Sunday, September 30, 2012

Indian Political Parties, their funding and RTI – Every man ought to know what it concerns all to know

The Uncomfortable Question

One question which always made me uncomfortable was, 'how political parties are getting funded'? The uncomfortable point here is - I am unable to reach a conclusion.

Let me tell you my problem. In India elections are probably the biggest national festival, parties are campaigning by pasting colourful posters; banners; bill boards; paintings in walls; arranging meetings; rally attended by thousands; leaders are flying in and out using choppers etc; in many places they are arranging transportation facilities for voters; building and maintaining their own or rented offices in cities and villages; probably giving salaries to their leaders, part-time and full-time workers; so on and so forth. Of course I intentionally left so many areas where parties may spend money. 

I can’t simply believe that, entire expenditure for running political parties are being met with monthly donations, members need to give towards party fund. Now-a-days elections are getting more and more expensive. Except some parties, others are not running (or I am not aware) any business for profit. So, how they are able to meet this enormous expenditure? If I can guess it correctly, business houses or wealthy well-wishers may provide donations in huge amounts. As political parties are not allowed to accept any donation from foreign sources, I am ruling out this option.

Association For Democratic Reforms (ADR) Press Release

It is in this situation we have to analyse the recent audit by watchdog Association for Democratic Reforms (ADR), According to the press release by 'Association of Democratic Reforms'

"The top 5 political parties with the highest total income between FY 2004-05 and FY 2010-11 (last 7 years) are: INC: Rs 2008 Cr followed by BJP: Rs 994 Cr, BSP: Rs 484 Cr, CPM: Rs 417 Cr and SP: Rs 279 Cr.
a. Donations and Voluntary Contributions seem to be one of the major sources of income for most of the political parties. 
b. However, donations from named contributors (i.e. contributors who made donations above Rs 20,000 which is to be mandatorily declared) form a very small percentage of total Income of political parties. Of the National Parties for FY 2009-2010 and FY 2010-2011, BJP’s donations from named donors amount to 22.76% of the total income. INC has shown a mere 11.89% of their income from contributions, followed by NCP with 4.64% and CPM, 1.29%
c. Bahujan Samaj Party has declared that it has not received any donations above Rs 20,000 in FY 2009-2010 and FY 2010-2011 even though its total income for the two years is Rs 172.67 Cr.
d. CPI has shown 57.02% of total Income from donations above Rs 20,000
e. Out of the Regional Parties analyzed for FY 2009-2010 and 2010-2011, Telangana Rashtra Samiti (TRS) has 99.98% of its income coming from donations followed by Janata Dal (United) with 95.96% and Lok Janshakti Party with 89.88%.
f. Rashtriya Janata Dal (56.13%) and Telugu Desham Party (37%) derive maximum income from donations above Rs 20,000.
g. BJP had the maximum number of donors donating above Rs 20000 for FY 2009-2010 (279) and FY 2010-2011 (502) while for INC it was 226 in 2009-2010 and 417 in 2010-2011." - ADR Press Release, Sep 10

Please note that the numbers are for seven years.


I think what most of the analysts pointed out are two anomalies,

1. If I can copy Southik Biswas of BBC,
 "But what's really interesting is that less than 20% of their earnings on average came from officially declared donations - those above 20,000 rupees." - BBC
2. Political parties (except CPI) are not giving the names for their biggest donors, people who contributed more than 20 thousands per financial year. Reasons vary from party to party. Some said that 'not received any donations above Rs 20,000 in FY 2009-2010 and FY 2010-2011', 'does not come under the RTI', didn't respond at all, 'didn't have enough man-power to provide the information', 'not a public authority as per the provisions of RTI Act' etc.

Back to the Books

If we have to understand the situation correctly, then it is necessary to check the relevant rules enacted by the Republic of India from time to time. Let's begin with the

a. 'The Representation of the people Act - 1951'

Section 29B of said act describes about contributions,

Political parties entitled to accept contribution. Subject to the provisions of the Companies Act...
every political party may accept any amount of contribution voluntarily offered to it by any person or company other than a Government company: Provided that no political party shall be eligible to accept any contribution from any foreign source...
(c) “contribution” has the meaning assigned to it under section 293A...of the Companies Act...and includes any donation or subscription offered by any person to a political party; and
(d) “person” has the meaning assigned to it under clause (31) of section 2 of the Income-tax Act, 1961...but does not include Government company, local authority and every artificial juridical person wholly or partially funded by the Government.

Let’s go through the relevant section (293A) of Companies Act-1961, which restricts and prohibits companies from giving political contributions,

b. Companies Act-1961, Section 293A

(1) ...
(a) no Government company and (b) no other company which has been in existence for less than three financial years, shall contribute any amount or amounts, directly or indirectly, (i) to any political party or (ii) for any political purpose to any person.
(2) A company, not being a company referred to in clause (a) or clause (b) of sub-section (1), may contribute any amount or amounts, directly or indirectly, (a) to any political party or (b) for any political purpose to any person

Provided that, the amount or, as the case may be, the aggregate of the amounts which may be so contributed by a company in any financial year shall not exceed five per cent of its average net profits determined in accordance with the provisions of sections 349 and 350 during the three immediately preceding financial years...

(4) Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party or for any political purpose to any person during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party or person to which or to whom such amount has been contributed.
(5) If a company makes any contribution in contravention of the provisions of this section, (a) the company shall be punishable with fine which may extend to three times the amount so contributed and (b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.

Section 29C of the same act deals with declaration of donations received by the political parties,

(1) The treasurer of a political party or any other person authorised by the political party in this behalf shall, in each financial year, prepare a report in respect of the following, namely:
(a) the contribution in excess of twenty thousand rupees received by such political party from any person in that financial year;
(b) the contribution in excess of twenty thousand rupees received by such political party from companies other than Government companies in that financial year.
(2) The report under sub-section (1) shall be in such form as may be prescribed.
(3) The report for a financial year under sub-section (1) shall be submitted by the treasurer of a political party or any other person authorised by the political party in this behalf before the due date for furnishing a return of its income of that financial year under section 139 of the Income-tax Act, the Election Commission.
(4) Where the treasurer of any political party or any other person authorised by the political party in this behalf fails to submit a report under sub-section (3) then, notwithstanding anything contained in the Income-tax Act, 1961...such political party shall not be entitled to any tax relief under that Act.

If I can read both observations combined then political parties can accept donations from a person or company. If a political party fails to provide a report in the prescribed form, then what they are going to lose is tax relief, unlike in the case of a company where they have to pay fine, and officers in default may have to face imprisonment. In other words, what I can deduce from this is (please note that I am not a legal expert), if an individual provides a very high amount as donation, then there is no way to know who the source is, if the political party which received the donation conceals the same (which they can do if they are ready to pay the income tax for the said amount). When revealing the name of the source creates more problem than tax relief parties may like to pay the tax!!!

c. RTI Act, 2005

According to RTI Act, 2005

Section 2, clause h states that, "public authority" means any authority or body or institution of self-government established or constituted—
(a) by or under the Constitution (b) by any other law made by Parliament (c) by any other law made by State Legislature (d) by notification issued or order made by the appropriate Government,
and includes any, 
(i) body owned, controlled or substantially financed (ii) non-Government organisation substantially financed directly or indirectly by funds provided by the appropriate Government;

And who is appropriate government here?

Section 2 clause A stated that, "appropriate Government" means in relation to a public authority which is established, constituted, owned, controlled or substantially financed by funds provided directly or indirectly (i) by the Central Government or the Union territory administration, the Central Government (ii) by the State Government, the State Government.

If I am not wrong, according to RTI political parties are not coming under the terms of Public Authority. If I can combine the conclusions made from People Representation Act - 1951, Companies Act - 1961, RTI Act - 2005 'Political parties are not obliged to reveal the information of their biggest donors'.

Responses by political parties to ADR

According to ADR, "In response, all political parties barring the Communist Party of India (CPI) declined to give the information. While CPI provided the information about their largest donors, their addresses, the mode of payment of these donations etc, other parties either didn't reply or simply said that they did not come under RTI. In a letter signed by their then general secretary AB Bardhan, CPI said that it is a 'Public Authority' as the organization is substantially financed directly or indirectly by government funds. It also said that they have an internal appellate authority in case we were not satisfied by the information received."

I appreciate CPI here, but failed to understand how it is "substantially financed directly or indirectly by government funds".

Party expenses

I don't think that all the politicians are joining politics because of the extreme eagerness to serve society. Politicians can take politics as a profession and serve the society honestly. If parties are paying salaries for their selected members so be it, I have no problem. But isn't it necessary that, parties should reveal how they are getting funded?

I can buy the arguments like, it’s difficult to record and maintain the amounts paid in small sums like - 5 INR, 10 INR etc.

But political parties should not do something, which they have to conceal from public on whose votes their future depends. Revealing the contributors name is in no way going to affect national security or any other items mentioned in section eight of RTI Act, which bars the making the data public. And nobody is asking them to reveal the name of people who contributed 5, 10 INR. The amount here is 20000 and above.


If CIC (Chief Information Commissioner) decide that political parties need not reveal the name of their biggest contributors. Then what government should do is go and amend Section 29C of 'The Representation of the people Act - 1951', section 293A of Companies Act, section   and add one more condition in clause h of section 2 in RTI Act. I also believe that political parties should channel contributions more 20000 through normal banking channels.

People should have an option to know, about the entity, whom they are going to vote. Instead of reaching a phase where they are forced to to reveal the information, political parties should do it themselves. Hope that the decision of CPI may act as a guide line for others. If its not enough just take a look at campaign contribution list for US presidential elections.



1. Analysis of total income of political parties ADR
2. Right To Information Act - 2005
3. Companies Act - 1961
4. The Representation of the people Act – 1951
5.     BBC
6.     The Hindu
7.     “Every man ought to know what it concerns all to know” – Thomas Gordan (Cato’s letter No. 38)

Goa - where east meets with west: Part I - Canacona, Mobor, Margao ...

‘Welcome to Goa’ sign board on Karnataka – Goa boarder, remained me about Prakash Raj’s dialogue in Hindi movie Singam  - "Welcome to Goa Singam".

After crossing the border, we continued our journey through Kanyakumari-Panvel road, except sometimes when bus drifted to village lanes. I can’t say it as village in exact sense, as numbers of homes were very less and far between. More or less it was forest only. Through the glass windows of our bus, I could see the head of lengthy trees kissing the blue sky; small creek was flowing in a zig-zag path but remained within the rhythm of jungle. Some homes in this area proudly announced their names in Konkani language using Marathi script – my first encounter with Konkani.


Finally, we reached Canacona bus stand, only to hear that buses to Morbor were available from Margoa bus stand only. After buying one map, we boarded another bus to Margao - 40km from Canacona. Western side of Goa is full of beaches; in fact you will be confused which one to select and with one to leave. Our first choice was Morbor. I simply looked outside to locate some remains of Portuguese legacy. It didn’t take much time, many old building were standing on both sides bearing Portuguese style doors and windows.

Morbor and its north

From Margao, we got a local bus to Morbor beach. Within the city limits, bus was moving as slowly as possible and stopping almost everywhere. As nothing else to do, I simply watched people getting in and out from our bus. Interestingly, women and girls were wearing dress in western style. We slowly moved away from the city limits, and cruised through village lanes, here the environment more or less looks like any villages in Kerala – but road were better maintained. Slowly one by one almost all people got down and walked towards their respective home; in the end only 5-6 people remained in that bus – we three, conductor, driver and probably one local guy. Finally it was our turn – Morbor beach. We followed the path shown by conductor and reach Morbor – some 400 to 500 metres away from the bus route.

In next two days, we saw many famous beaches in Goa - Calangute, Colva etc; but the memory and tranquillity of Morbor still remains in my mind as sweet as its beautiful, fully grained white sand was. We slowly walked towards Arabian Sea and touched her waters, which instantly washed away our tiredness accumulated over the past 700kms of journey. Through the sugar like sands of Morbor, we walked north, drawing lines and figures on sand using fingers, probably for next one and half to two hours. This is a perfect location for people to come and lost in the serenity of the union of Sea and land – not much people, not much noise, clam waves, cool waters, and golden rays of sun.

I wish I could walk through these calm waters till next morning, but destiny was something else. As sun was rapidly moving towards western oceans, time available to reach the city was coming down. So we finally said ‘ta ta’ to sea and walked towards the road - only to know that we need to walk another two kilometres to reach bus route. As we were fully depending on public transport, our position was not so good. Govan villages are fully connected with city, but the problem is you may not get local buses from faraway places to nearest cities after seven in the evening. The best way to travel in Goa may be renting ‘moped’, ‘bike’ or ‘car’.

We dashed towards bus route, in the middle of a drizzle, and reached there just after seven in the evening - only to know that last bus gone some minutes back. When we were close to the beach one person offered us to drop in Margao, in his taxi, for 500 INR, with all politeness we told him that in case we didn’t get the bus we will call you to which he nodded his head in agreement. Now without any other public transportation available, we tried to call him probably five times; each time the instrument fell silent after ringing its entire life. Well, that was enough we can’t try him anymore and started walking. Fortunately from the next bus stop got one taxi – Toyota Innova.

Driver was good in Hindi, and we soon started talking about Goan language and culture. He informed us about GTDC package of daily sight-seeing trips and dropped us close to GTDC (Goa Tourism Development Corp) Margao residency, standing close to public library. Including luxury tax, a ‘non ac’ double room cost us 972/day. For residents, single day sight-seeing tour will cost 100 INR and for non-residents it is 200 INR, with guide, but no food. Please note that the rates are applicable for off-season. Season and Peak-Season rates are high.

There was a restaurant at second floor, bar attached. After having dinner and spending some more time we went for sleeping.


For reading rest of the series

Goa - where east meets with west: Part II - Sateri Mahalasa Narayani Temple, Panaji, Fort Aguada, Sinquerim, Calangute, Santa Monica and Mandovi
Goa - where east meets with west: Part III Colva, Temples, Churches, Dauno Paulo and Vasco

Goa Beaches


On the way to Canacona

"The Road Not Taken" - Robert Lee Frost

Robert Lee Frost, was a famous American poet, who is distinguished for his magnificent portrayal of rural life. I saw his poem, for the first time in my English text book, when I was in school. 'The Road Not Taken' from 'Mountain Travel' is one of the poems which will force people to sit back for a couple of minutes and think. Please note that Frost received Pulitzer Prize for poetry four times for his works 'New Hampshire: A Poem With Notes and Grace Notes' (1924), 'Collected Poems' (1931), 'A Further Range' (1937), 'A Witness Tree' (1943)

The Road Not Taken

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I--
I took the one less traveled by,
And that has made all the difference.



1. Wikipedia

"Self Pity" - DH Lawrence

David Herbert Richards Lawrence, famously known by his short name DH Lawrence, was a renowned English novelist, poet, playwright etc. Probably the first time I heard his poem 'Self Pity', was through the movie 'GI Jane', then on Denzel Washington's 'Great Debaters'. Needless to say, the first time itself I liked it.


"I never saw a wild thing
Sorry for itself.
A small bird will drop frozen dead from a bough
Without ever having felt sorry for itself."


Saturday, September 29, 2012

Recognising the rights of forest dwellers - A brief look at Forest Rights Act - 2006

According to a latest press release from Ministry of Tribal Affairs, GOI,

"The Act has substantially met this mandate through distribution of 12, 68,766 titles to the eligible claimants under the Act. 2012, further, 14,726 titles were ready for distribution. A total of 27, 73,631 claims have been disposed of (85.90%)."

Before going further, it is important to check what exactly this act means to Forest dwellers. If I can copy government's press release, Forest Rights Act (or rather known by its long name 'The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006') was enacted with 'with the objective of remedying the historical injustice done to the forest dwelling Scheduled Tribes and other traditional forest dwellers.'

Right's of Forest dwellers under this act

Let’s take a look at the important rights enshrined in this act for people living in forest areas.

They will have the,
(a) Right to hold and live in the forest land...for habitation or for self-cultivation for livelihood by... forest dwelling Scheduled Tribe or other traditional forest dwellers.
(b) Community rights...
(c) right of ownership, access to collect, use, and dispose of minor forest produce which has been traditionally collected...
(d) Other community rights of uses or entitlements such as fish and other products of water bodies, grazing (both settled or transhumant) and traditional seasonal resource access of nomadic or pastoralist communities.
(e) tenures of habitat and habitation for primitive tribal groups and pre-agricultural communities.
(f) Rights in or over disputed lands under any nomenclature in any State where claims are disputed.
(g) Rights for conversion of Pattas or leases or grants issued...on forest lands to titles.
(h) Rights of settlement and conversion of all forest villages, old habitation, unsurveyed village and other villages in forests, whether recorded, notified or not into revenue villages.
(i) Right to protect, regenerate or conserve or manage any community forest resource which they have been traditionally protecting and conserving for sustainable use.
(j) rights which are recognised under any... law or laws... accepted as rights of tribal’s under any traditional or customary law of the concerned tribes of any State.
(k) Right of access to biodiversity and community right to intellectual property and traditional knowledge related to biodiversity and cultural diversity.
(l) any other traditional right customarily enjoyed by the forest dwelling Scheduled Tribes or other traditional forest dwellers...which are not mentioned in clauses 'a' to 'k' but excluding the traditional right of hunting or trapping or extracting a part of the body of any species of wild animal.
(m) Right to in situ rehabilitation including alternative land in cases where the Scheduled Tribes and other traditional forest dwellers have been illegally evicted or displaced from forest land of any description without receiving their legal entitlement to rehabilitation prior to the 13th day of December, 2005.

Act is sufficiently deep in explaining the rights of forest dwellers to live in their environment. However, rights alone will not do many things as evident from our day to day experiences. In paper we have so many rights but in practical life they are thinner than the paper where it is written.

My five questions

While analysing the rights of forest dwellers to live in their land a number of question are coming up in my mind,
I. Can we talk about conservation of forests and giving forest land for human settlement at the same moment?
II. What about the position of outsiders, won't they be able to grab the land by providing inadequate compensation, from the title owners?
III. How can we assure that the land is going to the proper hands?
IV. What if forest dwellers want to leave nomadic or pastoral life and explore and settle in the outside world?
V. Do we have any proper monitoring mechanism?

Let’s take the questions one by one.

I. Conservation of forests Vs Allocating forest land for human settlement

People, who are living in the forest areas for generations and want to continue there by choice or tradition, have the right to do so (of course with safeguards). We can't pull anybody out of their habitat, even if it is from forest, without a legally valid, morally strong and backed by due process established by the law. If they are not creating any threat to the flora, fauna and wildlife and not engaged in shifting cultivation, killing endanger species then there is no problem in recognising their right to live in the forest.

At the same time this act doesn't ignore the need of communities in the modern era. After all, we can't give land to somebody in the forest and force them to live with Stone Age facilities. Accordingly forest land can be diverted for the purpose of,

"schools, dispensary or hospital, anganwadis, fair price shops, electric and telecommunication lines, tanks and other minor water bodies, drinking water supply and water pipelines, water or rain water harvesting structures, minor irrigation canals, non-conventional source of energy, skill upgradation or vocational training centres, roads and community centres; subject to the condition that,

1. Felling of trees not exceeding seventy-five trees per hectare.
2. Forest land to be less than one hectare in each case.
3. ...shall be subject to the condition that the same is recommended by the Gram Sabha.

Act also establishes a well defined cut off criteria, "for claiming the land is "Scheduled Tribes or tribal communities or other traditional forest dwellers had occupied forest land before the 13th day of December, 2005".

II. Alienation of forest land in the future

In many cases what can happen is, government will give the land to deserved people but outsiders with acquire it from them with or without paying adequate compensation. I think there are enough safe guards added in to this act, "Forest lands thus provided to forest dwelling families, shall be heritable but not alienable or transferable. Title will be "registered jointly in the name of both the spouses in case of married persons and in the name of the single head in the case of a household headed by a single person and in the absence of a direct heir, the heritable right shall pass on to the next-of- kin".

III Allocating the forest land to deserved people?

The question of who deserves what is very much vague here. We can't expect that, lakhs of people living in the forests for centuries will keep certificates issued by governments from time to time (in case such a thing happened). Identifying deserved people is very much important at the same time challenging issue.

Some criteria are already there in the act; but not clear or broad enough to make a distinction. At the same time, considering the efficiency of government bureaucracy possibilities are very much high for its misuse. "The forest rights recognised...the right of land to...forest dwellers who can establish that they were displaced from their dwelling and cultivation without land compensation due to State development interventions, and where the land has not been used for the purpose for which it was acquired within five years of the said acquisition." The phrase is 'establishing', which may prove difficult. But, due to this issue, we should not delay the process.

IV. Exploring the other side

It is quite possible that many forest dwellers may come out of the woods and start living in villages and societies. So what should government do with the land allocated to them which is neither sellable nor transferrable? I believe it will be better, if government can take back the land after providing adequate compensation or allow him to pass it to his immediate relative for a price.

V. Monitoring mechanism

There should be a proper monitoring mechanism, which should make sure that we are on the right track and achieving our objectives. But this should not reduce to the level of micromanagement. Without a monitoring mechanism, the initiative is bound to fail. Currently there are different mechanisms envisioned in the act, starting from Grama Sabha to different committees.

However these are the entities in which we can't completely rely on. Can anybody guarantee that, 'Grama Sabha' will work properly everywhere? In the absence of Grama Sabha there may not be adequate representation from ST communities at the decision making level. I believe a combination of strong Grama Sabha, fully computerised records with proper half/yearly or yearly audits in addition to monitoring committees (if it’s not already implemented) may be prove sufficient.


Data from the ministry of tribal affairs shows that the process is in good shape. But simply interpreting the numbers may deceive us. Hope that we will be able to build a strong natural ecosystem, where humans are a part of it not spectators.



1. Ministry of Tribal Affairs, Government of India

Photo Courtesy: Wikipedia.

Friday, September 28, 2012

Opening Krishnapatanam Integrated Container Terminal - Another gateway for India's Eastern coast

Krishnapatnam Port (KPCL), An ariel view
Three billion US$, integrated Container Terminal on Krishnapatnam port on the banks of Upputeru River is indeed a good development for India's maritime trade. This will not only ease the congestion at Chennai Port, which is just 190 km away, but also provide storage and wide facilities for business.

There are two important things, I like say about this port. First one is - this terminal can act as a gateway for Andra Pradesh, Southern Orissa, Eastern Karnataka and probably Chhattisgarh and Northern Tamilnadu as well. Connecting these states with international shipping routes and East Asia, South East Asia and Far East Asia will definitely give a push economy. Utilities of ships for ‘port to port’ and ‘coast to coast’ trade and passenger services will definitely remove the extra burden from India’s congested roads. Unfortunately we are yet to develop coastal shipping routes for passenger traffic. Government new policy of developing Inland Waterways may provide certain momentum in this area as well.

Second point is the private equity in this project. Andra Pradesh government brought in Hyderabad based CVR group and offered a 50 year concession. This is one of the good examples where private equity working in sync with government’s determination provided good results. Hope that other state governments too will drop their unreasonable opposition to private capital.

Port faculties and maritime trade

This port is well connected with India’s rail and road network. Five Super Post-Panamax Quay Cranes at the port which can handle safe working load of 41 MTs (single) / 65 MTs (twin) / 85 MTs (underhook) and has an outreach of 23 rows across the vessel. Mother container vessels of up to 8000 TEU will also find this port suitable for them.

The total cargo handled in August (2012) stands at 1.12 million tonnes. In the financial year 2011-12, KPCL handled around 10.45mn tonnes of cargo by rail (an impressive improvement over its previous years tally of 7.7mn tonnes). With 18 meters KPCL is one of the deepest draft ports in India.

There is no doubt that, Krishnapatnam will offer a good competition for Chennai, L&T Kattupalli etc. Hope that KPCT will be able to write a golden chapter in India's maritime trade.



1. The Hindu
2. Wikipedia
3. Krishnapatnam Port

Photo Courtesy: Krishnapatnam Port Company Limited (KPCL).

Thursday, September 27, 2012

2G Presidential reference and SC reply - Only answering the questions not a verdict or victory for any parties

Supreme Court Of India

Chinese think tanks, while explaining their raising defence expenditure, used to compare their defence budget with two countries - India and US. While comparing with India, they will take the parameter 'percentage of GDP' both countries are spending on defence; while comparing with US they will state exactly how much billion USD both countries allocating for defence. In this way, they will explain to the world that, they are spending much less on defence compared to these two countries. Politicians also used to do the same trick, if they lost elections, the very first exercise will be, how to whitewash the defeat.

People are neither right nor wrong here; they are cleverly interpreting the numbers, in a manner suitable to them. So, before people interpret Supreme Court (SC) judgement on '2G presidential reference' to their benefit, we have to check what SC said.

Interestingly, SC's judgement doesn't prove government right or wrong. It merely answered some questions raised by government and validated president's power to go for a reference.

Supreme Court's judgement on presidential reference

I am here by giving the relevant passages from SC judgement,

"This Court cannot conduct a comparative study of the various methods of distribution of natural resources and suggest the most efficacious mode, if there is one universal efficacious method in the first place. It respects the mandate and wisdom of the executive for such matters. The methodology pertaining to disposal of natural resources is clearly an economic policy. It entails intricate economic choices and the Court lacks the necessary expertise to make cannot, and shall not, be the endeavour of this Court to evaluate the efficacy of auction vis-à-vis other methods of disposal of natural resources. 

The Court cannot mandate one method to be followed in all facts and circumstances. Therefore, auction, an economic choice of disposal of natural resources, is not a constitutional mandate...Court can test the legality and constitutionality of these methods. When questioned, the Courts are entitled to analyse the legal validity of different means of distribution and give a constitutional answer as to which methods are ultra vires and intra vires the provisions of the Constitution. Nevertheless, it cannot and will not compare which policy is fairer than the other, but, if a policy or law is patently unfair to the extent that it falls foul of the fairness requirement of Article 14 of the Constitution, the Court would not hesitate in striking it down

...valuation is a function of several dynamic variables; it is a science and not a law...In our opinion, auction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than auction cannot be struck down...

...Alienation of natural resources is a policy decision, and the means adopted for the same are thus, executive prerogatives. However, when such a policy decision is not backed by a social or welfare purpose, and precious and scarce natural resources are alienated for commercial pursuits of profit maximizing private entrepreneurs, adoption of means other than those that are competitive and maximize revenue may be arbitrary and face the wrath of Article 14 of the Constitution. 

Hence, rather than prescribing or proscribing a method, we believe, a judicial scrutiny of methods of disposal of natural resources should depend on the facts and circumstances of each case, inconsonance with the principles which we have culled out above. Failing which, the Court, in exercise of power of judicial review, shall term the executive action as arbitrary, unfair, unreasonable and capricious due to its antimony with Article 14 of the Constitution.

In conclusion, our answer to the first set of five questions is that auctions are not the only permissible method for disposal of all natural resources across all sectors and in all circumstances.

As regards the remaining questions, we feel that answer to these questions would have a direct bearing on the mode of alienation of Spectrum and therefore, in light of the statement by the learned Attorney General that the Government is not questioning the correctness of judgment in the 2G Case, we respectfully decline to answer these questions.

First five questions in Presidential reference

Q1 Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions?

Q2 Whether a broad proposition of law that only the route of auctions can be resorted to for disposal of natural resources does not run contrary to several judgments of the Supreme Court including those of Larger Benches?

Q3 Whether the enunciation of a broad principle, even though expressed as a matter of constitutional law, does not really amount to formulation of a policy and has the effect of unsettling policy decisions formulated and approaches taken by various successive governments over the years for valid considerations, including lack of public resources and the need to resort to innovative and different approaches for the development of various sectors of the economy?

Q4 what is the permissible scope for interference by courts with policy making byte Government including methods for disposal of natural resources?

Q5 Whether, if the court holds, within the permissible scope of judicial review, that a policy is flawed, is the court not obliged to take into account investments made under the said policy including investments made by foreign investors under multilateral/bilateral agreements?


I don’t believe that profit maximizing through auction is advisable in all cases. In telecom, government has the right over spectrum, companies required government's permission to buy/ rent and use it. Look at the 3G auction, telecom service providers almost emptied their chest by spending everything for getting a license. And do you think they will sell the services cheap, after spending so much for license? Policy should be directed towards getting a reasonable price for natural resources, while contributing towards the development of India.

Finally, 2G scam was not a yes or no question on whether auction was the best option for selling the spectrum. It was about fairness, equality and government's neutrality on selling natural resources and the judgement is yet to come.



1. Supreme Court of India
2. First Post
3. SC opinion on presidential reference brings constitutional clarity : Sibal - Zee News
4. Auction not sole method for allocating natural resources - Business Standard
5. SC judgement vindicates govt stance: Sibal - First Post

Photo Courtesy: Supreme Court of India

Pushing the country back to Middle Ages – An Iranian tragedy in Women education

First Iranian women who attended university
The decision was shocking and the reasons were ironic. You may be wondering, about what I am talking; after all there were no surprising move from Iran recently on nuclear front. But, life is not limited to the perimeters of nuclear complexes and missiles. There are about 75 million people living in this West Asian country. And this topic is about one field, which matters a lot for Iran’s future – Education.

Shutting down the door

What is tragic here is the decision of 36 Iranian universities to ban women from 77 college programs, that too at a time when more countries are slowly opening new vistas in front of their women citizen. 
It was only four years back; Majlis Research Centre [Iran] expressed concern about the higher representation of women in education.  According to them, state is wasting resources on women, who are unlikely to pursue jobs.

Women in Iranian universities

A 2006 BBC report states, “...over half of university students in Iran are now women. In the applied physics department of Azad University 70% of the graduates are women - a statistic which would make many universities in the West proud... It is a huge social shift since the 1979 Revolution: Iran's Islamic government has managed to convince even traditional rural families that it is safe to send their daughters away from home to study.”

2010 UNESCO study states that, “women made up about 70% of Iranian graduates in science, more than half in social science, business and law, and more than a quarter in engineering, manufacturing and construction”.

It is ironic to note that when countries like India are promoting women education; quotas are coming in Iranian university programs – for the disadvantage of women. Higher education facilities available to women also represent the respect and freedom of choice available for women in a society. 


However, the stand of Iranian think tank and Universities are confusing. They are considering, the idea of providing higher education in high proportions are a drain on nations wealth. Reason, there are comparatively less chance for women to use the skills they achieved through education to society’s benefit. In short women are under-represented in workforce. 

How far the theory of over education and drain on nation’s wealth is correct? First of all, are men in an endangered position? I don’t think so. As far as I know there is no discrimination against men (except may be in women dominant courses like gynaecology). There may be various reasons for them not to attend higher studies, like joining the work force in the early ages, pure un-interest, unable to crack the entrance exams etc. But we can’t blame women for this, can we?

Underrepresented in Job sector, problem with choice or social system?

“In 2006, at the Bachelor's level, about 40% of men studied engineering, compared to 13% of women; 12% of men compared to 27% of women studied the arts, humanities, education and health related fields” – Brookings. By choice or by university designs many women are in social sciences or humanities – not a job generating sector in a petro economy like Iran.

Under-representation in job sector may have little to do with women’s choice. If we dig more, we may find the reasons like - society’s attitude towards working women, conflicts on women’s role as breadwinner etc.
If a mother is educated, it will do a lot of positive things for their kids. Isn’t it better for the society?


I hope that Iranian supreme leader and president will reverse the position of Universities and put an end to this process. 1979 Iranian revolution owe a lot to students, don’t disappoint them. Iran has the power and resources to educate their citizens and become an economic and scientific powerhouse – please allow me to remember the administration that, science is limited to Nuclear Bombs. Don’t ignore everything else in the pursuit of a goal which may not mean anything to people in the long term.



1. Neah Shah, The “Problem” of Too Many Women: Iranian Universities’ Female Student Ban –
2. Brookings
3. BBC

Wednesday, September 26, 2012

The Practical side of 'Air Kerala', do we really need that?

Cochin Airport

Running an airline may be a status symbol. High flying vehicles were always part of human imagination; they thought about it, dream about it, and want to live on that. Human thirst for flying is exemplified in the character of Ryan (George Clooney) in the film 'Up in the Air'. At one point Ryan says, 'Let's just say that I have a number in mind and I haven't hit it yet...its ten million miles' - of course in air.

So the recent movements from Kerala government, to revive the concept of 'Air Kerala' didn't startle me. However, I wonder, before jumping in to it, can't somebody go to Bangalore and have a 30 minutes talk with Vijay Mallya - owner of Kingfisher Airlines? It is not fair to blame him for all the problems in Kingfisher, even if many like to do so, especially after considering the business history of profitable and efficient UB group. After all, it is his own money (of course that of banks and UB group as well) sinking with Kingfisher.


Let's come back to the problem at hand - the concept of Air Kerala. Running an Airline is a capital intensive business (even if it looks like a hot cake) -  costly airplanes, labour charge of ground engineering & aircrews, cost of maintaining foreign offices, costly jet fuel, cost of compliance with international standards etc. From where the money will come? How much a state government can pay?

I think it will be better to utilise the same money for enhancing the ground, storage and warehousing facilities in Trivandrum, Cochin and Calicut airports. To attract more airlines and bring down the charges, government needs to reduce tax in ATF to reasonable levels, reduce the landing charge in airports and bring in more foreign and Indian airlines to the routes - after all companies will be more than interested in getting a pie of profit which Kerala-Gulf of Persia routes can offer. Let the Gulf airlines (Emirates, Etihad, Air Arabia, Gulf Air, Bahrain Air, Oman Air etc), Singapore, Sril Lankan, Jet, Kingfisher, IndiGo and of course Air India to have more schedules. Passengers may be happier if the airports can reduce the user’s fee as well.

It is important to focus on cargo in the same breath. We need to expand cargo facilities in airports, focus should also be on linking seaports to airports and to other hinterland cities. Enhancing the facilities at Cochin port, building new seaport at Vizhinjam, increasing the capacity of Bypore port by making it a gateway for northern Kerala etc are some steps to start with.

Simply having seaports and airports won't help, unless it is properly linked by road to hinterland cities. If any private parties want to invest they can, let ease the red tapes and encourage them. If government is so desperate to join, then put a maximum limit at 11% and a seat in director board (I think government will get a seat in director board with that stake).


Arabian Sea is big and deep; when you can have a boat to cross it, do we have to try swimming? It’s better to be practical than having heroic misadventures. Before starting, it will be good for the state government to take a look at state treasury, where even the rats may be dying without having enough food.



1. Business Standard.

Tuesday, September 25, 2012

One video and a mountain of dead - Sad story of Pakistan protests

Rationality is not something which we can expect from a mob. Mob has its own dynamics, here the behaviour is not the collective sum of all members; it’s more than that - a violent fury to run over something. More than collective expression of happiness, mob may be more effective in expressing collective anger. Anger, because of some unpleasant incidents at home, uncaring attitude of society, feeling lost in the sea of human beings, unable to achieve a change etc. All these may generate an imaginary enemy whom they can destroy in the dreams if not in reality.

In such situations society needs an enemy to fight, if it’s not there then someone needs to create it. In different times, name of this enemy may change but not the attitude towards it.

Protests going on in Pakistan

In Pakistan also, in the form of protest against the film (if I can call it so) 'Innocence of Muslims’, we are seeing this collective mob fury. From an outside world it is totally irrational. How can you explain the incidents of attacking and killing their own people, in the name of a film, which was created by a person sitting thousands of miles away? How can you explain the incidents of attacking their own security personnel’s, because somebody somewhere created a video which is against their faith? How can you explain the destruction of public property, built and maintained by tax payers money in the name of an action for which only an individual or a group of individuals are responsible? How can you explain the phenomenon where, in the name of a video people are destroying their own cities?

On top of that Pakistani government did rather an interesting thing by declaring a day for protest. Didn't they think for a moment that, against whom the people will protest? Where they will protest? In the absence of a physical enemy available for the moment, it is oblivious that they will spend their anger on roads, streets etc... Indeed they did.

It may not be in the interest of the mob to realise the facts, but as an individual people should realise it. Whatever you say, I think the best way to fight against such type of videos is to ignore it, not to give much higher and unwanted popularity. If someone didn’t discover and popularise it, there may not be any such riots. Now the video became hit, more due to the protests than anything to do with the creativity. The temptation of instant fame and gratification will only motivate more people to follow the course.


After counting the dead, it will be better for Pakistanis as well as other people who are protesting, to sit back for five minutes and think what they really achieved? Aren't they played in to the hands of some people, and proved themselves as stereotype to fit in to their descriptions? Pakistanis can prove themselves by achieving progress in education, economic and scientific fronts not by destroying their own society. ‘Mohammad Abdus Salam’ already showed the path, now it’s up to the people to select it or reject it.


Saturday, September 22, 2012

Toxic Waste of Bhopal - Is it a boomerang?

Two probable questions you can expect for quiz competition in (lower/upper) primary or high schools in India are 'Which chemical caused Bhopal Gas Tragedy?', 'Chemicals from which company resulted in Bhopal Gas tragedy'. Unfortunately school kids are yet to hear the question 'Who cleaned up the graveyard of Bhopal'?

Latest in the series, with the withdrawal of German firm - Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH - in signing a contract for disposing 350 tonnes contaminated soil, citing reasons like uncertainties etc People of Bhopal are forced to continue their day to day life with these toxic substances. Not allowing to forget, even for a moment, what happened at the night of 2-3 December, 1984.

According to GIZ press release, "After three months of contract negotiations between the Indian Government and GIZ for the disposal of 350 tonnes of soil contaminated with pesticides from Bhopal, GIZ withdrew its waste disposal offer today....negotiations could not be settled during that time, and therefore, the uncertainties grew on both sides. This uncertainty extended to the German public. Hazardous waste disposal through GIZ is no longer an option."


Well, what governments, both federal and state governments are going to do now? It’s almost close to three decades, every second we are wasting more and more chemicals will go deep in to the soil to underground water channels to wells, rivers etc. Giving compensation alone won't solve the problem, it is important to clean the site as well.



1. GIZ Press release

Thursday, September 20, 2012

China, Japan and some rocks on Sea – Is it only about islands or past history, leadership transition and domestic politics as well?

Island Group - Google Maps
Continuing tensions between China and Japan regarding the nationalization of [GOJ bought 3 islands from a Japanese family - Kuhihara - for 2.05bn yen] of Senkeku (In Japanese)/ Diaoyu (in Chinese) island group raised an interest in me to see where exactly they are located. I had to search for a long time in Google maps to find their correct positions (see the picture). 

This Island group is located in East China Sea (around 160km east of Pengjia Islet – Republic of China – ROC (Taiwan) not to confuse with her big brother People’s Republic of China (PRC), 410km west of Okinawa Island (Japan) and 170km north of Ishigaki Island (Japan)). Currently, endemic species like short tailed albatross, senkaku mole etc are the only inhibitors in these small islands (in case you can say them islands). 

As explained in my earlier article, it is not the land which makes these islands attractive, but the surrounding sea and it’s Exclusive Economic Zone – EEZ. Already Chinese petroleum companies CNOOC and Sinopec are operating natural gas fields in East China Sea - Chunxiao. 

It is expected that China will protest, and she did. But things are yet to die down; protesters are still raising slogans in front of Japanese embassy in Beijing. According to BBC reports, following the protests, many Japanese companies like – Panasonic, Cannon, Honda, Nissan, Mazda, Toyota, Sony, Seven and I holdings, Fast Retailing, Aeon, Komatsu etc  - were either suspended, shut down, stopped production or advised Japanese employees to stay at home. This may affect the bilateral trade between both countries - In 2011 bilateral trade grew at 14.3% to $345bn, as Japanese private companies will hesitate to invest more in Chinese production facilities, at least temporarily.

The crux of the problem is not exactly a small number of stones raising their head above the waters, but history – the violent one; especially the second Sino-Japanese war from 1937-45, which was so much devastating for Chinese. So even a small problem, when looking through the glass of past history, will reach gigantic proportions. It may be comfortable for government officials to sit around a desk and discuss, but once the anger passed to the citizens on the street, it may be difficult for the government to control. For current working class, this will give a window not only to express their anger against the Japan but also against their own government.


Considering the time of leadership transition in China and elections in US, protests are set to continue for some more time. These incidents will certainly give a sample of future for countries - located in South China Sea rim - having conflicting claims with Chinese about the territorial sovereignty of islands and rocks in the area.



1. BBC
2. Wikipedia
3. Google Maps

Playing back the script, Manmohan Singh government is to stay

Recent events in national capital are following a well written script. SP moved close to support the government (although in the name of keeping BJP away from power), BSP without participating in the country wide strike indicates that she may be ready for some kind of adjustment; but it was Nitish Kumar who shot the best of all by saying 'I will help anyone form the next government at the Centre if it grants special status to Bihar'. It is yet to see whether the statement is only to raise his posture in NDA coalition vis-a-vis Narendra Modi for the position of NDA’s PM candidate in next general elections.

May be this is the flip side of democracy, national parties are forced to come to the feet of small parties, having 10-15 members, to assure majority. Looking from other end of the mirror, it looks good as well. After all national parties are forced to give an ear to the woes and problems of people represented by these small parties.

At this point government may seem to be vulnerable but strong enough to continue. If UPA II survives this crisis, which it will surely do, we may be able to expect a strong and decisive government. After all they don't have to fear Mamta till next general elections in 2014.

The million dollar question is, will the government ‘bite more bullets’ of reforms and arrest India’s relative decline in economic front?  Or we have to wait till the crisis of next sovereign rating downgrading hits our door? History doesn’t seem to be promising. During the signing of ‘Civil nuclear agreement’ with US, government seemed to be strong and decisive after thwarting the danger from Left, only to go for a long sleep. I think the biggest gainer in this whole drama is SP, as there is a possibility for getting additional financial assistance for UP from Union government, at the expense of Mamta.


Tuesday, September 18, 2012

Mamta's exit from UPA II, will government find consolation in foster home?

Finally, Mamta Banerjee’s TMC quit the government over her disagreement on FDI in multi-brand retail and diesel price hike. Question still remains, whether she will modify her decision tomorrow and resolve to support UPA from outside.

Will government survive?

Government needs 272 seats in Loksabha (out of total 543) to survive. Currently, Congress (INC) has 206 seats - 66 seats short of majority. In her allies, there little chance for DMK (18) and NCP (9) to quit, at least for next one year. As far as IUML (2) and National Conference (3) are concerned it is close to zero. This will make the count to 238, still 34 seats short of simple majority.

Samajwadi Party (23) and Bahujan Samajwadi Party (21) have many reasons to support the government. Without generous contribution from Central government’s purses it may not be easy for SP to rule UP. BSP also has its own reasons.

Possible Scenarios 

One: SP and BSP supports government - will take the total to 281 [plus JMM(2) + 3 will make it 286].
Two: BSP walks out from Parliament in case of a non-confidence motion; then required number of voted will come down to 251. 238 + SP (23) + JMM (2) + 3 will make it - 266.
Three: Both SP and BSP walkout. Then the required majority will come down to 228. Congress and its staunch allies can reach this magic number.
Four: SP/BSP vote against the government. Difficult, but may be able to survive.
Scenario Five: SP and BSP vote against the government. Government may go down and next elections may come.

I think the possibility of Scenario one and two are very high. The scenario three is also possible.

Even if government went down, there is little chance for any other party to form a new one. Most probably, we may have to face elections. How many representatives - from both sides – dare to do that, after all close to two years is still remaining?


Even before UPA-II finally rang the bell of reforms, their managers may sure about government’s survival even in the case of TMC exit. All these may not need if Mamta agreed to support UPA from outside. Let’s wait and watch. If government withstands the exit of TMC, it may finally be able to go ahead with reforms (new allies may ask for generous concessions).


Sunday, September 16, 2012

Ghaziabad Riots and its victims

"Police firing in Dasna, Ghaziabad, on Friday night claimed the lives of six people, while a sub-inspector and a head constable suffered serious injuries in the rioting that ensued. The violence was triggered after a copy of the Quran was discovered on the railway tracks with number scribbled on its pages." - Hindustan Times

Only people whose feelings were hurt can experience and describe its true intensity, this is not different in the case of finding holy book in railway tracks close to Ghaziabad.

However, how far common people/ Police  responsible for the incident?

Finding the book close to railway station means,

a. It may come from a train passing through the area (TOI). In this case, there may be a good number of trains, carrying thousands of people passing through the area.
b. Somebody may planted the book there, with the intention of creating riots.

In both cases, common people/ Police have little control over the alleged incident. How Police could stop a person from throwing holy book, that too from a running train? There was no prior information, and it was totally an unexpected event. According to the second scenario, even if somebody planted the book there, do you expect Police know it beforehand?
People can protest peacefully/ file a Police complaint. But burning police stations, vehicles, damaging public and private properties etc are extreme reactions. After all, police and owners of the vehicles may not have anything to do with the alleged incident for which they end up as collateral damage.

Moreover, people whose property and vehicles were damaged too have similar reason for becoming angry. If they are starting another riot, then?

This incident already cost 6 lives, everybody has to make a full stop here.


Reforms Season Two - Part III: FDI in Power, Broadcasting and selling some family silver

For reading rest of the articles in this series, please visit

"We have to bite the bullet. If we have to go down, let us go down fighting" - Manmohan Singh while declaring economic reforms in 2013.

John F Kennedy once said, "A man does what he must — in spite of personal consequences, in spite of obstacles and dangers, and pressures — and that is the basis of all human morality". At this point of economic crisis and stagnation, reforms are the essential bullet premier needs to bite, and which he did, even though it’s a little bit late.

III.   FDI in power trading exchanges

Power sector has some fundamental problems, which can only be solved by a decisive will power of government. FDI can do little help here. According to the new policy,

a. Combined (FDI & FII) can own up to 49% in power trading exchanges (FDI capped at 26% and FII at 23%).

Ironically, problem in power sector is NOT that we are,
a.       Unable to generate enough power.
b.      Not able to transport it.
c.       Unable to introduce new technologies.
d.      Unable to create "organized platform for fair, neutral, efficient and robust price discovery"
e.      Not able to come up with "extensive and quick price dissemination".
f.        Not able to create "price risk management for the generators, distributors, traders, consumers and other stakeholders"

The crux of the problem is we are not able to generate power and sell it to the end customer with a profit (or sell it with a small loss). Till we find a solution for this FDI will do little help.

IV.   Enhancing FDI in Indian Broadcasting sector from 49% to 74%

FDI limits increased in 'Teleports', 'Mobile TV', 'Headend-in-the Sky Broadcasting Service' etc to 74%. However, government didn't touch 'News and Current affairs' sector, where the 26% FDI limit will continue. I am not seeing any significant changes here unless government touching the news sector.

In other areas, soap operas and regionalized version of US programs will continue for a foreseeable future.

V.   Disinvestment of Central PSU's (through stoke exchanges)

GOI will sell, 9.33% of MMTC (current government holding is 99.33%); 10% of Oil India Limited (current government holding is 78.43%), 12.15% of National Aluminium Company Limited (current government holding is 87.15%), 9.59% of Hindustan Copper (current government holding is 99.59%).

Selling some shares in these companies will not create any broad changes in their policy. I wish, if government could use this money for some creative purpose.

VI. Amending the conditions for FDI in single brand retailing.

Amendment was expected after IKEA's plea. There are two changes,

"(i) The foreign investor should be the owner of the brand" changed to "Only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country".

Secondly, (ii) involving FDI beyond 51%, 30% sourcing would mandatorily have to be done from SMEs/ village and cottage industries artisans and craftsmen, changed to (ii) In respect of proposals involving FDI beyond 51%, sourcing of 30%, of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors, where it is feasible.

First change is purely technical, but the second change allows the companies to source their materials from their home countries or from current suppliers. Unlike, in the case of sourcing in multi brand retail, here we don’t have to worry about dumping; as these are niche products and customers expect it in that way. After all, people would rather by a hand-made Ferrari sports car from Italian plant than anywhere else.


Some decisions are in good direction and will act as an emergency kit for industry. Others are incomplete, which requires one more policy revision. Hope that, this time government will not retrace their path. It will be good for India to see Manmohan Singh retire with grace and as a man of reforms. Hope that he will be able to do enough things to change the opinion of TIME, Washington Post and millions of Indians about his second term as premier.

One more thing I would like to add here is, FDI and FII are not medicines for all sort of deceases. Their opinions and experience can act as a guide at its best; it’s our duty to create a free market economy – not crony capitalism – under a framework of fair competition, stable policies and justice. We can’t outsource it...



1. Government of India

Saturday, September 15, 2012

Reforms Season Two - Part II: FDI in Indian Aviation - Falling short of expectations

For reading rest of the articles in this series, please visit

J.R.D.Tata (b. 1904, d.1993) may be smiling, after seeing the messed up Indian aviation sector and hearing government's decision allowing foreign aviation companies to invest up to 49% in Indian air transportation segment.  49 holds a symbolic value, it is exactly the same percentage of shares he ceded to GOI in 1948; GOI bought an additional 2% in 1953 and took over Tata Airlines (renamed to Indian Airlines).

However, as one columnist wrote some time back, credit for opening up Indian Aviation also goes to Vijay Mallya, who 'created a non-bail-outable airline'.

II. Permitting up to 49% investment for foreign airlines in Indian air transport services.

Until now, Foreign Airlines were not allowed to buy equity in air transport sector, even though it was allowed in Cargos etc. With current policy change they can invest up to 49% in civil aviation sector.

FDI is essential for market’s survival and growth. In this cash burning arena, we already have two non-bailoutable airlines. Government, which is already under severe financial stress because of heavy bills from Oil & Gas subsidies clearly don’t have the stomach to pump cash for an airline bailout. Even if it wants, GOI can't do it. As far as banks are considered, they are already struggling to reduce the amount of non-performing assets. The burden to find additional capital to remain BASEL complaint is already looming over their heads. So who else will invest?

Will this work?

FDI will bring best practises, higher service standards etc. But the question is, will this work? My answer is, ‘it may not’ as there are certain problems with the policy.

First of all, 49% includes both FDI as well FII (Foreign Institutional Investment). This means, even if FII investment is 0%, foreign airlines will not get majority equity and control of the board. Assume that, there are some FIIs already invested in aviation companies then foreign airlines will remain as minority shareholders.

Will they swallow this status? My answer is no, they may wait some more time, till GOI increases FDI limit to 74%. After all, why should they burn cash in India without any management control, when they are facing cash problems in home itself? If Indian government is not sure about handing over the board control, then from where the so called best practices will come?

Problematic areas

There are some other restrictions as well,

1. Scheduled Operator’s Permit can be granted only to a company,

a. That is registered and has its principal place of business within India
My Take: Reasonable expectation.

b. Security clearance for all foreign nationals coming to India as part of the deal
My Take: Reasonable expectation.

c. All technical equipment that might be imported into India, required clearance
My Take: Reasonable expectation.

d. The Chairman and at least two-thirds of the Directors of which are citizens of India
My Take: Not reasonable, still its fine.

e. The substantial ownership and effective control of which is vested in Indian nationals.
My Take: Not reasonable, still its fine. It’s like ‘Tata Group’ buying ‘Jaguar and Land Rover’, but not allowed to put their own man from Indian on the top of the board.


I think foreign companies will wait till next policy change, which may raise the cap to 74%. Without a minimum 51% and control, risks are high for them especially in markets like India where there is little appetite for high end consumer spending and Jet fuel taxed like a luxury item.  Yet, they may come because of the attractions from a growing market. The curious question is will they invest in Air India or Kingfisher? Only time can tell.

In my opinion Manmohan Singh government could have raised the cap to 74% this time itself.



1. Government of India

Reforms Season Two - Part I: FDI in Indian retail sector - Movers and Freezers

For reading rest of the articles in this series, please visit

After a long sleep and policy paralysis, Manmohan Singh government woke up to the realities - even though it was in the face of a possible degradation to junk status. Recent big bang actions from government, even risking the displeasure of allies, may be one of the best decisions by second Manmohan Singh government. The major decisions are,

I.               Permitting FDI in multi-brand product retail trading
II.             Permitting up to 49% investment for foreign airlines in Indian air transport services.
III.          FDI in power trading exchanges
IV.          Enhancing the FDI in companies operating in Indian Broadcasting sector from 49% to 74%
V.             Disinvestment of 9.33% of MMTC shares (through stoke exchanges)
VI.           Selling 10% of Oil India Limited (through stock exchanges)
VII.        Sale of 12.15% of NALCO  (through stock exchanges)
VIII.      Disinvestment of 9.59% of Hindustan Copper (through stock exchanges)
IX.           Amending the conditions for FDI in single brand retailing.

Let’s go through the policies one by one.

1. Permitting 51% FDI in multi-brand product retail trading

Long delayed, opening retail sector for FDI may be the most important decision in the block. Even though the policy is diluted, it can still kick start the aura of reform days. There are some changes in the policy introduced (and later withdrawn) in the last year,

a. Retail sales outlets may be set up in those States which have agreed or agree in future to allow FDI in MBRT under this policy.

b. outlets may be set up only in cities with a population of more than 10 lakh (States/UTs not having cities with population of more than 10 lakh, retail sales outlets may be set up in the cities of their choice, preferably the largest city) as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities

c. 50% of total FDI brought in shall be invested in 'backend infrastructure' within three years of the induction of FDI, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will NOT be counted for purposes of backend infrastructure.
d. at least 30% procurement from Indian small industries

Investment in backend infrastructure like cold storage, warehouses etc, will enable Indian farmer to reduce his/her post-harvest loss - currently calculated around 30-40%. It may not be as good and sweet as central government insists, but if implemented, will increase the bargain power of Indian farmers vis-a-vis wholesale and retail traders. Instead of retailers fixing the price and farmers swallowing it, there will be a competitive pricing system.

The customer is also stands to benefit, as the quality will increase and the expenditure may reduce.

At the same time measures like, 10 lakh population limit etc - the numbers may go down later - will draw a line for foreign companies to penetrate deep in to markets. 30% sourcing from local markets will also act as barrier for dumping low cost Chinese goods in Indian markets.

If 'Competition Commission of India (CCI)', which is currently doing a good job, is putting her one eye on unlawful, anti-competitive trade practices, then we are good to go ahead.

Support from States

Interestingly, contrary to the popular assumption of left leaning politicians that Indians are totally against FDI in retail, around eight states (Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana and Manipur) and two union territories (Daman & Diu and Dadra and Nagar Haveli) expressed support for the policy in writing. Jammu & Kashmir may also support the policy.
However, West Bengal, Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura and Odisha are in the opposite sides. This shows a virtual divide of Congress ruled states (except Kerala) supporting the measure, opposition ruled states opposing the measure.


Well, according to the policy, states who don’t want to implement can opt out. They can wait and watch how the game is going on other states losing their advantages/disadvantages in taking the first step. Broadly speaking, the excellent experiences of companies like Wal-Mart, Carrefour, Target, Kroger, Aldi Einkauf, Schwarz Unternehmens Treuhand KG, Tesco, Metro etc in terms of management, supply chain and ware-housing will be beneficial for India, of course under the watchful eye of Competition Commission of India (CCI).

As far as small retail stores/organized chains are concerned, this is to come today or tomorrow. In small cities, they can enjoy the protection for a longer time. However, in a globalized world, they can stand up and take competition in two ways – The LIC way (who withstood and succeeded in the battle against big names in insurance sector) or AirIndia way (which is not able to fight even against Indian private sector).



1. Government of India