As Finmin stepped back, loans to Mallya surged by Subhomoy Bhattacharjee in the Business Standard, 12 March.
India's corporate bond market puzzle by Anjali Sharma in Mint, 11 March.
Renuka Sane on the fracas about taxation of pension funds, in the Indian Express, 11 March.
China's transparency challenge by Ben S. Bernanke and Peter Olson, 8 March.
The river is dead, grab the land by Ashish Aggarwal, 8 March 2016.
In bad times, we have to cut the deficit by Ajay Shah, 6 March.
Sanjay Hegde and Arghya Sengupta on the Kanhaiya Kumar bail order.
Vandita Mishra in the Indian Express is out in the field, deciphering what is going on.
Matthew Pearl on Slate tells the story of one milestone in the destruction of the KKK in the US, 4 March.
93 years ago, Nehru had a Kanhaiya moment in Nabha, in the Times of India, 4 March.
Wait for the good days got longer by M. Govinda Rao in the Hindu, 2 March.
Government to sell energy-efficient ACs, fan at lower price: Piyush Goyal in the Economic Times, 2 March. Also see.
Trump's rise illustrates how democratic processes can lose their way by Larry Summers, 1 March.
Saturday, March 12, 2016
Building a better credit market
by Bhargavi Zaveri and Radhika Pandey.
In a previous article, Ashish Aggarwal has presented the big picture of where Budget 2016 fits into the overall journey of India's financial sector reforms. In this article, we take a more careful look at the initiatives on the credit market.
India faces a substantial balance sheet crisis. Roughly one-third of the corporate balance sheet and roughly two-thirds of the banking balance sheet is under stress. This has motivated an increased focus by policy makers on reforms in this field. There is an increasing recognition that the regulatory interventions by RBI such as Corporate Debt Restructuring, Strategic Debt Restructuring (SDR), Joint Lenders Forum (JLF), wilful defaulters, etc. have not delivered. There is talk about a publicly funded Asset Management Company, which also has many problems and is best not done.
What is needed in India is to look beyond banking and establish sound institutional procedures for the credit market. The Budget Speech in 2016 is a step forward in that it promises some structural reforms which go beyond the limitations of banking regulation to the bigger question of the working of the credit market.
The Bankruptcy Code replaces the currently fragmented Indian legal framework for the re-organisation and liquidation of firms and bankruptcy of individuals. However, there are two popular misconceptions regarding the Code.
First, the popular discourse often links the Code to resolving the impending NPA crisis on the balance sheets of Indian banks. The Code will not, in and of itself, resolve the NPA crisis faced by Indian banks today. The cause of the crisis is not a bad bankrutpcy regime (which may well contribute to the way the crisis unfolds), but mistakes in banking regulation and enforcement. The Code essentially does three things (a) codifies a process for allowing a debtor's finances to be reorganised by mutual negotiation before she is pushed to liquidation; (b) establishes institutional infrastructure by providing for a bankruptcy regulator and vesting insolvency jurisdiction in the NLCT and the DRT; and (c) creates a framework for an industry of insolvency professionals (professionals having expertise to administer the debtor's estate) and information utilities (repository-like infrastructure which will store information of debts and defaults).
Second, there is a misconception that the Code will, upon enactment, completely fix the insolvency regime in India. There are two problems with this perception:
The Budget proposes to introduce a law to deal with resolution of financial firms. This will complete the legal architecture for resolution of firms in the economy. As with the Bankruptcy Bill, a well crafted bill holds the key to the implementation of an effective resolution regime. Failure of a financial firm is distinct from the failure of a non-financial firm firm and the general bankruptcy process will not suffice for certain kinds of financial firms such as banks and systemically important financial institutions. For an understanding of why some financial firms warrant a specialised resolution regime, see this.
The FSB's document on The Key Attributes of Effective Resolution Regimes for Financial Institutions serves as a useful guidepost for jurisdictions proposing to introduce a framework for resolution of financial firms as part of their financial regulatory architecture. The FSB emphasises that the objective of an effective resolution regime is to resolve troubled financial firms without ``exposing tax-payers to loss, not relying on public solvency support and not create an expectation that such a support is available." Drawing on the FSB's principles and international best practises, the Financial Sector Legislative Reforms Commission has a chapter and a draft law on resolution. The chapter and the draft law elaborates on the objectives, powers, instruments of resolution and provides for an intervention framework at each stage of the financial health of the firm with a clear articulation of the roles of the regulator(s) and the resolution corporation.
There are three important features of a good resolution regime that the government should particularly bear in mind while preparing the law on resolution:
In addition to tabling a law on resolution, a rejig of the present legal and institutional machinery needs to be undertaken. The Deposit Insurance and Credit Guarantee Corporation (DICGC) has some experience in dealing with failing banks but lacks the capability to promptly resolve a failing financial firm. What will be the role of the DICGC? Will this be merged with the resolution corporation? What are the amendments required in the Acts such as the Banking Regulation Act to delink the regulatory function from the resolution function? All these issues need to be addressed to achieve an optimal resolution framework.
One useful idea in the working of the credit market is to establish conditions for transactions, where conventional lenders sell assets to specialised debt recovery funds. In the confusing Indian jargon, these termed `asset reconstruction companies', but they are really stressed asset private equity funds. While ARCs have been around for a while, mistakes in their regulation have held them back from playing a useful role. The Budget promises to make the following reforms in relation to asset reconstruction industry, in the hope that this will enable asset reconstruction companies (ARCs) to acquire NPAs from Indian banks with renewed vigour:
The Budget Speech promises to strengthen the institutional infrastructure of debt recovery tribunals to enable better recovery of stressed assets. It makes specific reference to computerisation of court cases. As discussed here, several jurisdictions have a dedicated agency which handles the administrative tasks of the tribunal. The task of separating out the administrative functions of a tribunal and allowing it to be outsourced to a professionally managed agency is one of the structural reforms that can potentially enhance the performance of debt recovery tribunals. Similar measures should be taken to strengthen the NCLT which is the tribunal vested with insolvency jurisidction for corporates.
In the past, reforms of the credit market were often relatively superficial, and only involved RBI and banks, which are only a small part of the Indian credit market. Budget 2016 has begun a process of institution building on the credit market in important ways. These initiatives are not limited to banking and look at the working of the credit market in a deeper way. If these initiatives are carried through to fruition, they will constitute important reforms.
The authors are researchers at the National Institute for Public Finance and Policy.
In a previous article, Ashish Aggarwal has presented the big picture of where Budget 2016 fits into the overall journey of India's financial sector reforms. In this article, we take a more careful look at the initiatives on the credit market.
India faces a substantial balance sheet crisis. Roughly one-third of the corporate balance sheet and roughly two-thirds of the banking balance sheet is under stress. This has motivated an increased focus by policy makers on reforms in this field. There is an increasing recognition that the regulatory interventions by RBI such as Corporate Debt Restructuring, Strategic Debt Restructuring (SDR), Joint Lenders Forum (JLF), wilful defaulters, etc. have not delivered. There is talk about a publicly funded Asset Management Company, which also has many problems and is best not done.
What is needed in India is to look beyond banking and establish sound institutional procedures for the credit market. The Budget Speech in 2016 is a step forward in that it promises some structural reforms which go beyond the limitations of banking regulation to the bigger question of the working of the credit market.
Bankruptcy Code
The Bankruptcy Code replaces the currently fragmented Indian legal framework for the re-organisation and liquidation of firms and bankruptcy of individuals. However, there are two popular misconceptions regarding the Code.
First, the popular discourse often links the Code to resolving the impending NPA crisis on the balance sheets of Indian banks. The Code will not, in and of itself, resolve the NPA crisis faced by Indian banks today. The cause of the crisis is not a bad bankrutpcy regime (which may well contribute to the way the crisis unfolds), but mistakes in banking regulation and enforcement. The Code essentially does three things (a) codifies a process for allowing a debtor's finances to be reorganised by mutual negotiation before she is pushed to liquidation; (b) establishes institutional infrastructure by providing for a bankruptcy regulator and vesting insolvency jurisdiction in the NLCT and the DRT; and (c) creates a framework for an industry of insolvency professionals (professionals having expertise to administer the debtor's estate) and information utilities (repository-like infrastructure which will store information of debts and defaults).
Second, there is a misconception that the Code will, upon enactment, completely fix the insolvency regime in India. There are two problems with this perception:
- The Code, in its current form, requires several improvements. In particular, it is lacking in details of the resolution process and ignores the issues of regulatory governance and strengthening the dispute resolution machininery. See here and here. With our weak track record on performance of regulators and the efficiency of quasi-judicial tribunals, we must ensure that the law lays down a strong foundation for the bankruptcy process and institutions to function efficiently. When India built its first few regulators, it arguably did not have the benefit of the knowledge of good regulatory governance practices. Over the years, much more knowledge about the working of regulators has been obtained, which has been embeddd into policy projects such as the Indian Financial Code and the Regulatory Reform Bill. The Bankruptcy Code should reflect the learnings in these areas over the last few years, and raise the bar for the performance of the newest regulator, the bankruptcy regulator.
- The Code envisages new institutional infrastructure for the insolvency regime, namely, insolvency professionals and information utilities. The functioning of these two new competitive and regulated industries is key the success of the Bankrutpcy Code. Considerable thought and research into international best practices will be required for designing the regulatory architecture of these industries. The government must simultaneously begin work on constructing institutional capacity on these fronts.
Specialised resolution regime for resolving financial firms
The Budget proposes to introduce a law to deal with resolution of financial firms. This will complete the legal architecture for resolution of firms in the economy. As with the Bankruptcy Bill, a well crafted bill holds the key to the implementation of an effective resolution regime. Failure of a financial firm is distinct from the failure of a non-financial firm firm and the general bankruptcy process will not suffice for certain kinds of financial firms such as banks and systemically important financial institutions. For an understanding of why some financial firms warrant a specialised resolution regime, see this.
The FSB's document on The Key Attributes of Effective Resolution Regimes for Financial Institutions serves as a useful guidepost for jurisdictions proposing to introduce a framework for resolution of financial firms as part of their financial regulatory architecture. The FSB emphasises that the objective of an effective resolution regime is to resolve troubled financial firms without ``exposing tax-payers to loss, not relying on public solvency support and not create an expectation that such a support is available." Drawing on the FSB's principles and international best practises, the Financial Sector Legislative Reforms Commission has a chapter and a draft law on resolution. The chapter and the draft law elaborates on the objectives, powers, instruments of resolution and provides for an intervention framework at each stage of the financial health of the firm with a clear articulation of the roles of the regulator(s) and the resolution corporation.
There are three important features of a good resolution regime that the government should particularly bear in mind while preparing the law on resolution:
- The authority in charge of resolution must be independent of the prudential regulator. This is because the resolution authority must intervene dispassionately to resolve a financial firm on the brink of insolvency and not be privy to any regulatory forbearance that is often exhibited by regulators toward the regulated. This has been a problem with the RBI in the past.
- The law must allow the resolution authority to intervene before the financial institution is insolvent. This will require (a) immense co-ordination between the resolution authority and the prudential regulator throughout the life of a financial firm; and (b) clear articulation of roles of the resolution authority and the prudential regulator at each stage of financial health of the firm.
- Resolution is a specialised task which requires analytical ability to understand the signals of potential distress in firms, weigh the various resolution options and promptly resolve a firm. Hence, it must be staffed with people having deep expertise in the field.
In addition to tabling a law on resolution, a rejig of the present legal and institutional machinery needs to be undertaken. The Deposit Insurance and Credit Guarantee Corporation (DICGC) has some experience in dealing with failing banks but lacks the capability to promptly resolve a failing financial firm. What will be the role of the DICGC? Will this be merged with the resolution corporation? What are the amendments required in the Acts such as the Banking Regulation Act to delink the regulatory function from the resolution function? All these issues need to be addressed to achieve an optimal resolution framework.
Reform of the asset reconstruction industry
One useful idea in the working of the credit market is to establish conditions for transactions, where conventional lenders sell assets to specialised debt recovery funds. In the confusing Indian jargon, these termed `asset reconstruction companies', but they are really stressed asset private equity funds. While ARCs have been around for a while, mistakes in their regulation have held them back from playing a useful role. The Budget promises to make the following reforms in relation to asset reconstruction industry, in the hope that this will enable asset reconstruction companies (ARCs) to acquire NPAs from Indian banks with renewed vigour:
- Presently, foreign investment in the capital of an ARC is allowed to the extent of 49% under the automatic route. Foreign investment in excess of 49% of the paid-up capital of an ARC requires FIPB approval. The Budget promises to liberalise this and allow foreign investment in an ARC to the extent of 100% under the automatic route.
- Presently, FPIs are allowed to invest to the extent of 74% in each tranche of a scheme of security receipts (SRs). The investment is subject to sectoral caps and the caps imposed on FPI investment in corporate bonds. The Budget promises to allow 100% FPI investment in each tranche of a scheme of security receipts. While this was long overdue, the condition on sectoral caps should be dispensed with. This is because the foreign funds used for subscription to SRs will be used by the ARC to acquire NPAs, with the objective of realising the cash flows due from them. To that extent, the foreign funds are not used to run an operating activity in the relevant sector. Security receipts do not represent an equity interest in a company. Hence, the application of sectoral caps to foreign investment in SRs is redundant.
- Presently, a sponsor of an ARC is not allowed to hold a controlling interest in the ARC. This restriction is proposed to be dispensed with to allow sponsors to hold upto 100% of the paid-up capital of an ARC. While this is a good proposal in itself, it must be circumscribed with a caveat, namely, banks must not be allowed to hold a controlling interest in an ARC. Where a bank holds a controlling interest in an ARC, there is an inherent conflict of interest between the bank's obligations to its depositors and its interest as a controlling shareholder in the ARC. For instance, it creates incentives for a bank to hive off potentially recoverable assets from the bank's balance sheet to an ARC which it controls, to the prejudice of its depositors. Monitoring this conflict of interest and identifying whether the transaction between the bank and the ARC took place on an arm's length basis, is extremely difficult, if not impossible.
- Presently, only institutional investors are allowed to subscribe to SRs on a private placement basis. The Budget promises to allow non-institutional investors to subscribe to SRs. However, this must be preceded with deep-rooted structural reforms. SARFAESI allows SRs to be issued to institutional investors through private placement. SRs are akin to units of funds which invest in risky assets. To allow liquidity to investors in SRs, the regulatory framework must allow SRs to be listed on Indian exchanges and globally. Further, the subscription-base for SRs must be phased out. In the first few years, sophisticated non-institutional investors must be allowed to invest. Once we have a strong consumer protection and enforcement framework in place, the participation can potentially be expanded to retail consumers.
Strengthening Debt Recovery Tribunals
The Budget Speech promises to strengthen the institutional infrastructure of debt recovery tribunals to enable better recovery of stressed assets. It makes specific reference to computerisation of court cases. As discussed here, several jurisdictions have a dedicated agency which handles the administrative tasks of the tribunal. The task of separating out the administrative functions of a tribunal and allowing it to be outsourced to a professionally managed agency is one of the structural reforms that can potentially enhance the performance of debt recovery tribunals. Similar measures should be taken to strengthen the NCLT which is the tribunal vested with insolvency jurisidction for corporates.
Conclusion
In the past, reforms of the credit market were often relatively superficial, and only involved RBI and banks, which are only a small part of the Indian credit market. Budget 2016 has begun a process of institution building on the credit market in important ways. These initiatives are not limited to banking and look at the working of the credit market in a deeper way. If these initiatives are carried through to fruition, they will constitute important reforms.
The authors are researchers at the National Institute for Public Finance and Policy.
Author: Radhika Pandey
Radhika Pandey is a researcher at the National Institute for Public Finance and Policy.
On this blog:
On this blog:
- On the usefulness of Parliamentary law in achieving fiscal responsibility, 26 October 2023.
- Liberalising foreign capital flows in Government debt: No time for incrementalism, 23 April 2020.
- Pick your poison: Money bill privilege or government shutdown?, 4 January 2019.
- RBI's alternative route for foreign debt inflows, 6 November 2018.
- Discrepancies in the measurement of household saving, 23 July 2018.
- Replacing FIPB with Standard Operating Procedure not enough, 13 July 2017.
- Measurement of exports in India, 15 May 2017
- Policy implications of the Tata-Docomo order, 9 May 2017.
- South Africa vs. India: alternative paths to financial reforms, 13 January 2017.
- Intrusive detail in the rules associated with de-monetisation, 30 November 2016.
- Legal questions about demonetisation: What happens to the assets that back extinguished rupee notes, 18 November 2016.
- Questions of law in demonetisation, 18 November 2016.
- Long journey to sound capital controls on foreign currency borrowing, 18 November 2016.
- Legislative strategy for setting up an independent debt management agency, 6 October 2016.
- Dating the Indian business cycle, 7 September 2016.
- CAG concerns about public debt management, 31 July 2016
- Tata-Docomo: What went wrong, and what we need to do different, 8 July 2016.
- Motivations for capital controls and their effectiveness, 5 April 2016.
- Building a better credit market, 12 March 2016.
- Assessing RBI's medium-term debt management strategy, 18 January 2016.
- Seasonal adjustment with Indian data: How big are the gains and how to do it, 16 January 2016.
- How bad is IIP growth after controlling for Diwali effects?, 13 January 2016.
- Regulatory strategy for convertibles, 10 January 2016.
- The new FDI policy: Well begun is not half done, 12 November 2015.
- A better output proxy for the Indian economy, 21 July 2013.
- The demise of Rupee Cooperative Bank: A malady, 10 June 2013.
Financial sector reforms: A status report
by Ashish Aggarwal.
A broad consensus on India's financial sector reforms has come together in the past decade, through a series of expert committee reports: Percy Mistry's report emphasising international financial services (2007), Raghuram Rajan's report emphasising domestic finance (2009), U. K. Sinha's report on capital controls (2010) and Dhirendra Swarup's report on consumer protection (2009, released 2014). These led up to Justice Srikrishna's Financial Sector Legislative Reforms Commission (2013), which has given version 1.1 of the Indian Financial Code in 2015.
In this article, we locate the new information that has unfolded in the Budget packet, for 2016, in the context of the larger journey of financial sector reforms.
The Finance Bill, 2016, embeds a block of well drafted law which will amend the RBI Act. This carries the work of monetary policy reform forward after the Monetary Policy Framework Agreement of February 2015. It establishes CPI inflation as the objective of RBI, and shifts power on rate setting from the government and the governor to a `Monetary Policy Committee'.
There has been a lot of focus on the composition of the MPC. The quick summary of this journey is:
The Finance Bill, 2016 requires the Central Government to appoint the external members as per the recommendations of a Search and Selection Committee which will comprise of the Cabinet Secretary, Secretary (DEA), the RBI Governor and three experts in the field of economics, banking, monetary policy or finance, to be nominated by the Central Government.
The last year budget had proposed setting up a PDMA which will bring both India’s external borrowings and domestic debt under one roof. However, the proposal was later withdrawn. The implementation document about Budget 2015 merely states that while the Government is committed to setting up the PDMA, it is in the process of preparing a detailed roadmap separating the debt management functions from the RBI in consultation with RBI.
This leaves us in the status quo of difficulties in debt management for the government and the lack of a government bond market, and the lack of a corporate bond market. The Budget 2016 has some small actions which are supposed to constitute corporate bond market development, but they are not connected with the main project of financial sector reforms, and will not matter.
Budget 2015 had proposed to create a Task Force to establish a sector-neutral Financial Redress Agency that will address grievances against all financial service providers. The budget-implementation document merely states that the Task Force was set up on June 5, 2015.
Last year's Finance Bill amended Section-6 of FEMA to clearly provide that control on capital flows as equity will be exercised by the Government, in consultation with the RBI. The implementation document merely notes that the process of consulting Reserve Bank on Debt and Non-debt instruments classifications is on.
The Budget Speech proposes the tabling of a comprehensive law establishing a specialised resolution regime for banks and financial institutions during 2016-17. This Code will provide a specialised resolution mechanism to deal with bankruptcy situations in banks, insurance companies and financial sector entities. This Code, together with the Insolvency and Bankruptcy Code 2015 (now referred to a JPC in December 2015), will provide a comprehensive resolution mechanism.
This is a welcome move. However, the Government must hit the road running in building the Resolution Corporation so that when the law gets enacted, the resolution machinery actually works as it is intended to.
The Budget Speech proposes setting up a FDMC under the aegis of the Financial Stability Development Council (FSDC) to facilitate integrated data aggregation and analysis in the financial sector. Details about how this will be done are awaited.
The FSLRC's vision for this Data Centre was to provide for a nation-wide integrated repository of information relating to the financial sector, which can be used to study systemic indicators in the economy and further research in this field. As a nerve-centre for regulatory data cutting across various segments of the financial sector, the importance of this centre cannot be underestimated. This, and the obligation on regulators to share the information with the Data Centre, underscore the importance of a statutory instrument to make the Data Centre work.
One of the important proposals made by the FSLRC was to constitute a unified regulator for financial products and financial services, except for the purposes of banking. As a step towards integration, the FMC was merged into SEBI under the Finance Act, 2015. The merger was effected in September 2015 and SEBI now regulates the commodities and the securities markets. Budget 2016 said that new commodity derivatives products would come about this year, as a consequence of this merger last year.
In 2014-15, the Government had constituted four task forces for building the institutions envisaged under the Indian Financial Code. This could easily be classified as a first attempt of its kind by the Central Government to build institutional capacity of this scale in India.
The Task Forces submitted their recommendations in June 2015. The budget-implementation document states that the Central Government is in the process of considering the recommendations made by the Task Forces.
In June 2015, the Ministry of Finance released for public comments a version of the Indian Financial Code (IFC1.1) which was refined and revised on the basis of public feedback received from March 2013 onwards. The implementation document states that the Government has consolidated the comments received during Public Consultation in July-August 2015 and the government is in process of responding to public comments, and is assessing the preparatory work involved to gauge a realistic target for introducing IFC1.1 in Parliament.
The author is a researcher at the National Institute for Public Finance and Policy.
A broad consensus on India's financial sector reforms has come together in the past decade, through a series of expert committee reports: Percy Mistry's report emphasising international financial services (2007), Raghuram Rajan's report emphasising domestic finance (2009), U. K. Sinha's report on capital controls (2010) and Dhirendra Swarup's report on consumer protection (2009, released 2014). These led up to Justice Srikrishna's Financial Sector Legislative Reforms Commission (2013), which has given version 1.1 of the Indian Financial Code in 2015.
In this article, we locate the new information that has unfolded in the Budget packet, for 2016, in the context of the larger journey of financial sector reforms.
Monetary Policy Law
The Finance Bill, 2016, embeds a block of well drafted law which will amend the RBI Act. This carries the work of monetary policy reform forward after the Monetary Policy Framework Agreement of February 2015. It establishes CPI inflation as the objective of RBI, and shifts power on rate setting from the government and the governor to a `Monetary Policy Committee'.
There has been a lot of focus on the composition of the MPC. The quick summary of this journey is:
| Differences in the constitution of the MPC | ||||
|---|---|---|---|---|
| Particulars | Members appointed by RBI | External members appointed by Central Government | Members appointed by Central Government, in consultation with RBI | Governor veto |
| IFC 1.0 | 2 | 3 | 2 | Yes |
| IFC 1.1 | 3 | 4 | 0 | No |
| Finance Bill 2016 | 3 | 3 | 0 | No |
The Finance Bill, 2016 requires the Central Government to appoint the external members as per the recommendations of a Search and Selection Committee which will comprise of the Cabinet Secretary, Secretary (DEA), the RBI Governor and three experts in the field of economics, banking, monetary policy or finance, to be nominated by the Central Government.
PDMA and the bond market
The last year budget had proposed setting up a PDMA which will bring both India’s external borrowings and domestic debt under one roof. However, the proposal was later withdrawn. The implementation document about Budget 2015 merely states that while the Government is committed to setting up the PDMA, it is in the process of preparing a detailed roadmap separating the debt management functions from the RBI in consultation with RBI.
This leaves us in the status quo of difficulties in debt management for the government and the lack of a government bond market, and the lack of a corporate bond market. The Budget 2016 has some small actions which are supposed to constitute corporate bond market development, but they are not connected with the main project of financial sector reforms, and will not matter.
Financial Redress Agency
Budget 2015 had proposed to create a Task Force to establish a sector-neutral Financial Redress Agency that will address grievances against all financial service providers. The budget-implementation document merely states that the Task Force was set up on June 5, 2015.
Capital Controls
Last year's Finance Bill amended Section-6 of FEMA to clearly provide that control on capital flows as equity will be exercised by the Government, in consultation with the RBI. The implementation document merely notes that the process of consulting Reserve Bank on Debt and Non-debt instruments classifications is on.
Specialised Resolution Regime
The Budget Speech proposes the tabling of a comprehensive law establishing a specialised resolution regime for banks and financial institutions during 2016-17. This Code will provide a specialised resolution mechanism to deal with bankruptcy situations in banks, insurance companies and financial sector entities. This Code, together with the Insolvency and Bankruptcy Code 2015 (now referred to a JPC in December 2015), will provide a comprehensive resolution mechanism.
This is a welcome move. However, the Government must hit the road running in building the Resolution Corporation so that when the law gets enacted, the resolution machinery actually works as it is intended to.
Financial Data Management Centre (FDMC)
The Budget Speech proposes setting up a FDMC under the aegis of the Financial Stability Development Council (FSDC) to facilitate integrated data aggregation and analysis in the financial sector. Details about how this will be done are awaited.
The FSLRC's vision for this Data Centre was to provide for a nation-wide integrated repository of information relating to the financial sector, which can be used to study systemic indicators in the economy and further research in this field. As a nerve-centre for regulatory data cutting across various segments of the financial sector, the importance of this centre cannot be underestimated. This, and the obligation on regulators to share the information with the Data Centre, underscore the importance of a statutory instrument to make the Data Centre work.
Merger of SEBI-FMC
One of the important proposals made by the FSLRC was to constitute a unified regulator for financial products and financial services, except for the purposes of banking. As a step towards integration, the FMC was merged into SEBI under the Finance Act, 2015. The merger was effected in September 2015 and SEBI now regulates the commodities and the securities markets. Budget 2016 said that new commodity derivatives products would come about this year, as a consequence of this merger last year.
Building other agencies envisaged by FSLRC
In 2014-15, the Government had constituted four task forces for building the institutions envisaged under the Indian Financial Code. This could easily be classified as a first attempt of its kind by the Central Government to build institutional capacity of this scale in India.
The Task Forces submitted their recommendations in June 2015. The budget-implementation document states that the Central Government is in the process of considering the recommendations made by the Task Forces.
Indian Financial Code
In June 2015, the Ministry of Finance released for public comments a version of the Indian Financial Code (IFC1.1) which was refined and revised on the basis of public feedback received from March 2013 onwards. The implementation document states that the Government has consolidated the comments received during Public Consultation in July-August 2015 and the government is in process of responding to public comments, and is assessing the preparatory work involved to gauge a realistic target for introducing IFC1.1 in Parliament.
The author is a researcher at the National Institute for Public Finance and Policy.
Wednesday, March 09, 2016
Elements for the proposed privacy law
by Vrinda Bhandari and Renuka Sane
In our previous blog article, we made the case for enacting a privacy law in India, as privacy is valuable for citizens in and of itself, and securing privacy strengthens democracy. Questions of privacy are back in the limelight with the proposed finance bill for giving statutory backing to Aadhar, and the fresh concerns about lacune in its privacy provisions.
In the question of privacy, citizens need protection from the State and from firms. The latter has become a more important issue with the rise of big data. Some go so far as to see data as a new asset class, equivalent of oil or gold. The case for a privacy law was also made by the 2012 Justice Shah Committee Report of the Group of Experts on Privacy, which relied upon a globally accepted set of privacy principles to form the foundation of a proposed Privacy Act in India. The principles are:
The principles in the Committee Report seem to have been accepted by the Government in a draft 2014 leaked version of the Privacy Bill (although, notably, this draft has not been made available online for perusal). In this (second) article, we present the critical components of a privacy law for India. Our next (third) article will apply these design principles to evaluate the Information Technology Act, 2000 (IT Act) in India.
Component 0: Objective of the privacy law
A discussion of the elements of a privacy law must begin with the objective that the law seeks to achieve. A privacy law must lay down the framework of how the public and private sector collect, manage, use and share personal information. Personal information is that which is about an individual, and through which the individual can be identified. Further, the law must provide for ways of dealing with inevitable conflicts between privacy and security.
Component 1: What is the value of personal data?
The law is shaped by the value we place on personal data. For instance, Article 8 of the European Charter of Fundamental Rights recognises an individual's right to the protection of personal data concerning him or her; the underlying premise of the Charter is that privacy is a comprehensive fundamental right. Since the Supreme Court of India is currently deciding whether privacy is a fundamental right, it becomes all the more important to express the value of privacy and personal data in our proposed law and connect it to Article 21 of our Constitution. The law should therefore address, either explicitly or implicitly, the value of personal data and the importance of privacy. However, it is important to recognise that while the right to privacy should include authority over personal data, it should not be limited to it. The right to privacy must be understood by using frameworks of dignity and liberty to extend it to the right to be left alone.
Component 2: What should be the scope and ambit of the law?
The law needs to address the question of what constitutes personal or sensitive data to which the law would apply. This definition should be wide enough to ensure the broad applicability of the law, and should be able to account for technological changes that enable indirect identification of an individual.
Section 1 and Section 2 of the Data Protection Act in England differentiate between personal data and sensitive data respectively. The latter includes individual's political opinions, racial/ethnic origins, religious beliefs, physical/mental health conditions, commission or alleged commission of any offence and membership to a Trade Union. The Act imposes additional conditions on the processing of sensitive personal data. The US, on the contrary, takes a slightly more restrictive approach, with very few Federal or State privacy laws defining personal information to include information that on its own does not actually identify a person.
In an environment such as India with high possibility of discrimination based on caste, religion, health outcomes (for example, having HIV), as well as sexual preferences (for example, homosexuality has as yet not been decriminalised), we propose that the law treat personal and sensitive data separately, as in the UK. Another reason is that in the US, different sectors have their own privacy frameworks, making it possible to have differential levels of protection given the area in question, whereas in India, these pertain to one comprehensive law. Sensitive personal data should be defined in an exhaustive and narrow manner and extend to passwords, financial and biometric information, medical records, political opinion, ethnicity/caste, sexual orientation, and religious beliefs. It should have stronger protections in terms of collection, use and consent. Although 'sensitive personal data or information' has been defined under the Information Technology Act (IT Act), the definition is fairly limited and has been criticised. Thus, as it currently stands, this definition should not be adopted in our proposed law.
Component 3: Whom should the law cover?
The scope of the national privacy law should make absolutely clear its territorial applicability and personal jurisdiction. Under EU law, the fundamental right of privacy covers all persons targeted by the State (through law enforcement/surveillance), irrespective of their nationality or domicile. However, under American law, foreign intelligence surveillance, whether the FISA (Foreign Intelligence Surveillance Act) or Patriot Act or Freedom Act, differentiates between US and non-US citizens, unlike American law governing ordinary criminal investigations.
In India, the draft 2014 Privacy Bill seems to have extended the right to privacy to all residents of India, unlike the 2011 draft, which limited its scope to Indian citizens. This expansive scope is consistent with the idea of privacy being a fundamental right emanating from Article 21 of the Constitution (which applies to all persons), and should be a part of the proposed privacy law. Even otherwise, given the inter-connected nature of most transactions and existing supply chains, it makes business sense if foreigners residing in India are entitled to the same privacy protections as Indian citizens.
Component 4: What principles should govern collection and retention of personal data?
A national privacy law should include a separate chapter on the responsibilities of the data controller (including government) while collecting, retaining, processing, and sharing data. This helps regulate and limit the scope of their seemingly unrestricted powers.
Schedule 2 of the UK Data Protection Act incorporates the Collection Limitation and Consent principle, which limits the collection of personal information and requires the consent of the data subject. The EU further incorporates data minimisation principles (through Article 6(1)(b) and (d) of 95/46/EC and Article 4.1(b) and (c) of 45/2001/EC) limiting collection of information to only what is relevant and necessary to accomplish a specified legitimate purpose. With respect to the retention of data, different countries and companies adopt different time limits, although the EU's 2015 Data Protection Reform has now added the right to be forgotten, which permits the deletion of data relating to an individual under specific circumstances.
In India, the proposed privacy law should also similarly incorporate such opt-in/opt-out principles relating to consent. It should also explicitly provide users with the right to withdraw consent, after which their data should be deleted from the system. Guidance can be taken from the EU to introduce the idea of proportionality and narrow tailoring of exceptions while balancing rights, and data minimisation principles. The privacy law should provide a minimum time limit for retention, while specifying the manner and format of preserving data. Specific provisions should deal with requests from law enforcement agencies, especially in the context of the recent Apple vs FBI debate and its implications for India.
While notice and consent are the bedrock of all privacy laws, they do not take into account consent in the context of changed privacy policies (as in Snapchat); or market failures arising out of cognitive biases inherent in understanding complex privacy notices and giving consent. Thus, the privacy law should focus on context and use frameworks that make privacy policies easier to read and accessible, and should deal with cases of changed privacy policies.
Component 5: How should data be used and processed?
With the rise in big data, data is collected both actively (e.g. when we provide it to use an app) and passively (e.g. our GPS tracking our location on Google Maps even without the internet), and can be stored easily and cheaply. This has resulted in a shift in the focus from Collection to Use Limitation, supported by a White House Report that advocates the framework of context and use of data and with the code that operates on the data. The EU and Canada are attempting to tackle this problem by emphasising data protection by design and data protection by default, which rely on in-built data protection safeguards as companies' default privacy settings, instead of trying to achieve the same through compliance with regulatory frameworks.
Along with incentivising such design-oriented solutions, the proposed Indian privacy law should incorporate the principle of Purpose/Use Limitation and indicate the shift in the focus from Collection to Use limitation for the reasons outlined above. Although different rules may apply to private entities and the government intelligence apparatus, we do not endorse the draft 2014 Privacy Bill's seemingly complete exemption of the latter when they act in the interest of sovereignty, integrity, security or the strategic, scientific or economic interest of India. Such a blanket exemption undermines the right to privacy and precludes a judicial determination of balancing privacy with security concerns based on the facts of the case, which is especially dangerous given the government's extensive surveillance abilities.
Component 6: How should data be shared and transferred?
Along with regulating the collection, use, and retention of users' data, a national privacy law should also regulate how such data is shared with third parties, including those that are across national borders.
Indian privacy law should follow a similar rule of only permitting transfer of personal or sensitive personal data if the other body corporate or person adheres to the same level of data protection, and if the transfer is necessary or the user has consented to it. This will assure data subjects of the privacy of their personal data, regardless of whether the data controller holds it in India or transfers it to its servers across the world. The 2014 Privacy Bill seems to have a similar provision, which should be a part of the proposed national privacy law.
Component 7: What are the rights of users?
The proposed privacy law should also separately cover the rights of the data subjects, who are other important stakeholders in the privacy debate. Rights of data subjects should largely adhere to the Privacy Principles, and apart from those discussed above, should include data quality and integrity (along with concomitant rights of access and correction); data protection (to prevent unauthorised collection or use); and notification principles (of requests for accessing data, or regarding data breach). We specifically focus on three rights that are absent in the Indian context but should be part of our national privacy law.
The enforcement (and impact) of a privacy law will depend on having proper safeguards to prevent unauthorised access/misuse/deletion etc. of data and a grievance mechanism. In UK supervision occurs through the Information Commissioner's Office, which ensures that no personal data is processed without an entry in the register. In America, the Federal Trade Commission regulates industries within its jurisdiction, along with other sector-specific regulators such as the US Department for Health & Human Services, which examines complaints filed under HIPAA. In the EU, under the 2015 reforms a single supervisory authority will replace national level Data Protection Commissioners (who monitor the application of EC Directives in their jurisdiction) to facilitate ease of business across countries.
A strong supervision and enforcement system is necessary to make the guarantees of the national privacy law a reality and to ensure compliance. The 2014 Bill seems to focus on self-regulation and appointment of industry ombudsmen. We believe that such a law needs to be supplemented with a distinct redress mechanism system. The focus should be on strengthening civil remedies in the form of compensation to the data subjects for loss and fines imposed on the data controller for contravention of the law. At the same time, the role of such ombudsmen or Information Commissioners should not be monopolised by retired civil servants or judges. There should be cross-sector representation from civil society, academics, industry representatives and experts. The law should also be more narrowly tailored in its exceptions and should remove the complete exemption of government intelligence agencies, since that might only encourage mass surveillance in the ostensible name of security.
In our previous blog article, we made a case for enacting a privacy law in India. This article has examined the components of a privacy law. While there may be relative consensus on the adoption of the National Privacy Principles, translating them into specific provisions of the law entails considerable disagreement. This is further compounded by our poor drafting process (see here and here). The 2014 Privacy Bill takes a stab at drafting a comprehensive national privacy law, but the government, unfortunately, decided not to release the draft of the Bill to the public. In this context, we hope this article provides a starting point for such a debate.
Vrinda Bhandari is a practicing advocate in Delhi. Renuka Sane is a researcher at the Indian Statistical Institute, Delhi. The authors thank Nandkumar Saravade and Chaitanya Ramachandran for useful comments.
In our previous blog article, we made the case for enacting a privacy law in India, as privacy is valuable for citizens in and of itself, and securing privacy strengthens democracy. Questions of privacy are back in the limelight with the proposed finance bill for giving statutory backing to Aadhar, and the fresh concerns about lacune in its privacy provisions.
In the question of privacy, citizens need protection from the State and from firms. The latter has become a more important issue with the rise of big data. Some go so far as to see data as a new asset class, equivalent of oil or gold. The case for a privacy law was also made by the 2012 Justice Shah Committee Report of the Group of Experts on Privacy, which relied upon a globally accepted set of privacy principles to form the foundation of a proposed Privacy Act in India. The principles are:
- Notice: of information practices and during collection of information
- Choice and Consent: provided to users through opt in/opt out provisions and taking consent only after proper notice has been given
- Collection limitation: to limit the amount of information collected
- Purpose limitation: which is similar to use limitation
- Access and corrections: by users, of personal information held by data controllers
- Disclosure of information: to third parties, after providing notice and obtaining required informed consent from the users
- Security: safeguards to prevent unauthorised access, use, modification, de-anonymisation, disclosure etc.
- Openness: of internal privacy policies and practices of data controllers in a transparent and accessible manner
- Accountability: to ensure compliance with these principles
The principles in the Committee Report seem to have been accepted by the Government in a draft 2014 leaked version of the Privacy Bill (although, notably, this draft has not been made available online for perusal). In this (second) article, we present the critical components of a privacy law for India. Our next (third) article will apply these design principles to evaluate the Information Technology Act, 2000 (IT Act) in India.
Design elements of a national privacy law
Component 0: Objective of the privacy law
A discussion of the elements of a privacy law must begin with the objective that the law seeks to achieve. A privacy law must lay down the framework of how the public and private sector collect, manage, use and share personal information. Personal information is that which is about an individual, and through which the individual can be identified. Further, the law must provide for ways of dealing with inevitable conflicts between privacy and security.
Component 1: What is the value of personal data?
The law is shaped by the value we place on personal data. For instance, Article 8 of the European Charter of Fundamental Rights recognises an individual's right to the protection of personal data concerning him or her; the underlying premise of the Charter is that privacy is a comprehensive fundamental right. Since the Supreme Court of India is currently deciding whether privacy is a fundamental right, it becomes all the more important to express the value of privacy and personal data in our proposed law and connect it to Article 21 of our Constitution. The law should therefore address, either explicitly or implicitly, the value of personal data and the importance of privacy. However, it is important to recognise that while the right to privacy should include authority over personal data, it should not be limited to it. The right to privacy must be understood by using frameworks of dignity and liberty to extend it to the right to be left alone.
Component 2: What should be the scope and ambit of the law?
The law needs to address the question of what constitutes personal or sensitive data to which the law would apply. This definition should be wide enough to ensure the broad applicability of the law, and should be able to account for technological changes that enable indirect identification of an individual.
Section 1 and Section 2 of the Data Protection Act in England differentiate between personal data and sensitive data respectively. The latter includes individual's political opinions, racial/ethnic origins, religious beliefs, physical/mental health conditions, commission or alleged commission of any offence and membership to a Trade Union. The Act imposes additional conditions on the processing of sensitive personal data. The US, on the contrary, takes a slightly more restrictive approach, with very few Federal or State privacy laws defining personal information to include information that on its own does not actually identify a person.
In an environment such as India with high possibility of discrimination based on caste, religion, health outcomes (for example, having HIV), as well as sexual preferences (for example, homosexuality has as yet not been decriminalised), we propose that the law treat personal and sensitive data separately, as in the UK. Another reason is that in the US, different sectors have their own privacy frameworks, making it possible to have differential levels of protection given the area in question, whereas in India, these pertain to one comprehensive law. Sensitive personal data should be defined in an exhaustive and narrow manner and extend to passwords, financial and biometric information, medical records, political opinion, ethnicity/caste, sexual orientation, and religious beliefs. It should have stronger protections in terms of collection, use and consent. Although 'sensitive personal data or information' has been defined under the Information Technology Act (IT Act), the definition is fairly limited and has been criticised. Thus, as it currently stands, this definition should not be adopted in our proposed law.
Component 3: Whom should the law cover?
The scope of the national privacy law should make absolutely clear its territorial applicability and personal jurisdiction. Under EU law, the fundamental right of privacy covers all persons targeted by the State (through law enforcement/surveillance), irrespective of their nationality or domicile. However, under American law, foreign intelligence surveillance, whether the FISA (Foreign Intelligence Surveillance Act) or Patriot Act or Freedom Act, differentiates between US and non-US citizens, unlike American law governing ordinary criminal investigations.
In India, the draft 2014 Privacy Bill seems to have extended the right to privacy to all residents of India, unlike the 2011 draft, which limited its scope to Indian citizens. This expansive scope is consistent with the idea of privacy being a fundamental right emanating from Article 21 of the Constitution (which applies to all persons), and should be a part of the proposed privacy law. Even otherwise, given the inter-connected nature of most transactions and existing supply chains, it makes business sense if foreigners residing in India are entitled to the same privacy protections as Indian citizens.
Component 4: What principles should govern collection and retention of personal data?
A national privacy law should include a separate chapter on the responsibilities of the data controller (including government) while collecting, retaining, processing, and sharing data. This helps regulate and limit the scope of their seemingly unrestricted powers.
Schedule 2 of the UK Data Protection Act incorporates the Collection Limitation and Consent principle, which limits the collection of personal information and requires the consent of the data subject. The EU further incorporates data minimisation principles (through Article 6(1)(b) and (d) of 95/46/EC and Article 4.1(b) and (c) of 45/2001/EC) limiting collection of information to only what is relevant and necessary to accomplish a specified legitimate purpose. With respect to the retention of data, different countries and companies adopt different time limits, although the EU's 2015 Data Protection Reform has now added the right to be forgotten, which permits the deletion of data relating to an individual under specific circumstances.
In India, the proposed privacy law should also similarly incorporate such opt-in/opt-out principles relating to consent. It should also explicitly provide users with the right to withdraw consent, after which their data should be deleted from the system. Guidance can be taken from the EU to introduce the idea of proportionality and narrow tailoring of exceptions while balancing rights, and data minimisation principles. The privacy law should provide a minimum time limit for retention, while specifying the manner and format of preserving data. Specific provisions should deal with requests from law enforcement agencies, especially in the context of the recent Apple vs FBI debate and its implications for India.
While notice and consent are the bedrock of all privacy laws, they do not take into account consent in the context of changed privacy policies (as in Snapchat); or market failures arising out of cognitive biases inherent in understanding complex privacy notices and giving consent. Thus, the privacy law should focus on context and use frameworks that make privacy policies easier to read and accessible, and should deal with cases of changed privacy policies.
Component 5: How should data be used and processed?
With the rise in big data, data is collected both actively (e.g. when we provide it to use an app) and passively (e.g. our GPS tracking our location on Google Maps even without the internet), and can be stored easily and cheaply. This has resulted in a shift in the focus from Collection to Use Limitation, supported by a White House Report that advocates the framework of context and use of data and with the code that operates on the data. The EU and Canada are attempting to tackle this problem by emphasising data protection by design and data protection by default, which rely on in-built data protection safeguards as companies' default privacy settings, instead of trying to achieve the same through compliance with regulatory frameworks.
Along with incentivising such design-oriented solutions, the proposed Indian privacy law should incorporate the principle of Purpose/Use Limitation and indicate the shift in the focus from Collection to Use limitation for the reasons outlined above. Although different rules may apply to private entities and the government intelligence apparatus, we do not endorse the draft 2014 Privacy Bill's seemingly complete exemption of the latter when they act in the interest of sovereignty, integrity, security or the strategic, scientific or economic interest of India. Such a blanket exemption undermines the right to privacy and precludes a judicial determination of balancing privacy with security concerns based on the facts of the case, which is especially dangerous given the government's extensive surveillance abilities.
Component 6: How should data be shared and transferred?
Along with regulating the collection, use, and retention of users' data, a national privacy law should also regulate how such data is shared with third parties, including those that are across national borders.
Indian privacy law should follow a similar rule of only permitting transfer of personal or sensitive personal data if the other body corporate or person adheres to the same level of data protection, and if the transfer is necessary or the user has consented to it. This will assure data subjects of the privacy of their personal data, regardless of whether the data controller holds it in India or transfers it to its servers across the world. The 2014 Privacy Bill seems to have a similar provision, which should be a part of the proposed national privacy law.
Component 7: What are the rights of users?
The proposed privacy law should also separately cover the rights of the data subjects, who are other important stakeholders in the privacy debate. Rights of data subjects should largely adhere to the Privacy Principles, and apart from those discussed above, should include data quality and integrity (along with concomitant rights of access and correction); data protection (to prevent unauthorised collection or use); and notification principles (of requests for accessing data, or regarding data breach). We specifically focus on three rights that are absent in the Indian context but should be part of our national privacy law.
- Data portability allows users to transmit their personal data across various service providers, as part of improving their access and control over their own data. This has the dual advantage of giving users flexibility and control while encouraging competition amongst service providers to introduce privacy-friendly policies.
- Data breach notification which gives data subjects the right to know when their data has been hacked - through notification by the data controller to the consumer or the national supervisory authority. This allows data subjects to take immediate action to limit the damage and also seeks to prevent data controllers from covering up their mistakes.
- Access to (and correction of) personal data : empowers data subjects by keeping them informed about where and how their personal data is being used. They also enable the confirmation of the veracity of the contents of the data and subsequent correction. Access and correction are especially important when we consider that apart from being processed by the particular data controller, the user's data is also being shared with third parties, and will thus enter multiple data systems. There are serious implications of incorrect data of, for e.g. financial records on creditworthiness and ability to secure a loan and the law needs to provide methods of access and correction.
The enforcement (and impact) of a privacy law will depend on having proper safeguards to prevent unauthorised access/misuse/deletion etc. of data and a grievance mechanism. In UK supervision occurs through the Information Commissioner's Office, which ensures that no personal data is processed without an entry in the register. In America, the Federal Trade Commission regulates industries within its jurisdiction, along with other sector-specific regulators such as the US Department for Health & Human Services, which examines complaints filed under HIPAA. In the EU, under the 2015 reforms a single supervisory authority will replace national level Data Protection Commissioners (who monitor the application of EC Directives in their jurisdiction) to facilitate ease of business across countries.
A strong supervision and enforcement system is necessary to make the guarantees of the national privacy law a reality and to ensure compliance. The 2014 Bill seems to focus on self-regulation and appointment of industry ombudsmen. We believe that such a law needs to be supplemented with a distinct redress mechanism system. The focus should be on strengthening civil remedies in the form of compensation to the data subjects for loss and fines imposed on the data controller for contravention of the law. At the same time, the role of such ombudsmen or Information Commissioners should not be monopolised by retired civil servants or judges. There should be cross-sector representation from civil society, academics, industry representatives and experts. The law should also be more narrowly tailored in its exceptions and should remove the complete exemption of government intelligence agencies, since that might only encourage mass surveillance in the ostensible name of security.
Conclusion
In our previous blog article, we made a case for enacting a privacy law in India. This article has examined the components of a privacy law. While there may be relative consensus on the adoption of the National Privacy Principles, translating them into specific provisions of the law entails considerable disagreement. This is further compounded by our poor drafting process (see here and here). The 2014 Privacy Bill takes a stab at drafting a comprehensive national privacy law, but the government, unfortunately, decided not to release the draft of the Bill to the public. In this context, we hope this article provides a starting point for such a debate.
Vrinda Bhandari is a practicing advocate in Delhi. Renuka Sane is a researcher at the Indian Statistical Institute, Delhi. The authors thank Nandkumar Saravade and Chaitanya Ramachandran for useful comments.
Wednesday, March 02, 2016
Interesting readings
S. A. Aiyar in the Economic Times, 2 March.
Ila Patnaik in the Indian Express, 2 March.
An editorial in the Times of India, 1 March.
Ashok Desai in the Telegraph and in the Hindu, 1 March. The Economic Times, 2 March.
Budget analysis by P. Chidambaram, in the Indian Express, 1 March.
Budget 2016 shows that Modi is a reformer in retreat, by Shekhar Gupta, in the Business Standard, 1 March.
Rationalised taxes for pension plans, by Renuka Sane, in Mint, 1 March.
Not risen to the challenge, by Ajay Shah, in the Business Standard, 1 March.
Rathin Roy in the Business Standard, 29 February.
Income tax statistics: filling the gaps, by Ashutosh Dikshit, in the Financial Express, 29 February.
Editorial in the Business Standard, 28 February.
How to govern dissent, by Upendra Baxi, in the Indian Express, 27 February.
The causes of NPAs, by Renuka Sane, Anjali Sharma, Susan Thomas, in the Business Standard, 27 February.
What google learned from its quest to build the perfect team, by Charles Duhigg, in the New York Times, 25 February.
An emerging pattern, by Salil Tripathi in the Mint, 24 February.
Is Modi sarkar fully in control?, by Subir Roy, in the Business Standard, 23 February.
Better news needed, by Ashok V. Desai, in the Telegraph, 23 February.
A test of freedom by Fali S. Nariman in the Indian Express, 17 February.
Ila Patnaik in the Indian Express, 2 March.
An editorial in the Times of India, 1 March.
Ashok Desai in the Telegraph and in the Hindu, 1 March. The Economic Times, 2 March.
Budget analysis by P. Chidambaram, in the Indian Express, 1 March.
Budget 2016 shows that Modi is a reformer in retreat, by Shekhar Gupta, in the Business Standard, 1 March.
Rationalised taxes for pension plans, by Renuka Sane, in Mint, 1 March.
Not risen to the challenge, by Ajay Shah, in the Business Standard, 1 March.
Rathin Roy in the Business Standard, 29 February.
Income tax statistics: filling the gaps, by Ashutosh Dikshit, in the Financial Express, 29 February.
Editorial in the Business Standard, 28 February.
How to govern dissent, by Upendra Baxi, in the Indian Express, 27 February.
The causes of NPAs, by Renuka Sane, Anjali Sharma, Susan Thomas, in the Business Standard, 27 February.
What google learned from its quest to build the perfect team, by Charles Duhigg, in the New York Times, 25 February.
An emerging pattern, by Salil Tripathi in the Mint, 24 February.
Is Modi sarkar fully in control?, by Subir Roy, in the Business Standard, 23 February.
Better news needed, by Ashok V. Desai, in the Telegraph, 23 February.
A test of freedom by Fali S. Nariman in the Indian Express, 17 February.
Tuesday, March 01, 2016
Instrumenting courts in India
by Alok Prasanna Kumar and Pratik Datta.
Studying Indian courts poses multiple challenges. A major barrier is the lack of reliable data. Even the Law Commission of India could not get reliable data from trial courts on arrears and delays. Data from the Supreme Court of India is also not always reliable or consistent. The `Court News' publication of the Supreme Court merely collates the information received from High Courts and publishes it, without verifying the same. Discrepancies are rife in the data, and it has not been updated for nearly two years now. In contrast, advanced jurisdictions have reliable databases on courts. This makes it easier to study courts in those jurisdictions.
What you measure is what you can manage. We are in a vicious cycle of poor information systems feeding into poor management systems which induce poor information systems.
The Supreme Court, all the High Courts and most district courts have their own websites. These websites have information relating to cases for the litigants and the lawyers. They maintain basic information about every case such as: date of listing, orders passed, judges presiding, etc. Since lawyers and litigants use these websites to keep track of their cases, the information is more reliable. Currently, data is not extracted by courts from this information. This information lies scattered, often in qualitative format. Daksh and Vidhi's approach has been to scrape data from these websites. The dataset so far can be found here (in csv format). For more Indian court related data, Daksh's database can be accessed after a one-time free registration. These are important new initiatives, which may mark the beginning of a new phase of rational thinking about court administration in India.
This process has its problems. First, there is no uniform definition of a `case'. A `case' can be counted by:
Different High Courts have different ways of counting `cases'. This makes comparisons between High Courts difficult. Second, even within the same court, information has been found to be missing or entered incorrectly. For instance, in Vidhi's study, about 5.50% of 49,459 cases contained no information. In 12.38% of cases overall, some information was missing. This problem is compounded because it is not clear if these are mistakes or deliberate omissions (like redaction).
While NIC manages all High Court websites, thy are not uniform in their interfaces and the manner of storing data. Some High Court websites, such as those of Gujarat, Karnataka, Delhi, and Bombay are relatively easier to access and use.
A possible explanation for poor data collection by Indian courts lies in the way courts are managed. At the moment, the responsibility for managing courts lies with judges. Court administration (which includes data collection) is not their primary duty however; nor are they equipped or trained to administer courts. Judges are trained for, and should focus their energies on deciding cases.
This situation was sought to be remedied by the court managers scheme. But the scheme flopped. It flopped because it was a superficial reaction to failures of the judicial administration system. The Thirteenth Finance Commission (paragraph 12.87), which proposed the scheme, did not think through the entire implementation process. Who will recruit court managers? What will be their exact job profile? What are the drawbacks of making the scheme optional for each High Court to implement? How will the interactions between court managers and judges play out? Where would the court managers be located in the judicial hierarchy? What is their accountability? At what price point would it attract the right kind of people from the market? These questions were not analysed at the time. International experience on court administration was also not consulted.
Internationally, judges do not go about collecting court data; nor is this job blindly delegated to fresh MBAs rechristened as court managers. Instead, there are separate court administration agencies which play an important role in data collection. Here are some examples:
India has none.
It should be noted that the Supreme Court has repeatedly suggested (since 1997) to the executive to set up a separate administrative agency for tribunals. However, the executive has dragged its feet on this issue, although it acknowledges the present problems of delays and pendency and is keen on reforms.
Computerisation of existing processes will not generate reliable data as we have shown above. The underlying judicial infrastructure and procedures need to be fully overhauled and business processes of courts reengineered to enable generation of reliable data. This will be a large-scale, time consuming and continuous process. This cannot be done only by IT experts (like NIC) or by judges and lawyers. It would require concentrated inter-disciplinary efforts of the highest order leading up to creation of a talented pool of court administrators. For this, India needs a separate court and tribunal administration agency, like in UK, Australia, Canada and USA. Such an agency should have the authority to re-engineer existing procedures to enable automated data collection. A recent paper by one of us, Towards a tribunal services agency, shows a detailed implementation path to establish such an entity for Indian tribunals. This agency can kick off the virtuous cycle of good data feeding into sound management which feeds into good data.
We would like to thank Harish Narasappa, Ramya Tirumalai, Kavya Murthy, Surya Prakash B. S. from Daksh India and Vrinda Bhandari, Advocate, for useful discussions.
Alok Prasanna Kumar is a Senior Resident Fellow at Vidhi Centre for Legal Policy. Pratik Datta is a researcher at NIPFP.
Studying Indian courts poses multiple challenges. A major barrier is the lack of reliable data. Even the Law Commission of India could not get reliable data from trial courts on arrears and delays. Data from the Supreme Court of India is also not always reliable or consistent. The `Court News' publication of the Supreme Court merely collates the information received from High Courts and publishes it, without verifying the same. Discrepancies are rife in the data, and it has not been updated for nearly two years now. In contrast, advanced jurisdictions have reliable databases on courts. This makes it easier to study courts in those jurisdictions.
What you measure is what you can manage. We are in a vicious cycle of poor information systems feeding into poor management systems which induce poor information systems.
A new approach
The Supreme Court, all the High Courts and most district courts have their own websites. These websites have information relating to cases for the litigants and the lawyers. They maintain basic information about every case such as: date of listing, orders passed, judges presiding, etc. Since lawyers and litigants use these websites to keep track of their cases, the information is more reliable. Currently, data is not extracted by courts from this information. This information lies scattered, often in qualitative format. Daksh and Vidhi's approach has been to scrape data from these websites. The dataset so far can be found here (in csv format). For more Indian court related data, Daksh's database can be accessed after a one-time free registration. These are important new initiatives, which may mark the beginning of a new phase of rational thinking about court administration in India.
Problems faced
This process has its problems. First, there is no uniform definition of a `case'. A `case' can be counted by:
- Counting each numbered petition/appeal as a separate case.
- Counting a batch of petition/appeal as one case because they're being heard together.
- Counting each petition/appeal and each application/motion filed in that case separately.
Different High Courts have different ways of counting `cases'. This makes comparisons between High Courts difficult. Second, even within the same court, information has been found to be missing or entered incorrectly. For instance, in Vidhi's study, about 5.50% of 49,459 cases contained no information. In 12.38% of cases overall, some information was missing. This problem is compounded because it is not clear if these are mistakes or deliberate omissions (like redaction).
While NIC manages all High Court websites, thy are not uniform in their interfaces and the manner of storing data. Some High Court websites, such as those of Gujarat, Karnataka, Delhi, and Bombay are relatively easier to access and use.
The root of the problem
A possible explanation for poor data collection by Indian courts lies in the way courts are managed. At the moment, the responsibility for managing courts lies with judges. Court administration (which includes data collection) is not their primary duty however; nor are they equipped or trained to administer courts. Judges are trained for, and should focus their energies on deciding cases.
This situation was sought to be remedied by the court managers scheme. But the scheme flopped. It flopped because it was a superficial reaction to failures of the judicial administration system. The Thirteenth Finance Commission (paragraph 12.87), which proposed the scheme, did not think through the entire implementation process. Who will recruit court managers? What will be their exact job profile? What are the drawbacks of making the scheme optional for each High Court to implement? How will the interactions between court managers and judges play out? Where would the court managers be located in the judicial hierarchy? What is their accountability? At what price point would it attract the right kind of people from the market? These questions were not analysed at the time. International experience on court administration was also not consulted.
International best practice
Internationally, judges do not go about collecting court data; nor is this job blindly delegated to fresh MBAs rechristened as court managers. Instead, there are separate court administration agencies which play an important role in data collection. Here are some examples:
- UK has HMCTS.
- Australia has Court Services, Victoria.
- Canada has Court Administration Service.
- USA has the Administrative Office of US Courts.
India has none.
It should be noted that the Supreme Court has repeatedly suggested (since 1997) to the executive to set up a separate administrative agency for tribunals. However, the executive has dragged its feet on this issue, although it acknowledges the present problems of delays and pendency and is keen on reforms.
Conclusion
Computerisation of existing processes will not generate reliable data as we have shown above. The underlying judicial infrastructure and procedures need to be fully overhauled and business processes of courts reengineered to enable generation of reliable data. This will be a large-scale, time consuming and continuous process. This cannot be done only by IT experts (like NIC) or by judges and lawyers. It would require concentrated inter-disciplinary efforts of the highest order leading up to creation of a talented pool of court administrators. For this, India needs a separate court and tribunal administration agency, like in UK, Australia, Canada and USA. Such an agency should have the authority to re-engineer existing procedures to enable automated data collection. A recent paper by one of us, Towards a tribunal services agency, shows a detailed implementation path to establish such an entity for Indian tribunals. This agency can kick off the virtuous cycle of good data feeding into sound management which feeds into good data.
Acknowledgements
We would like to thank Harish Narasappa, Ramya Tirumalai, Kavya Murthy, Surya Prakash B. S. from Daksh India and Vrinda Bhandari, Advocate, for useful discussions.
Alok Prasanna Kumar is a Senior Resident Fellow at Vidhi Centre for Legal Policy. Pratik Datta is a researcher at NIPFP.
Subscribe to:
Posts (Atom)