Tag Archives: infrastructure

Protecting the Harassed and the Harasser

19 Jul

The Supreme Court recently passed a controversial judgment condemning ‘automatic’ arrests by police in dowry harassment cases against husbands and in-laws. The judgment has received a mixed response. While its supporters praise the Court’s strong statement against misuse of this law by women, others raise concerns over the rights and safety of victim women. While the Court rightly asks for the correct implementation of criminal procedures to avoid harassment by misuse of law, its lack of a simultaneous emphasis on the need for protection of women is problematic.

The judgment speaks of the duties of police officers while making arrests and applies to cases beyond the context of cruelty against women. Thus, one way to understand the ratio of the judgment is to look at it as a criminal procedure case divorced from its gender context. The Court merely reminds police officers of their duty under the Criminal Procedure Code (Cr.P.C.) to exercise discretion while arresting even in non-bailable and cognizable offences and to do away with the attitude “to arrest first and then proceed with the rest”. Instead of mechanically making arrests on receiving an allegation, the police should first arrive at a reasonable satisfaction as to the genuineness of the allegation based on some investigation. Under the Cr.P.C., for offences with punishment of seven or less years, like the provision on cruelty in dispute here, the police can arrest without a warrant only when it is satisfied that arrest is necessary for reasons such as preventing tampering with evidence, preventing threat to witnesses, and preventing commission of further offence. An absolute non-exercise of discretion, whether by mechanically arresting or not arresting, is problematic and may cause unnecessary harassment and humiliation to the arrested person. The judgment requires police officers to forward to the Magistrate not only their reasons for arrest, but also reasons for their decision not to arrest, in the latter case within two weeks from the date of institution of the case. Failure to follow these guidelines may render police officers liable for both departmental action and contempt of court proceedings.

While the operative part of the judgment is written largely in such criminal jurisprudence terms, presenting the judgment in this gender-neutral manner will rob it of its true context and hide its possible implications. Even while the direction is to police officers, the Court is more concerned about harassment by “disgruntled wives” than by the police. The Court emphasizes how women are misusing the criminal provision that was intended to protect them from cruelty by husbands or his relatives, and causing harassment through arrests not only of the husband, but also his old or distant relatives, whether male or female. The Court also notes that marriage is a revered institution in India and seems to lament the increase in matrimonial disputes in the country.

The exclusive focus on misuse instead of use of the provision makes the apparently harmless verdict reiterating the criminal procedural law a questionable and unbalanced one. While the misuse of anti-dowry provisions may be common, but even more widespread is the incidence of dowry-related violence. In its attempt to “maintain a balance between individual liberty and societal order”, the Court totally ignores the concerns of women who may actually be victims of harassment. Patriarchal norms normalizing domestic violence, lack of support for women who fight against such violence and the private domain within which the abuse takes place already make legal remedies difficult to access for many women. In this context, valid concerns were raised around the judgment’s implications for a woman deciding whether or not to use criminal law to her rescue and for the safety of a woman who decides to use criminal law but is not able to procure arrest of the accused persons.

There is a need to take on board concerns both regarding protection of women from domestic violence and regarding harassment caused by arrests of falsely accused persons. While the Supreme Court takes care of the latter, it ignores the former. As a matter of fact, the law already provides this protection in the form of the Domestic Violence Act (DVA). The definition of “domestic violence” under the Act covers physical, mental and economic abuse and includes violence related to dowry demands. It further places a duty on a police officer who receives a complaint of domestic violence to inform the aggrieved woman of her rights to receive protection under the DVA. Thus, even where the police may not arrest the accused persons immediately, they may still assist the complainant woman to use the DVA machinery and seek protection and other reliefs.

While the Court reiterates Cr.P.C. provisions to curtail harassment by misuse of dowry laws, it surprisingly misses out a mention of DVA that can simultaneously be used to provide protection to abused women. The police officers need to be reminded of their duty under both these laws. One can hope that this slip by the apex Court will not result in dilution of the actual exercise of their duty under the other law.

Post on revising the regulatory framework for FDI and capital controls

21 Apr

I have a co-authored post on the reforming the FDI regulatory framework in India on Ajay Shah’s blog here. The post was published on April 21, 2014, and has been co-authored by me, Ajay Shah, and Arjun Rajagopal. The post is being reproduced below. 


Capital controls against FDI in aviation: An example of bad governance in India

by Anirudh Burman, Ajay Shah and Arjun Rajagopal.

FDI in aviation was liberalised by the Reserve Bank of India on September 21, 2012 through a change in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (link). Following that change, private players began putting together a number of complex transactions between Indian and foreign companies such as Jet-Etihad, AirAsia-Tata, and Tata-Singapore Airlines.

On November 20, 2013, the Directorate General of Civil Aviation (DGCA) revised its `Civil Aviation Requirements’ or “CAR” (CAR 4.1.5 to 4.1.16) to state that a domestic airline company cannot enter into an agreement with a foreign investing entity (including foreign airlines) that may give such foreign entity a right to control the management of the domestic operator ( link). This change in regulations has major consequences for some of the transactions which are in progress.
There are two important deficiencies in this action by DGCA:

  1. The CAR makes repeated mention of the requirement of control, without clarifying what the term `control’ means. This creates legal risk for transacting parties.
  2. No rationale has been offered to justify the use of the coercive power of the State via the CAR; no estimates of the costs or benefits of this regulatory action have been provided.

What does `control’ mean?

Rule 4.1.8 of the CAR (link) states:

A Scheduled Air Transport Service/Domestic Scheduled Passenger Airline shall not enter into an agreement with a foreign investing institution or a foreign airline, which may give such foreign investing institution or foreign airlines or others on behalf of them, the right to control the management of the domestic operator.

However, the `right to control the management’ has not been defined. This lack of clarity is compounded by two other regulatory requirements: (a) the directors appointed by the foreign entity cannot exceed more than one-third of the total (CAR 4.1.7), and (b) the substantial ownership and effective control of a domestic operator has to be vested in Indian nationals (CAR 3.1).

The new requirements must mean that `the right to control the management’ involves a form of control over and above these two earlier requirements, but no definition of that form of control is offered. Such lack of precision in drafting of laws results in increased legal risk and should be avoided.

Lack of transparency

When the coercive power of the State is wielded by the executive, this should be accompanied by appropriate checks and balances. Good practice in regulatory governance requires that when regulators wish to make changes to regulations, and thus affect the rights of private parties, the regulators must furnish reasons for making those changes. This increases transparency, predictability, and accountability.

In the case of investments, an investor who commits resources would want an element of control in order to ensure his money is not stolen or wasted. A substantial investment in a company is thus often accompanied by rights regarding management and control of the company. If a regulatory requirement interferes with these rights of investors, the onus is on the regulator to explain why. The changes to the CAR affect the rights of investors and potential investors in the aviation industry, but DGCA has not furnished any reasons for its revisions.

Regulatory actions must not be arbitrary acts of God. They must be steeped in the rule of law. The Draft Indian Financial Code, when enacted, will ensure financial sector regulators make qualitatively better regulations by blocking these kinds of mistakes. All draft regulations will have to be accompanied by reasons for the proposed regulations, as well as a cost-benefit analysis of the proposed regulations. These will be made available for public comment, before the final regulations are adopted. This regulation-making process will result in clearer and better regulations, and will enhance the legitimacy of the regulations and of regulators. The adoption of a similar process by DGCA would have led to a better outcome.

Barriers to international economic engagement: A strategic view

Consider trade barriers. The Indian State has the power to introduce customs duties. A number of government bodies undoubtedly have a major stake in the design of customs duties, and may even have critical expertise in the matter. Nonetheless, the power to introduce and modify customs duties is vested in a single authority — the Ministry of Finance. The Ministry of Textiles, for example, has no power to change the customs duty on imported cloth. This is a healthy arrangement: The Ministry of Finance is responsible for maintaining a unified strategic outlook on the question of trade barriers. The Ministry of Textiles can engage with the Ministry of Finance and suggest changes in tariffs, but responsibility for formulating and promulgating a coherent policy ultimately rests exclusively with Ministry of Finance.

This same strategy is required in the field of capital controls. If multiple regulators or government departments set about writing capital controls, we will have a balkanised mess.

Indeed, the current capital controls based framework is just such a balkanised mess. In the absence of a single governing law for foreign investment, a number of agencies have prescribed foreign investor regulations. The types of capital control restrictions and their rationale can be outlined as:

  1. Entry restrictions by financial regulators such as RBI and Ministry of Finance, usually to promote monetary policy and financial stability (under the Foreign Exchange Management Act, but not restricted to it);
  2. Entry restrictions imposed by DIPP and Ministry of Finance on grounds of national security (may include consideration of factors listed under FEMA as well); and
  3. Regulatory restrictions (including on control and ownership) imposed by sectoral regulators.

This multiplicity of regulations also leads to uncertainty of regulatory objectives. Investors have no idea of what criteria is used to assess their investments, and grant them business permissions. It is important to recognize that the justifications used to impose regulatory restrictions for relying on the distinctions between private and public, or domestic and foreign entities, is that these distinctions are reasonable proxies for the other characteristics (national security, systemic risk) that are a valid basis for differential treatment. As in so many areas of regulation, the misapplication of easy proxies for characteristics that are difficult to assess becomes a glaring reminder of regulatory uncertainty. It is important that regulatory objectives be identified clearly in relevant statues and regulations.

In addition to the legal and regulatory uncertainty created by such a multiplicity of regulators and regulations, the regulations themselves may violate India’s obligations under various multilateral and bilateral investment treaties: Many, if not, most such agreements provide for national treatment of investment once it has been allowed to enter the domestic market. Regulators should not be allowed to impose regulatory restrictions after foreign investment has already entered the domestic market. Under this principle of competitive neutrality, there should be no difference in the conditions imposed on the State Bank of India and those imposed on Etihad, when they invest in Jet Airways.

This requires more than administrative changes. A reform of the legalframework is essential. For example, the restrictions in the CAR appear to be grounded in the expansive powers granted to DGCA under the Aircraft Act, 1934. Section 5 of the Act (link) states:

Power of Central Government to make rules. – (1) Subject to the provisions of section 14, the Central Government may, by notification in the Official Gazette, make rules regulating the manufacture, possession, use, operation, sale, import or export of any aircraft or class of aircraft and for securing the safety of aircraft operation.

Those same powers could ground preferential treatment in other areas of regulation. To the extent that other regulatory bodies with responsibilities for other sectors have similar powers, those sectors too are vulnerable to violations of the principle of competitive neutrality.

The report of the FSLRC proposes a cleaner, clearer regulatory framework for foreign investment, one which is consistent with these obligations. Section 2.5 of the report states:

The Commission envisages a regulatory framework where governance standards for regulated entities will not depend on the form of organisation of the financial firm or its ownership structure. This will yield ‘competitive neutrality’. In this framework, the regulatory treatment of companies, co-operatives and partnerships; public and private financial firms; anddomestic and foreign firms, will be identical.

The draft Indian Financial Code, which encodes the principles articulated in the report, explicitly requires all regulators to maintain competitive neutrality while framing regulations. Section 84 (Principles of consumer protection) and section 141 (Principles of prudential regulation) contain the following identical language:

[C]ompetition in the markets for financial products and financial services is desirable in the interests of consumers and therefore… there should be competitive neutrality in the treatment of financial service providers;

This will ensure that sectoral regulators in the financial sector will not be able to discriminate against foreign and domestic firms/investment.

Pending the introduction of the Code, it would be helpful to incorporate its underlying principles into the existing regulatory framework. For example, the BJP has suggested that they will block FDI in retail but they will remove all capital controls against FDI in other sectors. Any government wishing to carry out such a change would need all capital controls be defined at only one place, where a single policy decision is taken. After this, it should not be possible for any other department of government or a regulatory agency to introduce capital controls.

The required single-window system should have the following characteristics:

  1. A comprehensive definition of foreign investment;
  2. A rule-of-law based mechanism for the government to allow/prohibit entry of foreign investment in specific sectors;
  3. A single regulatory barrier for foreign investment before it can enter the domestic market. Currently FIPB is an example of such a barrier;
  4. Clear documentation of approval of foreign investment that must be binding on all government authorities;
  5. Clear enumeration of reasons for which foreign investment can be restricted, and who can impose these restrictions (without any catch-all provisions like “for any other reason”);
  6. A positive obligation on the government to ensure competitive neutrality, OR a restriction preventing the government from discriminating against foreign investment once the investment has been allowed to enter India; and
  7. A review mechanism where foreign investors whose investment has either (a) been rejected, or (b) been subjected to discriminatory treatment compared to a domestic investor, can seek redressal.


There is great outrage in India today, against a capricious State that is a major source of risk for firms. These failures on capital controls are one important component of that problem. It is the right of politicians to interfere with international economic integration – e.g. to block FDI in retail or not or to have tariffs on import of apples or not. But there should be a single-barrier where this political decision is made.

What is a true welfare state?

20 Mar

This post tries to pen down my recent pre-occupation with the concept of the ‘welfare state’ as we understand in India.  The dominant story of our democracy through the last 60 years has been of bringing the majority of our population out of poverty, and providing them a social security net.  Even the economic reforms package of 1991 is explained in terms of the ‘trickle-down effect’ i.e. create enough wealth in the country, and it will trickle down to the poorest, making them better off.  My major concern is whether this works best by creating schemes and structures that hand out sops to the poor, or by making it easier for them to find jobs.  I feel that this merits discussion, and so am penning down some illustrations.

Simply put, the main issue I have been thinking about, is whether it is better to create efficient laws that enable the creation of jobs and wealth, rather than creating programs which essentially function as doles.  Take NREGA for example.  It is touted to be the largest social-welfare scheme in the country.  Its purpose is to provide employment, and in doing so, create infrastructure and assets.  However, as many critics point out, the NREGA provides jobs, not creates them.  There is no target on how people will be employed to build a certain amount of infrastructure.  It merely mandates that whoever cannot find a job, has to be given one.  This may involve digging a pit for 50 days, and covering it up for the other 50.

The scheme is not generating employment, or infrastructure.  It is merely handing out cash to poor unemployed farmers, while not really creating any long-term assets that will be useful to them in the long-run.  Agreed, it puts more money in the hands of rural Indians.  But it’s merely taking money from one pocket and putting it in the other!!  This does not generate more wealth in the country.  It just makes rural India richer at the expense of taxpayers!!

Another example could be that of the Factories Act.  The professed reasons for having the same is to regulate factories and the conditions of workers employed in them.  However, many critics point out their inherent inefficiencies.  Factory owners deliberately evade the provisions of the Act because it is so difficult to comply with.  There are innumerable anecdotal stories where one hears of factory owners running four different establishments (instead of one) with less than 20 workers to avoid coming under the Factories Act. Therefore, a law which is ostensibly a welfare legislation, is so difficult to comply with that owner prefer to stay outside its purview, defeating its very purpose.

Or take the Minimum Wage Act.  Workers under it are to be provided as minimum of Rs. 100 a day for every day’s work.  If one works 20 days a month for 12 months a year, one’s earning would be nearly Rs. 25,000 for the year.  However, there must be an analysis of whether minimum wage actually reduces potential for more people finding employment.  The argument is that if it is cheaper for a factory owner to invest in machinery than to pay workers Rs. 100 a day, he will mechanize his factory, thus reducing employment.  This conclusion was also reached by a Joint Economic Committee of the US Congress during the Clinton Administration.

While Rs. 100 seems like a paltry sum, what needs to be considered is whether there is a large number of people willing to work for say, Rs. 70-80 per month, who would otherwise have been employed, but now cannot find work because of our minimum wage law.

I am not proposing that this is indeed the case, but the truth is that in our country, there seems to be no strong alternative view to the dominant view of handing out welfare-based sops, rather than create an efficient and enabling state, which will help job creation, while also preventing exploitation.

Unsung Heroes: Servicing our teachers

20 Jan

The Wall Street Journal’s India section has some remarkable anecdotes on how teachers in rural India are, out of their own initiative, providing examples to the government as to how to cope with meagre resources and yet transform education in rural India.  The first part of this post summarizes the article, and later, I mention some statistics to illustrate the difficulties teachers in rural India have to cope with.

The article discusses the experiences of the author in interacting with teachers in Uttarakhand:

1. A certain Mr. Prem Singh Rawat works in a tiny district called Mori, an area where teachers and administrators usually avoid being posted to.  Mr. Rawat has made a makeshift room in his office in Mori (though he lives in Dehradun), and is constantly pressurising his superiors to allocate more resources for education.  Apparently, 129 schools in the district have a total of 164 teachers!!

2. A teacher named Sangeeta Bahuguna has made a simple chart in her school called the ‘School Progress Plan’.  She had listed all her classes and subjects, areas that need to be improved and plans to improve them.  This reflects how, “for the first time many teachers are doing more than passing and failing students, now they are also reflecting on how their students learn.”

3. Another teacher, Ms. Kusum Negi, “is helping the district develop competency-based exam papers – a major change from its traditional text book and recall based tests.”  One example of such a question for Class VII students: “If all of us breathe in oxygen and let out carbon dioxide, how is it that the oxygen is not depleted in our atmosphere?

Though one should be gladdened to read such stories, the infrastructure our government provides to such teachers is disturbing.  I am not even referring to corruption and diversion of funds.  Even a brief look at the number of teachers, and the sheer burden they have to face is sure to alarm those from public schools in urban areas.  These facts are being given from the 2008-09 annual report from the Ministry of HRD:

Total no. of children in primary and upper primary schools: 13.35 crores.

Total no. of schools/institutions for this age-group: 7.5 lakhs

Total no. of teachers for this age group: 22.31 lakhs

I did some rough calculations to draw 2 inferences from these figures:

a. There are approximately 3 teachers (2.9) for every school/institution for this age-group!!

b. Each teacher is in charge of roughly 60 students (59.8)!!

This shows that even though there are many innovative, and dedicated teachers out there, the government simply has not, or maybe cannot provide enough resources for them to make our education mission fruitful by encouraging our teachers to maximise their potential.

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