CVC

Important guidelines (GIVEN BY SUPREME COURT) in CVC appointment are:
· Zone of consideration won’t be restricted to civil servants.
· CVC is to be appointed from among bureaucrats in All India Services having requisite knowledge and experience and also from among persons who have held or are holding office in a government corporation or public sector undertaking who have experience in insurance, banking, law, vigilance and investigations.
· If one member disagrees with the choice of the other two, he should give reasons for his disagreement; the majority should also give reasons why it was brushing aside the dissent. This will inject transparency in the process.
· Empanelment of candidates on recorded rational basis.
· No person below the rank of secretary be empanelled.
· Empanelling authority to enclose complete material for and against the candidates. No relevant material is to be withheld. All adverse remarks to be brought to the notice of selection committee.
· Panel may adopt a transparent process of consideration of the empanelled officers.

Central Vigilance Commission
The Central Vigilance Commission was set up by the Government in February,1964 on the recommendations of the Committee on Prevention of Corruption, headed by Shri K. Santhanam, to advise and guide Central Government agencies in the field of vigilance.
CVC is conceived to be the apex vigilance institution, free of control from any executive authority, monitoring all vigilance activity under the Central Government and advising various authorities in Central Government organizations in planning, executing, reviewing and reforming their vigilance work.
Consequent upon promulgation of an Ordinance by the President, the Central Vigilance Commission has been made a multi member Commission with "statutory status" with effect from 25th August,1998.
The CVC Bill was passed by both the houses of Parliament in 2003 and the President gave its assent on september 11, 2003. Thus the Central Vigilance Commission Act 2003 (No45 0f 2003) came into effect from that date.
The Commission shall consist of:
* A Central Vigilance Commissioner - Chairperson;
* Not more than two Vigilance Commissioners - Members;
the process of appointment
They are appointed by the President by warrant under his hand and seal on the recommendation of a three member committee consisting of the Prime minister as its head, the Union minister of home affairs and the Leader of the Opposition in the Lok Sabha.
They hold office for a term of four years or until they attain the age of sixty five years, whichever is earlier. After their tenure, they are not eligible for further employment under the central or state government.
JURISDICTION
Commission’s Jurisdiction under CVC Act :-
i. Members of All India Service serving in connection with the affairs of the Union and Group A officers of the Central Government;
ii. Officers of the rank of Scale V and above in the Public Sector Banks;
iii. Officers in Grade D and above in Reserve Bank of India, NABARD and SIDBI;
iv. Chief Executives and Executives on the Board and other officers of E-8 and above in Schedule ‘A’ and ‘B’ Public Sector Undertakings;
v. Chief Executives and Executives on the Board and other officers of E-7 and above in Schedule ‘C’ and ‘D’ Public Sector Undertakings;
vi. Managers and above in General Insurance Companies;
vii. Senior Divisional Managers and above in Life Insurance Corporations;
viii.Officers drawing salary of Rs.8700/- p.m. and above on Central Government D.A. pattern, as on the date of the notification and as may be revised from time to time in Societies and other Local Authorities.
Powers and Functions of CVC
i. to exercise superintendence over the functioning of the Delhi Special Police Establishment (DSPE) with respect to investigation under the Prevention of Corruption Act, 1988; or offence under CRPC for certain categories of public servants and to give directions to the DSPE for purpose of discharging this responsibility;
ii. to review the progress of investigations conducted by the DSPE into offences alleged to have been committed under the PC Act;
iii. to undertake an inquiry or cause an inquiry or investigation to be made into any transaction in which a public servant working in any organisation, to which the executive control of the Government of India extends, is suspected or alleged to have acted for an improper purpose or in a corrupt manner;
iv. to tender independent and impartial advice to the disciplinary and other authorities in disciplinary cases, involving vigilance angle at different stages i.e. investigation, inquiry, appeal, review etc.;
v. to exercise a general check and supervision over vigilance and anti-corruption work in Ministries or Departments of the Govt. of India and other organisations to which the executive power of the Union extends; and
vi. to chair the Committee for selection of Director (CBI), Director (Enforcement Directorate) and officers of the level of SP and above in DSPE.
vii. to undertake or cause an inquiry into complaints received under the Public Interest Disclosure and Protection of Informer and recommend appropriate action.

ORDERS THAT CHANGED THE NATION

ORDERS THAT CHANGED THE NATION
1964 It was perhaps the first stand-off between judiciary and legislature. The UP legislature had ordered the arrest of one Keshav Singh for committing contempt outside the legislature. He filed a habeas corpus plea with Allahabad High Court's Lucknow bench and got bail. The legislature ordered him rearrested and asked for the two HC judges who had granted bail to be brought in custody to the House to answer contempt charges. A full bench of 28 judges of the HC (excluding the two) issued an interim order staying the assembly order. The Speaker still issued arrest warrants against the two judges while a petition sought to initiate contempt of court proceedings against the Speaker and MLAs. Supreme Court ruled in 1965 that legislative privileges were subject to judicial review.
1973 In the Kesavananda Bharati case, Supreme Court held that the power of the legislature to amend the Constitution has limits. The legislature, it held, could not amend the “basic structure” of the Statute. While there were differences in the bench on what “basic structure” meant, the majority held that supremacy of Constitution; republic & democratic form of govt; secularism, separation of powers & federal character formed the basic structure.
1975 The Allahabad High Court upheld an election petition filed by Raj Narain alleging that Indira Gandhi had indulged in electoral malpractices like using the government machinery for her campaign in the 1971 Lok Sabha polls. The HC struck down her election and barred her from contesting elections for six years, which would effectively have meant she would have to quit as PM. The situation ultimately resulted in the imposition of the Emergency.
1979 A case involving Maneka Gandhi’s passport being seized led to SC introducing the concept of “due process” in our jurisprudence. The court held the mere fact that laid down procedures were followed before depriving Maneka of her passport did not amount to due process having been followed. It said due process — meaning that the law is “right, just and fair” — must be shown where fundamental rights are curtailed.
1992 In the case of Indira Sawhney and Others versus the Union of India, the SC upheld the proposed reservations for OBCs, but subjected them to important caveats. These were the stipulation that the "creamy layer" of OBCs must be excluded from reservations and that reservations must not exceed 50% of the total available jobs. With 22% already reserved for the SCs and STs, this meant OBCs could get a quota of only 27% 1993 In what is known as the “second judges case”, a ninejudge SC bench ruled that in appointment of judges to the SC and high courts, executive cannot go against the opinion of the CJI. It spelt out what consultative process the CJI must go through in forming his or her opinion. This overturned a 1981 judgement in the “first judges cases” which had given primacy to the executive in appointments to higher judiciary 1994 In what is generally referred to as the Bommai judgement, a nine-judge SC bench held that the proclamation of President's Rule in a state under Article 356 was not immune to judicial review. It also held that such a proclamation would have to be ratified by both houses of Parliament. The ruling had the effect of drastically curbing the earlier wanton use of Article 356 by parties at the Centre against state governments run by their rivals.
1997 As part of its judgement in the Jain hawala case, SC said Central Vigilance Commission should be made a statutory body & CVC should be appointed by a three-member panel consisting of the PM, home minister and leader of opposition. It tried to insulate the CBI and the Enforcement Directorate from political control by saying that the heads of the two bodies should be appointed by a panel headed by the CVC.
2002 A three-judge SC bench made it mandatory for election candidates to declare assets, criminal cases filed against them & educational background. The poll panel followed with a notification to the same effect a month later. The govt tried to counter this through an amendment to the Representation of the People Act based on an all-party consensus. In 2003, another bench struck down the amendment as unconstitutional.

Judicial Review: Supreme Court

CHECKS & BALANCES

‘What the hell is going on?’

That’s how the Supreme Court snubbed the government this week when it asked about tracking black money. Judges seem to be calling the shots

Tarunabh Khaitan

The history of judicial review can be traced back to 1607, when Edward Coke, a courageous English judge, ignored the threat of being charged with treason to tell King James I that it was outside the King’s power to adjudicate upon a dispute: “true it was, that God has endowed His Majesty with excellent science, ... but His Majesty was not learned in the laws” and must therefore leave adjudication to judges. Ever since, the principle that the law is higher than kings and prime ministers has become a touchstone of civilized nations. The principle was recently reaffirmed by the UK’s new Supreme Court. In its very first case, it struck down a draconian governmental order that froze the assets of suspected ‘terrorists’. The court found that in the absence of direct parliamentary sanction, the minister concerned lacked the authority to interfere so dramatically with fundamental rights.
But even by British standards, the Indian Supreme Court (SC) is said to be among the most ‘activist’ courts in the world today. Its critics argue our SC has overstepped the limits of judicial power. Closer analysis reveals a rather complicated picture of activism by the Indian court. There are three key areas in which our SC differs significantly from its counterparts in Canada, South Africa, the UK and US. One of these differences clearly points towards greater activism; another suggests that our SC may appear to be more activist than it really is, and the third shows that it may actually be more deferential than activist in certain respects.
First, the Indian SC only rarely accepts that certain issues are not amenable to judicial decision-making and are best left to politics to determine. Foreign courts tend to be more hesitant in dealing with complex cases involving multiple stakeholders. Cases dealing with environmental pollution and budgetary allocation are classic examples, where an adversarial judicial process is simply not designed to represent all relevant interests before the court. Second, the sheer number of cases that our SC hears every year is mind-boggling. Article 136 of the Constitution empowers the SC to hear an appeal directly from any other court in India. The SC has failed utterly to define the scope of this power on a principled basis and spends two days every week determining whether it should exercise it on a case-by-case basis instead. In 2007, it dealt with about 57,000 such requests and agreed to hear 6,900 of them in appeal. Research done by Nick Robinson, professor at the Global Jindal Law School, shows that of these 6,900 accepted cases, only 68 related to the much-maligned public interest litigation. Using the remaining three working days every week, the Court managed to decide 5,000 cases in regular hearing in the same year. Compare these statistics with the fact that in its 2009 term, the US Supreme Court disposed of 77 cases. The UK Supreme Court has handed down a total of 89 decisions since its constitution in October 2009; while the South African Constitutional Court delivered a total of 28 decisions in 2010. The staggering work-load of the Indian SC means that even if only a very small proportion of its orders interfere with administrative decisions, in absolute terms the number of such interferences every year is higher than other courts.
Finally, and perhaps most surprisingly, our SC is less activist than most American, European, Canadian and South African courts in the intensity with which it scrutinises legislative and executive action. Barring a few murmurs of dissent, the SC overwhelmingly adopts a rather deferential approach to examine decisions by other branches—the main question it asks is whether the challenged action was ‘reasonable’. Foreign courts hear far fewer cases and deal with a limited subject-matter, but often ask more demanding questions, such as whether the decision was ‘necessary in a democratic society’, ‘proportionate’, ‘serving a compelling interest’, etc. Indeed, Robinson’s recent survey of all constitutional bench cases decided by our SC since independence shows that the government has consistently won more often than any other class of litigants. The deferential approach of our SC is particularly obvious in cases involving a tension between civil liberties and law and order and in antidiscrimination cases. Our SC tends to err in favour of law and order and of permitting discrimination. My hunch is that as a proportion of the total number of challenged actions, the Indian SC finds fewer actions unlawful when compared to its counterparts in other democracies. A statistical analysis on these lines is long overdue, and will be a significant contribution to this debate.
A judge is ‘activist’ (in its pejorative sense) when she does something she ought not to be doing. We must hold judges accountable not only for their activism but also for their failure to do what they ought to do. We must demand that their judgments are based on sound reasons, and are unaffected by fear, favour or public opinion. Their accountability, however, is policed not by politicians but by the academy. Barring a few exceptions, our academia in general and legal academia in particular, has not always performed this scrutinizing duty diligently. However, the sheer volume of decisions makes it difficult for judges to write sound judgments and for academics to criticize them.
It would be better if our judiciary examined fewer cases, but took the time to decide them well, and was subject to academic scrutiny as a matter of course. An undecided case is usually better than a badly decided one, especially when one is staring at a court of last resort.
Tarunabh Khaitan is a Fellow in Law, Christ Church, University of Oxford

Policy Judge

POLICY JUDGES

It’s rare for the highest court in a democratic country to prescribe measures that directly lay down or implement policy. Yet, in the last few decades, the Indian courts have regularly done so on issues of public interest, offering policy direction to the government both at the Centre and in the states. One thread that appears to run through almost all the judgments—the court feels obliged to step in when and where the executive fails in its duty. Here are some landmark judgments on social welfare issues, particularly on pollution control:

Air Pollution

With the government concerned taking no action to check air pollution in Delhi, the Supreme Court issued a time frame for measures to be taken on July 28, 1998. The court ordered the government of the national capital region (NCR), which includes Delhi, to:

· Replace all pre-1990 autos and taxis with new vehicles using clean fuels by March 31, 2000

· Not allow buses more than eight years old to ply except on CNG or other clean fuels, by March 31, 2000

· Convert the entire city bus fleet (DTC and private) to single fuel mode on CNG by March 31, 2001

· Build new interstate bus terminals (ISBT) at entry points in the north and southwest to avoid pollution due to entry of inter-state buses by March 31, 2000

· Set up automatic inspection and maintenance (I&M) facilities for commercial vehicles

Noise Pollution

In its order of July 18, 2005, the Supreme Court banned loud music, firecrackers and car horns from 10 pm to 6 am. The ruling came in response to a public interest lawsuit, which sought to maintain the quiet of the night. The Supreme Court also asked the Central government to draw up guidelines for noise reduction and restrict the use of speakers even during the day.

Water Pollution

In the mid-90s, the Supreme Court passed three landmark judgments and a number of orders against polluting industries in the Ganga basin. Scores of industrial plants and more than 250 towns and cities were ordered to build put sewage treatment plants. Six hundred tanneries operating in a congested residential area of Kolkata were shifted out of the city.

Road Safety

In its order of July 7, 2010, the Supreme Court ruled that twowheeler manufacturers must sell helmets along with the vehicles and the headgear should be certified by the Bureau of Indian Standards (BIS).

Food Safety

In its order of February 8, 2011, the Supreme Court directed the Centre to reconstitute "scientific panels" under the Food Safety and Standards Act 2006 because it had discovered the panels were made up almost entirely of lobbyists rather than independent experts.

Medical Aid

In Parmanand Katara vs Union of India (1989), the Supreme Court responded to a PIL filed by a human right activist by ordering every member of the medical profession to provide medical aid to every injured citizen as soon as possible without waiting to complete procedural formalities.

Food for All Recipes

Guest Column Eight Recipes to Food For All OLIVIER DE SCHUTTER World Bank president Robert Zoellick recently listed nine measures that the G20 should adopt under its current French presidency. These range from improving information about grain stocks and developing better weather-forecasting methods to strengthening social safety nets for the poor and helping small farmers benefit from tenders from humanitarian purchasers such as the World Food Programme. These measures tackle only the symptoms of the global food system’s weaknesses, leaving the root causes of crises untouched. They may mitigate the consequences of peak prices, but they are inadequate to avoiding the recurrence of shocks, for which the G20 should act on eight priorities. One, support countries’ ability to feed themselves. Since the early 1990s, many poor countries’ food bills have soared five- or six-fold, owing not only to population growth, but also to their focus on export-led agriculture. A lack of investment in agriculture that feeds local communities makes these countries vulnerable to international price shocks, as well as to exchange-rate volatility. Second, food reserves should be established, not only for humanitarian supplies in disaster-prone, infrastructure-poor areas, as Zoellick proposes, but also as a means to support stable revenues for agricultural producers and ensure affordable food for the poor. If managed in transparent and participatory ways, and with regional coordination, food reserves can be an effective way to boost sellers’ market power and counteract speculation by traders, thereby limiting price volatility. Third, financial speculation should be limited as well. While not a cause of price volatility, speculation on derivatives of essential food commodities significantly worsens it. The major economies should restrict derivatives as far as possible to qualified and knowledgeable investors. Fourth, many cash-strapped developing countries fear that social safety nets, once put in place, may become fiscally unsustainable, owing to a sudden loss of export revenue, poor harvests or sharp increases in prices for food imports. The international community can help overcome this reticence by establishing a global reinsurance mechanism, with premiums being paid, at least in part, by the country seeking insurance. Fifth, farmer organisations need support. One major reason why the majority of the hungry are among those who depend on small-scale farming is that they are insufficiently organised. By forming cooperatives, they can move up the value chain into the processing, packaging and marketing of their produce. They can improve their bargaining position, both for input purchases and for the sale of their crops. And they can become a political constituency that cannot be ignored. Sixth, we must protect access to land. Each year, an area greater than France’s farmland is ceded to foreign investors or governments. This land grab, which is occurring mostly in sub-Saharan Africa, constitutes a major threat to the future food security of the populations concerned. Whatever gains in agricultural production result from these investments will benefit foreign markets, not local communities. The G20 could call for a moratorium on these largescale investments till an agreement on appropriate ground rules is reached. Seventh, the transition to sustainable agriculture must be completed. Weather-related events are a major cause of price volatility on agricultural markets. In future, climate change can be expected to cause more supply shocks. And agriculture is also a major culprit in climate change, responsible for 33% of all greenhouse-gas emissions if deforestation for cultivation and pastures is included in the tally. Governments must support agricultural systems that are more resilient to climate change, and can contribute to mitigating it. Finally, we need to defend the human right to food. People are hungry not because too little food is being produced, but because their rights are violated with impunity. Victims of hunger must be allowed to access remedies when their authorities fail to take effective measures against food insecurity. Governments must guarantee a living wage, adequate healthcare and safe conditions for the world’s 450 million farm workers by enforcing the conventions on labour rights in rural areas, subject to independent monitoring. Hunger is a political question, not just a technical problem. We need markets, of course, but we also need a vision for future that goes bey nd short-term fixes. The global food system will always need firefighters. But what we need more urgently are architects to design a more fire-resistant system. (Olivier De Schutter is the United Nations Special Rapporteur on the right to food) © Project Syndicate, 2011 • G20 must support countries’ ability to feed the poor and setting up of food reserves • Limiting speculative trade and helping farmer setups can lessen food insecurity • Access to land and a shift to sustainable agriculture are equally-important steps

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Cash Transfer of Subsidies

The Execution Challenge Cash transfer of subsidies is an idea whose time is coming. That said, executing the idea to ensure it delivers money to only those who deserve it, and in a way they can understand and access, will take a lot of doing, report Shelley Singh and M Rajshekhar It’s a polarised debate. Always has been. Those who make a living expanding the possibilities of technology feel it can solve many economic ills, even those of the India that lives on 20 a day under the trembling glow of a lantern. And those who engage with that very India say technology solutions are fine, but they belie an understanding of rural lives and livelihoods. The divide is back in focus, over a 1,50,000 crore question: should the government continue to give grain, fuel and fertiliser to the poor at below-market prices, or should it transfer cash to their bank accounts? Wanting a better return on the 1,50,000 crore the government gives as subsidy every year, finance minister Pranab Mukherjee, in his budget speech last month, signalled a move to the cash-transfer system. “It’s a transformational move,” says Rana Kapoor, founder, Yes Bank. This overwhelming view of practitioners in the banking and IT sectors, for whom this is also a business opportunity, is based as much on their belief in technology as on their reading of the existing system. “Subsidies, in their current form, have not worked,” says Ajai Chowdhry, chairman of HCL Infosystems. “There are too many hops, each a bedrock of corruption,” says Guru Malladi, partner, government services, Ernst & Young (E&Y). “Cash transfers will change that.” The government’s expectation from a cashtransfer system is two-fold. One, ensure the subsidy reaches the deserving — the poor. Two, it goes only to the deserving. Today, the poor don’t always get their entitlement. They are intimidated and shortchanged by contractors, middlemen and the village elite. The all-important document that determines who is entitled is the BPL (below poverty line) card. Himanshu, who is doing research on agriculture, says that the village elite has usurped BPL cards. “BPL cards come for anywhere between 1,000 and 10,000,” says Himanshu, an assistant professor at the Jawaharlal Nehru University. Then, there’s mis-targeting. Take LPG cylinders, which cost about 620 per cylinder, but are sold for just 300. Most of the 130 million connections are in urban areas, mostly in households or establishments that can pay cost price. Even the fertiliser subsidy is universal. “Among the big beneficiaries are companies like Tata Tea and big zamindars,” says Neel Ratan, executive director, Pricewaterhouse Coopers. According to an IIM Ahmedabad study done in 2009 by Vijay Paul Sharma and Hrima Thaker, small and marginal farmers account for 82% of land holdings, but only 52% of fertiliser consumption. The price of fertiliser is fixed and the government reimburses fertiliser companies on their cost of production. “The government has been taking the industry’s statements of cost of production at face value, especially for urea,” says Sudha Narayanan, an agricultural economist at Cornell University. “There is no incentive for the industry to reduce its inefficiencies. They just pass it all to the government. Cash transfers can take us away from that.” Himanshu says the government has tried direct transfers in welfare schemes, but with “sub-optimal” results. The government, for example, deposits National Rural Employment Guarantee Scheme (NREGS) payments into beneficiary bank accounts. But the list of beneficiaries itself is often rigged by village sarpanches and the local administration. “Why are we not strengthening those systems first,” asks Himanshu. THE ‘MERGER’ CHALLENGE The cash-transfer system aims to use technology to institutionalise and eliminate human interference. Its challenge will be to deliver a far superior system, one that addresses the ills that plague the existing one and acknowledges local realities. The man entrusted with that amalgam is Nandan Nilekani, a distinguished chieftain of Indian IT. In 2009, Nilekani left the safety of Infosys Technologies, India’s second-largest It company, to join the government in the effective capacity of a minister. His ongoing project is to hand out a unique identification (UID) number to each of the 1.2 billion Indians. It’s a number that will make redundant every other means of identification and will be the basis of all future transactions. The Unique Identification Authority of India (UIDAI), which Nilekani chairs, started handing out UID numbers in September 2010. It has given out 2.5 million numbers so far. October onwards, it will step it up to 1 million numbers a day, and will cover 600 million by 2014. Mukherjee has expanded Nilekani’s brief. He has given Nilekani the responsibility to devise a smart card-based mechanism for cash transfers of subsidies. Nilekani declined to talk on the possible shape of a cash-transfer system. As a starting point, the government has set up a committee headed by Nilekani, and comprising the secretaries of the four ministries impacted by subsidies: food, agriculture, fertilisers and petroleum. According to Mukherjee, the task force will give its report by June 2011 and the system will be in place by March 2012. “A new subsidy-management system will sit on top of the UID database,” a top UIDAI official said, not wanting to be identified. “It will ensure that only eligible — bpl families, for instance — get the benefits.” THE IDENTIFICATION CHALLENGE The likely system can be broken into three parts. The first part is to identify every Indian correctly. The UID does that by using biometrics (fingerprints and eye scans), both of which are unique to each individual. It eliminates duplication, as is prevalent in the current system, which accepts multiple sources of identification. So, say, an Anil Kumar Sharma can claim two identities — one by virtue of his full name on his driving licence, another by having AK Sharma on his passport. “People have identities, but many have multiple identities,” says E&Y’s Malladi. “There’s no way to verify who is getting the subsidy.” The second part is to identify the poor and the needy. “With the arrival of the UID number, the question is how can we link benefits to the individual,” says Sutanu Behuria, secretary, department of fertilisers, ministry of chemical & fertilisers. “At this time, it is not happening.” The 12-digit UID number captures five parameters: name, date of birth, name of parents, address and biometrics. It doesn’t capture income status, which is usually the basis for such entitlements. Under the present system, based on several parameters, the Planning Commission estimates the percentage of BPL households in every state. The states then identify the households and hands them BPL cards. The current system of BPL card allocation leaves a lot to be desired. As the number of welfare programmes linked to BPL cards increases, so does the cornering of cards by the power centres in a village. “More than the poor, it is the undeserving who avail of the PDS. It is vote-bank politics,” says Ram Prasad Kurmi, a former sarpanch of of Khosla village, in Janjgir-Champa district, Chhattisgarh. There are also fake BPL cards in circulation. Recently, in Maharashtra, 300,000 fake cards were cancelled. In a paper titled ‘Programmes to Protect the Hungry’, Madhura Swaminathan, professor, Indian Statistical Institute, notes that 52.1% of all agricultural labour households and 60.7% of scheduled-caste households either had no BPL card or were designated to be ‘above poverty line’. Correctly identifying BPL households is the big challenge for the cash-transfer system. A host of product-specific factors will come into play. Take fertilisers. For example, on what basis will the subsidy be distributed? Say, it is land holdings. “Land records are in terrible shape. They have not been updated for a long time,” says Himanshu. “If the land is still in the grandfather’s name, while his grandsons have split it into four and are farming it, who does the money go to?” Another identification question revolves around sharecroppers, who lease land from owners and cultivate it. “Officially 10% and unofficially 30% of India’s fields are cultivated by sharecroppers,” says Himanshu. “If you move the cash to the land owner’s bank account, you will leave these sharecroppers out.” Cash transfers are anything but straight-forward. THE BANKING CHALLENGE The third, and final, part is to move money to the bank account of a member of a BPL household. India is a vastly unbanked country. According to the RBI, India has about 350 million bank accounts. The actual number of people with bank accounts is far lower since many hold more than one account. A cash-transfer system cannot be operationalised without bank accounts. In order to increase financial inclusion in India, the RBI has been prodding banks to launch ‘no-frill accounts’ — essentially, savings accounts with zero balance, limited withdrawals every month and no overdraft. Yet, banks haven’t aggressively covered the unbanked. They had no incentive to do so because the payback was poor. The cash-transfer scheme changes that. In full flow and based on current numbers, it will pump in 1,00,000 crore through banks, giving them access to a sizeable corpus of zero-cost funds on a rolling basis. “We see a terrific opportunity in cash transfers,” says Kapoor of Yes Bank. But where are the touch points, asks Himanshu. “In Belari town in Uttar Pradesh, for example, there is one atm for 200,000-300,000 people,” he says. “Can you imagine people travelling two to three hours to get some money? That could result in labour losing a day of productive work.” While banks are showing greater interest in including the village unbanked, they are still unsure about servicing them through physical branches. Instead, they are looking at remote-banking options like the ‘banking correspondent’ model and mobile banking. A banking correspondent model involves having a bank representative in a village – for example, a kirana store — with cash and a swipe machine. Villagers can use their smart cards to withdraw and deposit cash. Several banks are running such pilots, including Allahabad Bank, Axis Bank, UCO Bank and Yes Bank. But even this has disadvantages. “It is inconvenient for users,” says Som Mittal, president, Nasscom, the nodal body for the IT and ITES industries. “People are at the mercy of the shop owner and often have to travel long distances to reach a correspondent.” Pilots are also being done in mobile banking. For example, Idea Cellular and Axis bank are testing mobile-money transfer between Dharavi in Mumbai and villages in eastern UP. At 575 million active users, more Indians have mobiles than bank accounts. The possibilities with mobiles are immense. The UIDAI official says the subsidy system can be linked to mobile connections, which will enable smsbased updates. THE FOOD SECURITY CHALLENGE In the first phase, Nilekani and company will look at the feasibility of cash transfers in kerosene, LPG and fertilisers. “The government’s ultimate intention is to replace even subsidies on food with cash transfers,” says fertiliser secretary Behuria. Himanshu feels doing away with the public distribution system (PDS) — through which grain and kerosene are distributed at belowmarket prices — will be a food-security disaster. “If there is no pds, there is no procurement. If there is no procurement, there is no MSP.” The minimum support price was started to incentivise production in cereals. “India grows 230 million tonnes, we need 300-400 million tonnes,” says Himanshu. Without an MSP, farmers will move to cash crops like cotton, as in happening in Punjab. Cornell University’s Narayanan says the government needs to be clear about why it is shifting to cash transfers in subsidies. “Fertiliser subsidies were introduced because the government wanted to make fertilisers affordable to farmers,” she says. “What are we trying to do now — boost food production, ensure balanced fertiliser use or lower the subsidy bill? We need to run pilots to see whether cash transfers can indeed deliver those benefits.” When Nilekani sits with the four secretaries, complex questions like this should come up. Not all answers will come easily. Or quickly. Current System: Physical Delivery Food Beneficiary: BPL households. Each household gets 35 kg of rice/wheat. States can add to this. Cost: 60,000 cr Fertiliser Beneficiary: Universal. Factored into the product price, government reimburses fertiliser companies Cost: 55,000 cr LPG Beneficiary: Universal. Factored into the product price, government reimburses oil companies Cost: 13,000 cr Kerosene Beneficiary: BPL households. Each household entitled to 5 litres per month Cost: 18,000 cr Diesel Beneficiary: Universal. Factored into the product price, government reimburses oil companies Cost: 20,000 cr Note: Food and fertiliser figures are subsidy estimates for 2010-11; LPG, kerosene and diesel figures show under-recoveries of oil companies (partly funded by government and partly by companies) in 2009-10 Problems Distribution of BPL cards is controlled by the village elite, who often corner welfare benefits Leakages in the food and kerosene supply chain before entitlements reach the target population Subsidies distorting markets and field-level behaviour (like a greater bias towards urea use by farmers) Subsidies going to the urban rich who have the purchasing power Subsidy bill soaring New System: Cash Transfer Instead of subsidising goods, government will identify the poor and the needy, and move cash of an equivalent amount to their bank accounts. The system will have three parts: a UID number, a bank account and some basis like the BPL card to identify the deserving. Questions How to ensure BPL cards stay in BPL households only? How to foolproof cash transfers to ensure the NREGS experience is not repeated? Can the ‘banking correspondent’ model handle volumes? How will cash transfers impact other parts of the rural economy like agriprocurement and cropping patterns? How to protect entitlements against inflation? TALKING HEADS “It is a great way of ensuring efficiency, effectiveness and timeliness in subsidy reaching the people. The move will be transformational. We see a terrific opportunity in this” RANA KAPOOR Yes Bank I “Subsidies, in their current form, have not worked. A big challenge has been identity and UID solves that bit of the problem. The government should put an end-date to complete this project” AJAI CHOWDHRY HCL Infosystems “The village elite has usurped BPL (below poverty line) cards. Elsewhere, they can be had for anywhere between 1,000 and 10,000, depending on the state” HIMANSHU Assistant Professor , JNU ___________________________________________________________ Fulfilling The Promise The government must opt for subsidies through cash transfer if it is to reach those in need Kirit S Parikh The announcement in the budget of providing fertiliser and fuel subsides through cash transfer, if successfully implemented, can effectively reach the poor and reduce the burden of subsidies. There are, however, sceptics who question if this can be effectively implemented. The old-age pension and widows’ pension schemes that involve cash transfer are, according to some, the least effective schemes in reaching the intended beneficiaries. Also, questions are raised whether cash transfer can work when many poor are illiterate and do not have bank accounts. It is also suggested that cash would be easier to siphon off. These are misplaced concerns. Often when a new policy or measure is suggested, people point out all that can go wrong and say it is not perfect. However, the question that should be asked is whether it is substantially better than present policy or not. So, let’s look at how the present policy performs. A number of studies have shown that between one third to half of kerosene supplied through the public distribution system (PDS) gets diverted to adulterate diesel and does not reach the intended persons. Also, as per the National Sample Survey data for 2004-05, among rural households that get any kerosene from PDS, the bottom 90% of the households get around three litres per household per month. Some 25% of the rural households in all decile groups do not get any kerosene at all. Thus, 25% of the poor are excluded and nearly 75% of the rich are included. If we consider that 50% are poor, then only half of the 66% kerosene distributed through PDS reaches the poor. Thus, the poor today get only 33% of the subsidy expenditure by the government. If all the poor households were to get kerosene – five litres instead of three – it would require around 75% of the kerosene that is currently supplied to the PDS system. The subsidy burden of kerosene would come down by 25%. An effective targeting scheme, which is the key to this, can be based on Aadhaar, the Unique ID Card. Aadhaar is a smart card that carries finger prints and iris scan data. A person with the card can go to a shop and put his fingers on a small device that transmits the data to the Aadhaar computer system, which confirms within five seconds if the person is the same one as the card holder. It is thus not possible for anyone else to claim the entitlement associated with the card. The cards can be charged with their entitlement. The poor can go to any shop, buy kerosene at market price, pay the ration price in cash and the difference between market price and ration price is electronically transferred from the government’s account to the trader’s account. This way, there will be only one price of kerosene in the market and traders will have no incentive to divert it. Direct cash transfer would require a bank account for each family, while what is proposed here, just giving the entitlement through Aadhaar card, does not. The key element in the scheme’s success is identification of the poor. How do we ensure that this is done correctly? If the poor are identified in an open gram sabha, the errors of exclusion of the poor as well as erroneous inclusion of the rich can be minimised. Can illiterate persons manage smart cards? Illiterate does not mean dumb. People manage their ration cards even today. A smart card is no different. Also, by now families without at least one literate person would be very few. Finally, should kerosene or LPG subsidy be given as entitlement or as cash transfer that the consumer is free to use for anything? LPG is a clean cooking fuel and is a merit good that we want everybody to use. Cooking with firewood and dung causes indoor air pollution with significant adverse impact on health. The social cost of it has been estimated to be much more than the cost of subsidising LPG for the poor. When cash is provided, the poor may not spend it on LPG, especially if a man – rather than a woman – takes the decision on spending in the household as the burden of smoke from firewood is largely borne by women. In such a case, it is better to provide subsidy as an entitlement rather than as cash. One can argue that even when given as entitlement, the poor can sell it and convert it into cash. While this is possible, it would involve a transaction cost which would discourage people from selling it. If cash is to be given, it should at least be given to the woman of the household. Thus, the announcement by the finance minister in the budget to give subsidy for kerosene, LPG and fertiliser in the form of cash transfer is to be welcomed if it is based on a mechanism that leads to effective targeting, empowers women and eliminates dual pricing. I prefer entitlement to cash transfer at least for merit goods where there are externalities. We are generally averse to experimenting with new solutions. Why not implement this for Aadhaar card holders and test whether they are better off than ration card holders? In two to three years, we could be ready to implement a superior scheme nationally. The writer is chairman, Integrated Research and Action for Development (IRADe).

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Economic Reform in Indian Banks

Let us get acquainted with some of the important reforms in the banking sector in India.

1. Reduced CRR and SLR : The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are gradually reduced during the economic reforms period in India. By Law in India the CRR remains between 3-15% of the Net Demand and Time Liabilities. It is reduced from the earlier high level of 15% plus incremental CRR of 10% to current 4% level. Similarly, the SLR Is also reduced from early 38.5% to current minimum of 25% level. This has left more loanable funds with commercial banks, solving the liquidity problem.
2. Deregulation of Interest Rate : During the economics reforms period, interest rates of commercial banks were deregulated. Banks now enjoy freedom of fixing the lower and upper limit of interest on deposits. Interest rate slabs are reduced from Rs.20 Lakhs to just Rs. 2 Lakhs. Interest rates on the bank loans above Rs.2 lakhs are full decontrolled. These measures have resulted in more freedom to commercial banks in interest rate regime.
3. Fixing prudential Norms : In order to induce professionalism in its operations, the RBI fixed prudential norms for commercial banks. It includes recognition of income sources. Classification of assets, provisions for bad debts, maintaining international standards in accounting practices, etc. It helped banks in reducing and restructuring Non-performing assets (NPAs).
4. Introduction of CRAR : Capital to Risk Weighted Asset Ratio (CRAR) was introduced in 1992. It resulted in an improvement in the capital position of commercial banks, all most all the banks in India has reached the Capital Adequacy Ratio (CAR) above the statutory level of 9%.
5. Operational Autonomy : During the reforms period commercial banks enjoyed the operational freedom. If a bank satisfies the CAR then it gets freedom in opening new branches, upgrading the extension counters, closing down existing branches and they get liberal lending norms.
6. Banking Diversification : The Indian banking sector was well diversified, during the economic reforms period. Many of the banks have stared new services and new products. Some of them have established subsidiaries in merchant banking, mutual funds, insurance, venture capital, etc which has led to diversified sources of income of them.
7. New Generation Banks : During the reforms period many new generation banks have successfully emerged on the financial horizon. Banks such as ICICI Bank, HDFC Bank, UTI Bank have given a big challenge to the public sector banks leading to a greater degree of competition.
8. Improved Profitability and Efficiency : During the reform period, the productivity and efficiency of many commercial banks has improved. It has happened due to the reduced Non-performing loans, increased use of technology, more computerization and some other relevant measures adopted by the government.

These are some of the import reforms regarding the banking sector in India.

With these reforms, Indian banks especially the public sector banks have proved that they are no longer inefficient compared with their foreign counterparts as far as productivity is concerned.

Nationalization of Banks

After independence the Government of India adopted planned economic development for the country. Accordingly, five year plans came into existence since 1951. This economic planning basically aimed at social ownership of the means of production. However, commercial banks were in the private sector those days. In 1950-51 there were 430 commercial banks. The Government had some social objectives of planning. These commercial banks failed helping the government in attaining these objectives. Thus, the government decided to nationalize 14 major commercial banks on 19th July, 1969. All commercial banks with a deposit base over Rs.50 crores were nationalized. It was considered that banks were controlled by business houses and thus failed in catering to the credit needs of poor sections such as cottage industry, village industry, farmers, craft men, etc. The second dose of nationalization came in April 1980 when banks were nationalized.

Objectives Behind Nationalisation of Banks in India

The nationalization of commercial banks took place with an aim to achieve following major objectives.

1. Social Welfare : It was the need of the hour to direct the funds for the needy and required sectors of the indian economy. Sector such as agriculture, small and village industries were in need of funds for their expansion and further economic development.
2. Controlling Private Monopolies : Prior to nationalization many banks were controlled by private business houses and corporate families. It was necessary to check these monopolies in order to ensure a smooth supply of credit to socially desirable sections.
3. Expansion of Banking : In a large country like India the numbers of banks existing those days were certainly inadequate. It was necessary to spread banking across the country. It could be done through expanding banking network (by opening new bank branches) in the un-banked areas.
4. Reducing Regional Imbalance : In a country like India where we have a urban-rural divide; it was necessary for banks to go in the rural areas where the banking facilities were not available. In order to reduce this regional imbalance nationalisation was justified:
5. Priority Sector Lending : In India, the agriculture sector and its allied activities were the largest contributor to the national income. Thus these were labeled as the priority sectors. But unfortunately they were deprived of their due share in the credit. Nationalization was urgently needed for catering funds to them.
6. Developing Banking Habits : In India more than 70% population used to stay in rural areas. It was necessary to develop the banking habit among such a large population.

Demerits, Limitations - Bank Nationalisation in India

Though the natinalisation of commercial banks was undertaken with tall objectives, in many senses it failed in attaining them. In fact it converted many of the banking institutions in the loss making entities. The reasons were obvious lethargic working, lack of accountability, lack of profit motive, political interference, etc. Under this backdrop it is necessary to have a critical look to the whole process of natinalisation in the period after bank natinalisation.

The major limitations of the bank nationalization in India are:-

1. Inadequate banking facilities : Even though banks have spread across the country; still many parts of the country are unbanked. Especially in the backward states such as the Uttar Pradesh, Madhya Pradesh, Chhattisgarh and north-eastern states of India.
2. Limited resources mobilized and allocated : The resources mobilized after the nationalization is not sufficient if we consider the needs of the Indian economy. Some times the deposits mobilized are enough but the resource allocation is not as per the expansions.
3. Lowered efficiency and profits : After nationalization banks went in the government sector. Many times political forces pressurized them. Banking was not done on a professional and ethical grounds. It resulted into lower efficiency and poor profitability of banks.
4. Increased expenditure : Due to huge expansion in a branch network, large staff administrative expenditure, trade union struggle, etc. banks expenditure increased to a dangerous levels.
5. Political and Administrative Inference : Many public sector banks badly suffered due to the political interference. It was seen in arranging loan meals. It ultimately resulted in huge non-performing assets (NPAs) of these banks and inefficiency.

These are several limitations faced by the bank natinalisation in India.

Apart from this there are certain other limitations as well, such as weak infrastructure, poor competitiveness, etc.

But after Economic Reform of 1991, the Indian banking industry has entered into the new horizons of competitiveness, efficiency and productivity. It has made Indian banks more vibrant and professional organizations, removing the bad days of bank nationalization.