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National Council of Applied Economic Research (NCAER) India’s largest and oldest economic think tank announces the appointment of Poonam Gupta as its new Director-General.

NCAER is delighted to announce the appointment of Poonam Gupta as its next Director General. Poonam the first woman Director General of NCAER will succeed Shekhar Shah who has led NCAER since 2011 and will complete his second five year term in early May. Nandan Nilekani President of NCAER said “We are delighted to have Poonam succeed Shekhar at the end of his successful tenure. NCAER has a unique heritage among India’s intellectual landscape and she brings a set of unique experiences and perspectives that will accelerate deepen and broaden our research agenda with impact and rigor”

Poonam Gupta is currently working as a Lead Economist at the World Bank Washington DC. Prior to joining the World Bank in 2013 she was the Reserve Bank of India Chair Professor at NIPFP and a Professor of Macroeconomics at ICRIER. She has taught at the Delhi School of Economics and at the University of Maryland. She started her professional career as an Economist at the International Monetary Fund Washington DC.  

In a career spanning more than two decades Poonam has published extensively in leading scholarly and policy journals and is counted among top researchers working on India. Her work has been frequently featured in the national and international media including in the Economist Financial Times and Wall Street Journal. 

Her areas of expertise and research interest include issues related to growth and developmental challenges in developing economies fiscal outcomes financial sector monetary policy capital flows and global developments. Besides India she has rich experience working on issues relevant to other emerging markets including China. 

Dr. Gupta holds a PhD in Applied Macroeconomics and International Economics from the University of Maryland a Masters in Economics from the Delhi School of Economics and a Bachelor’s degree in Economics from Hindu College Delhi University. She will assume office on July 1st 2021.

With livelihoods affected during the pandemic the importance of land ownership for access to formal loans as well as government relief programmes became more evident. But the relatively poor availability of clear and updated land titles remains a hurdle.

For a significant section of the rural poor land is both an asset and a source of livelihood. Many informal jobs in the urban centres were lost as the economy was hit by the coronavirus pandemic in 2020. The resulting reverse migration placed greater demands on household resources in rural areas. With livelihoods affected the importance of land ownership for access to formal loans as well as government relief programmes became even more evident. But the relatively poor availability of clear and updated land titles remains a hurdle.

Though efforts to update land records began as early as the 1980s there is a long road ahead for achieving the final objective of updated and conclusive land titles. The government of India’s Digital India Land Records Modernisation Programme (DI-LRMP) scheme is the most recent effort in this regard.

The dismal state of land records is due to the failure of the Indian administration to evolve from British-era land policies. In addition land record regulations and policies vary widely across Indian states/union territories. For a comprehensive understanding of land records in India it is imperative to bring out the comparative picture in this regard. Though DI-LRMP provides a common framework for reporting the progress of land record management by states/UTs the heterogeneous nature of regulations/guidelines for land record management in India makes the progress non-uniform. NCAER made a pioneering effort in this direction by launching NCAER Land Records and Services Index (N-LRSI) in 2020. The index assesses states’ performance on two broad dimensions — digitisation and quality of land records. Despite the pandemic states/UTs made rigorous efforts over the course of a year to make improvements in various parameters of the index. These improvements are clearly captured in the N-LRSI 2021 findings the extent of which can be gauged by Bihar’s jump from the 23rd to 8th position in the index by making substantial progress in the digitisation of maps textual records and registration process.

Nevertheless some challenges remain. As had been noted in the pilot impact assessment of DI-LRMP one of the major roadblocks in ensuring continuous updation of land records is the lack of skilled manpower in land record departments in states. Another dimension relates to effective integration across land records departments. The N-LRSI analysis has brought out the poor synergy across land record departments — revenue department as the custodian of textual records the survey and settlement department managing the spatial records and the registration department which is responsible for registering land transactions. The N-LRSI design entails a sub-component of updating of ownership (within quality of records component) which gauges the extent of integration between registration and textual records — swiftness of the process of updating ownership as the result of the registration of a transaction the phenomenon which is commonly known as mutation. The information obtained from all the state/UT sources in this regard revealed that no state/UT has the provision for online mutation on the same day as the registration.

The study also brought out the weak linkage that exists between the revenue department and the survey and settlement department. This creates a huge divergence between the land area reported by the textual and spatial record enhancing the chances of legal disputes over the definition of boundaries and the extent of a land plot. With such poor inter-departmental synergy aspiring for updated and accurate records will always be a distant goal and states/UTs should take necessary actions to have the appropriate systems in place.

A key takeaway emerging from the two editions of N-LRSI is states’ receptiveness and will to improve. However these are constrained by inherent structural rigidities in the system. It is only by strengthening these institutions that the desired quality of land records can be attained. The improved system of land records is likely to facilitate the efforts that some states/UTs are making to ease land transactions — like lowering stamp duties by the Maharashtra government — to meet its increasing demand for housing infrastructure. Finally these efforts are going to be instrumental for the health of India’s rural economy.

This article first appeared in the print edition on April 2 2021 under the title ‘A health warning on land’. The writer is an associate fellow at National Council of Applied Economic Research.

The recent semi-public exchanges between Sebi and DFS raise several questions about the legislative function of regulators that need careful consideration

In March 2020 a private bank wrote off Additional Tier 1 (AT-1) bonds worth Rs 8415 crore based on a scheme of reconstruction approved by the Reserve Bank of India (RBI). This created a mini-crisis in the bond market. While some bondholders challenged this write-off in court the Madras High Court upheld it. On March 11 2021 the Securities and Exchange Board of India (Sebi) issued a circular instructing mutual funds to value perpetual bonds assuming their maturity was 100 years on the issue date. It also required that no mutual fund can own over 10 per cent of such securities from a given issuer. This led to a mini regulatory crisis.

The Sebi circular influences the pricing of these bonds and thus the corporate financial plans of banks. This would create new demands for fiscal resources for achieving the required equity capital in public sector banks (PSBs) which impinges on fiscal planning at the Ministry of Finance (MoF) and the planning process at the MoF’s Department of Financial Services (DFS) which owns PSBs. According to some newspaper reports the DFS wrote to Sebi asking them to withdraw or modify this circular.

There are many aspects of this story that need to be understood and feed back into better institutional design. In this article we address one element of this: The notion that regulators can regulate by “circulars”.

The dictionary definition of “circular” is “a paper such as a leaflet intended for wide circulation. Its synonyms are “booklet brochure flier folder leaflet or pamphlet”. As against the dictionary definition of “regulation” is “a rule or order issued by an executive authority or regulatory agency of a government and having the force of law”.

Bodies like the RBI and Sebi are “regulators” which are fundamentally different from departments and ministries of the Government of India. A regulator is a legal person and is created by Parliamentary law. Most regulators created in recent decades in India are remarkable in fusing the three branches of the state: They combine legislative executive and judicial functions.

The legislative function in an agency established by Parliament is in itself noteworthy. For example the Sebi Act empowers Sebi to issue “regulations”. This creates a novel situation in liberal democracy where unelected officials in a regulator are authorised by Parliament to write law. For entities in the securities markets the bulk of the law that they face is not the law written by Parliament but the law that is written by Sebi.

Let us contrast this with something that we are more familiar with. The Indian Penal Code (IPC) specifies in detail what elements are required before a particular action is classified as “theft” or “conspiracy”. The Code of Criminal Procedure (CrPC) details how the police authorities will investigate and how a judge will determine the guilt of the accused. The IPC and the CrPC are both controlled by the legislative branch. It is the legislative branch and not the executive branch which has the final say in defining the permissible conduct of private persons (i.e. what constitutes theft) or in determining the rules of fair play that is required of it.

The phrase “separation of powers” describes the vertical divisions of the state into three branches the legislature the executive and the judiciary. Such thinking is a part of the constitutional scheme in India. The drafters of the Sebi Act were aware of these issues. Regulators are an exceptional situation where unelected officials are given the power to make law.

Modern markets evolve at a high pace and the content of the law requires domain expertise and technical detail. The entrustment of the legislative function to the regulator has its origins in these considerations. However

when unelected officials are given the power to define the law this creates a democratic deficit a gap in legitimacy. An array of procedures is required for achieving legitimacy. It is generally agreed that there are three essential elements for achieving legitimacy in the legislative function of a regulator:

(a)The regulator must achieve and display technical expertise;

(b)The regulator must consult the public and

(c)The regulation-making process must be controlled by a Board that has a majority of independent directors.

Consultation helps avoid mistakes creates space for discovering a middle ground in contentious situations and avoids embarrassing situations. Although there is no legal obligation for a consultation process in the Sebi Act Sebi has adopted the practice of consultation when the law that it issues is called a “regulation”. However when law is issued by Sebi and is called a “circular” there is normally no public consultation.

The Indian judiciary was relatively indulgent towards regulators for a long time but has increasingly started becoming concerned about these foundational questions. In Cellular Operators Association vs Trai the Supreme Court observed that Parliament must enact a law like the US Administrative Procedure Act 1946 which imposes a transparent consultative process upon all creatures of Parliament that have the authority to make law.

In 2019 in the case of Dharani Sugar and Chemicals Ltd the Supreme Court struck down the RBI “circular” on resolution of stressed assets for being ultra-vires the Act.

In a narrow legal perspective the present circular has been issued under section 11(1) of the Sebi Act and regulation 77 of the Mutual Fund Regulations. While the scope of section 11 is too broad regulation 77 states that circulars can be issued only for a limited purpose like clarifying an existing regulation. However this Sebi circular substantially alters the obligation of mutual funds investing in perpetual bonds. A formal process which required displaying technical expertise and undergoing consultation under the supervision of the board would have improved the work.

Regulators in India issue a diverse array of instruments including regulations circulars guidelines FAQs press releases etc. All of them coerce private persons to varying degrees and thus constitute law. Good governance practices for regulators involve only one legal instrument that a regulator can issue — a “regulation” — and an elaborate formal process for regulation-making that is written into Parliamentary law.

The writer a retired secretary to GoI is now a professor at the National Council of Applied Economic Research and non-executive chairman of Shriram Capital.

• The government should reduce price distortions while farmers must organize themselves to gain collective bargaining power
• Our skewed policy of providing support prices chiefly for two crops has led to the oversupply of these even as our subsidy-cum-procurement regime turned farmers dependent on it.

The roots of the continuing farmers’ agitation go back over 50 years to the origins of the Green Revolution. Following the disastrous droughts of 1965-66 and 1966-67 the government adopted a new policy for food grain production distribution and pricing to achieve food self-sufficiency. Foodgrain farmers were provided high-yielding variety (HYV) seeds and subsidized water power and fertilizers while assuring them of remunerative prices. This also entailed a hefty food subsidy since the Minimum Support Price (MSP) at which Food Corporation of India (FCI) procures rice and wheat (plus cost of storage etc.) is much higher than the price at which foodgrains are provided through the Public Distribution System (PDS).

This subsidy-driven policy regime has been dramatically successful in achieving food self-sufficiency. Foodgrain production has grown to over 300 million tonnes. FCI procurement has typically exceeded offtake from the PDS and foodstocks now exceed 90 million tonnes. However this success has come at great cost. Financing the food fertilizer and power subsidies have become a chronic fiscal challenge and the distorted price signals have been ecologically disastrous in the northern wheat belt especially Punjab.

MSPs are announced for 23 major crops but this means little since the government only procures wheat and rice and now also a small quantity of pulses. This heavily tilts relative prices in favour of wheat and rice skewing cropping patterns in favour of these two crops though production now far exceeds demand. In Punjab in particular which traditionally did not grow rice a highly water-intensive crop farmers have adopted a wheat-rice crop rotation and prospered under this MSP-protected regime. Meanwhile water tables have plummeted high doses of chemical fertilizers and toxic pesticides have degraded the soil and the short gap in the rice-wheat rotation has led to the stubble burning problem every October-November.

But the worst consequence is that the farmers of Punjab Haryana and western Uttar Pradesh have become dependent on this distorted subsidy- driven policy regime since no government has reformed the system. So after the Narendra Modi government decided to introduce big-bang reforms in agriculture rail-roading three laws through Parliament without a vote division which the opposition had demanded these farmers grew agitated. Two of the three laws include clauses that preclude civil courts from having any jurisdiction over dispute resolution between farmers and contract-farming companies or granting injunctions. So farmers have no legal recourse beyond the executive authorities that report to their political masters. How such dispute resolution will work if a small farmer faces a powerful corporation is not difficult to imagine especially if that corporation is politically connected. Hence a deep trust deficit has emerged between agitating farmers and the government with the former demanding a legal foundation for MSPs. The agitation is mainly being pursued by farmers of Punjab Haryana and western UP with only token support from other farmers because the former have been the main beneficiaries of the subsidy-driven policy regime. They would indeed find their livelihoods threatened if the regime were to be dismantled.The Supreme Court’s stay on the implementation of the new farm laws and the Centre’s decision to withhold the same for 18 months which could be extended provides some space to plan and initiate a way forward.

The government on its part can reduce price distortions through a gradual shift from the procurement of wheat and rice to that of other MSP crops especially coarse grains pulses oilseeds etc. Multiplying the number of Agricultural Produce Marketing Committee regulated markets would also effectively curtail the market power of politically-connected traders cartels. Helping farmer-producer organizations (FPOs) invest in cold storages and other infrastructure would enable diversification to other high-value crops. These steps none requiring new laws would go a long way in eliminating policy distortions.

The farmers on their part can also do much to build FPOs with countervailing power against the large contract-farming companies they fear. Agriculture is in deep crisis due to the predominance of tiny farms (see ‘Agrarian Crisis: the challenge of a small farmer economy’ Mint 21 July 2017). About 83% of rural households are entirely landless or own less than 1 hectare of land. On their own small farmers cannot earn a living income from their tiny plots or bear the multiple risks they face (weather pests and diseases price volatility lack of credit) let alone bargain with large companies. Their only hope of survival is to build FPOs through which they can collectively risk-proof themselves secure bank credit and develop their own marketing organizations to realize better prices.

The idea of FPOs is no pipe dream. The story of Amul the Khera district milk producers cooperative is well known. But there are also more recent success stories (see my Mint column cited above). The farmers’ leaders camping at the gates of Delhi could inspire their fellow farmers to organize themselves into FPOs as Vallabhbhai Patel had inspired the milk producers of Khera district over 70 years ago.

Roopashi Khatri Satadru Sikdar and Humanshu contributed to this column. The views expressed are personal.

Auto fuel pricing goes beyond taxes to refineries

The discourse around the spikes in gas petrol and diesel prices follows the usual line. The government argues that the consumer has to bear the high price because global crude oil prices have hardened. The Opposition argues that the higher domestic price is due to frequent upward revision of taxes on petrol/diesel/gas. When crude oil price declined duties were revised upwards so that the government’s tax revenue from petrol/diesel/gas did not decline.

The opaqueness of India’s domestic oil prices regime hides many thing. First one is not sure whether Indians pay a high price due to the inefficiency of the oil companies. Of course one can argue that Indian oil companies are Maharatna public sector enterprises which give dividends year after year to the Centre. So how one can argue that they are inefficient and badly managed?

No doubt the monopoly of the public sector oil companies ensures that their profits are guaranteed. Unlike other countries import of refined petrol diesel or gas is not allowed by third parties in India so that domestic oil refineries can operate at near full capacity. So there is no way to judge whether a private enterprise can sell petrol/diesel at a lower price after paying taxes on the specified commodities.

Like many other countries India imports crude oil refines it domestically and sells it to the consumer. This further complicates the cost calculation process. The distillation of crude oil in a refinery produces multiple products which are classified into four categories: light distillates (LPG petrol heavy naphtha) middle distillates (kerosene automotive and railroad diesel fuels residential heating fuel other light fuel oils) heavy distillates (heavy fuel oils wax lubricating oils asphalt) and others.

Of these only a few products — petrol diesel kerosene gas and aviation fuel — are not allowed to be imported directly by third parties and to be sold to the consumers/end-users. By contrast imports of other commodities in the chain are allowed by third parties. So the market price of these commodities have to be in line with global prices else the oil companies will land up with unsold stock of these by-products. Typically the by-products from the distillation process of crude oil amounts to about 35 per cent by volume depending on the type of crude oil. So the importance of by-products in the production process cannot be underplayed.

Clearly in this kind of processing how does one determine the true production cost of petrol/diesel/gas? This is not a clear-cut exercise. If the refinery is inefficient there is an element of cross-subsidisation (that is decontrolled by-products prices are subsidised by higher price for administered products) that comes into play.

There is another angle as well. There are refineries which are inefficient and use obsolete technologies. The cost of processing for such refineries is high and they are subsidised by the efficient ones. As a result the overall cost of processing by the oil companies goes up.

Lately state-owned oil refineries spent about ₹35000 crore to upgrade plants that could produce Euro 6 fuels (ultra-low sulphur fuel). This investment is on top of the ₹60000 crore they spent on refinery upgrades in the previous switchovers. No doubt this cost is expected to be passed on to the consumer. If the oil companies have planned for a short-time horizon to recover this cost one can expect domestic oil price of controlled products to move upwards.

Policy-makers need to know whether our oil companies/refineries are efficient by world standards. Only then can one identify the ex-post and ex-ante factors behind high domestic oil price.

The writer Sanjib Pohit is Professor at NCAER. Views are personal