One by one (china population)

Only very recently in its long civilisational run did humankind begin to wonder what to do with more and more of itself — more and more not of “enemy peoples” or “inferior races” but “one’s own”. The advent of modern medicine and medical care, easier mitigation of natural disasters and the significantly lowered frequency of war and civilian casualties contributed to lowered infant mortality and higher life expectancy. But the population boom became a problem “overpopulated” countries like China and India had to deal with.


In response, China became the land of the one-child policy. Implemented in 1979 and aimed at urban married couples, the policy is claimed by authorities to have prevented 400 million births till 2011, thus alleviating socio-economic and environmental problems. The law was never as absolute as many supposed in their ignorance. It allows many exceptions — couples without siblings, ethnic minorities, and rural couples with a disabled child or a girl child as their first, can have a second child. For additional children, families pay monetary fines and may be denied state benefits.
Controversial all along, the policy came to be criticised for forced abortions, skewing the gender ratio through female foeticide and causing the under-reporting of female births. Gender imbalance is a serious concern in China, as is the generational imbalance in the population which is expected to adversely affect the work force. Significantly, it is China’s most populous province, Guangdong, that has embarked on publicly criticising the one-child policy and asking for its relaxation, raising the above issues that are further complicated by a falling fertility ratio. Although any big reform is not yet expected, it would be interesting to see the policy response, if any, to the criticism of this long-held rule.

Targeted welfare, universal attacks

More than five years after the government rolled out a mega social welfare provisioning programme in the form of the National Rural Employment Guarantee Act, it is set to enact another — the National Food Security Law.


The debate around the proposed food guarantee law is centred around two major themes: the extent of coverage, and the subsidy delivery mechanism.The coverage question centres on whether there should be uniform universal legal coverage, or only targeted legal coverage for the poor. The delivery question hinges on whether we choose the existing public distribution system (PDS) or introduce cash transfers or food coupons. The debate has been so intense that advocates of the PDS want the proposed law to exclude other options altogether.

Interestingly, economists on both sides of the delivery debate are united on the coverage aspect — both advocate almost-universal legal coverage. Their argument is that it is practically impossible to clearly identify different groups (BPL vs APL, or priority vs general) in a framework of differentiated entitlements. Experience suggests that a substantial section of the genuine poor (BPL or priority) gets excluded (exclusion error) while many non-eligible elements infiltrate (inclusion error) the group entitled for most subsidised items. Universal coverage would eliminate both errors, and is, therefore, the new consensus, despite the arguments over PDS or cash transfer/food coupons.


Apart from the exclusion/inclusion error issue, universal coverage has been a fixture of recent rights-based social welfare programmes. Right to work, under the rural job guarantee scheme, has universal provisions applying uniformly to all rural residents. Right to food should follow the same logic, rather than the differentiated foodgrain entitlements in the proposed law.

The NREGA experience is valuable in this context. While it appears to be a universal welfare regime for rural areas, it is actually a means-tested selective welfare programme for those ready to undertake unskilled manual work. A poor skilled artisan from a rural area is less likely to participate, since it is meant for unskilled manual work. However, in situations of desperation and livelihood insecurity, the same skilled artisan may participate. The NREGA, therefore, works through this self-selection of the poor, and ends up catering to the relatively worse-off within rural areas.

That prompts the question: should the NREGA not be used to identify the poor better? Despite the fact that, as many reports suggest, NREGA implementation has been plagued with corruption and mismanagement, it can be used to identify the poor provided this theoretical self-selection works real-time during its implementation.

The first panel survey on the NREGA, undertaken by the NSSO, which covered 82,108 people from 17,853 households drawn from 900 villages from three better performing states — Andhra Pradesh, Madhya Pradesh and Rajasthan — indicates that this self-selection is working. It was conducted between July 2009 and December 2009, during the 66th round of the NSS survey. Three findings of the survey support the self-selection theory. First, the monthly per capita expenditure of NREGA participants is “substantially less than” that of non-participants. Secondly, among those who have participated in the NREGA, the proportion of upper castes is less than 10 per cent, compared to those from scheduled castes, scheduled tribes and other backward classes. The social determinants of deprivation in Indian society have always indicated that upper castes are relatively better off, and the NSSO findings re-affirm the self-selection-under-NREGA theory along these lines as well. Third, the NSSO survey finds that household size for those participating in the NREGA is far greater than those of non-participants, in line with the idea that poor households tend to have larger families than those relatively better off. While the NSSO survey does not deal with the extent of irregularities in the scheme’s implementation, it certainly indicates that poor households are self-selecting themselves to participate in this means-tested welfare programme.

These findings leave little reason for planners to not consider the NREGA database to identify the poor. In fact, the Rashtriya Swasthya Bima Yojana (RSBY), the health insurance scheme for the poor, has already started using the NREGA database to identify a section of its beneficiaries. Any NREGA worker who has worked 15 or more days the previous year is eligible for health insurance under the programme. This may further be fine-tuned using state-specific cut-off days, given that poorly performing states like Bihar are likely to have fewer workers who have put in more than 15 days, because the programme has been relatively slow despite a large poor population. One can even consider district-wise cut-offs — say for the Kalahandi-Balangir-Koraput districts in Orissa or the left-wing extremism-affected districts.

Coming back to the debate over the extent of coverage under the food security law, the attack against the targeted approach is a disservice to needy sections, unless we are contemplating universal legal rights to decent clothing, housing, drinking water, electricity, higher education and health, etc, along with the universal legal right of foodgrains. Otherwise, targeted financial assistance (subsidy) from government needs to be supported and preserved as a mechanism. The targeted approach can also bring about a convergence of various welfare programmes for the identified group.

This means that identification of the poor will remain the most critical component. Rather than advocating that this targeted mechanism be entirely replaced by an “almost-universal” system, one should consider finding ways to improve identification of poor. For instance, as the government carries on the BPL survey, which is still to gather momentum, it could consider seeking information about NREGA participation in the household survey. This information would be a useful supplement for the seven other criteria being used by the government to identify the poor for various welfare programmes.

National Interest: Jan Lok Sabha

What a pleasant feeling it is writing a curtain-raiser of sorts to a new Parliament session. A resumption of old-fashioned politics will give the political class a chance to recover from recent reverses. It will also be its opportunity to redeem itself by showing this country how it is actually governed, and how the opinion of its people is reflected by the government of the day, as also its opposition.


Unless somebody conjures up a clever face-saver quickly, Anna Hazare and his team will be back at Jantar Mantar a day after Independence Day, and exactly in the middle of this one-month session. There is no chance in hell Parliament would even consider his deadline of passing any Lokpal Bill by August 15. In fact, chances are this bill may first have to go to a parliamentary committee for the usual fine-tuning. It is too important a law to be passed in a hurry with a gun pressed to your temple. To that extent, the political class finally got its focus back. It is one thing for a motley “civil society” group fuelled by news TV and middle-class rage to hold an already embarrassed government to ransom. Taking on the institution of Parliament is a different story altogether.




First evidence that sanity had begun to be restored somewhat came last month as Anna Hazare started leading his delegation to the leaders of the various political parties (the opposition as well as the Congress) pleading the case of his version of the Lokpal legislation. That is how it should be done in a parliamentary democracy. The idea of writing a law from outside and forcing it down Parliament’s throat was both arrogant and obscene. As if you believed that your Parliament was illegitimate, full of dummies and would not be able to resist the gale-force of your presumed intellect or moral authority.

As this session begins on Monday, the important thing would be to analyse what exactly happened in those bizarre weeks when it looked like the entire political (democratic) system was going to collapse. There were the many unresolved scandals, cover-ups and popular anger. But the main reason it was able to acquire the dimensions it did was the fact that the winter session of Parliament had been such a total washout. The BJP stalled Parliament, demanding a JPC into the telecom scam. The Congress resisted, even at the cost of writing off an entire session. This will remain a slur on its record, considering that it conceded a JPC in the end anyway. But even for the BJP, in the end, it was a totally pointless exercise in point-scoring. Because the loss was not just the UPA’s, but that the entire political class was undermined. People said, here are the two coalitions, together accounting for around 430 Lok Sabha members, only interested in either stalling investigations into a great scandal or exploiting it for petty political mileage. It is convenient now to complain that the judiciary is indulging in over-reach, or that civil society is attempting a coup or that the media has become an accuser-judge-executioner. But it happened only because a totally short-sighted political class so cynically wrote off an entire session and undermined the institution it draws all its power and authority from, the national Parliament.



This short monsoon session is an opportunity now to reverse that slide. Many of the issues that destroyed the winter session are still there. The Congress-BJP relationship is no better than before. So the choice of ruining this session again is still there. But you can take encouragement from the fact that, chastened by the anti-politician mood, the two parties have been talking behind the scenes, even negotiating successfully to resolve issues with some pending legislation, particularly where bills have been sitting with committees headed by MPs of the BJP. On the Lokpal Bill, many of the finer changes suggested by Arun Jaitley on the BJP’s behalf have already been made. Of course, the BJP may take a position on putting the prime minister under the Lokpal’s jurisdiction in some qualified way, but that won’t be sufficient reason to stall Parliament. You can also sniff a secular sense of unease in the political class over the loss of face it has suffered vis-a-vis the activists, and also with what is seen as an increasing tendency on the part of the courts to encroach upon the political-executive turf. You can see that convergence quite clearly in the way the BJP tacitly supports the Centre’s challenge to the black money order and, similarly, the Centre quietly hopes that the Chhattisgarh government’s appeal against the SPO judgment succeeds to some extent. It also helps that the BJP starts this session firmly on the defensive, having lost one of its most popular chief ministers to the indictment of a Lokayukta who also happens to be among the most important members of Hazare’s team.

It is still possible that the Congress and the BJP will return to their basic instincts and resume hostilities over one thing or another. But you see indications that they might be a bit more circumspect now, and respectful of the institution through which India speaks, and is heard and governed. Of course, the prime minister himself could initiate that positive new outlook by attending this session more often than usual, and speaking, intervening, answering questions. He has nothing to lose but his utterly uncalled for reticence.

Pride and prejudice

Madhya Pradesh’s minister for cooperatives, Gaurishanker Bisen, delivered a few truly astonishing and unpleasant rants recently on a trip to Chhindwara and Seoni. He let loose at revenue officials (patwaris), at one point asserting that every single patwari was corrupt. When faced with one particular patwari in Seoni district who was said to be slacking on the job and allegedly did nothing without a bribe, a furious Bisen made him do several squats, as public humiliation and expiation.


But that’s not all — he also informed the patwari, in full public view, that he was being let off easy because he was a Gond, and that he would have killed him if he had been a Pawar. In other words, he voiced and validated the idea that a public official’s caste should determine what sort of treatment he would get from higher authorities. This was an interaction between citizens, local revenue officials and Bisen, a BJP minister and five-time MLA. Not only was this sober event reduced to a feudal farce, where an enraged minister could order “uthak-baithaks”of a supposedly errant official, the message of differential treatment to different caste groups couldn’t be more damaging.



Whatever Bisen might say in his defence, these cannot be dismissed as stray, thoughtless comments that came out of a frustrating field visit. He clearly believes his own dangerous rants — for instance, on the same day, discussing with a few Congress legislators the topic of tribal land that might have been wrongfully acquired, he also made the observation that tribals can be taught to read and write at best, they cannot learn good sense and wisdom. Remarks and acts like these, in fact, only reinforce suspicions about a deeply internalised prejudice. They display the distilled bigotry of centuries, and they convey an entire world of casteist contempt and group stereotyping. How can a person with these thoughts be allowed to report at work as a minister? The chief minister must take complaints against Bisen seriously, and meet them with exemplary action.

Not till winter?? (land acquisition bill)

For the past year, land issues have been a spark for anger and political confrontation all over the country, and the Supreme Court’s recent intervention in Greater Noida land acquisition has underlined the urgency of discovering a political solution. Meanwhile, the Reserve Bank of India said at the beginning of this year that investment would slide unless land issues were sorted out. And, sure enough, FDI numbers have shown an alarming slide while Indian companies, able and willing to invest abroad, are also postponing or cancelling investment in the country till comprehensive, transparent and fair land acquisition mechanisms are in place. Every project that goes abroad, every opportunity foregone, has a cost in terms of growth, jobs and poverty reduction. The delay in getting a new land acquisition bill done has, perhaps more importantly, impacted crucial development work, and the creation of rural and urban infrastructure that has massive spillover effects on growth and investment.


So why is it that the rural development ministry has decided to further postpone the introduction of the Centre’s land acquisition bill? On Thursday, Rural Development Minister Jairam Ramesh announced the ministry would organise month-long “pre-legislative consultations” with various NGOs, states and political parties before it submitted the already prepared draft to the cabinet for approval. The last day of the monsoon session of Parliament is September 8; setting aside a month for consultation means the bill’s introduction will likely miss this session altogether. This is despite the fact that the UPA government, through the statements of several senior ministers, had already committed itself to introducing the bill in the monsoon session. The government cannot afford to be this cavalier with legislation of such importance.



Congress general secretary Rahul Gandhi, while touring several flashpoints in Uttar Pradesh where land acquisition disputes had broken into open violence, accepted that the Centre had been tardy with essential land legislation. “We will bring a good law, we are trying our best to pass it in the next session of Lok Sabha,” he had said then, blaming the Congress’s coalition partners for the delay. The coalition (read Mamata Banerjee) is no longer the problem; but it is worrying that it appears politics still is. All this while, state governments have been left to their own devices, compensating for the antiquated, colonial-era legislation with their individual packages. To have Parliament go yet another session without even starting the process of bringing legislative clarity to the issue indicates a strange order of priorities.

Stressed-out banks

The financial performance in the first quarter, of the few top public sector banks give room for concern. At least three top banks have seen their profits dip by around 25 to 30 per cent in the first quarter when compared to the previous year. A closer look at their results would also show that this is the outcome of a fall in the ‘net interest margin' (the difference between the average income earned on a rupee of loans and of deposits) for banks have been under pressure. Barring one or two exceptions, for most banks, NIMs have been falling and, in a few cases, quite steeply.

What is clear is that while interest rates have been on the upswing generally over the past year, pricing power is still not decisively in the hands of banks, thanks to competition. Banks have been forced to hike their deposit rates also in a bid to keep their customers from going elsewhere. And for the same reason, they have had to delay their lending rate hikes. That explains why NIMs have dropped. Despite the compression, however, for most banks, NIMs are still in the region of 2.7 per cent even now. Last year, the RBI Governor had asked banks to learn to live with a lesser NIM and offer better returns to depositors and more competitive rates for borrowers. That's perhaps happening now with some delay. It must be said here that Indian banks enjoy higher margins than those in other emerging markets, and can improve their efficiency without denting their profitability. A rise in the gross value of non-performing assets of many banks is the other area of concern. For some, if not all, they have grown by as much as 35 per cent over the past one year. Of course, in terms of causes, there are the usual suspects — the small and medium enterprises (SME) sector as well as agricultural defaults. But the restructuring of loans in the infrastructure sector is a pointer to the potential for further trouble in the days to come.

The markets expect at least one more hike before the end of this year. What this will do to borrowers who are already under stress can well be imagined. Banks have already seen some extra slippage in their non- performing assets after they migrated to system-based recognition of NPAs. As the process gets underway at various banks this year, there could be a little more deterioration. It's time for them to bring management focus to this problem and concentrate on recovery and upgradation/restructuring of viable accounts. The next quarter is likely to be a difficult one given the signs of an economic slowdown.

Lokpal bill and the Prime Minister

Anil Divan

The Indian citizenry is up in arms against corruption at the highest levels of government. Anna Hazare's movement has caught the people's imagination. The former President, A.P.J. Abdul Kalam, has pitched in and called upon the youth to start a mass movement against corruption under the banner “What can I give?” (The Hindu, June 27, 2011).

According to a CRISIL report (The Hindu, June 29, 2011), inflation has caused the Indian public to be squeezed to the extent of Rs. 2.3 lakh crores. According to the Comptroller and Auditor General of India (CAG), the estimate of loss to the exchequer owing to the 2G spectrum scam is Rs. 1.22 lakh crores.

That corruption is a disease consuming the body politic is a fear expressed by dignitaries in India over many years. As far back as 1979, Justice V.R. Krishna Iyer observed in a judgment in his inimitable style: “Fearless investigation is a ‘sine qua non' of exposure of delinquent ‘greats' and if the investigative agencies tremble to probe or make public the felonies of high office, white-collar offenders in the peaks may be unruffled by the law. An independent investigative agency to be set in motion by any responsible citizen is a desideratum.”

Mark the words: fearless investigation by an independent investigative agency against delinquent ‘greats'. A good Lokpal bill has to be nothing less.

It is in this context that this article addresses the issue of whether the Prime Minister should be brought under the ambit of an Ombudsman (Lokpal) and be subject to its scrutiny. It is important to observe that in most of the Lokpal bills, including the 2010 government draft (except the 1985 version), the Prime Minister is within the ambit of the Lokpal.

The Constitution

Under the Indian Constitution there is no provision to give immunity to the Prime Minister, Chief Ministers or Ministers. Under Article 361, immunity from criminal proceedings is conferred on the President and the Governor (formerly the Rajpramukh) only “during his term of office.”

So what is the principle behind such immunity being given? The line is clearly drawn. Constitutional heads who do not directly exercise executive powers are given immunity as heads of state. Active politicians such as Ministers, who cannot remain aloof from the hurly-burly of electoral and party politics, ethical or unethical, honest or corrupt, are not given any immunity. They are subject to penal laws and criminal liability.

The basic structure of the Constitution clearly denies immunity to the Prime Minister.

Internal Emergency

During the period of the Internal Emergency (1975-77), Indira Gandhi enjoyed dictatorial powers. She detained without trial prominent Opposition leaders and was supported by a captive and rump Parliament.

The Constitution (Fortieth Amendment) Bill was moved in, and passed by, the Rajya Sabha in August 1975 and later it was to go before the Lok Sabha. The Bill was blacked out from the media and hence very few people knew about it. It never became law because it was not moved in the Lok Sabha.

The Bill sought to amend Article 361 by substituting sub-clause (2) thus: “(2) No criminal proceedings whatsoever, against or concerning a person who is or has been the President or the Prime Minister or the Governor of a State, shall lie in any court, or shall be instituted or continued in any court in respect of any act done by him, whether before he entered upon his office or during his term of office as President or Prime Minister or Governor of a State, as the case may be, and no process whatsoever including process for arrest or imprisonment shall issue from any court against such person in respect of any such act.”

The attempt to give life-time immunity from criminal proceedings for acts done during and even prior to assuming office, of the President, the Governor and additionally the Prime Minister, did not materialise.

Foreign jurisdictions

In Japan, Prime Minister Kakuei Tanaka (July 1972 to December 1974) was found guilty of bribery and sentenced. In Israel, Prime Minister Ehud Olmert was indicted in corruption scandals in August 2009. In Italy, Prime Minister Silvio Berlusconi enacted, through a pliant legislature, a law by which he shielded himself from prosecution. The Italian Constitutional Court recently invalidated crucial parts of that law, which may result in his trial being revived.

The following are some of the main arguments against bringing the Prime Minister under the Lokpal's scrutiny. The first one runs thus: “The simple answer is, if the Prime Minister is covered under ordinary law (the Prevention of Corruption Act), you don't need him covered under Lokpal.” This is a view that has been attributed to the former Chief Justice of India, J.S. Verma (Hindustan Times, June 27, 2011). Any misconduct by a Prime Minister can be investigated by the Central Bureau of Investigation: this view is that of Chief Minister Jayalalithaa (The Hindu, June 28, 2011). This objection concedes the principle that the Prime Minister is not immune from criminal liability and can be investigated, but argues and assumes that the Prevention of Corruption Act and the CBI present effective existing alternative procedures. Nothing could be farther from the truth and the ground realities.

What is the ground reality? First, the CBI, the premier anti-corruption investigative agency, is under the Department of Personnel and Training, which is controlled by the Prime Minister's Office (PMO). Secondly, the career prospects of CBI officers and other personnel are dependent on the political executive, and all officers are subject to transfer except the Director. Thus, the investigative arm is controlled by the ‘political suspects' themselves. Thirdly, the Single Directive, a secret administrative directive that was invalidated by the Supreme Court in the Jain hawala case in 1997 (Vineet Narain v. Union of India) has been legislatively revived. Consequently, under Section 6A of the Delhi Special Police Establishment Act, the CBI is disabled from starting an inquiry or investigation against Joint Secretary or higher level bureaucrats without the Central government's prior approval. Therefore, the Prevention of Corruption Act is a non-starter against Ministers and high-level bureaucrats who may act in concert. It is imperative that the CBI's anti-corruption wing be brought under the Lokpal and not under the PMO. This alone would meet the test of an independent and fearless investigative agency as enunciated by Justice Krishna Iyer.

Secondly, it is argued that if the Prime Minister is within its ambit, the Lokpal could be used by foreign powers to destabilise the government. Today, the checks on the executive government are the higher judiciary, which has actively intervened in the 2G spectrum scam and other scams; the CAG, whose reports against the functioning of the telecommunications sector triggered investigations into scams; the Election Commission headed by the Chief Election Commissioner, which conducted elections in West Bengal in the most efficient and orderly fashion. All these authorities could be undermined by a foreign power. Why should the Lokpal alone be the target of a foreign power? Why not the intelligence and defence services? Why not leaks from Cabinet Ministers and their offices — bugged or not?

Thirdly, it is argued that bringing the Prime Minister under the Lokpal's scrutiny would mean a parallel government being put in place. This objection is disingenuous. Do the Supreme Court and the higher judiciary constitute a parallel government? Is the CAG a parallel government? Is the CEC a parallel government? Is the CBI a parallel government? The answer is clear. These constitute checks and restraints on the political executive and the administration so that public funds are not misappropriated and constitutional democracy and citizen rights are not subverted. The Lokpal will be under the Constitution and subject to judicial review, and it is imperative that the anti-corruption wing of the CBI be brought under the Lokpal. There is no question of any parallel government. The Lokpal will be only a check on the corrupt activities of the Executive. If all checks and balances are to be regarded as the marks of a parallel government and therefore abolished, it will be a recipe for dictatorship.

William Shakespeare wrote: “There is a tide in the affairs of men, which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life is bound in shallows and in miseries.” There is a tide in the affairs of this country and there is a great opportunity to promote good governance through a powerful and independent Ombudsman. India's economic reforms, for which the Prime Minister deserves approbation, should not be derailed at the altar of scams and corruption. Will his leadership ride on the tide of fortune and take the country forward to greater heights?

(Anil Divan is a Senior Advocate, and president of the Bar Association of India.

A cruel joke on the nation

Prashant Bhushan

The Union Cabinet announced on July 28 that in order to honour the commitment it had given to Anna Hazare and the nation at large, it would table a Lokpal bill during the monsoon session of Parliament beginning on August 1. Though the exact contents of the bill as approved by the Cabinet is not known, its basic features as announced by various Ministers show that such a Lokpal as envisaged in the government's bill will not be able to tackle any significant case of corruption and will in fact be a cruel joke on the nation.

Looking at the major scams that have erupted in recent times, we find that the government's Lokpal, apart from being sarkari in the sense that it will be selected by a committee dominated by people from the government, would not be able to investigate them. Thus, it would not be able to investigate the Commonwealth Games scam, the Bellary mining scam or the Adarsh Society scam, since it would have no jurisdiction over State government officials. Similarly, it would not be able to investigate the Public Distribution System scam or the scams in the National Rural Employment Guarantee Scheme, because it would have no jurisdiction over officials below Group A. For the same reason it would not be able to take up any of the corruption cases that plague the common people. It would not even be able to investigate the cash-for-votes scam, since that involves the acts of MPs in Parliament. It would also not be able to properly investigate the 2G spectrum scam, since it cannot call for papers from the Prime Minister's Office, which are relevant for a proper investigation.

Quite apart from the severely restricted nature of the sarkari Lokpal's mandate, the distinction drawn by the government's bill between the level of the officers to be investigated (with lower-level officials to be investigated by the Central Bureau of Investigation (CBI) that is under the government, and higher-level officials by the Lokpal) would create enormous confusion about jurisdiction. Since one often does not know in advance the level of the officers who may be involved in a scam, and usually officials of all levels are involved, one would not know whether to lodge the complaint with the government's CBI or the sarkari Lokpal. If the CBI started an investigation into the Public Distribution System scam on the basis of the assumption that it involved junior officials, and then found that the money trail goes right up to the top, would the investigation then be transferred to the Lokpal? That would lead to duplication of investigation, apart from the very real possibility of the CBI having already ruined the investigation. That is why different investigative agencies are not designated to investigate offences depending on the identity of the culprits. Thus, normally there is one agency to investigate offences under the Prevention of Corruption Act irrespective of the status of the person involved. There may be a different agency to investigate separate offences under other laws, such as the Enforcement Directorate for offences under the Foreign Exchange Management Act, or the Income Tax Department for offences coming under the Income Tax Act. And will we allow corruption by junior officials to be dealt with by the same agencies that are today sleeping over it?

On UNCAC lines

The Jan Lokpal bill had been framed on the lines suggested by the U.N. Convention Against Corruption (UNCAC), which requires all countries to establish independent anti-corruption agencies which would have the jurisdiction to investigate all public officials. The civil society group has therefore tried to set up a comprehensive, independent, empowered but fully accountable Jan Lokpal which would have an adequate investigative machinery under its control (the anti-corruption wing of the CBI to begin with, which would be brought under the administrative and supervisory control of the Jan Lokpal) and would be able to investigate all Central public servants for corruption. The Jan Lokpal bill also provided for Lokayuktas in the States that would be similarly empowered to investigate State public servants. Moreover, the Jan Lokpal would be selected by a broad-based selection committee that would be largely independent of the government, to avoid the kind of farce that has been witnessed in the selection of the Central Vigilance Commissioner (CVC).

What we have in the government's bill is an agency that would be essentially selected by the government (five of the nine members of the selection committee would be government nominees), would have jurisdiction over less than half a per cent of the public servants, and would be additionally crippled by the fact of not being able to investigate the Prime Minister, judges or MPs for corruption connected with their acts in Parliament. They say that nine members of the Lokpal cannot handle complaints against 40 lakh Central public servants. But that would be done by the investigating machinery supervised by the Lokpal. It has been estimated that on a ratio of one Lokpal official for every 200 public servants, the Lokpal would have a total of about 20,000 officials working under it. That is a medium-sized department. The Delhi Police alone has 80,000 officials.

On the Prime Minister, judiciary

Some of the provisions of the government's proposal, such as granting immunity from investigation to the Prime Minister, show illiteracy about the basic features of the Constitution. In 1975, a Constitution Bench of the Supreme Court unanimously struck down the Constitution (39th Amendment) Act that sought to put the election of the Prime Minister above challenge, on the ground that such a provision would violate the basic structure of the Constitution. A provision to grant immunity from investigation and prosecution to the Prime Minister would similarly fall foul of several basic features of the Constitution. In no civilised country is the head of the government immune from corruption investigation. Even in India he or she has not been immune. The CBI can, and occasionally under court directions has, investigated the Prime Minister (as in the case involving some leaders of the Jharkhand Mukti Morcha). The problem is that the CBI is under the Prime Minister himself and therefore cannot conduct a credible investigation of the Prime Minister. That was the entire rationale for an independent Lokpal — to free the agency investigating corruption from the administrative control of the very people that it may seek to investigate. This is precisely what the UNCAC requires.

Similarly, the rationale for the government's proposal to remove the judiciary from the Lokpal's ambit suffers also from conceptual confusion. They say that bringing the judiciary within the investigative ambit of the Lokpal would compromise the independence of the judiciary. The judiciary needs to be independent of the government. Normally the police or the CBI can investigate judges for corruption. However, the Supreme Court in Veeraswami's case directed that since the police are under the government, which can be used by the government to harass judges by way of investigation, the prior written permission of the Chief Justice of India would be required for such investigation. This, despite the fact there had been no instance of any judge being harassed in such a manner, since the judiciary can always use its power of judicial review to quash any mala fide investigation.

However, if the investigation of judges would be done by a Lokpal that would be independent of the government (with the further safeguard in the Jan Lokpal bill that a bench of seven members of the Lokpal would grant permission for investigation or prosecution of judges), the whole rationale for the permission of the Chief Justice disappears. We have seen that in the past such permissions have often been denied even in deserving cases for reasons of conflict of interest. Yet the government's bill seeks to exempt judicial corruption from being investigated by an independent Lokpal, and seeks to retain the present system of investigation by a government-controlled agency after obtaining permission from the Chief Justice of India.

India is today plagued by corruption of such enormous breadth and depth and running across all public authorities that it is now at serious risk of becoming a banana republic and a mafia state. It was in recognition of this alarming reality, demanding a comprehensive, independent, empowered though accountable anti-corruption authority, that Anna Hazare went on an indefinite fast on April 5, 2011.

After seeing the extent of public support for this demand, the government agreed to a joint drafting committee for the Lokpal bill. Refusing to meet most of the demands of the civil society group in the Jan Lokpal bill, the government has now come out with its bill, which will not succeed in tackling even one per cent of India's corruption.

All that the bill will do is to create an illusion that the government has acceded to the public demand for an independent anti-corruption agency. But the government will have to pay a heavy price for again having underestimated the ability of the people to see through such a charade. The long suffering people have had enough. Come August 16, they will get a glimpse of public anger.

(Prashant Bhushan is a Senior Advocate and member of the civil society team that drafted the Jan Lokpal Bill.)

New dirty bomb detection system

The New York Police Department (NYPD) is testing a ground-breaking counter-terror technology expected to dramatically increase its ability to detect and thwart a potential radiation attack, officials said on July 28.

The technology will allow a command centre in lower Manhattan to monitor 2,000 mobile radiation detectors carried by officers each day around the city.

The detectors will send a wireless, real-time alert if there's a reading signalling a dirty bomb threat.

A dirty bomb, intended to spread panic by using a small explosive to create a radioactive cloud in urban settings, has never been discovered or detonated in a U.S. terror plot.

But law enforcement considers dirty bombs a serious threat because they're easy to build and because of intelligence that foreign terrorists want to use them against American cities. The radiation detection system is being developed as part of a $200 million lower Manhattan security initiative. Police say the overall plan was inspired by the so-called “ring of steel” encircling the business district in London but is broader in scope and sophistication. The initiative will rely largely on 3,000 closed-circuit security cameras carpeting the roughly 1.7 square miles (4.4 sq. km) south of Canal Street, the subway system and parts of midtown Manhattan.

So far, about 1,800 cameras are up and running, with the rest expected to come on line by the end of the year.

The NYPD is using a single, high-bandwidth fibre optic network to connect all its cameras to a central computer system. It's also pioneering “video analytic” computer software designed to detect threats, like unattended bags, and retrieve stored images based on descriptions of terror or other criminal suspects. — AP

Say no to TB blood tests

The World Health Organisation recently issued a recommendation against the use of blood tests based on antibody response for diagnosing active tuberculosis, both pulmonary and extra-pulmonary. India's Revised National Tuberculosis Control Programme (RNTCP) has endorsed WHO's advice. Unfortunately, with TB, unlike diseases like HIV, the presence or absence of antibodies does not reflect true disease condition. So these blood tests lack the necessary sensitivity or specificity or both to be used as an effective diagnostic tool. When the sensitivity is low, many people with active TB are likely to be wrongly diagnosed and hence will go untreated (false negative); tests with low specificity will result in people with no active TB getting treated with toxic drugs (false positive). That explains why serological testing based on antibody responses has so far not been recommended by the U.S. Food and Drug Administration and other reputed regulators. However, considering that in high prevalence settings like India, while the specificity of sputum smear microscopy testing is better than 99 per cent, the sensitivity is only 60-70 per cent, finding more reliable and inexpensive diagnostic blood tests for TB is a public health imperative.

The world body's recommendation is based on a body of evidence, including a study by its special programme for research & training in tropical diseases (TDR), which looked at 19 commercially available rapid blood tests. The WHO concluded that patient safety is adversely impacted by “commercial serological tests [which] provide inconsistent and imprecise findings.” Unfortunately, notwithstanding the unreliability and prohibitive cost, the private sector in India uses the blood tests on “at least 1.5 million people every year,” according to a report in The Lancet published in January 2011. These tests appear to have been done mostly at the expense of sputum examination. For example, a 2006 WHO report, “Diagnostics for tuberculosis — global demand and market potential,” found that in Tamil Nadu and Delhi, less than one-third of patients underwent sputum examination despite multiple visits while doctors based in west India relied solely on chest X-rays for diagnosis. That the government has to curb the availability of serological antibody tests and undertake awareness-building campaign among doctors and the public on the benefits of sputum tests cannot be over-emphasised. This is vital to public health — considering that in India the incidence rate of TB is a high 168 per 100,000 population and the disease kills two people every three minutes.

Staying with the process

Re-engagement is better than no engagement,” Pakistan's new Foreign Minister, Hina Rabbani Khar, declared prior to her New Delhi visit for talks with External Affairs Minister S.M. Krishna. She could not have been more correct. It is a no-brainer that India and Pakistan have no option but to engage in dialogue to resolve the issues that trouble their relationship. It took New Delhi some two years after the November 2008 Mumbai terrorist attacks to realise that the absence of dialogue was only pulling the two countries further apart. Indeed, so far apart had they drifted that the July 2010 Foreign Ministers' meeting in Islamabad was a public fiasco; to recover from that and set up a proper dialogue process, as mandated by the Thimphu declaration, took another eight months. That there are forces actively working to trip up the process again was evident from the triple bombing that claimed 20 lives in India's financial capital earlier this month. Ms Khar and Mr. Krishna were careful to avoid rhetoric and recrimination as they reviewed the official-level meetings that took place between March and June on a range of issues, including India's chief concern — speedy trial and punishment of the perpetrators of the 2008 Mumbai carnage. Expectedly, the joint statement released after the talks broke no new ground: the main focus of both sides has been to stay engaged and deal with the ‘doables' before moving on to the big issues on the list.

Even by this low threshold, the package of Kashmir-related confidence building measures announced by the two sides is meagre, except for the introduction of multiple entry visas with a six-month validity to ease cross-Line of Control travel for Kashmiris, along with travel for tourism and pilgrimages. Disappointingly, the two governments have postponed consideration of measures to improve cross-LoC trade, such as the introduction of banking facilities. The two sides now use a barter method as there is no other payment system. The weekly trading days have been doubled from two to four, but the list of goods that can be traded stands frozen at 21. An unnecessary sour note was struck by New Delhi's objection to the meeting between Ms Khar and Kashmiri separatist leaders. After facilitating this meeting — by permitting Hurriyat leader Syed Ali Shah Geelani and the other leaders to travel from Srinagar to the Indian capital — it was pointless to complain about it. India would have done better to accept the event for what it was, and left it at that. Foreign Minister Khar clearly meant to tell the military-mullah-media alliance back home that ‘inexperienced' she might be, but she was not straying from Kashmir as the ‘core' issue.

Pak talks may be exercise in futility

A sustained state of peace in relations between India and Pakistan is a good thing in itself. It would not only allow both nations space to prosper but also have a benign influence for stabilising a troubled region. It is doubtful, however, if mandatory ritualistic talks between New Delhi and Islamabad serve to bridge the gulf in ties that militarised Pakistan has succeeded in bringing about over the years. If it were a journey without maps, sheer diligence can help find the right path, but a journey without end is another matter.
Reiterative samples of this kind of dialogue underline the futility of the venture and engender frustration among ordinary people even when the interlocutors in question are honourable individuals who mean well. There is no reason for us to regard with any doubt the observations and sentiments expressed by Pakistan’s new foreign minister, Hina Rabbani Khar. This young, winsome personality has gained admirers in India on account of the way she conducted herself during the talks with external affairs minister S.M. Krishna earlier this week. She may not carry the burden of experience on her shoulders but Ms Khar gave ample evidence that she had her wits about her. But she remains part of a paradigm that is not designed to be productive.
In spite of the terrorist attacks on Mumbai originating in Pakistan, Islamabad cannot bring itself to take constructive steps on its own to help investigations even after the depositions of David Coleman Headley and Tahawwur Rana in the United States nailed the involvement of the Lashkar-e-Tayyaba and Pakistan’s Inter-Services Intelligence. That, in fact, is just the point. When Pakistan’s state agencies are involved in plotting terror attacks against India, can we expect Islamabad to cooperate? This is why Prime Minister Manmohan Singh’s Thimphu formulation of May 2010 — to carry on talking so that the “trust deficit” can be bridged — is unlikely to reach its full potential. Gopal K. Pillai, former Union home secretary who retired a month ago, said recently the matter of obtaining voice samples from Pakistan of those who telephonically guided the Mumbai attacks on that fateful day has not moved one inch. Nor have steps been taken by Islamabad to lend any urgency to investigating those involved. Now Pakistan interior minister Rehman Malik tells us that under Pakistani law providing voice samples is illegal.
In the event, it is clear that no relief may be expected from Pakistan in dealing with terrorism. This is partly because of an absence of will. But there is another reason: Pakistan is busy placating terrorist gangs to avoid facing their wrath. As such, it is unlikely that our anti-terrorism goals can be met by talking to Islamabad. While this holds, talks between the two nations run the risk of being viewed as a venture of exaggerated expectations in spite of the overused rhetoric about making talks “uninterrupted and uninterruptible”, which the young Pakistan foreign minister reiterated in New Delhi. The end result in the recent conversation was that the atmosphere was cordial but there was no result.
On the eve of the talks Ms Khar met a clutch of Kashmiri separatist leaders at the Pakistan high commission in New Delhi, reviving the empty tactics reminiscent of Pervez Musharraf’s early days in office when he was a leader out to make a mark. The gesture might have held some meaning if she had also met mainstream Kashmir politicians, but that would have meant recognising the sanctity of India’s Election Commission, as the rest of the world does. Let us have talks by all means provided they cut the thicket which blocks progress on the terrorism question, which in turn also blocks consideration of the Kashmir question, confidence-building measures for trans-LoC trade notwithstanding.

Disturbing message from Mumbai

Time to restructure intelligence set-up
by T.V. Rajeswar

After the July 13 serial bomb blasts people of Mumbai are asking: Why again and again, and how long are we to suffer? Mumbai had suffered the most serious terrorist attack by Lashkar-e-Toiba operatives under the direction of Pakistan’s ISI on November 26, 2008. And so far no one has been punished in Pakistan.
ISI operative David Headley and American-Canadian Tahawwur Husain Rana have given detailed accounts of the ISI operations relating to Mumbai. One of the jihadis who constituted the attacking team in Mumbai on 26/11, Ajmal Kasab, was captured alive. The Indian security authorities, Pakistan and the US are aware of the complete account which Kasab narrated during his trial in a Mumbai court. Sentenced to death, he is now in a high security prison awaiting further judicial procedures.
The Pakistani culprits who are being prosecuted there for their role in the 26/11 killings are having an easy time. There is hardly any progress in the case. A series of folders have been handed over to Pakistan but to no avail. In the initial stage, the Pakistan Foreign Secretary blithely characterised the dossiers as literature from India. Former Pakistan Foreign Minister Rahman Malik had promised cooperation. The excuse for the delay in the disposal of the case is the unhelpful attitude of the Pakistani judiciary.
Earlier Mumbai suffered major serial bomb blasts in 1993 which were characterised as a revenge attack on India after the demolition of Babri Masjid in 1992. These blasts were suspected to have been organised and executed by Dawood Ibrahim, who had taken shelter in Karachi under the protection of Pakistan Then there were serial train blasts in 2003 and again bomb blasts in 2006.
The latest terrorist attack in Mumbai has a strange story to tell. The Home Minister as well as the Chief Minister of Maharashtra stated that there was no question of intelligence failure since there were no intelligence inputs.  It is a strange logic, but the fact remains that there were no advance warnings to the Mumbai Police or the Maharashtra state about the likelihood of bomb blasts by terrorist elements in Mumbai around July 13.This is the crux of the problem, the complete absence of intelligence inputs about the possibility of a terrorist attack in Mumbai.
The Maharashtra Chief Minister spoke of his government’s proposal to instal a large number of CCTV cameras in the metropolis. Several CCTV cameras, which are already installed, had yielded some footage and the police chief heading the ATS has promised to release the sketch of one of the suspects.
While all these may lead to the arrest of the suspected terrorists sooner or later, the most important issue is about fine-tuning the state machinery for the collection of advance intelligence before the incident occurs. Mr Ram Pradhan, who headed an enquiry team after the 26/11 attacks, has rightly emphasised the need for intensifying the role of the beat constable who walks around the streets and lanes, meeting people of different strata. Intelligence inputs have to emanate from these constables. Traditionally, the police and intelligence officers build up their sources among the various communities so as to collect the required information about suspects and their activities.  
After the latest bomb blasts, the Maharashtra security authorities have not zeroed in on any specific suspect as yet. There is a wide range of suspects belonging to the Indian Mujahideen, the Lashkar-e-Toiba, the Students Islamic Movement of India (SIMI) and the HUJI of Bangladesh. Security personnel have been sent to interrogate a well-known bomb maker, now in an Ajmer jail, and some suspects from Azamgarh in UP.  Suspects from Kerala, Gujarat, Jharkhand, etc, are all earmarked for enquiry and interrogation.
This is, to put it mildly, a wild goose chase.  This is the biggest weakness of the Indian security set-up as of today.  The national grid of intelligence and counter-terrorism about which the Home Minister has spoken extensively is yet to come into being.
An outraged Lord Meghnad Desai from London commented, “Here we go again; first 26/11 and now 13/7. Mumbaikars will have to fall back on their famed ability to cope with adversity without any help from the authorities.” Of course, we know who committed these atrocities, but we will not do anything about this. Polite notes will be sent to Pakistan by the Ministry of External Affairs and the Home Ministry. Alas, the reality is that Pakistan can quasi-officially perpetrate these atrocities as the whole saga of Headley and Rana proved in a Chicago court. On the Indian side, the effectiveness in fighting these actions is still not there. Why is the Indian State so soft?  
Nothing seems to have improved since 26/11. How many more must die before India comes to realise that human lives matter more than anything else?  In the case of the 26/11 blasts, the Headley/Rana trial has given ample evidence to establish who are behind these terrorist atrocities.  Headley had a free run of the country and no agency in India spotted him till the Americans nabbed him.
This may happen again. Some Lashkar or jihadi group enjoying Pakistan’s financial support may attack India again.
This painful message having serious dimensions has been conveyed by the Mumbai serial blasts. Can India be sure of preventing such attacks in any of its metropolitan cities again? Can anyone in the security set-up, either at the national level or at the state level, assert and answer, “Yes, India can.” 
The Ministry of Home Affairs and the Intelligence Bureau may consider convening a special conference of intelligence authorities from all the states and discuss the dire need for building a preventive intelligence machinery from the grassroots level. This is necessary to ensure that such attacks do not happen again and that those who are conspiring are arrested in good time before the mischief is committed.  This is a tall expectation, but not impossible.
Merely blaming the Karachi Project of Pakistan — whereby men of the Indian Mujahideen and other jihadist terrorists are given shelter in Karachi —cannot help. David Headley has given considerable details about Karachi gangsters. He has actually spoken of two distinct competing jihadi groups targeting India, and both are headquartered in Karachi. Moreover, the Lashkar chief, Hafiz Saeed, has spoken of launching an all-out war in Kashmir, attacking the Bhakra Nangal dam project and other such targets. But the Pakistani authorities have refused to react to these utterances.
Notwithstanding the latest meetings between the Foreign Secretaries and the Foreign Ministers of India and Pakistan, there is no possibility of any progress in the matter of resolving the issue of cross-border terror originating from Pakistan.  
India has to set its own house in order by restructuring the intelligence-gathering mechanism to ensure that terrorist attacks like those experienced in Mumbai are prevented to the extent possible.
The writer, a former Governor of UP and West Bengal, is a retired chief of the Intelligence Bureau.

RBI has done enough

Now govt’s turn to fight inflation
\

It is a double whammy for the middle class. On the one hand, home and auto loans have become dearer due to the RBI’s rate hike (the 11th in 15 months), on the other, high prices, including those of food, are stretching household budgets. The plight of the poor is worse. Since they usually do not have access to bank loans, they borrow from private lenders at hefty interest rates. Unlike the salaried class, their incomes are not inflation-linked. The brunt of costlier corporate loans is also borne by ordinary people. While big companies can weather a financial storm, it is the small and medium firms employing large numbers of people that often buckle under pressure. As their projects are abandoned or delayed for want of affordable capital, growth takes a hit and employment opportunities shrink.

Though what the RBI did on Tuesday came as a shock to the financial markets, which expected a moderate hike of 25 basis points, it is what Governor D. Subbarao said which attracted analysts’ attention more. He asked the government to do what it had been avoiding all these months: contain fiscal deficit (the gap between government income and expenditure) and ensure adequate supplies of items whose prices are rising. What economists call “supply-side bottlenecks” have remained unaddressed for years.
Due to low agricultural productivity, heavy dependence on the monsoon, the absence of cold storages and other infrastructural handicaps, the supply of food items remains erratic and often falls short of demand. The farm sector, which supports a large majority, needs better attention. Bringing in domestic and foreign investment in the supply chain can cut massive food waste. There are factors beyond government control like global oil prices and trouble in the Arab world and the US/European debt problems, which affect the global economic recovery as well as Indian exports. But there are things the government can do like thinking beyond scandals and political survival and focussing on governance and in-house hurdles to faster economic growth.

Countdown to Lokpal

Eradicating corruption will be a tall order \

Thanks to the traction provided by the Anna Hazare agitation, the much-delayed Lokpal Bill is finally on the move, with the Union Cabinet giving its approval to the government version. It is another matter that this version has disappointed Team Anna and another agitation is on the cards. How good or bad the sarkari draft is will be determined only by the ability of the new watchdog to eliminate the omnipresent corruption in the country. It is not a figment of the imagination of the opposition. The man on the street is indeed disgusted with the extent of corruption. He also wants reforms and good governance. Whether it comes through improvement in the functioning of the present institutions or through establishment of new ones is least of his concerns. What he insists on is measurable improvement on the ground.

There are bound to be doubts whether a Lokpal, as envisioned by the government, will be able to fit the bill. But as the Chinese say, the colour of the cat does not matter as long as it catches mice. Given the atmosphere in the country, no political being seems to be upright enough to sincerely want a completely independent investigating body in command. Even the criticism about the CBI being a puppet in the hands of the government is made only while a party or person is in the opposition. The tune changes dramatically once they themselves come to power. It will be educative to see how the Lokpal becomes a bulwark against corruption while the entire political class is ranged against this body.
While it would be meaningless to have a paper tiger at hand, it is equally important to ensure that a Frankenstein is not created which becomes an overarching presence without checks and balances. Nor should the Lokpal imprimatur diminish the powers of the Prime Minister to govern and lead. As far as the aspirations of the public at large are concerned, those are unquantifiable and a fine balance has to be struck between what one section of the public wants and what is the wish list of another section.

FOR DUAL PRICING OF MONEY..P V INDIRESAN

These days, corruption is hot news. Across the spectrum, virtually every political party, from the BJP, the BSP, the Congress, the DMK and the SP have been accused of wrongdoing. Yet, when a TV channel held a straw poll in the six metros, the top complaint was not corruption but price rise. Apparently, people accept politicians to be corrupt, but expect them to keep inflation in check.

As of now, discussions on inflation have been confined to esoteric debates among experts, but few people have asked the basic question: “How do we cure inflation?”

Ideally, inflation is cured when more money is invested to produce more goods (for the future) and less is consumed immediately. That introduces the element of time. More money should be consumed for long-term investment and less for current consumption.

Unfortunately, money is fungible. Probably for that reason, faced with inflation, central banks raise interest rates all round and make money more expensive. Then, they curb current expenditure — which is desirable — and simultaneously also curb long-term investment, which is undesirable.

That is the reason why inflation has remained unchecked in spite of repeated increases in interest rates. High cost of money reduces investment and curbs the availability of goods in the future. Thus, pressure on inflation remains because there are less goods on offer.

PRICING OF MONEY

In that case, we need a dual policy: Low cost of capital for long-term investment and high cost of capital for current consumption. In other words, banks should charge a high rate of interest for working capital only but keep interest rates for long-term loans low. Then, price of investment will be low and that of current consumption will be high.

Taking the analogy of electricity, money is like power but prices are like voltage. Electrical power can be delivered at any desired voltage — at low voltage for domestic consumption but at high voltage for high-power industrial consumption. We need a similar system in economics, too. Unfortunately, in economics, we have only money (which is power) to play with. Unlike in electricity, we do not have a simple system by which that money can be delivered at whatever price we desire.

However, dual pricing is not unknown. Then, why should we not have low-price money for investment and high-price money for current consumption? In other words, why should we not have low-interest rates for long-term loans and high rates of interest for working capital? That is not easy, but not impossible.

ACCOUNTING METHODS

A question will be raised that such a dual-price regime will lead to corruption — low-cost, long-term capital will be used for current consumption. The same complaint can be made about electric power, too. A businessman can transform low-cost high voltage power and use it to supply the same for domestic consumption. That may happen but can be checked.

Likewise, there are usable accounting methods that will distinguish between long-term investment and working capital for current consumption. In fact, that is the basic difference between business accounting and government accounting. In business, there is a strict isolation of assets and current expenditure. Unfortunately, the government makes no such distinction.

Therefore, I suggest that we utilise the business accounting system and fund loans for asset building at low interest rates, but charge high rates for working capital for salaries, advertisements, consumption of materials and the like. In that case, investment for future increases in production will grow fast but high prices for current consumption will curb such consumption; both ways inflation will be curbed.

ANOTHER KIND OF TAX

The government may also curb inflation by a fiscal rather than monetary technique – it may tax increases-in-income on top of income tax. Will people pay that tax or will they evade that, too? We may induce them to obey by a simple rule – allow the taxpayers to stipulate where that money should be spent. For instance, they may be given the freedom to contribute the tax amount for improving a school or a hospital, for better water/sanitation systems and maybe even for public transport.

The advantages are several. For a start, government's investment in social services is woefully low. That is why we remain a lowly 134 among around 180 nations in the Human Development Index — despite the fact that our GDP growth is very high and per capita income constitutes a third of the Human Development Index. We can also be reasonably certain that taxpayers will check that their money is well spent and quality of education and healthcare improves in the institutions they patronise.

Likewise, they will also check that water, sanitation and public transport improves. At the same time, the taxpayers' prestige will also go up — headmasters and doctors will be after them to induce them to make their contribution to their own institution. The government may not accept this kind of (partial) democracy but the Reserve Bank should have no problem with dual pricing of investment and working capital.

Do people matter?

Cracking under the relentless pressure from the Hazare-Ramdev campaigns over the last eight weeks, the Government is making one mistake after another as it desperately tries to divert public attention away from corruption. The main takeaway for the people is that this Government will go to any lengths to protect the corrupt. The mistakes have been well-chronicled, but it is the ingenuous arguments that now stand out. One is that groups of well-meaning citizens cannot be allowed to hijack the legislative agenda; the other is that the RSS is behind the anti-corruption movement. Taking the second argument first, one must ask: even if it is true that the RSS is behind the movement, does that somehow make it illegitimate? Why is the Government trying to shift attention from corruption to the RSS? If RSS volunteers helped out in an earthquake or a flood, would that help be rejected by the Government? So the point is not who is doing it but what it is sought to be done. And this clearly makes the Government nervous to the extent that it is even using phrases from the Emergency days, such as “an attempt to de-stabilise the Government.”

The first argument — that citizens should not drive the legislative agenda — is intellectually identical to what colonial and Soviet-style authoritarian governments tended to use: we know what's good for you. According to this view, people don't matter, only the rulers. That this is sheer effrontery in the 21st century has not occurred to the Congress party apparatchiks. But that is not all: it is the Congress party that created the National Advisory Council (NAC), chaired by its President. If it is fine for the NAC to recommend legislation, why is it not all right for Anna Hazare and Ramdev to do likewise? As Shakespeare said, it is surely a tangled web they weave when they seek to deceive. If the people now conclude that the Congress party is trying to protect some of its high-ups, it will have only itself to blame. And this impression will only be strengthened after the ham-handed attempt by the party to distance itself from the Government's action against Ramdev. The effort, clearly, is to minimise the negative fallout against the party. It is not likely to succeed. It is also remarkable that the party has learnt nothing from the Bofors years. Then also, faced with allegations of corruption, the party had tried to brazen and bulldoze its way out.

What next? In all likelihood, the monsoon session of Parliament is a goner now and, with it, any legislation for economic reform. The Government can try and blame the Opposition but, the fact remains: both in the winter session of 2010 and the forthcoming session, it is its own actions that are responsible.

(This article was published on June 8, 2011)

Law vs governance

Food security cannot be ensured by FCI and the existing PDS
Successive drafts of the food security Bill seem to agree on one thing: a greater role for the Food Corporation of India (FCI). FCI buys grains at the minimum support price and distributes them through fair price shops and other food-related schemes like midday meals in schools and children’s nutrition as part of the Integrated Child Development Services. Since its distribution price is lower than its buying price, FCI survives entirely on subsidies. Year after year, FCI budget estimate falls short of what is required. The situation has been aggravated by a bumper harvest this year. This means FCI has to buy more grains since an increasing number of farmers will provide their produce to the government at the minimum support price owing to a downward pressure on market prices. Add to this the fact that the government has announced a bonus on the price to wheat farmers.
This is a vicious circle. The country produces more, support prices are increased, greater amounts are procured and subsidies overshoot estimates. This has a double effect on inflation — bumper crops have a smaller effect on depressing food prices while increased subsidies have a positive effect on overall inflation. And considering that the country has been facing sustained inflation, especially in food, for the past few years, the food security Bill will only add to the current price pressures, since now the government has to ensure that it procures more food than ever.
The government has denied that FCI is facing a cash crunch, claiming that it has not spent its previous quarter’s allocation fully. However, it has not denied that more cash will be required than was originally estimated in the Budget. There is talk that the banks that provide credit to FCI should raise the credit limit, which is Rs 35,000 crore at present. In the meantime, the Reserve Bank of India has increased interest rates 11 times in the past 15 months! This will further add to FCI’s costs and the subsidy bill.

A paper on the public distribution system (PDS), presented at the recently concluded India Policy Forum, highlights the inefficiencies in FCI apart from the leakages in the system. This increases the upward pressure on food prices since this inefficiency also includes the wastage of food. The food security Bill could be an excellent opportunity to consider different options to support farmers and, at the same time, ensure cheaper food for the poor. However, instead of experimenting with cash transfers, the Bill gives the existing distribution system a much greater role. Since the 1980s, there have been various estimates of how inefficient the PDS is. Every decade, the level of inefficiency increases and we have to give the system a greater role to play. We have become masters at employing old solutions to new problems, especially when such solutions have not worked very well in the past.

Unhealthy dependence

A nine-year ceiling for independent directors is a good idea
It is easy to be critical of the idea of imposing a nine-year ceiling on the tenure of independent directors under Clause 49 of the Listing Agreement governing all publicly-held companies. There is the obvious question of the need for any cap on the tenure of independent directors. If there is no fixed tenure for the managing director or other directors, why should there be a limit for independent directors? Besides, there is the issue of the difficulty companies appear to be facing in identifying competent and experienced professionals who could qualify as independent directors on corporate boards. A cap on their tenure, companies argue, will make the shortage of able candidates even more acute. What has exacerbated the prevailing cynicism is the non-mandatory nature of the guidelines. Not surprisingly, many large companies, including even those with a decent corporate governance record, flout the guidelines, citing both their irrelevance and non-mandatory nature as reasons. Such companies also argue that the long tenure of independent directors on the board – often as long as 12 to 14 years – need not necessarily and always dilute their commitment to protecting minority shareholders’ interests or undermine their unbiased functioning.
Yet, the relevance and meaningful role of independent directors can hardly be over-emphasised at a time when good governance issues have come to the fore and India Inc can scarcely ignore, let alone violate, the norms of corporate governance and ethics. Independent directors of Rupert Murdoch’s News Corporation, hit by the recent phone hacking scandal, have already sought legal views on what they should do to shore up shareholders’ confidence in the beleaguered company. In India too, independent directors of some companies are said to have asked for special investigations into instances of governance failure. It is true that independent directors have limited access to information and clever managements can get away by disclosing to them only as much information as they think should be shared. In other words, even vigilant independent directors can be kept in the dark about tricks that managements may be up to. There are, for example, cases like Satyam in which either the independent directors were not in the loop on the financial wrongdoings being perpetrated or simply turned a blind eye because of their trust in or proximity to the promoter shareholder.
Ironically, however, these are precisely the reasons why the government should strengthen the institution of independent directors. To begin with, it must make the nine-year ceiling on their tenure mandatory. There is no reason why companies should not change their independent directors even after nine years. Shortage of available talent is no excuse. Supply will come forth to meet demand. Corporate India must learn to live without the cosy comfort of a few known names as independent directors with a term that is as long as near permanent. It is time the guidelines under Clause 49 were toughened by including in them penal provisions for companies that fail to honour the mandatory ceiling on the tenure of independent directors. And if necessary, the Companies Act should also be suitably amended to mandate similar guidelines on the appointment and tenure of independent directors

Tales of a neglected hinterland

Pastel green paddy fields, bullock carts, orange-hued skies and heavily-laden mango trees — these are picture postcard scenes of our rural landscape.

But the romanticism ends right there as you travel through parts of Bihar and Uttar Pradesh and take a peek behind the veneer.

It is clear that not much of ‘liberalisation', ‘globalisation' or even plain ‘development' — the jargon we are all so used to — has touched these parts. In Bihar, the squalor stares you in the face as do feudal and caste prejudices.

If this is how it is under Chief Minster Nitish Kumar, who is said to have brought progress to the State, what must it have been during Lalu Prasad Yadav's regime?

You speak to the children in the villages of West Champaran district — no, they do not go to school regularly, whatever the Bihar Government may claim.

Children who do, mostly one or two in a family, complain of the masterji just coming in for two to three hours.

No food, education

When you stop at a Harijan basti and shake hands with the children around, women rush to tell you the caste status of the village. Here, no one raises their hand when asked if they go to school. They are clearly perplexed by such a question.

On the Bihar government Web site, West Champaran district's literacy rate is 39.6 per cent. It has 1,340 primary schools, 284 middle schools and 68 high schools, but, then, what are so many of the children doing out of them? And why have the teenagers dropped out in Class VIII?

The adults, however, are not too bothered how the children are faring. They are much more concerned about the here and now — the price they have to pay for food. “Prices keep climbing and our earnings are not enough,” says Shravan, who is happy about saving half of what he used to spend on kerosene, thanks to CFL light, but not about the price of pulses, meat and milk (which is hardly available).

Prices for specific commodities here are not very different from what they are in the cities. Besides, unlike the cities, people here spend a majority of their income on food.

In Budaun district of Uttar Pradesh, the situation is not very different. Milk may be cheaper than in the Capital by Rs 3 a kg, but pulses that cost Rs 50 per kg in Delhi cost the same here. “It grows in our region, near our village, but the vyapari (traders) hoards it, making us pay such heavy prices,” explains Hirday Pal. The middleman's social profile may have undergone a change, but he is present in one way or the other.

It is also obvious in both States that despite the depravation, families were not growing any smaller. Rekha in Tamkuha village, Bihar, was still struggling to feed six daughters and the youngest, a son. Only two of them were going to school. Shanta in Ujhanni, Uttar Pradesh, had a brood of five, despite the fact that the eldest was a son.

Where have we gone wrong? Does developmental neglect feed population explosion — theories that were not taken seriously enough?

Electricity deficit

The neglect in the two States is too obvious to ignore. When compared with Kerala, Andhra Pradesh and Gujarat, as was done in the India Human Development Survey of households, published in 2010, the question arises as to how “inclusive growth” can be a national goal when even the basics are missing in some states.

Take electricity, for instance. It is estimated some 1,25,000 villages in the country are out of the grid and have no electricity. The Human Development Survey corroborates what you find when travelling in the two States.

The chart culled from the report shows that, by far, the two Hindi heartland States are among the worst off in terms of electricity. While 42 per cent village homes in Uttar Pradesh receive power, in Bihar, it is 23 per cent.

No wonder then that a CFL bulb and a mobile connection means so much to the villagers. The interesting observation is that though a lot of villages in the country have ‘electric connections', these fail to translate into electricity access for households — a phenomenon that needs to be further researched.

Another question it throws up is why some States manage to perform better than the others in providing the basics of electricity, water, roads, education, health and employment.

Besides being a mixture of geographical location, connectivity, demography and caste and religious variations, is it not ultimately the quality of governance that matters?

Changed trigger points

Although SEBI has taken its time to rewrite the Indian takeover regulations after the an expert committee submitted its proposals last year, the changes introduced represent a fine balancing act. The amendments focus on the fact that the size of stake acquired in a company signals the level of interest on the part of an investor.

If the trigger point is pegged too high, minority shareholders may be kept in the dark about a looming takeover interest as disclosure of such intent may be delayed just that bit longer. And set too low, it inhibits investors who have no intention of taking control of the company's management but merely see it as a good investment. They should have the freedom to limit their investment without having to acquire additional stake from public shareholders. The existing threshold, pegged at 15 per cent of the total paid-up equity capital in a company, is out of tune with reality. It was set at a time when incumbent managements of India Inc. had only modest stakes in companies. A potential threat to their hold over the companies under their control would have been a needless distraction from the larger purpose of shoring up the competitive capability of their companies. That is no longer the case. A higher threshold for triggering an ‘open offer' now opens up the possibility of India Inc. attracting greater investments from private equity funds and qualified institutional investors as it would be freed of such an additional financial burden.

An equally contentious issue has been the size of the ‘open offer' an acquirer is required to make once he has acquired or signalled his intention to pick up substantial stake in a company. No doubt, the present limit of 20 per cent does prevent minority shareholders from exiting at one go, should they desire. But this ignores the fact that in a well functioning stock market the act of an investor mopping up significant chunk of stake at whatever price he thinks the shares are worth is automatically impounded in the secondary market transactions. A stipulation that the acquirer must buy out all outstanding stock in a company could potentially place overseas investors at an advantage in a takeover battle vis-à-vis their local counterparts as the former undoubtedly would have better access to liberal funding from the banking systems abroad. SEBI has quite rightly rejected the expert committee's recommendation of a 100 per cent buy-out as that would only end up inhibiting the development of a vibrant market for ‘corporate control' without enhancing minority shareholder protection. The market regulator also deserves praise for having done away with the facility available to incumbent managements to secure a better price for their own stake through the device of a ‘non-compete' fee. The notion that a few individuals in their personal capacity add value to a company ignores the overwhelming evidence of corporate success as stemming essentially from good systems, processes, organisational culture and, above all, the efforts of a team of dedicated workers.

We expect strong policy support by year-end'

K. V. Kurmanath

Dr Pradip K. Dutta, Chairman of Indian Semiconductor Association (ISA), strongly feels that India has strategic reasons to develop its domestic electronics manufacturing system. This has to be done to reduce the electronic components import bill. The ISA has completed two studies with the Department of IT and Frost and Sullivan, discussing these problems and offering solutions. As Chairman of the ISA, that has 150 members representing domestic and multi-national companies, Dr Dutta, who is Corporate Vice-President and MD, Synopsys India, paints a positive picture and says there is a distinct shift in the mindset of Governments and policy-makers in favour of the industry. He spoke to Business Line on the challenges, prospects and outlook for the electronics manufacturing industry in the next few years. Excerpts from the interview:

The fab industry has not taken off in the country despite so many assurances. What is your view on the policy environment that governs the semiconductor industry?

I can assure you that there is a distinct shift in the views of Governments, Ministers and leaders in favour of the semiconductor industry. We can expect strong policy support by the year-end. Electronics as a national mission will drive the industry.

We can also hope for a chip policy and an electronics development fund to support entrepreneurs. Industry players are also confident of having preferential access in the case of government procurement of made-in India components. This will go a long way in building the ecosystem for a vibrant semiconductor industry.

Where does the industry stand now in terms of R&D and production?

India provides companies with a favourable environment to set up R&D facilities. Many multinational companies, such as GE, have established research centres in the country.

Leading companies in the semiconductor industry have also established captive R&D centres.

The number of patents filed from India by MNCs such as Texas Instruments, ST Microelectronics, Intel and Broadcom Corporation in the last five years runs into several hundreds.

According to a recent study done by the ISA and the Department of IT on semiconductor design, embedded software and services, the R&D talent pool of MNCs in India has seen rapid growth in the past decade.

The number of MNC employees working at their respective R&D centres in India has increased from 16,000 in 2000 to 1.80 lakh in 2009, growing at a compounded annual growth rate of 30.9 per cent. This number is expected to grow at a CAGR of 10 per cent to reach 3.19 lakh in 2015.

Why has the industry failed to develop rapidly?

One of the main challenges is the lack of a semiconductor manufacturing ecosystem. The non-existence of a foundry leads to less experience in foundry interactions and a longer time-to-market which have inhibited the growth of the design industry to a certain extent. Unless this gap is plugged, the ecosystem cannot mature and develop at a rapid pace.

The lack of the presence of local original equipment manufacturers to cater to the immense demand generated locally has also hindered the rapid growth of the Indian ecosystem.

The other important problem the industry faces is the lack of talent. Companies have cited instances of lack of experienced talent with knowledge of all the aspects of design flow. Although India has good capabilities in digital technologies, it faces a dire shortage of talent capable of handling analog technologies.

Shortage of quality manpower leads to attrition. Given that the current supply of the semiconductor design workforce in India is quite small, attrition caused by competitive pressures for talent and people moving on for higher studies can adversely impact the design ecosystem. There is also a lack of talent for product conceptualisation and product management for the emerging markets. Systems management for captives still continues to be driven by headquarters, so talents for this area need to be nurtured.

How do we stand when compared with our neighbours in this regard?

Countries such as China, Taiwan and others in the South-East Asian region have had a complete and mature ecosystem built over the past 30 years, with the presence of OEMs, strong government support, infrastructure and, hence, these countries are often preferred over India.

Both the captives and non-captives face the challenge of rapidly increasing cost structures and pressure on billing rates, leading to a loss of competitive advantage as opposed other low-cost Asian or eastern European countries.

Which are the promising areas?

Telecommunications, information technology, OA, defence and automotive sectors hold the key to India's economic ascent in this decade.

What are your expectations from the Government in terms of policy support? And what needs to be done to make the ecosystem robust?

The ISA is keen to enable the electronics system design and manufacturing sector in the country and is working with all stakeholders, including the government; it proposes several steps to enable the ecosystem.

We recommend the establishment of a National Electronics Mission that can act as a nodal agency for the electronics industry within the Department of Information Technology, and have a direct interface with the Prime Minister's Office.

We need to promote existing clusters and create islands of excellence by encouraging planning for clusters such as Sriperumbudur and Noida. We should encourage products specifically designed for India.

Creation of an R&D fund to incentivise research would also go a long way in developing the ecosystem.

A separate fund may also be created to provide interest-linked subsidies, promote value-added manufacturing and create products for India. A stable tax structure needs to be put in place to encourage long-term investment by companies.

The Government should also focus on skill development, and regulations around over-time and contracts need to be flexible.

Lower customs and import duties on the raw materials needed for electronics manufacturing will make trading a more attractive business proposition.

The additional State-level taxes, non-uniform duties, and inverted duty structure, all weigh against indigenous manufacturing

A series of disasters

The gods have been cruel to Pakistan. The country had barely recovered from the 2005 earthquake which killed 73,000 people when the 2010 floods struck.

The Indus river swelled, wreaking havoc on a huge scale: causing 2,000 deaths and the destruction of 1.5m homes, enough farmland to cover the U.K. and the displacement of 11 million people. The crisis still continues today. Some districts suffer malnutrition rates on a par with sub-Saharan Africa. In others, child labour has risen by a third as parents struggle to earn a living. Some children are turning to drugs to combat their traumas. “As always, it's the weakest who suffer most,” said Marco Aviotti of the medical charity, Merlin. Equally worryingly, the country is ill-prepared for another flood, with a rickety disaster management system. But money is scarce: the government owes $59bn, tax collection remains low, and the economy is dependent on the IMF. — © Guardian Newspapers Limited, 2011

Now begins the era of the Soyuz

Vladimir Radyuhin

On July 21, when Atlantis touched down for the last time in Cape Canaveral, Moscow declared that the winding down of the U.S. shuttle programme “opens the era of the Soyuz.” The Russian agency, Roskosmos, said the venerable spacecraft, Soyuz, would now be the world's only lifeline to the International Space Station (ISS) — at least till 2016.

“Today's landing of the U.S. Atlantis is doubtless one of the most significant milestones in the history of space exploration,” Roskosmos stated with barely concealed pride in the triumph of the hardy but single-use Soyuz over sophisticated, reusable but exorbitant U.S. space shuttles.

When the U.S. embarked on designing a space shuttle in the late 1960s, it was widely believed that reusable space vehicles would win hands down over expendable ships by drastically cutting down the cost of spaceflight. However, the result turned out to be exactly the opposite. The cost of the 30-year space shuttle programme was more than $1 billion per launch, roughly equivalent to the cost of launching 20 Soyuz spacecraft.

The U.S. will save a lot of money by switching over to the Russian space vehicle. NASA contracts with Roskosmos for ferrying 18 U.S. astronauts to the ISS and back aboard Soyuz ships over the next five years (plus 24-month training for each astronaut, room and board, flight operations and crew rescue) will cost the U.S. only as much as a single shuttle flight.

A big advantage of the U.S. shuttles, of course, was their freight capacity. A shuttle could take to space almost 30 tonnes of cargo, 10 times more than Soyuz, and bring down to earth two tonnes of payload, compared with just 50 kg by Soyuz. Roskosmos acknowledged the critical role of U.S. shuttles in setting up the ISS by placing bulky sections in orbit. Why then, Roskosmos asked, are the sleek U.S. “birds” gone, while the old Soyuz craft are still in business?

The answer, Roskosmos itself said, was simple: the Soyuz was more reliable and cost-effective. The spacecraft had an impeccable safety record: not a fatal accident over the past 40 years. The two Soyuz accidents involving fatalities date back to the early stages of the programme. The Soyuz-1 descent capsule crashed to earth in 1967, killing cosmonaut Vladimir Komarov, because its parachutes failed to open, and the Soyuz-11 mission in 1971 ended in a disaster when its capsule with three cosmonauts depressurised on re-entry.

While the U.S. space shuttle was far more comfortable to ride, especially on re-entry and landing, than the crump Soyuz, it certainly trailed Soyuz in safety. Out of the five space shuttles built during the 30-year-long programme, two were destroyed in accidents. In 1986, Challenger, carrying seven astronauts, broke apart 73 seconds into its flight due to a faulty engine seal. In 2003, Columbia exploded during re-entry into the earth's atmosphere, killing all seven crew members.

The only time Soyuz was struck by an accident similar to the one that destroyed Challenger, the crew were rescued thanks to the Russian ship's launch escape system. The accident occurred in 1983 at the Baikonur launch pad. The crew were in the spaceship waiting for takeoff when a leaking fuel valve at the base of the rocket set off a fire that engulfed the rocket within seconds. Ground controllers activated the escape system, which flung away the top sections of Soyuz with the cosmonauts inside, free from the three-stage rocket and lifted them more than one km before the descent capsule parachuted safely to land even as the launch pad crumbled in flames.

“My biggest dream in life has always been to fly in orbit someday, but I can tell you that I would feel a hell of a lot more at ease in a Soyuz than in a shuttle,” space historian Bert Vis once said.

The U.S. Accident Investigation Board that looked into the Columbia tragedy recommended that the spacecraft be replaced due to “the risks inherent in the original design of the space shuttle.”

The monopoly on carrying crew to the ISS over the next few years may inflate the Russian ego but there is a flip side: the additional burden on the Russian space industry will eat up its limited resources that could be used for other projects. Russia's space budget of $3 billion for this year is just a fraction of NASA's $18.5-billion budget. The construction of spacecraft has been put on assembly line in Russia: more than 30 ships are currently in the pipeline, with two-and-a-half years needed to build one spaceship. Despite its modest means, Russia holds 40 per cent of the world's space launches and constructs 20 per cent of spacecraft.

U.S. commentators who praise the sophistication of the U.S. space shuttle compared to the “primitive” Russian craft overlook the fact that the Soviet Union built its own space shuttle, Buran (Snowstorm) which, in some ways, including safety features, was superior to the American shuttle. For example, it was fitted with high-tech ejection seats for the crew that could be activated at altitudes of up to 24 km. At greater heights, Buran could detach from a malfunctioning booster rocket and glide down to a soft landing. Such an escape system could have saved the Challenger crew. Buran made its first and only flight in fully automatic mode without a crew in 1988. To overcome a crosswind of 20 metres per second, Buran's autopilot recalculated its landing trajectory and the spaceship landed on the runway from the opposite direction, to the amazement of ground controllers. It was a feat that remains unrivalled.

The Soviet space shuttle programme came to an abrupt end after the break-up of the Soviet Union, mainly for lack of funds. But before that, Buran helped push forward arms control talks between the U.S. and the Soviet Union because its successful flight demonstrated the Russian ability to counter President Ronald Reagan's “Star Wars” programme.

Once the Cold War ended, space rivalry gave way to cooperation, as evidenced by the joint construction of the ISS and the U.S. decision to rely on Russian spacecraft after retiring the space shuttles. But lack of trust between the former adversaries still prevents them from joining forces to build a next generation spaceship. While the U.S.' overall technological superiority is a reality, Russia has an edge in some space technologies. For example, Lockheed Martin has ordered 101 Russian booster engines, R-180, for its Atlas-3 and Atlas-5 heavy rockets. The Energia booster rocket, built under the Buran shuttle programme, is still unrivalled anywhere in the world. It was a multipurpose rocket that could also be used for other space missions. It could place in orbit 100 tonnes of payloads, more than three times the U.S. space shuttle capacity.

Buran was designed as the first fully reusable shuttle system, with all rocket boosters to be equipped with parachutes and retrorocket soft landing systems. By contract, the U.S. space shuttles were semi-reusable because they had a throwaway central fuel tank and its solid rocket boosters (SRB) had to be heavily refurbished after splashing in the ocean. While the U.S. space shuttle glided to earth in unpowered mode and, therefore, had only one attempt to land, Buran was designed to carry two jet engines for increased landing manoeuvres. Also, it had superior thermal protection tiles, used less toxic and more efficient liquid fuel, had a higher payload capacity and was designed to carry 10 crew members against seven by the U.S. shuttle. Buran was the first and only space shuttle ever to perform an unmanned flight in fully automatic mode until the U.S. Air Force launched its Boeing X-37 space plane last year. But then, X-37 was a much smaller craft than the 100-tonne Buran.

The pooling of resources could help Russia and the U.S. develop a new generation of space vehicles faster and at a lesser cost. Experts say interplanetary missions would be too costly and technologically challenging for any nation. Two years ago, Russia and the U.S. set up a working group on space within a joint presidential commission for bilateral cooperation. However, the two countries are still largely going their separate ways. They are building two different space shuttle systems — a Multi-Purpose Crew Vehicle in the U.S. and a Prospective Piloted Transport System in Russia — and are drawing up separate programmes for the exploration of the Moon and the Mars.

Prospects for cooperation improved after President Barack Obama last year signed a new National Space Policy that placed emphasis on international cooperation, openness and transparency in space in contrast to President George W. Bush's strategy of global supremacy. However, a strong military space component in the U.S. global missile shield plan, which Russia sees as a threat to its security, is likely to hamper cooperation in the development of new space hardware.