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Govt Confused Over Corruption Act; PM, PC Hold Different Views
A MUDDLE PM Manmohan Singh says the provision of Prevention of Corruption Act should be revoked
while finance minister P Chidambaram advocates that CBI is misinterpreting the provision and hence
criminalising bona-fide policy decisions
AMAN SHARMA NEW DELHI
Prime Minister Manmohan Singh has called for revoking a specific provision of the Prevention of Corruption
(PC) Act, 1988 invoked by the Central Bureau of Investigation (CBI) against industrialist Kumara Mangalam
Birla and former bureaucrat PC Parakh while Finance Minister P Chidambaram said that CBI is misinterpreting
this provision and hence criminalising bona-fide policy decisions.
Prime Minister Manmohan Singh on Monday told CBI officers that the Section 13 (1) (d) of PC Act, 1988 was
being revoked in a draft bill which is pending parliament approval as the provision criminalises an officer’s act
even in the absence of any mens rea (criminal state of mind). “The Prevention of Corruption (Amendment) Bill,
2013 has been introduced to amend a provision which at present criminalises, even in the absence of mens rea,
any action of a public servant that secures for any person a pecuniary advantage,” Singh said, emphasising
honest officials need protection.
Speaking at the same conference Finance Minister P Chidambaram on Tuesday said that the provision did not
exclude mens rea but the CBI has been misinterpreting the provision to not factor in mens rea while deciding to
lodge criminal cases. “There are cases where the CBI — and sometimes the courts — have interpreted
provisions of law to exclude mens rea. A frequently cited example is section 13(1) (d) (iii) of the Prevention of
Corruption Act 1988. A close reading of the above provision does not, in my view, rule out mens rea,” the
finance minister said on Tuesday.
“In financial crimes, mens rea or the state of mind must be invariably proved or presumed from certain facts.
The words (in the provision) – ‘without public interest’ - imply that the offender must have committed the act
although he knew that there was no public interest. In a case arising under this section, if the accused is able to
show that there was indeed some public interest, in my view, the offence would not be made out and the accused
would be entitled to an acquittal,” Chidambaram said, admitting later that he was unaware that the provision will
be revoked in a draft law.
The CBI has invoked 13 (1) (d) of the PC Act to book Birla and former coal secretary PC Parakh, alleging the
former conspired with Parakh who in turn abused his official position to extend an undue favour to Hindalco.
CBI chief Ranjit Sinha has earlier said that no quid-quo-pro needs to be proved under this specific provision of
the law and only an undue favour needs to be established. Chidambaram however argued on Tuesday that
prudent approach to financial crimes was the requirement of mens rea, unless it is “unambiguously excluded” by
the express language of the law.
Opinion Polls
From being in the news, opinion polls have become the news. The Congress, which is being routed in most
opinion polls in recent times, wants the Election Commission to ban them. The party says opinion polls
are plagued by poor methodologies, and do more to mislead than inform. ET examines the two sides of
opinion polls.
Why Are Political Parties Getting So Worked Up About Opinion Polls?
There are two reasons. One, they tell voters about the national mood vis-a-vis parties. Two, they can be used to
sway undecided voters, especially those who want to vote for the winner to ensure their vote doesn't go waste.
For this reason, opinion polls are becoming a political weapon. Each party commissions and releases findings
that show it will win.
How Is That Done?
Opinion polls are sample surveys. In theory, a representative cross-section of the population has to be quizzed
about their voting preferences. But, skew the sample such that you leave out the minorities, or the migrants, or
the educated, and you will get theanswer you want.
What Impact Do Opinion Polls Have On Elections?
Hard to say. Right now, the country is seeing an avalanche of polls -- not only for states heading to polls in the
next two months, but also for the national elections in the middle of 2014. A lot can happen between now and
then to change voter minds. Also, given the ever-present temptation to manipulate findings and the multiplicity
of polls, it is possible that they might just become background noise for the voter. Also, voters can change their
voting preferences at the last minute. Especially with politicians doling out pre-election freebies. For this reason,
exit polls are considered more reliable than opinion polls.
How Are The Two Different?
The sample used in opinion polls comprises of people who may or may not eventually vote. In contrast, an exit
poll is conducted after voting is over and comprises of only those people who have voted. So, Should Opinion
Polls Be Banned?
Just because there are made-to-order opinion polls, it doesn't mean opinion polls themselves are a bad thing.
They present one way in which voters can gauge the national mood. The question is: how does one ensure the
polls do not get manipulated?
How Does One Do That?
Greater transparency. If a poll is claiming to sum up the national mood, it should also describe its methodology -the size of the sample, its socio-economic profile, how the data was collected (questionnaire, interview or
phone), etc. The poll should also disclose ownership and track record of the organisation that conducted the
survey, and the client who paid for the survey. A good start would be to ignore any survey that doesn't provide
detailed answers to all of these questions.
Govt to Push for Exclusion of Electronics from FTAs
J SRIKANT NEW DELHI
After refusing to participate in talks to allow more electronic merchandise to be traded dutyfree among WTO
nations, India now wants to make sure no electronic hardware is included in future free trade agreements (FTAs)
that the country signs. The move forms part of a larger push by the government to encourage domestic
manufacturing of electronic goods, which is slated to replace oil as the single biggest item on India’s import bill
by 2020.
“We will look at all future FTAs and push for the removal of all those electronic products which are not
included in Information Technology Agreement list,” said a senior government official. The agreement that he
referred to was first signed in 1996 allowing for certain preagreed list of electronic merchandise to be traded
dutyfree between WTO member nations. The US and Europe are now lobbying for expanding the list as they
look to get better access to emerging markets like India.
“Allowing import of more electronic products under FTAs will be detrimental to domestic manufacturing and
will defeat the whole purpose of India not joining the ITA expansion talks,” he added.
India is currently engaged in some 22 trade negotiations including India-Australia Joint FTA, a Framework
Agreement with Thailand, Comprehensive Economic Cooperation Agreement with Indonesia and a few other
with countries such as Mongolia, Maldives and New Zealand.
The country has 19 trade agreements in place already. Some industry associations in the country welcomed the
government stand.
Naked vs Nude on Poverty
Pro-poor, some claim, is pro-poverty and thus inimical to growth; this is balderdash
One reason many people advance for supporting Narendra Modi is their opposition to the Congress’ pro-poor
stance. This, they claim, ends up creating a vested interest in preserving rather than combating poverty.
In contrast, in Modi’s championship of growth, they see the possibility of eliminating poverty. Stripped bare
of sophistry, this pro-poor versus anti-poverty distinction, altogether less substantial than naked versus nude,
turns out to be nothing more than the proverbial fig leaf. Pro-poor is indeed pro-growth.
Let us begin with Nehru’s supposed socialism. Socialist is as socialist does. What did Nehru do? He banned
most imports, slapped high tariffs on the rest, to present independent India’s burgeoning industry with a
domestic market completely free from foreign competition.
How Red, Nehru’s Socialism?
He mobilised domestic savings and handed them over to industry — not just through a financial institution like
Industrial Finance Corporation of India, set up in 1948, but also by repressing farm prices, turning the terms of
trade against agriculture and transferring income from the vast rural mass to urban industry.
Nehruvian policy talked about reserving the commanding heights of the economy for the public sector, but
used the Budget to transfer incomes from across society — indirect taxes that burden everyone used to account
for more than 90% of tax revenue —to build steel plants, machine tools and infrastructure that Indian industry
just was too small to build on its own. In other words, Nehru used socialistic rhetoric to persuade people to go
along with building up a strong capitalist class in the country.
Following Pink Footsteps
Indira Gandhi, of course, went overboard with both the rhetoric and the accompanying regulations. But then, she
oversaw the development of food security and built upon Nehruvian foreign policy that secured for India the
strategic space imperative for autonomous economic development by a non-client state.
Nehru and Indira Gandhi pursued policies that built up an educated, professional middle class in the country.
Their children studied in the engineering institutions of excellence these leaders had the foresight to set up. They
went on to migrate to the US and played a huge role in the growth of India’s vaunted information technology
industry. Not quite anti-growth, was this?
Rajiv Gandhi it was who talked of preparing India for the 21st century and promoted a domestic IT industry.
India broke away from the Hindu rate of growth in the 1980s, when growth averaged 5.8%.
Then, in 1991, P V Narasimha Rao initiated economic reforms, choosing Manmohan Singh as his man to do
the job. That, too, was a pro-poor Congress government, and liberalisation and globalisation were carried out in
the name of the poor. Did that hurt growth or promote it? A section of domestic industry, organised as the
Bombay Club, and “nationalist” offshoots of the Sangh Parivar, such as the Swadeshi Jagran Manch, were
opposed to opening up and foreign capital. That very Sangh Parivar now hopes to ride on Modi’s coat tails to
national centre stage.
The Congress-backed United Front government carried the reform process forward and its finance minister P
Chidambaram cut incometax rates to levels where they have stayed till now. Helping growth helps the poor was
the subtext when Chidambaram made dematerialisation of shares mandatory, allowed foreign institutional
investors into debt, opened up insurance and announced the New Exploration and Licensing Policy to create a
level playing field for public and private sector players in hydrocarbon sectors. Does this sound anti-growth?
UPA as Growth Launchpad
India achieved its fastest patch of growth, averaging 8.85% in the UPA’s first four years, prior to the financial
crisis of 2008. Even after that, growth has sustained till this year.
Poverty fell at its fastest pace in Indian history, thanks to growth and redistributive policies. This is not just
pro-poor but also anti-poverty and pro-growth. At a time now, when urban India is caught in the thrall of a
slowdown, sustained real wage growth over seven years has created a solid, growing mass of purchasing power
in rural India. The latest figures show a 4% dip in motor car sales in October, alongside an 18% growth in twowheelers.
Infant mortality rate has come down by a third, more women than ever give birth in a hospital, health
insurance coverage has increased dramatically. Pro-poor policies have made for structural diversification of the
economy. In 2011, for the first time, the share of the workforce living off agriculture came down below 50%.
This is a landmark. Aadhaar is paving the way for financial inclusion. Broadband is being rolled out to 2,50,000
panchayats. Power lines have been drawn to 4.6 lakh villages. When power does finally start flowing on these
lines, India’s growth rate would witness a quantum leap.
UPA hasn’t just done redistribution, it has created conditions for fast growth, which will materialise whoever
forms the next government.
Immigration Bill will Decimate Indian IT Cos
The much-beloved India Caucus in the US House of Representatives organised the first-ever Diwali celebration
on Capitol Hill recently, but it has also quietly deposited a very inauspicious gift at India’s door. It is called HR
15, a bill that if passed in its current form would essentially shut down Indian IT companies or so reduce their
strength as to make them negligible. It is one of the most anti-India pieces of legislation. Of the 135 members of
the India Caucus, 63 have not only supported the bill but also co-sponsored it in a measure of serious support.
The Democratic co-chair of the India Caucus, Congressman Joseph Crowley of New York, is among them. So
far, 187 Congressmen are on board, including three Republicans, in the 435-member House. Much of the bill
deals with illegal immigration and border security issues but it also includes “killer” provisions on H1-B and L1 visas. It is important to note that for the many complaints the US Congress has articulated against India lately,
India has raised one real concern this year: against the visa provisions in the immigration reform bill. The bill,
introduced on October 2, is essentially a replica of the equally harsh Senate bill, passed this summer. It does
nothing to lessen the pain for Indian companies despite many representations and briefings to the US Congress
and administration. The likelihood of the House bill being passed is slim because the Democrats are in minority.
But be that as it may, the language reflects the current sentiment on the Hill. And that is worrisome. Like the
Senate version, the House bill takes specific aim at H1-B and L-1 visas, the two categories used most frequently
by Indian IT majors. Both bills prohibit a company from having more than 50% of its workforce on H1-B or L1, they drastically raise visa fees, require companies to pay much higher wages and they ask that mandatory ads
be published to recruit US workers before hiring an H1-B visa holder. The only relief: the bills raise the cap on
H1-B visas from 65,000 a year to between 1,15,000 and 1,80,000, depending on the demand. Visa fees for a
company using H1-B workers could rise to $5,000 per application if 30-50% of its employees are on H1-B. If its
workforce is 50-75% on H-1B, it will have to shell out $10,000 for each visa application. If this were not
enough, the bills want companies to reduce dependence on H1-B visas by 2016 down to 50% of the workforce.
Then there are several reporting requirements to the department of homeland security. India’s software industry
association Nasscom says the provisions amount to a non-tariff barrier. The push for penalising H1-B workers
has come both from a few US tech giants and from the rank and file of American tech workers — both really
don’t like competition when it comes down to it. They are apparently concerned about the plight of H1-B
workers who slave away in sweatshops on low wages. Yet, a study by the Brookings Institution found that H1-B
workers make 26% higher wages than their American counterparts. Even if you accept that H1-B workers
displace some American workers, it is equally true that other Indian companies have invested billions in the US
and created thousands of jobs. To cite just one example: Essar is building a steel plant in Minnesota at the cost
$1.7 billion, said to be the largest private sector project in North America. Back to the India Caucus and its role
as guide and mentor on bilateral issues of concern. It might be time for the Indian community to ask some real
questions: what does its money really buy besides photo-ops? Indian diplomats were equally ineffective in
creating a balanced debate. They were unable to energise the Indian community to use its clout to calm down
Congressional tempers raised by a US business community gone wild. When an SOS went out to Indian
community leaders, a majority reportedly didn’t respond. The USIndia Business Council has made an attempt to
counter the anti-India atmosphere but with minor success. What’s missing is an overall strategy that links Indian
diplomats, consuls general in various cities, the Indian-American community, India’s lobbyists and
policymakers in New Delhi into an intelligent design.
The writer is a geopolitical analyst
Kejriwal gets it Right: Screen all Parties
A probe ordered into the sources of funding of a political party — whether that order comes from the
government itself or is prompted by the judiciary — would seem a move against a primary source of corruption
in India. But why should such a probe be limited to one single party? Thus, while the Centre says it will
investigate whether the Aam Aadmi Party (AAP) violated rules on its sources of funding, it makes for an utterly
skewed situation when other parties are not subject to a similar investigation. These columns have often argued
that reform of political funding is a key, perhaps the most significant, part of combating the malaise of
corruption in India. As long as parties do not disclose their sources of income and how that money is spent,
political corruption will continue to facilitate corruption within the wider polity.
Unless the move to investigate the transparency claims of the AAP widens into probing the secretive nature of
how other parties — including the Congress and the BJP — collect funds, it would seem to be a bullying tactic
against a political opponent. To its credit, AAP has maintained it can account for every donation it receives. The
website of the party does have a donors list. And this is a welcome paradigm shift. There is nothing even
remotely similar from the BJP and the Congress — the two parties facing the biggest threat from the AAP in the
looming Delhi polls. And the AAP is perfectly right when it asks that the BJP and Congress be subjected to
similar levels of transparency.
There is no comparison between the declared funds of AAP and that of the Congress and BJP. Add the amounts
political parties do not declare, and we will have a humungous amount of money. Reforming such political
funding is the larger goal. Targeting only a small, new political party is petty vendetta.
Infrastructure Debt Funds To Play On The Fringes
IDFs are taking baby steps. They are beginning to make investments in assets, but they are not going to
be the panacea for infrastructure ills. They may just be as successful as other initiatives such as IDFC, or
IIFCL, says Atmadip Ray
A two-year wait in the life of a nation may not after all be long provided the wait achieves something
significant. More than two years after the Reserve Bank of India laid down the ground rules of Infrastructure
Debt Funds (IDF), there are signs of some life, but what they could deliver is still being debated.
India Infradebt (a joint venture among ICICI Bank, Bank of Baroda, Citicorp Finance and Life Insurance
Corporation of India) and IL&FS Infra Debt Fund (a joint venture between IL&FS and eight public sector banks
including Bank of India and Allahabad Bank) are among those with triple A rating poised to raise funds. But
they may well be a drop in the ocean as many issues that held back infra lending still remain.
If Viswanathan Anand does not believe that he has a chance to win the world championship before the
tournament begins, the chances of him actually winning are far less. That probably is the scene with these funds
which are seen as the new genie that’s expected to grant the wishes of a billion-plus population. “Unless the
financing from IDFNBFCs is made pari passu (meaning an equal footing) with existing loans, it will be difficult
for this scheme to get assets to lend to,” says Vikram Limaye, the chief executive of Infrastructure Development
Finance Corp (IDFC). “Under the present format, debt provided by IDF-NBFCs will be senior to the existing
project debt, and financial institutions will not be comfortable with such a structure. This will be a major
obstacle for the success of IDF-NBFCs.”
Alternate Solutions
In February 2011, then finance minister Pranab Mukherjee announced the IDF concept with tax exemptions.
These funds can have two designs: one as a company and the other as a trust. If IDFC floats one, it will join
ICICI Bank and L&T Infrastructure Finance Company in setting up a company (IDFNBFC) and will be
regulated by the RBI. IL&FS and IIFCL, on the other hand, have formed trusts which are known as IDF-MF and
are regulated by Sebi.
These funds will invest in projects that are running at least for a year and in ones that have a tripartite agreement
with the operator which will give the fund the charge in case of a default. So far the tripartite agreement is final
only for road projects.
The fact that it has taken nearly two years to begin the search for assets to invest in, indicates that these funds
could hardly meet India’s growing needs for infrastructure funding.
IDFs are meant to supplement bank finance in country’s infrastructure by taking over a chunk of . 7,86,045
crore loans outstanding as on March 2013. The everwidening gap in banks’ asset liability profile has also
compelled policy-makers to find alternate solutions like IDFs as the country has projected an infrastructure
investment requirement of about $1 trillion in the 12th Plan with an estimated funding gap of above . 5 lakh
crore.
About 53% of the infrastructure investment need is expected to be funded through budgetary support and the
balance will have to come from the private sector. The approach paper of the 12th Plan says that the share of the
private sector in investments will have to rise to as much as 48% from 37% in the 11th Plan to achieve this.
A Tall Order
Although business opportunities are enormous, the conflicts remain the same. Investors want to buy assets that
are generating cash and banks want to sell the ones that are stuck. This precisely is the reason why India
Infrastructure Finance Company did not deliver on its promise.
It might not be any different with IDFs.
“With all due respect to the proponents of this measure, I have a fundamental issue with the take-out financing
model,” Reserve Bank of India deputy governor KC Chakrabarty said in a seminar in August.
“Being long-gestation projects, the financiers of infrastructure projects need to pay a lot of attention to the
project at the nascent stage,” said Chakrabarty, a life-time banker and former chairman of Punjab National
Bank. “Having assumed the risk till the project comes on stream and starts generating stable revenues, I don’t
understand why a bank would be willing to trade a good credit risk for the risk of funding another green field
project!”
Achieving the target on infrastructure will indeed be a tall order.
IDF-NBFCs will find investment opportunities to the tune of . 20,000 crore in the next three years, just about
4% of the funding gap in the 12th Plan, estimates Crisil, the local unit of Standard & Poor’s. In this investment
sub-set too, not everything seems to be in order.
Removing Stress
While people like Limaye are skeptical, IIFCL’s officiating chief HK Bhanwala believes that the stress in the
banking system and the need to reduce the exposure could provide the fillip required for IDFs to take off. “If
they (banks) feel they would reduce the exposure to one particular sector, then banks can take advantage of
takeout financing,” says Bhanwala.
IIFCL has received a commitment for . 1,500 crore for its trust.
UCO Bank executive director Jai Kumar Garg feels that if banks are adequately compensated, they will not
hesitate to take back their loans since this will allow them to free up resources and lend afresh.
“The requirement is pretty huge and banks in general do not have a good deposit growth. The refinance facility
will also help us correct our asset liability mismatches and go for fresh lending,” adds Garg.
The advantage of IDF-NBFCs is that it is exempted from income tax and its lending will carry a 50% risk
weight since these are operating assets. Capital can, therefore, be used more effectively and rating agencies
would potentially be more comfortable with higher leverage. Even among the two types of IDFs available, there
is very little scope for a mutual fund structure to make any meaningful mark.
“I will hold to the view that the mutual fund structure is flawed, as mutual funds are unleveraged vehicles,” says
Vinod Kothari, a consultant on structured finance. “Infrastructure investments are big-ticket investments, and
even one project going bad may bring substantial losses to the fund, which will get distributed to the fund
investors. There is no credit enhancement in a mutual fund structure, which is there in the NBFC mode. The
NBFC mode is the idea of securitisation, where the equity present in the IDF-NBFC serves as the credit
enhancement.”
Govt Support Critical
IL&FS has started disbursements under the fund and three others — ICICI Bankled Infradebt, L&T Infra Debt
Fund and IIFCL’s IDF-Mutual Fund — are expected to begin soon. Be it bank funding, a specialised
institutional lending such as IDFC’s, or a private equity fund like 3i which wound up India investing, or the
IDF, the bottom line is that the risk of investing will decide the funding for projects. Unless government
provides comfort on that count, whatever the nomenclature, it will hardly work.
“Private sector participation in future is likely to reduce due to challenges on the viability of new projects,” says
Crisil’s senior director Pawan Agrawal. “The government’s support is critical to enhance the viability of
infrastructure projects.”
[email protected]
Govt mustn’t Interfere with Key Economic Goals: FM
OUR BUREAU NEW DELHI
Finance minister P Chidambaram said the fiscal deficit, current account deficit (CAD), central bank’s
mandate and inflation target shouldn’t be subject to executive discretion to ensure responsible economic
policies. “Some things must be set in stone... fiscal deficit, current account deficit, mandate to RBI, inflation
target... These must be put beyond the discretion of any government,” Chidambaram said on Tuesday, pointing
out that the current Fiscal Responsibility & Budget Management (FRBM) Act was too flexible.
Chidambaram had unveiled a fresh fiscal consolidation plan soon after taking over as finance minister in August
last year after ratings agencies threatened a downgrade as India faced massive fiscal slippage. He applied a
stringent spending squeeze to keep the deficit below the budgeted 5.1% of GDP, which helped restore
confidence in the government and helped avoid a downgrade.
His fiscal consolidation plan envisages a fiscal deficit target of 4.8% of GDP in the current year. It’s projected to
decline to 3% of GDP by 2016-17. “The current FRBM Act is very malleable. It does set out a fiscal deficit
target, but if you miss the target, all that you do is go back and amend the Act to reflect the missed target. That
is not a satisfactory state of affairs. Some things must be put beyond discretion. Some things must be set in
stone,” he said, outlining a future reform agenda to improve governance in the country.
For the current fiscal, the finance minister has outlined a similar plan to rein in the CAD that rose to an all-time
high of 4.8% of GDP in the last financial year. The plan envisaged a reduction in the CAD to $70 billion
originally from $88 billion last year. He revised the target to $60 billion earlier this month.
The finance minister also emphasised the need for improvement in accountability for better governance, which
he said was crucial to achieve high growth. “There is very little accountability in public sector, regulators... How
many people have been asked to deliver what they had promised to deliver or asked to go if they did not
deliver... Accountability should be laid out in rules,” he said.
He also underlined the need for redrawing procedures to expedite the implementation of projects, saying, “We
are good at conceptualising... extremely poor in implementing projects.”
“Yesterday, Montek (Singh Ahluwalia) and I were sitting with the prime minister reviewing progress in two
sectors. And, it was an extremely disappointing experience,” he said.
There is very little accountability in public sector, regulators. ..How many people have been asked to deliver
what they promised to deliver or asked to go if they did not deliver...Accountability should be laid out in rules.
P CHIDAMBARAM
Finance Minister