Fair play in Indian health insurance

by Shefali Malhotra, Ila Patnaik, Shubho Roy and Ajay Shah.

India's National Health Protection Scheme (NHPS) aims to be the world's largest government-funded health insurance programme. As in the existing government-funded health insurance schemes, health insurance companies are likely to play a crucial role in the implementation of NHPS. In addition, the number of Indians purchasing health insurance (on their own) has grown in the past few years. Of the total out-of-pocket expenditure (80% of the total health expenditure), payments for health insurance premium have increased from 5.28% in 2013-14 to 6.51% in 2015-16. However, all is not well in this growing industry. This has raised concerns of fair play and efficiency in the industry.

While there is some literature on consumer protection concerns in the overall insurance industry, the existing literature on the health insurance industry in India is sparse. In a new paper, Fair play in Indian health insurance, we study the functioning of this industry through an analysis of the claims ratio and the complaints rate.

Efficiency in the insurance market is commonly measured through the claims ratio. The claims ratio is defined as the percentage of the total premium collected that is paid out as claims by an insurer. Claims ratio close to (but less than) 100% indicates that the insurer is efficient (low operating costs). Claims ratio above 100% indicates that the insurance company is paying more than it is collecting as premium. This implies that the insurance company is unsustainable and may go bankrupt. When the claims ratio is too low, there are concerns about consumer protection. It indicates that the insurer is charging too much from the consumers. Figure 1 shows the range of claims ratio that insurance regulators use as an indicator for the insurer's quality.

Fig 1. - Regulatory concerns associated with the claims ratio.

Our analysis of the claims ratio shows that the functioning of the Indian health industry is neither desirable nor sustainable. A part of the industry, the private stand-alone health insurers, appear to be overcharging its consumers. Between 2013 and 2016, the claims ratio of these insurers fell from 67% to 58%. Such low claims would have triggered mandatory refunds if these insurers were operating in the US. However, there are no regulations mandating minimum claims ratio in India. Another part of the industry, the government insurers, suffers from financial fragility. Group insurance businesses and government-funded health insurance schemes also raise concerns related to insolvency. We conclude that the evidence from claims ratio raises concerns about consumer protection and micro prudential regulation.

In addition to the claims ratio, the complaints rate is used to measure the quality of products in the insurance industry. The complaints rate is the number of complaints made by consumers of insurance (to a third party) in a year per million persons covered. Our analysis of the complaints rate shows that India has the highest complaints rate when compared with other common law jurisdictions: Canada, Australia, UK and California. This finding is probably conservative for two reasons. First, unlike other jurisdictions, Indian health insurance only covers hospitalisation. In addition to hospitalisation, other jurisdictions provide clinical visits, medication and some wellness care under health insurance. Thus, increasing the number of touch points and transactions, where failures can generate complaints. Second, India is a less litigious country than other jurisdictions. So, we must adjust the Indian complaints rate with the litigation rate (civil suits filed per hundred thousand persons). Table 1 is our estimation of the complaints rate in India and the compared jurisdictions for 2015-16. The last column is our estimation of India's litigation rate adjusted complaints rate (Column 3).

Table 1: Complaints rate for the year 2015-16 (Source: Authors' calculation)

Country	Complaints rate	India's complaints rate
	(2015-16)	(Adjusted)
India	360.72	-
Australia	178.51	1607.48
Canada	11.53	1511.81
UK	337.54	3837.44
California	351.19	6052.34

Putting these two factors together, we view the complaints rate that prevails in the Indian health insurance industry as a source of concern. We also read a large number of court orders settling health insurance disputes. One common thread which stood out was the absence of complexity in these disputes, most relating to arbitrary and illegitimate rejection of claims by the insurers.

When we investigate the sources of these problems, they are traced to infirmities in the regulatory framework governing the health insurance industry. We identify three issues in the regulatory framework. The first issue is deficiencies in the existing regulations. For example, the regulations are not clear on disclosures that insurance companies should make to its consumers, the manner in which disclosures should be made and the procedure for settlement of claims. The second issue is poor enforcement of existing regulations. The insurance regulator and the insurance companies seem to easily bypass their obligations under the regulations without any repercussions. The third issue is fundamental deficiencies in the design of the insurance ombudsman, in so far as its offices and day to day administration is controlled by the insurance industry. We then engage in a comparative law analysis, where each of these issues is analysed with respect to the legal systems of Australia, South Africa, US and UK.

Finally, we turn to existing strategies for reform in the Indian insurance sector. Financial Sector Legislative Reforms Commission, provides insights into the approach to consumer protection for financial services. The report comprises of two volumes. Volume I is "Analysis and Recommendation". Volume II is the "Indian Financial Code", a model law for the regulation of the financial sector. We engage in counter-factual analysis of the three identified issues in a hypothetical world, where the Indian Financial Code was enacted. We find that all the three issues are suitably addressed. We conclude that the Financial Sector Legislative Reforms Commission, provides an intellectual framework through which the problems of health insurance can be understood and solved. Implementation of these measures will have positive implications for health insurance in India.

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

Analysing the National Medical Commission Bill: Composition

Shefali Malhotra and Shubho Roy.

The Parliament referred the National Medical Commission Bill, 2017 (NMC Bill) to the Standing Committee on 2 January, 2018. This is the thirteenth legislative attempt (bills and amendments) to reform the Medical Council of India (MCI). Due to concerns about its functioning, the MCI has required interventions by the legislature and the judiciary. In this series, we analyse some provisions of the NMC Bill in light of what the experience of professional regulation teaches us.

Composition of NMC (Section 4)

Section 4 of the NMC Bill lays down the composition of the proposed NMC. In comparison with the 104-member board of the MCI, the new NMC board will have only 25 members. This is a welcome move. Literature shows that smaller deliberative bodies are more efficient than larger bodies (Council for Healthcare Regulatory Excellence, 2011; Klimek et. al., 2009). However, the other problem, which persists, is the domination of doctors in the regulator (20 out of 25 members will be from the health profession). Only three members will be experts from other fields, not representing the health profession. Just like the MCI, there is a high probability of regulatory capture of the NMC leading to poor outcomes for patients.

Of the 25 members, there will be twelve ex-officio members, eleven part-time members, a Chairperson and a Member Secretary.

The twelve ex-officio members will be:

1. Four presidents (doctors) of other subordinate boards of NMC (which will carry out core functions of the NMC)
2. Six directors from medical institutes, like AIIMS, Tata Memorial Hospital and PGIMER
3. The Director General of DGHS
4. A representative from MoHFW

The eleven part-time members will be:

1. Three representatives from the Medical Advisory Council (an advisory body under the NMC Bill, dominated by doctors)
2. Five practising doctors
3. Three experts in other fields, like law, consumer or patient rights and economics

The Chairperson will be a doctor with 20 years of work experience, and the Member Secretary will be selected by the government.

Conservatively, 20 out of 25 members of the NMC will be doctors. This number may vary if the Member Secretary is a doctor as well. Only three part-time members will be experts from other fields.

There are additional ways in which doctors will dominate the functioning of NMC. As an example, all decisions of the NMC will be taken by a majority vote. In the event of a tie, the Chairperson (doctor) will have a casting vote (S. 9). The four subordinate boards under the NMC, which will carry out its core functions of setting and enforcing standards, will be composed of doctors predominantly (S. 17).

Evolving role of regulator

Professional regulators, around the world, have sought to restrict the supply of practitioners, thereby benefitting the existing practitioners. At the time of its inception, the primary objective of the MCI was also to control entry of doctors. Hence, the MCI was entrusted with two functions: (a) recognition of medical qualifications, which entitled individuals to practice the profession; and (b) maintaining a register of doctors to prevent unregistered individuals (or quacks) from practicing medicine. Since, doctors were considered best-placed to carry out the task of regulating entry, the MCI board comprised solely of doctors. Similarly, medical regulatory boards in other jurisdictions, like the UK and California, were also composed of doctors.

During the 1960s, there was growing criticism of the health profession due to increasing instances of poor clinical performance. For example, errors in diagnoses, errors in performing a procedure, under-informing or misinforming patients, use of outmoded tests or procedures, failure of peer networks to report poor practice, etc. Arrow, 1963, observed that medical care was plagued with market failures in the form of information asymmetry. Due to the complexity and uncertainty of medical treatment, patients were unable to evaluate the quality of service being provided. In turn, doctors exercised undue influence over patients. The academic understanding of regulatory capture (Stigler, 1971), public-choice theory (Black, 1948), and special interest groups (Grossman and Helpman, 2001) led to changes in legislation in the 1970s and 80s. From protecting the profession, the objective of legislation shifted to protecting and promoting patient safety. The Medical Act, 1983, in the UK, and the changes to the Medical Board of California in 1975 are examples of legislatures incorporating the academic understanding of professional regulation.

Removing regulatory capture

The new role also entailed a shift in the composition of the medical regulatory boards. A doctor-dominated board, designed to serve the interests of its peers, was no longer desirable. The new role entailed a fair, impartial and independent body to prosecute and adjudicate violations of minimum standards. This led to the demand for increasing representation of patient interest in medical regulatory boards (Baggott, 2002).

Over the years, health profession regulators started including representation from public members. For example, the General Medical Council (GMC) in the United Kingdom comprises equal number of doctors and public members. Seven out of fifteen members of the Medical Board of California (MBC) are public members. At least one-third of the members of the Medical Board of Australia(MBA) must be public members.

MCI remained outdated

In India, some attempt was also made to hold doctors responsible for malpractice and negligence. The Indian Medical Council (Second) Amendment Act, 1964 empowered the MCI to set up standards of medical profession. However, the MCI persisted with its outdated design. Other than eight members (to be nominated by the Central Government), the remaining members of the MCI must have medical qualifications. As of today, the MCI comprises of 104 members, all of whom are doctors (including the 8 nominated members). This has led to the regulatory capture of MCI.

The regulatory capture is reflected in MCI's reluctance to discipline doctors. The 1964 amendment empowered the MCI to prescribe the professional code of ethics. The first regulation were enacted in 2002: a gap of 38 years. The MCI has also shown a poor track record in investigating and punishing doctors accused of malpractice or negligence. A public interest litigation in 2000, revealed that there was no system for maintaining an updated database of complaints against doctors; some complaints were pending for more than 42 years; and not a single doctor's license had been permanently cancelled. A 2016 Parliamentary Committee report reviewing MCI, noted that between 1963-2009, just 109 doctors were blacklisted by the Ethics Committee of the MCI. In contrast, in 2016-17 alone, the MBC revoked or required surrender of 143 licenses and issued 86 public reprimands. Similarly, the GMC issued 11 warnings, suspended 93 licenses, and permanently debarred 70 doctors in 2016.

NMC will not change much

The proposed NMC is more diverse than the MCI. However, compared to other jurisdictions, the NMC has low representation of public members (See Table 1). Even the NMC as proposed by NITI Aayog was more diverse (10 out of 20 members were from the health profession).

Table 1: Composition of medical regulatory boards

Jurisdiction	Regulator	Professional	Public	Govt.	Total
India	MCI	104	--	--	104
	NMC	20	3	2	25
	NMC-NITI	10	5	5	20
California (USA)	MBC	8	7	--	15
UK	GMC	6	6	--	12
Australia	MBA	8	4	--	12

Inclusion of government representatives is unique to NMC; other medical regulatory boards don't include government representatives, neither does the incumbent MCI. This raises some concern as the government plays an active role in health care delivery, through direct provision, as well as financing of health care in India.

Way forward

Modern professional regulators are like the state, in so far as they incorporate legislative (by setting standards), executive (by enforcing prescribed standards) and judicial (by adjudicating violations of prescribed standards) functions. In the case of health professions, the regulator ought to be statutory. The statutory regulator should be designed with the same internal safeguards and processes as the state (OECD, 2014; Shah et. al., 2013; Price, 2002). One of these safeguards is a fair, independent and impartial regulator. The proposed NMC violates this basic principle, in so far it is dominated by health professionals. Consequently, doctors will continue to act as judges in their own cause. Like its predecessor, NMC will likely be a poor enforcer of minimum standards in the health profession.

Any regulator is the child of its constituent document. World over, professional regulators dominated by members of the profession are on their way out. This is also reflected in the composition of some other professional regulators in India. For instance, the Insolvency and Bankruptcy Board of India, constituted under the Bankruptcy Code, 2016, regulates insolvency professionals. It includes zero representation from insolvency professionals. A doctor-dominated MCI has functioned in an opaque and unaccountable manner. This has also eroded public confidence in the profession. In light of India's experience with MCI, the composition of NMC should not be dominated by doctors. A board with parity between professional and non-professional members (maybe even a slight majority of non-professionals) is a superior institutional design.

References

Ajay Shah et. al., From clubs to States: The future of self-regulating organisations, Ajay Shah's blog, December (2013).

Anirudh Burman, Building the institution of Insolvency Practitioners in India, Ajay Shah's Blog, December (2015).

Anirudh Burman and Shubho Roy, Building an institution of insolvency practitioners in India, Indira Gandhi Institute of Development Research, December (2015).

Business and Professions Code, Division 2, Chapter 5 (California).

Council for Healthcare Regulatory Excellence, Board size and effectiveness: advice to the Department of Health regarding professional regulators, September (2011).

David Price, Legal Aspects of the Regulation of the Health Professions, In: Regulating the Health Professions, SAGE Publications (2002).

Duncan Black, On the Rationale of Group Decision-making, Journal of Political Economy, February (1948).

Gene M. Grossman and Elhanan Helpman, Special Interest Politics, Massachusetts Institute of Technology (2001).

General Medical Council (Constitution) Order, 2008 (UK).

George J. Stigler, The Theory of Economic Regulation, The Bell Journal of Economics and Management Science (1971).

Health Practitioner Regulation National Law (NSW) No. 86a (Australia).

Indian Medical Council Act, 1956.

Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002.

Kenneth J. Arrow, Uncertainty and the Welfare Economics of Medical Care, The American Economic Review, December (1963).

Linda A. McCready and Billie Harris, From Quackery to Quality Assurance: The First Twelve Decades of the Medical Board of California, Medical Board of California (February, 1995).

Medical Act, 1983 (UK).

National Medical Commission, 2017 (as introduced in the Lok Sabha).

NITI Aayog, A Preliminary Report of the Committee on the Reform of the Indian Medical Council Act, 1956 (August, 2016).

OECD, The Governance of Regulators, OECD Publishing, Paris (2014).

Parliamentary Standing Committee on Health and Family Welfare, The Functioning of Medical Council of India, Ninety-Second Report, March (2016).

Peter Klimek et. al., Parkinson's Law Quantified: Three Investigations on Bureaucratic Inefficiency, Journal of Statistical Mechanics Theory and Experiment, August (2008).

Rob Baggott, Regulatory Politics, Health Professionals and the Public Interest, In: Regulating the Health Professions, SAGE Publications (2002).

Shyama Nagarajan and Shubho Roy, Concerns about how the Medical Council of India thinks about medical malpractice, Ajay Shah's Blog, July (2017).

Siddhartha P. Kar, Addressing underlying causes of violence against doctors in India, The Lancet (May, 2017).

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

Replace voice votes

by Devendra Damle, Shefali Malhotra and Shubho Roy.

Turning a bill (legislative proposal) into an Act of Parliament (law of the land) is a multi-step process. It involves placing the bill before the legislature; readings of the bill; publication in the official gazette; possible reference to relevant committees of the legislature; debates; and concludes with present members voting on the bill. Voting can be done in multiple ways, one of which is a voice vote. In the voice vote system, the members verbally communicate their assent by shouting 'Aye', or dissent by shouting 'No'. Based on which answer is most audible, the Speaker (person chairing the legislature) decides the outcome of the Bill. The system of voice votes, is obsolete. It slows down legislatures, grants excessive discretion to the Speaker, reduces the ability of citizens to hold their legislators accountable. It is still used in India.

For example, recently, the Punjab Assembly passed the Vote-on-Account of more than INR 251,990 million for the first quarter of the 2017-18 fiscal, by a voice vote. In the winter session of Parliament, the Taxation Laws (2nd Amendment) Act 2016 was passed through a voice vote, amidst protests and demonstrations. In 2014, opposition parties in Maharashtra questioned the legitimacy of the government after a confidence motion was decided in the government's favour through a voice vote. In the same year, the Lok Sabha Speaker was criticised for passing the Telangana Bill through a voice vote (Note: In this blog, we use the term 'Speaker' generically, for the Speaker of the Lok Sabha, the Chairman of the Rajya Sabha, the Speakers of state legislative assemblies, and Chairman of state legislative councils).

Voice votes

The Constitution leaves it to each house of legislature to set the rules of functioning of that house. Articles 118 and 208 of the Constitution empowers the Houses of Parliament and state legislatures to make rules governing procedure, respectively. Lok Sabha and Rajya Sabha have made Rules of Procedure and Conduct of Business (Procedure Rules) for their respective houses.Voting in the Lok Sabha is governed by rules 367, 367A, 367AA and 367B of the Lok Sabha Procedure Rules.

On the conclusion of a debate, the Speaker asks the members present whether a bill or a motion is passed. The member respond through a voice vote, the Speaker decides whether the motion is accepted or rejected. If a member challenges the Speaker's decision, the Speaker repeats the voice vote process for a second time. Any member can challenge the second voice vote by requesting for a division. The Speaker has the discretion to reject or grant the request for a division. If the Speaker rejects the demand for division, parliament employees take a head-count of members voting 'Aye' and members voting 'No'. Based on this head-count, the Speaker announces whether the motion is accepted or rejected. This decision cannot be challenged.

If the Speaker accepts the demand for division, he orders for voting by any one of the following three methods, at his discretion:

1. Automatic Vote Recorders: Members press a button to vote 'Aye' or 'No' from their allocated seats. The result appears on an electronic display, and the Speaker announces whether a motion is accepted or rejected.
2. Paper Slips: Members write 'Aye' or 'No' on paper voting-slips. Parliament officers collect the slips and count the votes. The Speaker announces whether a motion is accepted or rejected.
3. Division Lobbies: The Speaker directs members voting 'Aye' to go to the right lobby, and those voting 'No' to go to the left lobby. Parliament officers count members in each lobby. The Speaker then announces whether a motion is accepted or rejected.

The Rajya Sabha and state legislatures follow a similar process with minor variations. In no case are individual voting records maintained. Even when a division is carried out, only the total number of votes for and against the motion are recorded.

The system of voice votes suffers from two weaknesses: It grants excessive discretion to the Speaker, and it reduces accountability of legislators to the citizens.

Speakers' excessive discretion

The discretionary power vested with the Speakers in a voice vote system is prone to abuse. In the Indian system, Speakers are inclined to side with the ruling party or alliance. Speakers of Lok Sabha and State Legislative Assemblies are elected from among the members of their respective legislatures, usually from the ruling party or alliance. Unlike in the UK, they continue to be members of their parties even after being elected as the Speaker.

The Maharashtra Assembly no-confidence vote in 2014 is an example of alleged abuse of discretionary power by the speaker. The Maharashtra Assembly speaker approved the confidence motion in favour of the present ruling party. The motion was approved through a voice vote, amongst allegations that the demand for division by the opposition was ignored. Effectively, it cast doubt on whether the government truly had a majority in the house.

According to the Parliament's Statistical Handbook 2014, five incidents of no-confidence motions and three incidents of confidence motions have been decided through a voice vote in Lok Sabha. While there has been no allegation of abuse in these cases, a voice-vote system can be easily manipulated, especially when it is used to determine crucial issues like the legitimacy of the ruling party.

Accountability to citizens

The Voice vote system lacks transparency. In a voice vote system, it is impossible to record individual votes of legislators. In the absence of individual voting records, a citizen has no way of judging the actions of his representatives. He is clueless about which way his elected representative voted, or whether that representative voted at all. This makes it difficult for the public to hold their representatives responsible.

An example of accountability using public voting records is Obama's criticism of Hillary Clinton, in the 2008 Democratic Party Primaries. In 2002, the then Senator Hillary Clinton voted in favour of the resolution to invade Iraq. By the 2008 primaries, public opinion (especially in the Democratic Party) had turned against the invasion. Obama repeatedly pointed out that Clinton voted in favour of the Iraq war, signalling to the Democratic Party that he is a better candidate. Obama could do this because each Senator's vote on each resolution is recorded against their name and published.

Solution: electronic voting

In the past, recording votes for each motion would have been time-consuming and costly. So, recorded votes would be reserved only for contentious issues. If the support or dissent for a motion was evident, it was left to a quick decision of the speaker. The cost of this efficiency was wide discretion to the speaker. Today, with electronic systems, we can gain this efficiency with no costs.

Efficiency gains

As the following examples show, electronic voting is a time-tested, efficient and, cheap technology:

• Time-tested: Machine vote recording systems are not new; Thomas Edison patented a system in 1869. The World e-Parliament Report 2016 states that 67% of parliaments have adopted some form of electronic voting. Out of the remainder that still vote manually, 72% are considering to introduce electronic systems. The US House of Representatives has been using electronic voting systems since 1973. Recently, the Korean National Assembly adopted an electronic voting system.
• Efficient: A 2016 Australian Parliamentary report found that adopting electronic voting systems reduces the time spent on counting votes, minimises human error, and expedites publication of results. A 2010 report to the UK House of Commons found that electronic voting can make the process less time-consuming. In turn, allowing MPs to devote more time to discussion and debate, the real function of legislatures. A 2003 Australian Parliamentary report finds that conducting a division vote in the Mexican Legislature used to take upto one hour; with the electronic voting system it now takes two minutes.
• Cheap: The Mexican Legislature, with more than 500 members, has been using biometric authenticated electronic voting since 1998. The 2003 Australian Parliamentary report finds that the Mexican Legislature's electronic voting system has an operating cost equivalent to INR 54 million per year (at 2016 prices). For perspective, that is 0.86% of the total budget of the Lok Sabha for 2016-17.

Electronic voting systems are not alien to the Indian Parliament (the one in Rajya Sabha was installed in 1957). However, they are only used in case of a division. This means going through the process of two voice votes, calling for division, granting division, and then conducting a division. Even then, the decision to use electronic voting is subject to the Speaker's discretion. He can choose other inefficient methods like paper slips or the lobby method to reach a conclusion.

Ushering in transparency

The first step towards recording individual legislators' votes is by replacing voice votes with electronic voting systems. Carey, 2005, finds that when countries adopt electronic voting systems, demand for recording individual votes grows. Once the usage of recorded vote starts, pressure to make these records visible increases. An EU Parliament study of EU countries, where individual votes are recorded, finds electronic voting to be the most popular method.

The Indian electorate has been criticised for voting on caste/communal lines. However, in the absence of information regarding legislators' actions in the legislature, there is no other parameter for the average citizen to decide who to vote for. Bovitz and Carson, 2006, conducted a study examining the electoral consequences of individual voting records of legislators in the US House of Representatives. They found that legislators who vote against their constituents' preferences on controversial and politically prominent issues get lower vote shares in subsequent elections. Conversely, when legislators vote according to their constituents' preferences, especially against the party-line, they get higher vote shares. Legislators tend to vote strategically on prominent issues as they worry about taking the 'wrong' position in the eyes of their constituents.

Unlike the US, Indian legislators are subject to anti-defection laws. An Indian legislator cannot ignore a 'party whip/instruction' without risking losing his seat. It may be argued that, in the Indian scenario, individual voting records are useless. This argument has two weaknesses, namely that it:

1. Contradicts the general principle of governance, that greater transparency in the working of government brings greater efficiency. It does so without providing any evidence for it.
   
2. Ignores that once votes are made public the equilibrium shifts and individual voting records may act as a counter-balance to the negative aspects of anti-defection law.
   

We should always strive for greater transparency in governance. India still follows the Westminster system with people voting for individual legislators to represent them. On one hand, even if this information is useless, it does not harm anyone. On the other hand, when citizens get more information about their legislators, they can make more informed decisions. For example, merely because some candidates with criminal backgrounds are elected, does not mean we should stop requiring candidates to declare their criminal records. In addition, there are situations where anti-defection laws do not apply. In such cases this information can help voters. Anti-defection laws do not affect legislators who do-not vote or when there is no formal party whip. In such cases, individual voting records will provide valuable information about a legislator's behaviour. Did your legislator actually vote on a bill that was important to you or was he absent? It forces legislators to at least participate in issues important to their electorate and turn up to vote. Carey, 2009 examines the Corruption Perceptions Index, calculated by Transparency International, for most countries in the world. He finds that perceptions of corruption tend to be lower in countries where legislative votes are visible.

It may act as a counterbalance to anti-defection. Anti-defection laws have been criticised for reducing the voice of legislators. It puts party interests above the interests of the electorate. However, today the costs on the legislators following the 'party whip' and consequently harming his electorate is nil. Individual voting records may act as a counterbalance to this problem. Just like anti-defection pressurises legislators to vote in favour of the 'party whip', some studies show that individual voting records pressurise legislators to vote in accordance with the wishes of the electorate. Canes-Wrone et al., 2002 examined, through a study of the US elections between 1956 and 1996, the relationship between legislators' electoral performance and support for their party inside the legislature. Their study shows that in each election, an incumbent received a lower vote share when he supported his party. It also decreases the probability of retaining office. Crespin, 2010 finds that where votes are more likely to be noticed by the public, members of the US Congress adjust their votes in line with the demands of their constituency.

It is simplistic to argue that bringing transparency in individual voting records will not change the incentives/behaviour of legislators. Once individual voting records are available, the legislator will have two choices. First, vote against the decision of the party and get disqualified but, on the other hand, gain sympathy of the electorate. This may translate into more votes in the next election/by-election. The legislator can run as an independent candidate or on another party ticket and gain sympathy votes. Second, vote in accordance with the party line and hold on to his seat. However, now the entire electorate is likely to know he voted against their interest. The next election may not be in his favour.

We need to overhaul the functioning of the Parliament. Adopting compulsory electronic voting in our legislative bodies is a low-hanging fruit. It requires a small change in the Parliamentary procedure rules and trivial technological additions. This small change can go a long way in increasing efficiency, accountability and transparency in the functioning of the legislature.

References

Inter-Parliamentary Union, World e-Parliament Report 2016, 2016.

The Parliament of the Commonwealth of Australia, Division required? Electronic Voting in the House of Representatives, May 2, 2016.

European Parliament, Democratic scrutiny, transparency, and modalities of vote in the National Parliaments of the Member and in the European Parliament , 2012.

The UK House of Commons, The Case for Parliamentary Reform, 2010.

Michael H. Crespin, Serving Two Masters: Redistricting and Voting in the U.S. House of Representatives, Political Research Quarterly, 2010.

John M.Carey, Legislative Voting and Accountability, Cambridge University Press, 2009.

Gregory L. Bovitz and Jamie L.Carson, Position-Taking and Electoral Accountability in the U.S. House of Representatives, Political Research Quarterly, June, 2006.

John M.Carey, Visible Votes: Recorded Voting and Legislative Accountability in the Americas, Campbell Public Affairs Institute, September 9, 2005.

Judith Middlebrook, Voting methods in Parliament, Constitutional & Parliamentary Information, 2003.

Brandice Canes-Wrone et al., Out of Step, Out of Office: Electoral Accountability and House Members' Voting, American Political Science Review, March, 2002.

The authors are researchers at the National Institute of Public Finance and Policy, New Delhi. They thank Sanhita Sapatnekar, Anirudh Burman and Pratik Datta for useful discussions.

Judicial review of the Speaker's certificate on the Aadhar Bill

by Pratik Datta, Shefali Malhotra and Shivangi Tyagi.

Under the Indian Constitution, for a bill to be enacted into a law, it has to be approved by both Houses of the Parliament - the Lower House (Lok Sabha) and the Upper House (Rajya Sabha). There is one exception to this general rule. A bill certified as a 'money bill' by the speaker of the Lower House can be enacted into a law by the Lower House alone, without any approval from the Upper House. The Aadhar Act, 2016 was enacted using this route. After being passed by the Lok Sabha, the Lok Sabha speaker certified the Aadhar Bill as a 'money bill'. Accordingly, amendments suggested by Rajya Sabha were not considered and the bill was enacted into law. This led to a controversy, ultimately leading up to a constitutional challenge by Mr. Jairam Ramesh before the Supreme Court. Mr. Ramesh alleged that the speaker incorrectly certified Aadhar Bill as a 'money bill', allowing Lok Sabha to enact the law completely bypassing Rajya Sabha. This matter is going to come up for hearing before the Court on March 14.

Article 110(3) of the Indian Constitution states that the decision of the speaker, whether a bill is a money bill or not, "shall be final". In Mr. Ramesh's case, the Supreme Court has to first decide if it can question the speaker's "final" decision to certify Aadhar Bill as a 'money bill'. The Supreme Court has in three earlier decisions refrained from questioning the speaker's decision. These judgments are Mangalore Ganesh Beedi Works v. State of Mysore (1962), Mohd. Saeed Siddiqui v. State of UP (2014) and Yogendra Kumar Jaiswal v. State of Bihar (2015). As per these judgments, the speaker can certify each and every bill to be a `money bill' capable of being enacted by Lok Sabha alone, rendering the Rajya Sabha and the bicameral legislative system redundant. And the Supreme Court cannot question the speaker's decision since it is "final".

In a recent paper titled Judicial review and money bills, we argue that this position of law developed by the Supreme Court is incorrect. Many commentators have already argued that the enactment of the Aadhar Act through the money bill route was unconstitutional. For instance, Alok Prasanna Kumar, Amber Sinha and Suhrith Parthasarthy have pointed out that the Supreme Court's decisions denying judicial review are problematic. Vanya Rakesh and Sumandro Chattapadhyay have also made out a case favouring judicial review of the speaker's certificate. Our paper adds to this line of literature by substantiating these arguments in detail. In this post, we highlight five reasons why the Supreme Court could legitimately question the speaker's decision in spite of its "final" status under the Constitution.

Indian Constitution does not explicitly bar judicial review

The Indian Constitution adopted the concept of money bills from the British Parliament Act, 1911, with crucial modifications. The 1911 Act defines `money bill' and lays down a procedure for them. Section 1(2) defines a bill to be a money bill which 'in the opinion of the Speaker of the House of Commons' contains only specific provisions. Article 110(1) of the Indian Constitution defines a bill to be a money bill 'if it contains only' specific provisions. Effectively, in Britain the determination of whether a bill is a money bill is left to the subjective 'opinion' of the British speaker. In contrast, the definition of `money bill' under the Indian constitution is not left to the subjective opinion of the Indian speaker. The Indian speaker's decision has to be based on the definition provided in the Constitution.

The 1911 Act mandates the British speaker to endorse his
opinion on money bills, on a certificate. Section 3 gives absolute legal conclusivity to the certificate of the speaker. It reads:

Any certificate of the Speaker of the House of Commons given under this Act shall be conclusive for all purposes, and shall not be questioned in any court of law.

Article 110(3) of the Indian Constitution also grants 'finality' to the Indian speaker's decision. It reads:

If any question arises whether a bill is a Money Bill or not, the decision of the Speaker of the House of People thereon shall be final.

Unlike the 1911 Act, the Indian Constitution does not mention that the speaker's decision "shall be conclusive for all purposes" and "shall not be questioned in any court of law". Therefore, although the Indian Constitution grants conclusivity to the speaker's decision, it does not explicitly bar judicial review. We find that the Constituent Assembly intended for the "final" status given to the speaker's certificate, to be applicable only inside the Parliament - including the Rajya Sabha and the President. Our paper explains this argument in detail.

"Final" decisions have been questioned by Supreme Court

Decisions of various authorities have been given "final" status under the Indian Constitution. Yet the Supreme Court has on multiple occasions exercised judicial review over such decisions. For instance, in Kihoto Hollohan vs Zachillhu (AIR 1993 SC 412), the "final" decision of the speaker regarding disqualification of members of the House under Tenth Schedule of the Indian Constitution, has been held to be a judicial decision subject to judicial review. This suggests that the "final" status given by the Indian constitution does not automatically immune the Indian speaker's decision or certificate from judicial review. Our paper provides a detailed table where we show that there are 17 types of "final" decisions in the Constitution, out of which there are only 3 instances where the Constitution specifically mentions that the validity of such "final" decision cannot be questioned. The decision of the speaker, whether a bill is a money bill or not, is not one of them. Moreover, the Supreme Court has held 5 types of "final" decisions to be subject to judicial review.

British and Indian Parliamentary systems are different

Much of the differences between the 1911 Act and the Indian
Constitution originate from the inherent differences between the British and Indian parliamentary systems.

Britain follows a system of parliamentary sovereignty where the legislature is supreme. In their model it is possible to give absolute conclusivity to the speaker's certificate and immunise it from judicial review. We feel this was not possible under the Indian Constitution since it is not based on parliamentary sovereignty. Giving absolute conclusivity to the speaker's certificate or decision would have been incompatible with the overall scheme of the Indian Constitution, for two reasons.

First, India has a written constitution. All organs of the state (including the speaker) must abide by the Constitution. Any violation is liable to be struck down by the courts. This separation of powers is a basic feature of the Indian Constitution. Allowing the speaker to violate the constitution without any recourse to judicial review impinges upon this basic feature of the Indian Constitution.

Second, Britain does not have a written constitution. Therefore, it is impossible for the British speaker to violate the constitution. The British Speaker can only violate the rules made by either Houses of the British Parliament or procedural laws enacted by both of them. These being 'internal matters' of the Houses, such violations are immune from judicial review. In contrast, India has a written constitution. Certain law making procedures are prescribed by the Indian Constitution (like the money bill procedure), while some other procedures are prescribed through rules by both the Houses of the Indian Parliament (like voting on bills and resolutions). Similar to Britain, the rules made by the Indian Parliament are treated as 'internal matters' of the Houses, immune from judicial interference. We feel violation of constitutional procedures are not 'internal matters', and hence cannot be immune from judicial review. This explains why the Indian constitution framers did not explicitly bar judicial review of the speaker's decision as is the case in Britain.

Supreme Court's contradictory jurisprudence

Our research highlights the inherent contradiction within the Supreme Court's own jurisprudence on judicial review of legislative proceedings and the Indian speaker's certificate on money bills. Article 122 of the Indian Constitution prohibits the courts from questioning parliamentary proceedings on the ground of 'procedural irregularity'. We argue that 'procedural irregularity' refers to violation of procedures in rules made by each House under Article 118 or in any law made by the Houses under Article 119. Violation of a constitutional procedure is not mere 'procedural irregularity'. This distinction was highlighted by a seven judge bench of the Supreme Court in Special Reference No. 1 of 1964. It held that if the procedure followed by the legislature is illegal and unconstitutional, courts can exercise judicial review. This interpretation of Article 122 has been blatantly disregarded by lesser benches of the Supreme Court in the three decisions mentioned earlier. These three cases erroneously held that violation of the constitutional procedure for money bills is a mere 'procedural irregularity' and hence cannot be questioned by the courts.

Other common law jurisdictions allow judicial review

The position followed by the Indian Supreme Court is at odds with the position adopted across five common law countries with written constitutions and bicameral legislative systems. Our research shows that courts across these jurisdictions broadly support judicial review in this regard. In Australia, if a law imposing taxation deals with any extraneous matter, the Australian High Court can exercise judicial review under section 55 of the Commonwealth of Australia Constitution Act, 1900. The Canadian Supreme Court has observed that the procedural requirement must be complied with to create fiscal legislation. The Constitutional Court of South Africa has exercised judicial review to determine if a Bill was calculated to raise revenue or not. The US Supreme Court has categorically held that a law passed in violation of the Origination Clause (equivalent to money bills under the Indian Constitution) would not be immune from judicial review. Pakistan Supreme Court has in four cases struck down laws enacted as money bills since they did not fall within the definition of money bill under article 73 of their constitution.

Conclusion

Our research suggests that Indian legislative proceedings are immune from judicial review only on the ground of 'irregularity of procedure' and not for constitutional breaches. If a House commits breach of any procedure in any rule made by itself or in any legislation that the Houses themselves had passed, such breach is an internal matter for the House itself to act on. It is not open to judicial review. But if a House commits a breach of any constitutional procedure, such breach is open to judicial review. A contrary interpretation would mean that the Indian speaker can certify each and every bill to be a 'money bill', practically dispensing with the need for the Rajya Sabha. Such an interpretation would effectively render the constitutional design of a bicameral legislative system completely redundant. This is precisely what has been done by the three earlier judgements of the Supreme Court. Jairam Ramesh v. Union of India offers the Supreme Court an opportunity to revisit its interpretation of the Constitution on this issue.

References

Pratik Datta et al., The controversy about Aadhaar as a money bill, Ajay Shah's blog, March 20, 2016.

Vanya Rakesh and Sumandro Chattapadhyay, Aadhaar Act as Money Bill: Why the Lok Sabha isn't Immune from Judicial Review, The Wire, May 9, 2016.

Alok Prasanna Kumar, Why the Centre's dubious use of money bills must not go unchallenged, Scroll.in, May 11, 2016.

Amber Sinha, Can the Judiciary Upturn the Lok Sabha Speaker's Decision on Aadhaar?, The Wire, February 21, 2017.

Suhrith Parthasarthy, What exactly is a money bill?, The Hindu, February 27, 2017.

Pratik Datta et al., Judicial review and money bills, February 28, 2017.

 

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

Drafting hall of shame #2: Mistakes in the Insolvency and Bankruptcy Code

by Shefali Malhotra and Rajeswari Sengupta.

The Insolvency and Bankruptcy Code 2016 establishes the Insolvency and Bankruptcy Board of India. One of the primary functions of the Board is regulation of insolvency professionals and insolvency professional agencies. Section 240 of the Code empowers the Board to make regulations to carry out its functions. Some provisions under section 240 are peppered with drafting errors.

Confusing cross-reference

Section 240(2)(zzg) deals with setting up and management of governing boards of insolvency professional agencies. It should cross-reference the provision granting power to the Board to make appropriate regulations. Section 240(2)(zzg) states:

the setting up of a governing board for its internal governance and management under clause (e)...of section 196

It is not clear whether the above reference relates to clause (e) of sub-section (1) or sub-section (2) of section 196. Section 196(1)(e) deals with minimum curriculum for the examination of insolvency professionals, and has nothing to do with the governing of boards. It reads:

lay down by regulations the minimum curriculum for the examination of insolvency professionals for their enrolment as members of the insolvency professional agencies;

Section 196(2)(e) is the correct cross-reference. It reads:

setting up of a governing board for internal governance and management of insolvency professional agency in accordance with the regulations specified by the Board

Section 240(2)(zzg) also deals with the conduct of examination for insolvency professionals. Section 240(2)(zzg) reads:

...the manner of conducting examination under clause (m), of section 196

In this case also it is not clear whether the above reference relates to clause (m) of sub-section (1) or sub-section (2) of section 196.

Incorrect cross-reference

This part of section 240(2)(zzg) talks about setting up of curriculum for examination of insolvency professionals. It reads:

...the curriculum under clause (l)...of section 196

In this case, neither clause (l) of sub-section (1) nor of sub-section (2) of section 196 apply. Section 196(1)(l) deals with constitution of committees of the board, and section 196(2)(l) deals with procedure for enrollment of insolvency professionals.

The correct cross-reference should have been clause (e) of sub-section (1) of section 196. Section 196(1)(e) reads:

lay down by regulations the minimum curriculum for the examination of insolvency professionals for their enrolment as members of the insolvency professional agencies

Non-existent cross-reference

Section 240(2)(zzj) deals with the functioning of insolvency professionals. It reads:

the manner and the conditions subject to which insolvency professional shall perform his function under clause (f) of sub-section (2) of section 208

However, sub-section (2) of section 208 does not even have a clause (f)! The correct cross reference should have been clause (e) of sub-section (2) of section 208. Section 208(2)(e) reads:

to perform his functions in such manner and subject to such conditions as may be specified.

Conclusion

The Government setup the Bankruptcy Law Reforms Committee (BLRC), on 22nd August 2014, to design the legal framework for corporate insolvency in India. The BLRC submitted its report on 4th November 2015. That is a total of 440 days. The Insolvency and Bankruptcy Code 2016 is based on the report of the Committee. The Code was introduced for the first time in the Lok Sabha on 21st December 2015, was cleared by both the Houses on 11th May 2016 and received the assent of the President on 28th May 2016. During its passage, the Code was also referred to a joint committee.
That is a total of 160 days in the Parliament.

The quality of drafting does not appear commensurate with this effort. The drafting errors pointed out in the Code leads to unnecessary confusion and opens up gateways to litigation, which could have been easily avoided. The presence of such basic errors raises the possibility that more serious errors are also present. We should analyse the steps that led up to the IBC, evaluate them against the ideal mechanism, and do better in future projects.



Shefali Malhotra is a researcher at the National Institute for Public Finance and Policy. Rajeswari Sengupta is a researcher at the Indira Gandhi Institute for Development Research. They thank Shubho Roy and Anirudh Burman for useful discussions.

Author: Shefali Malhotra

Shefali Malhotra is a researcher at the National Institute for Public Finance and Policy. On this blog:

• Fair play in Indian health insurance, 30 April 2018.
• Analysing the NMC Bill #1: Composition of NMC, 29 January 2018.
• Judicial review of the Speaker's certificate on the Aadhar Bill, 1 March 2017.
• Drafting hall of shame #2: Mistakes in the Insolvency and Bankruptcy Code, 18 November 2016.
• India needs drones, 23 June 2016.
• The controversy about Aadhaar as a money bill, 20 March 2016.
• Obligation to give an exit to dissenting shareholders, 6 January 2016.

• Self trading is not synonymous with market abuse, 29 July 2015.

India needs drones

by Shefali Malhotra and Shubho Roy.

The two vital raw materials that went into the Indian software miracle was access to computer hardware and access to data communications. The first became possible when customs tariffs were removed, and the second became possible by opening up to private and foreign telecom companies. When thinking about another new industry, drones, it's useful to imagine: What would have happened to the Indian software industry if the coercive power of the State was deployed to ban computer usage by civilians? Registering to fly a drone in Nigeria costs \$4,000 and \$5 in the US. So far,  India has banned all civilian use of drones, i.e. the cost of registration to fly a drone in India is much higher than that in Nigeria.

Drones have a variety of civil/commercial applications. In areas like crop insurance, soil mapping, disaster, conservation, traffic management, crowd management, photography and filming, drones may be a game changer. All these applications are hobbled by the ban.

The DGCA has come up with draft regulations which is designed to allow civilians to use drones. These draft regulations are not accompanied by an analysis of the costs of complying with the regulations. Moreover, these regulations do not seem to consider the needs of a nascent industry. Consequently, drone applications will remain extremely expensive in India. Capabilities in technology flow from a vibrant user community which demands increased sophistication; as long as India does not avidly use drones, we will not become designers and makers of drones. India's expertise in software and technology gives India an edge in this important emerging area. However, if the regulatory regime is hostile to the development of technology; India will soon fall behind.

One example of an application of drones: Crop insurance

Insurance depends on verifying two facts. Did the insured event actually occur? And how much was the damage (monetary terms) to the insured? Today, when a Haryanvi farmers' crop gets ruined by hail, there are two problems for the insurance company and the farmer. First, did the hail storm actually take place? India does not have accurate village/taluka level weather data. Second, how much of the crop was actually damaged by the hail storm and not removed by the farmer to inflate the insurance claim? Answering these questions in rural Haryana is not easy.

While these facts could be ascertained by sending persons called "claim verifiers/processors" to farms, it is very costly to send individuals to each insured farm on repeated visits to verify claims. As farm sizes are small, the transaction costs of settling insurance claims become very high. This in turn makes insurance commercially unviable for insurers or the premium is too high for farmers to pay.

Drones can change this industry for the better and make crop insurance much cheaper for the insurance company and the farmer. Here is the arrangement that can be used.

When the farmer makes the initial purchase of insurance, an agent of the insurance company would map the latitude-longitude of borders of the farm. The insurance company can charter high altitude drones to collect accurate weather data. Lower flying drones can take high resolution pictures of the farm right after an insured event (hail storm) takes places. These photographs can allow an insurance company to establish if the hail storm actually damaged the crops and also the extent of damage.

Drones will be substantially faster, cheaper and probably more accurate than human verifiers. Drones can also cover much larger areas in much lesser time than individual human claim verifiers. The high quality aerial images can be processed by computers to determine whether the damage was by hail (rather than being a false claim where the crop had been harvested) and even the extent of damage. The insurance company can process the information and transmit the insurance payout directly to the farmers account. No human intervention. In future disputes about insurance claims, these high quality images can form the best evidence to determine the truth.

This is not just a hypothetical illustration. It is coming about in India.

Some other application areas

Farmers in other countries are already using drones to identify soil conditions, health of crops, watering needs, etc. Some of these drones cost less than Rs.5000 [link].

Farmer in China spraying crops using a drone

India has one of the lowest police to citizens ratio. Drones can increase the effectiveness of the few policemen. Common policing work like crowd management, traffic, security in large events can be helped by drones. In such areas drones are force multipliers where the Indian state can provide basic public goods like security to more citizens at lower costs. The Andhra Pradesh police has begun moving in this direction.

The need for regulation

Any proposal to regulate must be backed by a full articulation of the underlying market failure. In the case of drones, there are two dimensions. One element of the market failure is the possibility of negative externalities in the form of harm to innocent bystanders. The other element is the possibility that drones are new weapons for committing old (IPC) crimes.

Drones are aircraft without pilots and passengers. Therefore, regulations governing certification of safety for pilots and passengers are not applicable for drones. However, just like an aircraft, drones can fly over properties and persons without their consent. Badly made or badly flown drones crashing into people or property is a concern. This justifies basic safety/quality standards for drones, and some level of competence for the drone operator.

Drones can now enable a class of crimes which were previously hard to organise. Drones have fundamentally changed the nature of privacy in ones home. High walls and thick screens are no protection against snooping by a drone which could be operated by a media company, government agency or a personal enemy. Drones can also be used to carry out attacks by dispersing chemicals or mounting weapons. Drones can be used to spy on military establishments or carry out attacks on industrial/nuclear installations. While the easy answer for a lazy government is to ban drones, this is a very intrusive intervention. A better tradeoff in security would be to create checks and balances which permit society to gain from applications of drone technology while avoiding the problems. A natural point of departure is the registration system for cars.

India should develop the regulatory framework for drones now. Other countries are already doing this. Delaying the process will impede innovation in drones and derail development of the drone market. India will fall behind in the global drone market. One day, when India wakes up to civilian applications, we will then be a mere importer of drone technology as this knowledge will not have spread deeply in the country.

Approach to regulation

There are three approaches to regulating drones:

1. Banning them: Prohibit the civilian use of drones. This is where we are today.
2. Regulating them: Regulate civilian use of drones to minimise the harm to others and prevent the potential misuse of drones.
3. Regulating and encouraging them: Positive interventions by the government to facilitate innovation.  

Regulating drones

This approach requires drone operators to comply with safety and security standards. At the same time, the cost of compliance should be borne in mind so as to not make investment in the drone industry unviable. Other jurisdictions are balancing these two competing interests through a multi-pronged approach.

Risk based regulation

The riskier the drone operation, the greater propensity it has to cause harm to others. It follows that risky drone operations must have higher standards of compliance with safety and security requirements. For example, the US law creates a distinction between drone operations conducted for research or recreational purpose (in demarcated areas) and drone operations conducted for non-recreational/commercial purpose; which may fly over strangers who did not consent to drone over-flight. In the former case, the drone operator does not require US Federal Aviation Authority (FAA) approval, but must operate safely and in accordance with law. In the latter case, the drone operator requires specific authorisation from the FAA. The EU and UK categorise drone operations depending on the level of risk. For example, a drone operating over the open sea is less risky than a drone operating over spectators in a stadium. In the former case, a drone operation may not require any approval but may have operational limitations, such as, the drone operator should maintain visual line of sight with the drone and the drone operation should not be conducted above 400 feet. In the latter case, the drone operation may require multiple approvals, such as, design and production approval, air worthiness approval, operational approval and proof of pilot competency.

No-fly zones

Certain areas, like nuclear installations and ammo-dumps, are sensitive. Drone accidents in such areas may cause widespread devastation. There are other sensitive areas where any breach of the security protocol may cause a national security threat, like the border of a country. Hence, there is a need for airspace restrictions to minimise the perceived harm in sensitive areas. For example, the US FAA prescribes fly and no-fly zones based on airspace-centric security requirements. These airspace restrictions are used to protect special security events, sensitive operations, high-risk areas, etc. As an example, Raisina Hill may be classified as a restricted airspace area.

Drones as weapons

Drones may be used for criminal activity, such as a terrorist attack. Developing some standards of compliance will help minimise the risk of such criminal use. For example, drone operators in the US are mandated to display the registration number of the drone, on the drone. This enables easy identification of the drone operator in the event of a criminal activity. Singapore criminalises carriage of prohibited items, like a weapon, on a drone and discharging anything, whether gaseous, liquid or solid, from a flying drone.

Privacy

Drones have been used to track unsuspecting individuals and trespass into private property or a restricted area. To prevent this, Singapore has criminalised taking photographs of a protected area (as declared by the Singapore Government) using drones. In the US, any government operated drone operation is required to comply with the provisions of the US Constitution, Federal law and other applicable regulations and policies on privacy, like the Privacy Act, 1974. The US FAA has also formulated guidelines to encourage private parties to advance privacy, transparency and accountability during commercial and non-commercial drone operations and prevent unintentional violation of the privacy of others. For example, a drone operator is encouraged to provide prior notice to individuals of the time frame and area where the drone is intentionally collecting data and develop a privacy policy for the collected data. The UK CAA has also framed similar guidelines.

Encouraging drones

Alongside these enforcement perspectives, there is a need for positive interventions by the government to facilitate drone innovation. This approach recognises that the drone industry is in a nascent stage. The quality and pace of innovation in drones will not only depend on the players involved, but also the regulatory framework within which the innovation is taking place. These interventions may not be in the form of fiscal incentives (the most commonly used in India) but more in the nature of creating an enabling environment for the private sector to innovate and operate.

This may require a change in laws that discourage the suppliers and users of the drone industry. For example, drones actively interact with other users of airspace and should operate without causing harm to these users. To ensure this, the US FAA carries out safety studies to support safe integration of drones in the national airspace system. It may also require some institutional changes to facilitate the development of the drone industry. For example, the US FAA allocates research and test sites within the US to allow drone testing and enable development of drone technology in a safe environment.

The UK Civil Aviation Authority (CAA) supports the research and development process in the drone industry by facilitating full and open consultation with the developers of drone technology so that the CAA can provide guidance on the applicable rules and regulations. The US FAA coordinates with other Federal Agencies and the international community to designate permanent areas in the Arctic where small drones can operate 24 hours for research and commercial purposes. The US FAA has recently entered into a partnership with the drone industry to explore next steps in drone operations beyong the scope of the applicable law.

Next steps

The DGCA draft guidelines is a step in the right direction. However, the guidelines leave much to be desired. India needs to move on to formulating a regulatory framework which regulates and encourages the drone industry. It has some natural advantage (expertise in software technology and IT) which may allow it to be a key player in the global drone market. However, if India squanders away the lead by not creating a conducive environment for drones, it will end up lagging behind other nations.

Minimising the regulatory burden

There is a need to regulate the drone industry to minimise the risk of harm that it may cause to third parties. On the other hand the cost of compliance should not be higher than the profits/benefits. High regulatory cost will discourage players (especially small firms) from entering the market and will nip the industry in the bud. The draft regulations (in some places) have very high costs of compliance, without any attendant benefit to the society. This is a result of the vague language used in the draft regulations.

An example of vague language increasing the cost of the compliance is the requirement of permission for low drone flights. Regulation 5.3 of the draft regulation states:

the operator shall obtain permission from local administration, the concerned ADC.

The guidelines are silent on what is 'local administration'. Is it the district magistrate, local police station, local court? No one knows. It is also not clear whether you need permission from "local authorities" and "the concerned ADC" or "the concerned ADC" is the "local authority". The abbreviated term ADC is not expanded or explained anywhere in the guidelines.

Such vagueness drives up the cost of technology adoption by small firms. These firms would have to  run from pillar to post to get the above "permission". Since these local authorities will also not know whether they are the right "local authorities", and lack a guidance document based on which they can to analyse applications, they will probably take inordinately long or refuse.

The draft guidelines is peppered with other technical terms, like "Temporary Segregated Areas (TSA)" and "Temporary Reserved Areas (TRA)", which are also referred to but not defined. There is also no cross-reference in the guidelines allowing a reader to find what they mean and which areas they apply to. They may be the terms of art for airlines, but such opacity hampers the large technology community who must tinker with drones.

Making regulations user-friendly

Till now, the airspace was used by a niche population, pilots. Hence, if airspace regulations were not easily available and were technical, it was not a problem. With the coming of drones, airspace will become accessible to a large section of the population from a 16 year old kid to hobbyists, researchers, companies large and small, government, etc. Airspace regulations must now become comprehensible and reader-friendly. For example, it is crucial for a drone operator to know areas where a drone can be used and areas where it cannot. The draft guidelines state that drone operations cannot be carried out in notified prohibited area, restricted area, danger area, TSA and TRA.

However, the draft guidelines do not provide much guidance on what constitutes these areas or even where one can find these areas. Although, the regulations refer to the Aeronautical Information Publication (AIP) regarding details of these terms, the AIP is not readily accessible to the general public. In contrast, the US FAA has developed an app (B4UFLY) illustrating the fly and no-fly areas for ready reference of drone operators. Using this app, a 12 year old child can understand where to fly a drone.

Screen showing no fly zones in the US

Conclusion

Induction of drone technology into India is, at present, very costly. When authorities, processes and systems are unclear in a law, the potential cost of getting a drone permission can literally be infinite. There is no way to know which authority to apply and the authority itself does not know whether he/she has the power to grant an application. We need clearer regulations, and we need a regulatory framework to support the industry.

References

Subtitle B, Title III of the US FAA Modernisation and Reform Act, 2012.

EASA Proposal to Create Common Rules for Operating Drones in Europe (September 2015).

CAA CAP 722: Unmanned Aircraft System Operations in UK Airspace: Guidance (March 2015).

Singapore Unmanned Aircraft (Public Safety and Security) Act 2015 (No. 16 of 2015).

Johan Hauknes and Lennart Nordgren, Economic rationale of government involvement in innovation and the supply of innovation-related services, STEP Report Series R-08 (1999).


The authors are researchers at the National Institute for Public Finance and Policy. They thank Sumant Prashant, Bhargavi Zaveri and Pratik Datta for discussions.

The controversy about Aadhaar as a money bill

by Pratik Datta, Shivangi Tyagi, and Shefali Malhotra.

In India, a bill usually becomes a law once it has been passed by both Houses - Lok Sabha and Rajya Sabha – and the President assents to it. `Money bills' are an exception. A money bill is deemed to have been passed by both the Houses even if it is passed only in the Lok Sabha. Rajya Sabha's approval is not necessary although it can recommend amendments to a money bill. This provision of the Constitution of India is grounded in the history of the UK.

Even before the Magna Carta (1215), English Kings had bound themselves not to impose certain taxes without the consent of the common council of their realm. The King would summon the Parliament whenever a new tax was to be imposed. Over time, the Parliament became a permanent institution. The House of Lords (Upper House) and House of Commons (Lower House) developed into separate and distinct organs. With time, as trade and commerce flourished, the Commons' contributions became the major source of revenue. So did their say in the Parliament. Consequently, the privileges of the Commons and the restrictions on the Lords in respect of imposition of charges upon people evolved organically over several centuries. Till 1911, no statute explicitly codified these privileges or restrictions.

In 1909, the Lords rejected the annual Finance Bill passed by the Commons. A government whose Finance Bill is rejected can only resign or dissolve Parliament, because without money it is impossible to govern. This prompted the enactment of the Parliament Act, 1911. The preamble of this 1911 Act explicitly states its purpose of `restricting the existing powers of the House of Lords'. Section 1(2) of this Act, for the first time, defined a money bill, one which could become a law even without the consent of the Lords. But it could contain `only' provisions dealing with all or any of the subjects specified in that section. Additionally, section 3 gave conclusive status to the certificate of the Speaker of the House of Commons as to whether a bill is a money bill. It explicitly stated that such certificate `shall not be questioned in any court of law'.

These provisions of the English Parliament Act, 1911 informed the drafting of Articles 109 and 110 of the Indian constitution, and Article 73 of Pakistan's constitution. But there is one crucial difference. Article 110(3) of our Constitution says if any question arises whether a Bill is a Money Bill or not, the decision of the Speaker of the House of the People thereon shall be final. Unlike the 1911 Act, Article 110(3) does not state that such certificate shall not be questioned in any court of law. Instead, Articles 122 and 212 of Constitution states that the validity of any proceedings in Parliament or a State legislature shall not be called in question on the ground of any alleged irregularity of procedure.

However, in the context of Article 212 in Special Reference No. 1 of 1964, the Supreme Court kept open the possibility of questioning the validity of proceedings inside the legislative chamber, on the ground that the proceedings suffer from an illegality or unconstitutionality and not merely procedural irregularity. Non-compliance with the constitutional provisions on money bill is certainly unconstitutional and not merely a procedural irregularity. Although this should theoretically give the Indian courts the power to question the Speaker's certificate on money bill, till date the Apex Court has refused to do so. In contrast, Pakistan's Supreme Court has on certain occasions struck down statutory provisions passed through money bills for non-compliance with Article 73, their constitutional provision on money bills.

Recently, the certification of the Aadhaar Bill by the speaker as a money bill caused much furore. A careful analysis of Article 110 and of the Bill reveals that the Bill was tightly drafted in order to try to make it a money bill. Section 7 does not make it mandatory for everyone to get an Aadhar – it is only for those who want to avail a subsidy, benefit or service. To put it simply, if you want a (prescribed) subsidy, benefit or service, go get an Aadhar. Further, the draft clarifies that this subsidy, benefit or service will be withdrawn only from the Consolidated Fund of India (CFI). This brings it within the purview of Article 110(1)(c) [withdrawal of money from CFI] or Article 110(1)(d) [appropriation of money out of the CFI]. Even if it was not clarified so explicitly, unilateral transfers (like subsidies and benefits) are covered within the Government's non-plan expenditure.

Since the Bill does not prescribe any subsidy, it may not fall squarely within clauses (c) or (d). But it definitely prescribes 'matter incidental to' withdrawal or appropriation of money from the CFI'. Under Article 110(1)(g), a money bill could comprise of provisions dealing `only' with matters incidental to clauses (a) to (f). Since most of Aadhar Bill provides for a mechanism to transfer subsidy, benefit or service from the CFI, it can be argued that this is `incidental' to withdrawal (clause c) or appropriation (clause d) of money from the CFI, which justifies a money bill.

An area where the Bill may have ventured beyond the scope of a money bill is disclosure of information in the interest of national security, in section 33(2). Can such a provision be inserted into a money bill? Article 110(1) states that a Bill shall be deemed to be a money bill if it contains `only' provisions dealing with subject matters within clauses (a) to (f) or any matter incidental to any of the matters specified in clauses (a) to (f). It could reasonably be argued that disclosure of information for national security is neither covered specifically, nor is it `incidental' to the objective of targeted delivery of subsidies, benefits or services from CFI. Avoiding this provision would have largely reduced the legal risk and criticism that the Government has been subjected to.


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