore poorest of the poor families covered under the Antyodaya Anna Yojana (AAY) scheme under PDS (Public Distribution System) would get legal entitlement to 35 kg of foodgrains per family per month. Some existing schemes have been included within this Food Security scheme. These include midday meals, meals for children between 6 months - 2 years with their mothers and Integrated Child Development Scheme (ICDS) for children below 6. Some issues that would still need to be addressed remain. States would need to identify beneficiaries, which could take awhile as exclusion criteria hasnt been set. Also, the Centre would be required to share transport costs and commissions, which has to be yet worked out. Storage capacity would also need to be augmented. Mixed Reactions Following the implementation, it is expected that the costs involved would push up Indias current account deficits. It would add a staggering amount to the tune of 230 billion rupees annually to the existing 900 billion rupee food subsidy bill. Indias procurement for the scheme could lead to increase in world food prices in case of drought and under procurement. This scheme has also been criticized by those who claim that procurement of estimated amount could divert foodgrains from the private sector and increase inflationary pressures. The scheme also led to misgivings that in the already corrupt system, it would lead to further pilfering of food stocks for selling in black markets. It could even lead to huge wastage produce due to inadequate storage facilities. While the bill was passed in the lower house, it obviously draws a host of reactions from other political parties as well as financial and market analysts. The prime opposition party, BJP, dubbed it as being half -baked and weak and even called it a vote security bill initiated in view of the elections coming up. While the BJP reacted that the bill does not cover enough of the population, it still voted in favour. While the government assured farmers that the passing of this bill would in no way put an effect on the MSPs, the Samajwadi Party (SP) raised doubts on the bill that it does not guarantee that all produce would be bought by the government. Financial analysts also expressed their uncertainties behind launching another bill that aims to reduce malnutrition, especially when around 38 years ago in 1975, the ICDS was launched with the same aim. On reactions from actual beneficiaries of the scheme, a number of people commented that government stores, which sell foods at subsidized rates, always seem to be out of stock.

Crop Insurance in India

Crop insurance programs act as a support system to over 25 million insured farmers in India. With two-third of the population dependant on agriculture, a well-thought out insurance program is important to protect farmers from the perils of crop failure. The first crop insurance scheme was introduced in 1972 by the General Insurance Department of Life Insurance Corporation of India on H-4 cotton in Gujarat. Eventually it was extended to several other crops across various cities. This scheme was based on Individual Approach, which was eventually discontinued due to non -viability. Subsequently, several other insurance schemes were introduced. Presently, four insurance schemes are being implemented across the country. National Agricultural Insurance Scheme (NAIS): was started in Rabi 1999-2000 to provide cover in case of crop loss due to natural calamities, pests and diseases. Implemented by the Agriculture Insurance Company of India (AIC), premium rates are 3.5% per cent (of sum insured) for bajra and oilseeds, 2.5% for other Kharif crops; 1.5% for wheat and 2% for other Rabi crops. Over 1930 lakh farmers have been covered. Modified National Agricultural Insurance Scheme (MNAIS): An improvement on the NAIS and features several farmer-friendly clauses. Since its inception in 2010-11, it insured over 33.26 lakh farmers. Weather Based Crop Insurance Scheme (WBCIS): WBCIS provides insurance to farmers against adverse weather incidence, such as high/low rainfall, temperature fluctuations, humidity, etc. which adversely affect outputs. Along with AIC, several private players are also involved in its implementation. Since it was started in 2007, over 323.74 lakh farmers have been covered. Coconut Palm Insurance Scheme (CPIS): Applicable in specific areas of Andhra Pradesh, Goa, Karnataka, Kerala, Maharashtra, Orissa and Tamil Nadu. Sum insured in based on average input cost of the plantation and the age of the specific plant from Rs.600-Rs.1150 per palm. Over 27.66 lakh farmers have been insured till date. To provide easy claims settlements and renewals, United India Insurance launched a web portal, which would enable insurance agents to check data on real-time basis and settle claims faster. Recently, Reliance General Insurance also entered the market with its weather and yield-based insurance systems.

NZ Dairy Ban May Prove Gainful for India

India, the world's biggest milk producer, hopes to seize on a New Zealand dairy product contamination scare to increase its exports and add market share in China and other emerging Asian countries. India's milk production is likely to rise almost 5 percent in the year to next March to 133 million tonnes. Traditionally, most of that production stays at home as a protein staple for a population of 1.2 billion, but with domestic demand pegged at around 128 million tonnes, there should be more milk available to make skimmed milk powder (SMP) for export..

But, with more milk powder, a weaker rupee currency and Chinese restrictions on using some New Zealand products in the wake of Fonterra's whey powder concentrate contamination scare, India expects its SMP exports to jump by more than half to 100,000 tonnes this year. Rising export prices are also boosting sales, especially with the rupee's weakness.

IPGA Urges Pulses in Food Security Bill

India Pulses and Grains Association (IPGA) urges pulses to be included along with other grains in the Centre's ambitious food entitlement scheme and also in public distribution system. According to experts, there is a serious nutrition deficiency in the country and pulses will give cost-effective alternative as protein is equally important for the health of the poor. IGPA demanded that pulses be included into public distribution system (PSD) through which it can be made available to a vast majority of people. India is the largest producer and importer of pulses. The country achieved record pulses production at 18.45 million tonnes in the crop year ending September 2013. To meet the demand of 21 million tonnes, the country imported 3.3 million tonnes of pulses in 2012-13. The prices of several pulses have come down drastically following the record production. In view of good monsoon this year across the country, a good rabi and kharif crop output and adequate stock in the country is expected. In addition, the association is also requesting the government to allow export of pulses; the ban was imposed six years ago to stabilize prices.

Grounds far from settled

The Land Act leaves plenty of room for States and the Centre to bypass it and acquire land under other laws that do not provide adequate compensation and rehabilitation
The amended version of the Land Acquisition Act has been passed, but it does not entirely settle the issues of dubious takeover of land and failure to pay fair compensation. Although renamed the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, it leaves open the possibility of the Central and State governments being able to bypass it and deny vulnerable property owners much-needed relief.
IMPACT OF EXEMPTIONS

The seriousness of the purpose behind bringing forward reforms in land acquisition was in doubt from the start. In 2011, when the government published the draft Bill for public comments, it was found to have exempted 16 Central Acts, including the infamous Special Economic Zones (SEZ) Act, 2005 from the proposed provisions. Given that reckless acquisition of land for SEZs had precipitated protests against forced acquisition, these exemptions understandably created outrage. As pointed out by the Parliamentary Standing Committee on Rural Development that reviewed the draft Bill in 2012, as much as 95 per cent of all land acquisitions by the Central government were done through the 16 Central Acts, and that exempting them from their purview would make the proposed amendments meaningless. It recommended the removal of the exemption clause. It went further and suggested that the 16 Central Acts, which had provisions for acquiring land, should be amended to bring their compensation and entitlements package on a par with the proposed Bill.

STATE EXAMPLES

However, the United Progressive Alliance government decided to overlook the recommendation. In its final form, the Bill exempted 13 Central Acts from the new provisions. The fewer number of exemptions from 16 down to 13 did not indicate any change of heart. The government had to drop the SEZ Act since it could not defend it by any stretch of logic. Two other Acts the Cantonments Act and the Works of Defence Act were removed on the request of the Ministry of Defence. In other words, the government has kept a substantial part of its land acquisition process outside the purview of the new Act. The position of the State governments in this issue is no better. Land and development are State subjects, but acquisition is in the Concurrent List. State governments have their own pieces of legislation to take over property, and these too are riddled with problems. For instance, Maharashtra acquires large tracts of land under the provisions of its Industrial Development Act. It uses this Act to create exclusive industrial and economic zones. It has started acquiring 67,500 acres from 78 villages to create a Mumbai-Delhi industrial corridor. Farmers are agitating against this and are concerned about forcible acquisition. Tamil Nadu too has a similar legislation. A few years ago, it creatively deployed the Acquisition of Land for Industrial Purposes Act to take over land for the expansion of Chennai airport. Affected residents unsuccessfully challenged such extended use of the Act. Many States try to justify such special Acts and use them frequently since it allows for speedy acquisition. The sad fact is that compensation offered under these Acts is low compared to the revised Central Act. And they hardly talk of rehabilitation and resettlement packages. Going by the deposition of State governments before the Standing Committee, and recent statements made by Chief Ministers, it would appear that States are not keen to amend their laws. For example, the Madhya Pradesh government told the Standing Committee that it did not want its own Municipal Corporation Act and the Madhya Pradesh Land Revenue Code, which have provisions for land acquisition, to be affected by the stringent measures provided for in the new Bill. It argued that as in the case of 16 Central Acts, State Acts too should be exempted. Maharashtra Chief Minister Prithviraj Chavans reaction to the Central Act betrays the typically narrow concerns of State governments. Mr. Chavan, who remained silent on the higher quantum of compensation offered to affected farmers, expressed his worries over the fact that the new Act would increase project costs. It appears that State governments, including those of National Democratic Alliance constituents, would revise their laws to do more than what the Central Act promises.
IN UTTAR PRADESH

In 2011, the Mayawati government in Uttar Pradesh announced changes in land acquisition policy that sought to outdo the then prevailing Central Act in many ways. The government decided not to directly involve itself in acquiring land for private developers, and promised to give 16 per cent of developed land to farmers affected by acquisition, and pay cash compensation. It committed itself to providing jobs for affected people. Widespread farmer protests in Bhatta-Parsaul and an impending round of elections then may have compelled the U.P. government to make those changes. But it

clearly demonstrated the fact that State governments, if they wish to, can improve over the Central Act and bring forward a more people-friendly legislation. The question is: will they?

Solving Indias gas pricing puzzle

Intervention by the government in gas pricing decisions is an unavoidable evil
e Cabinet Committee on Economic Affairs (CCEA) effected an upward revision in its price. The last time the price was set, it stood at $4.2 per million British thermal units (mmBtu) in 2007. With the CCEAs decision, the price has taken a sharp upward swing, raising fears of cost escalation among key users such as power producers and fertilizer manufacturers. Allegations of malfeasance, that upward re-pricing will favour Reliance Industries Ltd (RIL), have followed in the wake of the decision. There were murmurs of dissent within the government on the so-called pricing formulabased on the recommendations of a committee headed by C. Rangarajan, the chairman of the prime ministers economic advisory council. To end speculation on all these counts, last week petroleum minister M. Veerappa Moily categorically ruled out any revision in the pricing. The old, 2007, price of $4.2 per mmBtu is effective till 2014. The new prices will be effective from 2014-15 to 2016-17. Pricing issues after 2017 will be decided by a separate panel led by the former chairman of the Finance Commission Vijay Kelkar. One part of the controversy centres on the method by which these prices have been estimated. The Rangarajan panel recommended a base price arrived at by averaging prices of imported gas by different users over a 12-month period and the prices that prevail in major international gas trading hubs. Ideally, India should not rely on the prices that prevail in international markets. This is complicated, both from the consumers point of view and that of the domestic supplier who provides natural gas. If a part of the supply is sourced from international markets and another from domestic suppliers, estimating the cost gets complicated. Hence, the idea of pooled prices. But how are these prices to be estimated? Ideally, in a market-based, price-discovery mechanism, an exchange where users and suppliers interact could determine the prices. There would be no need for government committees to study pricing and for officials to enforce prices. This choice was ruled out because of the way in which the hydrocarbons industry in India has evolved over the past decades. Soon after liberalization, the Union government discovered that it was not up to the task of exploring new hydrocarbon sources. Private sector participation was encouraged in a big way. But because of

the capital-intensive nature of the sector, not even a handful of companies could enter the sector. India ended up with a strange kind of duopoly: two behemothsONGC in the public sector and RIL in the privatedominate the landscape. It is a well-known truth that pricing in a duopoly situation, however carefully evaluated, regulated and implemented, is likely to lead to disproportionate gains for one producer or the other. The controversies being witnessed in the country today are the result of this very basic distortion in the industrial structure of the hydrocarbon sector. One inefficient, but legitimate, way in which equity and efficiency issues can be addressed, is for the government to intervene in pricing decisions. But due to the corrupt and non-transparent environment in which decision-making occurs, controversy is a natural outcome. For example, it is still not clear how the $8.4 per mmBtu figure was arrived at. Last week, Moily stated that I dont know from where this ($8.4) price has come. For the April-June quarter, it would have been $6.83 per mmBtu. I cant predict what will it be then. It can be lower or higher as well. (Moily rules out rolling back gas price hike, Mint, 12 July). Ideally, pricing decisionsincluding transparent release of pricing formulae and the decisions behind price changesshould be widely disseminated. But this was not done and the field was left wide open for speculation. It is not easy to undo this situation. Today, the KG-D6 field is in the hands of RIL and there is ample doubt about the manner in which the company takes production decisions from that field. This situation needs to be rectified. Hopefully, the Kelkar panel will find a solution that will address these complicated and controversial issues.

Can India be a rule shaper?

Influencing the multilateral order is in the country's national interest as the dividing lines between them have blurred
As India moves toward its seventh decade of independence, it faces a defining period. As the worlds biggest democracy with an economy among the worlds ten largest, Indias status as a re-emerging global power is now not just recognised but increasingly institutionalised: a seat in the G-20, increasing clout in international financial institutions, growing acceptance as a nuclear-armed state, and impressive peacekeeping credentials under the United Nations. Meanwhile, geopolitical shifts have created simultaneous opportunities and challenges: the opening with the United States; the rise of China; the global financial crisis; the so-called Arab Spring; the mounting crisis between Iran and the West as well as key Gulf states; and the growing international tussles over energy, climate, food, cyber and the oceans. Indias rapid growth came through participation in the multilateral order, and now its development strategy makes it dependent on a stable globalisation. India has growing economic, trade and energy stakes in literally every corner of the globe. Much of that trade and energy flows via the Indian Ocean, where India is an established maritime player but where it also faces new threats and pressure to ramp up its engagement.

At this stage in its history, India has critical interests in every major multilateral regime, and vital interests in several emerging ones. The boundaries between Indian self-interest and the contour of the multilateral order have blurred. In short, India has no choice but to seek to influence the evolving multilateral order to sustain itself. As Prime Minister Manmohan Singh acknowledged in his Independence Day address, Indias economic well-being is now directly linked to ensuring a healthy world economy: Countries today are more integrated with each other than ever before. We have endeavoured that our foreign policy exploits this fully to Indias benefit. Thus it has become imperative for India to not only govern itself better but also to contribute to shaping the evolving multilateral order. Criticism Commentary on Indias posture on the multilateral order asserts that it has often been little more than a defensive crouch; that non-alignment was rooted in a geopolitical strategy, but Indian policy has not fully reacted to changing geopolitics and geo-economics; that India has not yet genuinely sought to shape the resulting global order. What is certainly true is that Indias posture on the multilateral order has not changed as quickly or dramatically as the order itself. While India has always been a key international actor since Independence it had little choice but to be content with being a rule taker adhering to existing international norms and institutions. After the Cold War New Delhi has flirted with being a rule breaker challenging the present order primarily for effect and seeking greater accommodation in existing global institutions. This is apparent in its quest for permanent membership of the U.N. Security Council, membership in the various technology control regimes and desire to play a greater role in international financial institutions. Uneven poise India is unevenly poised in the international system. On the one hand it increasingly has the people, the tools, ideas and financial strength to bear costs while on the other its per capita GDP is not just the lowest in the G-20 but more than 50 per cent lower than the next lowest member, Indonesia; and a mere three per cent of that of the United States. What does it mean for Indias global role that only 32.4 million of its total population of 1.2 billion pays taxes and that the total tax revenue collected as a percentage of the GDP is among lowest in the G-20? Or that India ranks last among the G-20 in terms of police officers per capita? Or that Indias 900 or so diplomats are around the same number as those of Singapore or New Zealand? Notwithstanding these limits, Indias interests dictate that it take on the role of a rule shaper contributing in partnership with others to shape emerging norms and regimes. India has already played this role on climate change, where it fought hard for the principle of common but differentiated responsibilities to be woven into the fabric of climate negotiations. That still holds, though its starting to be ever more necessary to differentiate among the differentiated the yawning gulf between Chinas energy realities and Indias, for example, are starting to strain the two nations tactical alliance. On other issues like food, oceans, and cyber security, India has as yet had little to say but it has deep interests at stake. Now is the time for India to invest domestically and wield its influence internationally to help shape an effective multilateral order for the coming era.

Ready for peak oil?

THE SUNDAY STORY As cities expand and markets keep fuel prices high, Indians are demanding better public transport. The States must deliver, but they are only inching ahead.
In the chorus of angry voices against the horrific gang rape of a paramedic student on a moving bus in the national capital on December 16 last, one issue that quickly became apparent was the state of public transport in urban areas. The shocking incident forced policymakers to take a relook at the management and regulation of public transport in Delhi and other urban areas. Concerns about the safety of women in public transport were supplemented by questions about fixing accountability who is responsible for unregulated buses and other modes of transport, the State or urban transport authorities or the police and about the urban transport policy itself. The chorus derailed the governments attempts to coax commuters into leaving their private vehicles at home and moving to public modes. And the recent suggestion to curtail the use of fuel by limiting the use of private cars has again been questioned by commuters. They want to know why they were being asked to opt for public transport when it was neither safe nor reliable. Revamp inevitable The realisation that public transport needs a holistic revamp has dawned, says S.K. Lohia, Officer on Special Duty at the Union Urban Development Ministry. Admitting that the public transport system is far from satisfactory, Mr. Lohia says it is unfair to blame the policy and the Centre. There is a lack of coordination and concerted efforts at the local urban levels needs to be addressed. After December 16, suddenly the focus was on what safety measures are in place in buses. When we drafted the new bus specifications in 2008 under the Jawaharlal Nehru National Urban Renewal Mission and made it mandatory for buses to have closed circuit cameras, LED display boards, audiovideo passenger information services, everyone, from the manufacturers to the policymakers, questioned and opposed these changes, he recalls. A rundown of various parameters that define the success of a public transport system shows yawning gaps most cities have unregulated bus services, the condition of buses is far from reassuring, roads and modes of transport are not safe and the concept of seamless integration with the first and last mile connectivity remains on paper. There has been a spate of interventions by the Urban Development Ministry, first there was the National Urban Transport Policy, then came the service level benchmarks for grading cities and pilot projects of BRT and dedicated cycling tracks, advisories to opt for mass rapid transit systems and make roads safe, but with results slow and far from encouraging, the Ministry is now banking on the unified National Urban Transport Authority of India (NUTAI) to implement a unified law to govern transport and mobility.

Public transport has to be taken up as a public service and States and urban local bodies have to show political will to invigorate the system. Currently, there is a multiplicity of authorities. We are hoping that once NUTAI is in place there will be better planning and coordination. The issues of lack of awareness and capacity-building have to be addressed. While the challenges are many, we have to admit that there has been discernible change: for example, the buses introduced under the JNNURM have been a success, the Metro is very popular. When we compare with the baseline, we have come a long way, he says. Prof. Dinesh Mohan of the Transportation Research and Injury Prevention Programme (TRIPP) at the Indian Institute of Technology-Delhi disagrees. The Urban Transport Policy is too much technology-oriented. There is no dearth of means of transport, there are buses, there is the Metro, there are para-transit systems, but the question is how do you make cities better by having safer roads and better mobility. Prof. Mohan argues that to encourage the use of public transport, the first steps are to ensure the streets are safe and accessible. Unless commuters, especially women and children feel safe, they will not use public transport. There is too much focus on technology, we have to shift focus on cleaner, sustainable modes of transport, stop widening of roads, reduce speed and construction of flyovers, he says. So while the Ministry is banking on earlier policies and newer initiatives like the NUTAI to make amends and bring in change, experts point to the need for pragmatic interventions. There has to be change in policy, design and implementation. There has to be integrated, single window approach towards issues of mobility, energy, road safety, environment and social angles. Multiplicity of authority has destroyed the public transport systems, says Nalin Sinha of the Delhi-based NGO Initiative For Transport Development Project. Mr. Sinha, who was part of the team that drew up the NUTP, says public transport has to be seen as more than just a mode of commuting and mobility. It is the first indicator of democracy and equity of the city.

Losing ground to Big Pharma, bit by BIT

India needs to revisit its bilateral investment treaties programme to ensure that multilateral gains on patents are not lost
Desperate to finance the high Current Account Deficit (CAD), India has approved seven proposals for brownfield FDI (foreign investment in existing companies) in the pharmaceutical sector. Under the extant regulatory framework, 100 per cent FDI in the pharma sector is allowed through the automatic route in new projects (greenfield investments) but brownfield investments require the approval of the Foreign Investment Promotion Board (FIPB). Given the critical linkages of the pharmaceutical sector with public health, this piece seeks to highlight the need for caution in approving FDI in the pharma sector in the light of Indias international commitments under Bilateral Investment Treaties (BIT).

Gains International commitments on intellectual property rights especially patents have always been a sensitive issue especially in the context of the pharmaceutical sector. While one side of the debate argues that stronger patent protection incentivises innovation, the other side has argued that a strong patent regime results in a monopolisation of production of essential medicines, accompanying high prices, and consequent exclusion of large sections of the population from essential medicines. This tension was best depicted in the troubled negotiations that led to the adoption of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The agreement brings the protection of intellectual property within the multilateral framework of trade rules established by the WTO. In these negotiations, while the developed nations wished to keep to a minimum government interference with intellectual property, including the interference through compulsory licensing (authorising a third party to produce the patented drug), developing nations tried to preserve their regulatory freedom. A compromise is embodied in Article 31 of TRIPS, which allows countries to issue compulsory licences on patented drugs. While this provision does not lay down the grounds on which compulsory licences may be issued, it provides certain procedural safeguards and requires payment of adequate remuneration to the patent holder. Indian patent law Even after the agreement entered into force on January 1, 1995, certain concerns remained, which were sought to be addressed by the Doha Declaration on TRIPS and Public Health. The declaration reiterated the commitment of WTO countries not to sacrifice public health at the altar of patent protection. It clarified the sovereign right of individual countries to decide for themselves the circumstances warranting issuance of compulsory licenses.Making use of the flexibilities in TRIPS, the Indian patent law has made an attempt to balance the need for patent protection of pharmaceutical drugs with the public interest of access to medicines. Thus, while it allows patenting of pharmaceutical inventions, it does not allow ever greening of patented drugs by prohibiting patents on the mere discovery of a new form of a known substance. Further, it also allows for the grant of compulsory licences at any time after three years from the sealing of a patent. The requirement to wait for three years is waived in cases of national emergency or extreme urgency. Patents can also be revoked in public interest. Relying on this balanced statutory framework for patent protection, India issued compulsory licence on German drug major Bayer AGs cancer drug Nexaver in March 2012. Also, the Supreme Court inNovartis A.G. v. Union of India upheld the rejection of a patent application by Novartis, a Swiss pharma major, to patent a new version of the anti-leukaemia drug Glivec. Conceding bilaterally However, the gains that India got multilaterally on patents and public health may be lost bilaterally through BITs. BITs are treaties aimed at protecting foreign investment. These treaties allow foreign investors to bring cases, in front of three privately appointed arbitrators; against host states challenging the latters sovereign regulatory measures. This is known as investment treaty arbitration (ITA). India has entered into BITs with 86 countries out of which 73 have already come into force. This includes almost all the major European countries like the United Kingdom, Germany

and Switzerland. Further, in recent times, many foreign corporations from global telecom giants to hedge funds have issued ITA notices to India for alleged BIT breaches. Most Indian BITs define investment broadly to include intellectual property like patents. This gives an ITA tribunal jurisdiction over regulatory actions of India that impact the intellectual property like a patent held by a foreign pharmaceutical company. Indian BITs protect investments from expropriation. The term expropriation is defined in Indian BITs to include direct taking of an asset by the government as well as all other measures having the effect of direct taking that deprive the investor of an asset or its use. Typically, Indian BITs permit expropriation only for a public purpose, in a non-discriminatory manner and against compensation. Often, the expression compensation is qualified by adjectives like prompt, effective, fair, and full, with a requirement to pay interest on compensation. This makes the compensation requirement in BITs much more stringent than the adequate remuneration requirement mandated by the TRIPS agreement for issuance of compulsory licence. Since patents fall within the definition of investment, its taking by way of compulsory licensing or its revocation would trigger the expropriation provisions in Indian BITs. This would give a privatelyappointed arbitral tribunal an opportunity to decide whether sovereign measures like issuance of compulsory licence or revocation of patents is legal or not. Further, to bring this international claim, the foreign investor is not required to exhaust local remedies or get the approval of her government. In this regard, it is important to derive warning signals from the service of an ITA notice, under the North American Free Trade Agreement (NAFTA), by Eli Lilly and Company, a U.S.-based corporation, against Canada for invalidating two of its pharmaceutical patents. Consequently, nothing stops Bayer and Novartis from initiating international law proceedings against India under Indias BITs with Germany and Switzerland. To add to the worries, the proposed India-U.S. BIT is back in the news and progress is expected on that front during the meeting between Prime Minister Manmohan Singh and President Obama in late September. Apart from the protection already enjoyed by pharma firms under the WTO, a BIT with the U.S. will grant additional protection to the patent rights of American pharma companies in India. Thus, it is imperative that India revisits its BIT programme to ensure that multilateral gains on patents and public health are not lost bilaterally.

Spectrum controversy in all its shades

The telcom sector in India is in a tangle because of a thickening controversy surrounding allocation of spectrum, the air waves on which data travel. As charges and counter-charges fly over government selling spectrum cheap, Rishi Raj splits the various hues and shades of the spectrum imbroglio: Why is it being alleged that communications minister A Raja granted licence and spectrum to a host of new players at throwaway prices, causing loss to the state exchequer? It all began around middle of last year when the Department of Telecommunications (DoT) sough the Telecom Regulatory Authority of India's (Trai's) recommendation on whether the existing policy of having unlimited telecom players in a circle should be continued. DoT had

also sought to know Trai's mind on a host of other issues like mergers and acquisitions, use of dual technology and roll-out obligations. While submitting its recommendations in August 2007, Trai said that the government should continue with the policy of no-capping with regard to entry of new players. It also said that 2G spectrum in 800, 900 and 1800 Mhz should not be auctioned while spectrum in all the other bands should be auctioned. As soon the recommendations were made public, a host of firms, mostly with no prior experience in telecom and some shell companies, submitted applications for telecom licences. Though the government accepted the Trai's recommendation of no-capping, seeing the deluge of applications it put a temporary bar by not accepting applications after October 1, 2007. Then, the DoT issued licences to only those firms, which had applied till September 25, 2007 and companies such as Swan, Unitech, Datacom, Loop Telecom, S Tel benefited from this. These companies have been granted/being granted spectrum on a circle basis. Was there anything wrong in this entire exercise? The DoT granted these licences on a first-cum-first-served basis. As per the policy, alongwith a licence, the cost of an all-India licence is Rs 1,651 crore, while bundled spectrum of 4.4 Mhz is also given. The majority opinion was that since spectrum is a scarce resource, the government should not allot it bundled with licence but rather auction it to realize the market value. Recently, two companies, Swan and Unitech sold 45 per cent and 60 per cent stakes respectively to foreign players at valuations of around $2 billion. Since these two companies do not have network, subscribers or knowledge of telecom business, it is inferred that the huge valuation is the price of a paper called licence and spectrum, which are radio waves required to operate mobile services. Critics maintain that this money could have come to the government, which it let forgo by doling out licence and spectrum at a price discovered in 2001. What does Raja have to say? Raja maintains that he has not done anything wrong. He went by the Trai recommendation of no-capping and not auctioning 2G spectrum. With regard to awarding licence at a price discovered in 2001, he says that the Trai did not ask for revising it, and the Cabinet had approved the price in 2003 so he was perfectly right in sticking to it. Regarding the stake sales by the two companies, Raja says that the deal is as per the corporate laws of the country and the new operators require funds to roll out network and services. As an afterthought he has proposed to bar promoters of new licensee firms from selling their equity till a period of three years.

Is Raja right in his defence? Yes and No. Yes, when he says that he went by Trai's recommendation on no-capping and not auctioning of 2G spectrum. No, because he later inflicted a temporary capping policy, which is still in force. Raja is wrong when he says that he went with Trai regarding the price of awarding new licences. Trai in 2003 had categorically said that all new licences should be awarded through a multi-stage bidding. Even the August 2007 recommendation said that a realistic price should be determined through a market mechanism. What's the difference between auctioning telecom licence and spectrum? Historically, since the telecom sector was opened to the private operators in India, licences have been auctioned but spectrum has been bundled with it. However, companies pay a spectrum usage charge. If Raja would have auctioned the licence in the present case and given spectrum bundled with it, he would have been able to realize a market-determined price rather than a price discovered through auction in 2001. And the Trai recommendations did not stand in his way as far as auctioning of licence is concerned. Is there any other way these companies allegedly benefited through DoT? Yes. A crucial recommendation of Trai with regard to mergers and acquisitions for new licensees was tweaked by the DoT, which led these companies to sell stakes. Trai had suggested that companies should not be eligible for mergers and acquisitions till they achieve their rollout obligations. Companies have to roll out networks covering 10 per cent of the circle by year one and 50 per cent by year three. However, DoT changed it and while it barred the companies for a total mergers and acquisitions till the end of year three, it allowed them to sell stakes up to 74 per cent before that. This helped Swan and Unitech to sell stakes even before they set up a single tower.

The looming debate over drones

New Delhi has long resisted using armed UAVs in counter-insurgency roles, but the discussion cannot be deferred forever.
The small, portly man was laid out in bed that autumn morning in 2009, wrapped in a shawl, the intravenous line in his arm carrying ever-waning hope that he might yet beat back acute diabetes and a crippling renal disorder. He had come home to his father-in-laws home in the small village of Makeen just days earlier, family sources would later tell reporters, along the troubled South Waziristan Agencys border with Afghanistan. He had just one last wish: to have a son.

It was not to be, because from a seat in a quiet room halfway across the world, someone was watching. Baitullah Mehsud, alleged assassin of Prime Minister Benazir Bhutto, architect of the 2008 Islamabad Marriot Hotel bombing, commander of strikes that the Pakistan government said claimed over 1,000 lives, possibly never even heard the AGM114 Hellfire anti-tank missile that ended his life. The November 1 killing of Baitullah Mehsuds successor, Hakimullah Mehsud, has opened an agonised political debate across Pakistan. Inside the offices of national security force commanders and intelligence chiefs in New Delhi, though, it has set off a very different conversation: are technologies like drones properly, Unmanned Aerial Vehicles (UAV) a way to resolve Indias counter-insurgency conundrum? Force strength and results This, we know: the counter-insurgency status quo is not working. In 2003, a Group of Ministers which reviewed internal security after the Kargil war, assigned the Central Reserve Police Force (CRPF) front line responsibility for counter-insurgency operations backing up police forces across the country. The force, at the time of the war, had 167,367 personnel. It is now up to 222 battalions over 222,000 armed personnel, and 300,000 including administrators and support staff. Yet, the results havent been luminous. Even as the CRPFs numbers have ballooned, the governments o wn data show that the number of Maoist insurgents eliminated has declined year-on-year since 2009, from 317 to 114. The number of insurgents and unarmed supporters has stayed steady, at 25,000- plus. Ever since 2010, some counter-insurgency commanders have advocated abandoning a more boots-on-theground strategy. India already has an Israeli-made Heron UAV fleet, the estimated cost of which is $220 million, operating over the Maoist corridor. It takes little to sling an anti-tank missile under a large UAV and many counter-insurgency practitioners argue it is both inefficient and callous to make troops risk their lives in dangerous terrain when machines can do the job instead. Helped by a year-on-year decline in insurgent violence levels across the country, the United Progressive Alliance government has long resisted making this high-stakes decision. Now, though, it is becoming clear that violence is seeing an uptick again, particularly along the Line of Control. It is imperative that India has a wider debate on what the technology can do. We understand that these gains will come at a price. There are three questions to ask: what is the technology, what are its costs, and what will its implications be? Drones more accurately, armed UAVs have come to represent all we most loathe about modern warfare. They make killing antiseptic, distancing combatants from the bloody reality of war. Human Rights Watch recently warned that drones were just part of a larger movement towards automated weapons. There are already gun systems which can use algorithms to open fire on targets In principle, though, UAVs dont do anything fundamentally different from every weapon that human beings and our primate ancestors ever invented: allow a fighter to strike from a distance from where his or her adversary cannot strike back. The spear and the catapult did exactly what the UAV does as did the medieval crossbow, famously, if ineffectually, banned by Pope Urban II in 1096 for use against Christians because the technology levelled skilled knights of armour and peasant armies. However, as the expert Joshua Foust argued, some of these arguments reflect little more than technophobia: counter-intuitive as it might seem, machines may prove better-able to make life-and-death judgments than emotional, terrified soldiers.

Civilian costs The question of civilian costs is more ambiguous. Theres absolutely no consensus on what costs to civilian lives the drone campaign in Pakistan has imposed: Islamabad claims that just 67 civilians have died in five years, which would be a stellar achievement if true. Human rights groups, including Amnesty International, have proposed very different figures. In 2010, experts David Kilcullen and Andrew M. Exum asserted that drones had killed just 14 terrorist leaders at the price of some 700 civilian lives numbers promptly challenged as bogus by subsequent studies. The truth, as Georgetown University scholar C. Christine Fair notes, is impossible to find, because there is no functional apparatus in these regions to judge rival claims. From available data, though, it is fairly clear that UAVs arent more dangerous than the other options on offer among them, the conventional use of air power, which causes far more civilian casualties. Pakistans conventional counter-insurgency operations have led to thousands of fatalities, and large-scale exodus of populations. It is worth noting that this is a problem in India, too, where counter-insurgency operations routinely claim civilian lives. Just a tiny fraction of CRPF counter-insurgency units, notably, get the 45 days of annual retraining called for by manuals meaning fatigue, and breakdowns in discipline. The most important question, though, is not whether civilians are killed which is, the history of warfare tells us, an inexorable conflict of wars in populated areas. It is how the state decides to kill, and what makes that choice legitimate. The case of Baitullah Mehsud is an instructive one: he was, at the time of his death, of no direct threat to anyone. Hakimullah Mehsud was targeted using an expansive interpretation of United States statute, which allows assassination even if a terrorist is not actually attacking the countrys citizens but aiding those who do. Criminal justice It is true that drones mitigate risks to soldiers and, arguably, even to civilian bystanders but they rule out even the smallest chance of capture or surrender. They kill people who, at the time of their execution, pose no threat. They exclude, simply, the prospect of criminal justice. That might be acceptable in war but it is not in fighting insurgencies against citizens. There are alternatives, among them better-trained special forces, a robust intelligence apparatus, and criminal justice system that delivers. Indias counter-insurgency and counter-terrorism campaigns are flailing not because they cant kill effectively but because the nuts-and-bolts of an effective state response have never been put in place. Tech-fixes might seem seductive, but the triumph they offer will prove an illusion.

India and climate talks imperatives

India needs an early agreement, and also adequate atmospheric space in terms of allowed carbon emissions to pursue its development goals. It needs to take a proactive stance on this
By all accounts, no dramatic developments are to be expected from the 19th edition of the Conference of Parties (COP) of the United Nations Framework Convention on Climate Change (UNFCCC) that started in Warsaw last

week. But it is generally acknowledged that the key issue at Warsaw, even if there are many other significant subjects on the agenda, centres around moving forward the negotiations on the Durban Platform for Enhanced Action (DPA) initiated at COP 17 two years ago. It is widely understood that the Durban Platform was a game-changer, setting the stage for decisive climate action based on clear commitments to emissions reduction from all nations. Subsequently, the discussions in the Ad-Hoc Working Group on the Durban Platform (ADP) have resulted in demanding timeline for achieving its aims, including a draft text to be produced by the COP in 2014, a global meeting of heads of states of all nations to be convened by the United Nations Secretary General to push forward such an agreement, and a final agreement to be reached by COP 21 in 2015. While it is not a foregone conclusion that the DPA will achieve its stated goals by 2015, there are now additional factors conducive to reaching a global agreement. Even if no individual extreme climate event can be attributed exclusively to increased global warming, increasing awareness of the impact of climate-driven disasters, such as Typhoon Haiyan and the Uttarakhand flash floods, is contributing to a global recognition of the urgency of a climate deal, among governments as well as civil society. Significantly, the release of the Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC) over the next several months, culminating in the release of the final synthesis report of all its findings next year, will add to the sense of urgency. At the UNFCCC, the European Union has been the most active in pushing forward the agenda of the Durban Platform, laying out in increasing detail the framework and broad outlines of its content and a methodology for securing commitments that would ensure an effective treaty. It has been joined in this effort by many African nations, especially South Africa, and have the strong support of the island-states of the world support that was vociferously expressed at Durban in 2011. The United States has pursued a two-track policy with respect to the DPA. On the one hand, the U.S. insists that it would undertake only such emissions reductions as it deems feasible, a strategy that is referred to as the bottom up approach in the global climate discourse. On the other hand, it has not hesitated to support the European Union, the Africa Group and the Alliance of Small Island States (AOSIS) in their efforts to have a binding climate agreement with assigned commitments to all nations, especially when such commitments are to be imposed on China and India. Indias interests Where do Indias interests lie in the matter of a global climate agreement? There can be no doubt that India needs an early climate agreement, for two reasons. On the one hand, there is increasing evidence that unchecked global warming would lead to increasingly severe effects in several sectors, especially agriculture and water, apart from the increased frequency of extreme climate events. The enhanced climate variability that accompanies global warming will have serious impacts on Indian farmers, the bulk of whom are small-holders who even today suffer the consequences of weather and climate shocks, before the effects of global warming have risen to more alarming levels. An early climate agreement with the potential to restrict global average temperature rise to at least 2 degrees Centigrade, if not lower, is certainly a necessity. An early and effective limit on greenhouse gas emissions will also contribute to lowering the need, and associated costs, for climate change adaptation, which otherwise could be considerable. At the same time, India needs adequate atmospheric space in terms of allowed carbon emissions to pursue its development. Even in a highly optimistic scenario in which renewable energy rapidly takes up the bulk of the requirements for sectors such as domestic lighting and heating, agriculture, and all energy needs of small-scale establishments, India will still need fossil fuels for a considerable time until reliable sources of clean energy become available for large-scale use in the expansion of industry, transportation and the like, all of which are needed for development. Even infrastructure needs for adaptation will require such emissions.

The IPCCs AR5 report has brought to the centre-stage of discussion the notion of a global carbon budget, referring to the cumulative carbon dioxide emissions into the atmosphere, from the beginning of the industrial era till the end of the 21st century, that are permissible, if the global temperature rise is to be kept below 2 degrees C. For a 66 per cent probability of keeping the rise in global average temperature below this limit, the world is allowed approximately 1000 billion tonnes of carbon emissions (taking account solely of carbon dioxide). But the nub of the issue is the equitable distribution of this space. In per capita terms, or indeed by several other measures of equitable distribution as well, the developed countries have already substantially exceeded their fair share of this global budget. As a consequence, a large number of developing countries, including China but especially India, will have to make do with less than their fair share of the global carbon space as their national carbon budgets for the future, if indeed global warming has to be kept in check. Top-down agreement To maximise the developing countries access to the global carbon budget, an early top -down agreement to impose constraints on the developed nations consumption of carbon space in the atmosphere is an obvious necessity. Even more obviously, an approach based on voluntary commitments to emissions reduction by developed and developing countries would not address Indias needs. In view of these considerations, it is surprising that New Delhis guidelines for its Warsaw delegation should set aside Indias long-standing commitment to treating the atmosphere as a global commons, to be shared equitably by all nations, and instead back the voluntary commitments approach. Predictably, even before this approach has been articulated, it has run into rough weather. The EU is of course fully aware of the global carbon budget and hence demands that the gap between the sum of all voluntary commitments and the allowed global budget has to made up by further emissions reductions that all nations have to agree to. This demand, as well as Indias response that the gap must be made up by the developed nations based on historical responsibility for emissions, brings us back to what is indeed a top-down approach. At the heart of the Government of Indias current confusion lies its unwillingness to acknowledge that in an eventual global agreement, all countries have to shoulder some part of the burden, even while any such burdensharing must be based on equity and climate justice in accordance with the principle of common but differentiated responsibilities. New Delhis view currently is that developing countries will have no binding commitments whatsoever even into the future, a view that will increasingly isolate India from even others in the ranks of the G-77. The inadequacy of official Indias unhappy approach is brought out by the fact that it has allowed the term equity reference framework in the context of the ADP negotiations to be hijacked by other nations, including nations of the African Group as well as the EU. India and its like-minded friends are left in the unenviable position of opposing this term, claiming that developing nations will never undertake any binding commitment. For too long, Indias official climate policy has portrayed the absence of a proactive stance on a climate agreement as a strategy to protect the countrys interests. Climate science as well as good climate politics demand that India shift to making clear to the world its commitment, in concrete terms, both to securing its developmental future as well as preserving the global environment. (Dr. T. Jayaraman is Dean of the School of Habitat Studies at the Tata Institute of Social Sciences in Mumbai)

Balancing the juvenile act

Young offenders above a certain age who commit violent crimes should be prosecuted as adults
On August 31, 2013, the Juvenile Justice Board (JJB) ordered that the boy who raped Nirbhaya, brutalised her with an iron rod, pulled out her intestines and then cleaned up the bus and made tea would go virtually free by sentencing him to only 28 months in a remand home as eight months of the total 36 months sentence had already been served. This order is subject to review by the JJB based on the behaviour of the juvenile and the police are required to expunge this crime from his record in order to ensure complete rehabilitation. Despite the unprecedented street protests following the Nirbhaya rape, there has been little substantive debate on the adequacy of the Juvenile Justice Act to deal with such heinous crimes. Underlying principle The JJ Act was passed in 2000 with the purpose of incorporating into domestic law Indias obligations under international law as a signatory of the U.N. Convention on the Rights of the Child of 1989, the U.N. Standard Minimum Rules for Administration of Juvenile Justice (1985) (known as the Beijing Rules) and the U.N. Rules for the Protection of Juveniles Deprived of their Liberty (1990). Underlying these international texts is the legal philosophy that juveniles lack the physical and mental maturity to take responsibility for their crimes, and because their character is not fully developed, they still have the possibility of being rehabilitated. This basic principle underlies the juvenile justice systems in many countries, including the United States and the U.K. The JJA creates a juvenile justice system in which persons up to the age of 18 who commit an offence punishable under any law are not subject to imprisonment in the adult justice system but instead will be subject to advice/admonition, counselling, community service, payment of a fine or, at the most, be sent to a remand home for three years. However, the interest in protection of juveniles has to be balanced with the interest of protecting particularly vulnerable members of society from violent crimes committed by persons under 18 years of age and amending the law when societal conditions radically change over time. As per the reports of the National Crime Records Bureau (NCRB) entitled Crime in India 2011 and Crime in India 2012, the percentage of crimes committed by juveniles as compared to total crimes has not significantly increased from 2001-2012. According to the NCRB statistics, India is not in the throes of a general crime wave by juveniles. However, the NCRB statistics relating to violent crimes by juveniles against women are very troubling. Crime in India 2011 suggests the number of rapes committed by juveniles has more than doubled over the past decade from 399 rapes in 2001 to 858 rapes in 2010. Crime in India 2012 records that the total number of rapes committed by juveniles more than doubled from 485 in 2002 to 1149 in 2011. As the data suggests, between 2011 and 2012 alone, there was a massive increase in instances of rape by juveniles by nearly 300, which is almost as much as the increase in such cases over the entire previous decade. This increase alone makes amendment of the JJA imperative. Get tough approach Several other countries such as the U.S. and the U.K., which are both signatories to the U.N. Convention, have also faced an increase in violent crimes by juveniles but, unlike India, they have taken action to amend their laws. Most States in the U.S. have enacted a juvenile code of which the main objective is rehabilitation and not punishment. Juveniles appear in juvenile court and not in adult court. Juvenile courts do not have the power to impose punishment and can impose only rehabilitative measures or assistance by government programmes. However, since the increase in violent crimes committed by juveniles in the 1990s, U.S. States have adopted a get tough approach in response.

In most U.S. States, the jurisdiction of juvenile courts is automatically waived when a juvenile above a certain age, usually 13 or 15, commits a violent or other serious crime, and the case is automatically transferred to adult court. A certification hearing takes place and an adult court prosecutor is required to convince the adult court that the case should be transferred. The juvenile is entitled to an attorney at the hearing and to present any evidence which mitigates against the transfer. For example, in Indiana, South Dakota and Vermont, children as young as 10 can be tried as adults. Californias Proposition 21 which was passed in 2000 allows prosecutors to automatically try juveniles who commit felonies as adults. Under Michigans Juvenile Waiver Law passed in 1997, juveniles can automatically be tried as adults. Youth Court Similarly, in the U.K., persons under 18 are tried by a Youth Court which is a special type of magistrates court for those aged 10-18 years. The Youth Court can issue community sentences, behavioural programmes, reparation orders, youth detention and rehabilitation programmes which last three years. However, for serious crimes like murder or rape, the case starts in Youth Court but is transferred to a Crown Court which is the same as a Sessions Court. The Crown Court can sentence the child for offences of murder committed when the offender was a youth as well as for grave crimes including sexual assault and sentence the child to indeterminate detention for public protection. The Crown Court can also give extended sentence to a minor. If a youth is jointly charged with an adult, the charge is heard and tried by a regular court. If the youth is found guilty, the Crown Court can impose a sentence which does not exceed the maximum sentence applicable to an offender who is 21 years or older. Therefore, in both the U.S. and the U.K., juveniles who commit violent crimes such as rape are prosecuted in the same manner as adults. Even the U.N. Convention and the Beijing Rules do not prohibit subjecting children/juveniles to the regular criminal justice system under certain circumstances. Article 40 of the U.N. Convention provides that a child who has been accused of having violated the penal law shall have the following guarantees: to be presumed innocent until proven guilty according to law, to be informed promptly of the charges against him and to have legal or other appropriate assistance in the preparation of his defence, to have the matter determined without delay by a competent and impartial authority or judicial body, not to be compelled to confess guilty, and to examine witnesses. Moreover, the state can establish a minimum age below which children shall be presumed not to have the capacity to infringe the penal law. Therefore, in accordance with the U.N. Convention, the JJ Act could have established an age limit, such as 14 or 16, below which a person could not be deemed to have the capacity to commit an offence. In short, the U.N. Convention does not prohibit prosecuting a child under 18 who has committed an offence under the regular penal laws. Beijing Rules Rule 17 of the Beijing Rules, in turn, provides that the reaction shall be in proportion to the circumstances and the gravity of the offence as well as the circumstances and needs of the juvenile as well as the needs of society. Furthermore, personal liberty may be deprived if the juvenile is adjudicated guilty of a serious offence involving violence against another person or persistence in committing other serious offences. Unlike the U.N. Convention, the Beijing Rules do not fix 18 as the age of a juvenile. Instead, the Beijing Rules provide for rules applicable to persons between the age of 7 and 18. Therefore, Indias international legal obligations do not prohibit it from amending the JJ Act to provide that persons between the age of 16-18 who are accused of rape, kidnapping and abduction of women and girls will be exempted from the jurisdiction of the JJB and tried in the adult criminal justice system. Unfortunately, the current system serves neither the purpose of rehabilitation nor deterrence against future crime. As reported by India Today, there are 815 remand homes in India with a capacity of 35,000. However,

there are 1.7 million juvenile accused in India. Remand homes in India are not conducive to the reform and rehabilitation of juveniles as envisioned by the principles enshrined in international law. While rehabilitation is certainly an important legal and societal objective, this interest surely has to be balanced with creating a legal deterrent to protect women and girls from the increasing incidence of rapes by juveniles. Particularly in view of the significant increase in rapes committed by juveniles since the JJ Act was passed, India should consider amendment of the Act to transfer certain violent crimes such as murder and rape committed by juveniles above a particular age to the adult criminal system.

Cereal offenders
Food inflation owes largely to agricultural markets being regulated by outdated laws. The RBI governor, Raghuram Rajan, has a difficult task this week. He has to decide whether to keep interest rates constant or raise them bearing in mind the possible taper of the US Fed's bond buying programme, a decline in industrial production and a rise in inflation. The sharp increase in consumer price-based inflation, to more than 11 per cent, has significantly added to the RBI's headache. The increase in inflation is mainly due to the nearly 15 per cent increase in food prices. This has been led by a 61 per cent increase in the price of vegetables. There are structural problems in agricultural markets, which continue to be regulated by old laws and require licences. Entry into these markets is not free and they remain uncompetitive. The rising demand for food has been met not by an increased supply but by a rise in prices instead. The demand for vegetables, meat, milk, fish and other food items has been rising with rapid GDP growth and a rise in incomes. Rural demand has increased since 2008 as a result of the MGNREGA and rising rural wages. As income levels increase, the first change in people's consumption basket is in food items. Indian households start consuming more high protein products and fresh vegetables. This phenomenon is discernible in household consumption data. The share of cereals in total food consumption has declined as incomes have increased. At the same time, after the global financial crisis, world commodity price inflation has decreased. Inflation in tradables, mainly manufactured goods, has been low. Consequently, households have to spend a smaller share of their income on non-food items. Relatively cheaper non-food items means that the share of disposable income available for the purchase of food has gone up. This has further increased the demand for food. As we know, Indian agriculture is entirely private. If there was free entry into markets and they were competitive, we could expect a better supply response to the increase in demand. In cereals, some of the food inflation is due to higher minimum support prices. MSPs have risen faster than before because the export of cereals is now allowed and, since 2011, world prices are taken into account in their determination. But this does not explain the rise in the prices of vegetables, meat, etc, which are outside the purview of MSPs. A second explanation is that the MSP system for cereals creates a pro-cereal bias in policy and production. The price system as well as the subsidies for inputs focus on cereals. This reduces the relative risk of

growing them. Even though the price for non-cereals cash crops, vegetables, etc may be higher, their risk-adjusted returns are lower. A third explanation often heard for the high food inflation is hoarding. It is argued that traders hoard food to push up prices. But this only explains the rise in the prices of non-perishables. Products like meat and fish, whose prices have also been rising, cannot be stored without cold storage facilities. They are more likely to go bad than see an increase in prices if they are hoarded. Also, hoarding may cause some price volatility but it cannot explain the persistently high inflation for five to seven years in a row. The lack of a supply response can also be explained by the absence of free and competitive markets, and by laws that do not allow a customer to buy directly from the farmer without a licenced mandi trader as the go-between. On one hand, the Essential Commodities Act does not allow private persons to hold inventories of agricultural goods that are on the list of essential commodities because it assumes traders are speculators, black-marketeers and hoarders. On the other, the agricultural produce marketing committee acts do not allow people to transact without them. The APMC acts were created in the Sixties and Seventies by various states to promote agricultural marketing. But these and the Essential Commodities Act created several barriers to the development of free and competitive agricultural markets. A licence for trade in agricultural products requires owning a shop/ godown. This has led to the monopoly of licenced traders. It is a major entry barrier for new entrepreneurs who, attracted by the high returns, may want to enter the market. But the licensing system prevents entry and thus competition. Some market yards were established many years ago and these do not have the space for the construction of new shops and godowns. No new licences are available in such a situation. Traders, commission agents and other functionaries organise themselves into associations, which generally do not easily allow the entry of new players. The law hinders both food processing and direct organised retail tie-ups with farmers. Though the question of agricultural marketing reform has been under discussion for nearly a decade, no action has been taken. In 2003, the Central government, after holding consultations with state governments, and trade and industry representatives, formulated a model APMC act. This was circulated among the states. But until January 2013, only 16 states had amended their acts, and only six had notified the amended rules. The lack of cold storage capacities and strong supply chains are a serious cause for concern. To be rectified, investment is required. But the inadequacy of public infrastructure such as roads, power supply, etc constrain profitable investment. The thousands of crores that are spent on food storage in India actually go towards storing cereals and building warehouses for the Food Corporation of India or for the public distribution system. Even according to the most lenient estimates, the leakages here are more than 50 per cent. Central legislation dealing with essential commodities has been liberalised to remove the controls on the movement, storage and marketing of agricultural goods and abolish the licensing system. The number of

commodities covered under the act has been reduced from 54 to seven. However, in order to contain the inflationary pressure on the prices of essential commodities, the government has been imposing stock limits on paddy, rice, pulses, sugar, edible oils, edible oil seeds as and when required. At times, as we saw recently, when Mamata Banerjee announced restrictions on the trade of potatoes, even state governments have been imposing restrictions. The ad-hoc approach to the imposition of controls on stock limits and the movement of produce goes against the spirit of reforms, and hinders investment and free trade in the country.

To prevent another Gandaman

Midday meal rankings are a good first step. They need to be done right. The ministry of human resource development's midday meal (MDM) department ranked the performance of state governments using 15 indicators, last month. Performance-based ranking is a well-recognised tool for promoting accountability in government service delivery. Rankings of this nature help highlight performance quality, induce competitiveness and, perhaps most importantly, enable an analysis of what works, what doesn't and what gaps need to be plugged. The rankings are thus an important first step toward addressing the many governance failures that contributed to the tragedy in Gandaman in Bihar in July. But there is much that can be done to improve the ranking process. First, the biggest challenge in developing a ranking system is the quality of data available. Last year, Accountability Initiative conducted a research study which tracked money and expenditure in the midday meal programme in four districts in north India. Finding reliable, high-quality data was the biggest challenge. Crucial financial documents like monthly progress reports are often not maintained at the district level. And even when reports are compiled, the quality is variable. We came across monthly reports where the numbers that were reported were based on a formula devised by the authorities rather than on the actual releases by the district. In another case, we found that the annual statement was missing information for some months because the concerned officer's hard disk had crashed. We also found that financial data is often recorded in multiple documents, which are "updated" as and when new information is received from schools. However, there is no systematic method to this updation and often the numbers don't add up. We faced similar problems at the school level. Our surveyors encountered schools where passbooks and other accounting documents had been "stolen" or "lost in the flood" and where documents were available, crucial pieces of information like the opening balance (money and food grains left over from previous years) were simply not recorded. Building a robust, reliable computerised management information system, which records key indicators in real time, is the first step that the ministry must take. This should be combined with independent evaluations of the MDM. Here, the ministry would do well to learn from large-scale surveys like ASER a well known national survey that tracks learning outcomes among rural elementary school-going children. ASER is unique not just for what it tracks but also for the fact that the survey is conducted entirely by citizen groups - as many as 30,000 volunteers implement it annually. Involving citizens in the process of

data collection, in a manner similar to ASER, is an innovative way of building transparency and accountability systems in the MDM. Surveys of this nature could be facilitated through the newly set up Independent Evaluation Office. Second, what gets measured gets done. One of the risks with ranking exercises is that they can end up incentivising the wrong things. The indicators used in the current MDM rankings run the risk of doing just this. The ranking is based on a set of 15 inputs, such as financial utilisation, foodgrain utilisation, completion of construction targets, etc. But the objective of the MDM scheme is to provide a nutritious meal and none of the indicators focus on the quality of food provided. Identifying the right set of performance indicators, which incentivise quality provision of food, is another challenge for the ministry. Third, while state-level indicators are useful, the real potential of a ranking system will only be realised if it can be made relevant at the school, block and district level - where the programme is in fact implemented. One way of doing this is to create school-level report cards and widely publicise them across the district. Report cards of this nature could go a long way in empowering school management committees - parent committees, which under the Right to Education Act are mandated to monitor school-level functioning. The ministry has the skills to do this. For over 10 years now, education officials across the country have been collecting school-level data to build a national database of school report cards. Finally, the real test of the potential of rankings will lie in how they are used. One possibility is to use them as the basis for a district-level innovation fund that rewards high-ranking schools and gram panchayats. Financial rewards programmes are not new to government. The sanitation sector has been running, to some degree of success, the Nirmal Gram Puraskar (a reward scheme for panchayats that achieve sanitation status) since the mid 2000s. Where implemented well, it has served as an incentive for gram panchayats and communities to take ownership of the programme and develop locally relevant, sustainable strategies for achieving total sanitation. The Bihar tragedy brought home the enormous governance deficit in India's service delivery systems. The good news, as the HRD ministry's ranking effort seems to suggest, is that the government has acknowledged this challenge and is looking for solutions. The rankings are a great first step.

The unaccounted
Women and the poor are invisible in the Crisil index of financial inclusion. A rich man will most likely have a bank account, and a poor woman will most likely not. The Crisil Inclusix index, which measures India's progress on financial inclusion, does not tell us that. Women and the poor remain invisible in this index, and in a deeply divided society such as ours, figures often hide the

truth. Yes, the number of loans have increased, but they have gone to corporations, sometimes to small businesses and almost none to poor, self-employed women. Yes, branches have increased and so have the number of low-frill accounts, but a poor woman rarely saves her money in that account. She is still keeping her meagre savings at home, hidden in the roof, to be taken away from her when others need it, or even to be eaten by rats. Indices such as these are designed to help policymakers and service providers improve financial inclusion, which is often defined as reaching the "unreached". But if the aim is to reach the poor and to reach women, then the figures should give us a break-up by gender. Also invisible in the Crisil index are the myriad financial providers that actually do reach the poor. There may be no data on the informal sector, but there is no excuse for excluding those in the formal sector the non-scheduled co-operatives or private banks, the savings and credit societies, the micro-credit non-banking financial companies. Recently, the Self Employed Women's Association (SEWA) conducted a study on the effectiveness of unconditional cash transfers in rural Madhya Pradesh, and another one on women in the informal economy in Bihar. Based on these we formulated five principles of genuine financial inclusion of poor women. First, it must be recognised that a poor woman is willing to be part of the financial system. She is a natural saver, so having a safe place to save is important to her. An account of her own builds her identity and empowers her. However, banks often exclude women because they do not fulfil the KYC (know your customer) criteria. As Kamlabai, a bidi worker in rural MP, says "They ask for identity proof, but I have no identity. In my house, no one uses my name, they call me bahu or ma or bhabhi. I studied till sixth class. My name was changed after marriage, so my name on the ration card is different from the name on my school certificate." And Deepali, who works as a domestic help in Delhi and rents a room for Rs 2,000, speaks of the difficulties of providing the residence proof that a bank wants. Second, women respond much better to "doorstep banking". The success of micro-finance institutions, and self-help groups (SHGs) attests to this. Going beyond their village to deposit or withdraw money requires time and money, and in such cases men take over. Doorstep banking is also more sensitive to local needs. Although more and more girls are going to school, it must be remembered that there is a high rate of illiteracy among women, and it becomes difficult for them to do the paperwork required. Women in our Madhya Pradesh study said the main difficulty that they faced in banks was their inability to fill

forms. And the women who were illiterate had to rely on other customers or bring along literate family members. Others said bank staff helped them. Third, loans are important. Most poor families are in "exploitative debt", with extremely high interest rates, or in debt of goods like seeds, which require double the repayment in kind, or in debt which is to be repaid by labour at below market wages, or in debt that forces families into near-bondage. Loans at reasonable rates could break this cycle of debt and bring about structural change, reducing inequality. A Planning Commission study in Bihar says that only 4 per cent of the women have taken credit from banks and 7.6 per cent from NGOs and SHGs, 61 per cent had high-interest loans from money lenders and 18.4 per cent had mortgaged their land or property. In contrast, the SEWA Bank has a portfolio of 100 per cent loans to poor women and the extremely low number of non-performing assets proves that the poor are good repayers. Fourth, government schemes that involve direct cash transfers induce better financial inclusion, as the pressure to open accounts mounts on the financial systems, both from beneficiaries and from government. Our surveys in Madhya Pradesh and other surveys in Bihar have shown that cash transfers are perhaps the best option for both social security and financial inclusion, but only if they are unconditional or have minimal conditions. Finally, financial literacy needs to be tailored to the poor. SEWA's experience shows that specially designed modules increase women's knowledge about financial systems, change their savings behaviour and make them responsible debtors. Bringing knowledge and awareness to poor women not only broadens their world but also enriches mainstream financial systems.

Constricted by law
APMC acts impair the freedoms of farmers and consumers. Rahul Gandhi has announced that fruit and vegetables will be removed from the list of commodities under the agricultural produce marketing committee (APMC) acts in Congress-ruled states. This is an important move towards the freeing-up of markets, and will bring in competition and remove barriers to entry. It is expected that the de-listing will reduce the prices of fruit and vegetables in the long run and encourage investment in cold-storage facilities and warehouses. If the government wishes to reform agriculture and control food inflation, the reform should not stop here.

APMC acts were passed by states during our socialist past. They restrict whom farmers can sell to, who can get a licence to buy produce, and where trading can take place. This has given rise to a system with substantial barriers to entry in the trade of agricultural products. The freedom of farmers and other citizens to buy or sell as they like has been abrogated farmers are forced to sell to traders who hold APMC licences at APMC prices. As with many other state structures in socialist India, APMC regimes rapidly turned into rackets. Hardly 30 per cent of the mandated "open auctions" are actually open or transparent. New licences are mostly given to persons who already have shops and godowns in the prescribed market area. Shops in these areas are limited and are mostly available only to friends and relatives of existing traders. There are no transparent criteria for sale or for getting a licence. There is no time-bound application processing period during which a licence is either granted or refused. A licence is granted for a period of one to five years. Thus, the incentive for long-term investment is diminished. Regulatory capture by local trading communities is said to be the norm. These traders control the entire marketing chain, including credit, inputs, storage etc. Prices are often bundled, and there is a lack of clarity on what the exact price of the produce is, and what the interest on the credit and other items is. These traders then sell the fruit and vegetables to wholesalers who are also APMC-licenced traders and set prices in the wholesale market. Pricing is a mark-up over costs. Various studies have identified this monopsonistic-monopolistic market structure and the lack of free entry and competition as the reason for large middleman margins. For some products, the farmer gets only 40 per cent of the price paid by the end consumer. This market structure does not permit the entry of new players who want to set up cold chains and invest in other infrastructure, keeping marketing costs high. Sometimes, the marketing cost is itself nearly a fifth of the total price paid by the consumer. The government's approach to reform has been to try to change the APMC acts. In 2003, the Central government circulated a model APMC act and asked the states to adopt it. Sixteen states changed their acts accordingly, though only six notified the new rules under their act. The model APMC act does not solve the problem. Though it allows contract farming, it does not free up entry and exit into trading. It does not allow different business models to spring up. Some states allegedly adopted a few elements of the new act because there was a fiscal incentive to do so. The one state to strike a happy note in this bleak landscape is Bihar, which repealed its APMC act in 2006. While the structure of this market is badly designed, it has not changed over the last decade. Then why has food inflation surged? Part of the answer lies in the change in consumption. The demand for noncereals particularly protein, fruits and vegetables has increased with the increase in household incomes. When income rises, households do not just eat more rice and wheat. They graduate to a better diet and nutrition. Part of the answer also lies in the higher labour costs of production. The labour intensity of the production of non-cereals is higher than that of cereals. Estimates suggest that while it typically takes 55 man-days per hectare for the production of wheat, it takes 124 for onion, 110 for cabbage and 195 for tomatoes. Wage costs have also been rising since 2008.

While the increase in the prices of cereals because of the rise in minimum support prices has got a lot of media attention, the increase in the prices of fruit and vegetables has been relatively neglected. It's sometimes assumed that the supply has not responded to the rising demand. However, an examination of the data reveals that the production of non-cereals like eggs, meat, fish, fruit and vegetables has risen quite rapidly. It is not as if the market economy has not responded. The question is: at what price is the new production willing to come in? The combination of high costs, a market structure with mark-up prices and the lack of suitable storage facilities has given rise to high and volatile prices. This is why removing these food items from the purview of the APMCs becomes important. This will foster entry, investment and competition in this key weak-link of Indian agriculture: the processes from the farm to the fork. While it is good that fruit and vegetables will be removed from APMC lists, there is no reason to keep other agricultural items on them. For example, why should the freedom of the producers and consumers of dal be impaired? This calls the entire edifice of the APMCs into question. Why should all Congressruled states not match Bihar's modernisation by repealing their APMC acts? Another element of the five-point programme announced by Gandhi is the use of the Essential Commodities Act (ECA) to attack hoarders. This flies against what is being attempted by bringing private players into the fruit and vegetable markets. The ECA does not permit private traders to hold food above certain quantities or for more than a certain number of days. The state usually does not have storage capacity. If private traders are allowed into trading and storage, food price volatility could decrease. The ECA has often been used arbitrarily to impose restrictions on the trade and holding of food. What we require is economic freedom and a competitive market. This will yield higher productivity in agriculture and lower prices for consumers, and requires getting rid of the APMC acts and the ECA.

How 100 cadres keep an Assam dist on edge

The fire does not seem to die in Karbi Anglong. Assam's largest district, with an area of 10,434 sq km and primarily dominated by the Karbis, a listed Scheduled Tribe community, Karbi Anglong has remained almost permanently disturbed for 15 years or so with one militant group rising after the other. An autonomous district under the Sixth Schedule since 1952, it was given an option to join Meghalaya when the latter was created in 1971. But the Karbi leaders preferred to stay in Assam, until a fresh demand was raised a decade or so later for a separate Karbi state. While the movement was initially non-violent, Karbi National Volunteer (KNV) militants soon took over, engaging in extortion, abductions and killings. In 1999 the KNV merged with the Karbi People's Front to form the United People's Democratic Solidarity (UPDS) and unleashed a reign of terror, primarily targeting non-Karbi communities. In May 2002, when the UPDS signed a peace treaty, one faction stayed out calling itself UPDS (Anti-talks). Two years later this faction rechristened itself Karbi Longri North Cachar Hills Liberation Front, carried out a series of violent acts and extortion, and finally signed a ceasefire with the government in January 2010. Again, like before, one faction stayed out to become the Karbi People's Liberation Tigers (KPLT).

A rough estimate puts the number of persons killed by this succession of Karbi outfits at anywhere between 300 and 400 since 1999. Communities targeted by these groups include Kukis, Dimasas and settlers from Bihar, while a number of Karbi tribals too have lost their lives in retaliatory attacks by the Dima Halam Daoga. The KPLT hardly has about 100 armed cadres, while a series of peace agreements have been signed with various groups in the past decade. However, given the remote location of villages, poor road connectivity and abysmal governance, Karbi Anglong, like the adjoining Dima Hasao district, continues to be hit by violence. Surprisingly, the killings that have become a trademark of the hill district have largely evoked little response from even civil society. At least 10 Rengma Nagas (numbering around 10,000, they have been living in the area for more than 300 years now) have been killed and around 2,600 displaced in the latest round of violence. Chief Minister Tarun Gogoi too dispatched his first team of ministers to the area only 10 days after the outbreak of violence. The ethnic problem of Karbi Anglong doesn't seem to be anybody's problem in Guwahati, or for that matter the rest of the state, forget the country.

Corruption inquiry and foreign hand: a Turkey story

In building his political career, Turkey's powerful and charismatic prime minister, Recep Tayyip Erdogan, relied heavily on the support of a Sufi mystic preacher whose base of operations is now in Pennsylvania. The two combined forces are in a battle with the country's secular military elite, sending them back to the barracks in recent years and establishing Turkey as a successful example of moderate, democratic Islamic government. Now a corruption scandal not only threatens Erdogan's rule, but has also exposed a deepening rift between the prime minister and the followers of his erstwhile ally, who is tearing the government apart. On Thursday, after several days of sensational disclosures of corruption in Erdogan's inner circle, Istanbul's police chief was dismissed as the government carried out, what officials indicated, was a purge of police officers and officials conducting the corruption investigation nearly three dozen so far, according to the semi-official Anadolu news agency. As Erdogan has tried to contain the fallout, he is blaming domestic conspirators and foreign meddlers. He threatened to expel foreign ambassadors, blaming them for the vast corruption and bribery investigation mounting against people close to his government. On Saturday, the riot police stood guard as hundreds protested against the government. Erdogan's accusations come after two government ministers' sons were

arrested, along with several others including Suleyman Aslan, the CEO of state-owned Halkbank. In total, 24 people were jailed pending trial, accused of taking or facilitating bribes, the Dogan news agency reported. Turkish media reports say the investigation also relates to illicit money transfers to Iran. On Sunday, the police in Istanbul clashed with protesters denouncing Erdogan's government over bribery scandal. The Dogan news agency says the police fired water cannons and tear gas to disperse the crowd calling on government ministers implicated in the scandal to resign. Following much the same strategy he employed as he battled thousands of mostly liberal and secularminded anti-government protesters this past summer over a development project in an Istanbul park, Erdogan is portraying himself as fighting a "criminal gang" with links abroad. That is an apparent reference to Fethullah Gulen, the Pennsylvania imam who adheres to a mystical brand of Sufi Islam and whose followers are said to occupy important positions in national government, including the police, judiciary, education, media and business. Erdogan weathered the summer of protest, emerging with the support of his base even as his image abroad was tarnished. But the corruption investigation poses a challenge that analysts and some Western diplomats believe could be even greater. The inquiry has ensnared several businessmen close to him, including one major construction tycoon, sons of ministers and other government workers involved in public construction projects. Erdogan and Gulen have disagreed on a number of important issues in recent years although the tensions were previously kept largely silent. Gulen was said to have opposed the government's activist foreign policy in the Middle East, especially its support of the rebels in Syria. He is also said to be more sympathetic to Israel, and tensions flared after the Mavi Marmara episode in 2010. That was when Israeli troops boarded a Turkish ship carrying aid for Gaza and killed eight Turks and one American of Turkish descent, leading eventually to a rupture in relations since patched up between Turkey and its onetime ally. Gulen's followers "never approved the role the government tried to attain in the Middle East, or approved of its policy in Syria, which made everything worse, or its attitude in the Mavi Marmara crisis with Israel," said Ali Bulac, a writer who supports Gulen. The escalating political crisis, experts say, underscores the power Gulen has accumulated within the Turkish state. That power threatens to divide Erdogan's core constituency of religious conservatives ahead of a series of elections over the next 18 months. Gulen left Turkey in 1999 after being accused by the then secular government of plotting to establish an Islamic state. He has since been exonerated of that charge and is free to return to Turkey, but never has. He lives quietly in Pennsylvania though his followers are involved in an array of businesses and organisations in the US and abroad, and some of them helped start a collection of charter schools in Texas. He rarely gives interviews, and a spokesman recently said that he was too ill to meet with a reporter.

But a lawyer for Gulen, Orhan Erdemli, said in a statement released to the Turkish news media and shared by Gulen on Twitter, "the honourable Gulen has nothing to do with and has no information about the investigations or the public officials running them." Huseyin Gulerce, who is personally close to Gulen and is a writer for a Gulen-affiliated newspaper, said Gulen's followers have many of the same complaints about Erdogan as did the protesters this summer. They believe that Erdogan has become too powerful, too authoritarian in his ways, and has abandoned his earlier platform of democratic reforms and pursuit of membership in the European Union.

Rule by messiahs
The AAP's appeal to a 'moral sense', and not to the intellect, is not accidental. I do not doubt that the leaders of the Aam Aadmi Party are honest, well-meaning persons who may even bring some small material benefits to the people of Delhi, as the Dravidian parties have done in Tamil Nadu despite their alleged "corruption". But the AAP believes, by its own admission, that honest, wellintentioned and technocratic effort is all that is needed to solve social problems. This belief per se would not matter, but the hype around the AAP, generated partly by itself, is meant to hardsell this ideology. If one believes, for instance, that the AAP has "jolted the system" for the benefit of the people, which is the buzz these days, then one must ipso facto believe that the "system" is entirely reducible to venality and "corruption", that socio-economic structures are of little relevance, and that categories like "feudalism" and "capitalism" are inconsequential. Such nave technocratic "do good"-ing views have always been pervasive among the professional middle classes in India. They are now seeking to acquire intellectual hegemony on the back of the AAP's electoral performance. Since any scope for "theory" arises only because the intentions behind actions do not coincide with their consequences, the belief that honest, well-intentioned actions are all that is necessary amounts to a negation of any need for social theory, of any need for thought beyond mere technocratic nuts and bolts. The AAP ideology, in short, apotheosises non-thought. The fact that its appeal is to a "moral sense" and not to the intellect is not accidental. It is intrinsic to its ideology. I consider this not only wrong but also fundamentally anti-democratic (notwithstanding all its celebration of the "aam aadmi"). What is more, it is the antithesis of the Left position, which apotheosises thought. Let me elaborate. Explaining all our social ills in terms of "corruption" or venality is a trivial, if not tautological, exercise. To say that caste exists because our politicians are too corrupt to get rid of it trivialises the enormity of the problem. And the same is true of "hunger", "poverty", "unemployment" and "inflation". Socio-economic structures, not being malleable, resist the efforts of well-meaning persons to improve the conditions of the people. To ignore the resistance of these structures is downright wrong. But if structures are supposed to have no resistance, then any need for a collective agency to overcome such resistance also disappears. The need for people to be engaged in action, to act as a collective force with sufficient strength to overcome such resistance, disappears. All they have to do is to elect periodically a set of well-meaning, non-corrupt and technologically competent persons who will "look after" their

interests. This is substitutism par excellence a group of "morally upright" and technically competent persons can act for the people whose agency role can be delegated to them. This is anti-democratic, since its conception of democracy is not people acting as a collective subject but a group of messiahs, consisting of well-intentioned technocrats who alone have "expertise", acting permanently on their behalf. Besides, this perception is opposed to that of the Left (whose place many see the AAP as taking). Bertolt Brecht had written: "Hungry man, reach for the book." To overcome hunger requires the overcoming of the social structure that produces hunger. This requires, in turn, collective action on the part of the hungry, to succeed in which they must understand the structure and hence must "reach for the book". Marx's apology to French workers in the preface to the French edition of Capital because of the denseness of the first few pages of that book expressed his belief that the working class had to read in order to fight capitalism. The AAP ideology, which amounts to apotheosising non-thought, is therefore opposed to the Left ideology that apotheosises thought. The latter does so because it sees people as transforming themselves into a collective subject; implicit in the former is their being fixed in the role of perennial objects. I find the aggressive pushing of the AAP perception therefore quite disturbing, indeed almost as disturbing as the silence of several progressive public intellectuals over it. Their silence perhaps stems from the fact that they see in the AAP a potential force to thwart the current quest for power by the communal-fascist Hindutva forces. But the AAP's ability to do so is questionable: a substantial segment of its support base consists of people who make no secret of their wish to vote for Narendra Modi in the parliamentary elections, and the AAP has done little to counter Modi's "appeal". It is nave to believe that the threat of communal-fascism can be countered surreptitiously, by such tactful silence. For intellectuals not to speak against the dumbing down of public discourse on these grounds makes little sense. True, the AAP alone is not responsible for such dumbing down; other non-Left parties are perhaps even more guilty. But the AAP's doing so is particularly disturbing because, first, it claims not to be like other parties; second, it is enjoying such a high profile; and third, it is actually making a virtue of its non-thought. My argument may appear odd: hasn't the AAP consulted the people even on the question of its forming a government and thereby given them a subject role? How then can it be accused of substitutism, of conceptually undermining the need for the collective political agency of the people? In fact, the so-called consultation with the people is a symptom precisely of the lack of theory I find disturbing in the AAP. The people can become a collective political agency only on the basis of a theory. Not to have a theory around which they can be mobilised for acting against the structures, but to consult them in their empirical individuality on specific questions, no matter on how large a scale this is done, still constitutes a conceptual undermining of their agency role. The joke about the British Labour party used to be that it decided its programme on the basis of opinion polls. Any party that does so cannot take on socio-economic structures; indeed, if anything, its apotheosis of non-thought strengthens them.

Not by babanomics
Tax reform is a serious issue. Transaction tax is a bad idea. In a recent speech, Narendra Modi said that India needs tax reform. The BJP is reportedly evaluating various reform proposals to include in its manifesto. It is important to evaluate these on the basis of both economic theory and international experience. The most prominent proposal on tax reform is the one supported by Baba Ramdev. He has proposed a tax on all bank transactions. According to the proposal, such a tax will eliminate black money. Money is considered black only when the payment of taxes has been evaded. Under a transaction tax regime, evasion is technologically impossible because the bank will be responsible for the collection and payment of taxes, which will take place electronically. Such a tax is supposed to be simple with little cost of collection, no filing of tax returns and no possibility for evasion. By implementing this proposal, it is argued that India can get rid of all the complicated taxes it has at present. There will, however, be no taxation of cash transactions because it will be difficult to implement. To ensure that people do not start transacting in cash alone, it is proposed that Rs 500 and Rs 1000 currency notes should be demonetised. Why is this not a good idea? Transaction taxes are often referred to as sand in the wheels. They are meant to discourage certain kinds of transactions. The original Tobin tax on currency market transactions was intended to reduce the magnitude of currency trading turnover. Those who argue for transaction taxes do so on the grounds that they will reduce transactions. In other words, it is well understood that when the government starts taxing certain kinds of transactions, people move away from them towards other kinds of transactions. If one method of making payments involves being taxed, people will choose other methods. Transactions on the street will shift to dollars, gold, bitcoins and other unexpected things. For example, bottles of Tide detergent are reportedly popular as a currency in underworld transactions in the US because they are untraceable. Cigarettes can be used for small transactions. A one cubic centimetre piece of gold weighs 19.1 grams and is worth approximately Rs 56,350. These could be used for larger transactions. This would result in the further decline of the Indian rupee as a trusted vehicle for the storage and transportation of value. Commentators have highlighted that the international experience of transaction taxes shows that they do not support revenue collection of more than 2 per cent of the GDP, and even this declines over time. Most countries have given up on transaction taxes. Such taxes do not yield the 10 per cent of GDP that even a minimal government, such as the one that Modi is said to want to oversee, will need as revenue. But lest it be thought that this tax is only dysfunctional in foreign lands, lets take the example of an Indian transaction tax the stamp duty. If property is bought or sold, a set

percentage of the value of the transaction is supposed to be paid as tax. Only if the transaction takes place through the banking system is it recorded, necessitating the payment of the stamp duty. So what do people do? They transact partly in cash. This part of the transaction is unrecorded and therefore the tax on it is not paid. Of course, this is illegal the amount that is declared as the value of the transaction for the property is less than what it actually is and duty is being evaded. Does the inconvenience of counting, transporting and paying in notes of, say, Rs 500 prevent this cash transaction from taking place? No, it does not. In fact, in the real estate sector, it is difficult not to transact in cash. Tax evasion has become the norm. This has numerous downstream consequences a network of illegality in real estate, weakness of the property tax, etc. Public finance experts believe that stamp duty should be eliminated to reduce black money in real estate. Rather than encourage compliance, the stamp duty incentivises people to move away from the formal economy. With the proposed banking transaction tax (BTT), this is likely to become the norm for the bulk of the economy as there will be a stamp duty on all transactions routed through the banking system. The dream of getting rid of myriad tax collectors is a good one but it requires a great deal of action at the level of state governments, which have their own tax administrations. A constitutional amendment is needed to take away the taxation powers of states. The negotiations of the empowered group of state finance ministers regarding the GST one of the few truly good ideas in tax policy in India have been a long saga over the 2004-13 period. How will all state governments ever be persuaded to abolish their taxes in return for a slice of the BTT? No country in the world has eliminated all taxes and replaced them with a BTT. If a government wishes to reform Indias tax system and reduce evasion, there are better ways to do this and simplify the system. The right strategy combines a flat low rate of income tax on individuals with an EET (exempt-exempt-taxed) treatment of savings, a removal of myriad exemptions, a clean and simple GST and the removal of most existing taxes so that we end up with exactly two taxes an income tax on individuals and a GST on firms. Many expert tax and public finance committees have recommended this based not just on rigorous economic theory, but also on international evidence. Tax reform is an important and serious issue and can have a huge impact on economic conditions in India.

No splinternet
To play a role in reframing Net governance, India must discard old clichs of diplomacy. Washingtons announcement last weekend, that it would soon cede control over a core function of the internet, will intensify the scramble for reorganising an institution that has become a vital part of our lives. Despite the preoccupation of the political classes with the

election, the security establishment in Delhi must prepare for the defence of Indias interests in sustaining the internet as a stable, secure and open democratic space. In focus is a non-profit organisation called the Internet Corporation for Assigned Names and Numbers (ICANN) located near Los Angeles. ICANN can be conceived as a massive post office that lets zillions of information bits go from a point of origin, A, to an intended destination, B. At the heart of it is the domain naming system (DNS), a method of sorting mail in a post office. This involves organising a code that lends a unique identity to each user and facilitates easy communication among them. It is the DNS that lets us reach any site by typing say, indianexpress.com, rather than a series of numbers. The DNS is what makes the internet tick, by adjudicating potential disputes and maintaining the master list of various addresses and dividing them into different categories. This system was initially run by one man, an American scientist, Jonathan Postel, in the University of Southern California, on a part-time basis under a contract with the Pentagon. The organisation he ran, the Internet Assigned Numbers Authority (IANA), was put under ICANN, established in 1998, as the first step towards the privatisation of internet management. It had a contract with the US Department of Commerce to run the DNS. Last Friday, the commerce department announced that it would not extend the contract to the ICANN when it expires in September 2015. It has asked ICANN to prepare a transition plan for more broad-based governance of the DNS system, through consultations with all global stakeholders. The US decision to widen the base of internet governance was not unexpected. Since the revelations by Edward Snowden on the extent of American spying on governments and individuals, there has been worldwide clamour to end US dominance over the internet. The pressure for reorganising internet management has come not only from countries like China and Russia, but also from American partners like Brazil and allies in the European Union. In fact, late last year, the small club of technical organisations that runs the internet called for cutting the internets umbilical cord with the US government. These included ICANN, the Internet Engineering Task Force, the Internet Society, the Internet Architecture Board, and the World Wide Web Consortium. Meanwhile, the International Telecommunication Union (ITU), which has long regulated global telephony, has become the venue for a determined bid by countries such as China, Russia and Saudi Arabia to end American primacy over the internet and significantly expand the role of governments. The US is seeking to pre-empt this by agreeing to relinquish its control over ICANN but setting the terms for a new arrangement. Announcing the decision on ICANN, Washington said it would not accept the replacement of its supervisory role by another government or an intergovernmental organisation. There will be hard bargaining among key governments, the technical community, corporations and civil society groups in finding a new way to manage the DNS. Seeking to

build a new consensus, ICANN is all set to open international consultations, which will begin as early as next week in Singapore. ICANN is also supporting the Brazilian government in organising a major international conference of all stake holders next month in Sao Paolo. The ITU members are set to gather later this year in Busan, South Korea. The stage is set for a big political battle for the future of the internet. Until now, the UPA has focused on strengthening cyber-governance at home, under the stewardship of the national security advisor, Shivshankar Menon. Delhi rightly considered building domestic capabilities as more important than grandstanding on the global stage about internet governance. Now, as jostling for internet management gets rough, Delhi will have to move with some speed to secure its interests and gain some say in the ordering of the DNS. At the international level, Delhi has regrettably been sending mixed signals on its approach to internet governance. Delhi has a long record of posturing at multilateral forums and shooting itself in the foot when it comes to national interest. Believe it or not, in the 1970s, India opposed, at the UN, the direct broadcast satellite technology in the name of protecting its territorial sovereignty. With an IT sector that is deeply integrated with the global economy and contributing nearly 8 per cent of Indias GDP as well as the worlds third-largest group of internet users, India does not have the luxury of quixotic pursuits. Delhis negotiating position must be rooted firmly in Indias economic interests. Issue-based coalitions with countries, companies and civil society groups are critical for ensuring the best possible outcomes. Internet governance is also about Indias democratic political values. During the Emergency, nearly four decades ago, when Indira Gandhi was trampling on democracy at home, the multilateralists in our foreign office were consumed by the quest for the so-called new international information order that sought curbs on the free flow of information across borders. Indias challenges in negotiating a new framework for internet governance do not lend themselves to the old clichs of Indian diplomacy. Instead, India must strive to find the appropriate balance between the multiple antinomies that define the debate. These include tensions between freedom and state control, human rights and public order, privacy and collective security, intellectual property rights and fair use of information, corporate imperatives and public interest, technical efficiency and international legitimacy, and multilateralism and multi-stakeholderism that brings non-state actors into the equation. In the end, governments should and will get some new responsiblities in the management of the internet. But India certainly has no interest in seeing the current universal internet broken into a splinternet of separate sovereignties.

Spending wont make it better

With a new government in the offing, all suggested agendas for health are talking of an increase in health budgets and the fact that at 1 per cent of the GDP, government spending on public health in India is one of the lowest in the world; the rest is out of pocket expenditure. The US is a prime example of the fact that an increase in health budgets is no guarantee of better healthcare. Until such time as we are able to achieve some transparency in pricing and some standardisation in hospital processes, there is every likelihood that a mere increase in budgets would only mean healthier balance sheets for hospitals. Today, almost 72 per cent of healthcare-spending in India is in the private sector, and all indications are that this is going to be the case in future too. The private sector today accounts for almost 52 per cent of all inpatient care and 82 per cent of outpatient care. There is nothing wrong in such a trend: if private hospitals deliver better value for money, certainly they should be funded. However, a mere look at how private hospitals and health insurance function makes this a questionable proposition. Health premiums have skyrocketed in recent years. This, however, has not meant that the policy holders are any better off. Grievances have increased at practically the same rate as health premiums. The rise in premiums mostly has to do with hospitals. Most health insurance companies in India have adverse claim ratios of over 100 per cent, which means that the entire premium is swallowed up in claims. Audit reports routinely say that the public insurers should reduce the costs of medical services by standardising procedures and costs. This is something that neither private nor public insurers have been able to do. One reason for this has been that hospital charges for procedures are not transparent. Hardly any hospitals have standardised packages for high-cost procedures, like bypass surgeries, which include all costs from start to finish. Unless the consumer knows for instance that a bypass in a five-star hospital costs Rs 4 lakh in contrast to Rs 1.5 lakh in a smaller hospital, there is no way that he can compare the two. The insurers, for their part, have clearly said that they are unable to persuade the hospitals to offer package rates. Second, and more importantly, even if ones health insurer is willing to pay Rs 4 lakh for that heart surgery, the quality of service provided is uncertain. There is no central data repository in the government or with the insurers on the relative health outcomes for these procedures. So we have no way of comparing the performance of any given hospital over time to say whether patient survival rates have improved or whether infection rates have come down. Few people know that hospitals simply do not keep the kind of records that might provide them feedback on the quality of patient care. For example, in case any incidence of infection is recorded, it would be recorded on the case paper of the individual patient. This information is not filed in any central registry. Correspondingly, no corrective action at the institutional level is possible other than that which the immediate caregivers might offer. Merely keeping such records would in itself create an incentive to improve patient care. No

doubt, anonymity should be maintained about medical errors outside the hospital. But surely, the caregivers should know what went wrong and where. The world over, research has shown that meticulous record-keeping and following of standard operating protocols bring down mortality rates and infection rates and improve outcomes. Doctors, nurses and paramedics all have to function on a zero-error basis. To help things along, healthcare tries to reduce most tasks to standard protocols. The quality of care standards in hospitals rarely focuses on the patient or functions in the interest of the patient. From a demand side perspective, the reason for this could be that we as patients tend to associate quality with infrastructure. Commonsense says that an expensive hospital is better than ones neighbourhood clinic. However, health care is so dependent on human beings that price is no index of quality. Unfortunately, doctors alone cannot ensure success; institutional backing is needed. If only hospitals were to be evaluated just as much on the incidence of post-operative infections as on the reputation of the doctor, hospitals would be much safer places for all users. From a supply side perspective, hospital managements do not invest much in observing rules and protocols. The reason is not so much the cost, but because it takes much time and there is no law or rule that mandates this. Unless a hospital is accredited by a regulator or accreditation council, insurance companies would not empanel those hospitals. But in India, there is no such legislation and insurance companies certainly will not take on such a burden of their own volition. Accreditation and benchmarking is far less about upgrading infrastructure and more about following standard processes. Small can be beautiful in healthcare and excellent quality healthcare can be delivered in low-cost settings too. Most quality of care standards are rather basic: what is the ratio of nurses to patients in the ICU; whether the nurses deployed are actually trained in hospital care; does the operation theatre have an uninterrupted supply of power and water; are lab instruments routinely calibrated, etc. Few patients realise that many of the instruments used by hospitals are simply not calibrated regularly. No wonder patients who go from one facility to another notice that the results reported for them vary considerably. India needs an independent regulator to benchmark and grade hospitals. The absence of a health regulator is something that health insurers often bemoan, but like all good businessmen, everyone is waiting for someone else to take the lead. Given the absence of political consensus on this issue, state governments are definitely not interested in taking any lead in this matter. The result is that, rich or poor, it is the patient who gets the short end of the stick, regardless of any increase in budgets.

Why TB persists
Public and private efforts must converge to battle it.

With two decades of high economic growth, India should have been on its way to controlling tuberculosis. Yet it remains an urgent public health problem. With 1,000 Indians dying every day of TB, and with the highest number of TB patients in the world, India is undoubtedly the crucial battleground for TB control. The enhanced detection of drug-resistant TB has increased the complexity of managing the disease, as it requires additional resources, manpower, laboratory facilities and infrastructure. The bacteria are able to evade drugs through various mechanisms and we now have forms of TB that are very difficult to treat. In India, both the public and private sectors have contributed to the continuing TB epidemic and must take responsibility for corrective action. For example, although the public sector offers free TB care services, its primary tool of diagnosis all these years, sputum microscopy, missed half of all TB cases. Delayed detection impacts treatment outcomes, and contributes to continuing disease transmission (as TB is an airborne disease). Further, patient experiences in the public sector are often marred by impersonal care, hidden costs and disempowerment. The private sector often uses inaccurate and expensive TB diagnostic tests. While inaccurate diagnosis can lead to increased infection and patient suffering, escalating costs have a debilitating effect on families, pushing them into a vicious cycle of poverty. There also exist well-documented cases where private practitioners prescribe inappropriate drug regimens. These practices can lead to incomplete or interrupted treatment, contributing to the manmade problem of drug-resistant TB. So, how do we reduce TB in India and ultimately eliminate it? TB control requires a comprehensive and multi-level approach. We can begin by prioritising public awareness and addressing diagnosis and treatment in both public and private sectors. Simultaneously, we need to create an effective and workable relationship between the public and private sectors. A platform that combines many of these are the government of Indias recently issued Standards of TB Care in India (STCI). The STCI has been developed by the Central TB Division and dovetails with World Health Organisation and International Standards for TB Care endorsed recommendations. With more than 50 per cent of Indias TB patients seeking care in the private sector, its engagement is vital for effective TB control. It has the potential to bridge the gap between the government and private sector, by converging them to a single algorithm for diagnosis and treatment. Access to new and accurate diagnostics for TB should be rapidly expanded and provided for patients at reasonable prices (or free), while the use of poorly performing tests should be disallowed. There are several WHO recommended diagnostic techniques, such as GeneXpert and other indigenously manufactured kits, that provide quick and accurate TB diagnosis and detect drug-resistance. Early diagnosis is key to successful treatment and disease control. Improving patient outcomes involves rationalising treatment regimens in the private sector and providing support for needy patients to help them complete the full course. Shorter regimens currently being evaluated in research studies have the potential to

lower default rates, which will help prevent drug-resistant TB. Perhaps the most critical aspect is a strong public information campaign that will increase awareness, empower patients, reduce stigma and help combat TB effectively. Other key issues which require attention are infection control and nutrition. Since TB is an air borne disease it spreads quickly in close, densely knit spaces. In the absence of ventilated housing, providing patient, families and communities with sufficient information on preventive strategies can help contain the infection. Also, the government needs to introduce a provision for nutritional supplements to all TB patients. There is a wellestablished relationship between better nutrition and improved treatment outcomes. Since the majority of TB patients belong to vulnerable sections of society, a nutritional supplement or financial incentive (similar to Janani Suraksha Yojana) during the treatment would go a long way in reducing drop-outs and ensuring completion of therapy. While we deal with the problem in the present, it is critical to plan for the future. The development of effective TB vaccines is vital. Although the Bacillus Calmette-Guerin vaccine is administered to all newborns, it is only effective for the first few years. There is an urgent need to invest in research and development and focus on indigenous TB vaccines. Public-private partnerships in research can go a long way in converting leads from academic laboratories into useful products. India is considered a pioneer in TB prevention and control. But substantial reductions can only be achieved if appropriate policies are followed, effective clinical and public health management is ensured and strong political commitment guides the effort.

Rights outfits to protest false case against activist couple

The Peoples Union for Civil Liberties and other human rights organisations have decided to launch a campaign against anti-terror laws in the country. The Peoples Union for Civil Liberties (PUCL) and other human rights organisations have decided to launch a campaign against anti-terror laws in the country,besides demanding repeal of Section 124-A of the Indian Penal Code (IPC) that pertains to waging war on state. A campaign will also be launched against officials of the Special Task Force (STF) and Allahabad police for registering false FIRs against the alleged Naxalite couple Seema Azad and her husband Vishwa Vijay. The couple,arrested from Allahabad for allegedly being involved in Maoist activities in February 2010,were granted bail by the Allahabad High Court on August 6. Addressing a press conference here on Wednesday,PUCLs Uttar Pradesh secretary Chitranjan Singh said that,like Seema and Vishwa Vijay,hundreds of undertrial prisoners

have been booked for alleged Naxalite activities and waging war against the state without any evidence. There are nearly 100 such undertrials in the jails of Mirzapur and Sonbhadra districts. We will be carrying out a state-wide survey of such undertrials and launching a campaign for demanding their bail, said Singh.

Better sense prevails

By escalating a students squabble over sports into a national issue, state briefly undercut own authority. A contingent of Kashmiri students in Meeruts Swami Vivekanand Subharti University was arbitrarily suspended because a few of them cheered Pakistans victory over India in the Asia Cup tournament, and other students found this unpalatable. India-Pakistan matches are invested with great emotion, and in this case, a skin-deep cricket nationalism combined with the refusal to confront the disaffection in Kashmir as well as the suspicion of minorities in communally divided Meerut. While disagreement among the students may have been expected, the universitys actions were unacceptable. Without listening to the Kashmiri students, it suspended them for not divulging who among them had cheered for Pakistan. Instead of averting violence or impartially resolving the dispute, it sided with the aggrieved majority. Whats inexcusable, however, is that for a while, forces of the state vindicated and repeated the universitys folly, charging the Kashmiri students with sedition. Rooting for the wrong team apparently threatened the foundations of the Indian state. Sedition law, Section 124A, is a colonial encumbrance. In post-Independence India, the Supreme Court has qualified the circumstances under which it can be used, and in the famous Kedar Nath Singh v State of Bihar, clarified that there must be a real threat to public peace. By invoking it in this situation of a few high-spirited students supporting a rival team, the UP administration revealed its own panicky reflexes. A few years back, career provocateurs like Arundhati Roy and Syed Ali Shah Geelani had been similarly charged with sedition for holding forth at a conference on azadi in Kashmir. No matter how much these stands annoy other citizens, the state betrays its insecurity by reacting so ferociously to them. Consider the message this action had sent to Kashmir, or Kashmiri students around India. It told them that they could not be trusted as full citizens, allowed to express any offending thoughts, even one as trivial as preferring a certain sports team over another. By bearing down on a few students with the full weight of official power, the state made it into a confrontation over the soul of Kashmir. Instead of displaying the generosity of spirit that befits the worlds largest democracy, this action had made India look small. Thankfully, the UP administration has withdrawn the charges now, and much of the credit goes to other Indian citizens who expressed their justified outrage at this pettiness.

Section 295A, Indian Penal Code: Deliberate and malicious acts, intended to outrage religious feelings or any class by insulting its religion or religious beliefs. Whoever, with deliberate and malicious intention of outraging the religious feelings of any class of citizens of India, by words, either spoken or written, or by signs or by visible representations or otherwise], insults or attempts to insult the religion or the religious beliefs of that class, shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.

Section 153A According to the section whoever by words or expression promotes enmity between different groups of the country on the grounds of religion, race, place of birth, residence, language, or any such grounds or commits an act which is prejudicial to the harmony of he public is culpable under the section with imprisonment which may extend to three years with or without fine. Further, when the offence is committed on any religious place or any place worship the imprisonment can extend to 5 years with or without fine. The offence is non-bailable and even cognizable (after 1898) ie. Police can arrest a person under the section without warrant.

For Doniger row, dont blame the law

In fact, we should demand more frequent application of Sections 295A and 153A against influential offenders. So you have our idiotic law too! a relative from Islamabad crowed after the Wendy Doniger affair hit the headlines. He was referring to Donigers statement that described Section

295A of the IPC as the Indian law that makes it a criminal rather than c ivil offence to publish a book that offends any Hindu. Why did Doniger, who must be familiar with the section under which her book, The Hindus: An Alternative History, was sought to be banned, describe a law which applies to all faiths as one that applies only to Hindus? Indeed, it was the offended feelings of Muslims that gave rise to this law. The story of how Section 295A came to be enacted shows its continuing relevance. In 1927, the Punjab High Court ruled that while the book Rangila Rasool on Prophet Mohammed was offensive to Muslims, its Hindu publisher could not be prosecuted under Section 153A of the IPC, which related only to promoting disharmony between two communities. Sensing the mounting anger among Muslims, it was thought necessary to enact a law specifically targeted at wounded religious feelings. However, given its potential for misuse, it was carefully fine-tuned with stringent provisions. Even trial courts have taken liberal views on cases filed under this law. In 1953, the trial court of Tiruchirappalli held that iconoclast Periyars act of breaking a Ganesh idol did not amount to an offence under this section, a view set aside only by the Supreme Court. However, because five years had by then elapsed, it decided not to punish him. In 2005, another landmark judgment on Section 295A was given by the Calcutta High Court, striking down the West Bengal governments ban on Taslima Nasreens Dwikhandito. Given the way courts have ruled, neither Doniger nor Penguin had any reason to blame the law. Whatever their reasons for hiding behind this smokescreen, it is alarming that wellknown intellectuals have called for a reform of the two laws dealing with acts that hurt religious feelings and promote disharmony: Sections 295A and 153A. They must be amended, they say, to protect Intellectual and artistic freedom and the right to self expression works of serious academic and artistic merit. Thats a dangerous demand. Consider the editorials of the late Bal Thackeray in Saamna at the height of the December 1992-January 1993 Mumbai riots. The counsel for the Shiv Sena, before the Srikrishna Commission of Inquiry into the riots, described them as literary masterpieces. Indeed, some have the power to make the average Hindu reader weep in anguish or send a rush of anger through her. That this anger is directed towards a government described as one that cynically allows fanatic anti-national Muslims to kill young patriotic Hindus, and that the anguish is at the loss of young lives (rioters) by police bullets, does not take away from their literary merit. MIM MLA Akbaruddin Owaisis seditious and anti-Hindu speech at Nirmal in December 2012 could well be described as an articulation of his right to self-expression. How else would one describe Raj Thackerays essay, My stand, my fight, published in Maharashtra Times when his men were assaulting north Indians in 2008? Was Subramanian Swamys revolting but meticulously argued essay in DNA in 2011, How to wipe out Islamic terror?, devoid of academic merit? On the other hand, didnt we all lament when big guns like Bal Thackeray and Varun Gandhi were acquitted of charges under Section 153A?

Throughout the Srikrishna hearings, policemen were asked why they hadnt filed cases under Sections 295A and 153A against Shiv Sainiks. A few of the slogans on their placards could be described as examples of self-expression. Yet, these placards (and speeches) were relied upon to convict former Sena MP Madhukar Sarpotdar and two aides in 2008. This was the first and only time a Sena leader was convicted under Section 153A. It was also the only 1992-93 riots conviction upheld by a higher court. Can we celebrate this conviction without celebrating the provision under which it was made? Sections 295A and 153A have been misused, but so have the Scheduled Caste and Scheduled Tribe (Prevention of Atrocities) Act and the Protection of Women from Domestic Violence Act. Hate speech is as much a part of our society as are atrocities against Dalits and violence against women. The difference is this: the most powerful purveyors of hate speech are seldom prosecuted because prosecution needs government sanction. The prosecution of artists and dissenters gets noticed. What doesnt is the non-prosecution of political leaders. We should demand more frequent application of Sections 295 A and 153 A against these influential offenders.

Law for bad behaviour

Section 295A of the IPC opens the door for bullies to walk in These are grim times for scholars who study India. For years, in both India and the US, the RSS and its allies have bullied and attacked scholars of ancient history and religion who do not portray the past and the gods according to their narrow orthodoxy. What is different now is that the politics of fear is in the ascendant. People previously committed to open scholarship and public debate are running for the hills. And now, with the withdrawal and pulping of Wendy Donigers The Hindus: An Alternative History, the bullies have scored a major victory. Penguin, after fighting the legal case against Doniger for four years, suddenly folded, saying that it would be difficult to continue defending Doniger without deliberately placing themselves outside the law the law in question being Section 295A of the Indian Penal Code, which forbids deliberate and malicious acts intended to outrage religious feelings of any class of citizens. Penguins claim is ridiculous. The lawsuit is extremely weak. It is poorly written and argued, contains absurd errors (even the purported quotes from the book are inaccurate), and its attempt to satisfy the laws demand for malicious intent is childish accusing Doniger, a secular Jew, of Christian missionary zeal and suggesting that her historically accurate references to sexual elements in the tradition were motivated by her being a woman hungry of sex. Ironically, the parts of the book that, according to the lawsuit, show Hinduism in a bad light are simply parts that are true and there: the Hindu tradition is replete with non-judgemental allusions to a variety of sexual desires and activities, including those of the gods, whether the new Hindu fundamentalists like this or not. So how could anyone be convicted of defaming a religion simply because she points to texts that some people

would rather forget? As Doniger said recently in The New York Times, the shoe is on the other foot: it is they who say parts of their own religion are bad, whereas she admires Hinduisms treatment of sexuality as natural and beautiful. Indeed, even a cursory study of Donigers career would reveal a passionate love of Hinduism, combined with scholarship of the highest order. Doniger, a woman of boundless energy, humour and joie de vivre, can be found teaching approximately double the required load, so eager is she to make sure that the major texts are taught in their original languages. She describes her career as motivated by a dissatisfaction with the narrowness and rigour of other religions, and a fascination with Hinduisms more variegated and tolerant portrayal of human beings and the conflicts they face the difficulty of being good, as Gurcharan Das put it in his book of that name, written after spending two years at the University of Chicago studying Sanskrit with Doniger. The case, then, was eminently winnable, and Penguins attempt to hide behind the law is a transparent excuse for cowardly capitulation. The real story is told in Penguins statement that they have a moral responsibility to protect our employees against threats and harassment where we can. Fear of violence has won; the conglomerate caves before a vague (or perhaps not-so-vague) threat. Such things have, deplorably, happened before. This time, however, there is the prospect (on which the lawsuits primary plainti ff, Dina Nath Batra, waxes ecstatic in an interview to The New York Times) that the RSS will soon have the power to suppress all the books it doesnt like. What, then, of law? Is Section 295A utterly irrelevant to the current dire situation of free speech and scholarship in India? Certainly, law does not explain Penguins failure to fight a winnable case. But law, I would argue, is not nothing either: it does collaborate with the political situation, opening a door through which bullies may walk with their heads held high. Group defamation is a trendy topic in the law. Particularly in Europe, where incivility to minorities is distressingly common and well-meaning people want to protect their dignity, it has become fashionable to defend such laws or urge their adoption where (as in the US) they are not yet present. A particularly influential argument for group defamation laws was recently made by the eminent British legal scholar Jeremy Waldron, in The Harm in Hate Speech. Waldrons concerns are admirable: equal respect and full inclusion. How, he asks, can Muslim immigrants ever feel themselves fully equal citizens when a sign can be put up on a New Jersey street saying, Muslims and 9/11! Dont serve them, dont speak to them and dont let them in. (The exam ple is apparently fictional.) Waldron argues that the usual ways of dealing with such insults (non-discrimination laws, social norms) are insufficient: the law must intervene, ensuring that minorities have confidence that their dignity will not be assailed by public utterances. Waldron focuses on dignity, not offence; he thinks mere hurt feelings are insufficient grounds for legal regulation. But he gives little guidance on how the distinction would be made, nor does he convince us that judges in a polarised nation would be good line-

drawers. All such laws are vague in a way that allows the offended party ample scope to represent a statement, a placard or a book as an assault on its dignity. If a requirement of malicious intent is added, that too is vague, and such laws often give no guidance as to how to establish it. The vagueness of the Indian statute gives a virtual invitation to bullies to use it to suppress whatever they dont like. This brings us to a second problem. Although Waldrons admirable concern is with the social inclusion of minorities, group defamation laws throughout history have been overwhelmingly used by powerful groups to suppress dissident or heterodox voices: a terrible track record, says legal scholar Michael McConnell, reviewing Waldrons book. What else would one expect, when the powerful passed the laws in the first place and typically control the judiciary that will interpret it? A third problem is that when the topic is either sex or religion, almost anything anyone says will offend someone. Pluralistic societies contain puritans who feel sexual references demean their dignity and others who think that the suppression of sex removes a vital part of their dignity; they contain religions, and strands within religions, which harbour mutual suspicion and animosity. Group libel laws, according to Waldron, make society safe for all groups. What they really do is prevent all serious public debate or research on these touchy topics, since someone somewhere is sure to feel insulted. The suppression of Donigers book was not caused by Section 295A. It was caused by bullying, power politics and cowardice. But law has given public sanctity to bad behaviour, allowing Penguin to portray itself as law-abiding rather than egregious, and allowing the plaintiffs to represent themselves as wounded citizens seeking justice, rather than the ominous thugs they are. In the US, without such laws, scholars of Hinduism have been threatened with violence. But the thugs who threaten them put themselves outside the law and are investigated by legal authorities: scholar Paul Courtrights house was staked out by the FBI after Hindu rightwing threats apropos of his book on Ganesha. Policemen pay attention to law, and so do law professors. At the time, the head of t he HSS (the RSSs American wing) was a law professor. So far was Ved Nanda from hauling Courtright into court that he issued a public apology to him for the harassment, in my hearing, at a conference sponsored by Doniger and me at the University of Chicago (about democracy and the Hindu right, shortly to appear as an edited book, whether anyone in India will be able to read it or not). After all, Nanda, as a law professor, had to be manifestly on the side of law. Tough laws protecting free speech create social norms which make it impossible for a respectable law professor to defend such intimidation tactics. Later, when threats were directed toward employees of the Harvard University Press before the publication of my own 2007 book, The Clash Within: Democracy, Religious Violence and Indias Future, I called Nanda and asked him to stop the people who were doing this and the pressure stopped. After all, the bullies were on the wrong side of the law. To my knowledge, no work

of scholarship on Hinduism has been suppressed in the US, though many have been amply insulted. Law, in short, is not everything, but it is not nothing either. Group defamation laws issue an invitation to thugs to suppress speech that they dont like, while representing themselves as the righteous ones. Unfortunately, in todays political climate in India, there are all too many people ready to take up this ugly invitation.

The challenge is skilling

No government can ignore the task of making young India job ready. Heard of Velu the Welder? This simple welding simulator is transforming the welding landscape in India, which today faces a scarcity of two lakh skilled welders. By training at 30 per cent less cost and in a considerably safer way, it is preparing thousands of youths to take up lucrative welding jobs that pay anywhere between Rs 15,000 to Rs 1 lakh a month. Velu the Welder is a small part of a skilling transformation that India is undergoing today. Indias working-age population will rise by 12.5 crore over the coming decade, and by a further 10.3 crore over the following decade. It is almost a clich to say India is sitting on a demographic dividend. That is, with its growing young workforce, it can look forward to decades of high productivity, economic growth and upward social mobility. What is often ignored is that this tale assumes two things first, there will be availability of productive jobs and second, there will be skilled workers to take on the jobs being created. While the first is often talked about, the second, skilling and re-skilling young India to become job ready, is equally important, and often treated as secondary. Survey after survey shows that the lack of a job-ready workforce is one of the biggest constraints facing Indian industry. By 2022, it is estimated that unless action is taken, there will be a gap of 10.3 crore skilled labourers in the infrastructure sector, 3.5 crore in auto and 1.3 crore in healthcare, to name a few. Skilling is an appropriate area for government intervention as it is an example of what economists call a market failure employers on their own will not invest enough on skilling employees (what stops employees from being poached once they are trained at the companys expense?), and employees have limited ability and willingness to pay for skilling. They are often unaware of the full return on investment and are also often credit constrained, with little recourse to collateral free credit. Left to its own, the market would therefore create far fewer job-ready workers than the economy needs. Faced with this reality, the government has given a major impetus to skilling over the last few years. To begin with, a clear national goal has been established to skill and re-skill 500 million Indians by 2022. A National Skills Development Agency has been set up to coordinate various piecemeal training efforts of different ministries, state governments and industry. The budget for skilling has been ramped up several-fold to more than Rs 10,000

crore a year. Skilling and placement targets have been set at aggregate and sectoral levels and a robust national tracking system is in place. But targets and budgets are only part of the solution. What is more interesting are the innovative design and delivery models being set up to respond to job-market realities. First, industry has been centrally engaged in designing the training curriculum and certification of trainees, so that trainees are taught the things they need for getting a job (a major weakness of previous government training efforts was a weak linkage to job-market needs). Twenty-eight sector skill councils, with industry in the lead, have been set up for this. Second, incentives for youth to get trained and certified are being put in place. The Standard Training Assessment and Reward (STAR) Scheme has been launched, under which each trainee gets approximately Rs 10,000 upon completion and certification of training. More than 2,30,000 young people have been enrolled under the STAR incentive programme already. Third, technology is beginning to be deployed to transform the training landscape. Various innovative models have emerged. As the example of Velu the Welder (and similar simulators, such as for driving) has shown, technology is being leveraged to make training safer, more cost-effective and more scalable. With highspeed broadband connectivity to every panchayat likely to become a reality in the next two years, technology-based skilling models will only become more valuable in scale and impact. Fourth, existing government programmes are being adapted to make the youth job-ready. The National Service Scheme has been adapted to prepare youth for entrepreneurship opportunities by enhancing their IT literacy, financial literacy, English communication and other soft skills. This is already being implemented across 40 colleges. Industrial Training Institutes (ITIs) are being upgraded, many through public-private partnerships. For example, a world-class skilling centre has been established by the Delhi government in partnership with the Singapore government, adapting from the successful training models of Singapore, to train 10,000 youths per year. Fifth, new state-specific programmes that address unique challenges like Udaan (for unemployed graduates) and Himayat (for entry-level service-jobs) in Jammu and Kashmir are being scaled up. An end-to-end value chain for identifying youth, training, placement and post-placement counselling and support has been created. More than 20,000 young people have already been trained and placed in the state through these two programmes, and the target is 1.5 lakh over the next five years. Of course, a lot more needs to be done and is on the cards. The single biggest reform in the works is the amendment to the archaic Apprenticeship Act, to make it easier for companies to hire and train apprentices. Apprenticeship has been a successful model of skilling youth in countries like Germany and Japan. This reform alone can increase the number of apprenticeships in India from the current 2.4 lakh to 30 lakh a year. Two hundred

community colleges are being set up within existing colleges and polytechnics to enable youth pursuing higher education to become more employable. Skill development is one of the activities approved for spending under Corporate Social Responsibility (CSR) as per the new Companies Act 2013. India has made a tryst with its demographic destiny. Skilling its youth is giving it a chance to redeem this pledge.

A state more adventurous

Getting things done in skills needs unblocking traffic jams at the intersections of education, employability and employment. A heated argument with a senior member of this government about inaction around fixing the regulatory cholesterol of the Apprenticeship Act ended with him telling me, The government has many things to do. You need to learn how to be more patient. I couldnt resist reminding him that the 20th point in Indira Gandhis 20-point programme of 1975 was fixing Indias apprenticeship regime. Thirty-nine years after making it a policy priority, India has only four lakh formal apprentices. Germany has 30 lakh, Japan has one crore and China has two crore. The transmission losses between talk and walk in fixing our apprenticeship regime are symbolic of broader policy challenges in moving from what to how to done. Getting things done in skills needs unblocking the traffic jams at the intersections of education, employability and employment. More importantly, this needs a more adventurous and decisive state. Adventurous because tackling Indias skill challenges 10 lakh kids joining the labour force every month for the next 20 years needs room for innovation, change and risk. Decisive because India isnt getting done what it has identified it needs to do. The next government must fix five troublesome intersections. First, the intersection of employability and employment. The mismatch between what is taught and what employers need continues to bother both sides. Apprenticeships are the lowest-hanging fruit in skill reform because they bridge this gap with practical experience, have a higher expansion rate than classrooms and supercharge a freshers resume. India can rapidly raise the number of apprentices to 10 million by changing the regulatory thought-world of treating an apprenticeship as a classroom rather than a job. Specific interventions to amend the Apprenticeship Act of 1961, empowering and resourcing the 29 sector skill councils of the National Skill Development Corporation and converting employment exchanges 1,200 of which only gave four lakh jobs to the four crore registered last year to career centres that offer counselling, assessments, apprenticeships, training and jobs are required. Second, the intersection of college education and employability. Ending the apartheid between vocational training and college education needs moving away from infrastructure-

obsessed college regulatory norms (confusing university buildings with building universities), being agnostic to delivery (same credit for classroom, distance and online), and creating a qualification corridor (mobility between certificates, diplomas, associate degrees and full degrees with multiple on and off ramps). Specific interventions include scaling up the National Skill Qualification Framework, deregulating distance education because the social signalling of a degree matters and domestic MOOCs arent legal, even though overseas ones are available, giving academic credit for apprenticeships and creating a higher education regulatory regime that focuses on hard-to-measure outcomes rather than easy-to-measure inputs. Third, the intersection of school education and employability. The last 10 years have taught us that we cant teach kids in six months what they should have learnt in 12 years and the most important employability skills are life-skills (curious, confident, communicator, courageous, risk-taker and team player). We should not vocationalise school education because the world of work is changing fast and strong foundations are crucial. Specific interventions should be ensuring that life-skills are deeply embedded in the school curriculum and tweaking the Right to Education Act for learning outcomes rather than inputs, which would stop the shameful shutting down of low-cost private schools. Fourth, the intersection of financing and delivery. There is a financing failure in skills. Employers are not willing to pay for training or candidates but are willing to pay for trained candidates; candidates are not willing to pay for training but for a job; and banks are not willing to lend to candidates unless a job is guaranteed. We need to create a market for vocational loans, expand apprenticeships, develop contracting skills in state and Central government for using public money for private delivery without corruption and divert money from schemes like NREGS to skill development. Fifth, the intersection of Central and state governments. Splitting policy formulation and execution between Central and state governments mean that they are alibis for each other. It is better to provide untied funds to state governments to devise their own schemes. We also need to make labour laws a state subject because skill development will not scale unless we expand private formal non-farm wage employment to much beyond 5 per cent of total employment. And this needs changing labour laws and a benefits regime that confiscates 50 per cent of the salary. More has been done in skills in the last 10 years than the 20 years before that. But to paraphrase Samuel Huntington, the gap between our goals and our reality is not a lie; its a disappointment. And it is only a disappointment because our goals and challenges are massive. But bold and decisive policy action will make our demographic dividend real.

In the minority
The decision to give in to Jains demand hinged on the status of Buddhists and Sikhs.

Article 26 of the Constitution recognises the right of every religious denomination to manage its own affairs and establish religious and charitable institutions. Article 30 recognises the right of religious and linguistic minorities to establish and administer educational institutions of their choice. These provisions give minorities a certain degree of religious and educational autonomy. The Constitution does not, however, specify or indicate either the religious denominations or the minorities that come under these provisions. Nor did any legislative enactment do so until 1992. The Central minorities commission, set up in 1978 by a presidential order, was given statutory backing when the National Commission for Minorities Act was passed in 1992. Section 2(c) of the act defined a minority as a community notified as such by the Central government. After the first statutory commission was constituted in 1993, the government issued a notification specifying Muslims, Christians, Sikhs, Buddhists and Parsis as minorities for the purposes of the act. Jain leaders protested against their omission through representations to the commission. The commission accepted their plea and recommended to the government that the 1993 notification be amended to include Jains in the list of minorities. But no official action was taken in this regard. On taking over as chairperson of the commission in November 1996, I took up the issue with the government, arguing that since the Constitution and laws of the country invariably clubbed Jains with Buddhists and Sikhs, both recognised as minorities, it was not fair to exclude Jains without spelling out legally tenable reasons for it. While the government kept mum on my plea, the Hindu Mahasabha petitioned the Allahabad High Court for the disbanding of the commission for its divisive policies. On the basis of the commissions stance, some Jain leaders approached the Bombay High Court for relief, which the court declined to provide, stating that the issue of determining minority status was then being heard by a Constitution bench of the Supreme Court in T.M.A. Pai Foundation and others vs State of Karnataka and others. The petitioners then filed a special leave petition in the Supreme Court, which also preferred to wait for a decision in the T.M.A. Pai case. T.M.A. Pai was decided seven years later. The court ruled that the minority status of a community had to be decided by state governments. By that time, 14 states had notified Jains as state-level minorities, along with Buddhists and Sikhs, for the purposes of their respective minorities commissions. The Jain minority case was disposed of by the Supreme Court after another three years (Bal Patil and another vs Union of India and others, 2005). The court held that it was for the government to take a decision on the issue. However, it also clearly indicated that it was not favourably disposed to the Jain communitys demand in this regard. Jain leaders, however, continued to demand recognition as a minority at the national level. The government, which had been persistently disinclined to do so, finally

accepted their demand. The Union cabinet approved the modification of the 1993 notification in January 2014. Surprisingly, there have been no visible protests against this decision. Whether Jains could be recognised as minorities hinged on whether Jainism is distinct from Hinduism. The judiciary has always maintained that it is indeed a separate religion and not a part of the broad Hindu faith. In an earlier case, the Bombay High Court had ruled that Jainism prevailed in this country long before Brahmanism came into existence and held the field, and it is wrong to think that the Jains were originally Hindus and were subsequently converted into Jainism. (Hirachand Gangji vs Rowji Sojpal, 1939). The Calcutta High Court has been more forthright: Jains rejected the authority of the Vedas which forms the bedrock of Hinduism and denied the efficacy of various ceremonies which the Hindus consider essential. It will require too much of boldness to hold that the Jains, dissenters from Hinduism, are Hindus even though they disown the authority of the Vedas. (Champa Kumari, 1968). Jains account for less than 1 per cent of the population, even though they have a slightly higher headcount in Maharashtra (1.3 per cent), Rajasthan (1.2 per cent) and Delhi (1.1 per cent). If their religion is independent and separate from Hinduism, as affirmed by the courts, there is no option but to recognise them as a minority. There were two alternatives available to the government either include Jains in the list of minorities or derecognise the minority status conferred on Buddhists and Sikhs in 1993. In its wisdom, the government has chosen the former course of action. In my considered opinion, the latter course would have been better and more conducive to justice, but only if the government was ready to face the possible backlash.

A pool for do-gooders

The prospect of mandated corporate social responsibility (CSR), as directed by the Indias Companies Act, 2013, prompts revealing reactions from all and sundry. For the sceptics of organised, especially large-scale, enterprise, CSR is an oxymoron. For those who fear the encroaching hand of the state, it smacks of an incremental tax by another name (and, worse, another one that people will evade). Nonetheless, CSR mandated by law is now a fait accompli, under the new Companies Act. Publicly traded companies exceeding certain size and profitability thresholds must spend 2 per cent of their net profits on CSR. Even prior to this, Indian corporations, like others worldwide, engaged in a spectrum of activities they deemed their social responsibility, for better or worse. Virtually all the websites of the top 10 (by revenue) publicly traded enterprises in each of Indias public and private sectors trumpet their CSR efforts. Companies feel that a stated commitment to CSR will burnish their brands and attract

talent, or it might just be a managerial perquisite, that is, a licence for managers to spend on their favourite activities in the guise of doing something seemingly legitimate. The amounts under the new law are large, conservatively estimated at Rs 15,000 crore annually by Minister of Corporate Affairs Sachin Pilot. An annual flow of this amount ($2.5 billion), suitably levered, represents a game-changing fund dedicated to infrastructural investments, anywhere in the world, certainly in India. Some introspection about how this money is used seems sensible, notwithstanding ambient scepticism about the wisdom of the mandate in the first instance. Therefore, the World Bank and the government of Indias department of public enterprises organised a seminar on CSR in Mumbai in February, under the auspices of Harvard Universitys South Asia Institute. The workshop was directed towards the large PSUs, including the navratnas and maharatnas, which do spend, and stand to spend, vast sums. A week of immersion with luminaries from the PSUs, along with some senior managers from Indian and multinational private sector enterprises, and a collection of NGOs, left me with a renewed appreciation of how much wastage is already inherent in the dispensation of CSR funds. Companies have no knowledge of other organisations related activities. A stylised example might be of a medical centre being established with little knowledge of preexisting facilities that could be more usefully augmented, or knowledge of impending duplicative plans that might well be launching concurrently. Information sharing can help here. Publicising details on individual company websites is a simple step. This can be done more effectively if one can organise a pre-existing body that would collate such information, perhaps under the auspices of the ministry of corporate affairs, or under an industry body like FICCI or CII. It goes without saying that this transparency in what people are planning to do with CSR funds is a good idea in and of itself. It will minimise, if not prevent, the current meddling of some in the political classes seeking to divert CSR funds for their own private purposes. There is another issue, even after accounting for greater transparency. Not every company is going to think of good uses for the amount it is mandated to spend. In 2012, for example, six of the 10 largest PSUs were able to spend only one-third of their mandate of roughly Rs 1,200 crore. One might interpret this as good news, in that money presumably wasnt wasted wantonly, but its hard to believe that there are no productive infrastructure-augmenting uses that such money could be directed to, were a mechanism to be divined. Further, companies lack a process to allocate funds. Targeted investments should be driven by a knowledge of how CSR fits into company strategy. It often appears to be driven, rather, by the background of the line manager in charge. Only partly facetiously, an engineer will tend to build a bridge, for example, and a social scientist will tend to monitor schools. The lack of process means that even managers trying to do the right thing dont have formal support to prevent unethical and inappropriate funnelling of so-called CSR

funds for private purposes. Only a Pollyanna would have imagined otherwise in the India of today. These processes will emerge over time. In the interim, perhaps it makes sense to consider a mechanism for companies to direct their CSR funds to opportunities shepherded by other companies, rather than forcibly wasting the funds themselves under some warped interpretation of compliance. There is an intellectual precedent. In a nutshell, polluting entities in many geographic and industry jurisdictions have a choice they either spend money to mitigate their ill effects, or they buy carbon credits, that is, the right to pollute, from those who are able to take this money and use it to offset the pollution (for example, by planting trees). The market for carbon credits determines the price of the right to pollute. If there are too many polluters, relative to those offsetting the effects of ambient carbon, the right to pollute becomes more expensive, thus creating a self-correcting mechanism. In economists jargon, the polluter internalises the negative externality it is otherwise imposing on society. How might companies consider whether it makes sense to coordinate on occasion? Modest coordination of CSR can be done by industry bodies. The state-created National Skill Development Corporation (NSDC) provides useful proof-of-concept, albeit in a different context, by cajoling companies in several industries to agree to skill standards, and then working to catalyse these into existence. A common fund to pool CSR resources to make sure the corpus is spent intelligently can also be useful. Of course, such a fund is not without its own issues. Those employees deriving intrinsic motivation from their direct involvement with CSR would be deprived of this feel-good effect. Companies that remit to a fund would lose control over how their money could be used, indeed, they would think of the mandate purely as a tax. Inevitably, such a fund will itself be subject to lobbying and corruption. This last factor can be partly managed through a board with representation from different sectors of society and some multilateral engagement. And the fact that companies, under this proposal, always have the alternative to eschew the fund in favour of direct CSR expenditure, will restrain egregious behaviour by the fund. By Indian law, CSR is here to stay. So its time to move on, beyond debates between its aficionados and sceptics, and figure out how to make it work. Harnessing the spirit of the market to nudge it in the right direction seems feasible and efficient.

Discipline and punish

A focus on punishment in sexual assault cases may be deflecting attention from real reform. The awarding of the death penalty by the Mumbai principal sessions court to three individuals convicted for the gangrape of a photojournalist in August last year may well be a reflection of a worrying trend: mechanical application of the 2013 criminal law amendments

is ensuring that the focus of reforms which were meant to legally reinforce the equality, dignity and freedoms of women has been narrowed to the sentencing of rape-accused. In the present case, the Mumbai court deemed it fit to apply Section 376E of the Indian Penal Code, which extends the punishment for those previously convicted of rape to death. Among the four persons convicted for the gangrape of the photojournalist, three were found guilty of raping a telephone operator a month earlier, also in the Shakti Mills premises. Section 376E clearly deals with repeat offenders and is meant to prevent recidivism, that is, the commission of offences after serving out a sentence. Its application in the current case is moot: the Mumbai police had simply clubbed together the Shakti Mills cases for trial since the accused in both were the same. How can these individuals be called repeat offenders if they are yet to serve the sentence in at least one case? Notably, the Justice Verma committee, which served as the fountainhead of the 2013 reforms, had steadfastly opposed the imposition of the death penalty for rape. In its recommendations to the Union government, the committee suggested that the maximum punishment for repeat offenders under Section 376E be life imprisonment meaning the rest of that persons natural life. Parliament, however, sought to add more teeth to the provision, enacting it in its current avatar. There was a clamour for tough punishment for rape convicts in the aftermath of the 2012 Delhi gangrape. By all accounts, the political class pandered to the illiberal sentiments of the moment. The Verma committee too, unfortunately, lent its weight to quick-fix solutions in adopting stringent definitions and enhancing punishment for sex crimes even as it rightly focused on the need for placing such offences within an anti-discrimination framework. There can be no legislating away sexual assault until there is an enabling environment for women whether it is to report offences, be guaranteed privacy safeguards and non-invasive investigations, or fair trials. The current offender-centric jurisprudence does little to address these needs.

The speed of justice

Address delays by providing state-of-the-art infrastructure and technical-legal support for investigative agencies. One of the root causes of the slow dispensation of justice is the lack of speed in investigations. Investigations that have to be concluded in months go on for years. Trials that must proceed on a daily basis take weeks or months. I will not venture to deal with all cases my focus is on a specific area, namely, anti-corruption laws. The mandate under Section 19 of the Prevention of Corruption Act is that investigations should be expeditious. Our Supreme Court has declared and accepted this principle, and in 1999, in Satya Narayan Sharma, held that there is no basis to stay corruption trials. The

CrPC requires investigations to be concluded in 60 or 90 days, depending on the nature of the punishment for the offence. While state police investigations tend to get concluded within the stipulated time, those by specialised agencies tend to take longer. The immediate benefit is that an accused would get default bail a classic example of how delays benefit the accused. To the citizen, this would seem incongruous, since specialised agencies have the advantage of being excluded from law and order duties their focus is only on investigation. An obvious explanation for these delayed investigations is that, whereas traditional crimes have fewer witnesses, highly technical crimes, such as financial fraud, entail gathering and analysing large volumes of documentation; only then is the complaint or chargesheet filed. It is, therefore, time to revisit the working of specialised investigating agencies and provide for adequate infrastructure, specialised training methods, and technical and legal support to ensure that investigations are fast and effective. The first need is training. With the changing economic scenario, there is a world of difference in the nature of financial transactions. A traditionally trained police officer may not have exposure to the complex nature of intra- or inter-state transactions. In the Special Reference No 1 of 2012 (Presidential Reference), the Supreme Court has held that auction is not the exclusive method to effect the transfer or alienation of natural resources. That being so, a police officer testing such transactions for criminality will have to understand economic policies and test allegations of abuse of authority against norms that should exist. The other issue that needs to be considered is scientific and technical expertise. This has to be seen at two levels. When highly technical policy matters or commercial decisions or transactions come before an investigator, he will need adequate technical support, be it through auditors, lawyers, scientists, to appreciate the nature of the transaction and whether thereis any violation of law. Some state police forces take recourse to deploying part-time experts on a case-by-case basis to assist in investigation. Such an ad hoc approach tends to negatively affect investigations and efficiency and speed are often lost. Just as investigators are trained for cyber crime, they must be trained for financial and commercial fraud. Lastly, with the separation of the investigation from the prosecution branch, investigators often need specialised legal support, which is not always available. This leads to malpractices as well as delay, since working prosecutors do not have adequate time to deal with advisory matters as their priority is to complete daily court assignments first. It is crucial that legally competent advice and support be made available to investigators, and legal experts be engaged to ensure that there are no technical breaches in investigations.

The second issue is that of inadequacy of courts and overburdening of judges. Court statistics relating to trial courts are often not reflective of work other than trials such as bail, remand, miscellaneous proceedings that consume large volumes of court time. Though such matters cant really be predicted in advance, we must make allowances or allocate court time for such issues. A stark example of change in the disposal of cases is the impact of additional CBI special courts. About five years ago, the CJI had written to the Union government for the creation of additional special courts for dealing with CBI corruption cases. A figure of 50 cases per court was proposed. The government accepted this figure and proceeded to coordinate with states to have 71 new courts, of which most are operational. Later, another 22 were sought to be added. The impact of this addition has been quite astounding. The disposal of cases since the courts were added is 50 per cent more than it was on an annual basis. Trials in a number of such special courts proceed on a weekly basis and are concluded within months. And this is after we take into account that abuse of authority and disproportionate assets cases have a large number of witnesses and documentary evidence. These figures show that there needs to be a concerted drive to add to court numbers on an all-India basis. Creating or nominating short-term fast-track courts is not the answer, although it is part of the solution. It is time we studied the court/ case/ disposal ratio for different kinds of cases and added up the numbers to buffer the criminal justice system by creating courts at the trial level and adding judges at the high-court level to ensure that the constitutional imperative of speedy justice is met. And this planning must be futuristic, with annual or biennial reviews, with the study of the added numbers and disposal rates to ensure adequate infrastructure for the future.

A guarantee for learning

We have achieved close to universal enrolment. Now the focus should turn to the quality of education. The Right of Children to Free and Compulsory Education (RTE) Act, 2009 states that every child in India has a right to a full-time elementary education of satisfactory and equitable quality in a formal school that satisfies certain essential norms and standards. Even a cursory reading of the law indicates that it covers every child in the age group six to 14. It is clear that it is the governments responsibility to guarantee this r ight to quality schooling for all. Whether from government or other sources, all currently available information shows that India is close to universal enrolment. In that sense, schooling is close to being guaranteed. Now comes the issue of quality education. In recent months, there has been a lot of debate about the learning levels of Indias children it has focused not

just on what children are learning but also on how childrens learning should be measured. Often, such discussions follow the release of the ASER report each year. The scale and depth of these debates are a welcome sign. It indicates that we are beginning a move from an exclusive focus on schooling inputs towards learning outcomes and quality. These discussions are a positive sign, as they signal the broadening of the scope of policy and practice of the right to education beyond the usual norms of inputs to thinking about how and what kind of education to guarantee in terms of outcomes especially learning outcomes. The focus on how to improve learning will need thinking about what learning needs improvement and how that can be defined, measured and strengthened. The standard models for measuring student achievement and learning outcomes have been developed in economically advanced countries. In these countries, all children are in school, and all schools are listed and fall under the jurisdiction of some national or provincial authority. Since a universal list of schools exists, it is possible to draw a sample from it. And since all children are accounted for, it is possible to sample inschool children, by age or grade, nationally or provincially. However, this may not be the case in countries like ours. Before importing foreign models wholesale, it is a good idea to take a look at our own realities and develop methods and measures that suit our conditions. Let us move beyond universal enrolment to look at school attendance. National figures for school attendance are harder to come by than for enrolment. But availabledata suggests the picture varies considerably across the country. In India, all measurement of school attendance (including ASER) has noted huge variations in attendance across states ranging from 90 per cent on a random day in schools in southern India to close to 60 per cent or below in schools in some northern states. As a consequence, school-based assessments of student learning that focus on students regularly present will be biased, as they leave out irregular or non-attending children who may have poorer learning levels. Most official studies of student achievement in India, such as the one brought out periodically by NCERT, focus only on government and aided schools. But children attend many different types of schools. These range from a variety of government schools to a whole gamut of private schools. Private schools can be aided as well as unaided, recognised or not recognised; the unrecognised schools may or may not be included in official lists. Nationally, in rural India, the proportion of children of elementary school age who go to private schools is close to 30 per cent and rising each year; in some states, this proportion is above 50 per cent. Thus, school-based assessments would not include children enrolled in the vast majority of unlisted private schools (especially low-cost ones). By not including such children, we would be leaving out increasing proportions of school-going children. Finally, what about children currently

not enrolled in school? While this number may be small among younger children, it rises as we look at older groups. Dropping out of school is often strongly correlated with falling behind academically. This eventually results in leaving school. If learning assessments are school-based, then such children will not get included.
However, information about the learning levels of these children can reveal a lot about what needs to be done to design second-chance schooling opportunities and to improve learning within school systems. By excluding them, such information and, therefore, possible pressure points on the education system will be lost. The RTE Act specifically talks about mainstreaming such children into the school system.

As Indians, we should be proud that our country has reached close to universal enrolment. This is a major achievement. Now we need to focus on every child not only being in school but also learning well. On the issue of student learning, regardless of the source of the data be it ASER, which is done by citizens or NAS, which is done by government the evidence strongly suggests we have a long way to go. In any given geography, for understanding and tracking the progress of all children, a representative sample of all children must be drawn. Such a sample must include children enrolled in government schools, children enrolled in private and other schools, school drop-outs and children who do not attend school regularly. All of them deserve the fullest right to schooling and learning. Following the guidelines of the 12th Plan document, as states move to include measurements of learning achievement in elementary school, it is important to remember that the government is responsible for guaranteeing quality education to all children, and hence it is important to track the learning levels of all children. The ASER survey, with a sample of well above half a million children drawn from practically every rural district in India, is perhaps the worlds largest annual household survey of childrens learning. It is a model adapted and used in countries like Pakistan, Kenya, Tanzania, Uganda, Mali and Senegal. With more than 200 million children of school-going age, based on our own contexts, needs and resources, we need to work out our own models for teaching and learning. Aligned with that, we need our own processes for assessment. Desired goals and outcomes need to be our own and achievable. Western countries have developed schooling and learning models that suit their conditions and their measurement systems have come from their own experience and reality. As a country of more than a billion people, we must develop systems of assessment and implementation that work for all our children. At a government meeting a few months ago, where I was present, there was a heated argument. Someone turned to me and asked Aap ko asliyaat se itna lagav kyon hai? (Why are you so attached to reality?) I was speechless. But this officials words have been ringing in my ears since. For policymakers, planners, practitioners and parents, reality can be the only starting point as we think of what our children need and what

more we need to do for them. Heres an example: close to 10 years ago, the newly elected government in Bihar wholeheartedly accepted that they had a large number of children out of school one of the highest in the country. Acceptance of this reality and steadfast commitment to wiping out the problem led to one of the most impressive efforts, in the shortest period of time, to bring children to school. The same honesty and openmindedness is now needed for helping children learn. But we cannot do that if we are not brave enough to take a hard look at our own realities and at all our children. The RTE was formulated to guarantee education to all our children; it is time that this right began to include a guarantee for learning, and that our policies and practices enabled concrete steps to improve childrens basic learning.

Double game
Contesting from two constituencies undermines electoral accountability. There is something absurd about a candidate contesting an election under the promise that they will faithfully serve the interests of that constituency and represent its people, but with the proviso that they might decide to abandon it if they also win in another constituency. Yet this is the case where big-shot leaders decide that one constituency is not enough, and they will fight the election from two places simultaneously.

That is the strategy that Narendra Modi has adopted for the 2014 elections, contesting from both Vadodara in Gujarat and Varanasi in Uttar Pradesh. The Congress can hardly object, since Sonia Gandhi also divided her attention between Amethi in UP and Bellary in Karnataka in the 1999 general elections. Despite defeating Sushma Swaraj in Bellary, Sonia Gandhi retained Amethi and had to resign from her other seat, leaving Bellary unrepresented in the Lok Sabha until a by-election was held in the subsequent year. There is a clear strategic rationale to this double contestation, but it also reveals a lack of confidence about the electoral strength of a party. One seat acts as a means of reaching out to a symbolic or critical battleground, the other constituency as a fall-back option to ensure the leader is in the Lok Sabha if the voters in the first seat reject them. Amethi was a constituency which had resonance for the Gandhi dynasty, having been won by Rajiv Gandhi, and before him, Sanjay Gandhi. Varanasi has obvious resonance for the BJP as a holy city. In both cases, contesting from constituencies in UP reflects the importance of standing in a state likely to be critical to the outcome of the national polls. Similar considerations lie behind Mulayam Singh Yadavs decision to stand for election in both Azamgarh and Mainpuri. Mainpuri, where he is the incumbent MP, is the back-up option, while standing in Azamgarh serves to bolster the Samajwadi Partys challenge in the east of UP. The Election Commission has already suggested that candidates should not be allowed to contest from two constituencies in the same election. In its 2004 report on

proposed electoral reforms, the EC called for the provisions of the Representation of the People Act, 1951, to be amended to prevent this, and suggested that, as an intermediate measure, candidates for two Lok Sabha constituencies post a deposit of Rs 10,00,000 to cover the costs of any subsequent by-election.

It could be argued that the sanction should be left to the voters. If they know that a candidate is dividing his or her attention between two seats, they could object by voting against. It has been argued that contesting from two seats provides flexibility, allowing parties to extend their appeal while hedging against the chance that their leaders will not be returned to sit in the Lok Sabha. However, there is also a sense that it undermines the representative process: a candidate rejected by voters in one constituency can still become a legislator making decisions that affect the whole country. If a key democratic principle is the right of the electorate to reject a candidate, this accountability is undermined by simultaneous candidacy.
Bangladesh is the only other country which has a first-past-the-post system and allows candidates to stand in multiple constituencies. In 2008, three party leaders won three constituencies each, leading to six by-elections to fill the seats they decided not to retain. Previously, candidates had the option of standing in up to five constituencies. Although the practice of multiple candidacy was common in 19th century elections, most countries now prohibit it. In France, Adolphe Thierss election in 1871 to some 30 departments demonstrated his widespread appeal and led to his appointment as president. In Canada, standing in two districts was standard practice among party leaders, until prohibited in 1919. Under mixed-member proportional electoral systems, where elections are contested from both constituencies and party lists, candidates often contest from a constituency and appear on the party list, although in Ecuador and Panama this practice is not allowed. In Japan, there were widespread complaints about politicians who lost the constituency election entering the Diet from the party list. Again, this is seen as preventing the electorates ability to vote to exclude a candidate, weakening the process of electoral accountability. Many countries, including India, prevent candidates who already hold legislative office from contesting elections to a different legislature. Modi, who is currently a member of the Gujarat assembly, representing Maninagar, will have to give up this seat if he wishes to sit in the Lok Sabha. Prohibiting dual mandates has been seen as a way of maintaining the autonomy of federal legislatures, and avoiding conflicts of interest and corruption. Dual mandates are allowed in France, the Netherlands and Spain, but there are objections to people holding two legislative offices simultaneously. In Britain, we are waiting to see if Boris Johnson, the flamboyant mayor of London, will decide to fight a constituency in the 2015 general election. Many Conservatives see him as a future leader of the party, in which case he has to have a seat in the House of Commons. But contesting a seat while being mayor is seen as a diminution of his office and a slight on

the London electorate. In the US, where electoral regulations vary from state to state, there is currently a move to allow Rand Paul, a Republican with backing from the Tea Party movement, to stand for president and contest a Kentucky Senate seat. He would not be the first to contest for two offices in the same election both Joe Biden in 2008 and Joe Lieberman in 2000 contested as vice presidential candidates while also fighting a Senate campaign. It is for the electorates in Vadodara and Varanasi to judge whether Modis dual candidacy is an issue in the 2014 general election. Under the existing law, he has every right to stand in both constituencies. Yet this provision clearly challenges principles of electoral representation and accountability. For a candidate that wins both seats, there is the inconvenience of a by-election. For a candidate that wins one seat and loses another, there is the uncomfortable scenario whereby a defeated politician gets to sit in the Lok Sabha via the back door. The EC is right to consider that this is a practice that has no place in a modern democracy.

The wisdom of abstaining

Never in Indias history have relations with any neighbouring country been so dramatically influenced by the politics of a single state as our relations with Sri Lanka. Unfortunately, public opinion in Tamil Nadu has not been adequately sensitised about the diplomatic complexities of developments in our neighbourhood, or of precisely what New Delhi is doing to address the needs and welfare of Tamils in Sri Lanka. The Sri Lankan civil war ended when separatist leader Velupillai Prabhakaran was killed in 2009. It is universally accepted that both sides were guilty of human rights abuses during the last stages of the war a fact acknowledged by Sri Lankas Lessons Learnt and Reconciliation Commission (LLRC). Indias policy, thereafter, has been to work towards the Sri Lankans themselves implementing the LLRC recommendations. More importantly, apart from India, no government in the world has done anything substantive for the relief, rehabilitation and welfare of Sri Lankan Tamils. Since 2010, India has doled out assistance estimated at $1.3 billion (Rs 8,000 crore) its largest ever development assistance project for the welfare of Sri Lankan Tamils. The projects include the construction of 50,000 homes and the supply of materials for around 43,000 war-damaged residences. There have also been major projects for the development of rail transport, port infrastructure in Kankesanthurai, a 500 MW thermal power station in Sampur and the upgrading of the Palaly airport. The development of human resources has been facilitated through the improvement of schools and vocational training centres, the construction of hospitals and involvement in employment-generation projects in agriculture, fisheries, small industries and handicrafts. Politically, India has ensured that there is a chief minister, Justice C.V.

Vigneswaran, in the Northern Province, elected under the 13th amendment to the Sri Lankan constitution.
These major development projects could not have been undertaken without the cooperation of the Sri Lankan government. It has, therefore, been crucial for New Delhi to balance its interests in getting the excesses of ethnic conflict addressed with the imperative of securing the cooperation of the Sri Lankan government, in order to execute welfare projects for Sri Lankan Tamils. Still, New Delhi has previously backed UN resolutions that called for the investigation of human rights violations, despite Sri Lankan displeasure, primarily because the resolutions did not violate Sri Lankan sovereignty. It was also felt that President Mahinda Rajapaksas government could be persuaded to implement these resolutions.

The UN Human Rights Council resolution passed this year, unlike in the past, included the constitution of an open-ended international investigation on a sovereign member state. This goes well beyond the current understanding and basic operative principles of the UNHRC. Moreover, unlike resolutions of the UN Security Council, those of the UNHRC are not enforceable by international sanctions. Only 23of the councils 47 members supported the latest resolution on Sri Lanka. Apart from South Korea, every other member of Indias Asian and Indian Ocean neighbourhood either abstained or voted against. These included China, Indonesia, Japan, Kuwait, the Maldives, Pakistan, the Philippines, South Africa and the United Arab Emirates. Despite their reputed global influence, the US and its allies could pick up support only from a few Latin American and African countries, many of whose leaders and diplomats know little or nothing of Sri Lanka. India acted wisely by abstaining from voting on this years resolution. Based on the support that it received from two permanent members of the Security Council (China and Russia) and the overwhelming majority of Asian and the Indian Ocean littoral states, Sri Lanka will ignore the more intrusive aspects of recommendations of the UNHRC, espoused by the UN high commissioner for human rights, Navanethem Pillay, whose own country, South Africa, abstained. Support for this resolution would have left India with very little leverage to secure the Sri Lankan governments unstinted cooperation for its programme of relief and rehabilitation. Worse, we would have laid the ground for growing Chinese and Pakistani presence and influence in the island, at a time when we can ill afford it. It is interesting that, despite the political rhetoric in Tamil Nadu, not a single political party or leading business organisation in the state has mobilised resources for the welfare of Sri Lankan Tamils. There also appears to be a disinclination to accept the reality that those who are most vociferous in demanding action against Tamil Nadu fishermen poaching in Sri Lankan waters are not that countrys security forces, but the Tamil fishermen in Jaffna and elsewhere in Northern Sri Lanka. All this, amid debate on our federal structure and the role of individual states in micromanaging the conduct of

foreign policy. The statesmen who framed our Constitution described our country as a Union of States, not the United States of India, as MDMK chief Vaiko would have it.