📰 Re-imagining Delhi
The governance structure is in need of a drastic remake
•Notwithstanding the importance of the rural sector, it is the cities and towns, where citizens’ daily travails in terms of pani, bijli, sadak, housing, schooling, healthcare and sanitation play out, that extensively impact the public’s perception of a government’s performance. While the annual inundation of cities, daily loss of lives on roads, and frequent infernos highlight dysfunctional civic and municipal governance, the failure to create zones, which results in thickets of illegal buildings and structures, as revealed in the ‘sealing’ overdrive in Delhi, shows how the rot runs deep.
•Urban problems are not urban in isolation; they are national problems. Cities are in need of duly empowered municipalities and institutional systems and processes for closely coordinated and accountable agencies that can deliver in areas such as sanitation, health, education, mobility and housing.
Too many cooks
•With a plethora of elected and other agencies, the governance structure for Delhi is in need of a drastic remake. In addition to 272 councillors in three municipalities, 70 MLAs, and seven MPs, there is the New Delhi Municipal Council for the cloistered Lutyens’ zone, and the Cantonment Board, not to talk of the Union government controlling land and policing. Too many intervening institutions, often with overlapping jurisdictions and sometimes contradictory goals, make for suboptimal outcomes.
•The mega-scale migration is Delhi’s special challenge. Migration has steadily risen over the decades. With people pouring into the city and cars on to roads, the outlook for the environment looks grim. Delhi generates over 5,000 tonnes of refuse every day. In a way, Delhi is hailed as the country’s pampered child. Its annual per capita income of ₹3.29 lakh (2017-18), which is almost thrice the national average. According to the 2011 Census, of a total of 3.34 million households in Delhi, 3.31 million had electricity, 2.62 million had safe drinking water, and 2.99 million had toilet facilities. Even so, the city has more than 200,000 homeless people and almost half of its population is in slums and unauthorised colonies.
•High wages with little accountability for actual service delivery make public sector agencies an obvious target for patronage hiring. It also results in massive over-staffing. We need privatisation of civic delivery services like cleaning of roads and drains.
Use of technology
•Conservancy services deserve a senior-level exclusive administration. Waste management demands professionalism and technology. The use of biotechnology should help in the treatment and disposal of waste; information technology in city planning and service delivery options; energy saving and cleaner technologies in urban transport; and high-tech, low-cost materials in building and housing. Technology can be used to implement user-based charges for access to roads, electricity and water. Economies of scale can be achieved by sharing service areas such as billing and tariff collections, cable laying and maintenance.
•China envisions three big urban clusters — along the Pearl River, the Yangtze River, and the Beijing-Tianjin corridor — each with 50 million people or more. The National Capital Region, aiming to relieve pressure on Delhi, needs to be similarly treated as a Common Economic Zone, with a rationalised inter-State tax structure, uniform financial/banking services, telecom facilities and power supply, an integrated education and health policy, rail and road transport network, water supply and drainage system.
•It is not a case of a lack of funds, but of governance and delivery. In most cities, municipalities are viewed as dens of corruption and inaction. Inspectors do not inspect, they only extort. A structured, mandatory inspection system is necessary for effective delivery. Councillors and commissioners don’t regularly move around their wards; they remain inaccessible to people.
•Owing to its great importance for national reconstruction and countrywide impact, especially for India’s large cities — Mumbai, Kolkata, Chennai, Bengaluru — the real catalyst for reimagining the NCR needs to be the Union government. A compact, less diffused and pruned structure will hopefully usher in a promising paradigm of urban management that is worthy of being replicated across the country. The primary need is for the delivery apparatus to be transformed. The city needs to first address its basic problems before it dreams of striding towards the goal of being really swachh and ‘smart’.
Multi-pronged diplomacy is vital to compel Pakistan to end its support for terrorist groups
•In the wake of the Pulwama attack on February 14, the government has iterated once again its plan for the “diplomatic isolation” of Pakistan. The idea, which was first articulated after the 2016 Uri attacks, is a non-starter, as was underlined by the visit of the Saudi Crown Prince Mohammad Bin Salman to both countries earlier this month, just a few days after Pulwama. In Pakistan, the Prince called himself “Pakistan’s Ambassador” in his country, and issued a joint statement praising Pakistan for its fight against terrorism. Clearly, a more considered diplomatic strategy, less full of rhetoric, must be chalked out by the government in response to cross-border terrorism.
Beyond isolation
•To begin with, the government would do better to repackage its idea of “isolating Pakistan” into one of building a more inclusive ‘coalition against terrorism emanating from Pakistan’. In the past couple of weeks alone, Iran and Afghanistan have faced terror attacks on their security forces along the border with Pakistan — and several other countries, which have also faced such attacks or see the presence of Pakistan-based groups on their soil, would be willing to join ranks on this. The truth is, in today’s interconnected world, it is vainglorious to expect countries to join a unilateral plan for isolation.
•Despite the U.S.’s considerable might, it has been unable to get most countries, including India, to sever ties with Iran and North Korea, for example. The impact of such a campaign is also doubtful: after years of trying to isolate North Korea, the U.S. is pursuing talks with its leader. While isolation might work as a campaign slogan for domestic audiences, it is quickly rebuffed each time a country engages with the nation one is trying to isolate. An inclusive coalition is more likely to move nations at the global stage as well. The success of the efforts led by the U.S. and other countries to ‘grey list’ Pakistan at the Financial Action Task Force or of French efforts for a United Nations Security Council statement on Pulwama points to that.
•Second, India must focus on the case against Masood Azhar, which pre-dates the case against 26/11 mastermind Hafiz Saeed. In a first, the Jaish-e-Mohammed (JeM) claimed responsibility for the Pulwama attack in a suicide bomber video that has not thus far been disputed by its leader Masood Azhar. Azhar has been on the U.S.’s radar since 1992, when he was a leader of the banned terror group Harkat ul-Ansar, and worked with jihadi groups in Sudan and Bangladesh. His release after years in Indian prisons in exchange for hostages on board the IC-814 flight should on its own merit his banning and prosecution — not just in Pakistan, but in all the countries whose nationals were on board that Indian Airlines flight, as well as the stops that flight made: in Nepal, the United Arab Emirates and Afghanistan.
•Third, India must prepare for a pushback from Pakistan, most likely in terms of internationalising the Kashmir issue, and linking it to progress in Afghanistan. This is what Pakistan’s Ambassador to Afghanistan, Zahid Nasrullah, did when he said that any attack by India would “impact the momentum” of the peace talks in Afghanistan. His words were heard beyond Kabul, in Washington and Moscow. On February 18, members of the Taliban negotiating team were due to meet U.S. special envoy Zalmay Khalilzad in Islamabad. The talks were called off after Afghanistan objected to the Taliban team’s travel to Pakistan, and rescheduled for February 25 in Doha. It remains to be seen how much countries trying to negotiate with the Taliban will need Pakistan’s leverage to make progress on those talks. U.S. President Donald Trump sees them as the precursor for plans to pull out most troops in combat in Afghanistan before his re-election bid for 2020.
The American angle
•Next, the government must prioritise action over words, when it comes to moves against Pakistan’s sponsorship and hosting of the JeM. The measures taken thus far — cancelling Most Favoured Nation status, maximising use of Indus waters, denying visas to Pakistani sportspersons, etc. — have little real impact on Pakistan and certainly none on the military establishment. Instead of priding itself on extracting statements of condemnation from various governments in the world, it is better for New Delhi to use India’s considerable diplomatic leverage to ensure action that would shut down the JeM and the Lashkar-e-Taiba (LeT) permanently and bring their leaders to justice. In this regard, mere statements and bans have not worked for more than two decades, and the government must consider other options, especially with the countries that carry the most leverage and access in Pakistan: China, the U.S. and Saudi Arabia.
•It is puzzling that the U.S. has been able to carry out drone strikes on a whole host of terror group leaders on Pakistan’s western front, but never once targeted camps and infrastructure belonging to the JeM and the LeT, despite their well-established links to al-Qaeda. India must also press the U.S. to place travel sanctions on specific entities in the Pakistani military establishment unless visible action is taken against the JeM, whose leaders hold public rallies and issue videos threatening India.
•Contrary to popular perception, the Trump administration’s moves to cancel funds to Pakistan last year is not the toughest action the U.S. has contemplated: in May 1992, then U.S. President George H.W Bush had directed his Secretary of State James Baker to send a stern letter to then Pakistani Prime Minister Nawaz Sharif threatening to designate Pakistan as a “State sponsor of Terror” for its support to Kashmiri and Sikh militant groups.
•A similar line of talks must be pursued by New Delhi with Riyadh — which once was a donor to Pakistan’s Islamist institutions, but now is wary of funding extremism — to withhold any funds that may trickle down to charitable wings run by the JeM and LeT. With China, it is surprising that the issue of a simple ban at the UN Security Council has not been made India’s chief demand from Beijing. It is hoped that this will be rectified soon when the next proposal to ban Azhar is brought to the UNSC, and during Foreign Minister Sushma Swaraj’s visit to China this week for the trilateral Russia-India-China meeting. More than the ban, however, India must ask China for action against any entities dealing with the JeM in Pakistan, given that China is the partner with the most influence in Pakistan today, and one with the most to lose from terror groups in Punjab operating along the China-Pakistan Economic Corridor.
Steady dialogue
•Finally, India must look to its own actions on the diplomatic front with Pakistan. Calling off a formal dialogue process for more than a decade has clearly yielded no desired outcome. South Asia as a region, and the South Asian Association for Regional Cooperation (SAARC) process too have suffered the consequences of this disengagement, without yielding any desired outcomes. A measured, steady and non-political level of dialogue is a more effective way of impressing India’s determination to root out terrorism than the present on-again, off-again policy. As the nation prepares for a possible military response to the Pulwama attack, it is important that New Delhi consider its diplomatic response carefully, particularly taking into account both the historical and regional context of its moves.
📰 U.K. should hand over Chagos islands to Mauritius: ICJ
The archipelago is home to the U.S. military base of Diego Garcia, which Washington has taken on lease from Britain
•Britain has an obligation to end its administration of the Chagos Archipelago — home to the U.S. military base of Diego Garcia — and complete the process of decolonisation of Mauritius, the International Court of Justice (ICJ) in The Hague has said in an advisory opinion that is a significant legal victory for Mauritius and other nations, including India, that supported its case.
•Delivering the opinion, ICJ president Abdulqawi Ahmed Yusuf said the judges had rejected the contention that the issue did not fall within its jurisdiction because it was a bilateral matter for the two countries, and concluded that the decolonisation of Mauritius was not lawfully completed, as a result of Britain’s continued administration of the Chagos Islands.
•He found that the continued administration of the territory by the U.K. amounted to a “wrongful act”, which was not consistent with the right to the people of “self determination.” The judges concluded that any detachment of part of a colony had to be based on the “freely expressed and genuine will” of the people.
•The Chagos Islands are home to the U.S. military base of Diego Garcia, under lease from the United Kingdom since the 1960s.
•The advisory opinion is unlikely to impact the U.S. military base: even assuming Britain acted on the advisory opinion. “Mauritius is committed to the continued operation of the base in Diego Garcia under a long-term framework, which Mauritius stands ready to enter into with the parties concerned,” Mauritius had said in the UN General Assembly, during the discussions on requesting an ICJ advisory opinion.
•“This is an advisory opinion, not a judgment. Of course, we will look at the detail of it carefully. The defence facilities on the British Indian Ocean Territory help to protect people here in Britain and around the world from terrorist threats, organised crime and piracy,” said a spokesperson for the U.K. Foreign and Commonwealth Office.
•In his statement, the judge also noted that the original agreement had not allowed for third party involvement in the territory. The base’s construction led to the displacement of some 1,500 people, who have been unable to return to the islands.
Wider ramifications
•The case is seen as having far wider ramifications beyond the two parties immediately concerned as it deals with the legacy of colonialism and whether the kind of agreements struck between colonial powers and their colonies in the final stages before independence was granted could really be seen as legitimate, given the imbalance of power involved in the relationship. This has certainly been at the heart of Mauritius’ contention — that the leadership of its independence movement had been corralled into agreeing to the 1965 separation of the islands, fearful that if they did not do so, independence would not be granted.
•While welcoming the ICJ’s advisory opinion, the U.K. Chagos Support Assoociation – an advocacy group – said that while it was a victory for Mauritius it remained to be seen if it was a victory for the Chagossian people.
•“The question of sovereignty has no bearing on the right of return or for the imperative for both the U.K. and Mauritius to treat Chagossians with the rights and respect that they deserve. That includes proper compensation and access to British citizenship. All must acknowledge the right to self determination of the Chagos Islanders and any decisions about the future of the Chagos Islands must be made by those who once inhabited them and their descendants.”
•India too supported Mauritius in its case, with India’s Ambassador to the Hague Venu Rajamony telling the court last year that a historical survey of facts placed the archipelago as part of Mauritian territory. “Regarding the process of decolonisation of Mauritius, it remains incomplete both technically and in substance as long as the Chagos Archipelago continues to be under the colonial control,” he told the court in September last year. Britain says that the islands will be returned to Mauritius when they are no longer needed for defence purposes.
1965 pact
•Under an agreement struck in 1965, in return for compensation to Mauritius and fishing rights, Britain has maintained control of the islands. It has continued to do so despite efforts by Mauritius to regain control, and UN resolutions requiring it to complete the decolonisation of Mauritius.
•The ICJ held public hearings in September 2018 in the case after Britain was defeated in its attempt to halt a UN General Assembly resolution calling for the UN’s highest court to delivery an advisory opinion on the issue.
•In June 2017, the UN General Assembly adopted a resolution calling on the ICJ to delivery an advisory opinion on whether the continued administration of the Chagos Archipelago by the United Kingdom following the 1968 decolonisation process of Mauritius was lawful. The UNGA win by Mauritius — against the U.K., and the U.S. — was seen as a major blow to Britain.
Submissions from other countries
•The court took submissions from other member states, including India, China, Brazil, Australia, Argentina, South Africa, Russia, the United States and France. Opening the case for Mauritius last year, Sir Anerood Jugnauth, the nation’s former President and Prime Minister, who had participated in the 1965 Mauritius Constitutional Conference in London on which talks on the ultimate status of the country were held, said that the process of decolonisation of Mauritius remained “incomplete” because of the “unlawful” detachment of an integral part of the country on the eve of independence. Throughout the periods of Dutch, French and British colonial rule, the archipelago had always been an integral part of Mauritius. He contended that in secret meetings in parallel with the conference the then Premier Sir Seewoosagur Ramgoolam and colleagues faced “immense pressure” and “duress” to agree to the Chagos islands being detached, with British Prime Minister Harold Wilson making it “abundantly clear” that independence would only be granted if they agreed to the separation.
•While Britain contended that Mauritius “freely consented” to the detachment of the archipelago, Mauritus maintained that the choice faced was “no choice at all.” Responding for the U.K., British barrister and politician Robert Buckland called on the court to decline to respond to the request for an advisory opinion, insisting it was a “bilateral sovereignty dispute” between the two countries and the facts were complex and “vigorously contested.”
•The ICJ, which last week heard from India and Pakistan on the “contentious” case of Kulbushan Jadhav, can also deliver advisory opinions. Unlike the Jadhav case, which is binding and non-appealable, advisory opinions are not binding, though they do carry substantial legal weight and are mostly adhered to. However, there have been several occasions in which they have not been: such as the 2003 advisory opinion which obligated Israel to stop building the wall in the occupied Palestinian territory.
📰 Period. It’s time to carry an Oscar
Guneet Monga co-produced documentary on pad machine set in U.P. village
•She may not have climbed on to the stage at Hollywood’s Dolby theatre on Sunday evening but Guneet Monga was one of the rare executive producers of Period. End of Sentence to have got a loud shoutout from its filmmakers Rayka Zehtabchi and Melissa Berton on winning the award for best documentary (short) at the 91st Academy Awards.
•A moment significant enough to spread cheer at Aram Nagar in Andheri where Monga’s production company, Sikhya Entertainment — that has co-produced the film — is located.
•Monga and the 26-minute documentary set in Kathi Khera village in Hapur have been India’s big connect at the Oscars this year. The other — albeit an oblique one — has been Greg Cannom, the winner for makeup in Vice . Cannom also worked on Rishi Kapoor’s prosthetics in Kapoor and Sons and had the actor congratulating him effusively on Twitter. Period. End of Sentence is about a low-cost sanitary pad-making machine — the creation of Arunachalam “Pad Man” Muruganantham — setting off a revolution of sorts in the U.P. village.
📰 Drought less probable this year: Skymet
‘El Niño conditions petering out’
•There’s unlikely to be a drought in 2019 as the El Nino — a climate phenomenon linked to drying up of the monsoon rains in India — is likely to peter out by the beginning of the monsoon, according to a forecast on Monday by private weather forecaster Skymet.
•“The El Niño conditions were on the rise in the Pacific Ocean till December last. The temperatures are now declining, and the probability of El Nino is also falling. This will reduce to about 50% by the time monsoon arrives with a gradual decline thereafter as well. This means it is going to be a devolving El Nino year,” said Jatin Singh, managing director, Skymet Weather.
•An El Nino refers to a half-to-one-degree rise in temperatures in the Central equatorial Pacific and is linked to a reduction in rains over key monsoon belts.
•Earlier this month, the U.S. National Climate Centre issued a forecast that an El Nino had formed, was likely to persist until spring but there was only a 50% chance that it would persist beyond spring (March-April). “Because forecasts through the spring tend to be more uncertain and/or less accurate, the predicted chance that El Niño will persist beyond spring is 50% or less…” the climate centre’s statement noted.
•Skymet defines ‘normal rains’ as that in a 4% window of 88 cm between June and September; 88 cm means ‘100%’ rainfall. Anything from 90% to 96% of the normal is ‘below normal’ and less than 90% constitutes a drought. Mr. Singh said that while the chances of a normal monsoon were the highest, about 50%, the next highest odds were those of ‘below normal’ rains.
‘Not formal forecast’
•Skymet’s estimate doesn’t constitute a formal monsoon forecast, Mr. Singh clarified. However the organisation’s weather models as well as those of several other institutes, for now, agreed that the odds of a major El Nino (a temperature rise greater than a degree) were unlikely. “So we’re confident on that front but a fuller forecast can only be made, at the earliest, by April,” Mr. Singh told The Hindu.
📰 The correct prescription
Entry of e-pharmacies will bring down the price of medicine for Indian patients
•Amid a slew of conflicting judicial decisions from different High Courts, the legality of e-pharmacies continues to be questioned by various trade associations such as the All India Organisation of Chemists and Druggists (AIOCD). It represents 8.4 lakh pharmacists who run the brick and mortar pharmacies in neighbourhoods across India.
•E-pharmacies, which operate through websites or smartphone apps on the Internet, offer medicines for sale at a discount of at least 20% when compared to traditional pharmacists, with the added convenience of home delivery of medicines to one’s doorstep. For scheduled drugs, patients can submit photographs of prescriptions while placing orders. Despite operating in India for at least four years now, the legal status of these e-pharmacies is not clear because the government is yet to notify into law draft rules that it published in 2018.
•The fiercest opponents of e-pharmacies are trade associations of existing pharmacists and chemists. They argue that their livelihoods are threatened by venture capital backed e-pharmacies and that jobs of thousands are on the line. Apart from these obvious arguments, these trade associations also spin imaginary tales of how e-pharmacies will open the door to drug abuse and also the sale of sub-standard or counterfeit drugs, thereby threatening public health. There is enough evidence on record to demonstrate how existing pharmacies contribute generously to drug abuse and sale of sub-standard medicine. There is no reason to suspect that e-pharmacies are going to worsen the situation in anyway.
A case of cartelisation
•The more prudent way of looking at the entry of e-pharmacies is competition and the resultant effect it will have on lowering the price of medicine for Indian patients. Viewed from this perspective, there is virtually no doubt that e-pharmacies should be allowed to operate because the history of India’s trade associations of pharmacists is one of rampant, unabashed cartelisation that has resulted in an artificial inflation of medicine prices.
•In a fully functional, competitive market, pharmacists would compete with each other for business. This competition could happen in the form of discounts or improving operational efficiency. For example, if two retailers buy a medicine from a wholesaler at ₹50 and the maximum retail price of the drug is ₹75, they are free to sell it at ₹70 or ₹65 or even ₹51. The seller with the lower price gets more customers and can make more profits. However, if both sellers enter into an agreement with each other to sell the drug at ₹75 and they also clearly define the geographical area within which they are operating, they both make higher profits but at the cost of the patient who now has to pay higher prices.
•This practice of two competitors colluding to fix the sale price and area of operation is called cartelisation, and is illegal under India’s Competition Act. The premise of this law is that a free market is efficient only if all sellers are competing with each other to offer the lowest price to the customer.
•Over the last decade, the Competition Commission of India (CCI) has had to deal with several complaints alleging that trade associations of pharmacists are providing platforms for cartelisation where pharmacists are basically rigging the market. In simple terms, this means that pharmacists, who should otherwise be competing with each other to offer lower prices for their customers, prefer to enter into agreements with each other to fix the price at which they will sell medicines to patients. Once all parties are on the same page, there is no reason to compete with each other and reduce prices.
Another barrier
•A second, more insidious strategy is the practice of requiring pharmaceutical companies to apply for a no-objection-certificate (NOC) from the regional trade association before they appoint new stockists in a region to sell a particular drug. This has the effect of artificially restricting competition in certain markets because more stockists mean more competition. By creating such artificial, extra-legal barriers to the free trade of medicines within India, these trade associations create huge distortions in the Indian market. It is suspected that these practices continue despite multiple restraining orders by the CCI.
•In its recent policy note on “Making markets work for affordable healthcare”, published in October 2018, the CCI noted, “One major factor that contributes to high drug prices in India is the unreasonably high trade margins.” One of the culprits for this phenomenon identified by the CCI was “self-regulation by trade associations [which] also contributes towards high margins as these trade associations control the entire drug distribution system in a manner that mutes competition”.
•One of the solutions proposed by the CCI was encouraging more e-pharmacies. As stated by the CCI in its policy note, “Electronic trading of medicines via online platforms, with appropriate regulatory safeguards, can bring in transparency and spur price competition among platforms and among retailers, as has been witnessed in other product segments.”
•Where the state has failed, it is possible that venture capitalist backed e-pharmacists will succeed in bringing back competition to the retail drug markets in India. There is no reason for India to continue indulging trade associations that have no taste for competition or fair business practices.
📰 Before eviction: on SC verdict on forest-dwellers
States must quickly determine if procedural lapses deprived forest-dwellers of their rights
•The Supreme Court’s order to evict, over the next five months, occupants of forest lands who failed to make a successful claim for tenure under the Forest Rights Act, 2006, has once again highlighted the dilemma of reconciling inalienable tribal rights with biodiversity conservation. When the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act was passed, it was with the wholly welfarist goal of making these communities partners in conservation. They would be stewards of forests that have shrunk and become fragmented over the decades. It was another landmark, therefore, when the Forest Rights Act protected possession and conferred heritability of land to over 23 lakh out of 44 lakh claimants who are either specified Scheduled Tribes, or people who have lived in forests traditionally, relying on forest produce for at least 75 years prior to the cut-off year of 2005. But over 20 lakh other applicants who could not establish their claim through gram sabhas and appellate authorities have now been ordered to be evicted by July 12. The 17 State governments which have been asked to carry out the evictions must respond by quickly determining whether there were procedural lapses that deprived applicants of due process, notably in making appeals. This process may take time, more so in an election year, and the sheer scale of action required would necessitate an extension of the eviction date.
•In the ideal scheme, as the Forest Rights Act envisages, forested areas and their biodiversity will be protected by communities, with individuals taking forest produce only for sustenance and livelihood. Such an approach is at odds with the colonial paradigm of forests being treated as a resource run by an opaque bureaucracy that replaced precious old-growth trees with monocultures such as teak. Today, forests have shrunk to about 5% of the land in terms of protected areas, while human pressures are growing: landscapes are alienated for resource exploitation, road and dam building, and a lot of wildlife is lost to poaching. Man-animal conflict is growing. Claims for tenure under the Forest Rights Act must therefore satisfy the primary test of whether they are legally unimpeachable, and even if they are, whether they would impose additional pressures on forests and wildlife. The answer in many areas may lie in resettlement. In some well-documented cases, such as in the Western Ghats, alternative land and cash compensation convinced tribals to move out of core areas. One example is that of the Nagarahole National Park, where the outcome has been good for both people and wildlife, as evidenced by the recovery of tiger density over three decades. State governments need to pursue such programmes in a humane and vigorous fashion. They must also come forward to declare critical wildlife habitats under the Act. This will aid in formulating resettlement schemes for tribal residents.
📰 Pre-poll gambit: on reduction of GST on under-construction properties
Reduction in rates brings cheer to real estate sector, but unsettles the GST regime
•On Sunday, the Goods and Services Tax Council recommended a dramatic reduction in the headline indirect tax rates payable on under-construction properties. The GST rate payable on affordable homes, with effect from April 2019, will come down from 8% to 1%, and all other residential properties outside the affordable segment will attract 5% GST instead of the 12% levied at present. The new rate on affordable homes, defined as units that cost less than ₹45 lakh and have a carpet area of 60 square metres in metro cities and 90 square metres in non-metros, is far lower than the 3% rate mooted by a ministerial panel. The Council needs to meet again in March to clear the transition rules for the proposed rate cuts, and the conditions to be stipulated for housing projects to be eligible for the new rates. Days ahead of the expected announcement of the Lok Sabha poll dates by the Election Commission, the government is clearly keen on reaching out to different sections of voters. It has argued that the move will help meet the aspirations of millions of home-buyers, and revive the fortunes of real estate developers. Among the country’s largest employers in recent years, the realty sector has been marred by the debt overdose that has plagued much of corporate India; this has been compounded by high unsold inventory that hit cash flows. Properties that were already complete at the time of the GST’s adoption were spared the tax. But the introduction of 12% and 8% GST for under-construction premier housing units and affordable homes, respectively, had come as a dampener for fresh bookings.
•Finance Minister Arun Jaitley reckons that revenues will not be hit by the rate cut. The implicit assumption is that higher sales volumes will compensate the exchequer. Experts expect a 4-5% reduction in home prices, but the decision to deny input tax credits to builders could bring a twist in the tale. Developers may be forced to raise base prices as critical inputs, particularly cement (taxed at 28%), entail high levies that can no longer be offset. Buyers may still prefer to opt for unsold completed properties that don’t attract GST, instead of incomplete projects. Compliance as well as material costs could go up too, as the Council is likely to mandate that around 80% of a project’s inputs must come from formal sector vendors in the GST net. It is difficult to determine to what extent a proposed tax exemption on development rights will offset these costs for developers. Whatever the outcome of this pre-election ploy, the frequent structural tinkering ahead of electoral battles has emerged as the biggest challenge to the stabilisation of India’s fledgling GST regime.
📰 Adani is the highest bidder for 5 airports
‘Airports Authority of India may garner more than ₹500 crore in the first year of awarding contracts’
•Adani Enterprises Ltd. emerged as the highest bidder for five of the six airports offered for bidding by the Airports Authority of India (AAI).
•The winner would operate, manage and develop the airports for a period of 50 years. The Cabinet has to accord its approval for the same, according to a senior AAI official.
Error in submission
•The AAI opened the financial bids of nine entities on Monday, more than a week after technical bids were opened in a two-phase bidding process. Adani Enterprises was among the 10 companies which had submitted a total of 32 bids for the six airports. One of the bidders didn’t make it to the final round because of an error in its submission.
•Bids were invited on the basis of per-passenger fee for passengers handled at the airport. The result for the sixth airport was withheld as per the directions of the Gauhati High Court which said the bid should not be opened until a hearing on Monday. An AAI official said the HC had now permitted it to open the bid on Tuesday, though the final awarding of the airport would be subject to the court’s order.
•“The financial bid was opened in the presence of the bidders. Now, we will inform the Ministry of Civil Aviation of the quotes received, which will then move the Cabinet note. As per the original Cabinet decision, after the tendering process, the final proposals have to be brought before it. The letter of awards will be given to the highest bidder subject to the Cabinet’s resolution,” according to an AAI official.
•He added that the highest bidder “quoted very aggressively” and the per-passenger fee quoted by it was way above all the other bidders.
•Adani Enterprises has offered ₹177 per passenger for Ahmedabad Airport, ₹174 for Jaipur, ₹171 for Lucknow, ₹168 for Thiruvananthpuram and ₹115 for Mangaluru.
•The request for proposal document doesn’t bar the Authority from awarding different airports to the same entity. Industry experts estimate that the AAI would be able to garner more than ₹500 crore in the first year alone of awarding the airports to the concessionaires.
•“Hitherto, the airports sector in India was predominantly dominated by couple of players. The entry of a private player with deep pockets to manage these operational assets augurs well for the sector and in the days ahead, we should see good competition amongst the players. We expect AAI to get a revenue in the region of ₹525-575 crore in the first year and future revenue would be linked to the traffic growth,” said Jagannarayan Padmanabhan, director and practice lead-transport and logistics, Crisil Infrastructure Advisory.
•The government has finally made some headway in partial privatisation of some of its airports after altering the revenue model from a percentage of gross revenue to be given by the concessionaire to per-passenger fee.
•The senior AAI official said that this was a more transparent model as often the gross revenue model could be misused by the concessionaire
•In 2015, the AAI invited bids for complete privatisation of Kolkata, Chennai, Ahmedabad and Jaipur airports but aborted the process.
•This was followed by an attempt to rope in Singapore’s Changi Airport during Prime Minister Narendra Modi’s visit to the island nation in November 2015. However, AAI twice rejected Changi Airport’s proposal to operate and maintain the Jaipur and the Ahmedabad airports on the grounds that it was “unfeasible” and not commercially viable for the government airport operator.
•The AAI made yet another effort in 2016 when it placed a request for proposal (RFP) from bidders for operation and maintenance of “select areas” of the Jaipur and the Ahmedabad airports. Following a lukewarm response, several bidding parameters were revised and deadlines extended many times only to lead to just one qualified bidder.
📰 Banks may set repo rate as benchmark
New loan pricing regime from April 1
•Most commercial banks in India are likely to select RBI’s repo rate as the external benchmark to decide their lending rates, from April 1. The repo rate is the key policy rate of the Reserve Bank of India (RBI).
•The banking regulator had asked the banks to move to an external benchmark for loan pricing from April 1, a move expected to improve monetary transmission as lenders had, in the past, been found reluctant to reduce lending rate.
•Banks had four options from which to choose the external benchmark: the repo rate, the 91-day treasury bill, the 182-day T-bill or any other benchmark interest rate produced by the Financial Benchmarks India Private Ltd (FBIL).
•“The repo rate is the most stable one as compared to the other options,” a chief executive of a large public sector bank told The Hindu, while explaining the reason behind the selection. A few other bank chiefs The Hindu spoke to also confirmed that the repo rate is the ideal candidate for the external benchmark. At present, the repo rate is 6.25%.
•The marginal cost of fund based lending rate (MCLR) is currently the benchmark for all loan rates. Banks typically add a spread to the MCLR while pricing loans for homes and automobiles.
•For the new benchmark, the central bank has mandated that the spread over the benchmark rate — to be decided by banks at the inception of the loan — should remain unchanged through the life of the loan, unless the borrower’s credit assessment undergoes a substantial change and as agreed upon in the loan contract.
•If the lending rates are linked to the repo rate, any change in the repo rate will immediately impact the home and auto loan rates, since RBI has mandated the spread to remain fixed over the life of the loan.
Banks against move
•Many banks have opposed the move to shift to a new external benchmark for loan pricing on grounds that their cost of funds are not linked to these benchmarks and that without a fall in the costs, it would not be possible to change the rates.
•The issue came up for discussion again last week when RBI Governor Shaktikanta Das, along with his deputies, met the bank chiefs to discuss monetary transmission.
•“Some of the banks have raised the issue once again during the meeting. The governor said he will look into the issue,” said a bank chief who attended the meeting.
•However, banks are not hopeful that the central bank will defer the introduction of the new benchmark.
•“When the Indian Banks’ Association met RBI officials some time ago, the message we got is that the central bank is keen to see the new regime kicking in as scheduled.”
•RBI was expected to issue the final guidelines on the matter by December-end but the guidelines are yet to come. Banking industry sources indicate that the final guidelines will be issued in March.
