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Wednesday, October 14, 2020

Judicial triage in the lockdown: evidence from India's largest commercial tribunal

by Anjali Sharma and Bhargavi Zaveri.

Introduction

An important idea in medical science is triage. It refers to the process of sorting patients for treatment, depending on the severity of their conditon and the likelihood of recovery. The medical triage process is governed by standard operating procedures (SOPs), which allow limited discretion to doctors and surgeons on the prioritisation of patients for treatment. Courts in India also perform a triage function, and they do this every day. They decide which cases will be scheduled for hearing on any given day and which will be heard on later dates. In a world of infinite court capacity, triage would not matter as much because all cases would come up for hearing in a short period of time. However, in the context of limited court capacity, triage becomes a critical element of the adjudication function. Unlike in the medical profession, in the judicial function, there are no settled rules or SOPs on how courts must triage. Given this, the decisions of courts on prioritising and de-prioritising matters are often the subject of intense scrutiny.

In ordinary times, case-scheduling is within the discretion of the judge and the court registry. While some judges pre-announce the manner in which they will prioritise matters for hearing, others do not. The practice of scheduling is often interrupted by matters that are 'urgent'. Urgent matters are taken up out of turn if the judge is convinced that there will be irreparable harm if the matter were not heard urgently. This makes triaging complex and discretionary enough in normal times.

Triaging becomes more complex in exceptional circumstances when courts are functioning at lesser than their usual capacity, such as, in the ongoing pandemic. Triaging in such exceptional circumstances is different from triaging in normal times. First, the nature of the "exceptional circumstance" might inherently offer some prioritisation. For example, during a pandemic, cases involving questions of public health would, at least intuitively, be more important than cases involving criminal defamation or suits for declaration of title to land. Second, unlike in routine triaging where courts prioritise matters, in exceptional circumstances, triaging is about de-prioritising matters. This makes the triaging decision more complex.

One such exceptional circumstance in the recent period was the announcement of the nationwide lockdown on 24th March. At the start of the lockdown, most Indian courts and tribunals restricted themselves to hearing only "urgent cases" through video conferencing (example, example and example). It is hard to pre-define the categories of cases that courts should consider urgent or non-urgent. Yet, there can be a common principal based framework for making this decision that can be applied depending on the kinds of cases that the court adjudicates. For example, in April 2020, when the courts in UK were functioning with limited capacity, the administrative body responsible for supporting the courts published guidance on Priority 1 cases and Priority 2 cases that the courts will hear. In the absence of such a framework in India, judicial triage in India during the pandemic continues to be done by the judges, the court registry or a combination of the two.

In this article, we ask the question: how did Indian courts perform this triage during the lockdown period? There is anecdotal evidence of inconsistency in practice across courts in determining the urgency of serious matters such as bail. Such evidence is valuable. However, data on patterns and the kind of cases that were heard by a court during the pandemic can shed light on how the courts actually perform this 'triage'. Such data-backed discourse on the prioritisation of cases at courts during the lockdown and otherwise, is currently missing.

We focus our question on the National Company Law Tribunal (NCLT), which is the largest commercial tribunal in India in terms of the number of laws it adjudicates. It adjudicates cases under the Companies Act, the Insolvency and Bankruptcy Code and the Limited Liability Partnership Act. It adjudicates a range of firm-related matters such as shareholder disputes, approvals for corporate actions and mergers and acquistions, proceedings against directors and companies and bankruptcy cases. In a previous article, we demonstrated the impact of the lockdown on the functioning of the NCLT. Using daily cause-lists as a source of our data, we found that there was a 95% drop in the number of cases heard by the NCLT during the lockdown period. With the NCLT functioning at such a low capacity, the question of prioritisation of cases at the NCLT is more critical as most of the cases were not likely to be heard during this period.

Data and methods

In order to study the prioritisation of cases at the NCLT and their treatment during the lockdown, we drew upon the daily cause-lists published by the NCLT. This data-set is described here.

Our study period spans three months. To identify whether there were any shifts in the composition of cases scheduled for hearing during the lockdown, we divide the study period into three phases: pre-lockdown, lockdown and unlock (Table 1). The pre-lockdown phase allows us to observe the regular functioning of the NCLT. The lockdown and the unlock phases allow us to observe court functioning in the post-Covid world.

Table 1: Study period

Phase Dates Days of data

Pre-lockdown 1st February to 24th March 34
Lockdown 25th March to 31st May 31
Unlock 1st June to 30th June 22

For our analysis, we classify the matters heard by the NCLT into three categories: matters under the Insolvency and Bankruptcy Code, 2016 ("IBC matters"), matters dealing with schemes of compromise and arrangements between shareholders or creditors and companies ("CA Schemes") under the Companies Act, 2013 and other matters under the Companies Act or the Limited Liability Partnership Act, 2008 ("other matters").

For our analysis period, from the NCLT website, we get data for 22 bench-court combinations. We use 18 of these, namely 6 courtrooms of the NCLT bench in New Delhi (including the Principal Bench), 5 courtrooms of the NCLT bench in Mumbai, 2 courtrooms for the bench in Kolkata, and one each for the benches in Bengaluru, Chandigarh, Cuttack, Guwahati and Jaipur. We exclude 4 bench-court combinations, 2 for Chennai, and one each for Allahabad and Kochi due to sparse causelist availability. Ahmedabad bench is excluded as no data is available.

Prioritization of scheme-related hearings

Table 2 shows the composition of the cases heard by the NCLT across the three phases of our study. Our analysis of the scheduling of cases in the pre-lockdown period shows that the pattern of hearing was being driven by the proportion of matters that were before the court. Since two thirds of the matters before the court were IBC related, the scheduling of hearings also reflected this pattern. Similarly, non-scheme Companies Act matters were getting heard in proportion to such matters being there before the NCLT.

However, we found that during the lockdown there was a sharp decline in the number of IBC cases scheduled for hearing. The share of IBC cases dropped from 68% in the pre-lockdown phase to 11% during lockdown. Even within the Companies Act cases, we found a sharp shift in the mix of prioritisation. In the pre-lockdown phase, the greater focus (22%) was on the Other matters. These comprise of matters such as shareholder disputes, matters involving the approval of corporate actions (such as the reduction of capital), proceedings against directors or the management and the dissolution of companies by striking them off the companies' register of the Registrar of Companies and so on. During the lockdown, CA Scheme-related matters were prioritised, not just above IBC matters but also above Other Companies Act matters. After the lockdown was lifted with effect from 1st June, the prioritisation pattern changed again and we found a near equal distribution of cases heard by the NCLT across these three broad categories.

Table 2: Composition of hearings in the causelist

Share of hearings (in %)

IBC CA Scheme Other matters Total

Pre lock-down 67.8 7.1 21.7 96.6
Lockdown 11.3 57.6 29.7 98.7
Unlock 34.2 32.7 31.1 98.0

The prioritisation of Scheme related matters during the lockdown period was done explicitly through the constitution of special benches in Mumbai and New Delhi for hearing scheme-related matters. This choice could have been driven by the fact that CA schemes are in respect of material corporate actions and are often undisputed. This would make them conducive for quick disposal. However, this does not necessarily mean that they were more urgent than the other two categories of matters. The only other category of matters that were prioritised were cases under Section 252 of the Companies Act. Section 252 of the Companies Act deals with appeals by a company against an order of dissolution passed against it by the Registrar of Companies.

The rationale underyling the prioritisation of cases heard during the lockdown period remains a puzzle. The pandemic and the nearly 10 week nationwide lockdown reportedly increased the financial distress in the economy. On 24th March, the Finance Minister announced the government's proposal to suspend the IBC if the situation did not improve by 3rd April. The IBC is widely perceived as the quickest tool for credit recovery in India. Given this perception, the announcement of a possible suspension of the IBC in March is likely to have accelerated the number of new cases under the IBC after 24th March, 2020.

Finally, on 5th June, 2020, the Central Government promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 ("IBC Suspension Ordinance"), which suspended the operation of the IBC in respect of COVID-related defaults. Simply put, debt defaults committed between 25th March and 24th September could not be used to trigger the IBC. This means that the number of hearings dedicated to the IBC ought to have dropped in the second or third week of June. Our analysis, however, shows that the share of IBC cases heard by the NCLT after 5th June reverted to nearly half its pre-lockdown share.

Old versus new cases

To understand the question of priortisation of cases better, we analyse the purpose for which IBC matters and CA Schemes were scheduled for hearing during the lockdown period.

Fig.1 is a two dimensional matrix graph that shows: (1) the categories of matters that were scheduled for hearing on the y-axis, and (2) the purpose for which matters were scheduled on the x-axis. On each graph, the red line indicates the start of the lockdown and the green line indicates the end of the lockdown. The number on the top of each graph indicate the average number of hearings that took place in each of the periods viz pre-lockdown, lockdown and unlock.

The graph shows us that in the pre-lockdown period, maximum new admissions were happening under IBC, followed by CA-Other matters. During the lockdown period, new admissions came to a near standstill across all categories of matters. However, in respect of old matters being scheduled for hearing, the prioritisation changed. IBC matters' hearings fell from a daily average of 265 in the pre-lockdown period to 2 during the lockdown. Other Companies Act matters fell from 94 to 16. However, Scheme related hearings continued at be scheduled at close their pre-lockdown levels. In the unlock phase, some new admissions started under IBC as well as Companies Act. There was also some improvement in the number of hearings scheduled for pre-existing IBC cases. However, the prioritisation of Companies Act matters over IBC, a pattern very different from the pre-lockdown phase, continued.

Puzzles on de-prioritisation of IBC cases

Our finding that the NCLT had nearly stopped scheduling new IBC matters and reduced the number of substantial hearings for pre-existing IBC matters during the lockdown, is worth analysing in the context of the executive actions in respect of the IBC. On 24th March, 2020, the Finance Minister had announced the government's intention to suspend the IBC. However, the precise contours of this suspension were not clear. One would imagine that the threat of a suspension in the near future would incentivise many categories of creditors to file their IBC cases before the suspension. However, the NCLT data shows that this was not the case.

Our analysis suggests that the IBC Suspension Ordinance might have had a pre-mature effect on the composition of cases heard at the NCLT during the lockdown. While the ordinance was promulgated only on 5th June, there is a sharp drop in the IBC cases heard by the NCLT from 24th March onwards, the date on which the potential suspension of the IBC was first announced by the Finance Ministry. It is possible that the announcement might have altered the behaviour of litigants who stopped pursuing IBC existing proceedings or filing new IBC cases due to the uncertainty caused by the announcement. The de-prioritisation of IBC cases during the lockdown period is suggestive of the extent to which the announcement of a possible suspension of the law affected the triage function in case scheduling.

Conclusion

Our analysis shows that the NCLT used its scarce capacity during the lockdown to dispose of existing, even if less contentious, cases such as the CA schemes. Further, the analysis on new v. old cases indicates that most of the schemes heard during the lockdown were the existing schemes. This is inconsistent with a common understanding of what might constitute an "urgent case". There might have been urgent matters under the IBC. For instance, matters where the resolution plan had been finalised and was awaiting the approval of the NCLT. In such matters, given the possible global impact of the pandemic, it was likely that the resolution plans already finalised might get withdrawn warranting an urgent hearing for the NCLT's approval of the resolution plan.

While our finding is specific to the NCLT, it underscores the need for courts to lay down a principle based approach to triaging in exceptional circumstances when the tribunal is functioning with limited capacity. This framework will need to address two issues: (1) what is an "exceptional circumstance", and (2) what is an "urgent matter" in an exceptional circumstance. This framework can emerge in two possible ways. It could emerge through case-law that acts as precedent or has persuasive value. This is a slow and evolving approach. The other approach is to allow judges to pre-define this framework and publish it. Such a framework will further the cause of the rule of law, transparency and the delivery of justice when courts function with limited capacity during the pandemic.

Central to the triaging problem is also the idea of case management and court administration in normal times. Currently, there is no common framework that informs the average litigant on the manner in which a date will be assigned to her case. Much depends on the court and within the court, the judge to whom the matter is assigned for hearing, the nature of the case, the urgency of the interim relief sought, the existing backlog and the court registry. Exceptional circumstances simply exacerbate the complexity of the judicial triage for courts as resources are even more limited than in ordinary circumstances, but the problem nevertheless exists on a daily basis. In a system constrained by resources, the order of priority assigned to a case has substantive repurcussions for all the stakeholders involved in a case. In the absence of certainty on triaging, the system is vulnerable to abuse. It compels a litigant to rely on the registry, the judge and the lawyer. Resultantly, the system is naturally titled towards litigants who can afford competent lawyers.

Finally, it is common for private organisations that handle work of the scale handled by courts to implement a medium to long term plan outlining the phases in which they will resume full scale functioning. In several jurisdictions, courts have published their medium term strategy to restore full-scale operations (example; example). Given the uncertainty on the time horizons of the pandemic, Indian courts must endeavour to publish their strategy and plan for functioning at full-scale. This is essential for justice delivery and the public confidence in the judiciary's ability and willingness to get back on its feet.


The authors are researchers with the Finance Research Group. They would like to thank Ajay Shah for useful discussions, an anonymous referee for inputs on this article and Rahul Somani for developing the code for constructing the data-set.

Sunday, September 27, 2020

The market for Covid-19 vaccines and the tipping point to herd immunity

by Ajay Shah.

Many firms are developing Covid-19 vaccines. Enormous resources have to be deployed, up front, to develop a vaccine and to build manufacturing capacity. It is likely that many vaccines will get through to approval in mature regulatory regimes. Not all vaccines will work identically for all situations, e.g. some vaccines may work better for an elderly person than others.

It is commonly assumed that the global market size for a Covid-19 vaccine is about 6 billion people. In this article, we argue that this might not be the case. Let's think about the situation in the market once one or more vaccine reaches the market.

The buyers perspective before vaccine sales have commenced

The private gain for an individual from buying a vaccine are shaped by the probability of getting sick when leading an unconstrained life. This is shaped by the extent to which Covid-19 has burned through the communities that the person plans to engage with. As an example, in the slums of Bombay or Delhi, herd immunity has set in. A person living there knows that few people in her circles are now getting sick, and she feels relatively safe. Well known factors such as age and co-morbidities will also shape the threat perception of each person. Therefore, for her, the gains from a vaccine are relatively modest, and the willingness to pay is small.

In each city of the world, there is a different numerical value for the attack rate (the fraction of people who are infectious) and the extent of immunity. The state of the epidemic in Pune is different from that in Bombay. As time passes, each city is inching towards herd immunity, and the passage of time thus diminishes interest in paying for a vaccine. Vaccine IP and manufacturing facilities are wasting assets.

It it were possible to develop a combination of tests that add up to an `immunity passport', then the price of this test and the odds of coming out positive would shape the demand function for the vaccine.

Progress on immunisation and herd immunity

Into this world, let us imagine that the sale of multiple vaccines commences. At first, there would be a rush of demand and high prices. As immunisation progresses, the attack rate would go down and the gains from buying the vaccine would further go down. In places like Bombay and Delhi, where a considerable proportion of the population has already been exposed to the disease, when a modest fraction of the population is vaccinated, this could tip the population over into herd immunity, and the disease could die down.

In such a world, vaccine makers face the prospect of a short hot market. At first, vaccine demand will be high and the factories will not be able to keep pace. Competition will come about and that will exert pressure on prices. In a city like Bombay, with about 20 million people, after (say) 5 million persons buy the vaccine, this may significantly change the threat perception in the eyes of the average individual. Vaccine demand would then decline.

Under such numerical values, the market potential in Bombay is not roughly \$50 $\times$ 20 million people or \$1 billion, but perhaps more like \$25 $\times$ 5 million people or about \$125 million.

All of this reduced revenue potential will go to the first few firms that get 5 million doses into the Bombay market. Competition would exert downward pressure on the price, demand would tail off as herd immunity sets in, and there would be a price crash. The late comers would flood the market with output but would obtain low revenues in return.

The vaccine demand collapse in a simple model and in the real world

We have always known that a vaccine is not just a private good; there is a positive externality. The novel idea of this article is about tipping points.

Consider a simple model in which herd immunity is achieved at 60%. Suppose 50% of the population is already immune and knows it. The first 10% that gets the vaccine tip the system over to $R_0<1$ and then the fires start dying out. Once the fires start dying out, the attack rate goes down, the threat perception changes, and the incentive for private people to buy the vaccine drops a lot. Under these conditions, the positive externality imposed by vaccine purchase by the early vaccine buyers, upon the overall system, is particularly large.

A key factor that drives behaviour in this model is that when a person is immune, she knows it and then has no incentive to buy a vaccine. In the real world, people don't know whether they are immune, and would be more inclined to buy a vaccine just to be safe. In the limit, the veil of ignorance is complete, nobody is able to assess the threat, and everyone wants to buy a vaccine.

In the real world, the veil of ignorance is not complete. At every place, people do have a personal judgement about the threat level based on the extent to which their friends and family are getting sick (or not) per month. Age and co-morbidities will also shape vaccine demand. As a general principle, it is always wise to think that humans are sentient optimising creatures. Individuals have a noisy estimator of the threat that they face and this will shape their willingness to pay for a vaccine.

Wall street tells Main street what to do

These problems feed into the thought process of private firms and shape the commitments of capital to the problems of vaccine development and manufacturing when faced with a novel epidemic. 

Numerous vaccines are under development. The process of vaccine approval is necessarily slow. At present, we generally think that over time, one by one, many of these vaccines will get through to the market. By the reasoning of this article, the first few will get through, within a few months the market will collapse, and all funding will be yanked for other projects. This will be a bit reminiscent of how funding for vaccines against Sars-Cov-1 was abruptly yanked when the funders realised that Sars-Cov-1 had reached $R_0<1$.

The numerical values used here (e.g. 60% for herd immunity, 5 million immunised in Bombay to tip over into herd immunity, $50, etc.) are of course purely illustrative. To translate these ideas into practical calculations requires data on the extent to which immunity has come about. In many places worldwide, there are good estimates of the persons who have antibodies, but there is more to immunity than measured antibodies. In India, the information available about the state of the disease in (say) Bombay is rather poor.

If we take this dynamics of the vaccine market seriously, vaccine makers have an incentive to create such datasets. Alongside the construction of such datasets, there is a need for derivatives trading on underlyings such as the fraction of Bombay residents who have antibodies.

The argument of this article is a special case of the long-standing problems of incentives for vaccine development. An effective pathway for state intervention, and philanthropic capital, lies in offering contracts for R&D and manufacturing which change the incentives of private persons to engage in these activities.

Implications

To the extent that this reasoning is correct, individuals will at first face a vaccine market with high prices and shortages. For many individuals, particularly for low-risk persons, there is a tradeoff between paying more to get the vaccine early versus paying less to get it late or even to not get vaccinated if the pandemic has subsided.

For firms with a vaccine under development, this article paints a winner-takes-all scenario, where the first few vendors who get output on scale will capture all the revenue. To the extent that this reasoning is correct, plodding along to the finish line late will induce low revenues.

For policy makers and philanthropic capital, it is important to avoid a `coronavirus winter', a collapse in coronavirus research of the kind which happened after the SARS epidemic achieved $R_0<1$. There is enormous knowledge, and capable teams, which has been created by the early gold rush of building vaccines against SARS-Cov-2. This knowledge should not be lost. As an example, it would be nice if research groups will publish research papers and release code before they put out the lights. We need to think of the sustainable frameworks, where we achieve a new normal of high R&D into pathogens that can trigger pandemics.

Tuesday, September 22, 2020

Improving internet connectivity during the COVID-19 pandemic

by Vrinda Bhandari.

Introduction

The Covid-19 pandemic has forced all of us to live, work, learn, and communicate online. This has led to an increase in the demand for reliable, efficient, and speedy internet access during the pandemic. However, those who are already disadvantaged are suffering greater digital exclusion during this time, in the form of inadequate internet connectivity. Thus, countries, especially developing countries have been presented with an opportunity to deploy different regulatory and policy tools to improve internet access and provide meaningful internet connectivity to their citizens.

In my recently published paper for the Digital Pathways at Oxford Paper Series, I try and understand how Covid-19 has served as a catalyst for positive regulation in improving internet connectivity through the discussion of initiatives taken by four governments - Panama, South Africa, Kenya, and the State of Kerala (in India). Specifically, I ask two questions:

  • What regulatory and policy steps were taken by governments and regulators to meet the increased demand for access to the internet during the Covid-19 pandemic?
  • What changes in regulation are necessary to nudge mobile network operators (MNOs) to work with governments to ensure continued and affordable access to the internet?

The paper examines the different approaches that have met with some success in the four countries and provides various policy options for governments to maintain and improve internet connectivity during the pandemic. In this blog post, I will be summarising the various policy options that are available to governments.

Temporary allocation of spectrum by regulators

Low spectrum allocation adversely impacts network infrastructure and performance; reduces the reliability and quality of mobile broadband services; and can affect the future deployment of mobile broadband technologies. Thus, one option available with governments to maintain efficient and reliable internet connectivity during a crisis is to temporarily allocate unassigned spectrum to MNOs in a fair and non-discriminatory manner. Through the four cases discussed, the paper found that spectrum allocation is a viable option during an emergency only in cases where the total (permanent) allocation of spectrum to MNOs has been inefficient. Thus, while this option was expressly considered/offered by all four countries, there was uptake only in Panama and South Africa. Despite the opportunity cost to allocating spectrum free of charge (in terms of foregone revenue from auction proceeds), both these countries pursued this method in view of the insufficient existing spectrum allocation and by attaching certain conditions to the allocation of spectrum.

The regulators in Panama and South Africa temporarily allocated spectrum to MNOs through the passage of emergency resolutions and regulations, which set out:

  • The frequency of spectrum that was open for temporary allocation;
  • The duration of the temporary allocation;
  • The application procedure and the requirements that needed to be met by applicants, such as demonstrating network performance (as in South Africa);
  • Whether the temporary allocation was free of charge or not - in both Panama and South Africa the allocation was free of charge; and
  • The conditions or expectations that were tied to the allocation of spectrum, in the form of reduced data costs or network expansion that could benefit the users.

While allocating spectrum during an emergency, countries should take care to ensure that such spectrum allocation does not become permanent; affect the long-tem spectrum allocation plan of the regulator; and does not reduce the overall competitiveness of the sector, by entrenching the dominance of a few players. The paper also briefly discusses alternative innovative approaches to spectrum management that could have been employed by the regulators.

Temporary freeze on internet and mobile payments

The COVID-19 pandemic has forced people to stay at home. This has meant that people are even more reliant on the internet to work from home, to study, to have any medical consultation, to stay in touch with friends and family, or to consume online entertainment. At the same time, the impact of the pandemic has been the hardest on the marginalised sections of society, who may find it difficult to keep up payments on their internet or mobile bills.

In such a situation, another policy option that can be considered by governments is to put in a place a temporary freeze on internet and mobile payments for a certain period of time, as was done in Panama. Drawing from the Panamanian example, any government considering such a temporary freeze can use a legal instrument that clearly defines:

  • The duration of the temporary freeze on payments, i.e. the time period for which payment of any internet or mobile bill can be suspended and deferred;
  • The criteria for intended beneficiaries, depending on whether the benefit is expected to be universally applied or restricted to a smaller identified class (as in Panama);
  • The method of repayment, specifying the time period over which the pending bills have to be paid, the number of instalments, and whether the repayment is interest free;
  • Whether there is any impact on the credit history of an individual if they avail of this measure - In Panama, the government clarified that there would be no impact on credit history or the quality of services offered by MNOs.

Having a clear narrowly tailored legal instrument that lays down the obligations of the MNOs, avoids a situation as in India, where the industry body, the Cellular Operators Association of India and the regulator, TRAI were at loggerheads about the nature of the obligation placed on MNOs. TRAI had wanted the MNOs to ensure continued service to all prepaid SIM card owners during the period of the lockdown, whereas the MNOs wanted to restrict it only to the "underprivileged and needy customers", so as to avoid an unjustified subsidy for a larger customer basis.

Prohibition on price increase

Similar to the temporary freeze on internet payments, where MNOs are required to continue service for a limited duration, even in cases of non-payment by users (albeit with an obligation to pay back), this regulatory measure prohibits a price increase in the data plans during the period of the emergency/pandemic. Such a measure was put in place in South Africa through the Electronic Communications, Postal, and Broadcasting (ECPB)Directions in March, although the ECPB Directions were amended in May 2020 to remove such restrictions.

Implementation of tax measures

In order to encourage MNOs to pass on certain benefits to consumers, in the form of reduced data costs, governments can implement various tax measures, such as reducing Value Added Tax, as in Kenya, where the VAT was reduced across the board from 16% to 14% with effect from 01 April 2020. In Panama, the government introduced a "Solidarity Plan" or "Plan Solidario" as a temporary support program to mitigate the economic impact of COVID-19. As part of this Plan, the government offered MNOs income tax deduction on any contributions in cash or kind or any other services towards the government's crisis efforts. Partially in response to this, all the MNOs in Panama came together to announce a "Solidarity Mobile Plan", which was a free basic package for accessing the internet.

Support to telecom infrastructure service providers

Another option available with governments, while not directly regulatory in nature, involves coordination and cooperation with the telecom infrastructure service providers to ensure uninterrupted internet service during a lockdown. This is because practical problems such as inadequate/interrupted power supply, or the necessary municipal officials not being available may affect the service providers.

The State of Kerala in India was unique amongst the cases discussed in the paper in that the Kerala State IT Department worked with the Kerala State Electricity Board in identifying the mobile towers that were exclusively reliant on Diesel Generator (DG) sets, and monitoring the regular supply of diesel to these towers during the national lockdown. This was done to prevent major power outages that could disrupt cell service. In South Africa, to support the legal obligation for continued service by ISPs and MNOs, the telecom infrastructure providers were given regulatory support, in the form of prioritised infrastructure approvals, postponement on license fee renewals, and temporary deferment of wayleaves.

Utilisation of the un-utilised money in the Universal Access Fund

Countries such as Kenya and India have a form of a universal access fund, which comprises of mandatory contributions by MNOs. For instance, in India, a universal access levy is statutorily levied on MNOs to contribute towards the "Universal Service Obligation Fund", which is aimed at ensuring widespread, non-discriminatory, and universal access to ICT services in India. A large amount of money is lying un-utilised in the funds in both these countries (estimated to be INR 51,500 crore in India) and this money can potentially be re-directed by the government towards specific connectivity measures during an emergency, such as reducing data costs or improving network resilience. Alternatively, as in Colombia, governments can temporarily suspend the payment obligations into these universal access funds for MNOs, so that the savings can be passed on to the users.

Provision of zero-rated access to specific websites

In some countries, such as in South Africa, data costs are fairly high, leading to real concerns about affordability and accessibility to the internet during a pandemic. In such a situation, providing zero-rated access, i.e. free access, to certain important health and education websites, may help keep citizens up to date about the latest medical information and research about the virus; as also help students access online educational resources. Consequently, the South African government passed a law requiring MNOs to provide zero-rated access to certain government and local educational websites. Currently, over 1000 health and education websites are offering zero-rated (i.e. free) access to their content.

However, it is worth bearing in mind that zero-rating is a complex issue, especially as the debate in India demonstrates. Hence, any government adopting such a policy should consider the following factors:

  • Zero-rating is often technically complex to implement, since ISPs may not have the technical architecture to distinguish amongst the websites visited by a particular user; and hence, will be unable to determine whether the user is accessing a COVID-19 zero-rated website or a regular website;
  • A zero-rating pandemic policy may limit the zero-rated websites to health and educational websites. However, as a matter of practice, with many websites, notably YouTube, it is difficult to distinguish between the educational and entertainment value of the website;
  • Any requirement, as imposed in South Africa, that the zero-rated website must be a "local" educational content website, may run into the problem that even "local" websites host third party non-local content in the form of embedded videos and text or store the content on a foreign cloud server. Theoretically, access to these websites will not be "local", and hence, they will fall outside the intended benefit of the government's zero-rating policy;
  • Finally, and perhaps most importantly, zero-rating inherently involves privileging certain websites and content over the other, whether the decision is being taken by the government or MNOs or both. In the long run, this can threaten and potentially undermine net neutrality.

Regular monitoring of network capacity

Maintaining reliable and uninterrupted access to the internet also involves ensuring that the back end of the entire telecom infrastructure service system works. Thus, governments can coordinate with MNOs to regularly monitor network performance to assess whether there is sufficient network capacity to meet the increased demand for internet access during a pandemic. Collecting the requisite data will help the government form empirically sound policy. For instance, in Kerala, much before the national lockdown was announced, the State IT Secretary held a meeting with the Telecommunication Department and and all the MNOs in the Kerala Circle to understand internet consumption pattern, bandwidth utilisation, and network capacity in the state. The MNOs had agreed to increase network capacity by 30-40% if required. However, as it turned out, based on the periodic reports that were submitted by MNOs, the government and the MNOs realised that there was no need to increase server capacity or allocate additional spectrum. Similarly, in April, the Kerala State IT Department issued a government order approving the upgradation of networks from 3G to 4G by MNOs in specific tower locations, which had otherwise been delayed.

Conclusion

By examining the regulatory response in Panama, South Africa, Kenya, and India (specifically Kerala), the paper presents various policy options that can be used by a government to improve maintain and improve internet connectivity during a pandemic. Although the paper is situated within the COVID-19 pandemic response, the policy options can be used in any emergency situation that creates additional stress on the existing digital divide and infrastructure. It is worth noting that the paper only focuses on temporary regulatory measures that are intended to maintain and improve internet connectivity during the period of an emergency, although these may have medium to long-term benefits as well.

However, any regulatory measure undertaken by a government to improve internet connectivity during an emergency should be capable of having a tangible impact in the short-term, apart from/ in addition to any medium or long-term benefits. This is because in an emergency such as the COVID-19 pandemic, any increase in the demand for the internet or reduced capacity to afford continued internet services requires immediate and urgent policy intervention. For instance, in Kenya, the pandemic expedited the approval of the innovative Loon Project, that is aimed at using the high altitude internet balloons to bring 4G coverage to underserved and remote areas of Kenya. While this is certainly an innovative example of positive regulation, it may not have the desired short-term effects given the complexity and scale of the project. The Kenyan government also constituted a COVID-19 ICT Advisory Committee that was commissioned to submit a report on the methods of improving "universally affordable connectivity" within six months. However, there is an opportunity cost of establishing a Committee in the middle of a pandemic, in that the government's time and money could have been better spent in pursuing other positive regulations.

References

AA4I (2020): Alliance for Affordable Internet, Meaningful connectivity: A new standard to raise the bar for internet access.

Bhandari(2020): Vrinda Bhandari, Improving internet connectivity during COVID-19, Digital Pathways at Oxford Paper Series No. 4, Oxford, United Kingdom.

European Commission (2017): European Commission, Zero-rating practices in broadband markets.

GSMA (2020): GSMA, Keeping the world connected: Development challenges in times of COVID-19.

Hadzik (2019): Senka Hadzic, A global south perspective on alternative spectrum policy, Research ICT Africa Policy Brief 1: December 2019.

ISPA (2020): ISPA, COVID-19: Most frequently asked questions for ISPs.

ITU (2020): International Telecommunications Union, Pandemic in the internet age: Communications, industry responses.

Vrinda Bhandari is a practicing advocate in Delhi.

Friday, September 11, 2020

Measuring court output in the pandemic: evidence from India's largest commercial tribunal

by Anjali Sharma and Bhargavi Zaveri.

Introduction

A critical element of organisational planning is the ability to anticipate and manage risks. Many organisations worry about the risk of disruptions to their operations. They spend time and resources to anticipate such events, and put in place mechanisms to mitigate their impact. This is known as business continuity planning (BCP). It can range from keeping standby suppliers for raw materials, finding alternate delivery channels to reach customers, building redundancies along networks and so on. The objective of BCP is to ensure that business operations do not get disrupted.

Courts are an important part of the institutional eco-system of business. In times of general distress, like the one posed by the pandemic, courts are an essential service. As the state uses all the powers at its disposal to deal with the pandemic, judicial checks and balances are likely to be most needed. As businesses try to minimise their losses, disputes between economic actors are likely to increase. The role of courts to adjudicate disputes becomes more important in these times. An important question in this context is: are key institutions such as courts able to ensure business continuity?

In this article, we analyse this question in the context of the functioning of one of India's largest commercial tribunals, the National Company Law Tribunal (NCLT), in the post-Covid world. The NCLT's jurisdiction extends to matters under the Companies Act, 2013 (CA2013), the Insolvency and Bankruptcy Code, 2016 (IBC), and the Limited Liability and Partnership Act, 2008 (LLP Act). It hears a wide range of matters such as disputes between shareholders, enforcement actions against companies and their management, schemes of corporate restructuring, and insolvency proceedings. It would not be unfair to say that the NCLT's functioning likely affects the functioning of firms in the country.

India implemented one of the most stringent lockdowns in response to the pandemic. A near complete closure of all activities that were deemed non-essential commenced on 25th March and lasted till nearly the end of May. From June onwards, a phase-wise unlocking process commenced. In order to study the impact of the lockdown on the functioning of the NCLT, we constructed a novel data-set, drawing upon the daily cause-lists published by the NCLT.

Data and methodology


Data

We use a novel data-set derived from the daily cause-lists published by the NCLT. A causelist is a list of cases that are scheduled to be heard in a courtroom. While causelists suffer from lack from standardisation, both in the template and in the manner in which data fields are populated, they are a rich source of information about court functioning. Table 1 provides the list of the fields that we used in our analysis. Some of these are original, that is verbatim from the causelist, while others are derived by cleaning up and organising the original information available.

Table 1: Causelist data

Field name Description

Date Causelist date
Bench/Court Bench name and court room number
CP/CA Unique case identifier
Case purpose Purpose of hearing
Remarks Post hearing remarks
Case purpose category Categorisation of hearing purpose under broad heads
Remarks category Categorisation of post hearing remarks under broad heads

We use causelists for the period from 1st February to 30th June for our analysis. In India, the lockdown started from 25th March and was subsequently extended till the end of May. However, from 20th April, a range of conditional relaxations began to be introduced. On 30th May, 2020, the Central Government effectively allowed a phasewise opening of economic activity outside containment zones with effect from 1st June, 2020. In line with this timeline, we divide our analysis period into three phases: pre-lockdown, lockdown and unlock (Table 2). The pre-lockdown phase allows us to observe the regular functioning of the NCLT. The lockdown and the unlock phases allow us to observe court functioning in the post-Covid world.

Table 2: Study period

Phase Dates Days of data

Pre-lockdown 1st February to 24th March 34
Lockdown 25th March to 31st May 31
Unlock 1st June to 30th June 22

The NCLT Registry issued several circulars and practice directions with regard to its functioning during the lockdown period. The first of such circulars, issued on 23rd March, 2020, suspended the functioning of the NCLT with effect from 23rd March, 2020 until 31st March, 2020. The suspension was subsequently extended until the end of the lockdown. During this time, all the benches of the NCLT were directed to schedule hearings for 'urgent matters' through video-conferencing on designated days of the week.

For our analysis period, from the NCLT website, we get data for 22 bench-court combinations. We use 18 of these, namely 6 courtrooms of the NCLT bench in New Delhi (including the Principal Bench), 5 courtrooms of the NCLT bench in Mumbai, 2 courtrooms for the bench in Kolkata, and one each for the benches in Bengaluru, Chandigarh, Cuttack, Guwahati and Jaipur. We exclude 4 bench-court combinations, 2 for Chennai, and one each for Allahabad and Kochi due to sparse causelist availability. Ahmedabad bench is excluded as no data is available.

Methodology

We use the input-output approach to analyse court functioning, where scheduled hearings are treated as inputs and outcomes of hearings as outputs. Matters that come to the NCLT often go through a cycle of multiple hearings before they are finally completed. The input-output approach assumes that the NCLT's objective is to hold hearings on substantive questions that arise before it in respect of a matter and dispose them of. In doing so, the court seeks to move the matter forward towards a timely completion. A hearing that results in disposal as an outcome enables this. Hearings that result in a next date being given, for whatever reason, extend the completion timeline. Regy and Roy 2017 have previously used the idea of 'failed hearings'(adjourned hearings) to estimate judicial delays in debt recovery tribunals. We apply this concept to estimate the productivity of the court in the aftermath of the pandemic.

The input-output approach allows us to measure effective court capacity as:

Effective court capacity = Hearings scheduled x Disposal rate

A limitation of this approach is that it does not take into account the quality of the order passed by the NCLT. Our analysis is restricted to the volume of hearings and the number of disposals.

Findings


Input: volume of hearings scheduled

We find a sharp drop in the average number of daily hearings conducted by the NCLT during the lockdown period (Figure 1). In the pre-lockdown world, across all benches in our study, an average of 588 hearings were scheduled per day. This declined to 30 hearings per day during the lockdown period, a 95% decline. In the unlock period, the total hearings per day marginally increased from 30 to 41 per day. However, even this was a 93% decline from the pre-lockdown levels.

Figure 1: How many hearings were scheduled

Figure 2 shows the location wise variation in the number of hearings scheduled. For each location graph, the red dotted line indicates the start of the lockdown period and the green dotted line indicates the start of the unlock period. The numbers on the top indicate the average daily hearings scheduled in each period.

Figure 2: Location wise hearings scheduled

Several interesting findings emerge. First, the bulk of the hearings during the lockdown period were conducted by benches in three locations, namely Mumbai, New Delhi and Chandigarh. Second, there is time variation in when courts started functioning during the lockdown. We observe that while courtrooms in Mumbai started scheduling hearings from 22nd April, the courtrooms in New Delhi started from 5th May onwards. Third, Mumbai, New Delhi and Chandigarh benches are also the ones that managed to ramp up capacity during the unlock period. Other benches have not, even till 30th June, built up a steady pattern of scheduling hearings.

The reason for the variation in the volume of hearings across locations remains a puzzle. We note that while the e-filing facility was available across some of the benches, with time, the litigants before the other benches were instructed to file their proceedings through an e-mail to the Registrar. The availibility of the e-filing facility does not explain the volume of hearings post lockdown. For instance, the Chandigarh bench, which was hearing cases all through this period, implemented e-filing only towards the later half of June. With Mumbai and New Delhi being the worst affected by the pandemic, the variation in volumes also cannot be attributed to the severity of the pandemic at a location. It is unclear then as to what has caused this location level variation and why some benches were able to resume functioning as early as mid-April while others could not do so even towards the end of June.

Output: disposal rates

Table 3 gives us an overview of the outcome of hearings during the pre-lockdown, lockdown and unlock period. In the pre-lockdown period, while a large number of hearings were getting scheduled, nearly 82% of these resulted in a next hearing date being given. During the lockdown period, this changed. The disposal rate improved significantly, from 17.9% to 54.5%.

Several factors might explain the improvement in disposal rates in the post lockdown period. One possibility is that during the lockdown, since the NCLT was hearing urgent matters only, they had to be disposed of. The second is that the pre-lockdown scheduling of nearly 40-50 cases per courtroom per day, was unrealistic. It resulted in a few matters getting actually heard and a next date being given in the remaining. Since the number of hearings getting scheduled during the lockdown period were low, these matters were actually getting the attention of the court which resulted in an improved disposal rate. Finally, it is also possible that the manner in which courts have dealt with hearings in the lockdown period changed. They were less amenable to allowing re-scheduling.

The pattern of a higher disposal rate during the lockdown period continued in the unlock period. However, there was some decline in the disposal rates compared to the lockdown period (from 54.5% to 48.4%).


Table 3: Outcome of hearings (as % of period totals)

Next date For order Disposed Total

Pre-lockdown
Number of hearings 15,813 968 2,489 19,270
% of hearings 82.1 5.0 12.9 100.0

Lockdown
Number of hearings 373 26 420 819
% of hearings 45.5 3.2 51.3 100.0

Unlock
Number of hearings 432 52 354 838
% of hearings 51.6 6.2 42.2 100.0

* Disposal rate = percentage of hearings with outcome "disposed, dismissed, admitted or allowed" + percentage of hearings with outcome "For order"


Estimating effective court capacity in the lockdown period

Table 4 brings together the input (hearings scheduled) and output (disposal rate) to give us a sense of the effective court capacity in the three phases. It shows that court capacity even in the unlock period is around 19% of pre-lockdown capacity. Table 4 suggests that the NCLT can adopt a very different mix of hearings and disposal from its pre-lockdown period to increase its overall output. For instance, at a disposal rate of 50%, even scheduling half of the pre-lockdown hearings will result in a higher effective capacity. However, this will require courts to analyse the process learnings from the post-lockdown period which resulted in higher disposal rates and apply them on an ongoing basis.


Table 4: Effective court capacity across the three periods

Phase Hearings (daily avg.) Disposal (%) Output (daily avg.)
(A) (B) (A*B)

Pre-lockdown 588 17.9 105
Lockdown 30 54.5 16
Unlock 41 48.4 20


Conclusion

The lockdown has reduced the output of an already overburdened justice delivery system. Our analysis of the NCLT output is one case-study that demonstrates this. The functioning of courts during the pandemic is in contrast with the functioning of the overall economy during the same time. By June, most sectors of the economy had resumed operations to a large extent. The manufacturing sector IIP had returned to 80% of its February levels. Railway freight traffic, cargo traffic at ports and air cargo traffic had come back to 88%, 86% and 61% of their February levels respectively. Even a hard hit sector, like airlines, had resumed aircraft traffic to 26% of February levels. By June, the employment rate had come back to 95% of its February levels.

Courts have been reasonably quick in transitioning to virtual hearings. The relatively higher disposal rate at the NCLT demonstrates that a combination of the electronic filing system and virtual hearings, is workable. Despite this, we find that the NCLT has not reverted to even 20% of its output in the pre-lockdown period. The output is much lower for a majority of the benches. This is likely to substantially increase the pendency at the tribunal.

An extended disruption in court functioning can adversely affect the enforcement of civil liberties, property rights and contracts. This can have a debilitating effect on the rule of law. While most of the discourse on court capacity in India focuses on the inadequacy of judges, significant gains can be made by process improvements at the NCLT. Several scholars and policymakers have highlighted the need for a deeper focus on the management and business process planning for courts and tribunals in India (for example, see Datta 2016; Datta and Shah 2015). The courts too have recognised this need time and again (example). A BCP is an integral part of the business proceess engineering of courts.

A silver lining to the devastation caused by the pandemic is that it has accelerated some important reforms. Renewed focus on process management at courts is likely to give us maximum bang for the buck.

References

Regy, Prasanth, and Shubho Roy (2017), Understanding Judicial Delays in Debt Tribunals, NIPFP Working Paper Series, National Institute of Public Finance and Policy, New Delhi, India.

Datta, Pratik, and Ajay Shah. "How to Make Courts Work?" The LEAP Blog, 22 Feb. 2015.

Datta, Pratik, (2016), Towards a Tribunal Services Agency, Indira Gandhi Institute of Development Research, Mumbai Working Papers, Indira Gandhi Institute of Development Research, Mumbai, India.


The authors are researchers with the Finance Research Group. They would like to thank Ajay Shah for discussions and inputs on this article and Rahul Somani for developing the code for constructing the data-set.

Monday, September 07, 2020

If school fee regulation had to be done, how can it be done better?

by Bhuvana Anand and Shubho Roy.

In the Indian policy discourse, there is a strand of thought which sees schools as aggressors and parents as victims in a fight over school fees. The National Education Policy 2020 for example is concerned with “...the commercialization and economic exploitation of parents by many for-profit private schools...”. The COVID-19 pandemic has increased disputes between parents and schools over fees. Some parents are demanding a moratorium on fees. Some state governments are insisting that schools continue paying teachers. The managers of schools are struggling to balance these demands.

It is useful to take two steps back and ask: Is there a role for state power in controlling prices? In a market economy, market prices coordinate supply and demand, resulting in optimum resource allocation. Any state manipulation of the market price, such as a price cap, distorts this process and hampers mutually beneficial exchanges (Coyne and Coyne 2015). Price caps in general lead to poor outcomes. We see reduced investments and innovation (Ross 1983), collusion amongst suppliers (Grayson 1974, Knittel and Stango 2003), and regulatory capture. In the school education section in India, there is some evidence that implementing fee caps results in perverse outcomes (Agarwal et al. 2019).

Government control of prices has gone out of fashion in some areas (cement, steel) but this continues to be mainstream thinking in fields like education policy in India. Nine states and union territories have legislation that establishes fee regulation for private schools. Other states, such as Delhi, use executive power to regulate school fees. States with fee regulations impose absolute caps on fees or limit annual hikes.

In a previous article (Anand and Roy 2020), we discussed regulatory capture by teachers in fee setting. In this article, we discuss the hold-out problems that fee regulation creates. The current approach to fee regulation gives parents the power to hold up fee hikes. The exception to this is Maharashtra Educational Institutions (Regulation of Fee) Act, 2011. The Maharashtra law reduces the chances of a single parent holding up a fee hike. If there was a desire to have price controls in elementary education, the Maharashtra law gives us a better method for implementation as compared with what has been done elsewhere.

Fee regulation and the power of parents

Multiple states in India allow parents to challenge the decision of school management to hike school fees. This is, in and of itself, an awkward arrangement: Customers will always be biased in favour of lower prices. For example, if customers could hold up price hikes by security guards, they would always do so. Similarly, if exporters are given power on government control of the exchange rate, they will always favour depreciation.

Under the conventional arrangements, if parents find that schools have hiked fees 'unreasonably', they can complain to district/divisional fee regulatory committees. These committees are composed of parents, school representatives and government officials. Most laws characterise such action as raising a “grievance” or a “complaint” and require quasi-judicial proceedings to determine fees.

In Chandigarh, students, parents or guardians can register “complaints” with the regulatory body against schools for charging 'excessive' fees. Any hike beyond 8% of previous year’s fees, or attempting to profit (Section 7) is considered excessive.

In Bihar, schools may increase fees up to 7% over the previous year’s fee. Any increase beyond the 7% cap, requires the approval of a fee-regulatory committee. Any parent can file “objections” to the committee in case a school charges over the fee cap (Section 5).

Uttar Pradesh allows schools to hike fees in proportion to teacher salaries. However fees cannot be increased by more than CPI + 5% of previous year’s fees. Parents may complain to the district fee regulatory committee in cases where the school does not address their “objections” (Section 8).

In each of these states, an individual parent can start legal proceedings against the school management on the question of fee hikes. In the legal proceedings, the district fee regulatory committee has the power to question the fee increase. The school management has to justify why the fee increase is legitimate. If the district fee regulatory committee is not satisfied, it may impose fines on the school. In Bihar and Uttar Pradesh, if a school fails to pay fines on time or repeats offences, the committee may recommend revoking recognition which will lead to the school shutting down. Managers of schools are potentially subject to this legal process, the corresponding legal risk, and the cost of time and resources required to acquire political capital ahead of time to navigate these situations at the district fee regulatory committee as and when they might arise in the future.

In most states with fee regulation, one parent is capable of holding the entire school at ransom for raising fees. A single parent can engage in what is called a hold-out (Epstein 1993). Schools may need to hike fees to meet operational expenses (teacher salaries), comply with regulations (setting up CCTV cameras) and for infrastructure development (ed-tech). A bulk of parents may be willing to raise fees to meet these costs and improve the quality of education for their children. But the law allows a single parent to make it costly for the school to raise prices.

Maharashtra

Maharashtra regulates fee dispute with an added nuance: it imposes a minimum threshold that parents have to meet before raising a complaint against schools.

Schools in Maharashtra can hike fees only after approval from a school-level committee. This committee is composed of parents, teachers, and school management. Where parents disagree with the decision of the school-level committee, they may appeal to the divisional fee regulatory committee (Section 6). However, the Act does not give the power to an individual parent to raise a legal dispute. The Act creates a category called an ‘aggrieved parents group’ thus:

"aggrieved parents group" means the group of parents of the children, not be less than 25 per cent of the total parents of the children of affected standard or school, as the case may be, who are aggrieved by any decision under the Act (Section 2).

In Maharashtra, parents can challenge the decision of the school-level committee only if 25% (or more) of the parents affected by the hike come together to register a dispute. By raising the bar to 25% of affected parents, the Maharashtra law makes it difficult for one parent to stop the school from ensuring financial viability or improving services.

In the modern age of mobile phones, it may not be hard to solve coordination problems and muster a quarter of the parents as a coalition. The basic problem remains: should customers be given access to a non-market mechanism to influence prices? But this appears better than giving each parent the power to initiate a legal process.

The way forward

The literature shows that school education can be sticky; moving schools frequently can have social, emotional and learning consequences (see here, and here). Parents need to plan household finances for a 5-15 year horizon. Schools, on the other hand, want autonomy to run, expand and modify their offering, and to be able to respond to environmental demands, unforeseen circumstances, and competition from other schools. Parents want to remove consumption volatility in their purchase of vegetables, this does not mean we use state power to prevent price changes in vegetables. If parents wanted to eliminate price uncertainty enough, the market economy might find solutions on its own: e.g. perhaps schools could offer price lock-ins for a group of years at a time.

The present configuration of state power in fee regulation is biased against the school management. The law ignores the possibility that parents have no interest in the long term financial viability of a school. Once their children graduate from a school, they have no interest in whether the school survives. On the other hand, the management, which may run the school for decades (more than a century in some cases), has to consider the long term. By allowing one parent to hold up fee hikes, such laws hamper the long-term financial viability of schools, and create a bias in favour of school promoters who are politically well connected.

The rational response to a disagreement over fees would be parents shifting out when the school raises fees above what they are willing to pay. The Indian state, however, has created artificial constraints on the supply of schools through multiple laws (Singh and Sudhakar 2020). Parents have limited options to choose from for their child’s education.

The foundational mistake in Indian education policy is imposing artificial restrictions on the entry of new schools. The Indian state attempts to respond to the consequences of this bad idea by introducing other bad ideas like fee regulation and involving parents and teachers in school fee setting. This does not solve fee hike disputes and instead introduces new problems. We need to address the core problem head-on and not entangle ourselves into more complicated laws and administrative mechanisms to address them.

References

Controls are not the answer, Jackson C. Grayson, International Economic Review Vol. 21, Issue No. 2, 1974.

How are private school fees regulated?, Ritika Agarwal, Atreyi Bhaumik, Adit Shankar and Anindya Tomar, in Anatomy of K-12 Governance in India, Centre for Civil Society, October 2019.

Holdouts, Externalities, and the Single Owner: One More Salute to Ronald Coase, Richard A. Epstein, The Journal of Law & Economics, John M. Olin Centennial Conference in Law and Economics at the University of Chicago, April 1993.

Moving Matters: The Causal Effect of Moving Schools on Student Performance, Amy Ellen Schwartz, Leanna Stiefel and Sarah A. Cordes, Association for Education Finance and Policy, 2017.

Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards, Christopher R. Knittel and Victor Stango, The American Economic Review Vol. 93, Issue No. 5, December 2003.

Pricing education: An example from Uttar Pradesh, Bhuvana Anand and Shubho Roy, The Leap Blog, July 2020.

Restrictions on for-profit education in India, Akash Pratap Singh and Tarini Sudhakar, Latest Analysis, Centre for Civil Society, May 2020.

Switching Schools: Reconsidering the Relationship Between School Mobility and High School Dropout, Joseph Gasper, Stefanie DeLuca and Angela Estacion, American Educational Research Journal, 2012.

The economics of price controls, Christopher J Coyne and Rachel L. Coyne, Chap. 2 in Flaws and Ceilings: Price Controls and the Damage They Cause, Institute of Economic Affairs, 2015.

The Private Schooling Phenomenon in India: A Review, Geeta Gandhi Kingdon, The Journal of Development Studies, 2020.

The Price of Education, Ernest Ross, Foundation for Economic Education, 1983.


Bhuvana Anand is a researcher at Centre for Civil Society and Shubho Roy is a researcher at the University of Chicago. The authors thank Tarini Sudhakar at Centre for Civil Society for research support.

Thursday, September 03, 2020

Thomas Laubach

by Ila Patnaik and Ajay Shah. 

Our dear friend, Thomas Laubach, died in the US, yesterday.

Thomas reached out to us in 2011. He wanted to spend time in a research group in India that worked in macroeconomics. Thomas, his lovely wife Tahniyat and their three children were in India for 3 months, then. Apart from NIPFP, they visited Amravati where Tahniyat’s family came from.

Thomas fell in love with Delhi in those sunny winter months. At NIPFP, his happy smile encouraged even the youngest members of the staff to go and talk to him. He tried to communicate his excitement and passion about what had been achieved in the last century. 

We were engaged, in those years, in trying to figure out a first principles understanding of Indian macroeconomics. Thomas, a former Ph.D. student of Ben Bernanke, was a great influence for this work. He brought immense knowledge of the edifice of modern macroeconomics of advanced economies, and at the same time was sympathetic and supportive of the idea that we had to figure out what makes sense under Indian conditions from scratch. We spent endless hours with him, groping in the facts, looking for the conceptual machinery that made sense and was consistent with the big facts. He cared about understanding the world, and being useful in the world, over and beyond the normal academic incentives.

At the time, Thomas was an academic at Goethe University in Frankfurt. Shortly after he finished at NIPFP, he joined the US Federal Reserve Board. Whenever one of us visited DC, Thomas would be happy to meet. He would always find time for a quick coffee in work hours. Tahniyat would be warm and welcoming and cook a lovely Indian meal at home.

Through the following years, we met Thomas regularly, as he would visit India regularly, and we would coordinate days with him in Delhi and Bombay. He loved walking in Bombay, and his answer to `what would you like to do today' was always "I want to see Bombay through your eyes". He loved stepping out to restaurants in Delhi for the local food. When he could not get leave to come, he  missed India, and would write to us remembering his lovely winter days of Delhi, calling his feelings the IWS (India Withdrawal Symptoms). His last visit to India was on a short trip in February 2019.

In Bandra (West), a favourite walking region

He was very curious about how India worked. He knew that the emerging markets were going to become more important, and that what made them tick was fundamentally different from what was well understood elsewhere. Sometimes it felt like he was an anthropologist talking with us about what we were doing, and he would go under the hood, seeking the thick description.

We always looked upon his time at the US Fed as a busy interlude, and then he would get back to doing something closer to research, with more control of his time. We had planned that he would join a Sahyadris trek on a post-Fed winter visit to India. It is so cruel, that life worked out like this.

Tuesday, September 01, 2020

Announcements

Positions for Legal Researchers

The Finance Research Group, Mumbai is an inter-disciplinary group of researchers working in the fields of financial markets, household and firm finance, bankruptcy law, land markets and public finance management and public procurement. In these fields, the group engages in academic and policy oriented research and advocacy.

The Finance Research Group is looking for two full-time legal researchers to work in the following fields:

  1. public finance management and public procurement; and
  2. commercial courts.

The researchers will be assigned to a project in these two fields respectively. The researchers will be expected to support research in law, economics and public policy in these fields, assist in organising advocacy and dissemination events and generate independent academic outputs and commentary. The positions will involve working with people from varying backgrounds including economics, management, law and public policy.

An indicative list of the research work done by researchers during their time at the Finance Research Group is below:

Researchers will be trained and encouraged to pursue research and produce outputs of the kind described above.

The office functions on free and open source software systems like Linux, Latex, R and others. If appointed, the candidate will be required to learn and use these software systems. The candidate must be willing to adapt to technology, work long hours and deliver quality products within defined timelines.

Previous work experience of atleast one year is required. A background in law is required, and one in economics/ public policy/statistics/ data science knowledge, is preferred. Candidates must be curious and passionate about research. The compensation will be competitive for the role and responsibilities for which the researcher is recruited.

Interested candidates must email their resume with the subject line: Application for research position at the Finance Research Group, to Ms. Jyoti Manke at careersatFRG@gmail.com

Wednesday, August 19, 2020

Author: Diya Uday

Diya Uday is a senior researcher at the Finance Research Group, Mumbai and visiting faculty at the Tata Institute of Social Science, Mumbai.

Does India need a public procurement law?

by Shubho Roy and Diya Uday.

One of the proposed solutions to India’s public procurement problems is new legislation to govern how the government buys goods and services from the private sector. Will a law help India? We connect two data sources to test this idea. Instead of a new law, monitoring public procurement, identifying failures, and then building state capacity may be a better solution. Legislation may not be the silver bullet for our problems.

In India, legislation is often viewed as a panacea when faced with policy problems. Whether it is bankruptcy, privacy, warehousing, or medical testing in private laboratories; the government is quick to propose a new law to solve problems. The same approach has been attempted to address the issues of public procurement. In 2012, the government introduced the Public Procurement Bill with the stated reason as:

“Major countries of the world have well codified legal provisions governing public procurement.” (Statement of Objects and Reasons).

An international organisation also prescribed this solution for India. In 2013, the United Nations Office on Drugs and Crime recommended that India should enact the Public Procurement Bill. According to the UN agency, the bill would improve public procurement and reduce corruption. The bill lapsed, and the government changed. However, the idea that a law is needed persists. The present government had plans for introducing similar legislation. In the 2015-16 budget speech, the finance minister stated:

“Malfeasance in public procurement can perhaps be contained by having a procurement law and an institutional structure consistent with the UNCITRAL model. I believe Parliament needs to take a view soon on whether we need a procurement law, and if so, what shape it should take.” (Paragraph 72)

The present government is yet to introduce a bill.

It seems intuitive that a better law should improve public procurement. More transparent systems that make procurement information widely accessible and encourage more firms to participate, deter kickbacks and other forms of fraud and corruption (Ware et al.). Countries with legal provisions which discourage governments from closing bids to select vendors or establish an independent dispute resolution mechanism seem to have less bribery of public officials (Knack et al.). However, better laws may not necessarily result in better outcomes (Sukhtankar and Vaishnav and Bosio et al.). In this article, we look at the correlation between the state of the procurement law in a country and the outcomes from public procurement.

Parliamentary laws and corruption outcomes

The first step towards measuring the outcome is to agree on metrics of the quality of public procurement. The quality of a procurement law/system may be determined by multiple variables such as the conservation of public resources, purchase of better products, timely payment to vendors and integrity. However, we do not have data to measure these. We suggest an interesting proxy that we do observe: corruption perception. The predominant form of corruption, in most countries, is corruption in public procurement. Therefore, one of the primary objectives of making a public procurement law is to reduce corruption. We hypothesise:

If adopting a law improves public procurement, we should see lower corruption in those countries.

To examine this evidence, we look at two databases: Benchmarking Public Procurement and, Corruption Perception Index.

  1. World Bank’s 2017 Benchmarking Public Procurement Database(BPP). This is a comparative evaluation of the legal systems governing public procurement in 180 countries (World Bank BPP, 2017). Experts analyse the laws governing public procurement on eight criteria. The criteria start from the preparation before a tender is published and extend to dispute resolution and complaint management systems. Economies with more extensive legal frameworks score higher on the BPP than countries with less comprehensive legal frameworks for public procurement. In this sense, the BPP measures the extent to which a country has accepted and implemented the idea that a better law for public procurement is desirable.
  2. Transparency International’s Corruption Perception Index (CPI). Transparency International scores jurisdictions based on the perception of corruption in a country’s public sector. It is based on opinion polls and surveys across countries. Low scores mean higher corruption and higher scores imply high government integrity.

We look at the correlation between the World Bank’s BPP score and the Corruption Perception Index. We collected BPP data for 2017 and the CPI data for 2019 (latest years). We narrowed down the countries present in both databases, which yields information about 163 of 180 countries (91.12% of the datasets).

Findings

As Figure 1 shows, We find no correlation between the BPP scores and the CPI scores of countries. It is particularly interesting to look at the countries where the two run in different directions. Italy and Kazakhstan have very similar BPP Scores (79.33 and 79.50) but very different CPI Scores (34 and 53). China has a much higher BPP score than Hong Kong (74.66 against 48.66), but in CPI scores, China does significantly worse than Hong Kong (41 and 76). India (61.50), Australia (60.83), and Singapore (60.50) have very similar BPP Scores, but very different CPI scores (41, 77, and 85, respectively). Russia is 14 points ahead of the United Kingdom in the BPP but significantly behind on the CPI by 49 points.

Figure 1:Quality of Law and Corruption

Similarly, as Table 1 shows, the Bahamas, Hong Kong and Barbados rank quite high on the CPI (little corruption) but do quite poorly on BPP ranks. On the other hand, Kazakhstan, Congo and Yemen have high corruption (low CPI score) but score higher on the BPP.

Table 1: Comparing Rankings
Country

CPI score

BPP score

CPI Rank

BPP Rank

Barbados

62

40.20

30

157

Hong Kong

76

48.66

16

141

Bahamas

64

44.66

29

151

Kazakhstan

34

79.50

104

2

Congo

18

64.33

155

43

Yemen

15

64.66

162

41

This evidence is consistent with the arguments by Sukhtankar and Vaishnav and Bosio et al. that better laws do not correlate with better outcomes in public procurement.

What might be going on?

Why is there no correlation between corruption and quality of public procurement laws? Two reasons may explain our observations: isomorphic mimicry or imperfect measurement.

Isomorphic mimicry: ‘Isomorphic mimicry’ is the ability of organisations to sustain legitimacy through the imitation of the forms of modern institutions, but without functionality (Andrews et al.). Countries may adopt laws and institutions which are considered global best practices. However, the laws are not enforced, and the institutions are ineffective. One of the reasons for the observed results could be that countries are adopting law intending to score high on an international indicator without the requisite state capacity or active institutions to implement such a law. While this creates the facade of a sound legal system, the on-ground reality is quite different. International aid agencies sometimes require that a country have a sound legal system for public procurement, where superficial measures such as passing a law are considered sufficient. A government trying to attract international donors might pass `modern’ legislation to showcase or appeal to donors, foreign academics, journalists or NGOs. However, the government may have no intention or capacity to implement the law.

Imperfections in the BPP: The BPP as a measure appears to have a sensitivity problem. The OECD has overarching public procurement guidelines with which all members have to comply. We should, therefore, see OECD countries cluster towards the higher end of the CPI and BPP scores. While this holds for CPI scores, it does not, for BPP. BPP scores of OECD show much more variance than their CPI scores. The fact that OECD countries have adopted a common framework on public procurement appears to be not captured by the BPP measurement system.

The BPP may fail in measuring the quality of procurement laws in a country because of invisible infrastructure. Invisible infrastructure is the superset of general laws, institutions and accountability arrangements in the country which are crucial for determining the success of specific policy intervention (Kelkar and Shah). A common law country like the UK may have binding precedents setting transparency and accountability standards but may not have legislation. Constitutional provisions governing equality before the law or requiring due process apply to government procurement. Freedom of information laws may bring about transparency generally and may apply to procurements. Governments may have general laws which require government agencies to appoint an ombudsman or inspector general. Such offices may take active steps to reduce corruption and settle procurement disputes. However, such rules are not captured in a measurement system like the BPP as it is limited to government procurement legislation (Bosio et al.) The elements of invisible infrastructure may suffice, in itself, to generate high-quality procurement absent a law, and invisible infrastructure may matter in shaping the consequences of any procurement law. In either event, by focusing on the procurement law we tend to not notice the binding constraint, the invisible infrastructure.

Looking ahead

Before making laws, we need to identify the causes of the poor performance of public procurement in India. We have a history of failing in implementation and monitoring in India. Both require robust, invisible infrastructure which is missing. The first step is to build the load-bearing capacity of the procurement system. Pritchett et al. point out that premature load-bearing arising from unrealistic expectations about the level and rate of improvement of the ability of a state lead to stresses and demands on systems that cause capability to weaken if not collapse.

Two websites which aggregate procurement across government departments may provide clues on how to improve state capacity. The Government E-Marketplace (GEM) and the Central Procurement Portal (CPPP), operated by the central government, aggregate and standardise procurement notices across various government bodies. These websites aid the procurement process in many ways. Tenders are made public on a common portal instead of being scattered across multiple publication sources. This increases competition as bidders are less likely to miss a tender because they do not buy a specific newspaper. The method of tender publications is standardised, and this helps bidders apply for tenders with lesser effort. Moving away from paper-based systems reduces the chance of bids getting lost.

The more significant benefit from these websites is that they allow the government to measure/monitor the quality of the procurement process (outcome measurement) across multiple variables. This is better than measuring the quality of some legislation (input measurement) of BPP. The CPPP website publishes 16 performance indicators derived from the transactions carried out on the site. For instance, in 2019-20, 23% of the open tenders were not awarded within the bid-validity period. i.e. the buyer did not finalise the transaction in time. Sadly, most of the performance indicators tracked by the CPPP website, since 2016, show no discernable trends that procurement performance is improving.

Other jurisdictions have implemented interventions, similar to the performance indicators in the CPPP website, to improve public procurement system. The Government Accountability Office of the U.S. publishes performance reports on government procurement (which does worse than Kazakhstan on the BPP Score). Instead of legislating, India may benefit from looking at the performance indicators on the CPPP website and working on improving them every year.

We should not be lured by silver bullets, such as enacting legislation. While legislation has a role to play in governance, the evidence indicates that it is not a panacea for our problems. Some countries with good outcomes do not necessarily have an extensive legal framework for public procurement. Some nations with comprehensive laws continue to demonstrate poor results. The pathway to a better procurement system perhaps lies in detailed research that integrates public administration, law and public economics.

References

Erica Bosio, Simeon Djankov, Edward L. Glaeser, Andrei Shleifer, Public Procurement in Law and Practice. National Bureau of Economic Research, May 2020

Matt Andrews, Lant Pritchett, Michael Woolcock, Looking Like a State: Techniques of Persistent Failure in State Capability for Implementation, CID Working Paper No. 239 June 2012.

OECD, OECD Foreign Bribery Report: An Analysis of the Crime of Bribery of Foreign Public Officials, OECD Publishing, 2014

Sandip Sukhtankar, Milan Vaishnav, Corruption in India: Bridging Research Evidence and Policy Options, India Policy Forum 2014-15: Volume 11, April 2015

Stephen Knack, Nataliya Biletska, Kanishka Kacker, Deterring Kickbacks and Encouraging Entry in Public Procurement Markets, Development Research Group, World Bank, May 2017

Tina Søreide, Corruption in public procurement Causes, consequences and cures, Chr. Michelsen Institute of Development Studies and Human Rights, 2002

United Nations Office on Drugs and Crime, India: Probity in Public Procurement, 2013

Vijay Kelkar, Ajay Shah, In Service of the Republic: The Art and Science of Economic Policy, 2019

Ware, Glenn T., Shaun Moss, J. Edgardo Campos, and Gregory P. Noone, Corruption in Public Procurement: A Perennial Challenge in The Many Faces of Corruption Tracking Vulnerabilities at the Sector Level - Handbook of Global Research and Practice in Corruption, Washington, DC, The International Bank for Reconstruction and Development, 2007

World Bank, Benchmarking Public Procurement - Assessing Public Procurement Regulatory Systems in 180 Economies, World Bank Group, 2017

Shubho Roy is a researcher at the University of Chicago. Diya Uday is a senior researcher at the Finance Research Group, Mumbai and visiting faculty at the Tata Institute of Social Science, Mumbai.