Sudden Rise of the Floaters

by Rajeswari Sengupta and Harsh Vardhan.

The first two months of 2021-22 have witnessed a remarkable new trend in the corporate bond market—a sudden rise in the issuance of floating rate bonds or “floaters” and the use of the 91-day treasury bill yield as the reference rate in these bonds, instead of the yields on dated government securities (G-Secs).

We conjecture that one possible reason behind this new development could be an increase in the perception of interest risk on the part of the bond market participants. This in turn may have been a result of the active yield curve management undertaken by the Reserve Bank of India (RBI). If indeed dated government bonds such as the 10-year G-Secs have lost relevance as benchmark securities then this can lead to serious mispricing of risk in the economy, an unintended consequence of the RBI’s bond market intervention.

An interesting development in the bond market

Over the three-month period from April to June 2021, about 7 percent of the total corporate bond issuance of Rs 1.02 trillion consisted of floating rate bonds. While this percentage looks small, it is important to keep in mind that for the previous ten years or more, the share of floating rate bonds in the total issuance of corporate bonds has been less than 1 percent.

It is also important to note that the firms issuing these bonds and the investors investing in them are not a new class of issuers and investors. They are the same issuers and investors who were issuing and buying fixed-rate bonds until recently. In particular, 100 percent of the floating rate bond issuers now are non-banking finance companies (NBFCs) who were earlier issuing fixed rate bonds, and the investors are the same mutual funds and banks who were investing in fixed rate bonds earlier. This could imply that their behaviour has now changed due to external developments. It is as if the bond issuers and investors have suddenly developed a taste for floaters.

Corporate bonds are typically issued with a maturity of more than one year, along with a coupon, which is the rate of interest to be paid on the bond. Most bonds have a ‘fixed’ coupon—the rate of interest on the bond is decided at the time of issuance of the bond and remains fixed over the life of the bond.

This rate is a function of two factors – (i) the prevailing risk-free interest rate for the maturity matching that of the bond, and (ii) the credit risk spread that is added to compensate the investors for the default risk associated with the issuer.

The risk-free reference rate is ideally the interest rate on the government security of similar maturity. The credit spread is the function of the credit rating of the issuer. For example, if a AAA-rated issuer wants to issue a 5-year maturity corporate bond, then the risk-free reference rate will be the rate for a 5-year government security (let’s say 5.7 percent). If the credit spread of the AAA-rated issuer is an additional 100 basis points (1 percent), then the bond will be issued with a fixed coupon of roughly 6.7 percent. Note that this rate will apply to all the future interest payments by the issuer until the bond matures even if the underlying risk-free rate changes. This means that the investor in this bond is taking the interest rate risk. The secondary market price of these bonds reacts to changes in the underlying interest rates – the bond prices fall if the risk-free interest rate increases and bond prices go up if the risk-free rate decreases.

In the case of a floating rate bond, the main components of determining the coupon remain the same—a reference rate and a credit risk premium. The crucial difference is that the reference rate is no longer fixed but changes over time. Hence, these bonds are referred to as ‘floating’. The coupon on these bonds clearly specifies the reference-floating rate.

If the bond in the example cited above were a floating rate bond, then the coupon on it will not be a fixed rate of 6.7 percent. Instead, it will be the rate on 5-year government security at the time of interest payment plus 1 percent. In other words, for a floating bond, the applicable interest is computed at the time of payment of interest. If the 5-year government security rate moves up by 0.5 percent in a year then the interest rate payable will become 7.2 percent. The investor in such a bond is more protected from interest rate risk and the prices of these bonds in the secondary market fluctuate much less with movements in interest rates.

In the last two months, floating rate bonds worth Rs 70 billion have been issued in the corporate bond market, almost entirely by private companies. Overall, bonds worth Rs 793 billion have been issued by the private sector including NBFCs. The floating rate bond issues in these two months thus represent around 10 percent of private sector bond issuance.

An interesting feature of these floaters issued in the last two months is that all of them have used the yield on 91-day treasury bills (T Bills) as the reference rate. Notwithstanding the fact that these corporate bonds have maturities ranging from 2 to 4 years, yields on dated government securities (i.e., G-Secs with maturity of more than 1 year) have not been used as a reference.

What might explain this sudden preference on the part of the issuers and investors for these floating bonds?

What might be going on?

One possibility could be a heightened perception of interest rate risk. Bond investors might be harbouring the belief that the interest rates on dated G-Secs are unlikely to remain at their current levels. As discussed earlier, issuing floating rate bonds is one way to mitigate interest rate risk. This raises the next question – why would the perception of interest rate risk suddenly go up now?

We conjecture that this could be a result of the manner in which the RBI has been managing interest rates in the government bond market. The Covid-19 pandemic presented the Indian economy with an unprecedented challenge. A combination of falling tax revenues and rising expenditure on account of fiscal stimulus resulted in a massive increase in the fiscal deficit of the government, and a corresponding rise in government borrowing from the bond market. In 2020-21 the consolidated government borrowing was a whopping Rs 21.5 trillion and the planned borrowing for 2021-22 is roughly Rs 19.6 trillion. The overall government debt to GDP ratio is roughly 90 percent, the highest ever.

The RBI on its part has taken multiple steps to ensure that interest rates are kept low in the bond market so that the government’s cost of borrowing remains under control. It has allowed several primary auctions of G-Secs to devolve on primary dealers and has even canceled auctions when it did not receive bids at rates that were low enough. In addition to its standard open market operations (OMOs), it initiated the Operation Twist program whose objective was to bring down interest rates at the long end of the yield curve and push up rates at the short end. This meant that the RBI was buying long-dated G-Secs and selling shorter maturity bonds.

In March 2021 the RBI launched a program called the G-SAP wherein for the first time it pre-committed to buying a specific amount of G-Secs. These bond market interventions are mostly aimed at capping the interest rate on the benchmark 10-year G-Sec at 6 percent. As a consequence of these actions, the RBI has ended up owning a substantial amount of the 10 year benchmark government bonds (link).

It is possible that bond investors believe that the RBI will not be able to suppress the interest rates for too long, and the rates will rise sharply and suddenly. This could be either because of the large volume of G-Secs the government needs to issue to finance its deficit or because of growing inflationary concerns in the Indian economy (CPI inflation has exceeded the upper limit of 6 percent of the RBI’s targeted inflation band in both May and June 2021), or because of external factors such as rising inflation in the US.

This is akin to a spring that has been forcefully compressed but can bounce back anytime. If the rates suddenly go up, holding fixed coupon bonds will lead to losses, as explained earlier. This increased risk perception might be one possible explanation as to why the investors now prefer floating rate bonds.

Arguably, another unintended consequence of the steps taken by the RBI to lower the long-term G-Sec yields and suppress the organic evolution of the yield curve in response to market forces may have been that the bond market participants have lost confidence in the yield curve.

In the past whenever inflation went up, 10-year G-Sec yields would also go up, implying a positive correlation between the two variables. The underlying idea is that rising inflation is usually followed by a tightening of the monetary policy stance which in turn leads to higher long term bond yields.

For instance, figure 1 below plots the 10-year G-Sec yield alongside CPI (consumer price index) inflation from 2004-05 to 2013-14. This was a period of high and rising inflation. CPI inflation went up from 3.8 percent in 2004-05 to more than 10 percent in 2012-13. Concomitantly, the 10- year rate went up from 6.6 percent in 2004-05 to more than 8 percent by 2012-13.

Figure 1: CPI Inflation and 10year G-Sec yield, 2004-05 to 2013-14

But recently this correlation seems to have broken down. We can see this clearly in figure 2, which plots the two series using monthly data, focusing on the period from March 2020 to June 2021. CPI inflation began rising from May 2020 onward. It consistently breached the 6 percent upper limit of the RBI’s targeted inflation band during the period April-October 2020, increasing from 5.8 percent in March to 7.6 percent in October. More recently it went up from 4.2 percent in April 2021 to 6.3 percent in June 2021.

Figure 2: CPI Inflation and 10year G-Sec yield, March 2020 to June 2021

However, this time around, rather than increasing, the 10-year G-Sec yield actually fell from 7.5 percent in April 2020 to 5.8 percent in May, since then holding more or less steady around 6 percent. These developments suggest that G-Sec rate might be distorted by the RBI’s interventions, which in turn might explain why some investors are turning to the T Bill rate as a preferred reference rate.

Other explanations are, of course, possible. The rise of floaters could also be a result of companies expecting interest rates to come down, in which case they would not want to issue long-term debt at higher rates. This however seems unlikely. Given that inflation continues to be a concern, interest rates are more likely to go up rather than down, and sooner or later RBI would need to start normalising the surplus liquidity situation that the financial system is currently in.

Alternatively, floaters could be issued if the private sector is tapping a new class of investors, who are interested in buying bonds but do not want to run any interest rate risk. But the issuers of and the investors in the floaters are exactly the same entities that were participating in fixed-rate bond transactions earlier.

Finally, it is also possible that the funding requirements of the NBFCs (the sole issuers of floating rate bonds right now) have undergone some changes which might have increased their preference for these bonds.

Conclusion

We are observing an interesting new development in the corporate bond market. The rise of floating rate bond issuances by private NBFCs, and the use of the 91day T Bill rate as the reference rate seem to indicate a change in the preferences on the part of both issuers and investors.

We conjecture that one reason that might explain this development is the intervention in the bond market by the RBI to control G-Sec yields. Specifically, it is possible that the RBI’s persistent interventions have caused some market participants to lose trust in the yield curve. This possibility needs to be explored further in the future.

If there has indeed been an erosion of credibility in the yield curve, then this would be a serious problem. The yield curve is a fundamental construct in a market economy, as it defines the interest rate structure that is used to price debt. As a result, if the yield curve is distorted, then interest rate risk is being mispriced. The associated misallocation of resources could prove to be costly, damaging the economy just as it struggles to recover from the Covid crisis.

Harsh Vardhan is Executive in Residence at the Center for Financial Studies (CFS) at the SP Jain Institute of Management and Research. Rajeswari Sengupta is an Assistant Professor of Economics at the Indira Gandhi Institute of Development Research (IGIDR). The authors thank Josh Felman and an anonymous referee for their useful suggestions.

Vaccination in India: how will demand change when persons above age 18 are eligible?

by Renuka Sane and Ajay Shah.

1. On 16 January 2021, the union government's vaccination program started with eligibility limited to frontline workers. On 1 March 2021, eligibility was extended to a) those above the age of 60, and b) for those above the age of 45 with comorbidities. This was further opened up to everyone above the age of 45 from 1 April 2021. On 20 April 2021, the union government announced that from 1 May 2021 the minimum age of a person that is able to obtain a vaccine will go down from 45 to 18.
2. It is useful to juxtapose this recent expansion, from age 45+ to age 18+, against the structure of the population, and envision the magnitudes involved.
   
3. The last available census in India was in 2011. It is likely that the age structure of the Indian population has changed since then. We use the CMIE Consumer Pyramids household survey data to get the following age structure, based on an estimated population of 1.4 billion for late 2020:

   Age group	Population
   0-17	344 million (SE: 8 million)
   18-44	622 million (SE: 18 million)
   45-59	321 million (SE: 9.5 million)
   60+	125 million (SE: 4.7 million)

4. On 26 April 2021, 142 million vaccine doses have gone out. Of these 119.6 million persons have got one dose, and 22.5 million have got both doses. However, of the 142 million doses, about 11.2 million doses have been to persons below age 40. In the eligible population of 45+, a little less than 5% have received both the doses, while a little less than 27% have received the first dose. There is considerable room to go, in completing the work of vaccinating persons above age 45.
5. The union government was pushing out approximately 2.3 million doses in the eligible population per day. This translates to 5.1 doses per 1000 eligible persons per day. This reflects a combination of distribution capabilities, vaccine hesitancy and supply constraints.
   
6. Opening up the vaccination to those above age 18 has meant that the magnitude of the eligible population has gone up from 446 million to 1.06 billion. If we subtract the already vaccinated, we end up with an eligible population of 926 million.
7. The eligible population has roughly doubled. To preserve the erstwhile run rate per unit eligible population, the number of doses/day would need to roughly double. In late April, there were anecdotal reports of shortages, where eligible persons were turned away at vaccination centres. Looking forward, this may become a bigger problem with the expansion of eligibility.
8. If all else is held intact, then, there will be a larger mismatch between demand and the ability of the union-government led system to push out doses. There are two pathways to not hold all else intact. On one hand, there is the need to shift from a union government led system to something that is a self-organising system, with energy from many persons. On the other hand, there is a need to rethink vaccination protocols. For example, if a person has antibodies, perhaps one dose suffices.
   

An important change of course by policy in Indian Covid-19 vaccination

by Amrita Agarwal and Ajay Shah.

Strategy for Covid-19 and vaccination

A global race took place on building vaccines for Sars-Cov-2. By late 2020, it became clear that vaccine development was progressing rather well.

With the vaccines in sight, the standard economics knowledge about vaccination came into play. Each vaccinated person reduces the possibility of spread of the disease. While the individual who gets a vaccine is gaining protection, that individual is also imposing a positive externality upon the population. There is a market failure -- a positive externality -- as an individual would tend to under-spend on buying a vaccine. There is a case for state financing, to augment personal expenditure on personal protection, to tip more people over into vaccination. The end goal of vaccination is not to vaccinate everyone, but to change the disease dynamics by achieving herd immunity.

A debate took place in India in 2020 about two alternative pathways to roll out vaccines, on a significant scale.

On one hand was the vision of a centrally planned program, where the government would control everything, and the citizenry would obediently wait for their turn. This involved (a) Using the coercive power of the state to block any vaccination activities in India other than the union government, and (b) Organising a nationwide vaccination program at the union government. This was similar to the vaccination efforts prevalent in many other countries.

An alternative approach involved recognising that in India, state capacity is limited. A centrally planned effort was likely to work out poorly. It was better to harness all the energy available in the country to do more vaccination -- whether it was at a state government, city government, club, association, educational campus, private non-health firm, health care firms, etc. This involved (a) Not using the coercive power of the state to block any other energy in vaccination, alongside (b) Some work on vaccination by state organisations in order to address market failure. An example of this perspective is in an article from 30 November, and this talk, at an NCAER event on 29 December 2020. Shruti Rajagopalan, Mihir Sharma, Naushad Forbes were some of the thinkers who wrote on this.

In the event, decision makers in government chose the first path. There were difficulties [8 March, 5 April]. Using data for 19 April 2021, the New York Times tracker shows India at rank 62 in the world, with 1.2% of the population fully vaccinated, in roughly the league of Malaysia (rank 61) at 1.4% or Bangladesh (rank 64) at 1.0%.

At present, the union government is able to push out 3.5 million doses a day. Looking forward, the rate achieved (by the unreconstructed union government program) is likely to go down:

1. It is likely that the process design used, in any centrally planned union government program, would work for one (hopefully modal) use case, but peter out once we reach out beyond this zone.
2. The present vaccine production for the Indian market [SII, Bharat Biotech] is below the required 100 million doses a month.

By this reasoning, the present run rate, of 3.5 million doses a day, may not be sustainable. If we are to get to half the Indian people fully vaccinated in the coming four months, this requires about 10 million doses a day or 300 million doses a month. We need to get up to 10 million doses/day and we face difficulties in maintaining the present rate of 3.5 million doses/day.

An important change in course

On 19 April, the union government has announced an important change in course. The nature of state coercion will now change as follows:

1. Indian vaccine makers are forced to sell half their output to the union government, at an unspecified price, the remaining half being available for sale to state governments and private persons in India (at a price that must be publicly disclosed),
2. Private firms which perform vaccination services are forced to publicly announce the price at which these services are provided,
3. All providers of vaccination services are forced to supply data to the union government's CoWin IT system, and
4. Private persons and state governments are free to import vaccines.

This is important progress. The union government has stepped back from blocking every other energy in the country in vaccination. State governments, and private persons, will be able to buy/import vaccines and run vaccination programs. Vaccine makers remain in the grip of central planning in the new world, but it is a step forward when half of their output can be sold to state governments and private persons at market-based prices.

Implications

The 19 April decisions harness energy in thousands of organisations all across the country. Some state governments and many private organisations will now be able to embark on vaccination efforts. Each of them would tailor their process designs for local conditions and the practical problems as seen by them. The sum total of resourcing and energy that would go into vaccination, in India, would go up. This would improve the overall progress in conquering the pandemic.

The private sector will surprise us with innovation in business models, billing arrangements, etc. Perhaps some firms will find it easier to deliver the one-dose J&J vaccine in difficult locations. Perhaps telecom companies will call their vast subscriber base and sell vaccination services. Private firms know how to segment the users into a large number of categories, and devise strategies for each of them. This is what a union government, which solves for one use case, is ill suited for.

In the short run, it is hard for SII to drastically change its production. Import of vaccines holds the key. In the world market for vaccines, a buyer asks for a price quotation at a certain quantity. These prices are on the decline. Vaccine supply in India will go up through imports.

There are some concerns about the AZ vaccine with younger persons and particularly with young women. Availability of mRNA vaccines in India would help address the needs of these users.

If India were an AZ vaccine monoculture, there is greater vulnerability to a new strain that is able to breakthrough. The self-organising system will bring diverse vaccines to play into the Indian populace, and generate greater pandemic security.

The second wave will not be the last one. Existing vaccine makers will regularly make booster doses through which people will become safe against new variants. Covid-19 is only one among many infectious diseases which call for sustained large-scale adult vaccination programs. The work done this year, flowing from the 19 April decisions, will matter not just in conquering the second wave. Thousands of organisations in India need to view this as a sustained activity. As an example, it would make sense for every large employer to organise quarterly vaccination camps for their employees and their family members, through which an array of adult vaccines are regularly delivered.

Improvements required in the policy framework

The pathway to elicit better production by private firms does not lie in coercing them with quantity restrictions or dictating terms on issues such as price. Such coercion will bring out reduced output by Indian manufacturers. We learned, in the 1960s and 1970s, that it is impossible for a state organisation to go inside the firm, and discuss elements of the cost function with the firm. It is not the job of the state to be a financial service provider for a firm. There should be market-based engagement with vaccine producers, that is free of coercion, and couched in the language of prices, quantities and foreign competition.

Some vaccines are distinctly less efficacious and/or more dangerous than others. The union government can play a useful role by wielding its coercive power to limit the vaccines that are permitted for use in India to the class of vaccines which have achieved approval in an advanced economy such as the US, UK, Japan or Germany.

The use of coercive power by the union government, to harvest data through CoWin, raises concerns given the absence of legal protections against state access to the data. State surveillance is particularly harmful when it comes to health data, so enhanced state legibility will have unintended consequences. This program of capturing data will exacerbate vaccine hesitancy.

The decisions of 19 April are important and will get India up from 3.5 million doses a day. It is, however, likely that we will not get up to 10 million doses a day. It is useful to think about two distinct problems on the demand side:

The rich

If protecting a family of five costs Rs.5,000 to Rs.10,000, many individuals / employers will spend this much. While a positive externality influences the decision making, the decision will be correct as long as the personal gains from protection exceed the price of the vaccine.

The poor

Many poor families will balk at this magnitude of expenditure. This is where market failure bites, in generating the wrong decision because there is a gap between the gains to society as a whole vs. the gains for the individual. State governments and the union government need to step into this breach. Vaccine vouchers are the precise instrument through which this market failure can be addressed.

Conclusion

Central planning has worked well for Covid-19 vaccination in countries like the US and the UK. These countries intelligently used private sector energy [example] as opposed to many varieties of coercion. But central planning works poorly under conditions of low state capacity. It is better to harness the energy of the self-organising system.

The 19 April announcements make important progress in stepping back from a centrally planned system, in increasing freedom, and in harnessing the power of the self-organising system.

The role of the state lies in addressing market failure. There is a need to use the coercive power of the state to require that vaccines used in India must have achieved approval in an advanced country. Poor people will make better decisions when nudged towards vaccination through the tool of vouchers.

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

by Anjali Sharma and Bhargavi Zaveri.

Introduction

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

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

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

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

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

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

Data and methods

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

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

Table 1: Study period

Phase	Dates	Days of data
Pre-lockdown	1st February to 24th March	34
Lockdown	25th March to 31st May	31
Unlock	1st June to 30th June	22

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

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

Prioritization of scheme-related hearings

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

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

Table 2: Composition of hearings in the causelist

	Share of hearings (in %)
	IBC	CA Scheme	Other matters	Total
Pre lock-down	67.8	7.1	21.7	96.6
Lockdown	11.3	57.6	29.7	98.7
Unlock	34.2	32.7	31.1	98.0

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

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

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

Old versus new cases

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

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

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

Puzzles on de-prioritisation of IBC cases

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

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

Conclusion

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

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

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

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

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

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

by Ajay Shah.

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

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

The buyers perspective before vaccine sales have commenced

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

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

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

Progress on immunisation and herd immunity

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

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

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

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

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

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

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

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

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

Wall street tells Main street what to do

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

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

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

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

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

Implications

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

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

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

Improving internet connectivity during the COVID-19 pandemic

by Vrinda Bhandari.

Introduction

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

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

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

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

Temporary allocation of spectrum by regulators

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

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

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

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

Temporary freeze on internet and mobile payments

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

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

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

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

Prohibition on price increase

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

Implementation of tax measures

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

Support to telecom infrastructure service providers

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

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

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

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

Provision of zero-rated access to specific websites

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

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

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

Regular monitoring of network capacity

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

Conclusion

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

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

References

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

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

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

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

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

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

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

Vrinda Bhandari is a practicing advocate in Delhi.

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

by Anjali Sharma and Bhargavi Zaveri.

Introduction

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

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

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

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

Data and methodology

Data

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

Table 1: Causelist data

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

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

Table 2: Study period

Phase	Dates	Days of data
Pre-lockdown	1st February to 24th March	34
Lockdown	25th March to 31st May	31
Unlock	1st June to 30th June	22

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

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

Methodology

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

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

$Effective\; court\; capacity\; =\; Hearings\; scheduled\; x\; Disposal\; rate$

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

Findings

Input: volume of hearings scheduled

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

Figure 1: How many hearings were scheduled

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

Figure 2: Location wise hearings scheduled

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

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

Output: disposal rates

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

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

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

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

	Next date	For order	Disposed	Total
Pre-lockdown
Number of hearings	15,813	968	2,489	19,270
% of hearings	82.1	5.0	12.9	100.0
Lockdown
Number of hearings	373	26	420	819
% of hearings	45.5	3.2	51.3	100.0
Unlock
Number of hearings	432	52	354	838
% of hearings	51.6	6.2	42.2	100.0
* Disposal rate = percentage of hearings with outcome "disposed, dismissed, admitted or allowed" + percentage of hearings with outcome "For order"

Estimating effective court capacity in the lockdown period

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

Table 4: Effective court capacity across the three periods

Phase	Hearings (daily avg.)	Disposal (%)	Output (daily avg.)
	($A$)	($B$)	($A*B)$
Pre-lockdown	588	17.9	105
Lockdown	30	54.5	16
Unlock	41	48.4	20

Conclusion

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

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

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

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

References

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

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

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

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