Making Smart Cities

January 23rd, 2018 Prachee Mishra No comments

In the last decade, the government has implemented several schemes to address issues related to urbanisation and aid the process of urban development.  One of the schemes is the Smart Cities Mission, which intends to take advantage of the developments in information technology in developing the urban development strategy, across 100 cities.  Last week the government announced the list of 9 new Smart Cities, taking the total to 99.  In light of this, we look at the Smart Cities Mission and a few issues with it.

What is a Smart City?

The primary objective of the Mission is to develop cities that provide core infrastructure and give a decent quality of life to its citizens, a clean and sustainable environment, and apply ‘smart’ solutions.

However, the Mission document does not provide one definition of a Smart City.  Instead it allows cities to come up with their own solutions of what they identify as a Smart City.  The guidelines suggest that the core infrastructure elements in a Smart City will include: (i) adequate water supply, (ii) assured electricity supply, (iii) sanitation, including solid waste management, (iv) efficient urban mobility and public transport, (v) affordable housing, (vi) robust IT connectivity, and (vii) good governance.  ‘Smart’ solutions may include (i) energy efficient buildings, (ii) electronic service delivery, (iii) intelligent traffic management, (iv) smart metering, (v) citizen engagement, etc.

How were the Smart Cities selected?

The Mission was introduced in the form of a competition, called the Smart City challenge.  The first stage was in July 2015 when states nominated their cities for the competition.  In August 2015, the Ministry of Urban Development selected 100 of those cities to participate in the competition.  These cities were required to develop their smart city plans (SCPs) and compete against each other.  The SCPs were evaluated on the basis of the solutions, the processes followed, the feasibility and cost effectiveness of the plans, and citizen engagement.  Over the last 2 years, the Ministry has announced winner cities in batches.  So far, 99 cities have been selected under the Mission.

What information do these SCPs contain?

The cities had to prepare their SCPs with two primary strategic components: (i) area-based development, and (ii) pan-city development.  The area-based development would cover a particular area of the city, and could have either a redevelopment model, or be a completely new development.  Pan-city development would envisage application of certain smart solutions across the city to the existing infrastructure.

Each city had to formulate its own concept, vision, mission and plan for a Smart City that was appropriate to its local context and resources.  The Ministry of Urban Development provided technical assistance, through consultancy firms, to cities for helping them prepare these strategic documents.

How will the Mission be implemented?

The Mission will be implemented at the city level by a Special Purpose Vehicle (SPV).  The SPV will plan, approve, release funds, implement, manage, monitor, and evaluate the Smart City development projects.

The SPV will be a limited company incorporated under the Companies Act, 2013 at the city-level.  It will be chaired by the Collector/ Municipal Commissioner of the Urban Development Authority.  The respective state and the Urban Local Body (ULB or municipality) will be the promoters in this company having 50:50 equity shareholding.

How are the Plans getting financed?

The Mission will be operated as a Centrally Sponsored Scheme.  The central government will provide financial support of up to Rs 48,000 crore over five years, that is, an average of Rs 500 crore per city.  The states and ULBs will have to contribute an equal amount.  The central government allocated Rs 4,000 crore towards the Mission in the 2017-18 budget.

Since funding from the government will meet only a part of the funding required, the rest will have to be raised from other sources including: (i) states/ ULBs own resources from collection of user fees, land monetization, etc., (ii) innovative finance mechanisms such as municipal bonds, (iii) leverage borrowings from financial institutions (such as banks), and (iv) the private sector through Public Private Partnerships (PPPs).

The total cost of projects proposed under the various SCPs of the 90 winner cities is Rs 1.9 lakh crore.  About 42% of this amount will come from central and state funding, 23% through private investments and PPPs, and 19% through convergence with other schemes (such as HRIDAY, AMRUT, Swachh Bharat-Urban).  The remaining will be generated by the cities through the levy of local taxes, and user fees.

What are some of the issues to consider?

Financial capacity of cities:  Under the Mission, cities have to generate additional revenue through various sources including market borrowings, PPPs, and land monetization.  The High Powered Expert Committee on Indian Urban Infrastructure and Services (HPEC) had observed that ULBs in India are among the weakest in the world, both in terms of capacity to raise resources and financial autonomy.  Even though ULBs have been getting higher allocations from the centre and states, and tax devolution to them has increased, their own tax bases are narrow.  Further, owing to their poor governance and financial situation, ULBs find it difficult to access external financing.

Such a situation may pose problems when implementing the Mission, where the ULBs have to raise a significant share of the revenue through external sources (PPPs, market borrowings).  For example, the Bhubaneswar Smart City Plan has a total project cost of Rs 4,537 crore (over five years), while the city’s annual budget for 2014-15 was Rs 469 crore.

In order to improve the finances of the ULBs, committees have made various recommendations, which include:

  • State governments make legislative changes to give more taxation powers and autonomy to ULBs for improving their revenue collections.
  • ULBs could raise their own revenue by tapping into land-based financing sources, and introducing reforms to strengthen non-tax revenues (such as water and sewerage charges, parking fees, etc.).
  • Municipal bonds may also be used as a source of revenue for ULBs.

The government has recently introduced a few policies and mechanisms to address municipal financing.  Examples include value capture financing through public investments in infrastructure projects, and a credit rating system for cities.  In June 2017, the Pune Municipal Corporation raised Rs 200 crore by issuing municipal bonds.

Technical capacity of the ULBs:  The Smart Cities Mission seeks to empower ULBs to raise their own revenue, and also lays emphasis on the capacity building of ULBs.  The HPEC had observed that municipal administration has suffered due to: (i) presence of untrained and unskilled manpower, and (ii) shortage of qualified technical staff and managerial supervisors.  It had recommended improving the technical capacity of ULBs by providing technical assistance to state governments, and ULBs in planning, financing, monitoring, and operation of urban programmes.  The central government had allocated Rs 10.5 crore towards the capacity building component of the Mission in 2017-18.

The Ministry of Urban Development has been running several programmes to improve capacity of ULBs.  This includes MoUs with 18 states to conduct training programmes for their ULB staff.

Coverage of the Mission:  The Mission covers 100 cities, of which 99 have been announced as winners so far.   The urban population that will be impacted through the Mission is around 96 million (data for 90 cities excluding the recently announced 9 cities).

As per Census 2011, India’s urban population was 377 million.  The Mission impacts about 25% of this population.  Further, most of the SCPs approved so far focus on area-based development, thus affecting a particular area of the cities.  About 80% of the total project cost proposed is towards this model of development.  In each city, this area-based development will cover up to 50 acres of area.  The remaining 20% of the project cost is towards pan-city development proposals, which provide smart planning solutions for the entire city.  It may be argued that even within the selected cities, the Mission will only impact few selected areas, and not necessarily help with development of the entire city.

Explained: The draft Model Contract Farming Act, 2018

January 8th, 2018 Sai Priya Kodidala No comments

Recently, the Ministry of Agriculture released a draft Model Contract Farming Act, 2018.  The draft Model Act seeks to create a regulatory and policy framework for contract farming.  Based on this draft Model Act, legislatures of states can enact a law on contract farming as contracts fall under the Concurrent List of the Constitution.  In this context, we discuss contract farming, issues related to it, and progress so far.

What is contract farming?

Under contract farming, agricultural production (including livestock and poultry) can be carried out based on a pre-harvest agreement between buyers (such as food processing units and exporters), and producers (farmers or farmer organisations).  The producer can sell the agricultural produce at a specific price in the future to the buyer as per the agreement.  Under contract farming, the producer can reduce the risk of fluctuating market price and demand.  The buyer can reduce the risk of non-availability of quality produce.

Under the draft Model Act, the producer can get support from the buyer for improving production through inputs (such as technology, pre-harvest and post-harvest infrastructure) as per the agreement.  However, the buyer cannot raise a permanent structure on the producer’s land.  Rights or title ownership of the producer’s land cannot be transferred to the buyer.

What is the existing regulatory structure?

Currently, contract farming requires registration with the Agricultural Produce Marketing Committee (APMC) in few states.  This means that contractual agreements are recorded with the APMCs which can also resolve disputes arising out of these contracts.  Further, market fees and levies are paid to the APMC to undertake contract farming.  The Model APMC Act, 2003 provided for contract farming and was released to the states for them to use this as reference while enacting their respective laws.  Consequently, 20 states have amended their APMC Acts to provide for contract farming, while Punjab has a separate law on contract farming.  However, only 14 states notified rules related to contract farming, as of October 2016.

What are the issues with the current structure, and how does the draft Model Act seek to address them?

Over the years, expert bodies have identified issues related to the implementation of contract farming.  These include: (i) role of APMCs which are designated as an authority for registration and dispute settlement in most states, (ii) provisions of stockholding limits on produce under contract farming, and (iii) poor publicity of contract farming among the farmers about its benefits.

Role of Agricultural Produce Marketing Committees/Marketing Boards

The NITI Aayog observed that market fees and other levies are paid to the APMC for contract framing when no services such as market facilities and infrastructure are rendered by them.  In this context, the Committee of State Ministers on Agricultural Reforms recommended that contract farming should be out of the ambit of APMCs.  Instead, an independent regulatory authority must be brought in to disengage contract farming stakeholders from the existing APMCs.

In this regard, as per the draft Model Act, contract farming will be outside the ambit of the state APMCs.  This implies that buyers need not pay market fee and commission charges to these APMCs to undertake contract farming.  Further, the draft Model Act provides for establishing a state-level Contract Farming (Promotion and Facilitation) Authority to ensure implementation of the draft Model Act.  Functions of the Authority include (i) levying and collecting facilitation fees, (ii) disposing appeals related to disputes under the draft Model Act, and (iii) publicising contract farming.  Further, the sale and purchase of contracted produce is out of the ambit of regulation of the respective state/UT Agricultural Marketing Act.

Registration and agreement recording

The Model APMC Act, 2003 released to the states provides for the registration of contract farming agreements by an APMC.  This was done to safeguard the interests of the producer and the buyer through legal support, including dispute resolution.  The procedures for registration and recording of agreements vary across states.  Currently, registration for contract farming has been provided with the APMC in few states, and with a state-level nodal agency in others.  Further, market fee on purchases under contract agreements is completely exempted in few states and partially exempted in others.  The Committee of State Ministers on Agricultural Reforms recommended that a instead of a APMC, district-level authorities can be set-up for registration of contract farming agreements.  Further, any registering authority should verify the details such as the financial status of the buyer.

Under the draft Model Act, every agreement should be registered with a Registering and Agreement Recording Committee, which will be set up consisting of officials from departments such as agriculture, animal husbandry, marketing, and rural development.  Such a Committee can be set up at the district, taluka or block levels.

Disputes between the producer and the buyer

The Ministry of Agriculture and Farmers Welfare observed certain risks related to upholding the contract farming agreement.  For example, producers may sell their produce to a buyer other than the one with whom they hold a contract.  On the other side, a buyer may fail to buy products at the agreed prices or in the agreed quantities, or arbitrarily downgrade produce quality.  The Committee of State Ministers on Agricultural Reforms recommended that dispute redressal mechanism should be at block, district or regional-level state authorities and not with an APMC.

Under the draft Model Act, in case of disputes between a producer and a buyer, they can: (i) reach a mutually acceptable solution through negotiation or conciliation, (ii) refer the dispute to a dispute settlement officer designated by the state government, and (iii) appeal to the Contract Farming (Promotion and Facilitation) Authority (to be established in each state) in case they are not satisfied by the decision of the dispute settlement officer.

Stockholdings limits on contracted produce

Stockholding limits are imposed through control orders as per the Essential Commodities Act, 1955.  Such provisions of stockholding limits can be restrictive and discourage buyers to enter into contracts.  It was recommended that the buyers can be exempted from stock limits up to six months of their requirement in the interest of trade.  Under the draft Model Act, limits of stockholding of agricultural produce will not be applicable on produce purchased under contract farming.

Other recommendations

While contract farming seeks to provide alternative marketing channels and better price realisation to farmers, several other marketing reforms have been suggested by experts in this regard.  These include: (i) allowing direct sale of produce by farmers, (ii) removing fruits and vegetables out of the ambit of APMCs, and (iii) setting-up of farmer-consumer markets, (iv) electronic trading, and (v) joining electronic National Agricultural Market for the sale of produce.

Explained: The National Medical Commission Bill, 2017

January 2nd, 2018 Nivedita Rao 6 comments

The National Medical Commission Bill, 2017 was introduced in Lok Sabha recently and is listed for consideration and passage today.[1]  The Bill seeks to regulate medical education and practice in India.  To meet this objective, the Bill repeals the Indian Medical Council Act, 1956 and dissolves the current Medical Council of India (MCI).  The MCI was established under the 1956 Act, to establish uniform standards of higher education qualifications in medicine and regulating its practice.[2]

A Committee was set up in 2016, under the NITI Aayog with Dr. Arvind Panagariya as its chair, to review the 1956 Act and recommend changes to improve medical education and the quality of doctors in India.[3]  The Committee proposed that the Act be replaced by a new law, and also proposed a draft Bill in August 2016.

This post looks at the key provisions of the National Medical Commission Bill, 2017 introduced in Lok Sabha recently, and some issues which have been raised over the years regarding the regulation of medical education and practice in the country.

What are the key issues regarding the regulation of medical education and practice?

Several experts have examined the functioning of the MCI and suggested a different structure and governance system for its regulatory powers.3,[4]  Some of the issues raised by them include:

Separation of regulatory powers

Over the years, the MCI has been criticised for its slow and unwieldy functioning owing to the concentration and centralisation of all regulatory functions in one single body.  This is because the Council regulates medical education as well as medical practice.  In this context, there have been recommendations that all professional councils like the MCI, should be divested of their academic functions, which should be subsumed under an apex body for higher education to be called the National Commission for Higher Education and Research.[5]  This way there would be a separation between the regulation of medical education from regulation of medical practice.

An Expert Committee led by Prof. Ranjit Roy Chaudhury (2015), recommended structurally reconfiguring the MCI’s functions and suggested the formation of a National Medical Commission through a new Act.3   Here, the National Medical Commission would be an umbrella body for supervision of medical education and oversight of medial practice.  It will have four segregated verticals under it to look at: (i) under-graduate medical education, (ii) post-graduate medical education, (iii) accreditation of medical institutions, and (iv) the registration of doctors.  The 2017 Bill also creates four separate autonomous bodies for similar functions.

Composition of MCI

With most members of the MCI being elected, the NITI Aayog Committee (2016) noted the conflict of interest where the regulated elect the regulators, preventing the entry of skilled professionals for the job.  The Committee recommended that a framework must be set up under which regulators are appointed through an independent selection process instead.

Fee Regulation 

The NITI Aayog Committee (2016) recommended that a medical regulatory authority, such as the MCI, should not engage in fee regulation of private colleges.  Such regulation of fee by regulatory authorities may encourage an underground economy for medical education seats with capitation fees (any payment in excess of the regular fee), in regulated private colleges.  Further, the Committee stated that having a fee cap may discourage the entry of private colleges limiting the expansion of medical education in the country.

Professional conduct

The Standing Committee on Health (2016) observed that the present focus of the MCI is only on licensing of medical colleges.4  There is no emphasis given to the enforcement of medical ethics in education and on instances of corruption noted within the MCI.  In light of this, the Committee recommended that the areas of medical education and medical practice should be separated in terms of enforcement of the appropriate ethics for each of these stages.

What does the National Medical Commission, 2017 Bill seek do to?

The 2017 Bill sets up the National Medical Commission (NMC) as an umbrella regulatory body with certain other bodies under it. The NMC will subsume the MCI and will regulate the medical education and practice in India.   Under the Bill, states will establish their respective State Medical Councils within three years.  These Councils will have a role similar to the NMC, at the state level.

Functions of the NMC include: (i) laying down policies for regulating medical institutions and medical professionals, (ii) assessing the requirements of human resources and infrastructure in healthcare, (iii) ensuring compliance by the State Medical Councils with the regulations made under the Bill, and (iv) framing guidelines for determination of fee for up to 40% of the seats in the private medical institutions and deemed universities which are governed by the Bill.

Who will be a part of the NMC?

The NMC will consist of 25 members, appointed by the central government.  It will include representatives from Indian Council of Medical Research, and Directorate General of Health Services. A search committee will recommend names to the central government for the post of Chairperson, and the part-time members.  These posts will have a maximum term of four years, and will not be eligible for extension or reappointment.

What are the regulatory bodies being set up under the NMC?

The Bill sets up four autonomous boards under the supervision of the NMC, as recommended by various experts.  Each autonomous board will consist of a President and two members, appointed by the central government (on the recommendation of the search committee).  These bodies are:

  • The Under-Graduate Medical Education Board (UGMEB) and the Post-Graduate Medical Education Board (PGMEB): These two bodies will be responsible for formulating standards, curriculum, guidelines, and granting recognition to medical qualifications at the under-graduate and post-graduate levels respectively;
  • The Medical Assessment and Rating Board: The Board will have the power to levy monetary penalties on institutions which fail to maintain the minimum standards as laid down by the UGMEB and the PGMEB.  It will also grant permissions for establishing new medical colleges; and
  • The Ethics and Medical Registration Board: The Board will maintain a National Register of all licensed medical practitioners, and regulate professional conduct.  Only those included in the Register will be allowed to practice as doctors.

What does the Bill say regarding the conduct of medical entrance examinations?

There will be a uniform National Eligibility-cum-Entrance Test (NEET) for admission to under-graduate medical education in all medical institutions governed by the Bill.  The NMC will specify the manner of conducting common counselling for admission in all such medical institutions.

Further, there will be a National Licentiate Examination for the students graduating from medical institutions to obtain the license for practice.  This Examination will also serve as the basis for admission into post-graduate courses at medical institutions.

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[1] The National Medical Commission Bill, 2017, http://www.prsindia.org/uploads/media/medical%20commission/National%20Medical%20Commission%20Bill,%202017.pdf.

[2] Indian Medical Council Act, 1933.

[3] A Preliminary Report of the Committee on the Reform of the Indian Medical Council Act, 1956, NITI Aayog, August 7, 2016, http://niti.gov.in/writereaddata/files/document_publication/MCI%20Report%20.pdf.

[4] “Report no. 92: Functioning of the Medical Council of India”, Standing Committee on Health and Family Welfare, March 8, 2016, http://164.100.47.5/newcommittee/reports/EnglishCommittees/Committee%20on%20Health%20and%20Family%20Welfare/92.pdf

[5] “Report of the Committee to Advise on Renovation and Rejuvenation of Higher Education”, Ministry of Human Resource Development, 2009, http://mhrd.gov.in/sites/upload_files/mhrd/files/document-reports/YPC-Report.pdf.

Explained: The Transgender Persons (Protection of Rights) Bill, 2016

December 15th, 2017 Nivedita Rao No comments

The Transgender Persons (Protection of Rights) Bill, 2016 has been listed for passage during the ongoing Winter Session of Parliament.  This Bill was introduced in the Monsoon Session last year and referred to the Standing Committee on Social Justice and Empowerment, which tabled its report earlier this year.  The Bill seeks to recognise transgender persons, and confer anti-discriminatory rights and entitlements related to education, employment, health, and welfare measures.  This post explains key provisions of the Bill and certain issues for consideration.

Self-identification and obtaining a Certificate of Identity

The Bill provides for ‘self-perceived gender identity’ i.e. persons can determine their gender on their own.  This is in line with a Supreme Court judgement (2014) which held that the self determination of one’s gender is part of the fundamental right to dignity, freedom and personal autonomy guaranteed under the Constitution.[1]

Along with the provision on ‘self-perceived gender identity’, the Bill also provides for a screening process to obtain a Certificate of Identity.  This Certificate will certify the person as ‘transgender’.  An application for obtaining such a Certificate will be referred to a District Screening Committee which will comprise five members including a medical officer, psychologist or psychiatrist, and a representative of the transgender community.

The Bill therefore allows individuals to self-identify their gender, but at the same time they must also undergo the screening process to get certified, and as a result be identified as a ‘transgender’.  In this context, it is unclear how these two provisions of self-perceived gender identity and an external screening process will reconcile with each other.  The Standing Committee has also upheld both these processes of self-identification and the external screening process to get certified.  In addition, the Committee recommended that the Bill should provide for a mechanism for appeal against the decisions of the District Screening Committee.

Since, the Bill provides certain entitlements to transgender persons for their inclusion and participation in society, it can be argued that there must be an objective criteria to verify the eligibility of these applicants for them to receive benefits targeted for transgender persons.

Status of transgender persons under existing laws

Currently, several criminal and civil laws recognise two categories of gender i.e. man and woman.  These include laws such as Indian Penal Code (IPC), 1860, National Rural Employment Guarantee Act, 2005 (NREGA) and Hindu Succession Act, 1956.  Now, the Bill seeks to recognise a third gender i.e. ‘transgender’.  However, the Bill does not clarify how transgender persons will be treated under certain existing laws.

For example, under NREGA, priority is given to women workers (at least one-third of the beneficiaries are to be women) if they have registered and requested for work under the Act. Similarly, under the Hindu Adoptions and Maintenance Act, 1956, there are different eligibility criteria for males and females to adopt a girl child.  In this context, the applicability of such laws to a ‘transgender’ person is not stated in the Bill.  The Standing Committee has recommended recognising transgender persons’ right to marriage, partnership, divorce and adoption, as governed by their personal laws or other relevant legislation.

In addition, the penalties for similar offences may also vary because of the application of different laws based on gender identity.  For example, under the IPC, sexual offences related to women attract a maximum penalty of life imprisonment, which is higher than that specified for sexual abuse against a transgender person under the Bill (up to two years).[2]

Who is a transgender person?

As per international standards, ‘transgender’ is an umbrella term that includes persons whose sense of gender does not match with the gender assigned to them at birth.[3], [4]   For example, a person born as a man may identify with the opposite gender, i.e., as a woman.[5]  In addition to this sense of mismatch, the definition provided under the Bill also lists further criteria to be defined as a transgender person.  These additional criteria include being (i) ‘neither wholly male nor female’, or (ii) ‘a combination of male or female’, or (iii) ‘neither male nor female’.

The Supreme Court, the Expert Committee of the Ministry of Social Justice and Welfare, and the recent Standing Committee report all define ‘transgender persons’ based on the mismatch only.1,[5],[6]  Therefore, the definition provided under the Bill does not clarify if simply proving a mismatch is enough (as is the norm internationally) or whether the additional listed criteria ought to be fulfilled as well.

Offences and penalties

The Bill specifies certain offences which include: (i) compelling transgender persons to beg or do forced or bonded labour, and (ii) physical, sexual, verbal, emotional or economic abuse.  These offences will attract imprisonment between six months and two years, in addition to a fine.

The Standing Committee recommended graded punishment for different offences, and suggested that those involving physical and sexual assault should attract higher punishment.   It further stated that the Bill must also specifically recognise and provide appropriate penalties for violence faced by transgender persons from officials in educational institutions, healthcare institutions, police stations, etc.

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[1]. National Legal Services Authority vs. Union of India [(2014) 5 SCC 438]; Article 21, Constitution of India.

[2].  Sections 354, 354A, 354B, 375, Indian Penal Code, 1860.

[3].  Guidelines related to Transgender persons, American Psychological Association, https://www.apa.org/practice/guidelines/transgender.pdf.

[4].  Standards of Care, 7th Version, The World Professional Association for Transgender Health, https://s3.amazonaws.com/amo_hub_content/Association140/files/Standards%20of%20Care%20V7%20-%202011%20WPATH%20(2)(1).pdf.

[5].  Report of the Expert Committee on the Issues relating to Transgender Persons, Ministry of Social Justice and Empowerment, January 27, 2014, http://socialjustice.nic.in/writereaddata/UploadFile/Binder2.pdf.

[6]. Report no.43, The Transgender Persons (Protection of Rights) Bill, 2016, Standing Committee on Social Justice and Empowerment, July 21, 2017, http://164.100.47.193/lsscommittee/Social%20Justice%20&%20Empowerment/16_Social_Justice_And_Empowerment_43.pdf.

The FRDI Bill: Bail-In provisions explained

December 7th, 2017 Gayatri Mann and Vatsal Khullar 2 comments

The Financial Resolution and Deposit Insurance Bill, 2017 was introduced in Lok Sabha during Monsoon Session 2017.  The Bill is currently being examined by a Joint Committee of the two Houses of Parliament.  It seeks to establish a Resolution Corporation which will monitor the risk faced by financial firms such as banks and insurance companies, and resolve them in case of failure.  For FAQs explaining the regulatory framework under the Bill, please see here.

Over the last few days, there has been some discussion around provisions of the Bill which allow for cancellation or writing down of liabilities of a financial firm (known as bail-in).[1],[2]  There are concerns that these provisions may put depositors in an unfavourable position in case a bank fails. In this context, we explain the bail-in process below.

What is bail-in?

The Bill specifies various tools to resolve a failing financial firm which include transferring its assets and liabilities, merging it with another firm, or liquidating it.  One of these methods allows for a financial firm on the verge of failure to be rescued by internally restructuring its debt.  This method is known as bail-in.

Bail-in differs from a bail-out which involves funds being infused by external sources to resolve a firm.  This includes a failing firm being rescued by the government.

How does it work?

Under bail-in, the Resolution Corporation can internally restructure the firm’s debt by: (i) cancelling liabilities that the firm owes to its creditors, or (ii) converting its liabilities into any other instrument (e.g., converting debt into equity), among others.[3]

Bail-in may be used in cases where it is necessary to continue the services of the firm, but the option of selling it is not feasible.[4]  This method allows for losses to be absorbed and consequently enables the firm to carry on business for a reasonable time period while maintaining market confidence.3  The Bill allows the Resolution Corporation to either resolve a firm by only using bail-in, or use bail-in as part of a larger resolution scheme in combination with other resolution methods like a merger or acquisition.

Do the current laws in India allow for bail-in? What happens to bank deposits in case of failure?

Current laws governing resolution of financial firms do not contain provisions for a bail in.  If a bank fails, it may either be merged with another bank or liquidated.

In case of bank deposits, amounts up to one lakh rupees are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).  In the absence of the bank having sufficient resources to repay deposits above this amount, depositors will lose their money.  The DICGC Act, 1961 originally insured deposits up to Rs 1,500 and permitted the DICGC to increase this amount with the approval of the central government.  The current insured amount of one lakh rupees was fixed in May 1993.[5]  The Bill has a similar provision which allows the Resolution Corporation to set the insured amount in consultation with the RBI.

Does the Bill specify safeguards for creditors, including depositors?

The Bill specifies that the power of the Corporation while using bail-in to resolve a firm will be limited.  There are certain safeguards which seek to protect creditors and ensure continuity of critical functions of the firm. Order of priority under liquidation

When resolving a firm through bail-in, the Corporation will have to ensure that none of the creditors (including bank depositors) receive less than what they would have been entitled to receive if the firm was to be liquidated.[6],[7]

Further, the Bill allows a liability to be cancelled or converted under bail-in only if the creditor has given his consent to do so in the contract governing such debt.  The terms and conditions of bank deposits will determine whether the bail-in clause can be applied to them.

Do other countries contain similar provisions?

After the global financial crisis in 2008, several countries such as the US and those across Europe developed specialised resolution capabilities.  This was aimed at preventing another crisis and sought to strengthen mechanisms for monitoring and resolving sick financial firms.

The Financial Stability Board, an international body comprising G20 countries (including India), recommended that countries should allow resolution of firms by bail-in under their jurisdiction.  The European Union also issued a directive proposing a structure for member countries to follow while framing their respective resolution laws.  This directive suggested that countries should include bail-in among their resolution tools.  Countries such as UK and Germany have provided for bail-in under their laws.  However, this method has rarely been used.7,[8]  One of the rare instances was in 2013, when bail-in was used to resolve a bank in Cyprus.

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[1] ‘Modi government’s FRDI bill may take away all your hard-earned money’, India Today, December  5, 2017, http://indiatoday.intoday.in/story/frdi-bill-banking-reforms-modi-government-india-parliament/1/1103422.html.

[2] ‘Bail-in doubts — on financial resolution legislation’, The Hindu, December 5, 2017, http://www.thehindu.com/opinion/editorial/bail-in-doubts/article21261606.ece.

[3] Section 52, The Financial Resolution and Deposit Insurance Bill, 2017.

[4] Report of the Committee to Draft Code on Resolution of Financial Firms, September 2016, http://www.prsindia.org/uploads/media/Financial%20Resolution%20Bill,%202017/FRDI%20Bill%20Drafting%20Committee%20Report.pdf.

[5] The Deposit Insurance and Credit Guarantee Corporation Act, 1961, https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/dicgc_act.pdf.  s

[6] Section 55, The Financial Resolution and Deposit Insurance Bill, 2017.

[7] The Bank of England’s approach to resolution, October 2014, Bank of England.

[8] Recovery and resolution, BaFin, Federal Financial Supervisory Authority of Germany, https://www.bafin.de/EN/Aufsicht/BankenFinanzdienstleister/Massnahmen/SanierungAbwicklung/sanierung_abwicklung_artikel_en.html.

The Anti-Defection Law Explained

December 6th, 2017 Vibhor Relhan No comments

On Monday, December 4, the Chairman of Rajya Sabha disqualified two Members of Parliament (MPs) from the House under the Tenth Schedule of the Constitution (better known as the anti-defection law) for having defected from their party.[1] These members were elected on a Janata Dal (United) ticket.  The Madras High Court is also hearing petitions filed by 18 MLAs who were disqualified by the Speaker of the Tamil Nadu Assembly in September 2017 under the anti-defection law.  Allegations of legislators defecting in violation of the law have been made in several other states including Andhra Pradesh, Arunachal Pradesh, Goa, Manipur, Nagaland, Telangana and Uttarakhand in recent years.[2]  In this context, we explain the anti-defection law.

What is the anti-defection law?

Aaya Ram Gaya Ram was a phrase that became popular in Indian politics after a Haryana MLA Gaya Lal changed his party thrice within the same day in 1967.  The anti-defection law sought to prevent such political defections which may be due to reward of office or other similar considerations.[3]

The Tenth Schedule was inserted in the Constitution in 1985. It lays down the process by which legislators may be disqualified on grounds of defection by the Presiding Officer of a legislature based on a petition by any other member of the House. A legislator is deemed to have defected if he either voluntarily gives up the membership of his party or disobeys the directives of the party leadership on a vote. This implies that a legislator defying (abstaining or voting against) the party whip on any issue can lose his membership of the House.  The law applies to both Parliament and state assemblies.

Are there any exceptions under the law?

Yes, legislators may change their party without the risk of disqualification in certain circumstances. The law allows a party to merge with or into another party provided that at least two-thirds of its legislators are in favour of the merger. In such a scenario, neither the members who decide to merge, nor the ones who stay with the original party will face disqualification.

Various expert committees have recommended that rather than the Presiding Officer, the decision to disqualify a member should be made by the President (in case of MPs) or the Governor (in case of MLAs) on the advice of the Election Commission.[4] This would be similar to the process followed for disqualification in case the person holds an office of profit (i.e. the person holds an office under the central or state government which carries a remuneration, and has not been excluded in a list made by the legislature).

How has the law been interpreted by the Courts while deciding on related matters?

The Supreme Court has interpreted different provisions of the law.  We discuss some of these below.

The phrase ‘Voluntarily gives up his membership’ has a wider connotation than resignation

The law provides for a member to be disqualified if he ‘voluntarily gives up his membership’. However, the Supreme Court has interpreted that in the absence of a formal resignation by the member, the giving up of membership can be inferred by his conduct.[5] In other judgments, members who have publicly expressed opposition to their party or support for another party were deemed to have resigned.[6]

In the case of the two JD(U) MPs who were disqualified from Rajya Sabha on Monday, they were deemed to have ‘voluntarily given up their membership’ by engaging in anti-party activities which included criticizing the party on public forums on multiple occasions, and attending rallies organised by opposition parties in Bihar.[7]

Decision of the Presiding Officer is subject to judicial review 

The law initially stated that the decision of the Presiding Officer is not subject to judicial review. This condition was struck down by the Supreme Court in 1992, thereby allowing appeals against the Presiding Officer’s decision in the High Court and Supreme Court.[8] However, it held that there may not be any judicial intervention until the Presiding Officer gives his order.

In 2015, the Hyderabad High Court, refused to intervene after hearing a petition which alleged that there had been delay by the Telangana Assembly Speaker in acting against a member under the anti-defection law.[9]

Is there a time limit within which the Presiding Officer has to decide?

The law does not specify a time-period for the Presiding Officer to decide on a disqualification plea. Given that courts can intervene only after the Presiding Officer has decided on the matter, the petitioner seeking disqualification has no option but to wait for this decision to be made.

There have been several cases where the Courts have expressed concern about the unnecessary delay in deciding such petitions.[10] In some cases this delay in decision making has resulted in members, who have defected from their parties, continuing to be members of the House. There have also been instances where opposition members have been appointed ministers in the government while still retaining the membership of their original parties in the legislature.[11]

In recent years, opposition MLAs in some states, such as Andhra Pradesh and Telangana, have broken away in small groups gradually to join the ruling party. In some of these cases, more than 2/3rd of the opposition has defected to the ruling party.

In these scenarios, the MLAs were subject to disqualification while defecting to the ruling party in smaller groups.  However, it is not clear if they will still face disqualification if the Presiding Officer makes a decision after more than 2/3rd of the opposition has defected to the ruling party. The Telangana Speaker in March 2016 allowed the merger of the TDP Legislature Party in Telangana with the ruling TRS, citing that in total, 80% of the TDP MLAs (12 out of 15) had joined the TRS at the time of taking the decision.[12]

In Andhra Pradesh, legislators of the main opposition party recently boycotted the entire 12-day assembly session.  This boycott was in protest against the delay of over 18 months in action being taken against legislators of their party who have allegedly defected to the ruling party.[13] The Vice President, in his recent order disqualifying two JD(U) members stated that all such petitions should be decided by the Presiding Officers within a period of around three months.

Does the anti-defection law affect the ability of legislators to make decisions?

The anti-defection law seeks to provide a stable government by ensuring the legislators do not switch sides. However, this law also restricts a legislator from voting in line with his conscience, judgement and interests of his electorate. Such a situation impedes the oversight function of the legislature over the government, by ensuring that members vote based on the decisions taken by the party leadership, and not what their constituents would like them to vote for.

Political parties issue a direction to MPs on how to vote on most issues, irrespective of the nature of the issue. Several experts have suggested that the law should be valid only for those votes that determine the stability of the government (passage of the annual budget or no-confidence motions).[14]

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[1] Parliamentary Bulletin-II, December 4, 2017, http://164.100.47.5/newsite/bulletin2/Bull_No.aspx?number=57066 and http://164.100.47.5/newsite/bulletin2/Bull_No.aspx?number=57067.

[2] MLA Defection Politics Not New, Firstpost, March 13, 2017, http://www.firstpost.com/politics/bjp-forms-govt-in-goa-manipur-mla-defection-politics-not-new-telangana-ap-perfected-it-3331872.html.

[3] The Constitution (52nd Amendment) Act, 1985, http://indiacode.nic.in/coiweb/amend/amend52.htm.

[4] Report of the Committee on Electoral Reforms, 1990, http://lawmin.nic.in/ld/erreports/Dinesh%20Goswami%20Report%20on%20Electoral%20Reforms.pdf and the National Commission to review the working of the Constitution (NCRWC), 2002, http://lawmin.nic.in/ncrwc/ncrwcreport.htm.

[5] Ravi Naik vs Union of India, 1994, https://indiankanoon.org/doc/554446/.

[6] G.Viswanathan Vs. The Hon’ble Speaker, Tamil Nadu Legislative Assembly, Madras& Another, 1996, https://indiankanoon.org/doc/1093980/  and Rajendra Singh Rana vs. Swami Prasad Maurya and Others, 2007, https://indiankanoon.org/doc/1620629/ and Parliamentary Bulletin-II, December 4, 2017, http://164.100.47.5/newsite/bulletin2/Bull_No.aspx?number=57066.

[7] Parliamentary Bulletin-II, December 4, 2017, http://164.100.47.5/newsite/bulletin2/Bull_No.aspx?number=57066.

[8] Kihoto Hollohon vs. Zachilhu and Others, 1992, https://indiankanoon.org/doc/1686885/.

[9] Sabotage of Anti-Defection Law in Telangana, 2015, https://www.epw.in/journal/2015/50/commentary/sabotage-anti-defection-law-telangana.html.

[10] Speaker, Haryana Vidhan Sabha Vs Kuldeep Bishnoi & Ors., 2012, https://indiankanoon.org/doc/45034065/  and Mayawati Vs Markandeya Chand & Ors., 1998, https://indiankanoon.org/doc/1801522/.

[11] Anti-Defecton Law Ignored, November 30, 2017, http://www.news18.com/news/politics/anti-defection-law-ignored-as-mlas-defect-to-tdp-trs-in-andhra-pradesh-and-telangana-1591319.html and It’s official Minister Talasani is still a TDP Member, March 27, 2015, http://www.thehansindia.com/posts/index/Telangana/2015-03-27/Its-Official-Minister-Talasani-is-still-a-TDP-member/140135.

[12] Telangana Legislative Assembly Bulletin, March 10, 2016, http://www.telanganalegislature.org.in/documents/10656/19317/Assembly+Buletin.PDF/a0d4bb52-9acf-494f-80e7-3a16e3480460;  12 TDP MLAs merged with TRS, March 11, 2016, http://www.thehindu.com/news/national/telangana/12-tdp-mlas-merged-with-trs/article8341018.ece.

[13] The line TD leaders dare not cross, December 4, http://www.thehindu.com/todays-paper/tp-national/tp-andhrapradesh/the-line-td-leaders-dare-not-cross/article21257521.ece

[14] Report of the National Commission to review the working of the Constitution, 2002, http://lawmin.nic.in/ncrwc/ncrwcreport.htm, Report of the Committee on electoral reforms, 1990, http://lawmin.nic.in/ld/erreports/Dinesh%20Goswami%20Report%20on%20Electoral%20Reforms.pdf  and Law Commission (170th report), 1999, http://www.lawcommissionofindia.nic.in/lc170.htm.

Decoding the Code on Wages

November 27th, 2017 Vinayak Krishnan 1 comment

Presently, there are around 40 state and central laws regulating different aspects of labour, such as resolution of industrial disputes, working conditions in factories, and wage and bonus payments.  Over the years, some experts have recommended that these laws should be consolidated for easier compliance.[1]  Since the current laws vary in their applicability, consolidation would also allow for greater coverage.

Following these recommendations, the Code on Wages was introduced in the Lok Sabha in August 2017.  The Code consolidates four laws related to minimum wages, payment of wages and bonus, and a law prohibiting discrimination between men and women during recruitment promotion and wage payment.

The Code was subsequently referred to the Standing Committee on Labour for examination.  The Committee has met some experts and stakeholders to hear their views.  In this context, we explain the current laws, key provisions of the Code, and some issues to consider.

Who will be entitled to minimum wages?

Currently, the Minimum Wages Act, 1948 lists the employments where employers are required to pay minimum wages to workers.  The Act applies to the organised sector as well as certain workers in the unorganised sector such as agricultural workers.  The centre and states may add more employments to this list and mandate that minimum wages be paid for those jobs as well.[2]  At present, there are more than 1700 employments notified by the central and state governments.[3]

The Code proposes to do away with the concept of bringing specific jobs under the Act, and mandates that minimum wages be paid for all types of employment – irrespective of whether they are in the organised or the unorganised sector.

The unorganised sector comprises 92% of the total workforce in the country.1  A large proportion of these workers are currently not covered by the Minimum Wages Act, 1948.  Experts have noted that over 90% of the workers in the unorganised sector do not have a written contract, which hampers the enforcement of various labour laws.[4]   

Will minimum wages be uniform across the country?

No, different states will set their respective minimum wages.  In addition, the Code introduces a national minimum wage which will be set by the central government.  This will act as a floor for state governments to set their respective minimum wages.  The central government may set different national minimum wages for different states or regions.  For example, the centre can set a national minimum wage of Rs 10,000 for Uttar Pradesh and Rs 12,000 for Tamil Nadu.  Both of these states would then have to set their minimum wages either equal to or more than the national minimum wage applicable in that state.

The manner in which the Code proposes to implement the national minimum wage is different from how it has been thought about in the past.  Earlier, experts had suggested that a single national minimum wage should be introduced for the entire country.1,[5]  This would help in bringing uniformity in minimum wages across states and industries.  In addition, it would ensure that workers receive a minimum income regardless of the region or sector in which they are employed.

The concept of setting a national minimum wage exists in various countries across the world.  For instance, in the United Kingdom one wage rate is set by the central government for the entire country.[6]  On the other hand, in the United States of America, the central government sets a single minimum wage and states are free to set a minimum wage equal to or above this floor.[7]

On what basis will the minimum wages be calculated and fixed?

Currently, the central government sets the minimum wage for certain employments, such as mines, railways or ports among others.  The state governments set the minimum wage for all other employments.  These minimum wages can be fixed based on the basis of different criteria such as type of industry or skill level of the worker.  For example, Kerala mandates that workers in oil mills be paid minimum wages at the rate of Rs 370 per day if they are unskilled, Rs 400 if they are semi-skilled and Rs 430 if they are skilled.[8]

The Code also specifies that the centre or states will fix minimum wages taking into account factors such as skills required and difficulty of work.  In addition, they will also consider price variations while determining the appropriate minimum wage.  This process of fixing minimum wages is similar to the current law.

Will workers be entitled to an overtime for working beyond regular hours?

Currently, the central or state government define the number of hours that constitute a normal working day.  In case an employee works beyond these hours, he is entitled to an overtime rate which is fixed by the government.  As of today, the central government has fixed the overtime rate at 1.5 times normal wages in agriculture and double the normal wages for other employments.[9]

The Code proposes to fix this overtime rate at twice the prevailing wage rate.  International organisations have recommended that overtime should be 1.25 times the regular wage.[10]

Does the Code prohibit gender discrimination between workers?

Currently, the Equal Remuneration Act, 1976 prohibits employers from discriminating in wage payments as well as recruitment of workers on the basis of gender.  The Code subsumes the 1976 Act, and contains specific provisions which prohibit gender discrimination in matters related to wages.  However, unlike in the 1976 Act, the Code does not explicitly prohibit gender discrimination at the stage of recruitment.

How is the Code going to be enforced?

The four Acts being subsumed under the Code specify that inspectors will be appointed to ensure that the laws are being enforced properly.  These inspectors may carry out surprise checks, examine persons, and require them to give information.

The Code introduces the concept of a ‘facilitator’ who will carry out inspections and also provide employers and workers with information on how to improve their compliance with the law.  Inspections will be carried out on the basis of a web-based inspection schedule that will be decided by the central or state government.

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[1]. Report of the National Commission on Labour, Ministry of Labour and Employment, 2002, http://www.prsindia.org/uploads/media/1237548159/NLCII-report.pdf.

[2]. Entries 22, 23 and 24, List III, Seventh Schedule, Constitution of India.

[3]. Report on the Working of the Minimum Wages Act, 1948, Ministry of Labour and Employment, 2013, http://labourbureaunew.gov.in/UserContent/MW_2013_final_revised_web.pdf.

[4]. Report on Conditions of Work and Promotions of Livelihood in the Unorganised Sector, National Commission for Enterprises in the Unorganised Sector, 2007, http://nceuis.nic.in/Condition_of_workers_sep_2007.pdf.

[5]. Report of the Working Group on Labour Laws and other regulations for the Twelfth five-year plan, Ministry of Labour and Employment, 2011, http://planningcommission.gov.in/aboutus/committee/wrkgrp12/wg_labour_laws.pdf.

[6]. Section 1(3), National Minimum Wage Act, 1998, http://www.legislation.gov.uk/ukpga/1998/39/pdfs/ukpga_19980039_en.pdf.

[7]. Section 206(a)(1), The Fair Labour Standards Act, 1938, https://www.dol.gov/whd/regs/statutes/FairLaborStandAct.pdf.

[8]. G.O. (P) No.36/2017/LBR, Labour and Skills Department, Government of Kerala, 2017, https://kerala.gov.in/documents/10180/547ca516-c104-4b31-8ce7-f55c2de8b7ec.

[9]. Section 25(1), Minimum Wages (Central) Rules, 1950

[10]. C030-Hours of Work (Commerce and Offices) Convention (No. 30), 1930, http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_INSTRUMENT_ID:312175.

Role of Parliament in holding the government accountable

November 22nd, 2017 Vatsal Khullar No comments

Parliament sessions are usually held thrice a year: once in February for the Budget Session, once around July or August for the Monsoon Session, and once in November for the Winter Session.  This year, the government is yet to announce the dates for the Winter Session.  While there has been uncertainty around whether Parliament will meet, ministers in the government have indicated that the Session will be held soon.[1]

The practice of allowing the government to convene Parliament differs from those followed in other countries.  Some of these countries have a limited role for the government in summoning the legislature, because in a parliamentary democracy the executive is accountable to Parliament.  Allowing the government to call the Parliament to meet could be in conflict with this principle.  While we wait for the government to announce the dates for the Winter Session, this post looks at the relationship between Parliament and the government, recommendations made over the years on improving some parliamentary customs, and discusses certain practices followed by other countries.

What is the role of Parliament in a democracy?

The Constitution provides for the legislature to make laws, the government to implement laws, and the courts to interpret and enforce these laws.  While the judiciary is independent from the other two branches, the government is formed with the support of a majority of members in the legislature.  Therefore, the government is collectively responsible to Parliament for its actions.  This implies that Parliament (i.e. Lok Sabha and Rajya Sabha) can hold the government accountable for its decisions, and scrutinise its functioning.  This may be done using various methods including, during debates on Bills or issues on the floor of Parliament, by posing questions to ministers during Question Hour, and in parliamentary committees.

Who convenes Parliament?

Parliament must be convened by the President at least once in every six months.  Since the President acts on the advice of the central government, the duration of the session is decided by the government.

Given the legislature’s role in keeping the executive accountable for its actions, one argument is that the government should not have the power to convene Parliament.  Instead, Parliament should convene itself, if a certain number of MPs agree, so that it can effectively exercise its oversight functions and address issues without delay.  Some countries such as the United Kingdom and Australia release an annual calendar with the sitting dates at the beginning of the year.

How regularly has Parliament been meeting over the years?

Over the years, there has been a decline in the sitting days of Parliament.  While Lok Sabha met for an average of 130 days in a year during the 1950s, these sittings came down to 70 days in the 2000s.  Lesser number of sittings indicates that Parliament was able to transact less business compared to previous years.  To address this, the National Commission to Review the Working of the Constitution has recommended that Lok Sabha should have at least 120 sittings in a year, while Rajya Sabha should have 100 sittings.[2] Sitting days of Parliament

The Constituent Assembly, while drafting the Constitution had debated the power that should be given to Parliament with regard to convening itself.  Mr. K. T. Shah, a member of the Assembly, had suggested that in case the President or the Prime Minister are unable or unwilling to call for a Parliament session, the power to convene the Houses should be given to the presiding officers of those Houses (i.e., the Chairman of Rajya Sabha and the Speaker of Lok Sabha).  In addition, he had also suggested that Parliament should itself regulate its procedure, sittings and timings.[3]

How does Parliament hold the government accountable?

One of the forums of holding the government accountable for its actions is the Question Hour.  During Question Hour, MPs may pose questions to ministers related to the implementation of laws and policies by the government.questions answered

In the 16th Lok Sabha, question hour has functioned in Lok Sabha for 77% of the scheduled time, while in Rajya Sabha it has functioned for 47%.  A lower rate of functioning reflects time lost due to disruptions which reduces the number of questions that may be answered orally.  While Parliament may sit for extra hours to transact other business, time lost during Question Hour is not made up.  Consequently, this time lost indicates a lost opportunity to hold the government accountable for its actions.

Further, there is no mechanism currently for answering questions which require inter-ministerial expertise or relate to broader government policy.  Since the Prime Minister does not answer questions other than the ones pertaining to his ministries, such questions may either not get adequately addressed or remain unanswered.  In countries such as the UK, the Prime Minister’s Question Time is conducted on a weekly basis.  During the 30 minutes the Prime Minister answers questions posed by various MPs.  These questions relate to broader government policies, engagements, and issues affecting the country.[4]

How is public opinion reflected in Parliament?

MPs may raise issues of public importance in Parliament, and examine the government’s response to problems being faced by citizens through: (i) a debate, which entails a reply by the concerned minister, or (ii) a motion which entails a vote.  The time allocated for discussing some of these debates or Bills is determined by the Business Advisory Committee of the House, consisting of members from both the ruling and opposition parties.

Using these methods, MPs may discuss important matters, policies, and topical issues.  The concerned minister while replying to the debate may make assurances to the House regarding steps that will be taken to address the situation.  As of August 2017, 50% of the assurances made in the 16th Lok Sabha have been implemented.[5] Motions

Alternatively, MPs may move a motion for: (i) discussing important issues (such as inflation, drought, and corruption), (ii) adjournment of business in a House in order to express displeasure over a government policy, or (iii) expressing no confidence in the government leading to its resignation.  The 16th Lok Sabha has only discussed one adjournment motion so far.

To improve government accountability in Parliament, the opposition in some countries such as the UK, Canada, and Australia forms a shadow cabinet.[6],[7]  Under such a system, opposition MPs track a certain portfolio, scrutinise its performance and suggest alternate programs.  This allows for detailed tracking and scrutiny of ministries, and assists MPs in making constructive suggestions.  Some of these countries also provide for days when the opposition parties decide the agenda for Parliament.

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[1] Sonia Gandhi accuses of Modi govt ‘sabotaging’ Parliament Winter session, Arun Jaitley rejects charge’, The Indian Express, November 20, 2017, http://indianexpress.com/article/india/jaitley-refutes-sonia-gandhis-charge-of-sabotaging-parliament-session-says-congress-too-had-delayed-sitting-4946482/; ‘Congress also rescheduled Parliament sessions: Arun Jaitley hits back at Sonia Gandhi’, The Times of India, November 20, 2017, https://timesofindia.indiatimes.com/india/congress-also-rescheduled-parliament-sessions-arun-jaitley-hits-back-at-sonia-gandhi/articleshow/61726787.cms.

[2]  Parliament and State Legislatures, Chapter 5, National Commission to Review the Working of the Constitution, March 31, 2002, http://lawmin.nic.in/ncrwc/finalreport/v1ch5.htm.

[3] Constituent Assembly Debates, May 18, 1949.

[4]  Prime Minister’s Question Time, Parliament of the United Kingdom, http://www.parliament.uk/about/how/business/questions/.

[5]  Lok Sabha and Session Wise Report of Assurances in Lok Sabha, Ministry of Parliamentary Affairs, http://www.mpa.gov.in/mpa/print_summary_lses_ls.aspx.

[6]  Her Majesty’s Official Opposition, Parliament of the United Kingdom, http://www.parliament.uk/mps-lords-and-offices/government-and-opposition1/opposition-holding/.

[7]  Current Shadow Ministry List, Parliament of Australia, http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Parliamentary_Handbook/Shadow.

Doing Business in India

November 1st, 2017 Vatsal Khullar No comments

‘Ease of doing business’ refers to the regulatory environment in a country to set up and operate a business.  Every year, the World Bank compares the business environment in 190 countries in its Ease of Doing Business Report.  In its report released yesterday, India’s rank improved to 100 out of 190 countries in 2017, from its rank of 130 in the previous year.[1],[2]  In this context, we explain the parameters on which each country is ranked, what has led to India’s improvement in rankings, and some recommendations made by committees to further improve the business environment in the country.

What parameters is a country ranked on?

Table 1 (2)The ease of doing business rankings are based on a country’s performance on 10 parameters such as enforcing contracts and starting a business.  In India, these rankings are based on the business environment in Mumbai and Delhi.  A lower rank indicates better performance on that parameter, whereas a higher rank indicates worse performance on the indicator.  India’s ranking improved in six out of the 10 parameters over the previous year, while it remained the same or fell in the remaining four (see Table 1).

Note that these parameters are regulated by different agencies across the three tiers of government (i.e. central, state and municipal).  For example, for starting a business, registration and other clearances are granted by central ministries such as Finance and Corporate Affairs.  Electricity and water connections for a business are granted by the state electricity and water boards.  The municipal corporations grant building permits and various other no objection certificates to businesses.

What has led to an improvement in India’s ease of doing business rankings?

According to the 2017 report, India introduced changes in some of these parameters, which helped in improving its ranking.1  Some of these changes include:

  • Starting a business: Starting a business involves obtaining clearances, and conforming to various regulations under laws such as Companies Act, 2013.  The report noted that India merged the application procedure for getting a Permanent Account Number (PAN) and the Tax Account Number (TAN) for new businesses.  It also improved the online application system for getting a PAN and a TAN.
  • Getting credit and resolving insolvency: The Insolvency and Bankruptcy Code passed in 2016 provides for a 180-day time-bound process to resolve insolvency.[3]  It also provides for the continuation of a debtor’s business during these proceedings.  The Code allows secured creditors to opt out of resolution proceedings, and specifies that a debtor will be immune against creditor claims during the 180-day insolvency resolution process.  Prior to the passage of the Code, it took 4.3 years in India to liquidate a business (as of 2015).
  • Paying taxes: The report notes that India made paying taxes easier by requiring that payments to the Employees Provident Fund are made electronically.[4]  Further, it introduced measures to ease compliance with corporate income tax.1,[5]
  • Trading across borders: Import border compliance at the Jawaharlal Nehru Port, Mumbai was reduced.  Export and Import costs were also reduced through increasing use of electronic and mobile platforms, among others.
  • Enforcing contracts: The introduction of the National Judicial Data Grid has made it possible to generate case management reports on local courts.[6]

What are some of the other recommendations to improve the business environment in India?

Over the last few years various committees, such as an Expert Committee constituted by the Department of Industrial Policy and Promotion and the Standing Committee of Commerce, have studied the the regulatory requirements for starting a business in India and the made recommendations on the ease of doing business.[7],[8],[9]  Some of the issues and recommendations made by these committees are discussed below.

Starting a business:  The Standing Committee observed that regulations and procedures for starting a business are time-consuming.8  The Committee observed that as a consequence, a large number of start-ups are moving out of India and setting base in countries like Singapore where such procedures are easier.  It emphasised on the need to streamline regulations to give businesses in India a boost.  Note that the government announced the ‘Start-up India Action Plan in January 2016.[10]  The 19-point plan identified steps to simplify the process for registering and operating start-ups. It also proposed to grant tax exemptions to these businesses.

The Committee had suggested that the procedures and time period for registration of companies should be reduced.  In addition, a unique business ID should be created to integrate all information related to a debtor.  This ID should be used as sole reference for the business.

Acquiring land, registering property:  Under the current legal framework there are delays in acquiring land and getting necessary permissions to use it.  These delays are on account of multiple reasons including the availability of suitable land and disputes related to land titles.  It has been noted that land titles in India are unclear due to various reasons including legacy of the zamindari system, gaps in the legal framework and poor administration of land records.[11]

The Standing Committee observed that the process of updating and digitising land records has been going on for three decades.  It recommended that this process should be completed at the earliest.  The digitised records would assist in removing ambiguity in land titles and help in its smooth transfer.  It also suggested that land ownership may be ascertained by integrating space technology and identification documents such as Aadhaar.  Note that as of September 2017, land records had been linked with Aadhaar in 4% of the villages across the country.[11]

Several states have taken steps to improve regulations related to land and transfer of property.8  These steps include integration of land records and land registration by Andhra Pradesh and Gujarat, and the passage of a law to certify land titles in urban areas by Rajasthan.  The Committee also recommended creating a single window for registration of property, to reduce delays.8

Construction permits:  In India, obtaining construction permits involves multiple procedures and is time consuming.  The Standing Committee had observed that it took 33 procedures (such as getting no objection certificates from individual departments) over 192 days to obtain a construction permit in India.8  On the other hand, obtaining a similar permit in Singapore involved 10 procedures and took 26 days.

Taxation:  The Standing Committee had noted that the tax administration in India was complex, and arbitration proceedings were time-consuming.  It observed that the controversies on the Minimum Alternate Tax on capital gains and the tax disputes with companies like Vodafone and Shell had harmed India’s image on taxation matters.  Such policy uncertainty and tax disputes have made foreign companies hesitant to do business in India.8

The Committee observed that for ‘Make in India’ to succeed, there is a need for a fair, judicious and stable tax administration in the country.  Further, it suggested that to reduce harassment of tax payers, an electronic tax administration system should be created.8  Such a system would reduce human interface during dispute resolution.  Note that the Goods and Services Tax (GST) was introduced across the country from July 1, 2017.  The GST framework allows for electronic filling of tax returns, among other measures.[12]

Enforcing contracts:  Enforcing contracts requires the involvement of the judicial system.  The time taken to enforce contracts in India is long.  For instance, the Standing Committee noted that it took close to four years in India for enforcing contracts.  On the other hand, it took less than six months for contract enforcement in Singapore.  This may be due to various reasons including complex litigation procedures, confusion related to jurisdiction of courts and high existing pendency of cases.8

The Standing Committee recommended that an alternative dispute resolution mechanism and fast track courts should be set up to expedite disposal of contract enforcement cases.  It suggested that efforts should be made to limit adjournments to exceptional circumstances only.  It also recommended that certified practitioners should be created, to assist dispute resolution.8

[1] ‘Doing Business 2018’, World Bank, http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB2018-Full-Report.pdf.

[2] ‘Doing Business 2017’, World Bank, http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB17-Full-Report.pdf.

[3] Insolvency and Bankruptcy Code, 2016, http://www.prsindia.org/billtrack/the-insolvency-and-bankruptcy-bill-2015-4100/.

[4] G.S.R. 436 (E), G.S.R. 437 (E) and G.S.R. 438 (E), Gazette of India, Ministry of Labour and Employment, May 4, 2017, http://labour.gov.in/sites/default/files/Notifications%20for%20amendment%20under%20EPF%2C%20EPS%20and%20EDLI%20Schemes%20for%20e-Payment_0.pdf.

[5] Finance Bill, 2017, http://www.prsindia.org/billtrack/the-finance-bill-2017-4681/; Memorandum explaining the provisions of the Finance Bill, 2017, http://unionbudget.nic.in/ub2017-18/memo/memo.pdf.

[6] National Judicial Data Grid, http://njdg.ecourts.gov.in/njdg_public/index.php.

[7] Report of the Expert Committee on Prior Permissions and Regulatory Mechanism, Department of Industrial Policy Promotion, February 27, 2016.

[8] ‘Ease of Doing Business’, 122nd Report of the Department Related Standing Committee on Commerce, December 21, 2015, http://164.100.47.5/newcommittee/reports/EnglishCommittees/Committee%20on%20Commerce/122.pdf.

[9] Ease of Doing Business: An Enterprise of Survey of Indian States, NITI Aayog, August 28, 2017, http://niti.gov.in/writereaddata/files/document_publication/EoDB_Single.pdf.

[10] Start Up India Action Plan, January 2016, http://www.startupindia.gov.in/pdffile.php?title=Startup%20India%20Action%20Plan&type=Action&q=Action%20Plan.pdf&content_type=Action&submenupoint=action.

[11] Land Records and Titles in India, September 2017, http://www.prsindia.org/parliamenttrack/analytical-reports/land-records-and-titles-in-india-4941/.

[12] The Central Goods and Services Tax Act, 2017, http://www.prsindia.org/billtrack/the-central-goods-and-services-tax-bill-2017-4697/.

Committees in state legislatures

October 31st, 2017 Abhijit Banare No comments

The Governor of Rajasthan promulgated two Ordinances amending the Code of Criminal Procedure, 1973 and Indian Penal Code, 1860 applicable in Rajasthan on September 7. The Ordinances restrain any investigation to be conducted against a judge, magistrate or public servant without prior sanction of the government. The decision to grant sanction will have to be taken within six months, failing which such sanction will be deemed to have been granted.  The Ordinances also restrain any person from reporting on the individual in question until sanction for investigation is granted. Two Bills replacing these Ordinances were introduced in the Rajasthan Assembly by the state Home Minister last week, on October 23.[i] After introduction, the Bills were referred to a 15-member select committee comprising of legislators from the state Assembly, and headed by the Home Minister of Rajasthan. This blog examines the role of committees and some of the practices observed in state legislatures.

Purpose of committees in legislatures

In India, state legislatures sit for 31 days a year on an average.*  Several Bills are passed within a few days of their introduction. One of the primary responsibilities of the legislature is to hold the executive accountable, and examine potential laws. Due to paucity of time, it is difficult for the members go through all the bills and discuss them in detail. To address this issue, various committees are set up in Parliament and state assemblies where smaller group of members examine Bills in detail, and allow for an informed debate in the legislature. Apart from scrutinising legislation, committees also examine budgetary allocations for various departments and other policies of the government.  These mini-legislatures provide a forum for law makers to develop expertise, engage with citizens and seek inputs from stakeholders. Since these committees consist of members from different parties, they provide a platform for building consensus on various issues.

Figure 1: Average sitting days in a year (2012-16)
Sitting days in a year 1
Sources: Website of various state assemblies as on October 30, 2017.

Types of committees

There are broadly three types of committees: (i) Financial committees: These scrutinise the expenditure of the government and recommend efficient ways of spending funds (example: Public Accounts Committee and Estimates Committee), (ii) Department-Related Standing Committees (DRSC): These scrutinise performance of departments under a ministry, (iii) Other committees: These deal with day-to-day functioning of the legislature (example: Business Advisory Committee, Papers Laid, Rules, etc.)  While there are 3 financial committees and 24 department related committees in Parliament, the number of committees in state legislatures varies.  For example, Kerala has 14 subject committees examining all departments, while Delhi has seven standing committees scrutinising performance of various departments. [ii],[iii] However, not all states have a provision for specific DRSCs or subject committees.

Similar to Parliament, state legislatures also have a provision to form a select committee to examine a particular legislation or a subject.  Such a committee is disbanded after it presents a report with its findings or recommendations. Several Bills in states are referred to select committees. However, the practice in some state legislatures with respect to select committees deviate from those in the Parliament.

Independence of select committee from the executive

The rules in several states provide for the minister in-charge piloting the bill to be an ex-officio member of the select committee. These states include Rajasthan, Assam, Andhra Pradesh, Chhattisgarh, Telangana. Moreover, in Manipur, the rules provide for the minister to be chairman of the select committee. Note that the minister is part of the executive.  His inclusion in the committee may be in conflict with the committee’s role of scrutinising the functioning of the executive.

The practice of including ministers in committees is in contrast with the protocol followed in Parliament where a minister is not part of any DRSC or select committee. As committees of the legislature hold the executive accountable, having a minister on the select committee undermines the role of legislature as an oversight mechanism. A minister, as a representative of the executive being part of such committees may impede the ability of committees to effectively hold the executive accountable.

The two Bills introduced in the Rajasthan Assembly last week were referred to a select committee headed by the Home Minister of the state.  There have been several instances in other state legislatures where the minister introducing a bill was chairman of the select committee examining it. In Goa, a bill empowering the government to acquire land for development of public services is headed by the Revenue Minister of the state.[iv] Similarly, in Arunachal Pradesh, the select committee examining a bill for establishment of a university was headed by the Education Minister.[v] In Maharashtra as well, the Education Minister was chairman of the select committee scrutinising a bill granting greater autonomy to state universities.[vi]  For rigorous scrutiny of legislation, it is essential that the committees are independent of the executive.

Strengthening state legislature committees [vii]

The functioning of committees in states can be strengthened in various ways. Some of these include:

(i) Examination of Bills by assembly committees: In the absence of DRSCs, most bills are passed without detailed scrutiny while some bills are occasionally referred to select committees. In Parliament, bills pertaining to a certain ministry are referred to the respective DRSCs for scrutiny. To strengthen legislatures, DRSCs must examine all bills introduced in the assembly.

(ii) Scrutiny of budgets: Several states do not have DRSCs to examine budgetary proposals. Some states like Goa, Mizoram and Arunachal Pradesh have a budget committee to examine budget proposals. Post the 14th Finance commission, there is a higher devolution of funds to state governments from the centre.  With states increasingly spending more, it is necessary for them to have DRSCs that scrutinise the allocations and expenditures to various departments before they are approved by state assemblies.

 

*Based on the average sitting days for 18 state assemblies from 2012-2016.

[i] The Code of Criminal Procedure (Rajasthan Amendment) Bill, 2017 http://www.rajassembly.nic.in/BillsPdf/Bill39-2017.pdf;The Criminal Laws (Rajasthan Amendment) Bill, 2017 http://www.rajassembly.nic.in/BillsPdf/Bill38-2017.pdf.

[ii] List of subject committees http://niyamasabha.org/codes/comm.htm.

[iii] Delhi Legislative Assembly National Capital Territory Of Delhi Composition Of House Committees
2017 – 2018, http://delhiassembly.nic.in/Committee/Committee_2017_2018.htm.

[iv] The Goa Requisition and Acquisition of Property Bill, 2017 http://www.goavidhansabha.gov.in/uploads/bills/468_draft_BN18OF2017-AI-REQUI.pdf.

[v] The Kameng Professional and Technical University Arunachal Pradesh Bill 2017 http://www.assamtribune.com/scripts/detailsnew.asp?id=oct1717/oth057.

[vi] Maharashtra Public Universities Bill, 2016 http://mls.org.in/pdf/university_bill_english.pdf.

[vii] Strengthening State Legislatures http://www.prsindia.org/uploads/media/Conference%202016/Strengthening%20State%20Legislatures.pdf.