Secure and affordable access to electricity is critical for sustaining economic growth and development. This is particularly true in developing countries like India where electricity use is growing faster than primary energy use because of its convenience for various applications. However, the current electricity shortage across the country could hurt the growth prospects. Although the government promised to reduce power shortages by 2012, it has fallen far behind in adding new generation capacity. Media reports recently highlighted the precarious fuel supply situation in coal power stations that supply the bulk of India’s electricity. Apparently, many critical coal plants have fuel stock for only three to seven days against the norm of three to four weeks. This, along with inadequate availability of gas and delay in commissioning completed nuclear projects, has led to idling of over 10,000 MW of existing generation capacity and has resulted in frequent blackouts and brownouts. Load shedding in major cities is becoming more frequent and villages in most states do not get electricity for 12-14 hours every day.

As such, India’s annual per capita electricity consumption is just around 600 unit and well below the world average of around 2000 unit. To reach China’s level (2600 unit) India has to nearly quadruple its electricity generation capacity. Although official statistics claim 90 percent rural electrification, independent estimates suggest that close to 40 percent of Indian households (rural and urban poor) live without electricity and a majority of rural households depend on traditional biomass for cooking. Hence expanding access to electricity is critical for attracting investment as well as improving the living conditions of people who have been left behind in development. This is a major policy challenge that requires substantial investment in generation, transmission and distribution infrastructure.

Historically, addition of electricity capacity has been very slow in India due to market regulations, insufficient investment, difficulties in obtaining environmental approval, and public acceptance for major power projects. The current primary energy and electricity supply is largely based fossil fuels, specifically coal. In electricity generation, coal-fired plants dominate the system and supplies 69 percent, hydropower accounts for 14 percent, natural gas for about 12 percent, and the remaining comes from nuclear and renewable sources. Another major concern relevant for future supply is the growing energy import dependence. Current share of imports is 10-12 percent for coal, 20 percent for natural gas, and nearly 80 percent for oil and refined products. Since oil is mainly used for transport and other industrial applications and is not significant for electricity supply in India, the sources relevant to future electricity generation are coal, natural gas, renewable, and nuclear.

Photo: Isado

Coal

As electricity consumption in India continues to increase, it is likely that its use of coal will continue to increase. India has one of the largest coal reserves in the world although its heating quality is low and ash content is high. Officially reported coal reserves could last for 200 years at current rate of production, but this overlooks other issues that can affect production. Major bottlenecks for increasing domestic production include poor infrastructure (rail network and port capacity) and social issues caused by displacement of tribal communities from the coal belt. India’s coal reserves are at relatively shallow depth, but they are located very far away from the demand areas. The distance and the difficulties in transportation affect the coal industry and remains an obstacle for the growth of main industries in India. Coal deposits occur mostly in the east-central and south-eastern region of India but the demand is in the industrial belts mainly located in the north (Delhi, Punjab and Haryana), west (Maharashtra and Gujarat), and in the south (Tamil Nadu, Northern Karnataka, and Andhra Pradesh).

During the 11th Five Year Plan period that ended in March 2012, only 42,000 MW of the planned 59,000 MW capacity addition was realised. Even if capacity additions are on track in future, current domestic fuel supply issue remains a concern leaving future power plants more dependent on imports. This is likely to increase the price of electricity as imported coal is around 40 percent more expensive than domestic coal. Hence, despite being endowed with a large coal resource base, the requisite growth in domestic supply is inadequate to meet current and projected demand. Sources privy to the decision making apparatus in India told one of the authors that the coal reserves figures are overestimated based on geological occurrence and not on technically and economically feasible criteria. Also, many areas originally identified as coal provinces are either inaccessible or heavily populated. Environmental clearances are also cited as the primary reason for the inability of the coal producers to ramp up production at the required rates. The practice of allotting coal blocks for captive mining has not worked very well and many blocks lie unexplored. Not surprisingly, import of steam coal has grown at a rate of 13.7 percent over the last decade.

Gas

Currently gas is among the fastest growing source of electricity because of the lower capital cost of plant (lower financial risk) and relative environmental benefits. However, domestic gas reserves are modest and estimated at around 1000 billion cubic meters. Only 45 percent of the domestic production goes towards power generation and rest is allotted to other critical sectors like fertilizer plants, petrochemical units, CNG consumption, etc. Large gas deposits that could be piped conveniently are located in Iran and Qatar, but international political difficulties continue to a major obstacle in realising the project. Though the Iranians insisted on having a land-based pipeline to ship gas to India via Pakistan, the Indian initially skirted the issue on grounds of security, and conveyed their preference for a sea-based pipeline. Even though there is now a common understanding on this issue between Iran, India, and Pakistan, political pressure exerted by the United States have delayed those prospects.

Given the current difficulties of having a regional gas pipeline connecting the Indian subcontinent with the gas fields in Middle East, India has also been building LNG import terminals. Current Indian imports are less than 5 percent of the global LNG trade and recent developments have driven up the spot market price for LNG. After Fukushima, Japan has increasingly relied on LNG imports to make up for the shortfall resulting from the temporary shutdown of its nuclear plants. Unless India’s planners and industrial end-users negotiate long term LNG contracts, LNG fuel purchased in the spot market is a very expensive form of electricity.

Renewables

Increased use of renewable and non-conventional energy sources has become imperative, especially in the context of potential future climate change commitments and current fuel supply issues for fossil thermal power generation. Large hydroelectric power plants only contribute  14 percent of the supply and there is still scope to increase its share. The government plans to increase hydropower capacity from the current 38,000 MW to 150,000 MW by 2030. However, construction of large hydro facilities has been met with stiff social resistance and NGOs as the government compensation schemes have failed to satisfy the displaced population.

The potential for other renewable energy technologies like biogas, improved solar cook stoves, biomass, solar energy; wind energy; small hydropower, ocean energy and energy from urban, municipal, and industrial wastes (which is called as non conventional energy) is immense in India. Grid quality power from these energy sources is now a reality. For instance, the Gujarat government recently launched a 600 MW solar PV project, which is the largest in the world. The potential for solar energy utilization is tremendous as receives plenty of sunshine with an annual average insolation varying from 4-7 unit per square meter/day with 250-300 clear sunny days per year.

Several renewable energy systems and products are now commercially available and could compete economically with fossil fuels if environmental externalities of fossil fuels are factored. Though renewable sources lack the advantage of coal or nuclear plants in providing large capacity additions, they can play an important role in meeting demands of the rural population where grid and other transmission problems persist.

Nuclear

Since 1947 India has pursued a grand “three-stage nuclear program” to develop long term electricity supply using a mix of heavy water reactors, breeder reactors, and thorium fuelled reactors. The first stage of this program involves using the limited indigenous uranium in Pressurised Heavy Water Reactors (PHWRs) which produce energy and fissile plutonium. In the second stage, by reprocessing the spent nuclear fuel and using the recovered plutonium in Fast Breeder Reactors (FBRs), the non-fissile depleted uranium and thorium can breed additional fissile nuclear fuel, plutonium and uranium respectively. In the third stage thorium-uranium reactors are to meet India’s long-term energy requirements. The ultimate goal was to utilize the abundant thorium reserves (32 percent of world’s reserves) in the country.

Engineering impediments and international sanctions after India’s first nuclear test in 1974 and refusal to sign NPT resulted in difficulties and near stagnation for nearly three decades. Even after reaching maturity in the first stage (heavy water reactor program), India faced uranium fuel supply crisis from 2004 forcing its reactors to run at much below the rated capacity. The civilian nuclear deal with the United States in 2005 and the negotiation with the international nuclear suppliers’ cartel has offered a new lease of life for the nuclear program. Following this, the government announced plans to increase its nuclear generation capacity from the current 4800 MW to 63,000 MW by 2030 using a mix of domestic and imported reactors. However, future development plans remain uncertain. Part of the difficulty arises from the challenges posed by well-organized protest movements after the Fukushima disaster against nuclear projects. Other difficulties that stand in the way are site acquisition for planned projects, negotiation of contracts with international reactor vendors and fuel supply services. Hence nuclear is unlikely to play a major role in addressing India’s power shortages in the near and medium term.

India’s economic growth has been averaging around 6 percent to 7 percent in recent years. Poverty alleviation requires at least two to three decades of growth of 7 percent or more, which requires a matching rate of growth in infrastructure facilities of which power ranks in the highest order of priority. The next five year plan envisages an addition of 100,000 MW of generation capacity from all sources.

One of the main problems faced by the utilities is the substantial amount of cross-subsidy and under-recovery due to the populist programs of various state governments. Except in some states like Gujarat, the governments are defaulters and owe a large sum to the utilities and distribution companies. Financial morbidity of state electricity boards (SEBs) partly explains the slow rate of capacity addition in India and the poor response for investment in power projects. Among technical problems, the high transmission and distribution loss of electricity, which has consistently been around 30 percent, is a primary concern. The quality of electricity is also very poor in most parts of the country with varying voltages and frequencies. Initiatives to address these technical deficiencies can improve efficiency.

Finally, India will have to aggressively pursue every energy option that is available and execute them by balancing immediate needs and long term societal interest. India has many avenues to pursue higher efficiency in the energy sector, especially in generation and distribution of electricity. Demand side management (DSM) can be pursued in parallel to reduce the demand for energy through the use of efficient processes and equipment, efficient lighting, sustained improvements to public transport to make it more attractive and improving the competitiveness of rail freight when compared to road transport.

Despite the gains that can be achieved through DSM and efficiency gains, the long term goal will be to augment capacity at a sustained rate. In particular, the near term focus should be on traditional thermal power sources namely, coal and natural gas. The developments in large hydro, nuclear power and renewable source entail different constraints as compared to the traditional thermal energy sources. They are highly capital intensive and have a very long gestation period. Although they will provide significant additions in the coming years, they are unlikely to contribute the lion’s share of India’s energy needs by 2030.

It has taken 65 years for India’s power sector to move from a small base of 1500 MW at the time of independence to a capacity of 200,000 MW. This milestone was crossed last month with the commissioning of a 660-MW unit of a power plant in Jhajjar, Haryana.

If the celebrations were muted, it was due to the realisation that formidable challenges lie ahead. Almost all the states in the country face huge shortage of power and the problem is seen as menacing enough to trip India’s growth story.

Inadequate fuel is one of the main causes for this desperate situation. For the last few decades, India has relied heavily on coal as fuel for its thermal plants. This has always appeared sensible. Coal reserves in the country were sizable, and statistics could be quoted to claim that India had enough recoverable coal to take care of our needs for 250 years. It was felt that India’s railway network could be relied upon to transport coal to distant parts of the country. To develop indigenous capability, public-sector companies such as BHEL were set up to manufacture the boilers, turbines and the electrical equipment for such plants, while NTPC could take care of project development and the operations and maintenance. Over a period, boilers were adapted to suit the quality of Indian coal with its high content of ash. A good ecosystem evolved for the setting up of thermal plants.

The result of this approach is that coal-power plants account for 112000 MW out of the 200000 MW capacity installed till March 2012.  Because of its higher plant load factor, generation from coal-powered plants (in terms of kWh) accounted for over 70 percent of the total generation. In the 12^th Five Year Plan period coming up, this dependence on coal will remain, and even as we add another 75000 MW to our capacity, the proportion of total generation from coal plants will go up further.

Photo: Kozumel

Being a completely indigenous resource, the price of coal could be controlled by the government so as to maintain the price of electricity at a politically acceptable level. This added to the allure of coal.

While the fortune of the power sector is thus inextricably linked with the reliability of coal supplies and the stability of its price, dark clouds have been hovering for some time and the foreboding is grim.

Against a demand of 650 million tons (MT) last year, indigenous coal production was less than 550 tons. Coal India which produces over 80 percent of India’s coal has admitted that it will not be able to step up and cope with the increasing demand, and that the gap is likely to widen to 400 MT by 2016-17. The government’s move to allot coal blocks to private companies (power, cement) for captive mining has also not been successful, and production in these mines has failed to reach even 10 percent of the potential. Many of these mines have not crossed the roadblocks of forestry clearance, environmental approval and land acquisition issues. Recently, the CAG has also raised a red flag over the manner in which the blocks have been allotted and why they had not been auctioned. With the 2G scam fresh in public memory, this will push the government more on the defensive. Given this assortment of grave issues, it would be delusional to place any hope on domestic coal being our savior.

Faced with shortage of domestic coal, we started importing coal- mainly from Indonesia and Australia- some years back. Long-term power purchase agreements were signed with private players like Tata, Reliance, Adani, etc. for supplies from proposed, large Ultra Mega Power Plants (UMPP) of 4000 MW each, with the premise that imported coal would be used in these plants. The promoters were encouraged to tie up fuel supplies from Indonesia/Australia and to buy out mines if required. Benchmark price of power generated from imported coal was estimated as Rs.3.50/kWh which fitted well with the tariff regime prevailing in most states in the country.

With China too facing a similar fuel crunch and entering the market at the same time, the international price of coal shot up, almost mimicking the trend in the price of crude oil. Adding to our woes, the decision of Australia to impose a carbon tax and that of Indonesia to levy an export duty rendered coal sourced from captive mines in these countries uneconomical for power plant application in India.

So, the present situation can be summarised and circumscribed by the following statements: one, we depend on coal to meet 75 percent of our electricity needs; two, domestic coal is not adequate to meet current demand and burgeoning future demand; three, we have to make up for the shortfall by increasing our import of coal; four, imported coal is much costlier now; five, our electricity tariff is not high enough to support a higher fuel cost; six, our state governments are very reluctant to increase electricity tariff fearing a political fall-out; seven, it is estimated that India needs to increase its electricity generation by 15 percent every year, to meet its GDP growth targets and to meet the growing aspiration and enhanced life-style of its people, both in urban and rural areas; eight, alternatives such as nuclear power will take years to develop to a meaningful scale, even pre-supposing that there is public acceptance of the concept; nine, with supply of domestic natural gas declining, we have to import LNG, but building the necessary re-gasification and logistical infrastructure will take at least three years; and finally,  renewable energy cannot fill the gap fast enough, given its infirm nature and poor scale. The need of the hour for India is addition of base-load plants that can deliver schedulable, predictable power round-the-clock and right through the year.

It is a serious challenge that needs an appropriate response, as Toynbee would have put it. But what are our options?

To begin with, we must reconcile ourselves to the fact that electricity prices have to go up in step with fuel costs. State governments and regulators must work together to ensure this happens. Within the framework of competitive bidding, investors must be allowed their reasonable returns and a two-part price mechanism must allow them to index with the fuel cost. The more the government drags its feet on this matter, the more pronounced the problem becomes. This approach has to be followed even for projects already awarded. If government insists on enforcing its contractual rights, a promoter will find it more prudent to wriggle out paying a one-time penalty than to take the risk of incurring losses for 20-25 years.

Coal India has been issued a presidential order to ensure that they honour all the existing supply agreements with various coal plants. If Coal India has to import coal to fulfill its obligations, the issue of higher price needs to be addressed. It cannot be wished away.

Transmission and distribution losses continue to be high in many states and this cannot be tolerated any more. This is the equivalent of food being allowed to rot and perish in godowns, when there is famine. Investments in T&D and stricter management should release some more electricity into the system, reducing the strain on fuel supplies. This is a low-hanging fruit that can be plucked in a fairly short time.

Huge investments are required in infrastructure related to ports, roads, railways, etc. to facilitate import and land movement of coal. Execution is the key.

Nuclear plants cannot be expected to provide relief in the short term, but gas-based plants can. If we act with a sense of urgency and build LNG terminals of adequate capacity, it is theoretically possible to add 25000 MW within 3 years. Combined heat and power plants based on gas, promise a thermal efficiency of over 70 percent and can be a good, decentralized solution for commercial buildings, data centres, industrial parks and townships.

This is a long list of motherhood statements, no doubt, but sadly, there are no magical wands or short cuts available. Several ministries- power, coal, oil and gas, railways, port and shipping, road, finance, environment – have to put their collective heads together and work with a sense of mission. The situation cannot be left to any committee or core group. It requires the Prime Minister himself to take on the task of coordination among the different ministries and monitor the progress. If need be, he has to lead a high-level delegation to Australia and Indonesia and secure fuel supplies. The term ‘coalition’ must take on a new meaning- ‘the act of tying up coal supplies’.

In short, he must declare a selective ‘state of emergency’ on the power front and activate all response-systems accordingly.  We haven’t seen such display of decisiveness from the PM in the recent past, but now is the time for him to demonstrate the same sense of determination that he, as Finance Minister, is reputed to have brought into play when India went through a balance-of-payment crisis in 1991.

Jignesh Patel (name changed on request) runs a manufacturing unit in rural Tamil Nadu. The unit is part of his family business, no different from the thousands of others that power the engine of India’s manufacturing. While setting up the factory, Patel had to bribe TNEB personnel to obtain the sanctioned load and put up the transformers. However, his factory suffers from six hours of scheduled power cuts on week days and he can expect additional two hours of unscheduled power cuts. On weekends, the load is cut to 1/10th, as part of a “power holiday”, rendering it practically unusable for running his plant. Effectively, he estimates that his factory gets power for only around 70 hours a week.

He has to power his factory off generator sets, and this costs him Rs16.50 to 18 per unit, nearly three times what the TNEB charges him, but the power that the generators supply is inadequate to power some of the upstream processes at his factory. The resulting scheduling issues have caused production delays, and loss of business opportunity.

Future historians will look upon India’s attempt to build a 21st century economy without adequate and reliable  supply of electricity with astonishment. India generated and used 835 TWh of electricity in 2009, as compared to 3446 TWh by China. This means that an average citizen of China consumes 3.6 times the electricity that an average Indian does. If India ever expects to be a manufacturing country, this is the magnitude of the chasm its factories are looking to leap over.

The story of India’s power sector since liberalisation has been the story of botched reform attempts, mismanagement, political rivalries and corruption. While there are problems in all three aspects of the power sector – generation, transmission and distribution, it is in transmission and distribution, particularly in the latter, that problems have proved most intractable.

Practically all power in India is currently distributed by the State Electricity Boards (SEBs). Transmission and distribution losses are at a whopping 33 percent, a figure that is way beyond the 6-8 percent that is the norm globally. Much of this loss can be attributed to what is euphemistically called “commercial losses”. In reality, this means that the power is stolen by consumers, often in connivance with the SEB personnel. Corruption at lower levels is not the only problem.  Free power to farmers is a common populist promise that politicians make at the time of elections. Redeeming this pledge comes at a cost to the national exchequer, and when power is provided free, it is wasted.

Photo: Misha Dontsov

India’s power generation capacity as of March 2012 was 173GW as against the target of 200GW set by the Ministry of Power as part of its “Power for All” vision. More concerning, however, is the inter-regional transmission capacity. India’s Eastern and North-Eastern regions have surplus power, while the North and West suffer from a deficit. Inter-regional transmission capacity, therefore, is very important, and utterly inadequate. The plan was to double this  capacity to 37,150MW by 2012. It is safe to say that this target will be missed by a wide margin.

Attempts to improve the power situation started almost as soon as liberalization began in 1991. Initial attempts were ad hoc, as evidenced by the Enron fiasco of the 90s. The first coherent piece of reform was the Electricity Regulatory Commissions Act of 1998, which established the Central Electricity Regulatory Commission and mandated the establishment of regulatory bodies by states. Under Suresh Prabhu, who is considered one of the most clear-thinking and visionary power ministers India has had, the ministry came out with a blue-print for development of the power sector in 2001. This resulted in the Electricity Act of 2003, which has formed the legislative basis for such reforms as have taken place since.

The vision, as revealed by the Act and the subsequent National Tariff Policy of 2006 is essentially this:

• Unbundling of generation, transmission and distribution into separate companies.  This was intended as a precursor to privatising these companies and bringing in efficiencies. Unbundling was needed to prevent monopolies from forming.
• Disaggregation of ‘wires’ and ‘supply’. Transmission lines are a natural monopoly that need to be regulated. Supply of electricity, however, can be a competitive business, as long as the transmission companies are willing to carry power provided by all suppliers. The key to this is the concept of Open Access. The Electricity Act mandates Open Access at inter-state as well as intra-state levels for industrial consumers above a certain size.
• Tariff Regulation, which is intended to prevent monopolies from making usurious profits, while providing them with a reasonable return on assets.
• Power Trading, which will result in power being priced to match supply with demand and enforce grid discipline. Both supply and demand for electricity are subject to fluctuations. Hydroelectric power generation is affected by the monsoon, and a hot summer pushes up the demand for electricity. The vision is for power suppliers and consumers to manage their requirements by trading electricity on exchanges, and for them to manage future demand through a futures market.

Unfortunately, while  many steps have been taken that ostensibly implement the provisions of the law, the measures that would have the most impact have not been. Almost all states have set up regulatory commissions and most commissions have passed tariff orders that set the tariff regimes in their respective states.

While many states have unbundled on paper, this has not made the slightest difference in how the state electricity boards operate – except that now the SEBs have been split into DISCOMs or distribution companies, and grid companies.  In reality, apart from a change in legal structure, the organisations continue to operate as before. They continue to function as administrative departments rather than as commercial organisations, tariffs continue to be set too low for political reasons, employee unions continue to resist change, and employees continue to connive with unscrupulous consumers in theft of electricity.

There have been some notable exceptions. Delhi and Odisha have privatized their power distribution companies, with mixed success. Maharashtra and Karnataka have attempted the franchise model where specified zones have been auctioned off to distribution companies to act as agents of the public sector DISCOMs. This model has had notable success in Bhiwandi, Maharashtra, but has now fallen victim to the central government’s apparent U-turn. After advocating the franchise model, The Planning Commission changed tack in late 2011, and started pushing for a “well-formulated Public-Private Partnership” model.

One notable success in unbundling without privatisation has been Gujarat, which has managed to turn around its power sector and attain a power surplus status by sheer force of administrative improvement backed by political will. The state electricity regulator has had a free hand in allowing increases in tariffs, and the state has combined the carrot of uninterrupted power supply with the stick of jail time for power theft, resulting in improved compliance and financial viability.

These, however are a few bright spots in what is overall a dismal picture. In general, the states have been reluctant to make any progress in reforms. Virtually no state has complied with the spirit of true open access.

Mr. Patel, for example, purchases additional power from the Indian Energy Exchange through Open Access. This, however, means bidding every day, and because he typically makes purchases during peak times, the cost is higher than what he pays for genset power. Also, during scheduled power cuts, the grid itself is shut down, which means that he cannot purchase power during those times, unless he invests in a transmission line , which is unviable at his scale of operations. Worse still, TNEB forbids purchase through open access during the weekend, when there is a “power holiday”.

Power trading is one of the few aspects of reforms that has succeeded to an extent. There are two electricity exchanges in operation, and around 3 percent of the power that is produced is traded, and the market is growing at 60 percent a year. However, unless other aspects of reforms are successful, power trading by itself is unlikely to unlock much value. Unless there is true open access, trading in power is unlikely to be of much use.

The gross mismanagement of the power sector means that viability of the sector is now at stake. Because the distribution companies are unable to meter and bill the consumers effectively, they are unable to pay upstream generating companies, making the latter unprofitable. The overall unprofitability of the sector means that private companies are unwilling to invest in it at all. Raising funds, whether from the equity market or through loans from banks, is now a challenge. Banks have exhausted their sectoral lending limits for power, and at the same time finding that their loans are now at risk. Worse of all, the lack of financial viability means that for the future, the much needed investments in the sector are likely to be delayed or cancelled.

Two decades after India embarked on liberalisation of its economy; it has reached a stage where the easy opportunities have been exhausted. Whether it is Information Technology or Telecom, such success as has been achieved has been by simply bypassing government controls and rigidities. It was easy for private telcos to bypass the MTNL monopoly by going the wireless route. Bypassing the tangled mess of electrical wires is another matter altogether.

Economists working for investment banks are more bashful than the IMF. They forecast ‘only’ 8.5 percent GDP growth for the Chinese economy in 2013. In its latest (semi-annual) World Economic Outlook, the International Monetary Fund projected GDP growth for China at 8.2 percent in 2012 (same as what it forecasted in September 2011) and at 8.8 percent in 2013.

Scouring through its forecasts of growth for many other economies, one notices that most of them have been marked down. India’s growth forecast has been reduced to 6.9 percent for fiscal 2012-13 from 7 percent (as of January 2012). That was lower than the 7.5 percent forecast in September 2011. Of course, China’s growth numbers were lowered from 9.0 perecnt and 9.5 perecent for 2012 and 2013 to 8.2 percent and 8.8 percent in January from September 2011. They still appear too optimistic. The growth forecast for India is more realistic.

One cannot blame the IMF. It is run by a European and it wants China to buy European bonds. No point in angering the dragon with a drastic growth mark-down in succession. However, since the January forecast revision, China’s economic data have been, for the most part, disappointing.

The Chinese New Year occurred in January this year. Yet, in February, China recorded a trade deficit as exports collapsed. In handling the problem of bad and souring debts to local governments, China has asked its banks to roll over the debt to prevent them from being classified as non-performing.

Photo: Dainis Matisons

China’s power output is down and Foreign Direct Investment (FDI) has been declining every month (y/y) for the last three months. With export growth arguably in terminal decline and with domestic demand being held back by curbs on bank loans to local governments and to the real estate sector, it is unclear if economic growth could be any higher than 3 percent or 4 percent.

Of course, neither would China publish such a growth number nor would any China economist make such a forecast. In a recent CNBC interview, the China economist for Citigroup suggested that annual growth rate might drop to around 7.5 percent in the third quarter of this year and accelerate from there. Independent economist Andy Xie said that the slowdown had just started and that it was a multi-year process.

One needs to look at other indicators such as corporate profitability to gauge the extent of slowdown underway in China. Recently, Caixin magazine published some articles on profitability in the steel sector, on the extent of provisioning for non-performing loans in China banks and on the profitability of State-Owned Enterprises (SOE). Here are some key facts:

• Data from the China Banking Regulatory Commission indicates that as of late 2011, total assets of China’s banking industry reached more than 113 trillion Yuan, up 18.9 per cent from the previous year… As of late 2011, the amount of outstanding bank loans was 54.79 trillion Yuan. Every per centage point increase in the NPL ratio means banks face a potential loss of 548 billion Yuan. Assuming 2011 profits were already excluded in NPL provisioning, around 2.1 per cent of total loans, it would have been completely consumed if 4.1 per cent of loans had been lost. (Source: http://english.caixin.com/2012-04-06/100376921_all.html)

It is obvious that the last sentence has been badly translated from the original Chinese. One guesses that the messages is this: 2011 profits might have already provided for 2.1 percent of total loans but had it provided for 4.1 percent (of total loans) for non-performing loans, 2011 bank profits would have been wiped out. Further, regardless of what one says about China’s labour productivity, its focus on growth, its policy prioritisation, etc., it is hard to miss the dangers inherent in the banking sector assets being 300 percent of GDP and bank loans being 160 percent of GDP. Many dynamic economies have been brought to their knees by a deflating credit bubble.

• According to the Ministry of Finance, state-owned enterprises (SoE) registered a drop in profits during January and February compared to the same period last year. Total profits for the two months hit 363.5 billion Yuan, down 10.9 per cent year-on-year. Centrally-administered SOEs saw similar decreases in profits, at 212 billion Yuan, down 11.5 per cent. The figures represent the second decline since 2009. (Source: http://english.caixin.com/2012-03-20/100370663.html)

• The China Iron and Steel Association (CISA), a national industry organization, said profitability for the steel industry in the first two months fell 68.4 per cent compared to the same period in 2011…………This would be the first time for the whole sector was in the red since this millennium, the official said. (Source: http://english.caixin.com/2012-04-16/100380427_all.html)

“Forensic Asia”, an independent research outfit in Hong Kong (disclosure: I am a consultant-economist with its sister-concern ‘Asianomics’) has this to say about overall Chinese corporate profitability and not just that of SoE or the steel sector alone:

• Evidence of a slowdown is becoming increasingly apparent. The HSBC Purchasing Managers’ Index has been in negative territory since July 2011, with the exception of October, registering a reading of 48.1 in March, below expectations, as Figure 12 shows. Interestingly, the government controlled PMI released by the China Federation of Logistics & Purchasing actually showed a sudden expansion. However, this index has been known to get it very wrong in the past, perhaps because it is the only PMI that we are aware of which is compiled by a government organisation. This slowdown in manufacturing activity is reflected in corporate earnings which are posting the highest level of negative disappointments relative to expectations since 2H08. Indeed, Figure 13 shows that the net disappointment for 2011 results has been 31 percent. This means that 66 percent of companies have posted 2011 results below expectations.

• A big miss for 4Q earnings. Whilst the majority of companies have missed analyst earnings expectations, the average miss is about 4.5 percent for the year. This may not seem like much but analysts were only forecasting the fourth quarter, with nine month results having already been made public. It would be more appropriate to suggest that companies missed their fourth quarter earnings estimates by around 20 percent. (Source: ‘China Property: Just a bad dream?’, Forensic Asia Limited, April 18, 2012)

Since the losses in the steel sector are attributed to overcapacity and rising cost of iron ore, it is interesting to examine the parallel with the banking sector. Overcapacity is clearly the case with China banks. Far too much of credit has been created. But, it is being saved by under-provisioning. Input cost has been kept artificially low with ceilings on interest rates on deposits.

Clearly, India benefits from a slowdown in China. One can state that even without invoking a geo-political balance of power narrative. Indeed, most nations will benefit from a slowdown in China. They will see investor interest in their economies and in their markets. On this score, India will not see big gains because India has not prepared itself to benefit from the inevitable loss of competitiveness of manufactured exports from China as it grows richer. Other East Asian and least developed nations in South Asia might benefit more. Growth rate in Asia, ex-China, will improve. Korea and Japan stand out as obvious beneficiaries, followed by Thailand, Philippines, Malaysia and Indonesia, perhaps, in that order.

Global prices of commodities will decline. Many nations are commodity users; only few are producers. The latter will be hurt. But, from a global perspective, gainers outnumber losers and gains will exceed losses. India, with its substantially large trade deficit and commodity imports, will get some relief from the decline in commodities that would necessarily follow the slowdown in China.

Beyond this, Indian readers should resist the temptation to gloat. If the obsession of the Chinese Communist Party to retain control over the economy through its stranglehold on the banking system is likely to cause the unravelling of China’s growth, Indian political class is no less guilty of similar crimes. Its control of the financial sector is as pervasive as China’s and just as harmful:

• Real deposit rates in India are negative. The new consumer price index showed that inflation was just within a whisker of 10 percent in March 2012.

• The Reserve Bank of India cut interest rates by 50 basis points even as the pre-conditions it laid out earlier for future interest rate reductions were not met. It risked its credibility with the larger than expected rate cut and the consumer inflation rate has done its credibility no good.

• Public sector Life Insurance Corporation bought the government stake in the public sector enterprise Oil and Natural Gas Commission to help prevent the public sector budget deficit from becoming more bloated.

• It has frequently resorted to loan waivers undermining the banking sector health and the culture of loan repayment in the country.

There is one more reason for India to display humility. Niranjan Rajadhyaksha of MINT wrote recently that every time China’s growth rate converged towards that of India in recent decades, it has managed to pull away through decisive reform measures.

For all its flaws and faults, China’s Communist Party bats for China. In the final analysis, that is the most important advantage that China has, over India.

For hundreds of millions of South Asians, daily life is a ruthless battle. It involves being assaulted brutally by insecurities arising from socio-economic, political, environmental and even military threats to their lives and livelihoods. Despite this, at the national level, South Asian countries remain stuck to a simplistic and narrow view of what security means, i.e. the safety of the state (or regime) from military threats.

It is a view which stands fundamentally challenged in the globalised, post Cold War world. The case for a wider understanding of security is now well-established, and in many countries, regional institutions and international organisations, academic and policy debates are informed in this way.

For South Asia, the narrow approach to security is unhelpful in at least two ways. One, it makes it very difficult for a more people-oriented, holistic and inclusive understanding of security to emerge, despite it being highly relevant to the needs of South Asians. When thinking of security, policymakers continue to be driven by the limited, state-centric approach. Likewise, security analysts continue to look to the state when seeking expressions of insecurity, while ignoring other similar expressions at the sub-state level.

Photo: Kozumel

Two, it overlooks the importance of actors other than the state who are active in this wider security realm. It ignores their role as legitimate security practitioners, and the potential to learn from and build on their work from a policy perspective.

Broadening Security in South Asia

The 1990’s saw the international security debate expand radically. Concepts such as ‘human security’ and ‘non-traditional security’ became part of the discussions. By the early 2000’s, it was no longer considered illogical to argue for the meaning of security to go beyond state stability and regime survival, and refer also to the safety and well-being of individuals and communities from a range of threats. Yet in South Asia, these discussions were few and far between. This remains the case even today.

It is not surprising then, that there is very little by way of a solid academic or policy-oriented understanding of the issues which prevent South Asians from living lives free from fear and want – two essential components of security as enshrined in the UN Charter and highlighted in particular by human security proponents. Perhaps a little ironic, since South Asia is home to the world’s largest concentration of the poor and hungry. Already, it faces colossal resource constrains in the face of growing populations, diminishing arable land, increasing water scarcity and high vulnerability to climate change. The latter in particular poses a critical threat to agriculture, rural livelihoods and coastal urban population centres in the region. Socio-economic inequalities together with ethnic and religious cleavages threaten to add further complexity to these circumstances. Finally, these dynamics also impinge significantly on concerns around political instability and violence in a region where most countries have weak governance institutions, lacking adequate capacity and often riddled with corruption.

Non-state actors and security in South Asia

Opening up the study of security in the region to include these issue areas reveals that the state is not the only (and in some cases even the primary) security actor in South Asia. It helps unearth a previously unnoticed, sub-state layer of security governance and related practices led by non-state actors (NSAs). These include including non-governmental organisations (NGOs), civil society groups and networks, epistemic communities (i.e. knowledge-based communities of experts) and media organisations.

These NSAs are engaged in different security practices – such as identifying and ‘securitising’ threats to sub-state groups, working with local and national agencies to devise suitable policy responses, and at times even taking action in the absence of state capacity or political will, to provide preventative and mitigating measures to those perceived as threatened.

Human trafficking – a case study

Human trafficking is often cited as one of the fastest growing forms of Transnational Organised Crimes (TOCs) in South Asia. Around 150,000-200,000 South Asians are trafficked annually, and for various reasons – sex work, labour, forced marriages and organ trade. There are many things which make people vulnerable to trafficking and poverty is a key reason. Other factors include gender-based violence, unemployment, lack of education, corruption, political instability, conflict, and more.

For South Asian states, human trafficking remains a law and order issue best dealt with under local jurisdiction. The main focus is on punishing the perpetrators and for government officials, and in general, national policies reflects the view that there is limited regional externality to phenomenon. They seem to ignore the fact that all South Asian countries are either host, transit and/or recipient countries with respect to those being trafficked, and there is no harmonisation of legal frameworks in dealing with this regional phenomenon.

International actors (e.g. UNIFEM and USAID), regional actors (e.g. the South Asian Coalition on Child Servitude (SACCS), Action against Trafficking and Sexual Exploitation of Children (ATSEC), the Asian Development Bank (ADB) and the Asia Foundation), as well as other, grassroot organisations, have all argued that the phenomenon needs to be viewed through a rights based framework – one which places the victim of trafficking at the centre of its focus and emphasises on the protection, rehabilitation and welfare of the victim, as opposed to just the punishment of traffickers. The SAARC anti-trafficking convention, although a key development, makes little progress in this regard.

Evidence shows that in the absence of adequate responses from the states in the region, measures are being taken by a different group of actors. Networks of anti-trafficking NGOs in the region are actively working to prevent trafficking, care and support for trafficking victims, and also engaging in advocacy on the issue.

In Nepal, for example, NGOs such as Shakti Samuha and Maiti Nepal not only help intercept trafficking at border points and support rescues of trafficking victims, but also help facilitate their rehabilitation and reintegration into communities. This includes transfers to safe houses, training in livelihood skills, medical care, counselling and even legal assistance where victims are ready to pursue criminal proceedings against their perpetrators. These NGOs are also involved in community outreach programmes to spread awareness on the dangers of being trafficked. In the recent past (together with other such groups) they successfully lobbied the Nepalese government to make its anti-trafficking legislation more victim-oriented.

These NGOs are embedded within wider national, regional and global anti-trafficking networks. Also, they often work closely with their counterparts in other South Asian countries to facilitate rescue and repatriation of victims to their home countries. For example, Asha Nepal (a partner organisation of Shakti Samuha) works closely with similar rescue and rehabilitation organisations in India in Mumbai, Pune, New Delhi and Kolkata.

State representatives and agencies in South Asia continue to view security in very limited terms. At the same time, the bulk of the academic literature on security in South Asia only deals with expressions of insecurity made by such actors.

What is lost consequently is the opportunity to identify, understand and address insecurities expressed by sub-state groups, particularly in relation to non-military threats. Also missed is the opportunity to unearth and explore a layer of security governance previously ignored, with respect to the work being done by NSAs in some of these issue areas. In losing these opportunities, the study and analysis of security in South Asia, and relevant policy-making in the region, remains all the more poorer, at the cost of those who can least afford it.

India’s vote in the United Nation’s Human Rights Council (UNHRC), censuring Sri Lanka for its alleged war crimes and human rights violations during the war against LTTE  has attracted attention both domestically and internationally.

Sri Lanka has been criticising the UNHRC resolution as it goes against the principle of Non-interference in the matters coming under the domestic jurisdiction of the country, a principle supported by China and Russia.

The government of India received much criticism by the Sri Lankan government, which accused that India voted in favour of the resolution not because of its commitment to foreign policy, but because of domestic political compulsions. This argument finds relevance as the DMK (The political party in Tamil Nadu) had cautioned the central government that it would pull out of the cabinet if the government did not favour the American backed resolution. Many believe that in a situation where the Congress is trying to avoid a possible mid-term election, they had no choice but to accede to DMK’s demand.

Photo: Jongenius

Less than two weeks after the UNHRC vote, Sri Lankan Minister ‘Patali Champika Ranawaka’ wrote in a Sri Lankan newspaper about how India’s vote will negatively affect the ongoing settlement process with the Tamil communities in Sri Lanka. He went on saying that Tamil Fascism and Western Imperialism are India’s main enemies.

It is evident from the reaction of the Sri Lankan authorities that, India’s vote at the UNHRC was nothing but a surprise to them. The External Affairs Minister of the island nation, ‘G. L Peris’, indirectly commented about how India succumbed to the pressures put forth by the political parties in Tamil Nadu. Considering the chronology of the events, many believe that ‘Peris’s’ comments are to an extent sensible.

The struggle for Tamil rights in the Sri Lankan land starts from 1948, when Britain gave independence to Ceylon. The leadership of the country, in the following years, followed a policy of supporting the Sinhalese language and culture, which constitute the majority in the country. The whole issue aggravated when ‘Solomon Bandaranayake’, country’s first Prime Minister made Sinhala the official language.

The rejection faced by the Tamil minority groups in the country, which constitute about 10-15 percent, clamoured for a separate Tamil state and an organisation to protect their right. In the process, organisations like the ‘Tamil Eelam Liberation Organisation’ (TELO) and the ‘People’s Liberation Organisation of Tamil Eelam’ (PLOT) were formed. Providing leadership to a large number of people in a grave issue was not an easy task. Eventually the efforts of the above mentioned organisations culminated to the formation of Liberation Tigers of Tamil Elam in 1975, which functioned like a parallel government to the extent that, many believed it processed a submarine of its own.

The failure to take a stand on the UNHRC vote issue in the first hand itself is a matter to be blamed. Had the Prime Minister and the External Affairs Ministry taken a stand on the issue (whether to vote in favor, not to support or abstain) before the pressure put forward by political parties, it would have been considered by many as a decision based on India’s strong foreign policy. The UPA government’s silence was broken only when the DMK members demanded a stand on the issue, which was followed by the Prime Minister’s remarks in the floor of the house, giving a hint that the government will consider supporting the resolution, which was rightly followed.

The casualties of LTTE war are known to the world. Close to a million people have lost their lives, including a thousand Indian soldiers. Alleged war crimes have been reported by various international and domestic media and organisations, including a recent video footage released by ‘Channel 4’. The UN report alleges Sri Lanka of firing on the ceasefire zones where civilians were asked to reside. It also speaks of heavy shelling on innocent citizens and depriving the native people of needed medical facilities including the denial of access into the war land to The International Committee of the Red Cross.

Though India followed a policy of Non-Alignment and low intervention in the domestic affairs of other countries during The Cold War Era, it is evident that the situation is no more the same. With the proliferation of non-state actors like the United Nations and its various bodies, countries are committed to take stands on international issues. It is especially imperative for India to play a key role in the this scenario as it is one among the nations which are demanding a permanent membership to the UN Security Council.

In this scenario, it is imminent for India to frame broad policies related to contemporary foreign affairs and show the world its power, rather than appear weak and succumbing to the pressures of domestic politics. India had the relevant documents and information necessary to study and make its stand on the resolution at the UNHRC. Having failed to do so, it has decided to take a step backwards in the international relations arena, where soft power seems to be replacing hard power. In a situation where culture, intellectual capacity and foreign policy decisions constitute the ‘soft power capacity’ of a state, it is time for India to take a lead on this matter.

India’s involvement in Sri Lanka’s war with the LTTE can be dated back to 1987 when the Indian government took up a mission in support of Tamil Tigers by air dropping supply’s to Jaffna (city in Northern Sri Lanka), for resisting the Sri Lankan armies efforts. The operation was named ‘Operation Poomalai’ and led to the creation of Indo-Sri Lankan Accord in June 1987. One of the major agreements in the pact, which was signed by the then Indian Prime Minister, Rajiv Gandhi and the Sri Lankan President ‘J. R. Jayewardene’ was the creation of the Indian Peace Keeping Force (IPKF) for eliminating the Sri Lankan civil war, that includes disarming the LTTE.

The recent accusations made by the island nation’s media stated that trained terrorists in the garb of fishermen have been arriving in northern Sri Lanka from India. The recent media reports reveal that terrorists trained in Tamil Nadu have been trying to destabilize the reconciliation and resettlement carried out by the Sri Lankan government. The alleged fishermen are supposed to have left the island country during the LTTE war and have returned now after receiving sufficient training from India. This revelation has to be considered in the backdrop of India’s marginally strained relations with Sri Lanka.

The fishermen folks from Tamil Nadu have been facing the problem of crossing the Sri Lankan waters while fishing and many are pronounced ‘guilty’ by the Sri Lankan authorities. Currently five Indian fishermen have been detained under narcotic laws in Sri Lanka. Indian efforts to release them have not been unsuccessful so far. India should not let its neighbour frame policies and take actions against its interests because of the UNHRC vote issue.

India managed to make changes in the final draft by making corrections so that the report became non-intrusive and amounted to political reconciliations in Sri Lanka. These final changes can be considered as India’s effort to appease the Sri Lankan leadership. It is understood that these efforts may not be enough but has to be followed by constructive efforts that would help in strengthening India’s relation with its close neighbour.

Timothy Irwin of IMF has an excellent paper on how government can use various accounting tricks to hide fiscal deficits. In the process they create a fiscal illusion.

He mentions fours such devices which either increase revenue now or lower expenditure

• hidden borrowing: Leads to more revenue now but more spending later
• disinvestment: Leads to more revenue now but less revenue later
• deferred spending: leads to less spending now but more spending later
• foregone investment: Leads to less spending now but less revenue later

There are excellent examples on how different countries have used these devices to hide their deficits. Using these devices cannot be eliminated, but several things can be done to reduce their use or at least bring them quickly to light. Governments can be encouraged to prepare audited financial statements according to the international accounting standards. Apart from this, a variety of alternative fiscal indicators can be monitored since a problem suppressed in one fiscal indicator is likely to show up in another.

One could apply the above to India’s fiscal issues as well. For instance, disinvestment by the Indian government is rarely to get out of business. It is mostly to show better fiscal numbers. This has been criticized for many years but has fallen in deaf ears. So, analysts calculate fiscal deficits net of disinvestments to show a truer picture. Likewise there have been oil bonds and latest on radar is effective revenue deficits which shows revenues deficits lower.

Photo: OLX

Importance of culture for development

Nathan Nunn of Harvard explores the role of culture in economic development. He says cultural beliefs help develop institutions which in turn lay the foundations for growth and development. So it goes one step backwards

The paper points to some interesting case studies to show the role of culture. An example would be of institutions formed in different US regions, which can be traced back to the culture of the diverse migrants that settled in the different regions of the US. The first migrants were the Puritans (1629-1641) who settled in Massachusetts and set up institutions. They were obsessed with maintaining proper order and they established laws requiring universal education, high tax rates, sizable government interventions, and a swift and brutal justice system clearly reflected this. In contrast to the Puritans, the Virginia Cavaliers that settled in the Chesapeake Bay believed that inequality was natural. For them the ideal society was less more about maintaining order and the existing hierarchy. These values resulted in limited education, lower taxes, less government spending, and an informal system of justice based on hierarchical violence.

Another research shows why today in the US South (but not the US North) there is a ‘‘culture of honour,’’ where importance is placed in defending one’s reputation and honour, even if it requires aggression and violence. Nunn adds that the famous colonial hypothesis suggested by Acemoglu et al reflects the role of culture.

Thinking about Hooligans as rational economic agents…

Peter Leeson et al model hooligans as rational agents who derive utility from picking fights. The English football crowd is divided as three types: Peaceful, Hooligans – brawlers, Hooligans – sadists. The interest is mainly to think for second type Hooligans – brawlers. He does not want either the peaceful or sadist as opponent. He wants to fight with his type only. They say such hooligans form fight clubs and form rules that serve as an institutional response from within the fight club for regulating conflict. There is a certain code of honour among the firms, one which draws specific boundaries marking what is and is not acceptable behavior.

What are the rules which keep sadists out? The rules vary from dressing differently, sitting in select locations in the stadiums and having a code for how much violence will be allowed (like arms not allowed).

The the paper helps understand cooperation in conflicts. The study of order among hooligans serves as a microcosmic example of the order amidst disorder that often emerges in larger contexts. Though this does not mean hooliganism should be tolerated, it is just that they have different ways to derive utility.

A conversation between Physicist and Economist on sustainable growth

There have been many criticisms on how economists try and make Economics look and sound like Physics. Some like Andy Lo of MIT say that to improve Economics, we need to avoid envying Physics. We have heard enough from Economists on the issue. But how do Physicists think about Economics? If at all, is there a way we can understand the differences in the way the two think?

In this vein, TOM MURPHY a Physics Professor at UCSD throws some light. He replays the conversation he had with an esteemed Economist (name not disclosed) over a dinner table.

What follows is an amazing reading which centres mainly around growth. The physicist disagrees and believes energy prices and its finiteness will pose problems. For the Economist, energy matters but some innovation will happen and things will be fine.  It is amazing to read how Physicist makes Economist think about his assumptions on indefinite growth and innovation. He summarises the discussion as “I got the sense that this Economist’s view on growth met some serious challenges during the course of the meal…There is too little acknowledgement of physical limits, and even the non-compliant nature of humans, who may make choices we might think to be irrational—just to remain independent and unencumbered.

The Rajya Sabha has admitted motions to amend Rules prescribed under three Acts of Parliament.  Mr. P Rajeeve has moved a motion that resolves to annul the Information Technology (Intermediary) Rules.  Mr. Yechuri and Mr. Balagopal have moved identical motions to amend Rules related to the Civil Liability for Nuclear Damage Act.  Mr. Balagopal has moved another motion to amend Rules on airport development fee issued under the Airports Authority of India Act.

Act and Rules

What are ‘Rules’?  Parliament and state legislatures pass Acts, which provide the broad framework for regulating any activity.  Some details may require frequent fine-tuning, and it may be impractical to amend the Act each time such changes need to be made.  For this purpose, the Act has provisions that may authorise the central and state governments (and regulators such as SEBI and TRAI) to prescribe certain details through Rules and Regulations.  These are called subordinate legislation.  Parliament has the authority to review these Rules and modify or repeal them.  Indeed, each House of Parliament has a committee to examine subordinate legislation.  However, these committees (like other Parliamentary committees) are under-resourced.  Actions to amend or annul any Rule are quite rare.

Photo: Willie Wonker

Information Technology (Intermediaries) Rules

The Information Technology Act was passed in 2000 in order to create a framework for e-commerce.  In 2008, this Act was amended.  Among other things, the Amendment Act exempted intermediaries (such as ISPs, website hosts, ecommerce portals, email providers etc.) from liability for any material that was hosted or transmitted using their resources if they did not exercise any control over the content.  They were also required to remove any illegal content if it was brought to their attention.

In April 2011, the government notified the Intermediary Guideline Rules which required all intermediaries to declare certain terms and conditions of use.  [Mr. Rajeeve’s annulment motion relate to the intermediary rules.]  Users are required to agree not to post or transmit content that violated certain norms.  The intermediaries are required to remove the content within 36 hours of being informed of any violation, failing which their exemption from liability may be revoked.  There are four related problems with these Rules.  First, the norms are ill-defined and include terms such as “grossly harmful”, “derogatory” and “blasphemous”.  The Rules may have exceeded the remit provided by the Act in its delegated powers.  Second, the Rules may violate the fundamental right to freedom and expression, as some of these terms may not fall within the scope of reasonable restrictions that may be imposed under Article 19(2) of the Constitution.  Third, the Rules distinguish between content based on the medium of dissemination, whether it is in physical form or in electronic form.  For example, some material that may be legally published in a newspaper may be prohibited from being published on the web version.  Fourth, and possibly, most important, the Rules apply not to the person posting the content but the intermediary.  If an intermediary after being informed by any person – not necessarily an official agency – that the Rules violate the terms, does not then remove the content, such intermediary may face a liability suit.  Risk averse intermediaries may tend to remove even harmless content, thus restricting flow of information and expression.  Indeed, the Centre for Internet and Society in Bangalore has sent fake notices and found that some intermediaries display this behaviour.

The Civil Liability for Nuclear Damage Rules

The principal Act was passed in 2010, and limited the liability of operators of nuclear power plants in case of an incident causing damage.  Operators also had the right to recourse under three conditions: if there was a contract providing such right; if there was a patent or latent defect in the material supplied; if the damage was intentional.  Among other things, the Rules prescribe the minimum norms for a contract that provides right to recourse.  In particular, the contract should specify that recourse is available for the lower of the operator’s liability and the “value of the contract”.  The latter term is not defined, and could, through a contract, restrict the right to recourse in case of a latent or patent defect.  Two identical motions have been moved by Mr. Yechury and Mr Balagopal.  The motion requires the recourse to cover the entire amount of the operator’s liability.  The Rules also require that the right should be available for the time period covered by the product warranty, or the initial licence period, whichever is shorter.  The motion amends this to cover at least 30 years.

The Airport Authority of India (Major Airports) Development Fees Rules

The Act permits AAI to levy development fees in order to upgrade or develop new airports.  In 2009, the central government had approved a development fee to be levied by the Delhi International Airport Limited to levy a development fee but this permission had been struck down by the Supreme Court.  The Court ruled that the Act permitted such a fee only if it was determined by the Regulatory Authority (and not by the government).  These Rules, issued in 2011, permit the AAI to authorise any person to collect such fees if they are approved by the Airports Economic Regulatory Authority.  The motion by Mr. Balagopal seeks to amend these Rules.  The proposed amendment removes the power of AAI to authorise any person to collect the fees.  The amendment also requires that all fees collected by operators before the introduction of these Rules should be assessed and deposited in a separate account.

The Role of Parliament

The Parliament, while delegating the power to make Rules, has the duty to examine them and ensure that they further the objectives of the Act.  Now that some MPs have moved motions on these three Rules, the Parliament should have detailed discussion and careful examination of their implications.  Indeed, it should equip its committees (including the committees on subordinate legislation) with the resources needed to undertake such examination of all Rules and Regulations.  For example, other Rules notified under the Information Technology Act have implications for the protection of data kept in a fiduciary capacity, as well as privacy of cybercafé users.  Standing committees which would have examined Bills before they were passed may be in a good position to review the Rules and Regulations related to each Act.  It is only by exercising these oversight functions that Parliament can ensure that the final law (including Rules) reflect its intent.

On going to the bank to consolidate a PPF account, we realised that we needed to initiate a four step process. With one official per branch, who needed to man their desk, it would be impossible to complete the process in one visit unless some of us lent a helping hand. With bank papers in our hands, we went from counter to counter, gathering signatures and print outs till the job was done. Only in few other countries would the bank staff have broken protocol and given us access to anything but the final document. Here a little bit of participation with the public sector processes and the customer was sent back with the job completed. Given the volume of work that needed to be done, especially before ‘computerisation’ this was the only pragmatic way to deal with scale.

This native Indian model of Public Private Partnership, where the public service proves inadequate and is supplemented by the private – in this case the consumer filling in the supply gap. The consumer thus plays two roles in this particular PPP model. The dual role is not uncommon – a builder of a toll road could well use the road as a consumer and pay their share of the charges too. What is different here is that the process could not have been completed on time, to the mutual satisfaction of both the supplier and consumer without this partnership.

The school bus or canteen provision that is supplied by a private sector profit making enterprise in a government school or hospital could also be termed PPP. Recently, the government eased the path to PPP in building secondary schools in India by claiming precedent – Government aided schools. The government aided fee paying schools use a combination of resources – subsidised land and grants from the government, investment via its trust and promoters and fees from the consumers of the school facilities.

Some called it ‘jugaad’ – and this was the beginning of process innovation to deal with inadequate provision in the license raj era. Go to any government office and the chances are that in dealing with people, the officers are likely to co-opt the services of their customers. Wherever the state interacts with the public, there is a chance that efficient provision has an informal element of participation.

Photo: psd

In some cases, a part of the process is formally with the consumer. Either by design or by practice, medical record keeping has remained in the private, personal domain in India. In many countries doctors keep medical histories of their patients. Here, even if the doctor has been treating you for years, the responsibility of safekeeping and updating the medical ‘file’ lies with the patient and their family. Just like that a huge chunk of the administrative cost of medical care to the masses lies with the private sector – again the consumer.

This works well in many ways, not just the cost. The records are easy to access, unlike in the UK, where you have to pay a fee to get a copy after a wait of a few days. Privacy is not necessarily demanded or delivered here, but with each patient holding on to their own records, many of them typed up or handwritten – the chances of privacy violation are lower. (This is not a case for decentralised hand written record keeping). The biggest virtue here is that the process and judgement of the medical episode is more transparent for the patient, their loved ones and the customer. They have access and the ability to influence the treatment simply because all information is in their hands. Of course the customer retains mobility – they can move doctors and hospitals as their records are not stuck in some administrative morass. Many of these are not bulky physical files any more, if the patients can afford it. The electronic transfer of records between diagnostic testing centres, patients and doctors is smooth and seamless, always keeping the paying customer at the centre and in control of the process.

In a way, some retail corruption is also an example of a grassroots PPP model. The government provides a service that is often under resourced or poorly designed. Let us assume that either is due to a lack of finance, which leaves a gap in the service standards. The customers as a community evolve a process, hire the people and agree a price with the provider. Like a market, everybody has free access to the service at a price. The system responds to customer needs, both individually and as a group – say a poor old teacher may get a discount, or may not have to pay a top up fee. An extra fee may speed up the process. Agencies and intermediaries, with or without the corruption element increase the inclusiveness of government services. For example, if the government processes require literacy, or are not enabled for all, that part of the job is performed by the private sector for a price.

Better known models of PPP were brought in for large scale projects. India’s toll roads are a very good example of change that was speeded up (relatively speaking) due to legitimate PPP models supported by governments and an opportunity to make profits. Much of the change we have seen has been led by social enterprises, themselves serving social good while not eschewing profits. In education the ASER report has even collected statistics where none existed, as the government failed in their job. That data is now being used to drive public policy and practice.

Community driven PPP may start at a small scale but has the virtue of being tested rigorously. Its evolutionary nature makes the design far more flexible than a top down approach can ever hope to achieve. Innovations such as the Delhi Traffic Police seeking to involve and inform the public via social media may be the start of a long lasting partnership for social change and economic gain that is led by the community. Maybe, it is these community led public private partnerships that will be the face of the reforms we want to see.

As even a cursory look at Western newspapers these days will show, the world has entered a new round of antagonism in the confrontation over Iran’s alleged atomic weapons program. Ronen Bergman’s article in the New York Times is the latest to suggest that Israel is on the verge of an attack on Iran’s nuclear facilities.

Since both US and Israeli intelligence have concluded, however, that there is no evidence that Iran has actually decided to build a nuclear weapon, this cycle of sabre-rattling is better seen as part of a larger effort to ensure that punitive measures (and not diplomacy) remain the preferred means of dealing with Tehran. Thus Washington has succeeded in convincing the Europeans, and ostensibly the Russians and Chinese, to participate in ever-tighter sanctions against Iran, persuading Saudi Arabia to increase energy outputs to make up for the shortfall.

In this context, India, Washington’s “natural ally,” appears to be a potential spoiler. It was in the middle of this standoff that India eclipsed China as the number one importer of Iranian crude oil, relying on Iran for about 12% of its supply. And for a time, India had provided Tehran with over 30% of the refined gasoline that Iran consumed. This energy relationship has been so intimate, in fact, that many of India’s refineries have been constructed to run on Iranian crude, and would have to go through difficult retrofitting procedures to be able to process oil from other countries.

New Delhi has kept this economic relationship alive in the face of sanctions by devising “creative” means of engaging Iran. These include creating new corporate entities that are independent of Western financial institutions, purchasing Iranian oil with gold rather than dollars (reverting to a barter system that requires Iran to buy Indian goods), and sending currency through institutions such as Turkey’s Halkbank, which remains outside the purview of Western sanctions. New Delhi worries that if it drops Iran, Beijing could easily the pick up the pieces under preferential financial terms, while any shock to India’s energy supply could threaten its growth in the midst of a global recession.

Photo: Basheem

Former US Under Secretary of State R. Nicholas Burns, long a staunch supporter of India’s rise, recently lambasted New Delhi for its intransigence on the issue of censuring Iran, arguing that despite this energy dependence, “India has had years to…make alternative arrangements.” Indeed, the foundational document of Indo-US amity, the 2006 nuclear deal, contains multiple references to India’s full participation in efforts to “dissuade, isolate, and, if necessary, sanction and contain Iran.”

Yet, forsaking Iran would not be as simple as shifting energy suppliers. Because Pakistan has not allowed open transit trade between Afghanistan and India, New Delhi is forced to look further afield. By constructing a road from Iran’s Chabahar port on the Arabian Sea to western Afghanistan, India has gained strategically pivotal access to Central Asia. This 135-mile road, along which India is constructing a railway, is far shorter and more reliable than the two other routes in Pakistan that connect landlocked Afghanistan to the sea. The road is the most efficient transit route to Central Asia and ends Pakistan’s monopoly on Afghanistan’s maritime trade, which has been a key enabler of Islamabad’s pernicious influence in Kabul’s affairs. The link gives India direct access to the mineral resources of Afghanistan and ultimately the vast energy supplies of Central Asia, including Iranian, Turkmen, and even Kazakh — natural gas — not to mention the ability to physically step into the political fray should it come to that.

Given the fact that it is a relatively stable, energy-rich geographic lynchpin, Iran cannot be discounted so easily. And of course, given India’s long-term objectives of balancing China, cooperating in defence matters, and accessing markets, neither can America. Or even Saudi Arabia and Israel — Delhi’s number one sources of hydrocarbons and foreign exchange, and arms, respectively — relations with whom may also come under the weight of New Delhi’s ties with Tehran.

In balancing these divergent interests, it appears that India has little choice but to continue to juggle its ties with both blocs; to oscillate between siding with Washington (as in India’s IAEA votes condemning Iran and decision to prohibit oil purchases through the Asian Clearing Union) and supporting Tehran (as in Delhi’s continued investment in Iran) as situations arise.

Yet given the current configuration, this will inevitably amount to each relationship severely limiting the other. One of the most emblematic examples of Indo-Iranian cooperation, for example, the Iran-Pakistan-India gas pipeline, was thwarted due primarily to pressure from Washington and the resulting disputes with Tehran over pricing. An alternative proposal to access Iranian natural gas — liquefied natural gas plants that keep imports fungible and reduce dependence on any one country — also requires American-made parts that are restricted under the Iran Sanctions Act (ISA), which limits annual investments in Iran’s energy sector exceeding $20 million. US-Iranian enmity is a fly in almost any ointment.

Of course, none of these countries deal with New Delhi out of the kindness of their hearts; they do so because they too need Indian money or longer-term strategic assistance. India is not without leverage. Still, faced with such a conundrum, India ought to revamp its nonalignment doctrine for the new world — and do so by taking a page from the other “swing states” in the international system. Turkey in particular has used its multi-civilisational clout and broad-ranging interests to successfully mediate between parties from the Balkans to Mesopotamia and the Levant. In 2010 Ankara even joined forces with Brasilia to broker a deal in which Tehran agreed to parameters on its nuclear program recognized by US President Barack Obama: that Iran’s low-enriched uranium (LEU) be shipped abroad, that a swap for fuel rods take place outside of Iran, and that the rods be delivered to Iran after nine to twelve months. (Washington nonetheless rejected the resulting ‘Tehran Declaration’ for being too little, too late).

India ought to take a turn at facilitating an unofficial dialogue between Washington and Tehran — perhaps in tandem with countries like Turkey and Brazil — until a more public engagement is possible. In addition to stabilising Afghanistan, countering Sunni militants like the Taliban, enabling energy and commodities trade throughout the region, reducing regional dependence on Pakistan, working toward a stable Gulf, and limiting Chinese influence in the region, paradoxically, nuclear issues, which Washington insists on addressing above all, may in fact be an area of confluence.

An early hiccup in the US-India nuclear deal was what was to be done with spent nuclear fuel, radioactive waste that is no longer able to generate energy but can be reprocessed for industrial and medical uses. That question was resolved in 2010 with the establishment of an international reprocessing centre in India that would serve the entire region. The centre could tie up the loose ends of the US-India nuclear deal while serving as a credible host to Iran’s LEU while the latter awaits reprocessed fuel for its own civilian reactors.

Of course, given the current standoff, it appears unlikely that either side is ready to compromise at the moment; both are taking pains to convince the world of the wisdom of their positions and dragging it down with them.

Yet, as Trita Parsi writes, “only through sustained, persistent, and patient diplomacy” that engages “the many power centers in each country — the supreme leader’s office, the parliament, the president’s circle of advisers, the National Security Council and influential clergymen…the White House, the State Department, the Pentagon and Congress,” the private sector, media, and K Street — can agreement be reached. For India, this would include more effectively (and less self-righteously) projecting its own narrative on events in Central Asia in global and American media.

Though Washington stayed in constant contact with Moscow even at the height of Cold War tensions, it has not had a direct means of communicating with Tehran in over thirty years. New Delhi can provide that bridging power to ensure that its own interests — and the world’s — are reconciled and not threatened through a debilitating regional conflict.