Announcements

Researchers in corporate and financial laws

The National Institute of Public Finance and Policy is looking to hire two researchers (1 legal researcher and 1 economics/public policy researcher) on a full-time basis in the field of corporate and financial laws. The positions are based out of Delhi. Our work is inter-disciplinary, bringing together knowledge of public economics, public administration, law, and quantitative research.

National Institute of Public Finance and Policy (NIPFP)

NIPFP is a premier research institution in public economics and policy. NIPFP has partnered with the various Government departments and regulatory authorites for providing policy and research assistance. NIPPF has worked on issues relating to agency regulatory design, regulation of professions, capital flows, financial regulation, reform of insolvency and bankruptcy laws, public administration and other areas of fiscal and monetary policy.

Some examples of our work in this field include:

1. Ajay Shah and Susan Thomas, The Indian bankruptcy reform: The state of the art, 2018, The Leap Blog, 22 December, 2018.
2. Renuka Sane, The way forward for personal insolvency in the Indian Insolvency and Bankruptcy Code, NIPFP Working Paper Series, No. 251, 24 January, 2019.
3. Shubho Roy, Ajay Shah, B.N. Srikrishna and Somasekhar Sundaresan, Building State capacity for regulation in India, NIPFP Working Paper Series, No. 237, 03 August, 2018.
4. Pratik Datta, Value Destruction and Wealth Transfer under the Insolvency and Bankruptcy Code, 2016, NIPFP Working Paper Series, No. 247, 27 December, 2018.
5. Sudipto Banerjee and Vishal Trehan, Invoice financing in India: TReDS and way forward, The Leap Blog, 10 October, 2018.
6. Pratik Datta and Rajeswari Sengupta, The proper purpose of insolvency law, Live Mint, May 06, 2018.
7. Smriti Parsheera, CCI's order against Google: infant steps or a coming-of-age moment?, The Leap Blog, February 22, 2018.
8. Pratik Datta and Rajeswari Sengupta, Commercial wisdom to judicial discretion: NCLT reorients IBC, The Leap Blog, 13 December, 2017.
9. Smriti Parsheera, Ajay Shah and Avirup Bose, Competition Issues in India's Online Economy, NIPFP Working Paper Series, No. 194, 03 April, 2017.
10. Ajay Shah, Arjun Rajagopal and Shubho Roy, From clubs to States: The future of self-regulating organisations, The Leap Blog, 19 December, 2013.

Remuneration

The remuneration will be commensurate with the candidate's experience and will be comparable with what is found in other research institutions.

Requirements

1. You must have a Masters degree in economics/public policy or LL.B.
2. Demonstrated knowledge in areas relating to corporate and financial laws.
3. Practical knowledge in accounting is desirable.
4. Very strong written and spoken English.

How to apply

Interested candidates may send in their covering letter and updated CV to: lepg-recruitment@nipfp.org.in. The email must contain the subject line: 'Researcher in corporate and financial laws'.

The rise of government-funded health insurance in India

by Harleen Kaur, Ila Patnaik, Shubho Roy and Ajay Shah.

The National Health Protection Scheme (NHPS) announced in the Budget 2018-19, targets providing affordable health care to 100 million poor households in India. It is arguably the world's largest health insurance scheme and an indicator of transformation of the role of government from being a health care provider, to that of a health care financier. Before independence, India focussed more on public health through interventions like water supply, sanitation and vaccination than providing health care through hospitals. The reorganisation after independence was a result of policy changes that merged public health and health care responsibilities within the same officers of the government, the doctors. A remarkable development in the field of health policy in India is the rise of government funded health insurance programs.

These programs feature purchases of health care services from private health care providers health insurance from health insurance companies. In a recent paper titled, The rise of government-funded health insurance in India, we discuss the history of health policy in India in three phases; pre-independence British India, independent India until the 2000s and independent India after 2000s, to understand the factors contributing to the shift in the health system of the country.

We offer fresh insights into these developments by placing them in a historical perspective. The roots of Indian health policy lay in British India, which laid the foundations of public health. This was done after the Royal Commission of 1859 was set up to investigate the health status of the army in India. The Royal Commission studied not just the army, but the civilian population as well. By and large, their emphasis was on public health and not on health care. The findings of Royal Commission can be summarised in two quotations:

1. The need for public health rather than health care

"Native hospitals are almost altogether wanting in means of personal cleanliness or bathing, in drainage or water-supply, in everything in short, except medicine."

2. The need for interventions outside of soldiers

"The health of the English army is indissolubly associated with the health of the population of the country which it occupies"

The legislative and institutional apparatus that was established in British India involved a prime focus upon public health, and a major role for sub-national governments (states, cities). When the Constitution of India was drafted, it largely reiterated this design.


The changes after independence came from two sources; the shift of power to the union government, and adoption of the Bhore Committee report. While the Constitution envisioned a federal arrangement, in practice, power shifted to the union government after independence. The union government designed programs, and financed state governments to implement these programs. There was a consequent atrophying of policy thinking and execution at the state and local government level. This had an impact on many aspects of public policy in India. In the present context, there was an adverse impact upon public health, as a large part of the field of public health consists of local public goods.

The Bhore committee report shifted focus from public health to health care, and gave a leadership role to doctors in health policy. It was adopted by independent India and became the gospel for health system thinking in India. There is an interesting tension in Bhore Committee report, between its recognition of the need for public health as a distinct problem from health care:

 The health services may broadly be divided into (i) those which may collectively be termed public health activities and (ii) those which are concerned with the diagnosis and treatment of disease in general.

versus its emphasis on health care:

Preventive and curative health work must be dovetailed into each other if the maximum results are to be obtained and it seems desirable, therefore, that our scheme should provide for combining the two functions in the same doctor in the primary units. (Emphasis added).

This document was accepted into the thinking of the Planning Commission, and translated into schemes and outlays in the following decades. There was a large scale attempt at building a public sector health care system.

For many decades, this induced the main paradigm of Indian health policy: an emphasis on health care at the expense of public health, weaknesses in local government, a big role for the public sector in the production of health care, and domination of doctors in policy thinking.

This approach worked badly. By the early 1980s, some policy thinkers began questioning this framework. By the 1990s, a great deal of evidence and literature had accumulated, that criticised this approach. Weaknesses in public health were giving a high disease burden. Alongside this, the public sector health care system was not effective. An unregulated, private sector health care system sprang up, to respond to the requirements of the citizenry.

While the mainstream health policy establishment proposed intensification of effort within this paradigm, by spending more money on it, politicians became increasingly concerned that the paradigm was delivering poor results. On the ground, it was apparent that private sector health care was the dominant feature of Indian health care.

This led to the ideas of public funding for the purchase of private health care, implemented through health insurance companies. This approach was attractive as it appeared to more directly translate fiscal outlays into tangible benefits for citizens. This policy innovation, which began in Maharashtra in 1997, spread rapidly across the country. By early 2018, there were 48 Government Funded Health Insurance Schemes (GFHISs).

We argue that there are four areas of concern with this approach. The first problem is the lack of emphasis on public health. The most effective public policy interventions in health are the public goods of public health, which were introduced in the British period. It is an incorrect strategy to have a high disease burden in the first place, and then build a curative layer on top of it. It is better to clean the air than to produce health care services for sick residents.

The second concern is about the conduct of the largely unregulated private health care sector, which yields poor outcomes for citizens. This calls for establishment of a regulatory strategy for the health care industry.

The third concern is about the weaknesses of consumer protection and micro-prudential regulation of health insurance companies, which yields poor outcomes for citizens. This calls for reforms of the regulation of health insurance companies.

Finally, there are important fiscal risks in this journey. Once voters get used to entitlements, they are politically difficult to withdraw. Population-scale health care is expensive, particularly in the context of weaknesses in public health which are giving a high disease burden. This is analogous to the field of pensions, where decisions about pension reforms need to be made only after estimating the implicit pension debt over 75-year horizons. There is a need for greater fiscal analysis, and caution, in the construction of government programs in health which make promises to households about future health care expenditures.


The authors are researchers at the National Institute of Public Finance and Policy.

A Maximalist Approach to Data from the IBC

by Adam Feibelman and Renuka Sane.

Under the new Insolvency and Bankruptcy Code, the Insolvency and Bankruptcy Board of India (IBBI) has a statutory responsibility to collect, maintain, and disseminate data about the new insolvency and bankruptcy system. The Board has taken a number of preliminary steps to perform this responsibility. It has developed a user-friendly web site where it posts regulatory materials, orders issued by tribunals and courts, and directories of insolvency professionals and insolvency professional agencies. It has also begun reporting various aggregate and case-level data about the system in its quarterly newsletter. These efforts are an important start and reflect that the Board values data, but they represent only a portion of the relevant and useful data that is, or might be, generated by the system and that could be made available to the public.

In a recent paper, A Maximalist Approach to Data from India's New Insolvency and Bankruptcy System we propose that the Board, along with the Tribunals, that are adjudicating authorities under the Code, take a maximalist approach to data about the new insolvency and bankruptcy system. Gathering and disseminating data about the system may seem like a regulatory function of secondary importance. Yet the availability of comprehensive, reliable, and standardised data about the new system is essential for many purposes and very useful for many others. As others have noted, implementation and reform of the insolvency and bankruptcy is very much a work in progress. Without useful data, regulators and public observers cannot reasonably assess how the system is performing or determine what effect it may be having on its stakeholders and on the broader society. Such data can also provide a uniquely illuminating window into the economy, highlighting economic, financial, and social trends and potential micro and macro vulnerabilities.

Our paper emphasises the institutional responsibility the Board and the Tribunals have to gather and disseminate data about India's new insolvency and bankruptcy system. It also underscores the great opportunity these institutions have to provide a model for transparency about the functioning of the Indian legal system and to gather extremely useful information about the financial vulnerabilities of citizens, households, retail and commercial lenders, and the broader economy.

The American experience

To help frame some of the issues that the IBBI and the Tribunals will face in crafting policies about data collection and dissemination, our paper summarises the evolution of approaches that policymakers in the United States have taken with regard to bankruptcy data and describes some of the research utilising this data.

For most of the history of bankruptcy law in the U.S., bankruptcy petitions and supporting documents have been public documents; as of 2001, those documents and case docket information have been available electronically over the internet for a fee, with limited exceptions for personal information. For many decades, the Administrative Office of the U.S. Courts was charged with reporting very basic aggregate data about bankruptcy cases. Debates over bankruptcy policy and major reforms in 1978 revealed, however, that available information about the system was insufficient to shed meaningful light on key questions of policy and practice.

Over the last two decades of the Twentieth Century, scholars and other commentators who were engaged in empirical study of the U.S. bankruptcy system began drawing attention to the need for more and better bankruptcy data and statistics. In 2005, as part of the Bankruptcy Abuse Prevention and Consumer Protection Act, a major reform to the personal bankruptcy laws, the U.S. Congress significantly augmented the responsibilities of the Administrative Office of the U.S. Courts for gathering and reporting data about bankruptcy cases as well as the data collection function of bankruptcy trustees. The aggregate statistics collected and reported by the Administrative Office of the U.S. Courts now provide an essential baseline set of information about the broad scope and trends of the operation of the U.S. bankruptcy system.

However, researchers continue to have concerns about the reliability of this aggregate data. Furthermore, the aggregate statistics provide rough and imperfect information about the determinants of financial distress, details of the operation of the bankruptcy system, or the impact of that system on debtors, creditors, and other stakeholders. The most useful bankruptcy data still appear to be the case-level public documents, especially the petitions and supporting schedules that debtors themselves submit, and qualitative data derived from interviews, surveys, and questionnaires. Studies utilising such approaches have explored the determinants of household, and corporate financial distress, outcomes of corporate reorganisations, the role of hedge funds, and the function of bankruptcy for entrepreneurs.

Research involving these types of data is inevitably costly and time consuming, and it can be difficult to replicate and evaluate. The American experience thus illustrates the value of relevant and reliable aggregate data and the essential need for useful case level data, but it also reflects how efforts to gather such data and make it available raise complicated issues of policy and practicality.

Thinking about data collection in the IBC

Turning to the IBC, the paper suggests that the initial challenge in this regard is identifying precisely what types of information about the new system would be useful for policymakers, stakeholders, and researchers, who should be collecting the data, the need for assuring reliability and uniformity of the data that is collected, and finally access to the data.

What data to collect?

We distinguish between three kinds of useful data about the IBC:

• Basic procedural data about cases brought under the Code provides an essential core of information about how the system operates. This data certainly includes the number of applications filed under each chapter of the Code in each jurisdiction, as well as more specific information about procedural events through the life-cycle of the case.
• Data about the primary stakeholders in the system
  includes information on the type of debtors in the system, the nature of their debts and assets, and the characteristics of their various creditors. It also includes information about which parties initiate cases under the Code.
• Data about the institutions and repeat professional actors within the system. Chief among these are the tribunals and their judicial officers, as well as the functioning of other pillars of the institutional machinery such as the insolvency professionals, the information utilities, and the Board itself.

Who should collect the data?

The Tribunals are well-positioned to gather and disseminate comprehensive aggregate statistics or case-level data about the cases they handle. Yet they have not traditionally performed that role. The Board can also gather and disseminate aggregate or case level information without cooperation from the tribunals, but it must rely on information provided to it by insolvency professionals and insolvency professional agencies. This may be a more cumbersome process in general, but the Board is likely in a better position to gather data about many aspects of cases that are conducted or managed by the insolvency professionals. Given that they likely have overlapping and complimentary capacities for gathering and disseminating data, it would be ideal for the Tribunals and the Board to cooperate or coordinate their efforts to make data timely, accurate, uniform, and easily accessible and usable.

Functionality of the data

The data gathered by the Board and the Tribunals needs to be reliable and consistent. This requires, among other things, systems for recording and retrieving information about procedural aspects of cases filed under the Code, forms designed to facilitate the extraction of data, and careful definition of terms employed in court documents and proceedings. The Board and the Ministry of Corporate Affairs have promulgated some model forms for use within the system. It is not currently clear how well these forms are generating useful data. It may also be the case that other forms are necessary to capture and generate important data from the system.

Access to the data

Policymakers must decide the scope of access it allows to such data. The most liberal approach would be to make data publicly available on an electronic database similar to the PACER system in the United States. Any policy in this regard must balance concerns about privacy with the benefits of widely available data about India's new insolvency and bankruptcy system.

Conclusion

In conclusion, we propose that the Board conduct or allow a study of cases brought under the Code to assess, among other things, what information the new system generates or might generate; how its model forms are utilised and the quality and uniformity of the data they reflect; whether other areas of practice warrant similar model forms; and how the data generated by the system can be most fruitfully assembled and disseminated.

 

Adam Feibelman is Sumter Davis Marks Professor at Tulane Law School. Renuka Sane is an Associate Professor at the National Institute of Public Finance and Policy.

Pick your poison: Money bill privilege or government shutdown?

by Pratik Datta and Radhika Pandey.

On January 2, 2019, the government introduced a bill in the Lok Sabha to amend the Aadhaar Act, 2016. Once again, the opposition is up in arms. Once again, there are apprehensions that this amendment bill will be certified as a money bill to avoid the opposition parties in the Rajya Sabha. In a parallel development, Jairam Ramesh filed a review petition against the Puttaswamy decision last week. The majority of the judges in that case had upheld the enactment of the Aadhaar Act, 2016, as a money bill. They refused to let judicial review be used as an institutional check to prevent abuse of money bills by Lok Sabha. The lone dissent was by Justice Chandrachud, who referred to such abuse as a `fraud on the constitution'. Ramesh's review petition now seeks to reopen this issue.

In this backdrop, this post revisits the basics to better appreciate the rationale for the Lower House's money bill privilege. In doing so, we highlight two extreme constitutional designs to overcome a common problem - how to decide on the funding for government agencies?

The problem

All government agencies need funds to function. These funds need to be appropriated from the state's finances every year. In liberal democracies, this funding decision cannot be left to unelected executives. Instead, the citizens through their elected representatives should have a say in this - should funds be released to the government? If so, how much? Consequently, the legal mechanism for such annual appropriation requires the citizens' elected representatives in the legislature to pass an appropriation bill into a law. In India, money bills perform this critical function (see Article 110(1)(d)).

In a bicameral legislature, an ordinary bill becomes a law usually after it is approved by the Lower House, the Upper House and the President. If the bill fails to receive approval from any one of them, it does not become a law. In that event, the prior law continues. Life moves on. Not so for an appropriation bill (or money bill in India). Failure to enact such a law would result in a funding crunch, potentially causing a government shutdown.

Solutions

There are broadly two different ways of resolving this problem.

The simpler solution is to leave it to negotiation among politicians in the Lower House and the Upper House, and the President. This option is costly because of coordination and hold-up costs. And till the negotiated solution is reached, the government remains shutdown, wasting huge public resources.

An alternative solution is to reduce the number of approvals needed to enact an appropriation bill into a law. The Lower House, being directly elected, could be empowered to enact an appropriation bill into law without any approval from the Upper House and the President. However, there is a flip side to this arrangement. The Lower House could abuse this privilege by camouflaging ordinary bills as appropriation bills to avoid opposition from Upper House and the President. Consequently, this arrangement may resolve the government shutdown problem at the cost of diluting the sanctity of the bicameral legislature itself.

Interestingly, the efficacy of these two different solutions are currently being tested in one of the world's oldest democracies - the USA - and the world's largest democracy - India.

USA

The American federal government has been partially shutdown since December 22, 2018. This is the 3rd shutdown of the US federal government in 2018 and the 21st in American history. However, this is the first shutdown of any significant length since 2013, when the government was shut for 16 days. Such government shutdowns arise out of failure to enact appropriation laws.

Under the American constitution, the House of Representatives (Lower House) alone can introduce an appropriation bill. The Senate (Upper House) cannot do this. An appropriation bill passed by both the Lower House and the Upper House must also be approved by the President to become an appropriation law. A direct consequence of this constitutional design is that either the Upper House or the President could block an appropriation bill, starving the federal government of funds. Further, the Anti-deficiency Act prohibits American executive branch agents from authorising expenditures or obligations in excess of the amount appropriated by Congress. Consequently, failure to pass an appropriation law results in government shutdown in the USA.

The ongoing shutdown started when President Trump refused to approve the appropriation bill for the budget for the current fiscal year that began on October 1, 2018. The President refused to approve the bill since it did not provide necessary funds for building the wall on the US-Mexico border. There are now two options to break this deadlock. Either, the proponents of the budget could negotiate with the President to get his approval on the appropriation bill. Or, the bill could be enacted even without President's approval, if a super-majority (ie. two-third) in each House approves the bill.

Both these routes require hard bargaining and trade-offs by Congressmen across party lines. The reason America accepted this cumbersome constitutional design is possibly best captured in Alexander Hamilton's following observation: "[t]he injury that may possibly be done by defeating a few good laws will be amply compensated by the advantage of preventing a few bad ones".

India

India seems to have adopted the exact opposite position. Our constitution, as interpreted by the Supreme Court, favours having a few good laws at the cost of suffering a few bad ones. After the Puttaswamy judgment, the Indian Lower House could potentially enact any bill, appropriation bill or not, into law using the money bill route. In the process, it can completely bypass any opposition from Upper House or the President. Even judicial review is not permitted. Consequently, there is currently no institutional check on potential abuse of money bills by the Lok Sabha. If left unchecked, such abuse may very well end up being the death knell of our bicameral model of legislature. However, from the perspective of resolving government shutdowns, the Indian system is undoubtedly efficient. India never experiences government shutdowns for failure to enact appropriation laws like in USA.

Conclusion

Is this trade-off worth it? The Indian Supreme Court may soon find itself asking this question. Jairam Ramesh's review petition offers the Supreme Court yet another opportunity to revisit this critical constitutional issue.

 

Pratik Datta and Radhika Pandey are Researchers at the National Institute of Public Finance and Policy.

State capacity in regulation in India, 2018

29 January: Analysing the National Medical Commission Bill: Composition, Malhotra, Roy.

17 July: Building State capacity for regulation in India, Roy, Shah, Srikrishna, Sundaresan.

18 September: DEA released a draft payments law, which features significant regulatory process improvements.

30 September: MCA established a committee to review the Competition Act.

10 October: Cabinet approved the establishment of NCVET and the associated legal instrument.

22 October: IBBI released a regulation on the regulation-making process. Press release.

and there was a great debate about privacy and the new proposed privacy regulator -- the DPA -- with the Srikrishna report, their draft bill, our response to their call for comments, and Suyash Rai's article on this.