Events & Issues

New Delhi, 23 November 2009

Competition Regulator

NEEDLESS DEBATE OVER TURF

By Dr PK Vasudeva

In a surprise move, the Government is considering whether the Competition Commission of India’s (CCI) mandate to regulate corporate mergers, acquisitions and amalgamations should be restricted to sectors where the new regulator does not come in conflict with other sectoral regulators already in existence such as the Reserve Bank of India (RBI) and the Telephone Regulatory Authority of India (Trai). Following powerful sections within the Government expressing divergent views, the Cabinet Secretary is reviewing the fledgling regulator’s role.

As per the Competition Act 2007, prior approval from the Commission is required for mergers, acquisitions and amalgamations above specified thresholds. The idea is to ensure that the combined entity’s market power should not harm competition in the relevant market. Acquisition plans involving Indian and foreign entities would also come under its lens if a strong domestic nexus in terms of market share is established.

A number of experts and agencies have expressed divergent views on the CCI’s mandate. They largely speak about the undesirability of the Commission’s proposed role in the matter, even as things would look different from the broader perspective of competition law. Hence, there are pros and cons of the CCI being an M&A regulator across sectors.  

It is over seven years since the Competition Act 2002 came into force. But certain key provisions of the amended Act 2007, meant to give full powers to the anti-monopoly watchdog, the CCI, are yet to be notified. This is so as the Government is yet to address the concerns on some of the issues such as combination - mergers and acquisitions (M&As).

India is perhaps the only country that is bringing into force its Competition Act in bits and pieces by notifying section by section. This is one of the reasons that unfair trade practices are going on unabated and corruption is increasing. In contrast, China notified its anti-monopoly law in August 2008 in one go.

Among the key areas in the amended Competition Act of India are Section 3 (on cartels and anti-competitive pacts regarding production, storage, distribution, and supply), Section 4 (abuse of dominant position by companies), Sections 5 and 6 combinations (pertaining to M&A regulations). While Sections 3 and 4 were notified this May, the Government has yet to notify Sections 5 and 6. On its part, the regulator is awaiting for the Government to act, before it finalises the detailed M&A regulations.

It is also learnt that the Government is also examining “legal issues” that overlapping jurisdictions emanating from different laws could create. The RBI, Trai and the shipping ministry have expressed reservations over the plan to give the Commission wide powers to scrutinise “combinations.”

While the RBI has suggested that the CCI keep out of the banking sector, the latter had said the apex bank would do well to restrict its role to prudential regulation and leave competition issues to it. As it is, public sector banks have certain unfair advantages over private banks because of various entry barriers, according to the CCI. 

Similarly, the Commission had opposed Trai’s proposal to put a cap of 40% market share and no less than four players in each “telecom circle “ as part of its merger regulations, saying it would create confusion and inflate compliance costs. Also, the Petroleum and Natural Gas Regulatory Board Act has a clause on restrictive trade practices. Trai defines mergers merely in terms of acquisition of equity and merging of licences, whereas the CCI looks at “acquisition of control, shares, voting rights or assets.” It also looks at many other forms of combinations—such as acquisition of assets like market presence in a given geographical territory.

M&A guidelines are in-built in the telecom licensing policy and according to Trai it is best to keep the sector out of the CCI’s purview. Although the DoT is the licensor in its sector, it seeks recommendation from Trai under the Act. The situation in the electricity sector is unique as the need is to create competitive markets where none exists. Even though the Electricity Act 2003 envisages competition in all areas, the country has national monopolies in power generation, transmission and trading. 

In the case of banks, an opinion is that unlike other sectors, bank mergers don’t need the concerned High Court’s approval. This is because of the special nature of the banking sector. In such cases, the global practice is that the special would override the general. The industry thus had vehemently opposed the Competition Act provision for prior notification of M&As above the prescribed threshold. It said the provision would scupper corporate mergers that are often done in haste, and amid uncertainties. The CCI had given verbal assurance that 90% of M&A proposals put up for its approval would be cleared within 60 days, although the upper limit is 210 days.

Internationally, competition regulators under Sherman Act 1890 and Clayton Act 1914 would clear 80-85% of M&As within 30-60 days. However, longer timelines are prescribed in laws considering that some cases could be complex enough to demand longer scrutiny time. The issue of multiple regulatory agencies was not unanticipated. In fact, the Competition Act, which draws the best from international models (Sherman Act), is equipped to tackle and solve these questions. 

A key feature of advanced capitalist economies is an independent and competent competition regulatory body. And India can be no different. Not surprisingly, then the immediate controversy surrounds turf. Apparently, sectoral regulators are resisting the Commission’s jurisdiction in their spheres of influence. So, we find the RBI arguing that the Commission has no right to comment on whether public sector banks have an unfair advantage over private sector banks. Trai too argues that the CCI cannot recommend how many operators per circle the regulator should grant licences to.

Both sides have a point. The CCI cannot and should not pronounce on what are essentially policy decisions for a sector as a whole. That should be left to the Government or to the sectoral regulator. However, that is not the same as arguing that the CCI should not have any jurisdiction at all in consolidation/ M&A activity in sectors where there are independent regulators in any case.

Following global best practices, the CCI should consider individual cases (of consolidation, merger or acquisition, or even collusion) from every industry and judge them in the context of maintaining a competitive market. Competition is a complex issue and it isn’t always the case that having more players in a particular market is a guarantee for fair competition.

The airline industry, in different parts of the world, has often been guilty of cartelisation despite numbers. On the other hand, some heavily concentrated industries can be brutally competitive—look at Coca-Cola and Pepsi, or the near duopoly of Boeing and Airbus. So, if Coca-Cola acquires a smaller soft drink company other than Pepsi, it need not be an anti-competitive move. Even when Boeing bought out McDonnell Douglas, a competitor, it was allowed to do so as competition was ensured by Airbus. In fact, the aircraft manufacturing industry needed consolidation for economies of scale. Many other industries need that too and consolidation per se isn’t necessarily against competition.

The CCI would, therefore, have its hands full just examining various individual cases thoroughly. It doesn’t need to get entangled in broader policy issues. Actually, the controversy over turf is needless because just like everywhere else, competition authorities and sectoral regulators co-exist peacefully and effectively. It’s simply a matter of each sticking to its own area of expertise. --INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 20 November 2009

High Food Prices

NO MONEY LEFT FOR GOODIES  

By Shivaji Sarkar

The common man may not get to enjoy the benefits of India’s projected stellar show as food inflation has reached alarming levels of almost 14 per cent (13.68 per cent). The figures show that prices have been rising every week robbing people of their purchasing power. It has a direct impact on the industry and a fall-out on tax payments.

The indirect tax collection, according to official figures, has hit the Government once again. It has dropped by 21 per cent – Rs 1.21 lakh crore during the first seven months of the financial year against Rs 1.61 lakh crore a year ago. This may lead to a severe budgetary crisis and the Government may remain far off the target in revenue collection.

It is not the first time that indirect tax collections are falling. It has been dropping for over a year. In  December last too, it had taken a hit of Rs 40,000 crore. Clearly, this is a pointer to a grim situation. Tax collections increase during a buoyant economic phase. Indirect taxes comprise excise, customs and service tax. A fall in the collection reveals that activities in almost all the spheres of economy have slowed down. Indirect tax revenues have taken a big hit due to lower imports and a sharp fall in excise duty revenues. The decline in these taxes, on both the customs and excise duty front, must be a source of concern for policymakers.

A part of the fall is attributed to the stimulus package granted to the industry in tax sops. But that the slowdown is continuing is evident from a lower collection in service tax ( 5.4 per cent) at Rs 28,926 crore. Service tax signifies the purchasing trend and the present level of collections indicate that far fewer people are going out for shopping.

Customs duty declined by 31.8 per cent at Rs 45,412 crore indicating lower imports. Excise duty collection was also down by 18.8 per cent at Rs 52,566 crore. Clear trends that the stimulus is not working and the slowdown continues. The Government may not agree that this is linked to high prices.  But the items of daily consumption like potatoes and onions have been primarily responsible for pushing the food inflation up. This is because the two items are the staple food, particularly the poor. On an annual basis, the prices of potato have doubled in a year, whereas onion was expensive by 43 per cent and pulses by 23 per cent, according to the wholesale price index (WPI).

The wage hike given by the Government is regrettably not helping to revive the economy as the outflow of incomes has increased to sustain the family. A World Bank study in nine low-income countries  - Pakistan, Vietnam, Peru, Cambodia, Nicaragua, Malawi, Zambia, Madagascar and Bolivia - shows  that  the recent large increases in food prices are likely to raise overall poverty. A particular reason for the concern about the impacts of high food prices on poor countries arises from the fact that the poorest people spend roughly three-quarters of the their income on staple food.  

World Bank President Robert B Zoellick has recently said that the crisis of surging food prices could mean “seven lost years” in the fight against worldwide poverty. The bank’s study should be true for India as well. But it seems that the Government does not have an effective policy to tackle the issue. Food and Agriculture Minister Sharad Pawar’s statement that prices would continue to rise speaks of a mindset i.e.  nobody is serious about bringing down the prices. Many of our political leaders represent lobbies and couldn’t care much about the poor in a country where an average family spends 60 per cent of its income on food. And, the poorer spend 80 per cent of their income on food.

If all the income goes into buying food, other sectors of the economy have to take the hit. This is exactly what is happening. Adhering to the principles of a market economy is all very well but it has been observed that the market thrives when there is easy and affordable food availability. This is what the country witnessed for a few years till 2004.

Till such time the public distribution system (PDS) had remained universal. Soon the situation changed. It was restricted to the below poverty line people and the rest of the PDS was gradually demolished, the Government lost an important intervening tool. Else how would it justify what it claims as a comfortable buffer stock, and the surging market prices?

A free economy does not mean abdication of the duties by the Government. On the contrary, it imposes on it the duty to regulate and effectively oversee the prices so that the system does not go awry. In the Indian context, the Government wants to get out of all those responsibilities for which the State itself was formed. Reneging on these basics would not only create problem for the projected growth but also might lead to anarchical situations as the anti-price rise demonstrations, sugarcane farmers protest, suicide by families and Maoist violence has so far indicated. This is how Somalia has gradually got into its present lawlessness.

The Government has to effectively and strongly intervene to bring down the prices not only as a poverty alleviation measure but also to boost the industry by way of generating a demand. Food prices should not be treated in isolation. For at the end these decide the basic industrial pricing strategy, wages and demand generation, which are vital for the sustenance of both industry and trade. The Government is keen on high growth trajectory. It can be achieved only if the prices are affordable.

Indeed, the Government has to recognize the threat of high food prices. It must usher in a regime wherein  these do not threaten the economy. Can this be achieved? Only if there is a political will. The next big question is: Do we have it?---INFA

(Copyright, India News and Feature Alliance)

Open Forum

New Delhi,  19 November 2009

Judicial Reforms

TAKING JUSTICE TO VILLAGES

By Dhurjati Mukherjee

The Law Ministry has pointed out that judicial reforms are on the anvil, which will reduce the life of litigation from an average 15 years to a year within the next three years and make justice speedy and affordable. The ‘Mission Document’, under preparation is to be the roadmap for reforms with back up plans of strategy such as setting up 5000 new courts across the country that will work in three shifts – morning, day and evening.

The measures to be taken are aimed at tackling over three crore pending cases in the trial courts and high courts which would ensure that these are liquidated by the year 2012.  To reach its target, it is also proposed to reduce the average life of litigation by appointing a large number of ad hoc judges only to tackle the 2.64 crore pending cases in trial courts and 30 lakh cases in the High Courts. Even the Supreme Court had crossed the mark of 50,000 pending cases in August. The Solicitor General, who announced this recently before a Bench of Chief Justice, K. G. Balakrishnan and Justice P. Sathaisvam, said that the Government was agreeable to the usefulness of fast track courts but regretted the fact that some States were yet to provide proper infrastructure to these despite it being a centrally-sponsored scheme.

To start with, there will be Gram Nyayalays, which will be functioning shortly and Parliament has already enacted the Gramin Nyayalayas Act. Accordingly, in the coming three years, the Ministry proposes to set up 5,000 more courts with a clear mandate that from the time of filing a case till its decision, no more than six months should be taken. These additional courts will be backed by a solid case management plan that includes clubbing identical cases. Moreover, a judge cannot keep his/her judgement reserved for a long time.

It is understood that retired judges will be requisitioned both in trial courts and High Courts. A retired district judge, whose services will be requisitioned, will expect a fixed pay of around Rs 50,000 per month though this appears quite high, specially for village courts. Apparently, the Ministry plans to train and equip trial court judges, provide them laptops for faster disposal of cases.

Another significant measure will be that a policy would need to be evolved wherein the question whether the Government should file an appeal in higher courts or not would be addressed. Once the criteria for filing an appeal is evolved, which would be a little conservative towards moving higher courts, the Ministry expects a drastic fall in governmental litigation. It may be pointed that most government departments have the habit of unnecessarily going in for appeal, even up to the Supreme Court when there is no merit in the case and the litigant has already won two rounds in the Central Administrative Tribunal (CAT) and the High Court.

Another notable plan of the law ministry is to set up four regional institutes of excellence to equip lawyers and bring them on par with IT professionals. The Planning Commission has been approached for approval of the plan to set up these institutes, which is expected to match the best law institutes in the world.   

Though these judicial reforms are imperative at this juncture, questions arise about the resources required to make it a reality. In the current year, a meagre sum of Rs 90 lakhs has been earmarked for setting up these courts. According to ministry officials, the cost of setting up a village court alone has been estimated at around Rs 18 lakhs (Rs 1.8 million). This is apart from the expenditure required to keep the courts running. The law ministry has agreed to bear the cost of setting up the courts and pay for basic infrastructure during the first three years.

But the States, though have shown appreciation in setting up village courts, they are not quite willing to bear the expenditure from the fourth year onwards. Moreover, the Government needs around Rs 20 crores to set up 100 such courts but current trends indicate that not more than 25 to 50 may become functional during this financial year.

The proposed village courts should be of great help to the rural masses as they can expect to get justice within a specific time frame as the famous saying “justice delayed is justice denied”. However, the cost of litigation has to be kept at a minimum level and, in this connection, the government would have to intervene. It should also be explored if the villagers can make their own submissions (like in the Central Administrative Tribunals) possibly through a written statement in the local/vernacular language. Moreover, the Legal Aid Services would have to extend help to people from the lower echelons of society with free or nominal charges for legal help.

It is understood that the village courts will decide petty criminal cases where there can be a maximum imprisonment of two years and civil disputes arising out of purchase of village property. Judges will have the powers of judicial magistrates and appeals against their orders can be filed only in district courts. It is pertinent to mention here that some methodology should be evolved whereby all cases cannot be allowed to go beyond the district court so that the litigation dos not become unending.  

The critical need for justice reaching all segments of society cannot be doubted but the modus operandi of implementing the plan as early as possible remains to be seen. Let us not forget that the law has by and large favoured the rich and the powerful and that it is time to reverse the trend.  In this endevour, the reforms envisaged are very welcome as these would help the common man to settle the problems at the grass-root level expeditiously and spare himself the harassment of lengthy litigation.

Moreover, at a time when IT has reached all corners of the world, there can be no justification of cases hanging fire for years together. Litigations need to be solved within two-three months so that the benefits of justice reach the people. Judges would too need to make that extra effort in ensuring prompt decisions to help repose the people’s faith in the country’s judiciary.   

The reforms in the judicial system should truly reflect what Prime Minister recently pointed out at a conference of Chief Justices: “Like Gandhiji’s common man, the focus of the judicial system should be to wipe every tear of every waiting litigant”. Thus, in tackling the huge problem of pending cases, “the entire legal system and each rung of it has to function as a seamless web and an indivisible whole” so that major changes could be affected and the marginalized sections assured of justice.  -- INFA

 (Copyright, India News and Feature Alliance)

Political Diary

New Delhi, 21 November 2009

Scrap MPLADS

OPEN LICENCE TO LOOT

By Poonam I Kaushish

Little did singer-turn-novice Trinamool MP Kabir Suman know that he would set the cat among the pigeons by underscoring politico India’s closely guarded secret: The open loot for MP Local Area Development (MPLAD) funds wherein funds meant for public good are siphoned-off in our netagan’s greedy private pockets. To the tune of mind-boggling crores. Year after year for over a decade. A perfect example of money going down the political drain!

In a tell-all Suman revealed, “Local leaders who already control Rs 400 crore of the panchayat samiti and zilla parishad monies, want the funds and won’t let me spend Rs 1 crore of the Rs 2 crore I receive annually on installing 44 deep tube-wells in my constituency. But what use is that when not a single brick has been laid, not a single tube well has been sunk? I am saying - No! Give me the right to say No. If not, then to hell with our parliamentary democracy and MPship. I do not want to remain an MP!"Suman added.

Coming on the heels of MPs cutting across Party lines wanting the MPLAD be raised from Rs 2 to Rs 4 crore annually it once again demonstrates the immediate need to scrap the scheme. In fact, Suman is not the first MP to accentuate our netagan’s greed. Remember, Pawan Bansal now a Minister who was constrained to resign as Chairman of Committee on the MPLADS scam in 2006 for granting Rs.5 lakh for a Squash court at the Chandigarh Golf Club from his MPLADS and thereafter was granted the club’s membership. And the media expose which caught seven Right Honourables seeking bribes for doling out contracts under the MPLADS.

What to speak of, BSP supremo Mayawati directing her MPs to part with a part of the “commissions” they made from their MPLADS funds for party coffers in 2003.  She told them: “Arre bhai sub miljul kar khao”.  Adding that even the most honest MP makes Rs 5 lakh annually by sitting at home! Also, the hullaballoo over Navin Chawla’s appointment as Election Commissioner for accepting funds from senior Congress MPs for two private trusts run by his wife and him. Proving beyond doubt that the MPLADS is being brazenly abused by one and all.

Launched in 1993 MPLADS was to facilitate MPs to take up development work in their constituencies, according to local-based needs, and create durable assets. From Rs one crore per year per MP in 1994-95 the amount was increased to Rs.2 crore in 1998-99. Under the Scheme, the funds are spent through the District Magistrate/Collector of the concerned constituency on the recommendation of the MP of the area. The DM/DC floats tenders, allots the contract and pays the contractor for work done.

So far so good. But in reality it has turned out quite the opposite. In a country which breathes bribe no work is done without palms being greased and ‘cuts’ incorporated into the cost and commission paid to those who matter. An MP in connivance with the DM ensures a cut out of every scheme recommended by inflating the cost and taking kickbacks from the contractors. The babu is happy and he makes the MP happier. A smart duo nets up to a maximum of Rs one crore of Rs 2 crore and an honest duo a minimum of Rs 50 lakhs. Asserted one, it is a "kind of financial rehabilitation package for the political cadre." For their “protection”, or for other “services”.

The Comptroller and Auditor-General (CAG), was the first to expose the failure of MPLADS and the drain it is on the Exchequer in its two reports pertaining to 1993-97 and 1997-2000. In a strong indictment it lucidly stated that implementation of the scheme had gone from bad to worse since its inception. The funds were released without any correlation with their end use. The DM failed to obtain the utilisation certificate and inflated the expenditure to the Ministry without any checking.

Not a few cases were found where money was sanctioned for maintenance of roads where none existed. There was underpayment of wages, fake muster rolls and bogus expenditure to the tune of 30 per cent. All one needed was to pay a price and the money was yours for the asking. The CAG, which studied 111 constituencies across the country, found out that expenditure of Rs.161 crores was not supported by any document. Bluntly, nothing to suggest that the development work had been undertaken at all.

Further, it found that even where there were documents to support execution, in 33.12% of the cases the implementing agency did not refund the "unspent" money. That money was spent on religious places and memorials, not permissible under the guidelines. Worse, there was a decline in work undertaken under the scheme. From 89% during 1993-97to 86.41% in 1997-2000. More. The amount of work completed fell from 56.13% in 1993-97 to 39.22% in 1997-2000.

Clearly, there was nothing right with the Scheme. In fact, the loot system has been perfected to such an extent that it could detect only 13 cases of suspected fraud and misappropriation of funds in 7 States involving Rs 118.36 crore, irregular sanction of loans, grants and donations totalling Rs 81.45 lakhs and discrepancies in cash books in 10 States. According to the Statistics and Programme Implementation Ministry, which administers the scheme, till January last, of the total amount Rs 19,281 crore released since 1993 only Rs 17,538 crore was spent. Arguably, if there is an unspent balance of Rs 2,154 crore till September, why ask for more?

Shockingly, what is the logic of giving MPLADS to Rajya Sabha MPs who are chosen by respective State Legislatures and do not represent any particular constituency unlike Lok Sabha MPs, who are elected by the people. Thus, the monies can be spent on anything and everything a MP takes a fancy to. Even buying a private plane or helicopter to zip around the State!

Tragically, these findings make no damn difference to our polity. True, various committees have recommended a "thorough review" of the Scheme in view of the serious irregularities in its implementation, but successive Governments have done little to plug the loopholes and prevent the improper use of thousands of crores of public money in the name of development. 

Importantly, the Planning Commission and the National Commission to Review the Working of the Constitution too suggested that the scheme be discontinued as it was inconsistent with the federal spirit, encroached on areas under the Panchayati Raj institutions and that local areas development of was the prerogative of the State Government and not the purview of the MPs.

What next? It is time to have a serious rethink on continuing the scandalous MPLADS. As the CAG reports have highlighted no purpose is being served. It is virtually throwing away good money on rotten eggs. Wherein being an MP has today become a lucrative and paying proposition. A Lok Sabha MP is elected for a five-year term and that of the Rajya Sabha for six years. At Rs 2 crore per year, a Lok Sabha MP has Rs 10 crore at his disposal and the Rajya Sabha MP Rs 12 crore. In our increasingly corrupt-criminal polity, this money is the icing on their MP cake. A hefty fortune to tide over any twists and turns in their political career.

In sum, even as our Right Honourables mull over doubling their hefty MPLADS  packet to Rs 4 crore per year, it is time to apply the brakes. The fund must be scrapped and some Rs.1590 crore saved annually from going down the drain. Morally, Parliament has to come clean on MPLADS. The public need to know how it has been (mis)used all these years and what is being planned to correct it. Enough is enough. – INFA

(Copyright, India News and Feature Alliance)