Governance : Can India have too much?

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In June 2008, Goldman Sachs issued a report titled ‘Ten Things for India to Achieve its 2050 Potential’.  On the top of the list was the clarion call to improve governance.  Fast forward to the present day and an interesting tapestry of regulation and regulatory bodies starts revealing itself.  

In the financial sector, the decks have been cleared for the creation of an interregulatory co-ordination body - the Financial Stability and Development Council, or FSDC. The FSDC has been set up with a view to strengthen and institutionalise the mechanism for maintaining financial stability and development. 

        

The Indian mining sector has occupied centre-stage in the media over the last few months.  The draft of the Mines and Minerals (Development and Regulation) Bill, 2010 seeks to give wide powers to the National Mining Regulatory Authority. The Bill lists as many as 16 powers granted to the mining regulator, in sharp contrast to the current situation.

In the aviation sector, the autonomous Civil Aviation Authority (CAA) is proposed to supersede the current regulator, the Directorate General of Civil Aviation. 

With respect to corporate governance, there is a proposal to create an over-arching regulator to oversee auditing norms in the country in the new Companies Bill. As per its proposed form, the body will be called the National Advisory Committee on Accounting and Auditing Standards (NACAAS) and require the Institute of Chartered Accountants of India (ICAI) to seek a go-ahead from the expert forum before prescribing any norm.  

In the domain of biotechnology, the Indian Cabinet has approved the Biotechnology Regulatory Authority of India Bill 2010. The Authority will be set up as an independent and autonomous body to provide a single window mechanism to regulate research, manufacture, import and use of products of modern biotechnology including biosafety clearances of genetically modified crops.

In view of India’s ambitious plans for education (see earlier blog), the Government is creating an over-arching regulatory body called the National Commission for Higher Education and Research (NCHER). 

In the realm of environment, the Minister in charge has taken it on himself to ensure environmental compliance and  preservation.  According to one estimate, he has halted 64 projects and held up 469 due to environmental concerns. Those projects include a US$10.9 billion steel plant proposed by Korea's Posco and two US$2.2 billion power projects.

The recent roll-out of the Unique Identification (Aadhar) project is an excellent example of the potential transformation in transparency in governance that is hoped will be catalysed across India.

The above will add to the 36 regulatory bodies already in existence in India.  More than anything else, it will be vital to ensure that these bodies are fair, impartial, transparent and effective in their functioning. 

While it is critical to have checks, it will be imperative to have balance as well. After all, we all know what absolute power results in.

If you would like to understand more about how you can increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com.

Of Land, Marx and Landmark judgements

Till the 1980s, private enterprise was somewhat of a social pariah in India.  Economic liberalisation in the 1990s reconfigured the equation.  As the Indian corporate sector became the ‘poster boy’ for the India growth story, a number of policies were drawn up to support corporate growth.   Recent announcements are signalling an interesting directional shift in Indian policymaking towards industry, investment and its interaction with society at large. 

1)   Environment matters. In a landmark decision to safeguard the environment while implementing industrial projects, India’s Environment and Forests Minister, Jairam Ramesh, announced that the bauxite mining clearance given to Vedanta Resources and the Orissa Mining Corporation in Orissa had been withdrawn. He also said an initial approval for a six-fold expansion to Vedanta’s aluminium refinery in the state was being suspended.  According to a source, the Saxena Report on the matter had said that allowing mining operations would mean a loss of 121,000 trees, affect the region’s water supply and will shake the “faith of tribal people in the laws of the land”. The Ministry has also barred the Vedanta refinery from buying bauxite — the main raw material needed to make aluminium — from 11 other mines in the state of Jharkhand, pointing out that these were illegal.

2)   Property rights. Anyone who has heard of Singur or Nandigram will know just how sensitive the issue of land, and its acquisition, can be in India.  As the race for economic growth is intensifying across states in India, so are the pulls and pressures on land.   

The Indian Government’s ambitious road-building programme aimed at laying 18,637 km of expressways by 2022 has hit a road-block as well on this count. According to some estimates, delays in land acquisition are hampering 70% of the projects under this programme.  Towards addressing this issue, the Congress President, Sonia Gandhi has intervened and sought annuity benefits for displaced farmers.  These are likely to be woven into in the Land Acquisition (Amendment) Bill, 2010 and the Resettlement and Rehabilitation Bill, 2010.  Individual states, such are Haryana and Uttar Pradesh, are experimenting with compensation formulae blending cash, annuities and equity.

Towards addressing concerns regarding fair compensation in the mining sector, the Indian Government is likely to make it mandatory for mining companies to hand over a part of their revenues and make annual payments to those displaced.  The revenue sharing model combined with annual payments is likely to find its way into a proposed legislation - the Mines and Mineral (Development and Regulation) Bill - setting the rules for investment in minerals.

3)   CSR = compulsory social responsibility.  According to news reports, the new Companies Bill will make it mandatory for large companies to earmark at least 2 per cent of their net profit for corporate social responsibility (CSR) activities in the new Companies Bill. The new provisions are expected to apply to companies having a net worth of `500 crores (approximately US$109 million) or more, or a turnover of `1,000 crores (US$ 218 million) or more, or a net profit of `5 crores (US$ 1.1 million) or more, during a year.  The revised Bill is expected to be presented in Parliament for passage in the Winter Session. 

That the intention exists to foster social contribution is commendable.  Whether this is the appropriate intervention is moot.

These shifting sands reflect India’s desire for inclusive growth.  How these, and similar policy shifts, will play out in a company’s calculus remains to be seen. 

If you would like deeper insights to India and what it means for your company, do write in at ratika.jain@whiteowladvisory.com.