📰 Odisha to come up with single revenue code
By simplifying various laws as some of them are unable to meet the pressing needs of changing times
•The Odisha government has proposed to come up with a single revenue act by merging various revenue laws enacted at different point in times.
•“We will enact single revenue code by consolidating and simplifying various revenue laws as some of the provisions of the existing laws governing land revenue administration are unable to meet the pressing needs of changing times,” said Maheswar Mohanty, State Revenue and Disaster Management Minister.
Futuristic outlook
•A committee comprising Member of Board of Revenue as chairman and 12 other members was tasked to frame revenue code with futuristic outlook which will contain provisions for automation and Internet use.
•The draft ‘Odisha Land and Revenue Code’ has been prepared by taking into consideration the Odisha Survey and Settlement Act, 1958, the Odisha Special Survey and the Settlement Act 2012, the Odisha Government Land Settlement Act, 1962, the Odisha Prevention of Land Encroachment Act, 1972, the Odisha Land Reforms Act, 1960, the Odisha Consolidation of Holdings and Prevention of Fragmentation of Land Act 1972 and the Odisha Estates Abolition Act, 1951.
•“There were 299 sections in the present set of seven Acts, whereas the draft code has a total of 107 sections,” said Mr. Mohanty.
•“There has been no provision for settlement of land in case of encroachment for more than 30 years in the code,” the department said.
•According to minister, the code will be published inviting suggestions and objections from all sections and after scrutiny of feedbacks, necessary changes will be effected and steps will be taken for enactment of the code.
📰 Council conundrum: on States having a Legislative Council
Odisha’s plan calls for a national policy on the utility of a second chamber in States
•If there was any real benefit in having a Legislative Council, all States in the country should, and arguably would, have a second chamber. The fact that there are only seven such Councils suggests the lack of any real advantage, apart from the absence of a broad political consensus on the issue. Now Odisha wants to join the group of States that have an Upper House. The State Cabinet has approved a 49-member Legislative Council, accepting the report of a committee set up in 2015 to study the functioning of the second chamber in other States and make recommendations. The process of creating an Upper House is lengthy. The State Assembly has to pass a resolution for the creation of the Council by a majority of its total membership. Thereafter, Parliament has to enact a law to create it. Two Bills introduced in the Rajya Sabha in 2013 for establishing Legislative Councils in Assam and Rajasthan are still pending, indicating the lack of support for such a move. A parliamentary committee that went into these Bills cleared the proposals, but struck a cautionary note. It wanted a national policy on having an Upper House in State legislatures to be framed by the Union government, so that a subsequent government doesn’t abolish it. It also favoured a review of the provision in the law for Councils to have seats for graduates and teachers.
•The advantages of having a bicameral legislature are well-known. An Upper House provides a forum for academicians and intellectuals, who are arguably not suited for the rough and tumble of electoral politics. At least on paper, it provides a mechanism for a more sober and considered appraisal of legislation that a State may pass. The objections to the second chamber are varied. Rather than fulfilling the lofty objective of getting intellectuals into the legislature, the forum is likely to be used to accommodate party functionaries who fail to get elected. It is also an unnecessary drain on the exchequer. Another issue is that graduates are no longer a rare breed; also, with dipping educational standards, a graduate degree is no guarantee of any real intellectual heft. And then again, why should graduates be privileged as people’s representatives in a democracy? Today, legislatures draw their talent both from the grassroots level and the higher echelons of learning. There are enough numbers of doctors, teachers and other professionals in most political parties today. The Rajya Sabha’s case is different as it represents the States rather than electoral constituencies. It is also a restraining force against the dominance of elected majorities in legislative matters. Legislative Councils are subject to varied and inconclusive discussions around their creation, revival and abolishment. Given all this, Odisha’s proposal may give the country at large an opportunity to evolve a national consensus on Legislative Councils.
📰 Article 35A and the basic structure
Any move to do away with it will damage the most solemn promises at the heart of the Indian federation
•Can Article 35A of the Constitution be struck down? If yes, should it be? These questions — raised in a petition filed in the Supreme Court by a Delhi-based non-governmental organisation, “We the Citizens” — have already attracted widespread attention. The case, there’s little doubt, is freighted with political meaning. But when we look beyond the interests of politics, the issues aren’t especially contentious. As a matter of simple legal construction, it ought to be obvious to the court that the petition deserves a resounding dismissal. Any other verdict, which so much as entertains the notion that Article 35A is expendable, will impinge on basic tenets of constitutional interpretation, and will damage the most solemn promises that lie at the heart of the Indian federation.
•Article 35A was inserted into the Constitution as part of a raft of amendments made through a 1954 presidential order, imposed under Article 370. Broadly, it empowers Jammu and Kashmir (J&K) to not only define a class of persons as constituting “permanent residents” of the State but also allows the government to confer on these persons special rights and privileges with respect to matters of public employment, acquisition of immovable property in the State, settlement in different parts of the State, and access to scholarships or other such aids that the State government might provide. The Article further exempts such legislation from being annulled on the ground that they infringe one or the other of the fundamental rights guaranteed by the Constitution. According to the petitioner, this immunity granted to J&K’s laws is discriminatory, and, therefore, Article 35A should be declared unconstitutional.
Well-settled law
•When the case comes up for hearing this week, a three-judge Bench of the court intends to test the petitioner’s preliminary arguments and consider the question of whether Article 35A infringes the Constitution’s basic structure. The answer to this question, the court believes, will allow it to decide whether to refer the case to a larger bench for further examination. But this exercise is likely to be of little avail. The law on the subject is well settled. Previous Benches have already put their imprimatur on the 1954 presidential order. In any event, even if the court were to look beyond existing precedent, a proper reading of the text of Article 35A, and its constitutional history, will establish that the present petition is meritless; that Article 35A is not amenable to a conventional basic structure challenge.
•India’s Constitution, as the political scientist Louise Tillin has explained, establishes a form of asymmetric federalism, in which some States enjoy greater autonomy over governance than others. This asymmetry is typified by Article 370 — a provision, as Ms. Tillin writes, which was debated for over five months before forming part of the Constitution as adopted in 1950. In its original form, Article 370 accorded to J&K a set of special privileges, including an exemption from constitutional provisions governing other States. What’s more, in accord with J&K’s Instrument of Accession, it restricted Parliament’s powers to legislate over the State to three core subjects: defence, foreign affairs and communications. Parliament could legislate on other areas only through an express presidential order, made with the prior concurrence of the State government. Where those subjects went beyond the Instrument of Accession, the further sanction of the State’s Constituent Assembly was also mandated. Finally, the Article also granted the President the power to make orders declaring the provision inoperative, but subject to the condition that this authority could be exercised only on the prior recommendation of the State’s Constituent Assembly.
•However, with the disbanding of J&K’s Constituent Assembly in 1956, the question of suspending Article 370 was rendered moot. In the process, the asymmetry in India’s federalism was fortified. That this is the case can also be gleaned from a reading of Article 368, which contains the ordinary powers of constitutional amendment as applicable to other parts of India. One of the provisos to the clause (ironically made through the same presidential order which introduced Article 35A) makes it clear that changes made to the Constitution under Article 368 will not mechanically apply to J&K. For such amendments to apply to the State, specific orders must be made under Article 370, after securing the J&K government’s prior assent. What’s more, such amendments will also need to be ratified by the State’s Constituent Assembly. Indeed, as the Union Home Minister of the time, Gulzari Lal Nanda, put it in the Lok Sabha on December 4, 1964, Article 370 represents the only way of taking the Indian Constitution into J&K: “It is a tunnel,” he said, and “it is through this tunnel that a good deal of traffic has already passed and more will.”
Basic arguments
•The petitioner in the Supreme Court now makes two basic arguments. Article 35A, it claims, could not have been introduced through a process outside the ordinary amending procedure prescribed under Article 368. Even assuming that the President possessed this power, the petitioner asserts, Article 35A infringes the Constitution’s basic structure. Both these claims, however, suffer from fundamental flaws.
•As we have already seen, Article 370 is as much a part of the Constitution as Article 368. That the framers were deeply cognisant of the fact that the Constitution accorded J&K exceptional status is free of any doubt. It is particularly clear from the address made by N. Gopalaswami Ayyangar, the chief drafter of Article 370, to the Constituent Assembly on October 17, 1949: “Kashmir’s conditions are… special and require special treatment,” he said— “it is one of our commitments to the people and the Government of Kashmir,” that in matters outside the scope of the Instrument of Accession no additions would be made “except with the consent of the Constituent Assembly which may be called in the state for the purpose of framing its Constitution.”
•That Article 370 is the embodiment of this promise was recognised as early as in 1959 by the Supreme Court in Prem Nath Kaul v. State of J&K. A few years later, another Constitution Bench of the court, in Sampat Prakash v. State of J&K, further clarified the position. “Art. 370 of the Constitution has never ceased to be operative,” it held, “and there can be no challenge on this ground to the validity of the Orders passed by the President in exercise of the powers conferred by this Article.” If anything, as A.G. Noorani has argued, there is a fine case to be made that all orders extending India’s Constitution to J&K subsequent to 1956, when the State’s Constituent Assembly was disbanded, are a nullity. But that the presidential order incorporating Article 35A, on the express recommendation of the State’s Constituent Assembly, is without legal authority is an argument that is destined to fail.
The structure
•It is equally fallacious to suggest that Article 35A can somehow be subject to a basic structure challenge. The canonical rule established in 1973, in Kesavananda Bharati v. State of Kerala, that the powers of amendment under Article 368 are not plenary and that the Constitution’s basic features cannot be abrogated, was based expressly on an interpretation of the text of Article 368. Its logic doesn’t extend reflexively to amendments made under Article 370, a provision, which in and of itself, is essential to maintaining India’s federal structure. Besides, more than six decades have elapsed since Article 35A was inserted, and by now vast tracts of properties would have doubtless changed hands. In such cases, where constitutional amendments create vested rights in persons, as the Supreme Court held in Waman Rao v. Union of India, an amendment made prior to the decision in Kesavananda cannot be susceptible to a basic structure challenge. To hold otherwise would have consequences far more devastating than might immediately be apparent.
📰 Silence is not a virtue
In a vibrant democracy, there must be free flow of information, not prepublication gag orders
•It was heartening to read all the glowing tributes to veteran journalist Kuldip Nayar and his relentless fight for a free press. The irony is that some of those who do not value the importance of a free press are celebrating his resistance to the Emergency. In the mid-1970s, the threat to media freedom was transparent as it was a top-down command. Now, it has taken myriad forms and operates in a subtle fashion. It is akin to a byzantine maze.
No prior restraint
•One of the key tools used to silence a probing press, whose fundamental mandate is to scrutinise those in power, is the prepublication gag order. In recent times, gag orders have been coming as an avalanche. They are in gross violation of the Supreme Court’s 1994 order in R. Rajagopal v. State of Tamil Nadu. The Bench comprising Justices B.P. Jeevan Reddy and S.C. Sen categorically denied the option of prior restraint. The apex court observed that it was important to strike a balance between the freedom of the press and the right to privacy. The court said that the state and its officials do not have the right to impose prior restraints on the publication of materials that may be defamatory to the state. “No such prior restraint or prohibition of publication can be imposed by the respondents upon the proposed publication,” the court said, but this does not prevent the state from initiating legal proceedings if it finds the published material to be defamatory. In other words, the ruling meant that no one can prevent the publication of potentially defamatory articles; one can only sue after such articles are published. But what constitutes defamation? Why should India permit both criminal and civil defamation? Legal experts have explored these contentious issues at length.
•There seems to be a wide gap in the interpretation and application of laws between the higher judiciary and the lower judiciary in India. While the higher judiciary retains the space for freedom of expression, the lower judiciary tends to restrict it on untested legal grounds, often bordering on infringement of fundamental rights. For instance, in Karnataka, nearly 80 cases of blanket prior injunctions were issued against various media houses, including this newspaper. It takes months, if not years, to get these injunctions vacated. It is not just governments that opt for prior restraint to silence the media and hamper the flow of information but also powerful corporate houses.
•Last year, the news website The Wire was forced to take down two articles following a court order in a defamation suit filed by Rajya Sabha member Rajeev Chandrasekhar, who is also the vice chairman of the National Democratic Alliance in Kerala. The City Civil Court in Bengaluru gave an ex parte order in the case without even giving the news organisation an opportunity to explain its reason for publishing the material.
The Rafale deal
•In September 2016, a €7.87 billion Intergovernmental Agreement for 36 Rafale multi-role fighter jets in fly-away condition was signed between India and France. The deal has become a contentious issue since. It is the duty of the media to examine the deal closely, including the controversial offset deal. However, three companies owned by Anil Ambani served a “cease and desist” notice to the The Hindu against publishing “unverified and speculative” reports relating to the offset contract that was part of the Rafale deal. The notice comes after the Congress alleged that there were financial irregularities in the Intergovernmental Agreement. The party had also raised questions about the manner in which the companies were roped in as offset (export obligation) partners for the deal. The “cease and desist” notice was later sent to some other publications and to Congress leaders.
•The Editors Guild of India condemned the “cease and desist” notice and asked the company to withdraw this notice. The Guild was equally disturbed by the gag order issued by the Patna High Court restraining the media from reporting on the investigation in the Muzaffarpur shelter home abuse case.
•Only totalitarian regimes prefer silence. A vibrant democracy encourages debate and arguments, and values the need for the free flow of information.
📰 M.P. seeks revival of cheetah reintroduction project
Writes to NTCA seeking revival of the project in Nauradehi sanctuary, the most suitable area for the felines
•The Madhya Pradesh forest department has written to the National Tiger Conservation Authority to revive the plan to reintroduce cheetahs in the State’s Nauradehi sanctuary. The ambitious project, conceived in 2009, had hit a roadblock for want of funds.
•The country’s last spotted feline died in Chhattisgarh in 1947. Later, the cheetah — which is the fastest land animal — was declared extinct in India in 1952.
•“We have written a letter to the NTCA seeking revival of the cheetah reintroduction project in Nauradehi sanctuary located in Madhya Pradesh’s Sagar district. We have sought its stand on the project,” State’s Principal Chief Conservator of Forests (wildlife) Shahbaz Ahmad said.
Money matters
•The M.P. forest department would need finances from the Centre for the project, he said, adding that the NTCA, a statutory body under the Union Environment Ministry, had committed ₹50 crore to the State for it in 2011.
•The Wildlife Institute of India at Dehradun had prepared a ₹260-crore cheetah re-introduction project six years ago, wildlife activist Ajay Dubey said. It was estimated that an amount of ₹25 crore to ₹30 crore would be needed to build an enclosure in an area of 150 sq km for the cheetahs in Nauradehi, he said. The proposal was to put the felines in the enclosure with huge boundary walls before being released in the wild, he said.
•Nauradehi was found to be the most suitable area for the cheetahs as its forests are not very dense to restrict the fast movement of the spotted cat, Mr. Dubey said. Besides, the prey base for cheetahs is also in abundance at the sanctuary, he added.
•According to the earlier action plan, around 20 cheetahs were to be translocated to Nauradehi from Namibia in Africa. The Namibia Cheetah Conservation Fund had then showed its willingness to donate the felines to India, Mr. Dubey said.
•However, the State was not ready to finance the plan contending that it was the Centre’s project, officials had said earlier.
📰 The larger picture on GDP numbers
The government should leave the debate on the back series to experts, and not make it political
•The new data on GDP have raised a political storm, with the back series for GDP growth since 1993-94 becoming available. Its importance lies in the fact that in 2015, a new series was announced which showed India’s GDP growing faster than the earlier series had shown. This was politically advantageous to the National Democratic Alliance (NDA) government which came to power in 2014.
•The NDA claimed that the second United Progressive Alliance (UPA II) government had messed up the economy and it had turned it around. But, in the new series, the rate of growth during the last two years of UPA II was also higher than what the old series showed so that the economic performance under the UPA also did not look so bad. What the new series also showed was that the NDA had inherited an economy with GDP growing at 8.4% in the second quarter of 2014. Most macroeconomic variables had also recovered from their lows in 2013.
•Data show that after the NDA took over, the rate of growth fell and then rose to a peak of 8.65% in 2015-16 Q4. After that it fell for five consecutive quarters — to 5.57% by 2017-18 Q1. The two shocks to the economy (demonetisation and then the GST) had a big negative impact on the rate of growth. This is not even captured in the new data since a shock requires a change in methodology for calculation of GDP. The political slugfest between the Bharatiya Janata Party and the Congress is due to data showing that the average growth rate under the UPA I and II was higher than what has been achieved during the present NDA regime.
Points to the issue
•There are three distinct aspects to the controversy. First, why was the back series —now the bone of contention — needed? Second, what do the data show? And, third, why was the rate of growth during the UPA regimes higher?
•An economy produces a large number of goods and services and new ones are added all the time. The production of all these items has to be estimated in order to calculate the rate of growth of the economy. This requires lots of data, which is a tall order. So, a select set of items is taken to represent the entire production. The question which arises is: How accurate are the data?
•Technology poses another challenge. Older items become redundant and newer ones need to be included.
•So, as time passes, the earlier series of data does not represent the true growth rate of the economy and needs to be modified. That is why the old series is replaced by a new one periodically. The earlier series (from 2004-05) was replaced by a new series (from 2011-12). Another question arises: How do the data from the new series compare with those of the old series? Is it that growth was also higher earlier? Analysts have demanded a back series whenever a new series is prepared. There were problems with the new series which is why the back series was not generated automatically. This is also why the new committee (which has presented its report) was set up.
•The difficulty with the new series (2011-12) was because it not only changed the bundle of items used to calculate growth but also used a more extensive data base (of companies) called MCA21. This data base was available from 2006-07. However, it kept changing every year and did not stabilise till 2010-11 — so it was not comparable across years and could not be used to generate the back series. This is also why the task of the committee was a difficult one and it could not mechanically generate the back series.
•The committee had to use a new method which has its own assumptions, which are likely to be debated by experts. A bias in the results seems to be that the growth rate in the new time series for the earlier part (the 1990s) is lower than in the old series whereas it is higher for the later part (the 2000s). It is also unable to take the black economy and the changes in the unorganised sectors into account. The report has been submitted to the National Statistical Commission which will finalise it. Therefore, government functionaries are arguing that the data cited by the media are not final.
Quarrel about causes
•It is interesting that the criticism is more about the causes of the higher rate of growth under the UPA than the methodology of the study. The implicit admission is that the economy did grow faster under the UPA but due to wrong policies (allowing the fiscal deficit to rise, undue expansion of bank loans, etc). The argument is that these have led to non-performing assets (the twin balance sheet problem), higher inflation and current account deficit.
•But the higher growth was on the back of a 38% rate of investment and a 36% rate of savings achieved by 2007-08. These are now down to 32% and 30%, respectively. The 2007-08 crisis was a global one but the Indian economy continued to grow when many other economies were slowing down due to increase in fiscal deficit from its record low in 2007. The crisis of 2012-13 was due to the rise in petroleum prices and largely due to international factors.
•However, the current slowdown is largely policy induced and less due to international factors. The twin shocks (demonetisation and the GST) have played havoc with the unorganised sector (not yet captured in the data). Household savings have declined sharply and the investment climate remains poor with large numbers of dollar millionaires leaving the country. The government might consider leaving the data debate to experts and not making it a political one.
📰 Powell doctrine: on raising interest rates
The Chairman of the U.S. central bank signals a gradualist approach to raising interest rates
•U.S. Federal Reserve Chairman Jerome Powell’s speech last week at the conference for central bankers in Jackson Hole, Wyoming was a strong defence of the current gradual approach to raising interest rates. With the American economy growing at a strong pace, inflation being close to the Fed’s 2% target and unemployment at a 20-year low, President Donald Trump has been so sharply critical of this approach of raising interest rates that it has led to suggestions that he is encroaching on the Fed’s independence. Mr. Trump is worried that rising interest rates could derail the country’s economic growth, check the stock market boom, and thereby affect his own popularity and electoral chances. Mr. Trump, however, has not been the only one critical of the Fed’s policy. Coming from another perspective, some are concerned that the Fed may in fact be raising interest rates too slowly, despite strong signals of an overheating economy. At Jackson Hole, in his first speech as Fed chief, Mr. Powell sought to defend his gradualism from his critics on both sides of the divide. He emphasised the imprecise nature of economic variables such as unemployment and inflation in the modern economy in drawing attention to the risks of raising rates either too fast or too slow. In stressing why macroeconomic forecasting is so difficult, Mr. Powell seemed to suggest that much of monetary policy-making is simply about groping in the dark.
•The speech also contained some important hints about the Fed’s likely policy direction in the coming years. Apart from the assurance that interest rate hikes will be gradual as before, the Fed Chairman had a message that has implications for the monetary policy stance of central banks in emerging market countries. He hinted that “risk factors abroad” could lead to a change in the Fed’s policy stance in the future. It is probably this portion of the speech that the markets may perceive as a dovish statement, even though Mr. Powell framed his speech primarily as a defence of the moderately hawkish policy of gradually raising interest rates. The Fed’s tightening policy stance has rattled several emerging markets, most notably Turkey and Brazil, which have seen their currencies tank under selling pressure. The Reserve Bank of India, too, has had to raise rates twice in the last few months, in part to defend the rupee. The stock market rallied in response to Mr. Powell’s statement, and the U.S. dollar, which has strengthened this year, witnessed a fall. It is well-known that the U.S. central bank has historically been non-committal when it comes to framing policy with the concerns of emerging markets in mind. A shift in policy under Mr. Powell would mark a significant change in the Fed’s outlook towards the rest of the world.
📰 In pursuit of an art smuggler
How Subhash Kapoor, a New York-based art dealer, evaded arrest till an associate spilled the beans on him
•In 2011, a celebrated New York-based art dealer, Subhash Kapoor, was detained in Germany for art theft, particularly of idols from temples in Suthamalli and Sripuranthan in Tamil Nadu. He was extradited the next year to India and now awaits trial in Chennai. After his arrest, the American authorities recovered stolen Indian art worth $100 million from his warehouses and galleries, and named him “one of the most prolific commodities smugglers in the world”. Kapoor was helped by Sanjeevi Asokan, an art dealer based out of Chennai who supplied the idols. As S. Vijay Kumar, a Singapore-based finance and shipping expert, writes in The Idol Thief, Kapoor’s “arrest caused an earthquake in the art world, the tremors of which are still being felt”. Asokan was arrested, and identified Kapoor as the mastermind of the crime. An excerpt:
•Subhash Kapoor and Sanjeevi Asokan had been dealing in antiquities for decades before they were caught. The Suthamalli and Sripuranthan idols, which ultimately did them in, were just a drop in the ocean. Many, many more treasures had passed through their hands. So how come they never got caught all those years? Well, for one, Kapoor had friends everywhere, and for another, he had the luck of the devil. Take, for instance, the case of ‘the container from Mumbai’. That was quite a close call for Kapoor.
Suspicious package
•In March 2007 in New York, Kapoor got a call that made him go numb. According to newspaper reports it was his ‘contact’, someone who worked in the Indian consulate in New York, warning him that the authorities in the U.S. had been tipped off by their Indian counterparts about a container that was consigned to his company, Nimbus Import Export, Inc. Kapoor’s contact’s warning was clear and precise — ‘Stay away!’
•According to U.S. Immigration and Customs Enforcement (ICE), the Indian authorities at the Jawaharlal Nehru Port Trust in Mumbai had become suspicious of a New York-bound shipment that was labelled as marble garden furniture. For one, the shipment weighed tonnes, much more than what mere garden furniture could possibly weigh, and, secondly, the exporter was a garment and textile company, not a furniture manufacturer. These things set off alarm bells. In fact, the shipment containing $20 million worth of Indian art, some of it stolen, was heading to Kapoor.
•Dumping $20 million worth of goods was a heart-wrenching decision. But it had to be done. This was the cost of doing business. Kapoor immediately sent a message to his agent to abandon the shipment. Then he likely contacted his trustworthy associate, ‘Shantoo’, his saviour. Shantoo would sort out everything, go into damage control mode. After all, India was a land of compromises! And many ruffled feathers had to now be smoothed.
•As Kapoor would have hung up, and put his phone into his pocket, had you been in the room, you would have seen his deformed right ear. He would later explain in his unpublished ‘statement of voluntary confession’ recorded by P. Ashok Natarajan, chief investigation officer, that “during my childhood days I was kidnapped for ransom and was rescued by police near Haryana Rajasthan border. In this incident one of the kidnappers bit off my right ear lobe and since then it has been deformed.”
Escaping the net
•The newspapers in India announced the seizure of the goods in the U.S. with screaming headlines and long reports.
•In an ideal world, this would have been an open-and-shut case. Kapoor should have been arrested then and there. The Hindu even reported that “When ICE pounced on the consignment and brought Kapoor in for questioning, he apparently acknowledged being aware of the laws governing importation of cultural properties from India, and the fact that shipment could not be lawfully imported. Therefore, he elected to abandon the items.” But nothing happened. The case just fell through the cracks in the U.S. The agent in charge of the case didn’t seem to want to move on it. All that was left were many questions that are still unanswered.
•Why didn’t the Indian authorities themselves stop the shipment at Mumbai? Who made that warning phone call to Kapoor? How did the caller have confidential information shared between the Indian authorities and U.S. Customs? And why was Kapoor allowed to continue his trade for years after this?
•Shortly after Kapoor got that warning call, he got busy. If the Mumbai-New York route was under watch, he had to find another way to get his shipments to America.
•He had been using the Hong Kong route earlier, to get to New York the Ardhanarishvara idol that he later sold to the Art Gallery of New South Wales in 2004 for $300,000. Now he asked his assistant to reactivate it by contacting their trusted associate Lai Sheung at Union Link International Movers Ltd in Hong Kong. He once more planned to use the Chennai/Kolkata/Mumbai-Hong Kong route to get his hauls out of India and then ship the goods to New York via London. Here’s how it worked: Lai Sheung would receive the shipment in Hong Kong, keep it for a while, and either directly send it on to Kapoor in New York or sometimes send it to Neil Perry-Smith, an art restorer, in London who would then send it to Kapoor after a while.
📰 Until dams do us part
India’s policy on dams has to be urgently reviewed
•The tragedy in Kerala has highlighted the dangers of excess water accumulation in dams. More than 20 dams released water that cascaded down the hills, leaving behind a trail of destruction. The opening of the gates of the Idukki dam, for instance, caused the Periyar river to swell rapidly and discharge seven lakh litres of water per second.
•Yet, the argument for dams — that they provide drinking water and water for agriculture — is today scientifically discredited. For independent geologists and hydrologists, dams represent a nightmare, an ephemeral triumph of engineering over common sense and the natural sciences. Increasingly, it is evident that dam proponents are ignoring crucial decision-making data now available on patterns of rainfall, geology and climate change.
•Dams store millions of tonnes of fresh water in large reservoirs, submerging prime forests, villages, farms and livelihoods. The 4,700 large dams built since 1947 have cumulatively displaced 4.4 million people. This makes dams the single largest cause for displacement post-Partition.
•Solving the drinking water crisis does not require giant storage structures; these dams take decades to come up and only a fraction of their output is for the household sector. Over 85% of them are used in agriculture for producing cash crops such as sugarcane. Dams have displaced the poorest of India’s people in favour of richer farmers and urban residents, often with little or no compensation.
•Worryingly, dams are far more hazardous than any other infrastructure project, except nuclear plants. Even as Kerala and Tamil Nadu have battled over the safety of the 116-year-old Mullaperiyar dam, there are, according to the India Water Portal, over 100 dams in India which are over a century old, and more than 500 large dams which are 50-100 years old, many of which have major defects and need urgent repair. It is also accepted today that dams can trigger seismic events. The reservoir-induced seismicity (RIS) from the weight of the reservoir has resulted in earthquakes in various parts of the country: of the 75 cases of RIS reported worldwide, 17 have been reported from India.
•The scale and frequency of natural disasters is growing. According to data compiled by the Centre for Research on the Epidemiology of Disasters, the instances of extreme weather have gone up from 71 in the 1970s to about 224 in the 1990s and 350 in the first decade of the millennium. In the second decade, Uttarakhand, Odisha, Chennai, and now Kerala and Kodagu district have all been hit.
•There has never been a greater urgency to review India’s policy on dams and to act on decentralised alternatives that involve water recycling and reuse. The immediate task is to critically review every dam in the country, decommission those that are at end-of-life, stop building new ones and establish sound safety protocols. If this is not done, the time bomb will tick on.
📰 New copters to enable tech transfer
Industry seeks clarity on legal, liability issues under the Strategic Partnership model for defence buys
•The Defence Ministry is shortly expected to release project-specific implementation guidelines for the 111 naval utility helicopters to be procured under the Strategic Partnership (SP) model. However, foreign companies say there is still some clarity required on crucial legal, liability and technology transfer issues.
•“There are two important issues that need clarity. One is legal. We can’t sell a submarine or fighter jet to a private company. Global regulations do not allow that. It has to be to a government-owned company. So, there has to be a government-to-government component in the end,” a top executive of a foreign company said.
Large infrastructure
•For the first time, under the SP model, Indian private companies will get to tie up with global original equipment manufacturers (OEMs) and build major defence platforms in India under technology transfer. So far, it was defence public sector undertakings (DPSUs) which played the lead role.
•The other issue, he said, was about the liability of the end product. “For us to stand guarantee to the finished product built by a local company is a problem. There has to be a back-end mechanism to enable us,” he said.
•This liability issue was one of the major reasons the earlier medium multi-role combat aircraft (MMRCA) deal for 126 jets got derailed at the contract negotiation stage, after Dassault Aviation refused to stand guarantee to the aircraft manufactured by Hindustan Aeronautics Ltd. (HAL).
•Another senior executive observed that there is large infrastructure already present in the country with DPSUs and this must be utilised for the benefit of both the country as well as form a business sense.
•“We hope to try and use that. There is no point reinventing everything. It will be risk mitigating for everyone,” he said.
•There is need for some clarity from the MoD on production transfer and technology transfer as well, the executive added.
•In July-end, the Defence Acquisition Council (DAC) cleared the general as well as project-specific implementation guidelines for the naval helicopters that would lay emphasis on transfer of technology and high absorption of indigenous content. The guidelines and the qualification guidelines are yet to be communicated to the industry.
•All procurements under the SP model would be executed by specially constituted empowered project committees (EPC) to ensure timely execution, the Ministry said. Apart from the helicopters, the projects to be processed under the SP model are fighter aircraft, P-75I submarines and armoured vehicles.
📰 Delays plague projects, despite RERA
Projects worth $47 bn are stuck due to financial constraints, execution challenges; consolidation among developers expected
•Property worth $47 billion is locked in delayed projects across India, causing distress among homebuyers. The bulk of this is in the National Capital Region (NCR) and the Mumbai Metropolitan Region (MMR).
•As per findings by PropEquity, a real estate analytics company, more than 4.65 lakh units in housing projects across India are running ‘significantly behind their delivery deadlines’ with ‘daunting’ construction delays.
•“Total value of projects facing construction delays is ₹3.3 lakh crore ($47 billion),” PropEquity said in a report. The National Capital Region accounts for more than 70% of projects that have failed to meet completion deadlines.
Bulk in NCR, MMR
•Almost 1.8 lakh units valued at ₹1.22 lakh crore are facing an uncertain future in the NCR region (Gurugram, Noida, Greater Noida, Ghaziabad, Faridabad). In MMR, which includes Mumbai, Navi Mumbai and Thane, 1.05 lakh units worth ₹1.12 lakh crore are pending completion.
•These projects are on hold on account of financial constraints, execution challenges, surplus supply due to over-ambitious launches by developers, environmental clearances and slowing sales, among others, PropEquity said. “Although the markets are facing significant execution delays we do expect reputed developers to perform well,” said Samir Jasuja, founder and MD, PropEquity.
•“We also anticipate that the resolution to this difficult scenario will occur in the form of consolidation that will be led by the larger and more capable developers who have the construction and execution capability to meet their promises,” he said.
•Funding is another issue. “Most of the projects are stuck because their developers do not have funds to complete the projects,” said Ankur Dhawan, chief investment officer, PropTiger.com
•“These developers are currently looking for JV partners who can bring capital to complete the stuck projects as the balance sheet of existing developers do not support further funding from financial institutions.” He said RERA, a law brought in to enforce strict norms on developers, has not helped solve the issue as it had allowed developers to offer new completion dates without facing financial penalties.
Deadline change debate
•“One possible solution is for RERA to enforce original completion dates which will force developers to expedite these joint ventures,” he said.
•In Mumbai, several developers have witnessed project delays. Among them, Nirmal Lifestyle has projects in the Central suburbs. One of its projects was stuck for eight years as the property had been attached by the Forest Department which claimed the land as its own.
•“The forest land issue had stalled many projects in Mumbai and Thane including one of our projects in Mulund. The Supreme Court recently lifted the attachment, [and] we have started construction,” said Rajeev Jain, director, Nirmal Lifestyle. Under RERA, the developer has given a new completion deadline and is looking forward to hand over the units to those who had booked apartments.
•Customers had booked flats at ₹2,000 a sq ft and Nirmal Lifestyle is building the stalled project at a construction cost of ₹8,000 per sq. ft. Once complete, the apartments will be valued at ₹17,000 a sq ft.
•“With RERA coming in, things will improve. Under RERA, one has to complete the project in time. If the government brings in a law for timely permissions and no surprises come, then all projects will complete in time,” Mr. Jain said.
•Earlier, developers were disorganised and permissions too were delayed, impacting projects. On the flip side, RERA has given an opportunity to developers to be transparent and deliver as per a new deadline. This has helped place stalled projects on the fast track. Developers believe the backlog will clear in the next 2-3 years.
📰 What is share buyback?
Promoters tighten hold on the firm using the mechanism
•With prominent companies such as Infosys, TCS and L&T having gone for a share buyback, here is a low-down on the mechanism and the reasons for firms taking such a step.
What is a buyback?
•A buyback is a mechanism through which a listed company buys back shares from the market. A buyback can be done either through open market purchases or through the tender offer route. Under the open market mechanism, the company buys back the shares from the secondary market while under tender offer, shareholders can tender their shares during the buyback offer. Historically, most companies had preferred the open market route.
Why does a firm go in for a buyback?
•Buybacks are typically done when a company has a significant cash reserve and feels that the shares are not fairly valued at the current market price. Since the shares that are bought back are extinguished, the stake of the remaining shareholders rise. Promoters also use this mechanism to tighten their grip on the firm.
What are the benefits?
•Since the bought back shares are extinguished, the earnings per share (EPS) rise by default. Also, since a buyback is usually done at a price higher than the then prevailing market price, shareholders get an attractive exit option, especially when the shares are thinly traded. It is also more tax-efficient than dividends as a way to reward shareholders.
How can a company execute a buyback?
•A company can use a maximum of 25% of the aggregate of its free reserves and paid-up capital for a buyback. A special resolution needs to be passed at a general meeting. However, if the company plans to use less than 10% of its reserves then only a board resolution is required.
Can a firm opt for regular buybacks to boost EPS?
•A company cannot do a second buyback offer within one year from the date of the closure of the last buyback. Also, there are time-bound limitations on further share issuances like preferential allotment or bonus issue post a buyback. These checks have been put in place so that companies do not misuse the buyback mechanism.
Do retail investors get a reservation in buy back?
•The Securities and Exchange Board of India (SEBI) has recently revised the buy back regulations that stipulate 15% reservation for retail shareholders in a buy back offer. This gives retail investors a fair share in the offer, which otherwise could see large institutional investors tendering their shares leaving little or no room for small investors.
📰 Time for catastrophe bonds?
Hurricane ‘Andrew’ that hit Florida in 1992 spurred the idea that catastrophe risk could be securitised and spread across investors
•The recent floods in Kerala have set off a debate about the need for timely aid required to kickstart the relief process.
•There is a market mechanism for providing relief to the people in a timely manner. The idea that catastrophe risk could be securitised and that it could be dispersed among a wide number of investors was first mooted in the nineties after hurricane ‘Andrew’ caused massive damages in the United States.
•The market for catastrophe bonds was initially pegged in the range of $1-2 billion dollars in the initial years of 1998-2001. Today, the total size of the catastrophe bond market is more than $30 billion
•The outstanding bonds in the first quarter of 2018 amounted to $35 billion. Catastrophe bonds are issued by insurance companies which have exposure to property and calamity insurance. There is also insurance bought by U.S. State governments against calamities.
•The cost of issuing and managing catastrophe bonds is cheaper than the cost of reinsuring these risks and does the same function of transferring risk. Hence, insurance companies prefer issuing catastrophe bonds.
•The instrument is a bond where the investor loses a part or whole of the capital based on certain pre-agreed conditions being triggered. These could be:
•Indemnity on losses faced by the insurer; or modeled losses; or, losses indexed to the total loss faced by the industry.
Helps investors diversify risk
•For investors, there are two advantages. One is that of diversifying risk. This is perhaps the only class of bonds that is not tied to economic performance parameters which would be the case in equity.
•Second, the investors are compensated by a rate of return which is higher than that of normal government or corporate bonds.
•The primary investors in catastrophe bonds are long-term bond investors such as life insurers, and primary pension fund managers.
•This helps them get extra returns on investment which in turn helps them to meet liabilities especially in a scenario where low interest rates have made meeting liabilities difficult in the west. Most rating agencies have started to rate these class of bonds. The rating given is normally a notch below the investment grade.
•This instrument reduces the stress on the balance sheets of the governments at the State and the Centre.
Drives preparedness
•Since investors will always have an eagle eye on the preparedness of dealing with catastrophes, it cuts the slack and bolsters more investments into technology and into people keeping an eye out for such events.
•It is high time that such instruments are introduced in India so that relief and reconstruction work in areas affected by natural disasters goes on unimpeded and are no stalled for only want of capital.
