Coming out of Farm Laws Stalemate – A Possible Way-forward

The three new farm laws promulgated by Government of India have not been liked by a section of farmer’s communi...

Coming out of Farm Laws Stalemate – A Possible Way-forward

The three new farm laws promulgated by Government of India have not been liked by a section of farmer’s community, notably from Punjab, Haryana and western UP. The votaries and opponents of laws have their reasons. Both votaries and opponents are of broadly two types: one who knows about the laws and other who know little about these laws but are simply supporting the camp where they place themselves ideologically. The second category in both cases being dominant, resulting in generating more heat than light. The problem is further confounded by the first category, which is spewing out selective data and arguments to support their views, reducing the issue to a college like debate where the speaker speaking for or against the motion will argue simply to defend his motion to win the debate, even if he is convinced otherwise. In college debate, the purpose is to check the debating power of the student, in real life, it should be for solving a real problem of the people; in this case farmers. Therefore, for finding a solution both sides should widen their spectrum to consider the views of other side. 

For quite some time farmer’s groups have been demanding freeing the agriculture markets from the stronghold of the Agricultural Produce Market Committees (APMCs). The farm laws do exactly the same thing, then why the fuss. To understand this, two things are important; one: what exactly the laws are? Is there something in the laws which does something more or less than what is envisaged? Two: examine supporting data in a holistic manner, rather than selectively. 

Three Farm Laws: The three, so called, farm laws in brief are: the first is: ‘The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act’, allows traders to procure and trade agriculture produce outside the APMCs area, without paying any market cess and taxes levied in APMC markets which is in the range of about 8.5% or so of transaction value; comprising of,  say, 2.5% as intermediary (Arhtia) commission, 3% contribution for market development and 3% as state government tax for rural development (different states, which have APMCs, may have different values around these figures). It also permits interstate movement and trade of agriculture produce. The second is: ‘The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act’, which allows for contract farming. This Act enables traders and whole sellers to enter into a contract with a farmer or a group of farmers to enter into contract to produce a crop which will be purchased by the traders at price mentioned in the contract at the end of harvesting. The contract will have details of quality, standard etc. of the produce. The third is: ‘The Essential Commodities (Amendment) Act’, which essentially removes the restriction of storing and hoarding of agriculture produce in normal times. It, however, has safeguards that if the price rises above certain limits or in case of national emergency etc. limits can be imposed by the government. At the face of it, there doesn’t seem to anything wrong with these laws. Then, why farmers have apprehensions? Their seemingly main apprehensions, which have come to the fore through various reports, are:

1. Once the private mandis are established where there are no cess or taxes, farmers would start taking their produce to these mandis to save on the cess and taxes levied in APMCs. Initially private traders may buy the produce at higher price than in APMCs. After some time starved of transactions in APMCs, APMCs will become dis-functional. Once that happens, private mandis’ traders would exploit farmers by offering lower or un-remunerative prices, even below Minimum Support Price (MSP), harming the farmers interest in long run.
2. The traders and hoarders may exploit the farmers by not paying the contracted price by finding fault with quality, standard etc. like parameters. Further, since adjudication of dispute is to be done by administrative machinery, with no court jurisdiction, as understood by people, farmers would be on disadvantageous position more often than not as these authorities can easily be influenced by deep pocketed traders. 
3. The amendment in Essential Commodity Act will facilitate the traders and hoarders to procure the produce cheap during produce season and then sell the produce at high rate afterwards.

The Government response to these reservations of farmers have been that neither APMCs nor MSP has been done away with; APMCs will continue in whichever state these exists, and Government will continue to procure notified agriculture produce at MSP. It is also prepared to give in writing that MSP would continue to be paid. With respect to second point, contracting is voluntarily, and farmers can decide whether to enter into a contractor or not. Secondly, traders would be obliged to pay contracting price. In the amended Essential Commodity Act, safeguard provisions are there in case the price of any commodity go up more than 100% and 50% in case of horticultural produce and non-perishable agricultural foodstuff respectively. And more importantly, Government is prepared to discuss the laws clause by clause and amend where there is reason to do so.      

This is visible part of the iceberg; the invisible part gets hazily visible when one come across swarms of loaded messages floating around with figures and harangues. 

• Only 6% of total agriculture and allied produce is covered under MSP largely covering wheat and rice. Why MSP should be given to only those farmers who produce wheat and rice?
• Besides MSP, farmers are given lot of other subsidies like on electricity, fertilizers etc. Why farmers alone should be pampered lot? 
• MSP benefits only farmers of Punjab and Haryana. Implicitly meaning that farmers of other states are being discriminated in the present system. 
• The total subsidy burden on account of MSP and subsidies is to the tune of $40-45 billion annually. MSP burden is unsustainable. 
• About 82% farmers have small landholding, have no separable produce to offer for sale and, hence, can’t avail the benefit of MSP.
• The laws will benefit the small farmers; only big farmers and middlemen –commission agents in mandis (Arhtia) are opposing the laws. 
• The protests are spearheaded by a small number of rich farmers from Punjab and Haryana.
• The present system dis-incentivises diversification of produce as MSP is availed largely only for wheat and rice. 
• Farmers are poor in India because our laws are archaic and thus need change. It is the reason for large number of farmers committing suicide. It is also stated that our farm productivity is low. The new laws will help in overcoming these issues. 
• Rumours are floating around alluding to that farmers’ lands could be occupied by traders although there is no such provision in the laws which even indicate such a thing.

Along with these messages what is worth pondering is:

1. If the market price of wheat is more than Rs 30 in Delhi NCR and metros -  maybe a few notches less in other parts of the country – why government agencies suffer a loss when they procure it at MSP, which is Rs 19.25. The similar is the case with rice. Is it because of inefficient operations of these agencies? If so, then problem lies in inefficiency of these agencies like FCI, and not in giving MSP.
2. Government supplies wheat, rice etc. at highly subsidized rates to poor people under various central and state Government schemes; say wheat at Rs 2/kg and rice at Rs 3/Kg. Is the subsidy given to the consumers by supplying them wheat, rice etc. at highly subsidized rate counted towards as if subsidy is being given to farmers?     
3. The MSP is calculated by taking into account the inputs costs which include cost of electricity, fertilizers, seed etc. If these inputs are being given free or at a subsidized rate, surely the subsidy given on them is already factored in while determining the MSP. However, messages floating around mentions both as subsidies to the farmers i.e. subsidy given on these inputs, and, subsidy given in the form of price difference between MSP and market price – assuming market price is less than MSP, although going by retail price of these items as mentioned above evidence is to the contrary. 
4. If 2.5% Arhtia commission, which would be around Rs 0.5 for the services rendered is exploitation by middlemen then what it would be called when these items in the market are being sold at Rs 30 or more against MSP of 20, a neat profit of more than Rs 10. Is it that just for defending and deflecting the issue, bogey of Arhtia as exploiting middlemen being raised? In such a scenario real middlemen appears to be other channels, not Arhtia, if they are doing their job as mandated by APMCs provisions, as 2.5% commission for rendering a service can’t be called exploitative. If they are exploiting by other means, then it is not an issue of APMC law, but is of governance. Secondly, can the middlemen, in one form or the other, be completely removed in the distribution chain from farmers to consumers? 
5. If in the US, EU etc. subsidy provided to farmers per farmers are hundreds of times more than what is being given to farmers in India, shouldn’t our farmers deserve little support from the Government in the form of subsidy? For example, as per reports agriculture subsidy per farmer in US is about $7,253 as against $49 to Indian farmers and total domestic subsidy per farmer is about $61,286 (2016) as against $282 (2017-18) in India. The above points suggest a case of more support to Indian farmers than what is being given, not less as some quarters seem to be suggesting through their messages. 
6. In India, the productivity of not only agriculture but all kind of productivity is low, including industrial productivity. Inspite of various types of concessions and support being given to industries, we import large number of industrial goods. It appears that agriculture may be shade better than industries, because in agriculture at least we are not a deficit nation but a surplus nation. Could there be case to benchmark our productivity gap in agriculture and industry to see which section is doing better in the same bureaucratic environment? 
7. If there is no support for farmers, and subsidy support in advance countries continues with better implements, larger holdings, better seeds etc. would we not get flooded with foreign agricultural produce, resulting in destruction of our agriculture?
8. Many states have done away with APMCs and mandis. Many states already have opened their agriculture produce for open market. Even in Punjab private mandis are allowed as per amendment in 2017 with the difference that the same levies as are being paid by APMC mandis would have to paid by them also for the sake of level playing field. The question is: are those states who have abolished APMCs better than Punjab and Haryana in terms of farmers’ income? 
9. MSP for notified agriculture produce is applicable for all India. Why the farmers in other states don’t grow wheat and rice, if these are the only the items which are remunerative? Why the farmers, say from Bihar, have to bring their paddy to Punjab to sell it at MSP? Why can’t the government purchase it from the farmers in Bihar itself? If Bihar is not having APMC this can be purchased directly from farmers or from private mandis. If private mandis are not there, why are they not there when there is no ban on it? 
10. Farmers are demanding MSP be mandated for traders also through law. What are its implications? It is said that government can’t mandate it to private players. The question is: why can’t it be done? Government has the power to regulate prices of many goods and services, and it does regulate also. In order to enforce it, of course, government may have to levy import duty, at least, equivalent to price difference between MSP and imported produce, if imported produce is cheaper than MSP. Would it cause inflation and to what extent? Would it be tolerable? If such support can be provided to industry, then would providing it to more primary activity such as agriculture too much?    
11. If MSP is given, then there is no incentive to farmers to improve productivity or quality of produce. Could there be another way of arriving at MSP like determining the cost of production based on benchmarking of cost of production considering reasonable efforts used to produce the produce and then having incremental improvement periodically? Would internal competition not make the farmers to use efficient methods because if the cost of production of a farmer is less than others, he would make profit? 
12. It is alleged that farmers in Punjab and Haryana are growing only wheat and rice year after year because it is more profitable. This is causing, on one hand, excess production of these commodities resulting in overflowing of FCI godowns, on the other hand, reducing soil fertility and depleting water table. Is it not possible, that commodities under MSP are revised periodically depending upon the country needs?  Now MSP is being notified for 22/23 agriculture produce. Should more agriculture produce, which are grown in other states, be included and/or some from existing dropped? 
13. Agriculture basically being a sate subject and inter-state trade a central subject, what is the best possible way to open up agriculture sector? Could center and state sit together and find out the way acceptable to all or most like it was done in case of GST?   
14. If for a trader the procurement price makes the cost of produce more than the international price, how the surplus produce could be exported?Should government compensate the trader or support the farmer in the form of subsidies so that cost works out such that it remains competitive?             
15. It is agreed by almost everyone that existing system of APMCs is inefficient. The question is: do the new law provide a better alternative? Merely change is no guarantee that the new system is better; it could be worse also overall, or there may be only some kinks in the new system, making it look like worse but overall it is good.   

Conclusion: a) From the apprehensions of the farmers, and the plain reading of these laws, it appears that though intension of making laws may be good, but there are kinks in these laws, which can be sorted out either by amendments to these laws or by repealing these laws and drafting new one after thorough consultation. As with any new law some kinks are normal, particularly in India, due to lack of depth of subject knowledge of bureaucracy in any area, sometime their vested interests of self-aggrandisement and sometime caused by pliability, amendment could be a viable solution. However, since the issue addressed in each of these laws are very limited, amending the laws will change almost the complete composition of the laws. Hence, in this case repealing and making new law also is not a bad idea. 

b) The real problem on account of ballooning subsidy appear to be inefficient operations of government agencies like FCI, and APMCs. Their operational efficiency can be improved either by good governance or through competition or by both. The intent of these laws have been to introduce competition. However, if these institutions are to exist, which government has been saying is its intent, and rightly so, because in absence of competition from these institutions, new private institutions would start exploiting the farmers in the same way as the present institution have been doing albeit with in different form - the existing system by way of inefficiency and corruption and new private bodies will do by way of excess profiteering -these must operate efficiently.  

Way forward: The plausible solution in the face of the present stalemate could be: both parties move a little forward and meet midway. The parties can agree that the present laws will be held in abeyance – which fortunately Hon’ble Supreme Court has already done – new laws are formulated with wide consultations, ignoring the harangues and temptation to use data selectively, answering the questions like mentioned above, and then enacted, simultaneously superseding these acts. That way both parties could win, real beneficial laws for farmers, enhancing agriculture productivity, creating conducive environment for investment in storing and processing agricultural produce could be created, and overall nation also will gain. Additional benefit of such Act/s would be a clutter less clean Act/s. 

Note: the data and figures have been taken from various reports, including through google search. These may not be exact but are good enough to underscore the relevant point in perspective.             

Ram Narain

Founder, Nectar Fountain Consultancy

Former Senior Deputy Director General, DOT

[email protected]

Views expressed are personal   

Originally posted on 22.01.2021. Reposted on 05.07.2023 for reference.

‘Chinks in the Armour’ of Proposed Indian Telecommunication Bill, 2022

‘Chink in the armour’ nowhere applies more aptly than the acts, laws and rules we ...

‘Chinks in the Armour’ of Proposed Indian Telecommunication Bill, 2022

‘Chink in the armour’ nowhere applies more aptly than the acts, laws and rules we make or contemplate to make. In many cases, otherwise a well drafted and well intentioned document, comes to a naught with big hole left in it. Take for example, TRAI Act 1997 with its amendment 2000 prescribes the eligibility criterion for the post of Chairperson TRAI and its members in such a way that anybody can is eligible for the post except the officers from Government who have expertise in telecom, whereas intention of the Act would have been to give preference to officers who have expertise in telecom. 

The section 4 of TRAI Act states the eligibility criteria as ‘“The chairperson and other members of the Authority shall be appointed by the Central-Government from amongst persons who have special knowledge of, and professional experience in telecommunication, industry, finance, accountancy, law, management or consumer affairs:

Provided that a person who is, or has been, in the service of Government shall not be appointed as a member unless such person held the post of Secretary or Additional Secretary, or the post of Additional Secretary and Secretary to the Government of India or any equivalent post in the Central Government or the State Government for a period of not less than three years” 

The eligibility criterion does not prescribe any minimum age, educational qualification, or length and quality of experience for a person to become TRAI Chairperson, who is not a government officer but sets an artificial high bar of being Additional Secretary or Secretary for minimum three years. And, by quirk of fate for the person oblivion to reality and through a web of rules for person having incisive knowledge of the system being operated, no officer having professional experience in telecom is able to be Additional Secretary or Secretary for three years with the result the intension of the Act to appoint a telecom expert for these positions from government goes for a toss. And, since the quality of decision making of any organization is as good as expertise of the top person of the organization, TRAI’s decisions many times remain under cloud. The shining example is winding up of many telecom companies resulting in loss of billions of dollar of hapless investors, and resultant destruction of assets. 

A similar chink was in Farms laws which resulted in their withdrawal, prescient expressed in a write-up by the title of ‘Coming out of Farm Laws Stalemate – A Possible Way-forward’ posted on this website. One defunct Farm law - ‘The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act’- created uneven playing field by not prescribing any levies on private mandis but retaining the same on APMCs. The other Farm law ‘The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act’, colloquially called Contract Farming Law - worded in a manner to give huge advantage to contractors over the farmers in drawing a contract and then in dispute resolution. The good intentions of our Hon’ble Prime Minister again went for toss due to lackadaisical approach of our bureaucracy. Similar things getting repeated time and again in many of proposed or enacted acts and laws; a privacy bill becoming more of security bill; data protection bill becoming partly security and partly business restrictive bill, Insolvency and Bankruptcy Code (IBC)-2016 relegating sovereign powers to a private entity – Committee of Creditor (CoC) which has only Financial creditors in it -  in deciding the fate of others creditors. 

Now, proposed Indian Telecommunication Act is no exception; in fact, it has more than one chinks in its armour of good intention. Three of these chinks are as follows:

By including host of services in ‘Telecommunication services’ and then mandating license for ‘Telecommunication services’ the distinction between a telecom network and services is obliterated. The license should be granted for telecom network; not for services which runs over it. Any services offered can be separately regulated through laws, if necessary, without the necessity of obtaining a license. And, this is the basic chink. Merely replacing word, ‘Telegraph’ with ‘Telecommunication’ doesn’t make it a modern law, but carries the flaw of the old Indian Telegraph Act (ITA) -1885. Incidentally, such a flaw was inconsequential in the ear of Telegraph and traditional Telecom. But, now this distinction has to be acknowledged and factored in any new law on the subject. 

The second chink is in attempting to amend the TRAI Act through this proposed Act. If any minor changes are to be affected, it could have been OK but when basic functions of TRAI are being proposed to be amended, right course of action is to amend the TRAI Act and not to take this circuitous route; irrespective of merits or demerits of such amendment. As far as merits of these amendments is concerned, it is felt that need of the time is to strengthen TRAI; not to weaken it. But at the same time it has be professionalized in real terms and make it accountable.

The third chink is: there appears to be no modicum in proposed penalty regime. Earlier there was a provision of penalty upto Rs 50 Crores in license, which in the proposed Act is maximum Rs 1 crores for any violation given in schedule of penalties. By mentioning in the body of the bill that penalties for violation of terms and condition of licensee are given in schedule and then limiting the penalties to some specific violations (which incidentally are only a few for licensees), many terms and condition of license will become defunct. Now, even if it is argued that penalty of Rs 50 crores was for licensees and it would remain part of license, the problems are two: one it is not clear from the draft bill and two: if that is the intension then why not to make it a part of law itself when other penalties are being defined or, still better penalties for the licensees can be left to be defined in terms and conditions of the license. For the non-licensee the problem is even more severe. For example, a person can setup an unlicensed telecom network, earn billions and get away with it by paying penalty of Rs 50 Lakh, thus incentivizing the setup of unlicensed networks instead of creating a strong deterrent. Then there is ‘severe’ grade of penalty, which is upto 5 crores, but in schedule there is no penalty more than 1 crore, reflecting a lackadaisical approach of bureaucracy in releasing a half backed draft. Another point that should be kept in mind while prescribing penalties is that these should be time proof. The danger of prescribing penalties in law in absolute term is that the amount of penalty can become insignificant over a period of time if the inflation continues as it has been and is. 

Then the provisions like waiver of penalties, granting exception, voluntary undertaking, implicitly mandatorily auctioning of Spectrum etc. need to be thought through. Such provisions should be based on long term view and not as a result of knee jerk reaction to recent events, which themselves might have been due to sub-optimum decisions making. Succinctly, it is felt that the proposed act is high on intent and words but is likely to be low on delivery in its present form. It need a complete revamp with fresh thinking, discarding the impressions of existing ITA 1885.       

Ram Narain

Founder, Nectar Fountain Consultancy

Former Senior Deputy Director General, DOT

[email protected]

Views expressed are personal   

BSNL Revival Package – Panacea or Bane

For some time, I was in quandary weather to write it or not, particularly when it can ruffle feather of owns, and annoy some others. ...

BSNL Revival Package – Panacea or Bane

For some time, I was in quandary weather to write it or not, particularly when it can ruffle feather of owns, and annoy some others. But then, I have realized from experience, it is never easy to call spade and spade, without which status quo can’t be changed. Hence, in the larger interest this piece.   

If wishes were horses, beggars would ride, applies aptly to Government intension of reviving the ailing giant, called BSNL. It is not that this giant can’t be get out of its sickness, but the medicine given is everything than required for curing from the sickness. In simple words, the actions taken don’t match the intension. The Government intent comes right from top, but actions from a layer below, and further down the hierarchy of Government and BSNL.However, every new mandarin occupying high chair in Sanchar Bhawan, and top manager in BSNL headquarter sell a new story to the top in the Government, exploiting the weakness of its intent to see its blue eyed giant boy healthy. And this has been going on since the boy has fallen sick, in fact, since it was born. They recommend easily available and swallowable costly lollypops, sweet likeable to taste buds of the blue eyed boy, but bitter to the family – country, and successive Government fall prey to it. The newest story is: it is not only BSNL but other private players too are bleeding forgetting the fact that others are bleeding because of higher cost of capital, largely raised through debt, in comparison with margins. On the other hand, till recently BSNL was largely a debt free company, and its cost of capital was very low.     

More the Government has confidence in itself, bigger becomes the lollypop. After offering a revival package of Rs 69,000 in 2019, here goes another package of Rs 1.64 lakh crore. Will it work this time? New mandarins say it is different, and it will work, but the same thing was told by earlier mandarins also. If we go by history, and overtures of current mandarins, it is unlikely that it will work. It is made to believe that after the first package, BSNL performance has improved and it has started making operational profit, glossing over the fact that due to generous severance package offered to employees, staff expenses more than halved, resulting in this operational profit; there has been no increase in revenue. In fact, revenue has marginally come down. It will not be long before this operational profit evaporates as there is hardly improvement in operational efficiency of BSNL. The reason for this is simply that there is no medicine with lollypop. Although right medicine alone could have been effective, but if lollypop helped in swallowing the medicine, maybe lollypop was justified to some extent. 

The ingredients of medicinal formulation for BSNL lies in three buzz words: pampering, accountability and capability. Whereas there is excess of first in the formulation offered, the last two are in deficit, in fact, non-existent. Financial help in only a sweetener coating, if at all. Had the lack of money been the main source of its problem, then BSNL would not have gone sick at the first place because in its heydays, around 2006, it had a cash pile of about Rs 40,000 crores, unmatched by any private service providers. Even now if the above mentioned ingredients - issues – are not dealt with, the money being pumped – directly or indirectly – is likely to go in drain pipe. Without getting into nitty gritty of so called revival packages let us go to medicinal formulation.

Pampering: Birth of child BSNL started with pampering and it has continued to be so till now. Pampering never helps a child to grow as a mature adult. It doesn’t work at home, in organization, at national level or even in a war. One of the major reasons of Marathas losing third battle of Panipat in 1761 was lack of discipline in Maratha forces and high in Afghan forces led by Ahmad Shah Abdali. Punishment were severe in Afghan forces if there was any transgression of discipline. For a force to be winning it is as important to deprecate the bad performance as is to reward good performance. If you keep rewarding all the time losing commanders and soldiers, the force is bound to lose its sheen. That is what has happened to team BSNL. 

One of the main objective for the formation of BSNL was to lessen the pensionary liability of the Government, and accordingly payment of absorbed BSNL employees was featured to be paid from a pension fund build from the contribution made by employees after the formation of BSNL. For the previous rendered service, funds were to be transferred to the fund by the Government. Later, as a pampering measuring, pension was agreed to be paid by Government. Before that in order to make the absorption scheme attractive, salary of the staff was increased by whopping 30-40%. Additionally, arrears for 3-5 years back enhanced wages were also paid, depleting the reserves of BSNL. Subsequently, time bound promotions, without laying emphasis on company performance, were implemented. Extension of CGHS facility was icing on the cake. Pampering reached to crescendo in the severance package offered in the last revival package of Rs 69,000 crore, the way salary for left over service was computed. No surprise that the performance of BSNL remained inversely proportional to the pampering. Let this issue be closed with a caveat that employees cannot be faulted for this, the staff would try to extract maximum from the incompetent and power intoxicated mandarins. To begin with staff of BSNL was competent, giving high order performance even in the face of severe competition from nimble private players as till 2006 demand for BSNL services, including mobile, was at its best; cell one being most popular mobile. However, with continuous pampering staff was spoiled, the responsibility for which squarely goes to mandarins and top management of BSNL.  And, they still continue to do so instead of ensuring that the staff delivers, while extending the benefits to the staff.

Accountability: Less said is enough to underscore the issue of accountability of mandarins and BSNL top management. One can grasp the issue from the fact that inspite of all what was asked for was given on the promise of reviving the BSNL, no promise could be fulfilled under one pretext or the other, but none of mandarin or top BSNL brass ever got a sack for non-performance. If you want to compete with private players, first and foremost condition is accountability at the top. In any performing private company such a failure will never be tolerated. However, since top management of BSNL is accountable to mandarins, accountability at top include accountability of mandarins as well, and more so because it is these mandarins who lull the PMO every time by relaying the BSNL top management unique stories, providing extra logic, if necessary, and get hefty sum of money to pamper a few lakhs employees from the contribution of crore of tax payers’ money, all in the name of strategic interest, serving rural population etc. With this kind of cash burning of tax payers’ money how these objectives are being met is not understood. Overall BSNL share in the market is mere about 10% and rural population covered by private players is almost equal, if not more. Even if there are some pockets where BSNL presence is thought to be necessary, there is always a limit to trade-off between the cost and benefits.                                                              

Capability: The capability to deliver depends on two factors: skills and motivation. At present BSNL staff lacks in both. There was a time when there was no dearth of both, and that is why BSNL, inspite of tough competition, performed well as stated above. Once, about 7 years back one of the retired CMD of a prestigious PSU shared with me that when he was a senior officer in that PSU, about a decade back, they used to talk what these BSNL officers do as to be in so much profit – that time BSNL profit was about Rs 10,000 crores.  It is only after 2005 BSNL staff started losing on this account. The last nail in the coffin of these two factors, particularly the first, was the last revival package, which offered mindless volunteer retirement scheme. Large number of officers with skills opted for the scheme, leaving a big gap in skills. The left over employees, who might not have got the promotion to senior level positions ever, found themselves in those positions without any evidence of having the matching skills required for those positions. However, at this stage there is no use of harping on what is past. What is required now is to work on these two factors extensively. BSNL need to take massively on skilling and re-skilling of its employees and officers not only in technical skills but even in soft skills, which impinges on the way employees think and act. However, real challenge is in motivation, which never comes from pampering; the technique used so far. It comes by realistically assessing the performance of employees and then rewarding them according to their contribution. And, still more important is by the actions of the top management of BSNL because people get motivated or demotivated by not what leader say, but what leader does. And top management will act right when it is held accountable for performance, and not protected or rewarded for being mere compliant to mandarins; figures should speak, not the mandarins in Sanchar Bhawan, Hence, weather the package will be panacea or bane will depend upon how the government acts, and make the top management of BSNL to act.        

Ram Narain

Former Senior Deputy Director General, DOT   

[email protected]

Views expressed are personal   

Principled Approach to Budget

People wait for budget announcements holding their breath in the month of January every year; what Pandora box it will open for them and where i...

Principled Approach to Budget

People wait for budget announcements holding their breath in the month of January every year; what Pandora box it will open for them and where it will be heavy on their pockets at individual level, which sector of the economy will get boost and which will get a hit, and overall how it will help in the economic development of the country. However, most successive budgets have not been able to come out as per the expectations of the people. Budget exercises appear to largely remain confined to random increase of taxes on certain items and decrease on others; sometime increasing of tax in one budget and decrease in another on the same item, rationalizing the decision for doing so in both cases. The main objective appears to be to match the left hand column with right hand column, playing with figures. The randomness of figures can be better explained by way of an example. It is ironic that tax on sweets and restaurants eating is reduced from 12% to 5%, and increased on services and goods considered as essential, say on telecom services from 12% to 18%, on household furniture items to 18% etc.  If the forthcoming budget is to be something like what is being touted to be one of a kind in the last hundred years after a pandemic, one of the necessary condition, it is thought, should be: it bases its assumptions and decisions on principles rather than on adhoc suggestions, selective calculations or whims of bureaucracy. Seven of areas which could help in making the budget unique and progressive are: 

i) Taxes on Goods and Services: Taxes on productivity enhancing services, and on items of necessity used in household should be in the lowest bracket. Education, coaching, training, consulting etc. fall in the first category and items like household furniture fall in the second category. In the first case, it will result in enhanced activities in these areas. In the second case reduction of tax will go a long in way improving the tax compliance. At the same time, tax on discretionary services like sweets, restaurants activities etc. could be increased to 12% to enhance revenue. The above items are for the purpose of illustration to highlight the principle involved; more items could be included and the items from the list could be deleted also. 

ii) Encouraging Indigenous Manufacturing: The tax rate should be so determined that the difference between custom duty on imported items or goods, and GST on indigenously manufactured items be at least 7-15% for first 3-5 years –depending upon item- to cover the disability factors caused due to lack of infrastructure, high energy charges, unreliable power supply, high cost of compliances etc. This difference can be progressively reduced after 3-5 years when the disability factors have been overcome over a period of time with a target of completely doing away with the difference within 10 years. Appropriate preparation to defend the case in WTO, if required, could be done in advance, including studying the provisions that allow such difference to exist. 

iii) Digital India: For truly making India digital, sound telecom infrastructure is a prerequisite. Although this sector has done pretty well in the past but of late due to hyper competition, it is one of the most financially stressed sector. But at the same time, the sector needs heavy investment as it is a capital intensive sector. To harmonize these two contradictory things, Government can think of charging for its resources, primarily spectrum, in a way that financial load of paying for Spectrum progressively increase on telecom service providers rather than front loading the telecom service providers with heavy upfront payment and subsequent equated instalments. That is: follow a principle of, ‘pay more as you earn more’. Unless it is really necessary for balancing its budget, Government can also think of reducing some levies in the form of License Fee and Spectrum Usage Charges and reserve price of spectrum, particularly in lower bands, where it is very high, if it finds that these charges are inhibiting the penetration of services in rural areas and to the poor people. 

iv) Real Estate Sector; Real estate sector is another specific area where lot of economic activities can be created resulting in enhancement of employment and consumption of raw materials like steel, cement, bricks, wood, electric wires & appliances, sanitary items etc. It would be worthwhile to have low short term and long term capital gains on real estate transactions. Government could encourage state Governments to reduce the stamp duty and registration charges also. A principle of recovering administrative charges plus could be adopted. Increased number of transactions would compensate for the reduction in tax rate to quite some extent, with the additional economic advantages as stated earlier. These measures will also go a long way in achieving the objective of housing for all as per ‘Pradhan Mantri Awas Yojana’. Another big benefit would be enhanced tax compliance. On the other hand, annual property tax could be increased to a realistic level for better city or town maintenance and extending facilities.

v) Capital Market: Long term and short term capital gains tax on share transactions can be maintained, although some quarters may like to impress upon reducing long term capital gains tax, to provide stimulus to share markets. But considering the fact that it is intrinsically a non-productive activity, there appears to be no case to reduce tax on such gains. 

vi) Income and Corporate Tax: Income tax at present appears to be affordable. The necessity is to concentrate on compliance. With enhanced compliance when tax revenue becomes comfortable, then the Government can think of reducing these direct taxes, first concentring on corporate tax.as it will have better effect on creating conducive investment climate than reduction in personal income tax. In the last budget for simplifying the income tax calculations, regime of exemptions was done away with but by retaining it as the alternate method of calculations, it made the income tax calculations and filing more complicated process than it was earlier, thus achieving the opposite outcome than what was intended, because most individuals wasted more time in selecting the alternative suitable to them, and some even taking the help of CAs, resulting in waste of many man hours in an unproductive activity.       

vii) Bureaucracy: Whereas all the above measures will create healthy and conducive environment for development and better tax compliance, reining in bureaucracy is more fundamental than any other action because bureaucracy can blunt or even reverse the outcome of best intended policy of the Government. This also can be better understood with the help of some examples: One example is already mentioned under income tax above. Others: when a circular is issued mandating a profit making PSU to pay 20% or 30% of equity or profit, whichever is more, it speaks itself of lack of professional knowledge in bureaucracy. Another trap is to create a regularly body manned by retired bureaucrats as and when any act is legislated, resulting in more regulations than less, as if we are starved of regulatory authorities. Umpteen number of examples could be given but that is not the purpose here. Suffice it to say that Government, at political leadership level, need to have sharp eyes while agreeing to proposals put up by bureaucrats as they have knack of introducing some or the other kink in the most well intended legislation in a bid of self-aggrandisement or, some time, due to lack of in-depth knowledge of the subject, and other times for showing their loyalty more than the king.  

Ram Narain

Founder, Nectar Fountain Consultancy 

Former Senior Deputy Director General, DOT   

[email protected]

Views expressed are personal   

Excess Levies Burden on Telecom Sector – Myth or Reality 

There has been decade old raging debate on the quantum of levies on telecom service sector. Whereas the telec...

Excess Levies Burden on Telecom Sector – Myth or Reality 

There has been decade old raging debate on the quantum of levies on telecom service sector. Whereas the telecom service providers have been seeking lowering of these levies, Government has not responded as per the expectations of these operators so far although the levies have been rationalized in a few areas, particularly lot of streamlining has been done on penalty front, in case of non-compliance of various licensing terms and conditions. The two areas where telecom service providers have been feeling pinch are: taxes and levies, and Reserve Price of Spectrum. Although Spectrum cost can’t be said to be a levy, like penalties, because it is the price of an asset- intangible though it may be- but it has been included in the discussion as it too has similar effect of making the telecom services costlier as levies. Under the head of taxes is mainly the GST on telecom services and corporate tax, and under levies head falls License fee (LF), Universal Service Obligation Fund (USOF) contribution and Spectrum Usage Charges (SUC). At present broadly LF, USOF contribution and SUC charges are @3%, 5% and 3-5% of AGR respectively. Colloquially LF and USOF contribution are clubbed together and is called LF. GST is levied on the phone bills; on the amount of bill @ 18% and corporate tax is about 25% on net profit. Put together, leaving aside corporate tax, which, by and large, is the same on almost all sectors, taxes and levies on telecom sector are in the vicinity of 29-31%, of revenue thus making the services costlier at least by this amount.   

Taking into account the auctioned price of Spectrum and various levies, certainly telecom service sector becomes one of the highest contributors to the revenue of the Government outside pure taxes like income tax, custom and GST. It is for this reason, revenue from telecom sector is being budgeted against a separate heading in budget every year. The industry consistent stand has been: if the Government wants digitalization of the economy, then burden on telecom service sector should be far less than what it is today. Hence, they demand lowering of LF, SUC and reserve price of spectrum auction. The demand has gathered momentum after the financial condition of the telecom service providing companies have become precarious. They argue that they can hardly afford to pay so much levies and then buy the Spectrum above the reserve price when already combined debt burden of these companies is to the tune of Rs. 4 lakhs crore, even though they need the spectrum because the shortage of Spectrum is affecting the quality and reach of service. 

Succinctly, the core of argument is strained financial condition of service providers and the affordability of service, particularly by rural and poor people. The arguments of the industry at the face of it look to be convincing, but as they say ‘devil lies in details’. Therefore, let us have a little deeper look at these aspects.

In 2016 the main telecom service providers, except BSNL, were making healthy profit and at that time inflation adjusted Average Revenue Per User (ARPU) was equivalent to about Rs 220 per month, even though the telecom services were cheapest in the world as these are now. Telecom usage charges – call charges and data charges – were reasonable and no one was complaining about it. At that time the levies and taxes were almost the same, except GST, which was @12% in the form service tax instead of 18% GST now.  As far as GST is concerned it is front loaded on customers and is pass through for service providers and, hence, its so called burden is neutralized. Then, after 2016 what happened suddenly that all service providers went in loss and many bankrupt. If levies were almost the same at that time then the reasons for bad financial health of these companies lay somewhere else, some of which briefly are:  

Traders mentality and lack of entrepreneurial vision of service providers: The legacy service providers having secured the license to provide services didn’t bother much on technology upgradation, envisioning future technologies and services. Their technical knowhow remained limited, having outsourced most of the aspects of telecom network; planning, dimensioning, commissioning, maintenance and forecasting, thus losing a grip on their business. The death of distance and free voice riding on paid data was being talked about for quite some time but it did make them to take any concrete action until they were challenged by a new player.

Capital Structure and Financial Accounting: As can be seen from the below table, until a year back the network size, assets, revenue and customer base of all three major telecom player was similar - even now it is not much different - but then how come one operator showed profit and others in deep red. 

TSP	Bharti Airtel		Voda-idea		Jio
	31.03.2109	30.09.2020	31.03.2019	30.09.2020	31.03.2019	30.09.2020
*Assets in Rs Cr	2,22,685	2,80,036	2,29,699	2,12,149	1,95,780	2,37,631
*Revenue Quarter ending in Rs Cr	12,595	16,398	11,931	10,830	11,000	17,500
**Customers in million	325	326	394	295	306	404
*Finance Cost in Rs Cr	2,157	2,868	2,946	4,700	1,294	1,022
*Depreciation and amortization In Rs Cr	3,880	5,487	4,663	6,028	1,744	2,871

Taken from * Quarterly Financial Results and ** TRAI site 

Answer to this largely lays in capital structure and financial accounting of operators. In case of Jio, for example, the finance cost and depreciation and amortization costs are far less than other operators. The reason for lower finance cost is that Jio had far less borrowing than other two; it’s capital largely constitutes of share capital.  Borrowing is a double wedged weapon. When returns on capital employed is less than interest rate, then borrowing becomes a millstone around neck, but when returns are more than rate of interest then company become leveraged, resulting in boosting profit. After the entry of new operator, due to ultra-low tariffs, returns on capital employed became less than interest rate, resulting in legacy operator going in red. From the table it can also be seen that probably depreciation methods employed are also different. The innovative financing and accounting helped in stalling the criticism of predatory pricing and necessity of regulatory intervention. However, this remains a question if on a given tariff if the returns are less than interest rate, can such tariff be called reasonable, not attracting the provisions of predatory pricing?

Unhealthy Competition: The ultra-low tariffs forced the service providers to engage in unhealthy competition, tearing on their balance sheets. In any other industry, it could have been sustained but in telecom service sector where scales are huge, losses become unsustainable. 

Besides the factors that could be attributed to operators, regulator and court verdict either didn’t help much, rather added their woes. 

Regulator’s non-intervention on elongated free offering and determining sustainable tariffs, and intervention on issue of providing POIs and consequent penalty will remain a debatable question, but surely better outcome was possible. Similarly, court verdict although was right as per letter of law, but in the given circumstances, probably, it ignored the economic justice and natural principal of justice. Ideally, when a case was sub-judice, operators should have made a provision in their balance sheet and the situation would not have come this far. In order to compensate for provisions, they needed only to have enhanced the tariff by a few percentages, and it would not have affected them so badly now. But again as stated earlier they resorted to unhealthy competition even then. The sector might have got a breather, had the court be gracious enough to consider the state of the sector due to unhealthy competition, regulatory non-action, TDSAT pronouncement and delay in finally settling the case, particularly when the benefit of non-provisioning would already have been passed to consumers due to intense competition in the sector. But as they say, Hon’ble court could also be fallible but it’s final, and, hence, this remain only in realm of an academic debate, with a caveat that primary error on this account was with service providers. Now, allowing rectification in calculation of AGR dues by the Hon’ble court, if there is an error in calculations, can provide some breathing space to stressed service providers. 

Thus problems of industry are not going to go away even if government reduces the levies because there is no guarantee that tariffs will not be reduced by profitable operator in proportion to reduction in levies, thus keeping the asymmetry and consequent mayhem intact. 

Now coming to another outgo head for operators, the proposed reserved price in forthcoming auction of spectrum, a figure of Rs 3.92 lakhs crores looks an astronomical figure but if its allocation is dissected rationally, then figures may not be that high. Considering that total number of customers are about 1140 million which may rise further, and each of the major private operators have about 350 million customers, upfront cost per customers at reserve price is about Rs 3,500.  Spectrum is as much a part of the network as are other networking equipment. No one has any reservation in spending Rs 7,000 or so on networking equipment, then why reservation on spending Rs 3,500 per customer. Is it because simply it is auctioned by Government on behalf of its people?  Spectrum is a substitute of copper or fiber cable as last mile or access connectivity, and is as much an asset as other equipment or optical fiber or copper cable. When comparison is made of alternate to Spectrum, which is optical fiber cable or copper cable, Rs 3,500 per customer would be much cheaper. Further, to reduce the upfront burden of operators only 25% in case of certain high price bands and 50% in low price bands is being sought at the time of auction. Rest can be paid in 16 equal yearly instalments after an initial period of 2 years. Therefore, viewed in comprehensive manner the reserve price with given scheme is quite a doable thing in normal circumstances. And, it would have been more so if the sector had not been adversely affected by unhealthy competition and regulatory inaction. 

However, we can’t ignore the ground reality of the time. In a situation where existing telecom service providers are already highly leveraged and are in loss, way forward could be that Government can think of a scheme whereby upfront payment can be reduced further and annual instalments are structured in a graded manner; with less initial amount, gradually going up towards last instalment. The other alternative would be that operators raise funds through equity infusion. But even these will be temporary measures. With current tariff, in real terms, no operator is in profit and for to be in profit, tariff increase is imperative. This can be done either by operators themselves by avoiding the tendency of cutting down each other, and if that doesn’t happen then by regulatory intervention of declaring a tariff as predatory price if it is below cost after taking into account reasonable rate of return on capital employed or by declaring a floor price.  As far as argument of operators that high cost will affect the rural penetration and affect poor people more, better this is left to Government what it thinks fit. It is a Government function and operators should concentrate on their business. On the ground of logic neither levies nor reserve price of Spectrum will cause inflating the price as to severely affect the proliferation of telecom services. When the inflation adjusted ARPU was Rs 220 or so, penetration level even a few years back was almost as good as it is now. Therefore, it appears that market can easily absorb a rise of 50% cost or so easily. Government, of course, if think that there is a reason to reduce the cost, then it can consider reducing the levies and/or reserve price of spectrum in auctions, particularly lower bands where prices are very high. On the other hand, if the service providers are really interested in the affordability and reach for rural areas and poor people, they can come out with low value plans which they abandoned imitating the challenger without factoring in the spare capacity of their network and compromising on overall revenue in a bid to increase their ARPU. Such plans can meet the need of people with low paying capacity because the minimum data daily provided on lowest of existing plans remains unutilized for many people who don’t use their mobile for entertainment and will fetch additional revenue to the service providers on the existing network.      

In summary, excess levies on telecom services is a reality, if viewed from perspective of their absolute values, but is a myth, if seen in a holistic manner.                

Ram Narain

Founder Nectar Fountain Consultancy LLP

Former Senior Deputy Director General, DOT   

[email protected]

Views expressed are personal   

Digital Colonization

The last two centuries were characterized by imperialism, and before that norm was feudalism. With the onslaught of imperialism, feudalism was not comple...

Digital Colonization

The last two centuries were characterized by imperialism, and before that norm was feudalism. With the onslaught of imperialism, feudalism was not completely replaced by it, but merely formed a protective layer over feudalism. Earlier, feudalism thrived because of inherent weaknesses of the society, and imperialism overtook it because that was the only option for the society to get rid of feudalism. The result was both feudalism and imperialism survived exploiting the masses to hilt. The history seems to be repeating itself in the digital space, if effective and timely measures are not taken. 

Lot of hue and cry is made whenever there is any threat to digital landscape of India. The snooping of data of more than 10,000 prominent Indians by Zhenhua Data, a Shenzhen based information technology firm, is a recent example. Before that Cambridge Analytica scandal came to the fore. Every time there is an event which affects us negatively, we have debates and form committees to submit their report as how it happened and what we should do to stop recurrence of such things again, without diving deep in the basic reasons for it. One of the reasons for such an approach is: a system driven by bureaucrats who expertise in pen pushing and, therefore, attempt to regulate everything by making newer and newer laws, acts and regulations. Whereas, law, acts and regulations may be necessary to support the building of capacity, but it is the capacity creation which only can solve the problem. 

Today, we, as a nation are more vulnerable to blackmail by digital bullies; be they foreign companies or countries themselves, than ever in the past. And, unless drastic actions are taken, this vulnerability is going to increase day after day, and year after year. How come there is no credible Indian even email service provider, resulting in information of almost all Indian getting stored in servers of foreign companies. What happens if these foreign companies decide - due to whatever reasons - to take away all the information stored in their servers, block that information from access or give to some inimical country. In the political power game there are no permanent friends, allies and enemies; today’s friends may well be tomorrows enemies. And, to take advantage of asymmetrical situation, there is no need to be enemy; even seemingly friendly countries would also encash benefit, if they could do that. 

Currently, most of our efforts are directed towards personal data protection through rules and laws. The personal data protection or security is lowest order of security in the cyber space, but catchier than other security dimensions, as it impinges on individuals; and it is the individuals who form collective opinion. The other dimensions are enterprise security and national security dimensions. The number of individual security breaches are large in number but impact of each breach is low from national perspective; similarly, the number of enterprise security breaches are medium and their impact too is medium. However, national security breaches are rare, but when these occur they have severe impact. 

In this hoopla of personal data security, it is the national security dimension which is being ignored or getting ignored. Enterprise security to quite some extent, which is within the ambit of enterprises, is taken care of because enterprises are better informed and have adequate capacity to implement security measures. One main reason for the side stepping of national security dimension is that incidence of real security breach, in fact, threat, as stated above, are rare; but when such incidence happens or will happen, these will have devastating effect – recall the cyber-attack on Estonia in 2007 and on Georgia in 2008 or, the stoppage of Internet in Egypt during Arab spring. Fortunately, these security threats were not from those entities who control the infrastructure of digital space. However, as we become more dependent on digital space and digital space more dependent on foreign entities, this vulnerability is going to increase. The entities which are pivotal in providing services in cyber space are commercial and, therefore, unlikely to resort to any such action unless it is imperative for their commercial survival or survival of the country to which they belong or are really directed by the sovereign power of that country. This is also not likely to happen in case of low intensity hostilities as they would not like to lose their global commercial credibility and trust. But it can’t be ruled out in case of severe hostility of survival or, if some ultra nationalist takes rein of the country of such entities. 

The architectural structure of Internet inherently is susceptible to its misuse in extreme conditions and can result in a) bringing down the whole economic edifice of the country to a halt as it is dependent on it b) debilitating the economic and security infrastructure c) resorting to blackmail of leadership of the country and thus getting whatever they want. Why otherwise, an equitable architectural structure of Internet is being opposed citing the capacity constraint in putting more root servers. The present Internet structure has 13 root servers, out of which 10 are in US, two in Europe and one in Japan. Mirror root servers may have similar technical capabilities, but certainly those are not the same as original root server when viewed from the perspective of Internet Governance because policies are framed and implemented by those entities who operate the original root servers. Similarly, on the name of Internet being an open and free platform owned by nobody, asymmetrical power equation is being maintained and perpetuated through the lobbies and advocacy groups.   

It is high time that we give due emphasis to national security consideration. Whereas by measures like personal data protection laws, banning certain foreign apps, mandating storing of data within country etc. can help in personal security and enterprise security to some extent, but these measures are not sufficient to safeguard national security interests. For comprehensive national digital security seven things are important: i) professionalism in national cyber security space ii) continuity iii) adequacy of resources iv) accountability v) international standards vi) international regulations vii) national regulations. 

For quite some time, at least for a decade, we have been talking about creating indigenous capacity in digital space, but nothing substantial has happened. The reason for this are two: leadership in the space is by those who have no technical knowhow of digital space e.g. Internet structure, data analytics, and even regulations in this space, although some officials at lower rung might be working to help them. But direction and commitment of the top is essential ingredients. People at lower rung would think and do what they see top thinking and doing. Besides, being novice in the area, their time period is so short that by the time some real stuff gets stuck to them and they start realizing its importance, they are gone; and a new person starts again from scratch. A few months are taken in his coaching by his subordinates and by the time he has learnt alphabets of the game, he is replaced by another. So the top is never above a few steps of ladder in this snakes and ladder game. The lack of in-depth subject knowledge makes the top susceptible to all kinds of lobbying by vested interests, sometime influencing him to the extent that he starts doubting the experts working under his control. When they see boss going against them, they too change their track and start thinking and doing what their boss wants them to think and do.                                      

Whatever measures are taken are half-hearted without committing adequate resources. Just to illustrate: Huawei is reported to have about 10,000 R&D engineers as against 700 in C-DOT, our best known R&D organization in technology space. Similarly, R& D budget of Huawei is $4.7 billion against budget of $0.017 of C-DOT. Then, even if we allot a budget, individual compensation and rewards are not good enough to attract talent. Even though research can’t be socialized, but still we are lucky to have many talented engineers and scientists who will work for the country on socially structured compensation provided they are given freehand to work and accountability is enforced. Enforcement of accountability draws best out of talented and clears chaff from wheat. So allocation of resources need to increased manifold, say ten times or so, with a system of accountability. 

Capacity and continuity will provide us leverage to participate with strength in global standards and international regulations. Our lack of capacity is obvious form the fact that a company like Huawei or Samsung file more IPs every year than we country as a whole. And, if we look deep into significance of whatever IPs we file, the proportion of contribution will be less than the numbers. The lack of depth, even in softer side of the game i.e. international regulations, gets highlighted in our signing of multilateral and international agreement, which are loaded against us. For example, we singed Common Criterion Recognition Arrangement (CCRA) in early 2000 as a consuming nation, which made it mandatory for us to accept the security testing of IT equipment done from the test labs of authorizing nations, without us having that right and any such testing labs. Question is: who prohibits any country to accept the testing done by the labs of other countries voluntarily, without signing such a one sided agreement. By signing the agreement without having facilities in our country, we got ourselves bound in compulsorily accepting the testing done by those labs. The result was, when we mandated the testing of telecom equipment in India, it was opposed tooth and nail by other countries because we were signatory to CCRA. It was with great difficulty, we were able to ring fence it for the telecom equipment by drawing a distinction between IT and Telecom Equipment, which otherwise is getting obliterated, and then precipitating the concept of creating collaborative protection profile regime and in initiation of security standards in 3GPP through its SA3 Working Group. Uncompromising stand on the issue forced the coterie to grant us the status of authorizing nation also in 2013. 

The issue of national security gets further compounded as the existing Internet network structure is prone to misuse. The need of the hour, therefore, is having a nationally secure global internet network structure in which the address resolution and traffic movement of nationally bound data and information remains within the border of the country. We, claiming to be the super powerhouse of IT, should analyse the Internet structure threadbare and collaborate with like-minded countries to create a structure or modify the present structure, if possible, so that it is not prone to misuse by any entity or a country. A dedicated task force can be entrusted this task. However, till a solution is found, we can continue to collaborate with international community to make the existing structure as secure as possible through whatever possible patchwork.  The coming up of IPv6 afford an opportunity for India to get this global infrastructural resource democratized by building capacity in the area and taking a leading role in formulation of standards and regulations       

National regulations, the only USP, too are formulated with short-sighted vision, just to diffuse the crisis at hand and win some brownie points. When we call our electronic equipment manufacturing policy as Preferential Market Access (PMA) or mandate personal data storage locally, we shoot on our own foot. If we propagate and profess that we will use only equipment made in our country, then won’t others follow the same path, thereby, restricting purchase of equipment made in our country, of course, as and when we are capable of doing so. Without targeting the global market, we can never be competitive due to lack of economy of scale. Similarly, if our personal data protection act looks like a security act for law enforcement agencies for facilitating them to have access to data and information stored in servers located in India, would the companies from other countries be interested in storing their data in servers located in our country?  Also, if we mandate such a thing, are we not prompting others to do the same thing, with potential of having debilitating effect on our BPO, IT and IT enabled service industry? The right approach would be to create such a facilitating environment that by own volition not only individuals and entities from our country store data and information in India, but others too are tempted to store here in our country. Along with capacity creation, we also must need to raise the confidence of others that their data and information is secure and will not be misused. The consequential economic gains itself will raise our security level. That is how we can transit from asymmetrical disadvantageous position to asymmetrical advantageous position.

Imperialism took about two centuries to spread its tentacles wide, protecting local feudalism under its strong wings; digital imperialism and colonization will take only one-fourth of that time, again first with the help of local digital feudal lords, and then spreading its protective wings on these very local digital feudatory lords. To save ourselves from such a trap, we need to build capacity in manufacturing of digital and networking equipment, and work on an international network structure which is nationally secure but global in nature by collaborating with like-minded nations on this issue without falling in tarp of lobbyists and advocacy groups. And for treading on such a path, professionalism, continuity, adequacy of resources and accountability are necessary imperatives. Our political leadership need to stop being happy and satisfied from those who explain the difference between 2G and 5G as; 2G is a narrow road with dedicated lanes and 5G is a wide road with no dedicated lanes with intelligence of allotting the space on road as per need of the vehicle. They need to appreciate those and put them in saddle whose language they can’t understand, because that is the only language –the language of technology and protocols - that can really explain the difference between 2G and 5G.     

Ram Narain

Founder Nectar Fountain Consultancy LLP

Former Senior Deputy Director General, DOT   

[email protected]

Views expressed are personal   

Enhancing Indigenous Manufacturing of Telecom Equipment

Every time there is tip off with China, clamour rises to ban and boycott the products and equipment from China. At suc...

Enhancing Indigenous Manufacturing of Telecom Equipment

Every time there is tip off with China, clamour rises to ban and boycott the products and equipment from China. At such times, the ferocity of demand and action to ban the Chinese equipment in Indian Telecom Network is maximum. At the end of the day as a result of knee-jerk reaction decisions are taken which finally result in shooting in our own foot one way or the other, and then again coming back to the old normal with more dependence on China and other countries for sourcing not only machines and gears required for production of goods and services but even basic ingredients required to produce various items of common use; from footwear to medicines. And all this is done with humdrum creating lot of noise but achieving nothing, except giving the opposite party to prepare better for the next round, with each such cycle resulting in country’s relative weakness getting exacerbated. Our approach is flawed as we ‘speak hard but carry soft stick’ instead of ‘speaking softly and carrying hard stick.’

In case of telecom equipment India’s dependence on imported telecom equipment has vaulted from less than 20% in late 1970s to about 90% now. Even in the balance 10%, which is touted to have been sourced locally, is not manufactured by indigenous companies; most of it is manufactured by foreign companies who have established small basis here to comply with lame duck regulations so that unprofessional bureaucracy can bask in glory of having increased the level of production in India and score brownie points in their annual appraisals. Although efforts have been on since independence to make the country self-reliant, but results have been reverse proving that something is definitely wrong in our policy making process. 

From the time of economic liberalization starting in last decade of twentieth century we have allowed decimation of our capacity to manufacture telecom equipment irrevocably under a new found ideology of globalization and liberalization, without realizing that this ideology is not a panacea. For the success of an economic ideology the system which implement the ideology must support it; not oppose it. Sadly, the government changed the ideology but not the system, which was designed for control and command economy. And the results are obvious. 

During 2008-09 efforts were made by Department of Telecom (DOT) to recover the lost ground against then current bureaucratic thinking that liberalization and globalization is mantra and it is not advisable to go against it as it will rough the international community – developed country. However, gauntlet of security implication did the trick and it was agreed that use of indigenously manufactured equipment can only provide an overarching security umbrella to telecom network. However, one upmanship in bureaucracy torpedoes the process; some entities suggesting such extreme steps which could neither have been practical nor saleable even with efforts in international forums. Ultimately, a lame duck policy of Preferential Market Access (PMA) was brought. This policy achieved nothing substantial except to trigger similar policies by other countries. After all if you openly call your policy ‘preferential’ and announce it loudly to the World, how you could oppose others not to do similar things? And others did it even without letting us know about it. The name itself of the policy was misplaced. After that, every now and then new policies are being formulated but none of these achieved their intended purpose. 

The two important ingredients are must for enhancing manufacturing of equipment in India. First, professional bureaucratic set up with accountability and second, long term vision and planning. As these two are big topics and need lot of explanations and, therefore, in this short write up a scheme is suggested for telecom sector which if implemented could provide a sound base for reducing our dependency on foreign made and made by foreign companies’ telecom equipment, which is necessary for providing overarching security umbrella to our telecom network.  

Pooling up of resources within sector: The prominent reason for low manufacturing base in the country is disability factor which is about 26% for Telecom Networking equipment. Although due to multiplicity of Government structure from municipality to Central Government and complex regulatory structure, it is not possible to identify all factors contributing to this disability factor but high incidence of tax, regulatory compliances costs, inefficient and inadequate infrastructure, unstable policy environment, inordinate delay in clearances, permits & registration, cost of capital and corruption are notable. Ideally, if these factors are taken care of, investment in telecom manufacturing, indeed in all types of manufacturing, will automatically flow. But last many years’ experience shows that it is not an easy task, particularly with the existing mind-set and structure of bureaucracy. So we cannot keep waiting for that to happen, particularly in telecom, because of two reasons i) it is more security sensitive than most other sectors ii) almost all other sectors including critical infrastructure depends on telecom network. The often repeated knee jerk reaction is to ban – partially or fully- import of telecom equipment and raise custom duty. Both actions are reactionary and run counter to consumer interest and World trade. These measures either don’t help in making our telecom manufacturing globally competitive to have a reasonable share in global market, which is necessary for achieving economy of scale. 

Alternative is to encourage telecom network operating companies to come out with a code conduct facilitated by Government for gradually increasing the indigenous manufactured equipment in their network, starting say from minimum 30% and reaching a level of 80% in next four years. The companies not meeting this requirement are free to import the equipment but will contribute to a manufacturing and R&D fund 5% of shortfall from the mandated requirement. This way a sufficient corpus of fund will be available to start manufacturing at a scale which will initially reduce the per unit cost but in a few years become globally cost competitive. For example, Rs 1,20,000 Cr equipment capex in a year will generate a fund corpus of about Rs 1,200 Cr in the first year of the scheme at the current level of import of telecom equipment. The corpus of fund will increase year by year due to larger contribution and its own internal resource generation. The fund may be managed by consortium of telecom network players with participation from relevant manufactures with the aim of creating two to four large manufacturing firms. Since the scheme will be industry led it will not run counter to World trade regulations. Secondly, telecom network operators can continue to take commercial decisions on import of equipment provided they meet the other regulations such as security testing, thus not depriving them of latest technology which is capable of providing World class telecom service. Thirdly, efficiency in means of production will be achieved because of sense of private ownership. 

Hybrid Partnership: To reduce further the cost of establishment of such firms, the resources of telecom Public Sector Units (PSUs) like Indian Telephone Industry (ITI) can be leveraged. The organization like ITI instead of remaining in the business of directly manufacturing at an uncompetitive price could be shareholders in these firm against the amount of assets contributed by them in such a manner that the firms have majority private equity holding. That way idle lying resources of PSUs will be productively utilized with a source of income from them. Simultaneously, structure of these PSUs can be lightened reducing the cost to exchequer in the form of yearly budgetary support. 

Facilitating Environment: The firms can be located in such areas like Special Economic Zones (SEZs) where compliances and taxes are least. On the ground of national security consideration further special dispensation in taxes and compliances can be easily considered because these firms will be only a few. 

In this scheme, the first part is the foundation pillar and the other two are supporting in the sense first can be implemented in a standalone manner also, if there are obstacles or problems in synthesising with last two, although it is felt that composite scheme is possible and will be far more rewarding. A practical scheme can be worked out on these lines. 

Ram Narain

MD, Nectar Fountain Consultancy LLP

Former Senior Deputy Director General, DOT   

[email protected] 

Views expressed are personal

Freshness in Stale Air- Welcome Reforms

Whether you agree or not with the policies, programmes and ideology of this government, everyone should agree that this government has...

Freshness in Stale Air- Welcome Reforms

Whether you agree or not with the policies, programmes and ideology of this government, everyone should agree that this government has capacity to ‘bite the bullet’ – it can take hard decisions. This is proven time and again; be it abrogation of Article 370 and doing away with the special status of Jammu and Kashmir or passing of Citizen Amendment Act (CAA) or now reforms announced addressing the issues of agriculture and farm sectors on 15th May 2020 and coal, mining, space, defence sectors on 16th May 2020. These reforms stand out over the other decisions taken earlier and even those taken in the wake of COVID-19 in several ways. Firstly, these are more fundamental in nature secondly, these are devoid of party politics thirdly, there appears to be little ideological tinge in these reforms – it only attempts to fell the unnecessary old relic of past – and fourthly, these are bold in nature. There can be difference of opinion on other relief measures announced by Finance Minister, Nirmala Sitharaman after the Prime Minister announced the overarching relief package of Rs 20 lakh crores or about $266 billion as people can have varying arguments about those reforms, from extraordinary measures to being old wine in new bottles to being impractical to reflecting the convoluted thought process of bureaucracy or loaded in favour of crony capitalism. Here let us not go into merits and demerits such arguments, and the maths of this Rs 20 lakh crores package because this is available all over the media by now. What is important is how the bullet biting capacity of the government can be harnessed to the benefit of the country.

The Government led by Prime Minister, Modi has skills and capacity to shoot at the target with precision and force to pierce the target as a strong bowman with excellent archery skills like Arjuna.. The problem some time is of selecting the target itself. The selection of target in a democracy is guided by the implicit and explicit desire of the people, which, of course, get influenced by the ideologies of the group of people in the form of political parties. But parties are flexible enough to adjust their ideologies, if public at large – majority of it – indicates its target clearly. 

The three things which are hazing the viewing of clear goals in India are: Subservient and pliable bureaucracy, sycophantic supporters and lobbyist in the garb of experts. The present bureaucracy is neither that steel frame as it used to be nor it is specialized. Earlier even if the bureaucracy was not specialized, at least it was working as steel frame and was good enough for maintaining society intact, if not contributing significantly to economic development. Today’s bureaucracy is spineless which rationalizes, justifies and executes things which it senses to please the political masters. It has no courage even to point out the fallacies in policies once. Just go by the wind and secure position seems to be the credo. A good bureaucrat even though is supposed to follow the dictate of political leadership in a democratic set up but is expected to help the leadership to analyse the pros and cons of the decisions being taken.     

Sycophantic supporters are most dangerous of the factors. They stonewall all criticism and feedback on policies and decisions, howsoever genuine it may be, lulling the leadership to believe that it is infallible. Take for example, the case of sudden lockdown, giving a notice of mere 4 hours. Any sane person will agree that even for a small activity, leave alone when such a drastic decision is being taken, one need to plan. However, when some murmuring voice came on this decision, this support base instead of agreeing or at least keeping quite went with all blazing guns against those who suggested that some advance notice and planning would have been better option. One can’t justify ‘action’ when ‘planning’ is required and ‘planning’ when ‘action’ is required and then say opposition criticises whatever you do. Round pegs in square holes cannot be justified merely on the ground these are equal in number.Similar is the case with financial support for migrant workers and poor families. When a financial dole outs are given at the eve of election, it could be financially wrong decision and morally bordering to bribing the voters. But in a crisis like the one we are facing, financial help to poor and needy families could be both economically and financially sound and necessary decision. Such sycophantic support neither helps the nation nor the leader in long run; rather a silent resentment keeps on brewing against the leader resulting in damaging the reputation of the leadership. It will do well for the leadership to make a distinction between sycophants and the real well-wishers.

Lobbyist experts cloud the thought process of both political and bureaucratic leadership in such a subtle way that policies get twisted without anybody understanding why these are in the favour of interested lobbies. Blames for such a slant goes to political leadership. Having taken the decisions, the leadership on moral grounds defends the wrong rules, policies or decisions. The antidote to such lobbyist experts could be specialized and professional bureaucracy. But the present bureaucracy in order to score over whatever professionals are there in bureaucracy at second and lower rung, catapult the expert advice of lobbyists to have psychological superiority over the specialized experts in the government. The continuous bombardment to provide financial benefits to the industry is a live example of it. No industry lobbyist is seeking reforms of fundamental nature; mostly confining themselves to become the victim of present circumstances and hankering for financial help from the Government.

Coming to dealing with COVID -19 situation, instead of copying any country we should take our decision after carefully examining the current situation. The lockdown at the first place should have been done in a planned manner with about 7-10 days’ notice.  Now having taken such a decision, a situation has been created whereby due to exodus of migrant workers, social distancing has not been possible. Probably, better social distancing is possible with normal economic activities than with lockdown. The randomness in lockdown can be gauzed from the fact that whereas somebody going alone on his scooter - for some work or even without work - is being caned by police in the name of enforcement of rule but hundreds and thousands of people are gathering on railway stations and bus stands, and travelling in trucks and buses. By now lakhs of people have gone to villages with potential of carrying the infection with them. But still it is only a fraction of workers; it is estimated only about 10 lakh workers have returned so far out of total about 9-14 crore migrant workers, which is about 1%. More will travel if normal life is not restored. Therefore, better option may be to open all economic activities with guidelines of self-protections. Better social distancing and exercising precaution would be possible at work place rather than under lockdown, except in containment zones. Here it is acknowledged that advising is far easier when one doesn’t have to take the responsibility. But the game is such that if the credit is to the person or entity for success, it should be ready to share the blame as well with the same élan, learn from the failure and take corrective action. 

Even though the reforms announced on 15th and 16th May have been unleashed under the garb of tackling the ill effect of COVID-19, yet these infuse freshness in the stale air of prevailing systems. However, it need to be ensured that these reforms are not hamstrung by convoluted language, kinks, tangles and self-perpetuation of bureaucracy while putting these on paper for implementation. Going by the past experience, it will be daunting task with the existing system of bureaucracy. Therefore, for long term economic revival, it would be worthwhile to free the country from the present bureaucratic octopus by bringing in bureaucratic reforms with the aim to use the intelligence and specialization of its workforce for the development of the country, without the lifelong monopoly of one set of people. This is the hardest bullet which only present leadership is capable of biting. Secondly, it must be appreciated that economic and social development is best way to entice the people to steer towards yours preferred ideology as history is a witness to the fact people not only of the nation but even of other countries, particularly neighbouring countries, automatically imbibe the culture and practices of rich and powerful at their own accord, without the need of exercising any seemingly discrimination and coercion.    

Ram Narain

Former Senior Deputy Director General, DOT   

[email protected] 

Views expressed are personal

Potential Invisible Forces – Case of Covid-19 

Almost the entire World is in lockdown due to the fear of Covid-19. The economic and general activities have come to hal...

Potential Invisible Forces – Case of Covid-19 

Almost the entire World is in lockdown due to the fear of Covid-19. The economic and general activities have come to halt everywhere except in a few countries like China and South Korea.  The pandemic started from China in Wuhan and spread across globe. Surprisingly, in China it did not affect rest part of China much except Wuhan city and Hubei province, the province where Wuhan city is situated. The reason understood by the World community and as is professed by China is that China locked down the Wuhan city and isolated it from rest of China. Now the pandemic is almost contained in China including in Wuhan but throughout the rest of the World, particularly in USA and Europe, it is spreading like wildfire. The number of cases in China is almost stagnant at about 82,000 cases of infection and about 3300 dead since early March 2020, whereas sickness has started somewhere in November 2019 – that is why Covid-19. Globally the number of infected people has swelled to about 2 million and the number of dead to about 135,000, a scary number. Amongst the countries, USA tops the list with about 650,000 infected people and about 28,500 dead, followed by Italy and Spain. In India and rest of the Asian and African countries, except Iran, impact of epidemic has not been so severe so far. The timely decision of lockdown and its effective enforcement are touted to be the reasons for manageable number of infected cases in India – in India infected cases are reported to be around 12,500 and dead about 425. (Covid-19 figures as on 16th April 2020) 

At the face of it, Covid-19 looks to be devastating and appears to have been caused accidently or may be due to the negligence of some people in China. But a few questions are being posed and hankers in the mind of many people, when a deeper analysis of the situation is made of the way the issue of disease and it mitigation is folding out. As per Centres for Disease Control and Prevention (CDC) of USA, this year from 1st Oct 2019 to 4th April 2020, it is estimated that 39-56 million suffered from flu influenza, as a result 18-26 million medical visits were made, 410,00 to 740,000 hospitalized and 24,000 to 62,000 died in USA alone. In previous years also figures have been similar. Thus it can be said that every year in USA alone about 10-45 million people get infected with flu and about 20,000-60,000 people die. Globally the number fatalities due to seasonal flu related respiratory diseases is estimated to be 650,000 as per WHO website. In India about 150,000 died due to road accidents in 2018, which is about 400 fatalities daily. World over about 100 million die every year due to various reasons ranging from various ailments to natural deaths. Thus number of casualties due to Covid-19 is far less than many other infectious diseases and many other reasons, and it has resulted in about 0.15% increase in overall deaths so far. If that is the case, why so stringent lockdown is being imposed everywhere in the World due to the fear of Covid-19? Why the health facilities or even morgues are reported to be overflowing with corpses? Is the capacity of these facilities so designed as not to take even 10% extra load? – actual load enhancement on these facilities appears to be far less. Whereas reason for the last two questions is not understandable, one plausible explanation for the first question is that if the measures like lockdown are not taken then the number will be many times more than what is being reported now. The explanation could be right but could there have been other mitigating approaches to deal with the issue such as marking and tracking those people who are likely to be infected and carrier of disease due to their travel history or the possibility of their coming in contact with such people instead of thinly distributing the resources to control the behaviour of whole of the population of the country, thus diluting the effective use of these resources, particularly of law enforcement agencies and to some extent health workers as well. In the process conceding undesired adverse economic and social impact.

The reasons for heightened fear and consequential measures could be varying from genuine to hyphenated to designed to simply taking advantage of the situation created. 

It is paradoxical that when Wuhan, the original epicentre of Covid-19, had been sealed and locked down due to which the virus did not spread in rest of China, how did it spread in Europe and USA with such a ferocity. The blockage of Wuhan people was supposed to be as effective for rest of the world as it was for rest of China. Secondly, why the ferocity is more in Europe and USA than in other parts of the World?  Doubts are being expressed by certain people that the virus is a human creation for biological warfare. Probably, somehow it leaked prematurely and spread to Wuhan through animal meat and once the genie was out, the advantage could be taken of the situation, which could range from passive natural spread to active propagation. History is witness to fall of great and powerful empires through their weaknesses coupled with stratagem of competitive emerging forces outside the empire. No one expected fall of Roman Empire, Persian Empire or Hindu Empire, which were sudden and at the hands of far less powerful competitors. The present global struggle for supremacy being more economic rather than geographical, it makes sense to down the existing powers economically rather through shear military strength. On the other hand, possibility cannot be ruled out of reasserting their strengths by existing powerful nations, which boomeranged somehow. These could be shear imagination of people, or fully or partially true; we don’t know.   

Whether the spread is natural or designed, collective manipulation can be unleashed taking advantage of herd mentality. If the containment strategy in Wuhan has been of lockdown and the message is effectively conveyed, other would lap the tried model rather than getting deeper into its efficacy or reasons for its propagation, particularly in times of crises, where time is less to respond to a situation. The possibility of conveying such a message cannot be ruled out in the game of wits, knowing fully the economic and social impact of the decisions based on such a message. The problem can be further compounded for individual nation states when their leaders either on account of environmental pressures, which can affect their political career or simply to project themselves to be saviour of people without fully appreciating the reason for the message resort to decision conveyed in the message. For example, when every other nation, particularly nations in the position of leadership-  real or perceived- are taking certain decisions, it becomes very difficult for a leader not to take similar decision. If the decision is not taken and the situation worsened, leaders would have to pay a heavy political price for that. However, if the decision is taken, and the situation remains under control, the leader can take the credit of the decision, even when the situation might not have been bad without that decision also – no one can predict the outcome of the decision not having been taken. After taking the decision if the situation worsened, it is likely to have worsened for all nations and, hence, leader gets a protective cover of being with all. It really requires a ‘steel will’ to not take the decision of lockdown in a situation like Covid-19, when it is not necessary and other mitigating techniques might have potential of providing holistically better results. The worst situation is when a leader encash on the fear factor of people and take drastic actions to project himself to be strong man of the country who saved the country from the impending disaster. It is not uncommon in history to find leaders for whom the fear of its people became sumptuous food for them to further their personal political ambitions. The invisible forces, which influence our decision could emanate from anywhere and in any form for the reasons only known to them. Until there is clarity on the issue, the best thing is to hedge against the possibilities and adopt best well considered mitigating methods to contain the damage and control the situation.     

In arriving at right decision it is also important to consider that according to some experts, human body develops its own antibodies which immunize the people against the contagious virus like Covid-19 when sufficient percentage of population, say 60-80%, has suffered from infection due to phenomenon known as herd immunity. The infection and mortality rate comes down drastically after this immunization. In a practical situation, however, we cannot be too calculative to weigh pros and cons of economic impact vis-à-vis human life losses and wait for the immunity to develop. We should continue to adopt mitigating techniques including universal or localized lockdown by earmarking containment zones, if that is the only way out and simultaneously to develop inoculating vaccine; self-immunization providing us a comfort that pandemic is as bad as many others infectious diseases to ward of fear from people. Art lies in balanced action with a view to minimize the damage – human, social and economic.   

The situation of every country is different and it should take decision in such a manner that it is free from manipulated or intentional biases. Whatever decision is taken by the leaders of the respective nation, the leaders should immunize themselves against the environmental pressure created intentionally by vested interests or naturally due to its own dynamics and desist themselves also to take advantage of fear created and further accentuating that fear if the fear is not real to the extent it is being projected. And that is the act of statesmanship, which is the need of the hour. Our hope is that present leaders of the World have acted or are acting and will act displaying this statesmanship. Simultaneously as citizens, whereas we should be able to express our views and even give suggestions, but must follow the decisions faithfully taken by our leadership in an act of unison to face and ward off this danger.

                                                                                                                                                                                                                                                                      (Views are personal)

                                                                                                                                                                                                                                                                           Ram Narain, Ex ITS

                                                                                                                                                                                                                                                     Email: [email protected]

For feedback write on email: [email protected]

Need of Synchronizing the Provisions of IBC and SARFAESI

Like in many rules, regulations, acts and laws, an ambiguity is seen in the provisions of Insolvency and Bankruptcy C...

Need of Synchronizing the Provisions of IBC and SARFAESI

Like in many rules, regulations, acts and laws, an ambiguity is seen in the provisions of Insolvency and Bankruptcy Code (IBC), enacted in 2016 and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act enacted in 2002.    

The primary objective of enactment of IBC is maximizing the value of assets of the companies which are under financial stress by restructuring the financial debt of lenders and other creditors. To guard against the possibility of misuse of restructuring of financial debt by the owners of the company under stress, it is envisaged in section 29A of the code that baton of ownership of the company could be passed to any other entity than the current owners of the company or any related party to the owner or the company. Any other entity which is eligible as per the eligibility criterion laid by Resolution Professional, who manages the operations of a company after a company has been referred for insolvency under IBC, can become a resolution applicant. 

Traditionally Asset Reconstruction Companies (ARCs), which are registered with Reserve Bank of India (RBI) under SARFAESI Act, are carrying out the role of resolution of stressed assets of banks and other financial institutions. Before the promulgation of IBC-2016, SARFAESI was the main instrumentality for resolution of stressed assets of banks through ARCs. Although the purpose of both IBC and SARFAESI is reconstruction of stressed assets and help the banks to recover their loans, mechanism is slightly different. Whereas under SARFAESI, ARCs buy the bad debt of the banks at a discount and then restructure the company to recover their loan; under IBC resolution applicant acquires the company and agrees to settle the lenders dues as per approved resolution plan. The two provisions of SARFAESI, however, obliterate the distinction in mechanism of resolution of the stressed assets by ARCs. These are: ARC under section 9 (a) of the SARFAESI can take management control of the company whose debt it has acquired and, it can convert its debt into equity without any limit as per RBI vide circular No DNBR.PD(ARC)CC. No.04/26.03.001/2017-18 dated November 23, 2017, effectively owning the company.     

From the section 29A of IBC it is also clear that IBC recognizes the special role of ARCs, scheduled banks and Alternate Investment funds in resolution of stressed financial assets under IBC as these entities are exempted from certain restrictions imposed on other entities by insertion of sub-clause (j) (iii)(B) of section 29A of the IBC, which is an inhibiting section for current owners and related parties. 

From the foregoing even though Government intension appears to be clear on the issue, but due to two Acts i.e. SARFAESI and IBC coming under two different government ministries/entities – SARFAESI under RBI/Ministry of Finance (MoF) and IBC under Ministry of Corporate Affairs (MCA)-  there can be conflicting interpretation by RBI and MCA due to use of different wordings used in IBC and SARFAESI for achieving the same objective. Under SARFAESI an ARC can convert the debt into equity and acquire the control of the company but under IBC Resolution Applicant gets the control of the company by directly acquiring the company. This difference in wordings is probably not due to intent but simply because a) two Acts have been enacted at different points of time and b) whereas SARFAESI has limited role and was applicable only for ARCs; IBC applicability is all pervasive, leave exception under section 29A of the Code. 

Therefore, there is a need to read and interpret the provisions of SARFAESI and IBC harmoniously, in the spirit of IBC which is a later Act and which specifically supersedes the provisions of other earlier Acts, even if there is an ambiguity or contradiction with earlier enacted Act/Acts. In order to make things clear it may be worthwhile for RBI to issue a clarification, if necessary in consultation with MCA, that ARCs, whose job is reconstruction of financial assets, which is also the objective of IBC, can submit the resolution plan under IBC and acquire the controlling stake in a company undergoing insolvency proceedings under IBC. 

For feedback write on email: [email protected]

Overcoming the Controversy Created by Citizenship Amendment Act 2019

The article was written more than a month back but was not posted before the conclusion of Delhi elect...

Overcoming the Controversy Created by Citizenship Amendment Act 2019

The article was written more than a month back but was not posted before the conclusion of Delhi elections lest it be taken by people with one opinion to be in favour of people with different opinion and vice versa. Now political dust largely having settled, the article is being posted so that an objective view can be taken.    

Citizenship Amendment Act 2019 (CAA) appears to be neither pro Hindu nor anti Muslim per se. By amending the Section 2(I)(b) of Citizenship Act 1955, it only removes the disability of Hindus, Sikhs, Jains, Parses, Buddhists and Christians of being illegal migrant, if any member of these communities have entered India before 31st December 2014 without a valid document or if the document has expired. Secondly, under the category of Naturalization for citizenship, the number of years for such migrants have been reduced from twelve to five by amending Third schedule of the Citizenship Act 1955. 

At the outset it looks to discriminate against Muslims but if one peeps a little inside it will become clear that it neither favours Hindus substantially and other religious entities covered in the amendment nor discriminates against Indian Muslims. It only creates an irritant and consequently distrust in the society. 

The provisions of Act do not cover the migrants from stated religious entities i) who entered after 31st December 2014 ii) who will suffer persecution in future in the three countries mentioned in the Act iii) who suffer or will suffer persecution in other countries. Hence, the Act serves only a limited stated purpose and does not protect the people from religious persecution as such. If it is pro Hindu and other religious entities mentioned in the Act, it should have been encompassing all countries for all the time. 

On the similar account, it is not anti-Muslims, as it will have different effect only on a small number of Muslims who have entered India before 31st December 2014 than on people of other religious groups mentioned in the Act. It does not affect the rights and privileges of Muslims who are citizens of this country by way of any of the five ways mentioned in the Citizenship Act by which a person can be a citizen of the country.   

Further, if one goes into practical granularity whatever distinction appears to be there in theory will further gets narrowed down. The number of illegal migrants who will be benefitted from the provisions of this amendment may be less than a lakh outside Assam, where this number is reported to be about 13 lakhs after the completion of recent NCR. Most of illegal migrants who are there in India before 31st December 2104, including these people, irrespective of their religious identity are likely to be having better facilities than about 22 crores of poor people who are below poverty line. Most of them in all probability would be having Aadhar Card, and may have ration card also. The CAA major benefit would be to get the voting right. In a country where only about 67% of people vote, and 33% i.e. about 30 crores voters don’t vote, will it make really any difference if additional about 14 lakhs more people vote? The major effort Government should be to make the life of 22 crores people, who are below poverty line, better rather than concentrating on giving voting rights to about 14 lakhs people, which is resulting in creating a divide between the people of this country. Irrespective of religion, government can concentrate on providing a better living conditions for the poor people and for the people as well, who have migrated to India but can’t be deported back. To contain the influx of illegal immigrants, we need to tighten our systems at borders rather than resorting to enactment of divisive Act, which serves little purpose.   

Thirdly, had the CAA not been enacted, in all probability, opposition to National Population Register (NPR) and National Register of citizens (NRC) would not have gathered momentum. By creating a trust deficit even NPR and NRC, which are good for the country, would become difficult to be implemented. In that sense CAA would run counter to the agenda of so called nationalism rather than aiding it.    

Therefore, whatever the stated/professed/intended objective of the CAA may be, in the present form it may result in only polarizing the people. Considering the past reactive behaviour of the opposition, ruling dispensation might have assessed that the opposition without assessing the benefits of opposing the CAA for the ruling dispensation will oppose the Act, giving them a chance to brand them as anti-Hindus at best and anti-national at worst. This is akin to playing with fire by both, because neither is correct in its stand if viewed from national interest. The best could have been not to come out with such an act and second best was that opposition should have ignored it and let it go. 

Now, both having taken a stand on this innocuous issue, it is difficult for both to back out from the stand. In the national interest both need to walk a little bit towards a common ground. One way could be: opposition not insisting on withdrawing the amendment completely and do not extend their agitation to NPR and NRC and Government tweak the amendment to make it broad based in such a manner that amendment get subsumed in the Citizenship Act of 1955. After all the Citizenship Act 1955, along with Foreign Act,1946 and Passport (Entry into India) Act, 1920, has scope of accommodating the grant of citizenship to people who have migrated to India and are living here for a long time irrespective of their religion. Therefore, provision of removing illegality can be extended to all who are religiously prosecuted from three countries and have taken shelter in India up to a certain uniform date.                                                                                                                                                                                                                                                                                                                                                                                                                                                These are personal views

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