## Monday, December 20, 2021

### The footprint of union government procurement in India

Difficulties of government contracting are one important source of low state capacity. When capabilities in government contracting are low, problems that involve purchase from the private sector prove to be daunting (e.g. Covid-19 vaccines), and the decisions of make vs. buy are distorted (e.g. arms manufacture by the Indian state). This has motivated research in the field of government contracting. Along with a few other fields, government contracting constitutes a horizontal' field which influences state capacity in all specialised domains such as defence, health, etc.

A foundational fact of this field is the magnitudes involved. A few researchers have worked on the problem of measuring the size of government procurement. In a recent paper, The footprint of union government procurement in India, we develop an estimation strategy based on public finance data that is available in the public domain, for the union government and for central public sector enterprises ("CPSEs").

We analyse the fiscal documents produced by the ministries and public sector enterprises of the union government: the Detailed Demand for Grants' (DDG) submitted by various departments and ministries to the Ministry of Finance of the Union Government and the annual statement of accounts published by the Controller General of Accounts (CGA). Object head level data is collected from the DDGs, the heads that constitute public procurement are identified. and each expenditure is classified as procurement or non-procurement. Procurement expenses are further classified into procurement expenses of goods, services and works, and operating or revenue expenditure and capital expenditures. This results in an estimate for the total operating and capital procurement expenditure for a given ministry or department in a year.

This methodology generates estimates for :

1. Total procurement in a year
2. The magnitudes which are operating expenditures vs. capital expenditure.
3. The procurement magnitudes in goods, services and works.

In this work, some records are not amenable to the approach used and are excluded from the analysis. This could contain procurement activity, which is missed out. Therefore, the resulting estimates are biased on the downward side.

The paper uses 2016-17 as an example where these methods are applied. The main findings for 2016-17 are:

1. The total purchases of the union government are about Rs.3.9 trillion, and the CPSEs additionally purchase Rs.13.8 trillion. These add up to around 12% of GDP.
2. Of the total purchases by the union government, Rs.2.2 trillion are capital goods and the remainder are operating expenses. The CPSEs added Rs.2.2 trillion of fixed assets. The remaining Rs.13.67 trillion were operating expenses. This indicates that a little over 13% of public procurement by union government and CPSEs are capital expenses.

This research fits into the emerging literature on government contracting. Obtaining a sense of the empirical magnitudes involved is a critical building block of this field. We build on, and enhance, the measurement of public procurement which includes the preface to the draft Public Procurement Bill, 2012', work by the research group at Consumer Unity & Trust Society (CUTS, 2012), and research work based on the World Bank Global Public Procurement Database (Djankov et al 2016).

Alongside this (conservative) estimate of union government procurement activities at about 11% of GDP, there are purchases by state and city governments. Khan (2012) places this total at around 30% of GDP. The magnitudes involved underline the importance of this field, of measuring, diagnosing, and improving the capabilities of government in contracting.

### References

CUTS (2012), International, Government Procurement in India Domestic Regulations and Trade Prospects, CUTS, October 2012.

Simeon Djankov, Asif Islam and Federica Saliola, How large is public procurement in developing countries?, Peterson Institute for International Economics blog, November 2016.

M. H. Khan, Public procurement issues with Government of India, Presentation at LBSNAA, March 2017.

Anjali Sharma and Susan Thomas, The footprint of union government procurement in India, xKDR Working Paper 10, November 2021

Anjali Sharma is Head of Strategy and Regulatory Affairs at National E-Governance Services Ltd. Susan Thomas is Research Professor of Business at Jindal Global University and Researcher at xKDR Forum, Bombay.

## Tuesday, December 14, 2021

### Bringing gender equality in the Hindu Succession Act: An overdue reform

by Devendra Damle and Ajay Shah.

One element of the gender problem in India is the Hindu Succession Act, 1956 (HSA). This law governs intestate succession for Hindus, Buddhists, Jains and Sikhs (i.e. 80% of Indian citizens), and discriminates against women. Under the rules governing the devolution of property, the relatives of a woman's husband have a stronger claim to her property than her parents and siblings. This is not true of the property belonging to a man. This unequal treatment is inconsistent with equal treatment by the state as envisioned in Articles 14 and 15(1) of the Constitution of India.

This question has just come back into prominence. In an ongoing case — Kamal Anant Khopkar vs Union of India [WP(C) 1517/2018] — the Supreme Court of India issued an order on 7th December 2021 directing the Solicitor General to provide the Union Government's view on these discriminatory provisions (See: here). A brief by the Amicus Curiae — Meenakshi Arora — highlighting the discriminatory provisions prompted the Supreme Court to take this action. The bench noted that this discrimination has remained in the statute books for a long time. The Court also noted that a judicial and/or legislative intervention is necessary to remedy it.

The discriminatory provisions in the HSA have profoundly impacted many Hindu women. Some examples help us understand the unfairness in play:

1. Consider an ongoing case in the High Court of Punjab and Haryana (See: here). One Devina Bhardwaj and her husband Chetan Bhardwaj jointly purchased a home in Gurgaon in 2014. Devina bore most of the expense. Both contracted COVID-19 in early 2021. Chetan died intestate in April 2021. As a result, his property devolved to Devina and his parents in equal parts. Shortly after that, Devina also died intestate. Devina's mother-in-law sought to gain access to Devina and Chetan's assets (estimated to be worth INR 2.7 crore), a significant portion of which were Devina's self-acquired property. The concerned revenue department officials declared her the sole-legal heir to Devina's assets. This is in line with the scheme of devolution under the HSA.
Devina's mother has filed a petition in the High Court of Punjab and Haryana claiming her right to Devina's share of assets, and challenging the constitutional validity of the relevant provision of the HSA. The High Court has issued a notice to the Union Government seeking its reply. (See: here)

2. The Supreme Court dealt with a similar issue in the landmark case Om Prakash v. Radhacharan [(2009) 15 SCC 66]. In this case, one Narayani Devi's husband died shortly after their marriage. Her in-laws banished her from the matrimonial home. She returned to her parents, who supported her and provided her with an education. She went on to amass a significant amount of property of her own, and died childless and intestate. Her mother and her late husband's nephews filed competing claims over her self-acquired property. The matter eventually reached the Supreme Court. The Supreme Court, relying on a plain reading of the HSA, granted all of Narayani's' property to her late husband's nephews, while her mother received nothing. The story would have been very different if Narayani had been a man.

In an NIPFP working paper, we describe how devolution schemes under the HSA differ for men and women. We describe how courts have interpreted these provisions, and their validity under Articles 14 and 15(1) of the Constitution of India. We describe the previous attempts at reform and where they have fallen short. We propose an amendment to the HSA to make it more gender-equitable. Several other authors have pointed out the disparity between how a man's and woman's property is treated under the HSA, and the consequences of this discrimination (See: here and here).

### Devolution of property under HSA

The HSA prescribes different rules of devolution for property belonging to men and women. The devolution scheme for a man is governed by Section 8 of the HSA. It states that Class-I heirs — his mother, wife, and lineal descendants — have the first claim to his property. Class-II heirs — his father, siblings, lineal descendants of his siblings, and the siblings of his parents — have a claim if there are no surviving Class-I heirs. The Schedule to the Act contains a detailed list of heirs in each class and sub-class. All property belonging to the man devolves as per this scheme, and it largely keeps all the man's property within his natal family.

The devolution scheme for a woman's property is different. Section 15(2) applies to any property the woman inherited from her husband, her husband's family and her parents. Under Section 15(2)(a), if a widow dies childless, any property she inherited from her husband or his family returns to the heirs of the husband. 'Heirs of the husband' refers to the list of heirs given in Section 8. Section 15(1) gives a general devolution scheme, which applies to all other properties. Under Section 15(1), a woman's husband and children have the first claim to her property. The heirs of her husband are next in line, followed by her parents, followed by other heirs of her parents.

Under Section 15(1), if a widow dies childless, the heirs of the husband have a stronger claim than her parents and siblings over all her property that she did not inherit from her parents. This includes all self-acquired property, gifts, bequests through wills, and property inherited from siblings and other relatives. There are no reciprocal provisions in the devolution scheme for a male deceased's property. There is no scenario where a woman's family has a claim over the husband's property.

### Constitutional challenge to Section 15 of the HSA

Article 14 of the Constitution of India guarantees all persons equal treatment under the law and Article 15(1) explicitly prohibits the state from discriminating between citizens solely based on religion, race, caste, sex, or place of birth. This means the state cannot make laws that treat citizens differently solely based on the aforementioned distinctions, except in specific circumstances. It appears clear that the provisions of the HSA — which are part of Hindu personal law — discriminate between men and women, but does this violate Article 14 and 15(1)?

In Mamta Dinesh Vakil v. Bansi S. Wadhwa [LNIND 2012 BOM 748] the Bombay High Court termed this unequal treatment unconstitutional. It concluded that the discrimination in HSA is solely based on sex and cannot plausibly be said to serve any other rational purpose. The Court, however, referred the question of constitutionality to a larger bench, which has yet to be constituted. While the question of constitutionality may not be settled, judgments such as Om Prakash v. Radhacharan highlight the fact that discrimination under HSA is, in the least, extremely unfair to women. Specifically, Hindu widows with no surviving children.

### India's international commitments

The discrimination under HSA falls afoul of India's commitments under the United Nations Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW). India became a signatory to the CEDAW in 1980, and the Parliament ratified it in 1993. Removing gender-based discrimination in property-related legislation is one of the core requirements of the CEDAW.

The Supreme Court has, in multiple cases, ruled that the legislature, administration and judiciary must give due regard to India's international commitments under treaties such as the CEDAW. In C Masilamani Mudaliar & Ors v Idol of Sri Swaminathaswami Thirukoil & Ors [(1996) 8 SCC 525], the Supreme Court ruled that the obligations under CEDAW to eliminate gender-based discrimination in legislation are binding on the government. The Supreme Court has made similar rulings in several other cases, such as Madhu Kishwar & Ors. v State of Bihar & Ors. [(1996) 5 SCC 125], and Githa Hariharan and Ors. v Reserve Bank of India and Ors. (MANU/SC/0117/1999).

### Past attempts at reform

There have been some attempts at reform in the past, but so far, they have been piecemeal, limited in their scope, and unsuccessful. The Law Commission of India, in their 207th Report (2008) and their Consultation Paper on Family Law (2018), recognised the issue of disparity in the treatment of men's and women's self-acquired property and proposed amendments. However, instead of instituting a common devolution scheme, they proposed adding another subsection to Section 15 to govern the devolution of a woman's self-acquired property.

The Law Commission's proposal has three issues. First, it does not define self-acquired property. Second, it retains Section 15(2)(b), which requires the property that a woman has inherited from her husband to be passed to the husband's heirs if she dies childless. Third, it ignores the fact that the heirs of the husband will be preferred over the woman's natal family if she has inherited the property in question from relatives other than her parents, such as her siblings or grand-parents, since it will continue to be governed by Section 15(1).

Two private member's bills — the first introduced by Anurag Singh Thakur in 2013 and the second introduced by Dushyant Chautala in 2015 — also sought to resolve this issue. However, both these proposed amendments suffered from the same problems as the proposal of the Law Commission. What is necessary is a comprehensive reform of the devolution scheme in the HSA.

### Better examples before us

There are two existing Indian succession laws that do far better than the HSA in terms of gender-equality. Devolution schemes in the Indian Succession Act, 1925 (ISA) and the Goa Succession, Special Notaries and Inventory Proceeding Act, 2012 (GSSNIP) are gender-neutral. ISA applies to Christians and Parsis, and GSSNIP applies to all persons domiciled in Goa. The British Colonial Government enacted the ISA in 1925. The progenitor of the GSSNIP — the Portuguese Civil Code — was enacted in Goa in 1870. The ISA is still on the statute books, and the GSSNIP replaced the Portuguese Civil Code in Goa in 2018.

### Conclusion

The provisions of the HSA discriminate against Hindu women by prescribing different rules for the devolution of property held by men and women. These provisions unfairly prioritise the husband's family over the woman's own family, even when the woman has acquired the property in question through her skill or effort. The legislation is a product of an era when it was inconceivable for Indian women to own and acquire property. However, these biases continue to be perpetrated upon Hindu women in India today. This discrimination is probably ultra vires of Articles 14 and 15 of the Constitution of India. It violates India's commitments under the CEDAW. It is unfortunate that the Parliament has allowed this discrimination to persist despite knowing of the existence of more equitable laws such as the GSSNIP and ISA in our own country.

The Supreme Court's notice to the Union Government is an indication of India's evolving jurisprudence on questions of gender-equity. This is an opportunity for the Court and the Parliament to, once and for all, eliminate discrimination in a law that affects a majority of Indian women.

### References

1. Gender discrimination in devolution of property under Hindu Succession Act, 1956 (NIPFP Working Paper No 305), by Devendra Damle, Siddharth Srivastava, Tushar Anand, Viraj Joshi and Vishal Trehan, May 2020.
2. Equal treatment for women on inheritance, by Ajay Shah, in Business Standard, 2020.
3. A law that thwarts justice, by Prabha Sridevan, in The Hindu, 2011.
4. Childless Hindu widow's death leads to flawed property succession: Supreme Court, in The Times of India, 2021.
5. HC seeks Centre's reply on petition challenging validity of section 15 of Hindu Succession Act alleging gender discrimination, in LegitEye, Aug 2021.
6. Proposal to amend Section 15 of the Hindu Succession Act, 1956 in case a female dies intestate leaving her self acquired property with no heirs (Report No 207), by Law Commission of India, 2008.
7. Consultation Paper on Family Law, by Law Commission of India, 2018.
8. Manju Narayan Nathan v. Union of India and another [CWP No. 14305 of 2021 (O&M)], High Court of Punjab and Haryana, August 2021.

Devendra Damle is researcher at the National Institute of Public Finance and Policy. Ajay Shah is researcher at xKDR Forum and Jindal Global University.

## Thursday, December 09, 2021

### Calling for applications: Post Graduate Programme in Public Policy at the Takshashila Institution

A pioneer in modern public policy education in India, the Takshashila Institution’s Post-Graduate Programme in Public Policy is designed for working professionals.It is targeted at dynamic individuals who wish to enter the growing professional sphere of policy, public affairs, governance and leadership, while pursuing their current occupations. The programme is academically rigorous and attuned to the current requirements of industry, media, social sector and politics. The PGP equips participants with a core set of skills in policy evaluation, economic reasoning, effective communication and public persuasion. Its emphasis is on how these skills can be applied to formulate and analyse policies in a variety of settings.

Submit your applications by 8th January

## Sunday, December 05, 2021

### Keshav Desiraju

by Naman Shah.

Honoring the dead is tricky, more so when their loss is so unexpected. I imagined decades more of dialogue and friendship with Keshav before having to reflect this way. We all know what he accomplished, so I won’t dwell on that. Besides, legacy making is problematic and I think Keshav would’ve found it to be quite a bore. Instead, I would like to remember what made him special so we might imbibe those qualities ourselves:

1. Keshav spent time with young people and he had a blast doing so. He was curious and carried no airs about him. On the receiving end, whether he agreed or disagreed with you, it was such a rush to be taken seriously. One could also not escape noticing how very kind that act was and wanting to do the same for others. I remember a brisk winter walk in the Purana Qila zoo with him and another friend, a designer without an inkling of the policy world. Keshav still tried, for some time, to explain to her what his typical day entailed and in the end accepted with good humor and grace her synopsis “so you just sit in meetings and sign lots of papers?” as the superior if unflattering summary.

2. Keshav could acknowledge heartbreak. We know this from having seen it. His pre-election, overnight dismissal as health secretary by Congress, the party of his honored grandfather no less, broke him. He did not need the position to define himself, rather it was the sense of betrayal and losing a long awaited opportunity to do something of meaning (Keshav had turned down promotion twice to lead other ministries for what he saw as his best chance to make a difference in the misery of many). To outward appearances, he may have masked his emotions well. He remained active in many groups and found other new meanings. But underneath, there was pain, and his energy was never the same. For me, and I’m sure many of us, his experience had personal import. I had to reorient my theory of change, for if he couldn’t move the beast from within, what chance did I have?

3. Keshav always made space for others. I mean this both at the level of the individual and in his role in governance. For the former, Keshav was never too busy. We met during work hours for chai. He could spend the weekend sitting with his elderly aunt. He didn’t succumb to the modern plague of busyness and never invoked time scarcity as a status symbol. He thought it appropriate to write back to others who reached out to him. Unlike many of his peers, he identified as Keshav and never referred to himself as ‘the Government’. In the social realm, Keshav was a pluralist. He brought in a broader perspective to Nirman Bhawan, i.e. beyond the typical multilateral and Ansari Nagar crowd that are mustered for such things. He also made it a point to travel outside those confines. I can recall a vigorous nighttime meeting with our malaria team in Orissa. More than simple diversity, I think he sought the credibility and competency from those doing daily, direct work. Whether or not he had read Sen’s Positional Objectivity, his actions lived its message. The view from Delhi is limited. Also, ‘small’ things outside the Centre mattered. Or, at least, there was some justice in getting them resolved. In the midst of drafting national law, he pushed the NBME to expand nascent Family Medicine training at a handful of wonderful, small hospitals scattered in our hinterland.

4. Keshav loved to learn. While I admire and share the drive to fix problems, seeing the world in that lens alone gets bleak. Only making terrible situations passable misses the full range of human experience. He explored the beauty of literature, music, and museums. Keshav was joyous about these and, in sharing that joy, enriched those around him. At least ten books, both gifted by and borrowed from him, remain with me. To learn is to be open and to be open is to be liberal. From his philosophy, policy approach, and here, culturally, Keshav was the consummate Nehruvian Indian. The Oxbridge accent helped that impression too I guess. I am grateful to him as my introduction and living interlocutor to the rich, though diminishing, world of liberal Indian thought and politics.

5. Finally, Keshav was a terrific listener. There’s nothing to add here, as all the prior traits attest to this. His ability to listen was the foundation of the rest of the above. It was the simple basis for his widespread admiration and now its absence for our collective mourning.

I’ll end with what I think was the peculiar, though perhaps not for him, way we met. I had dropped by IIC for a mental health conference organized by colleagues. At some point they introduced me to Keshav, one of the speakers, and we found ourselves discussing literature including how much we both enjoyed Beteille’s essay My Two Grandmothers. He then asked me what I was currently reading. It was Guha’s The Last Liberal, and then, sheepishly, as we bid farewell, inquired whether I had read the dedication. I hadn’t and imagine my surprise when I did so after reaching home. The most civilized of civil servants indeed.

## Friday, November 19, 2021

### The lowest hanging fruit on the coconut tree: India's climate transition through the price system in the power sector

by Akshay Jaitly and Ajay Shah.

The world is projected to emit about 50GT of CO2 per year by 2055. Climate scientists say (net) emissions need to be ended by 2055, in order to avoid catastrophic events with reasonable probability. At present, India is emitting 2.5GT per year with a long term trend growth rate of about 5%. India is the 4th largest source of CO2 in the world, accounting for 7\% of emissions, with emissions that are roughly as large as those of the European Union. In a new paper,, we engage in strategic thinking about India's decarbonisation.

Decarbonising any economy is a large and complex problem. The electricity sector is a key site of the carbon transition, as it directly makes CO2 (e.g. by burning coal and gas), and because decarbonisation in other areas (e.g. cooking) involves switching away from fossil fuels to electricity. The sector is formally organised, which makes it more susceptible to policy intervention. Thus, in every country, decarbonisation calls for a large modification of the resource allocation in the electricity sector. Technical and business model decisions are required at each location in an economy about the optimal mix of renewables, storage and demand-side adjustment for the zero emissions world.

The Indian electricity sector is poorly placed to perform the required modification of this resource allocation. At present, it is a centrally planned system that is under growing financial stress. The process of private investment in electricity has lost momentum. Resource allocation is inefficient owing to multiple prices and a command-and-control system, rather than one based on producers and users that respond to prices. The command-and-control system works poorly in steady state, and particularly poorly when large changes in the resource allocation are required. By imposing enlarged costs upon the economy, a centrally planned decarbonisation runs the risk of greater political difficulties. The electricity sector is thus the critical choke point in India's climate transition.

Looking forward, the problems of the electricity sector are likely to deepen. Rising Indian emissions in coming years will sit uneasily alongside a decarbonising world. Regardless of the speed at which Indian policy makers might desire a change in course, there are forces reshaping the behaviour of Indian firms which are narrowing the options. Indian firms now operate under international asset pricing, and ESG investment has changed the incentives of Indian firms to favour buying and selling renewables. Some large economies could, in coming years, introduce trade taxes upon the carbon content of Indian exports. This would additionally induce Indian firms to desire reducing emissions in their supply chain. The cross-subsidy system within the electricity sector will come under increasing stress when buyers see renewables inducing some combination of a lower cost of capital, a lower operating cost and reduced trade barriers.

For 30 years now, political and fiscal resources have been expended in periodic incremental reforms of the electricity sector. These have not delivered the desired results. It is unlikely that similar efforts will work in coming years. In the meantime, 2021 is likely to be a turning point in the demands made upon the electricity sector owing to the carbon transition.

The climate transition is one of the most complex problems in Indian public policy and will now be subject to the new commitments made at COP26. A coherent strategy needs to be established and articulated, which can reshape the behaviour of a billion private persons across space and time.

This involves going with the grain of the price system, i.e. stepping away from the command-and-control system. All firms in the electricity sector need to be creatures of the market economy, which constantly reshape technology and business models in response to prices. Such firms have the incentive and the ability to look at the changing landscape of technology, financing and carbon taxation, and solve local maximisations that yield the correct engineering and business solutions all across the country. This distributed intelligence, this self-organising system, processes information better, values profit over conservatism and populism, engages in a process of search with risk-taking where some win and some lose, and avoids the state capacity constraints that hamper the central planning system. It will achieve the required Indian climate transition at a lower cost to the economy when compared with a centrally planned path.

Under an electricity sector that is grounded in the price system, there is a clear pathway to the climate transition: the single instrument of the carbon tax. Following a 5-10 year reform process of the electricity sector, the Indian state would announce levels of carbon taxation for the next 25 years, based on international commitments towards decarbonisation and net zero. Private persons would respond to these numerical values with business and technological strategies that are optimal at every location in the country. Every five years, policy makers would review the emissions, and modify the trajectory of taxes for the coming 20 years. Policy makers would control this one lever -- the carbon tax -- and the decarbonisation of the economy would be achieved through private decisions on the demand side, in generation and in storage.

Without a carbon tax, the union government lacks instruments for carbon policy, and intricate regulatory activities will induce enhanced costs upon the economy. Without an electricity sector that is organised around the price system, the resource allocation will be distorted thus enhancing the economic cost of decarbonisation. The optimal way forward is a combination of electricity regulation at state governments, a carbon tax led by the union government, and a private electricity sector organised around the price system.

While this appears to be an attractive vision, it is also a difficult policy project. Immense effort has been put into electricity reform in the past, by insightful policy makers. These leaders of Indian electricity reform, of the last 30 years, stayed within the strategy of a centrally planned electricity system. Why do we believe that things could work differently today?

There are six aspects in which the present situation is different, which creates a pathway to the fundamental reform that was elusive for the last 30 years: (1) There is greater understanding of the political economy landscape, and it is possible to design bargains where the losers from the reform are compensated. (2) State capacity in regulation is essential for the operation of an electricity sector organised around the price system, and there is now a greater understanding in India of how to establish the objectives and methods of regulation. (3) There is a path to electricity reform, one state at a time, which is more tractable and feasible when compared with grand schemes led by the union government which apply to the entire country. (4) The materiality of climate policy in the international discourse has shifted the political salience of domestic electricity reforms. Alongside this, the domestic policy envelope on establishing more market-led solutions has improved. (5) It is possible to fund the transition. (6) The fiscal cost of upholding the status quo in the electricity sector is likely to rise.

## Monday, November 15, 2021

### Lessons from the COVID-19 vaccine procurement of 2021

by Charmi Mehta and Susan Thomas

### Introduction

The recent announcement on procurement and project management shows a heightened policy interest in improving how government contracts with private parties for projects. However, several problems in public procurement in recent times have been in the procurement of goods. The most visible were the failures in vaccine procurement in the first half of 2021.

In the middle of 2020, at the time of the first pandemic lock-down, Serum Institute ("SII"), an Indian firm, had been gearing up to manufacture the Astrazeneca vaccine (a.k.a. Covishield). The union government placed advance orders with SII and Bharat Biotech in January 2021 for doses that would cover 0.6% of the population with two doses. Deployment of Covishield began in the UK on 4 January 2021 and the first vaccination took place in India on 16 January 2021. The union government's vaccination program was the only one available in the country, and it was delivering about 2 million doses a day in April and May 2021. The surge of the disease raised questions about the efficacy of this program. The union government changed course with a press release on 19 April 2021 through which state governments could also work on vaccination if they desired and the procurement could be done directly from global suppliers and manufacturers (Agarwal and Shah, 2021).

It was a difficult time to buy vaccines. The Union government had a unique power to indemnify an overseas vaccine producer against legal liability, without which no overseas firm was willing to sell into India. Sub-national governments did not have this power, and were thus not able to purchase from firms like Moderna or Pfizer. Some global firms refused to transact with sub-national governments.

A certain set of state/city governments started on the process of procuring vaccines directly, in an attempt to do better on managing the disease within their states. Tenders to procure COVID-19 vaccines were published by 14 para-statal agencies. Of these, five were successful in attracting bids. Vaccine purchase by states largely ended by June, when the union government declared on 6 June 2021 that it would buy 75% of the total vaccines manufactured in India, and supply vaccines to states.

From a research perspective, this was a natural experiment where multiple state governments tried to solve the identical problem at dates that were just a few days apart. While the union government had negotiated contracts for vaccine purchase, the state governments chose to engage in open, competitive, global tendering. We hand-collected a data-set by breaking down published tender documents, and extracting fields that gave us insights into the procurer details, details of the bidding process including tender timelines, eligibility criteria for bidders, quantities to be procured and quality/storage requirements, procurement price constraints, payment features, delivery schedules and locations.

We do not observe whether a state government actually purchased vaccine or not. Information in the public domain stops at observation of responses to tenders.

This dataset gives us an opportunity to see differences in purchasing strategy and to look back at these experiences, in order to obtain insights on many questions: What kinds of states tried to buy vaccines? What were the features of their attempts? What states appeared to fare better? What lessons can we draw, from this episode, for better government contracting, in an emergency and in normal times?

We find that existing contracting processes have significant flexibility, particularly when procuring in emergency situations. The tenders published had flexibility of awarding contracts at prices away from the default L1, as well as in choosing efficient delivery schedules and locations. These were evident across all the tenders we studied. But this flexibility was not sufficient to attract bids for the tenders. Instead, what appeared to matter was the speed to tender and speed to award. Further, this was the first episode of direct procurement by state governments. The lack of prior experience and standing in the global vaccine market place was the essence of low state capacity.

### What is the legal framework governing vaccine procurement in India?

I. Procurement of vaccines In India, there is a legal framework for the procurement of drugs, but not one to directly procure vaccines (Kaur et al, 2021). In the National Vaccine Policy (2011), Section 6.4 states the following on vaccine procurement:

1. All UIP (Universal Immunisation Programme) vaccines are purchased at the central level for distribution to the states.
2. While the UIP vaccines are purchased by the central government from indigenous sources, Oral Polio Vaccines (OPV) for mass immunization campaigns as well as Japanese Encephalitis (JE) vaccine is procured through other mechanisms. OPV immunization was conducted as part of a World Bank, WHO and UNICEF joint campaign that sought to eradicate polio in India (World Bank 2014). Likewise, the JE immunization programme was coordinated by WHO, UNICEF and PATH, who negotiated vaccine supplies from China (PATH 2019).
3. There are three takeaways about the Indian vaccine procurement from this: (1) Vaccines are usually procured only by the Union Government; State Governments do not routinely procure vaccines. (2) The Union Government usually procured vaccines solely from domestic suppliers. (3) The Union had additional support from international agencies for both vaccines that are globally tendered.

II. Procurement in emergency situations Several provisions in the Manual of Procurement of Goods (2017) ease competition requirements in an emergency cases.

1. There is a relaxation of the requirement to procure solely from domestic sources. Conditions for Global Tender Enquiries are listed in Section 4.3 and 4.4 of the Manual as Where Goods of required specifications/quality are not available within the country and alternatives available in the country are not suitable for the purpose; in case of non-existence of a local branch of the global principal of the manufacturer/vendors/contractors;or Requirement for compliance to specific international standards in technical specifications; or the absence of a sufficient number of competent domestic bidders likely to comply with the required technical specifications, and in case of suspected cartel formation among indigenous bidders.'

2. There is also a relaxation in using L1 tendering as the sole mode of tendering. The Manual states that Limited Tender Enquiry procedures should be default mode of procurement when the estimated value of procurement is between Rs. 2.5 lakh to Rs. 25 lakh.'

3. Section 4.7 of the manual permits single tender enquiries in case a situation of emergency warrants goods/services to be procured from a particular supplier. 'In case of emergency procurement, facility of withdrawing requisite advance cash amount and its subsequent accountal may also be considered', whilst procuring through a direct contract. In case of emergency, the purchaser may purchase the same item through ad hoc contract with a new supplier.

4. In all these cases, there is a greater onus on the procuring entity to ensure that value-for-money is ensured.

### Observations about the vaccine procurement by states

Who procured?

Of the 33 states and union territories in the country, 14 published tenders between May to June. The others were either unresponsive to the situation or concluded that purchase was infeasible. As an example, the Punjab Government approached manufacturers but Moderna refused to contract with them. Punjab was not one of the states that put out a tender for vaccines.

Eleven out of 14 tenders were issued by independent medical services agencies, and three were issued by government ministries/departments. The literature suggests that organisational efficiency is often better in independent agencies as compared to ministries or departments, owing to their internal capacity, audit mechanisms and higher accountability mandates. Three out of the five tenders that received responses were issued by independent agencies/societies/corporations in charge of medical services procurement for the state. However, most of the states that did not receive bids procured through independent agencies.

Did tender timelines matter?

The figures show the tender timelines as the number of days from the starting date of 19 April to the 23 June 2021 (which is the day after the Uttar Pradesh closed its tender on 22 June). The coloured portion of the time line shows the period from when the tender was published to when it was closed. Figure 1 shows the states that received bids, and Figure 2 shows the states that received no bids.

#### Figure 1: States that received bidsFigure 2: States that did not receive bids

From the starting date of 19 April, most states took 25-30 days to issue tenders. Uttar Pradesh and MCGM published tenders within 12 days, while Madhya Pradesh, Haryana and Delhi took more than 30 days. Uttar Pradesh kept the process going for the longest period, i.e. 34 days. In contrast, MCGM and Maharashtra closed within 6-8 days. The Maharashtra state tender was issued the day the MCGM tender first closed.

There is considerable variation in tender timelines. For example, Odisha had a 21-day tender open period and received responses, while Delhi had a 10-day tender period but did not receive responses. But from Table 1, we see that the average values of the timelines are different for the two samples. For example, on average, the states that did not receive bids took 4 days more to publish the tender compared to those that did receive bids. The difference is larger for the days that the tender remained open. States that did not receive bids kept the bids open for almost two weeks longer on average than those who did receive bids. In a period of great supply shortage, speed in closing the tenders appear to be more attractive to bidders.

Table 1: Comparison of timelines

Median days to start 25 29
Average days to start 25.4 29.9
Median days of tender being open 8 21
Average days of tender being open 10.2 19.22
Median number of corrigenda 1 1
Average number of corrigenda 1.1 1.2
Average quantity (million single doses) 25.6 17.6

Our research in government contracting has revealed the common procedure of weak preparatory work followed by numerous corrections to the tender documents, termed corrigenda (Roy and Sharma, 2021). There were corrigenda to some of the vaccine tenders. However, the number of corrigenda to a tender does not serve to differentiate between states that received bids or not. The median number of corrigenda issued across both sets is 1.

Finally, we compared the average quantity tendered for, and the states that received bids had a larger quantity requirement on average than those that did not receive bids.

Did payment terms matter?

The problem of payment delays in public procurement is significant (Mannivanan and Zaveri 2021). This has adverse effects on the perception of participating bidders and the cost of doing business with the government. We know from public reports that the Union Government was paying an advance to manufacturers are part of its negotiated contracting approach. However, most of the 14 tenders did not have advance payment, other than Odisha (which did receive bids) and Tamil Nadu (which did not).

Was there flexibility in the tendering process?

Rigidity in tendering processes such as adherence to L1 (lowest price bid) awards is often cited as leading to constrained optimisation for procuring entities. In contrast, the tenders for COVID-19 vaccines showed flexibility in the procurement process, from awarding contracts to bids beyond L1 to allowing for significant differences in tender parameters such as quantity, delivery, and who can bid. We find the procurers were empowered to empanel a larger number of suppliers to distribute their total requirement amongst bidders.

Was there expertise to design complex, non-standard tenders?

A reading of the tenders suggest a mechanical replication of standard drug procurement tender. In certain cases, tenders contained text referring to drugs rather than vaccines. So while there were specific areas where there was considerable expertise deployed (such as the variation in delivery schedules where manufacturers were required to submit a schedule of delivery and there was a clearly stated preference for the soonest supply), such lapses suggest that greater state capacity needs to be developed to handle complex goods procurement. In a simplistic view, standard tender templates that minimise ground-level discretion are favoured, e.g. as a pre-requisite for international funding agencies (World Bank 2021). However, there is no escape from deep rooted capabilities in contracting for every contracting organisation; mechanical use of templates is unlikely to work well.

In summary, our analysis finds some covariates that differentiate the states that were able to attract bids for the supply of the vaccine. What stands out is the speed to tender and to have a short tender period. In our data-set, we see a minimum time taken of 20 days for the most speedy tender issuance. While procuring entities must take adequate time to ensure value for money on contracts, lengthy tender cycles also tend to discourage bidders who must lock-in capital and resources in the anticipation of an award (National Audit Office 2007). Even in India, the Manual of Procurement of Goods 2017 prescribes a period of 30-45 days for tender processing, as delays in finalising procurement deprive the public of the intended benefits and results in lost revenues and cost over-run. If speed to issue tenders is important for procurement efficiency, then it is important that procurers must have the capacity to do so.

### Conclusion

In this article, we have looked at a moment of sharp change in the rhythm of government contracting in India. At the height of the second wave of the pandemic, there was a rush of vaccine purchase by at least 14 Indian sub-national government organisations, within days of each other. Only five of these got bids. Within weeks after, sub-national governments stopped trying to buy vaccines.

We have documented the numerous constraints these organisations faced. Contrary to popular perception about the rigidity enforced by procurement laws and rules in India, our examination of different tender documents reveal that there was significant variation across tenders. There were important constraints in the form of private firms who were skeptical about dealing with Indian government organisations. Private firms are not confident about timely payments. Some overseas vaccine sellers required an indemnity which could only be issued by the union government. Some overseas firms refused to deal with sub-national governments.

The main finding of this article is that even when presented with supreme urgency and the highest prioritisation of the political leadership, it was often not possible to successfully buy vaccines. Given that vaccine procurement has always been undertaken by the union government, state governments were permitted to procure a commodity that they had scarce experience in doing, and in a market where they had no previous experience or credibility. Fire-fighting and "mission mode" works poorly. There is need to develop state capacity in calm times before they being asked to perform in an emergency (Kelkar and Shah 2019). State capacity can only arise slowly. A stable team of policy practitioners needs to engage in a given fixed activity (e.g. vaccine purchase from the global market) repeatedly. An ongoing relationship needs to be established with dozens of private firms. There needs to be continuing and repeated interactions through which learning takes place, and further, gets encoded into purchase manuals and document templates. Once such a framework is in place for many years, it would become possible to readily purchase vaccines in a given government organisation. If such a framework is not in place, episodic government contracting in a crisis management mode is unlikely to succeed.

### References

Amrita Agarwal and Ajay Shah, An important change of course by policy in Indian Covid-19 vaccination, The Leap Blog, 20 April 2021.

Matt Apuzzo and Selam Gebrekidan, Governments Sign Secret Vaccine Deals. Here’s What They Hide, New York Times, January 2021.

Centre for Vaccine Innovation and Access, Indias leadership in the fight against Japanese encephalitis, PATH India, 2019.

Chartered Institute of Public Finance and Accountancy, Good Governance in the Public Sector, 2013.

Ruchika Chitravanshi and Sohini Das, Covid-19 vaccination: Govt books 440 million doses with 30% advance, Business Standard, June 2021.

Department of Expenditure, Ministry of Finance, Manual of Procurement of Goods 2017, Government of India, 2017.

Atul Dev, COVID-19: ‘Panic’ among India health workers over PPE shortages, Al Jazeera, March 2020.

Harleen Kaur, Ajay Shah and Siddhartha Srivastava, How elements of the Indian state purchase drugs, xKDR Working Paper 5, August 2021.

Vijay Kelkar and Ajay Shah, In Service of the Republic, Penguin Random House India Private Limited, 2019.

Pavithra Manivannan and Bhargavi Zaveri, How large is the payment delays problem in Indian public procurement?, The LEAP Blog, March 2021.

Ministry of Health, Family and Welfare, National Vaccine Policy Government of India, 2011.

Ministry of Health and Family Welfare, Revised Guidelines, Government of India, May 2021.

Ministry of Statistics and Programme Implementation, Government of India, 2021.

Atri Mukherjee, Regional Inequality in Foreign Direct Investment Flows to India: The Problem and the Prospects, Reserve Bank of India, 2011.

National Audit Office, Improving the PFI process, Office of the Comptroller and Auditor-General, National Audit Office, United Kingdom, 2007.

Press Information Bureau, Government of India announces a Liberalised and Accelerated Phase 3 Strategy of Covid-19 Vaccination from 1st May, Ministry of Health and Family Welfare, Government of India, April 2021.

Vikram Rajan, A Polio-Free India Is One of the Biggest Achievements in Global Health, World Bank, 2014.

Shubho Roy and Anjali Sharma, What ails public procurement: an analysis of tender modifications in the pre-award process, The Leap Blog, November, 2020.

Arup Roychoudhary, Centre should share some financial burden of states' vaccine procurement, Moneycontrol, May 2021.

Pankaj Shah, Uttar Pradesh amends global vaccine tender, Pfizer, Moderna can now bid, Times of India, May 2021.

The Hindu, Moderna refuses to sell vaccines directly to Punjab, 23 May 2021.

World Bank, World Bank PPP - Legal Resource Centre, 2021.

xKDR Forum, Government vaccine procurement, August 2021.

### Acknowledgements:

Charmi Mehta is a researcher at xKDR Forum and Chennai Mathematical Institute and Susan Thomas is a researcher at xKDR Forum and a Research Professor of Business at Jindal Global University. We thank Diya Uday and Bhargavi Zaveri-Shah for their enthusiastic support and intellectual inputs into the design of the tender dataset, and Harsith Ravichandran for research and data assistance.

## Tuesday, October 26, 2021

### Position for researchers In the field of Public Finance and Public Procurement

xKDR Forum is looking for researchers to work on a project with the Chennai Mathematical Institution (CMI), involving studying the impact of public finance management and public procurement issues on the private sector. xKDR Forum is a Mumbai-based inter-disciplinary group of researchers working in the fields of household and firm finance, financial markets, public finance management, public procurement and the land market. In these fields, the organisation engages in academic and policy oriented research, and advocacy.

At present, we are looking for candidates for the profile of Research Associate and Research Lead to participate in an ongoing research program in the field of public finance management and procurement.

Our work in this field includes:

1. How elements of the Indian state purchase drugs, by Harleen Kaur, Ajay Shah, Siddhartha Srivastava.

2. Lessons from the Delhi Metro by Pavithra Manivannan, Business Standard, 28th July 2021.

3. Litigation in public contracts: some estimates from court data by Devendra Damle, Karan Gulati, Anjali Sharma and Bhargavi Zaveri, The LEAP Blog, 26th May 2021.

4. How large is the payment delays problem in Indian public procurement? by Pavithra Manivannan and Bhargavi Zaveri, The LEAP Blog, 22nd March 2021.

5. Monetisation lessons from NHAI by Charmi Mehta and Bhargavi Zaveri, Business Standard, 10th March 2021.

6. The bottleneck of government contracting, by Ajay Shah, Business Standard, 25th January 2021.

7. What ails public procurement: an analysis of tender modifications in the pre-award process by Shubho Roy and Anjali Sharma, The LEAP Blog, 26rd November 2020.

8. The payment woes of the Municipal Corporation of Greater Mumbai by Anjali Sharma and Bhargavi Zaveri, Business standard, 23rd November 2020.

9. The problems of public procurement and payment delays: A review of the recent literature by Sourish Das and Rabia Khatun, The LEAP Blog, 23rd November 2020.

10. Does India need a public procurement law? by Shubho Roy and Diya Uday, The LEAP Blog, 19th August 2020.

As a research associate, you will work on project deliverables under the supervision of a senior researcher. You will be expected to implement defined research tasks, work on written documents, reports and articles and interface with external collaborators and stakeholders. The requirements for the role of a research associate are:

• An academic background in the fields of Data Science, Law, Economics and / or Public Policy.
• Minimum one complete year of work experience, preferably in a research intensive organisation.

As a research lead, you will work on project deliverables along with the research head. You will be expected to jointly develop research outputs, work with research associates as well as with collaborators, engage in discussions with external stakeholders and generate at least one working paper in the field each year. The requirements for the role of a research lead are:

• A strong academic background in the fields of Data Science, Economics and / or Public Policy, with at least two research papers in any of these fields.
• At least three years of work experience, preferably in a research intensive organisation; very high quality spoken and written English. Experience with running surveys is additionally desirable.

For both roles, candidates with fluency in quantitative skills are preferred. Competency in programming language 'R is a bonus. In keeping with the current work environment at the organisation, a working knowledge of the document preparation system 'Latex as well as the operating system 'Linux are added advantages.

You must be comfortable with working in an inter disciplinary research environment consisting of people from varying backgrounds such as economics, law, public policy and data science. You must be curious and passionate about research and willing to work on independent outputs as well as in teams.

The remuneration offered will be commensurate with your skill and experience and will be comparable with what is found in other research institutions. Interested candidates must email their resume to careers@xkdr.org with the subject line: Application for "Research positions, public finance management"

### Position for researchers in the field of Household Finance

xKDR Forum is a Mumbai-based inter-disciplinary group of researchers working in the fields of household and firm finance, financial markets, public finance management, public procurement and the land market. In these fields, the organisation engages in academic and policy oriented research, and advocacy.

At present, we are looking for candidates for the profile of Research Associate and Research Lead to participate in an ongoing research program in the field of household finance.

Our work in this field includes:

1. But clouds got in my way: Bias and bias correction of VIIRS nighttime lights data in the presence of clouds, by Ayush Patnaik, Ajay Shah, Anshul Tayal, Susan Thomas.

2. Distribution of self-reported health in India: The role of income and geography, by Ila Patnaik, Renuka Sane, Ajay Shah, S. V. Subramaniam.

3. Does the quality of land records affect credit access of households in India?, by Susan Thomas, Diya Uday.

As a research associate, you will work on project deliverables under the supervision of a senior researcher. You will be expected to implement defined research tasks, work on written documents, reports and articles and interface with external collaborators and stakeholders. The requirements for the role of a research associate are:

• An academic background in the fields of Data Science, Economics and/ or Public Policy.
• Minimum one complete year of work experience, preferably in a research intensive organisation.

As a research lead, you will work on project deliverables along with the research head. You will be expected to jointly develop research outputs, work with research associates as well as with collaborators, engage in discussions with external stakeholders and generate at least one working paper in the field each year. The requirements for the role of a research lead are:

• A strong academic background in the fields of Data Science, Economics and / or Public Policy, with at least two research papers in any of these fields.
• At least three years of work experience, preferably in a research intensive organisation.

For both roles, candidates with fluency in quantitative skills are preferred. Competency in programming language 'R is a bonus. In keeping with the current work environment at the organisation, a working knowledge of the document preparation system 'Latex as well as the operating system 'Linux are added advantages.

You must be comfortable with working in an inter disciplinary research environment consisting of people from varying backgrounds such as economics, law, public policy and data science. You must be curious and passionate about research and willing to work on independent outputs as well as in teams.

The remuneration offered will be commensurate with your skill and experience and will be comparable with what is found in other research institutions. Interested candidates must email their resume to careers@xkdr.org with the subject line: Application for "Research Positions, Household finance"

## Monday, October 25, 2021

Adam Feibelman is a Professor of Law and Director of the Center on Law and the Economy at Tulane Law School.

## Sunday, October 24, 2021

### Resolving municipal distress in India

In recent years, municipal bodies in India have been increasingly accessing the public debt markets. In the four year period beginning 2017 to August 2021, nine municipal corporations made bond issuances aggregating to Rs. 30 billion. In contrast, in the immediately preceding two decades, ten municipal bodies had issued bonds aggregating to less than half this amount. This is generally a positive development. Tapping financial markets expands the resources available to cities for critical services and development. Like firms that access the public markets, municipal bodies that subject themselves to market discipline are held up to higher standards of transparency and local governance. A key missing element in this story, however, is the lack of clarity about municipal creditors' rights in the event of a default by a borrowing municipal body. In a chapter published in the 2021 annual publication of the Insolvency and Bankruptcy Board of India titled Quinquennial of Insolvency and Bankruptcy Code, 2016, we argue that the time is ripe for policymakers in India to develop a re-organisation framework for financially distressed municipal bodies. We evaluate the potential of a formal bankruptcy regime as the model for such a framework.

### The case for a municipal re-organisation framework

We make three arguments. We begin by demonstrating the weak state of municipal finances in India. For example, in the decade beginning 2007-08, municipal revenues stagnated at 1% of the GDP, significantly lower than comparable countries. Municipal bodies (urban local bodies or ULBs) are disproportionately reliant on state governments for grants in aid and loans. They are shown to have consistently under-invested in capital infrastructure. The pandemic has exacerbated the weak state of municipal finances in India. The size of the municipal debt market is, therefore, likely to grow as municipalities seek additional resources.

Second, we argue that the current legal regime in India provides neither opportunities for collective action against municipal debt default nor clarity on the treatment of creditors (bond holders, banks and financial institutions, state lending agencies, employees and vendors) in the event of the borrowing municipal body's insolvency. Very few municipal bonds are guaranteed by the state government. At one end of the spectrum, this creates the possibility of aggressive sale of public assets, owned and operated by the ULB for the benefit of the public, by 'powerful' creditors of the ULB. On the other end of the spectrum, this deprives the system of the benefits of early recognition of financial distress in ULBs. It minimizes the possibility of salvaging a ULB's operations through a mutually negotiated and court-supervised re-organisation exercise. The growing levels of municipal borrowing from the public markets and the impact of the COVID-19 pandemic reinforce these concerns.

Third, the standard re-organisation framework applicable to private borrowers does not apply to ULBs as they provide public goods, and most of their assets are presumably for public use. Several countries have enacted differently designed re-organisation frameworks for resolving distressed municipal bodies. We highlight the key features of one such framework, namely, Chapter 9 of the US Bankruptcy Code. To be sure, Chapter 9 has its critics. However, with more than 100 municipal entities having used Chapter 9 for their resolution, it has proven to be a viable municipal bankruptcy regime. It is a rule-bound process, but one that is flexible enough to be able to address the complex problems of government financial distress, which inevitably combine important commercial concerns with essential necessities of social well being. At the least, it helps frame a number of threshold and critical questions that should be part of any discussion on the reorganization of distressed municipal entities.

### Key legal and institutional challenges

We conclude by underscoring some key legal and institutional challenges to the idea of a municipal bankruptcy law in India. First, while bankruptcy and insolvency is in the concurrent list of the Constitution, municipal governance is an intrinsically State subject. A union municipal bankruptcy legislation will raise complex questions of federalism and will require provisions that allow states to retain their autonomy in applying a union legislated bankruptcy law to their ULBs. What might be the institutional tools for preserving such autonomy?

Second, experience from the US suggests a pro-active role for courts in administering a municipal bankruptcy. Any framework in India will need to determine whether the court or administrator heading the process will have the power to supervise the functioning of public services during the ULB's insolvency proceedings. If so, this would be a fundamental departure from the design of the Insolvency and Bankruptcy Code, 2016, which seeks to minimise court intervention in the insolvency proceedings and provides for the appointment of Insolvency Professionals for running the debtor's operations. Similarly, the scope of relief that the process can legitimately provide in a ULB's bankruptcy proceeding will need to be considered. Can a resolution plan for a ULB contemplate an increase in taxes? Can it provide for the sale of the ULB-owned public property? How can it do so without impinging upon decisions that are the prerogative of a city level legislature or the state's power?

Enacting a municipal bankruptcy law will require the resolution of these questions and prolonged negotiations with states much like the enactment of the GST framework. However, this should not deter policymakers from beginning the process. The gains of a clear municipal bankruptcy framework, in the face of the severe impacts of the COVID-19 pandemic and the deteriorating state of India's cities, should provide a motivation for doing so. The fact that municipal bonds are set to become an important asset held by Indian households adds an additional imperative and responsibility to ensure that there is a framework in place for addressing municipal financial distress in India.

Adam Feibelman is a Professor of Law and Director of the Center on Law and the Economy at Tulane Law School. Bhargavi Zaveri-Shah is a doctoral candidate at the National University of Singapore.

## Monday, October 11, 2021

### But clouds got in my way: Bias and bias correction of nighttime lights data in the presence of clouds

by Ayush Patnaik, Ajay Shah, Anshul Tayal, Susan Thomas.

Night lights is an opportunity to measure prosperity, using an eye in the sky, without requiring institutional capacity in economic measurement on the ground. The first wave of research used the DMSP-OLS dataset, which had annual images from 1992 to 2013. An improvement in this field was the launch of Suomi-NPP in 2012 where the pixels are smaller (0.5km x 0.5km), and the frequency shifted from annual to monthly. A substantial economics literature has found innovative applications of this data. When research projects are set in India, most researchers have relied on the district-level dataset that is generously released by the World Bank.

• We suggest there is a downward bias in the radiance, that is associated with the presence of clouds. The magnitudes are economically significant, e.g. -28% in July for Bombay.
• We propose a bias correction scheme that partly corrects for this bias.
• We have released the source code which implements our improved methods and conventional methods, so they can be used in data construction by applied economists and for methodological research in remote sensing.

#### The problem of bias

As an example, consider the radiance seen at the satellite from the city of Bombay:

The red line is the aggregate radiance from Bombay. It shows peculiar annual dips. The vertical dashed lines mark July months, where the monsoon is strongest (on average). The lower graph is the number of cloud-free pixel-days that make up this aggregate radiance. There is a pattern: odd dips in radiance that are correlated with low values for the number of cloud-free pixel-days.

Is this just the seasonality of income, which happens to be correlated with the seasonality of cloud cover?

The graph above juxtaposes the seasonal factors of monthly aggregate income in Bombay (the black line) vs. the seasonal factors of monthly aggregate radiance for Bombay (the red line). There is no seasonal dip of income in July as is the case with nighttime lights.

This is just an example, for the city of Bombay. The paper has large scale evidence about the presence of this problem more generally.

We conjecture that for a pixel, in a month with a low number of cloud-free images, even on those few days, there are light clouds which attenuate the signal, thus inducing a downward bias in the observed radiance.

#### A partial bias-correction scheme

When a pixel has both bright and cloudy months in the data, we are able to estimate the bias and correct for it.

There are pixels which are cloudy all through the year. Here, the bias is unidentified.

Our bias-correction scheme works cautiously, only modifying the data when there is high confidence that there is bias and we are able to estimate the magnitude of the bias. It reduces the bias but does not eliminate it.

As an example, consider Bombay:

As before, the black line has the seasonal factors of aggregate income in Bombay. The red line has the seasonal factors of conventionally cleaned night lights data. The dashed purple line has seasonal factors for the night lights data released by the World Bank.

The blue dotted line is the new bias-corrected night lights data. These seasonal factors are closer to the black line and an improvement upon the two conventional datasets.

Once again, Bombay is just an example; the paper has large scale evidence which demonstrates these gains. For the aggregate radiance of India:

Here also, the dotted blue line (the seasonality of the new night lights data) is closer to the black line (the seasonality of aggregate income in India), and fares better than the two conventional datasets (the World Bank's release or conventionally cleaned nighttime radiance).

#### Reproducible research

We have released the data and R code to reproduce all our calculations for Bombay. And, we have released a Julia package using which the new tools can be used for methodological research and applications. This software consumes a pixel-level NASA/NOAA VIIRS dataset and returns a bias-corrected pixel-level dataset which will readily fit into analyses of the existing NASA/NOAA VIIRS data. This is also the first open source package for conventional cleaning.

## Thursday, September 30, 2021

### Distribution of self-reported health in India: The role of income and geography

by Ila Patnaik, Renuka Sane, Ajay Shah and S. V. Subramaniam.

In health research, we study the causes and consequences of health at the individual level. This requires measurement of the health status of individuals. One simple path lies in asking a person: "Are you feeling well today?". This self-reported health' (SRH) is a measure that is easy to implement, and has limitations in that psychological factors are present. A significant global literature has emerged, which draws on this measure to explore the causes and consequences of health.

The CMIE CPHS is an important new dataset which has longitudinal data for about 170,000 households, measured three times a year. They measure SRH for each individual in each wave. This measurement of SRH, alongside a rich array of household characteristics, makes possible many interesting research projects. In a new paper, Distribution of self-reported health in India: The role of income and geography, we discern some new facts and phenomena about health in India, through this data.

We use data for calendar 2018 and 2019, which works out to 3.5 million observation of a person in a wave. These years were chosen in order to obtain a baseline description of health in India, while avoiding the pandemic of 2020 and the possible impact of demonetisation in 2017.

What do we find? On average, ill health is observed in 3.25% of the records. On average, people in India are unwell for about 12 days a year. There is a U-shaped curve in age, with higher ill health rates for the young and the old.

We get a nice map of the variation of the ill-health rate across the country. This is interesting, in and of itself, as it shows us something about health care requirements. However, some of this variation reflects geographical heterogeneity in income and age structure.

We estimate logit models which explore correlations between standard socio-economic measures and the ill-health rate. The important sources of variation turn out to be age, income and location.

We then focus on an approximately modal person. Model-based predictions for the ill-health probability are constructed for this individual. This yields a map of the predicted ill-health rate --

This shows the variation of ill-health in the 102 homogeneous regions' (HRs), after controlling for income, age structure and other standard socioeconomic characteristics. It is an interesting and new map. These results do not conform with the standard stereotypes of north vs. south. Epidemiological research is required in understanding what is at work in each of the difficult HRs. Major gains in the health of the people could potentially be obtained by focusing on these hot spots and finding the right public health interventions.

We then ask: are rich people healthier than poor people? As the rich fare better on nutrition, housing quality, knowledge and access to health care, we expect there would be such a correlation. This is indeed the case in the overall aggregate data. However, there is strong geographical variation in this correlation. Ill health and poverty are positively correlated in only half of the country. There are even HRs where the relationship is reverse -- where poor people report better health than the rich. Further, the two maps (the map of ill health of the modal person, and the map of the places where ill health is not positively correlated with income) show different patterns. They are distinct phenomena that invite further exploration.

## Tuesday, September 21, 2021

### Instant cross-border payments vs. current account inconvertibility

by Ajay Shah and Bhargavi Zaveri-Shah.

The Reserve Bank of India announced a project that may potentially link an Indian payments system, UPI, with PayNow, a peer-to-peer payment system operated by the Monetary Authority of Singapore. A UPI-PayNow linkage will facilitate instant peer-to-peer cross border payments. It would be a striking solution to the long-standing problems of high transaction costs faced by cross-border transactions. It would help increase India's internationalisation.

In this article, we examine the legal foundations for making this project a reality for the end consumer and merchant. We argue that connecting Indian payment systems with cross-border payment systems would face significant procedural complexities involving current account transactions. While UPI-PayNow connectivity is desirable -- as is connectivity between diverse cross-border payments systems -- barriers to convertibility on the current account can render this connectivity illusory.

### Current account inconvertibility

What does a desirable cross border payments system look like? It should allow economic agents to make and receive payments with high speed and low cost. It should impose the minimum inconvenience upon every user. In the field of international trade, there is a clear distinction between tariff barriers and non-tariff barriers, in recognition of the idea that there can be substantial barriers to trade even when an overt tariff barrier is absent.

As per India's commitment to the IMF's Articles of Agreement, Indian residents enjoy full current account convertibility. This means that Indian residents should be able to exchange Indian currency, free of restrictions, for any foreign currency of their choice at market determined or pre-fixed (in case of managed currency regimes) rates. Article VIII(2) of the IMF's Articles of Agreement codifies the obligation of full current account convertibility for its members, thus:

Subject to the provisions of Article VII, Section 3(b) and Article XIV, Section 2, no member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions.

Section 3(b) of Article VII deals with the replenishment of scarce currency. Section 2 of Article XIV deals with transitional arrangements. None of these provisions, which are more exceptional in nature, apply to normal circumstances.

A multilateral treaty such as the IMF's Articles of Agreement is given binding effect by enacting domestic law to that effect. In India, the International Monetary Fund and Bank Act, 1945 ("IMF Act"), was enacted to give effect to the IMF's Articles of Agreement. However, at the time of its enactment, the IMF Act excluded the said Article VIII(2) as India was not a fully current account convertible country at that time.

When India graduated to current account convertibility in 1993, the Foreign Exchange Regulation (Amendment) Act, 1993 amended FERA to reflect a more liberalised current account regime. However, it allowed the RBI to wield considerable discretion in introducing frictions for making and receiving cross-border payments on the current account. At the same time, the IMF Act was not amended to give binding effect to the said Article VIII(2) of the IMF's Articles of Agreement as domestic law.

After FERA was replaced by the Foreign Exchange Management Act, 1999, more transactions in foreign exchange became feasible for Indian residents than was once the case. However, the economic notion of full current account convertibility of being able to buy and sell foreign exchange, free of all restrictions, for current account transactions, was not realised in the new law. The FEMA, six years after the 1993 announcement, allows the Central Government to impose restrictions on current account transactions. The current account is less restricted than the capital account. But in 2021, Indian residents continue to face barriers to realising the benefits of full current account convertibility'. Several barriers, both substantive and procedural, exist that make current account transactions difficult or costly for the average Indian retail consumer and merchant, that are not found in countries that have current account convertibility. These barriers are of two types:

1. Some hurdles are explicitly imposed by the foreign exchange law and its ad hoc enforcement.
2. India has restrictions on capital account convertibility. To ensure that the payments ostensibly made or received for current account transactions are not applied towards settling obligations arising from restricted capital account transactions, banks are appointed as gatekeepers. Banks, in turn, have implemented an elaborate procedural machinery to effectively vet each foreign exchange transaction made by a consumer. This creates frictions that hinder current account transactions.

The IMF Articles of Agreement envisage this possibility and attempt to pre-empt it. Article VI(3) of the IMF Articles of Agreement, which allows members to impose controls necessary to regulate international capital movements, specifically provides that, "no member may exercise these controls in a manner which will restrict payments for current transactions or which will unduly delay transfers of funds in settlement of commitments."

There is a third set of rules and regulations under FEMA that violate the spirit of current account convertibility, even if not the strict text of the IMF's Articles of Agreement. These rules and regulations mandate exporters and earners of foreign exchange to repatriate their foreign exchange earnings within a certain period after their realisation. While this period is generally in the range of six to nine months, again, like all other provisions of FEMA, this too is amenable to revision by the RBI and the Central Government.

### Barriers to instant peer-to-peer cross-border payments

While the technicalities may differ across transaction type, the bank in question, the merchant and the jurisdiction of the counter-party involved, the hurdles that consumers and merchants face when making cross border payments for current account transactions can be broadly classified into three categories:

Legal restrictions on current account transactions

In exercise of the power conferred on the Central Government under the FEMA, the Central Government has enacted the Current Account Transaction Rules, 2000. These rules prohibit some current account transactions altogether. For example, they prohibit remittances for "hobbies" or the purchase of banned magazines. They also mandate the prior approval of the Central Government for certain types of current account transactions, such as remittances for cultural tours or publishing advertisements in foreign print media. For a third set of transactions, the rules impose caps that may be revised by the RBI from time to time. This effectively means that authorised dealers in foreign exchange must check the rule book when undertaking current account transactions, for they may fall in any of these categories. Particularly, since the restrictions are imposed by rules and legislation made by agencies (not the Parliament), the frequency of revisions is likely to be higher and allow for lesser transition time as they often take effect overnight.

Several restrictions against current account convertibility operate through rules about the payment instrument or payment service provider even when it is used for current account transactions.
The Current Account Rules, 2000 impose restrictions on the usage of international credit cards (ICCs) from an Indian issuer. Some of these are in the letter of the law. For example, the rules explicitly prohibit the usage of an ICC for making payment to foreign airlines in a currency other than INR. Other restrictions manifest themselves through enforcement processes. For example, there have been instances of the RBI having issued enforcement letters to holders of ICCs for availing cloud computing services by a foreign company not having operations in India. The basis of the enforcement actions was that the ICCs were meant to be used for current account transactions 'while on a visit outside India'. The outcomes and due process underyling the enforcement actions undertaken by the RBI are rather opaque. The RBI does not issue reasoned orders for its enforcement actions, unlike most other regulators in India. Owing to this opacity, we are not able to know whether holders of ICCs actually ended up paying fines for having used their credit cards for certain current account transactions and the legal foundations of such enforcement actions.
Similarly, until 2015, Indian residents could use the services of online payment gateway service providers (OPGSPs) for the receipt of export proceeds of upto USD 10,000. Later, in order to promote online e-commerce, the RBI allowed Indian importers to use the services of OPGSP to make payments of upto USD 2,000 for imports. Additionally, the RBI mandated OPGSPs that wish to facilitate cross border payments from or to India to set up liason offices in India.

Transaction vetting by banks

RBI has vested banks with the responsibility of acting as gatekeepers for ensuring that payments ostensibly made for current account transactions are not used for engaging in capital account transactions. Technically, this requires banks to vet every single cross border transaction in order to judge its compliance with the FEMA.
To make cross border outward remittances easier for Indian individual residents (as distinguished from corporate bodies and other artificial juridical entities), the RBI issued a Liberalised Remittance Scheme', which sets annual caps on the amount of foreign exchange that Indian residents can repatriate outside the country, for both capital and current account transactions. This means that making outward remittances requires a payer to fill up atleast one form swearing compliance with the limits and the terms and conditions of the LRS.
Counter intuitively, the friction is exacerbated for inward remittances in the INR denominated bank account of the recipient. To comply with the letter of the law, banks have put in place a system that requires the beneficiary to furnish the bank with a whole bunch of information, such as the purpose of the inward remittance, the bill numbers where the remittance is on account of exports, etc. This form is required to be filled up and submitted for every transaction. Depending on whether the recipient bank is a public sector bank or not and its operational efficiency levels, these forms may require to be furnished in hard copy by visiting a bank branch. It may involve a couple of phone calls from bank representatives asking this, that or the other clarification. For a first time or the occasional recipient of a foreign payment, this practically puts inward remittances on a T+1 settlement cycle!

Current account convertibility means that there is no difference between going onto an e-commerce website and buying from an Indian merchant vs. buying from an overseas merchant. But Indian residents are often asked to perform know-your-customer checks, uploading images of identity documents, when buying from an overseas merchants. In contrast, domestic purchases only require supplying money and not the burden of KYC procedures. This violates globally accepted notions of full current account convertibility, and will be a significant hurdle to making instant cross-border payments a reality for the average Indian consumer.

### The problem of convertibility on the current account

Current account convertibility means that cross-border transactions, for the purpose of current account activity, are as frictionless as domestic transactions. Many people believe that India is fully current account convertible; it is sometimes claimed that India has achieved current account convertibility in 1993 and is now inching towards convertibility on the capital account. This is an inaccurate depiction of where India is. There are explicit prohibitions, restrictions or tarriff barriers. There are procedural barriers that drive up the cost of cross-border transactions. There are threats of ad hoc enforcement or disparity across payment instruments or payment service providers.

At first blush, UPI-PayNow connectivity is a sweet and logical idea, there is the possibility of obtaining a quantum leap in reducing transactions costs for cross-border payments. However, it requires the invisible infrastructure of current account convertibility, which is at present lacking in India. The project of building UPI-PayNow connectivity is a great opportunity to re-open these questions and remove all the frictions, whether on paper or in practice, described above. Our objective should be to make India-Singapore payments on the current account as frictionless as (say) payments between the UK and the US.

This situation is not unique to the UPI-PayNow connection. The fintech revolution' is limited by infirmities of financial regulation in numerous dimensions. Many ideas that first appear eminently sensible tend to break down when placed into the Indian policy environment [example: regulatory sandbox].

Ajay Shah is a researcher at xKDR Forum and Jindal Global University. Bhargavi Zaveri-Shah is a doctoral candidate at the National University of Singapore.