V. Ramani's web I AM, THEREFORE I THINK

The name “Collector” or “District Collector” was given to the functionary in charge of an administrative unit in India during the period of the British East India Company (EIC) as well as after the British Crown took charge of India in 1858. He was entrusted with the responsibility of land revenue collection. Apart from this task, he also functioned as the representative of the EIC and the Crown in managing the affairs of a fairly large area with a substantial native population. Independent India continued with this tradition in the absence of strong local government institutions. With the Indian state extending its reach to almost every area of social and economic activity, the Collector (Deputy Commissioner in some states) became the lynchpin of the administrative structure at the district level, functioning as the eyes and ears of the state government. Functions as diverse as law & order, food supply, guaranteed rural employment, natural calamity relief, conduct of elections and overseeing functioning of local urban bodies were entrusted to him (and increasingly to her).
The first inroads into the Collector’s powers came with the introduction of the panchayati raj systems for rural self-government. States like Maharashtra & Gujarat, followed by many others, including Karnataka (with its bold experiment of devolution of powers to rural local bodies in the 1980s), implemented fairly robust reforms to empower rural local government bodies. The political system and the bureaucracy at the state level saw this development as a threat to their powers of patronage and, using the old British argument that “the natives are not ready to govern themselves”, the powers of these rural institutions were whittled down over time. Urban local bodies had functioned under rules legislated by the state governments right from pre-independence days and the state had never ceded any significant decision-making powers to these bodies.
The passage of the 73rd and 74th Amendments to the Indian Constitution was intended to devolve powers to the local bodies. In practice, state governments have been parsimonious in parting with their powers and, as of 2014, we are in a position where local bodies (whether rural or urban) still do not exercise any significant authority in performing their functions. State governments need to acknowledge that charity begins at home: if you clamour for devolution of powers from the central to the state level, you should be equally willing to shed your powers to the local level. It is here that the present discussion on the utility of the Collector’s post assumes relevance. The Collector represents the fulcrum of state administration at the district level and a debate on her relevance is also an assessment of the need for so many state government dominated departments at the district level and below.
The land revenue collection duties of the Collector can easily be handed over to local bodies. This revenue, along with local body cesses, is finally transferred to local bodies: there is no reason why, like property tax, local bodies cannot themselves levy and collect revenue on land. Maintenance of land records, too, is a specialised function, especially with the availability of sophisticated GIS tools. There has been too much debate and too little action on developing processes for guaranteeing land titles, as has been done in most developed nations. An independent authority (or a private organisation) can perform such a function quite effectively, once the necessary legal systems are in place. All quasi-judicial functions performed by the Collector can also be transferred to the judicial system.
Law & order maintenance and criminal justice systems administration are areas where the District Magistrate’s role and relevance have been steadily diminishing over the years. In major urban areas in most states, the Police Commissioner has effectively done away with the need for an executive magistracy. Over time, law & order functions in urban and rural areas need to be taken over by the respective local bodies, with police forces reporting to these bodies. As far as criminal justice is concerned, the entire process is managed by the judicial system: the few sections in the Criminal Procedure Code relating to prohibitive powers of the executive magistracy can be administered by the local police. Granting of parole to convicts may be one of the few functions that can vest in the state government.
Supply of essential commodities (officially termed “civil supplies”) is one area which is in urgent need of professional management. The present civil supplies machinery under the Collector lacks the capability and the expertise to efficiently manage the distribution of even foodgrains, let alone other commodities like pulses and edible oil. Handling the supply-demand balance and intervening to keep food prices stable can be managed by a company (as is already done in a number of states).
Nearly all the remaining areas handled presently by the Collector can quite effectively be managed by the respective local body, rural or urban. Natural disaster management, rural employment schemes, etc. should be within the purview of local bodies assisted, where necessary (as is the case today), by specialist units of the state and central governments. Elections to urban local bodies are already being conducted by the local municipal administrations. Management of the election process to the three tiers of governance – national, state and local – can be entrusted to local bodies under the supervision of the Election Commission of India and the respective State Election Commissions.
With local bodies, specialised agencies and the judicial system handling all the functions hitherto vested in the Collector, it is apparent that there is no further need for this institution, which had a major role to play in the first two centuries of its existence, but is today becoming an anachronism. Perceptive readers will observe that this also calls into question the role that a generalist service like the Indian Administrative Service can play in the years to come. Indeed, with growing specialisation of functions and an emphasis on local governance systems, there is need to focus on the entire range of civil services recruited at the central and state levels to see how they need to be recast to meet the administrative needs of India in the 21st century. But this will need a separate blog, given the ramifications involved…So, more anon.

Before I am accused of being a right of the road, capitalist pig, let me clarify that I am no unabashed advocate of the free market. I recognise that the market cannot meet the needs of groups which lack the skills and purchasing power to offer their services and buy the goods and services essential for their day to day living. I endorse the view that the state has the responsibility to arrange for the provision of public goods like quality healthcare and education, which are beyond the financial capabilities of large sections of the population. Why is it then that I harbour strong reservations about the Indian state having pushed the “welfare” envelope so strongly over most of the first sixty years of independent India?
I think the problem lies in thinking that redistribution can be pushed as a primary policy without creating the conditions for sustained growth. The Indian state has too often relied on distributing fishes to the populace without investing in teaching them how to fish for themselves. The result has been the development of an ‘entitlement’ mentality in the population, with the state being expected to deliver quality goods and services across a wide spectrum of sectors. There are two issues in such an approach – first, the state cannot mobilise the finances required to meet such a vast array of entitlements and, second, the quality of goods and services delivered rarely meets the expectations of the groups for which they are intended. The consequences are faced by the people in the form of price inflation (a corollary of large budget deficits) and crumbling public services, manifest in the most evident, wretched manner in decaying urban habitations. Lest anyone harbour the thought that these are manifestations only in an emerging economy, let me point out that the largest economy in the world, the United States of America, is beset with the same problems.
The inherent complications in the Indian tryst with the welfare approach can be best exemplified by studying its consequences in three sectors: jobs, housing and food. An over-reliance on the public sector as the engine of growth meant that jobs had to be created largely in government and public sector enterprises. Since neither of these institutions had to face the discipline of the market place, we ended up with bloated public institutions, where performance was never the criteria for keeping one’s job. Politicians vied with one another in creating sinecures for their constituents, the worst offenders being the railways and the municipal corporations. Getting a government job is still the ‘holy grail’ for large segments of the citizenry. At the same time, the over-zealous state felt it had to guard the worker from the evil designs of the private sector. So we have the Industrial Disputes Act, the Contract Labour Act, etc., which are ostensibly meant to safeguard workers’ rights, but which end up damaging the very basis for providing secure livelihood. Labour legislation in India has virtually precluded any laying off of workers even if the concerned firm is in no position to continue operations. Nor has specific provision been made for social safety nets to protect the worker’s (and his family’s) existence till he secures alternative employment and for retraining provisions to enable the worker to adjust to changes in technology and processes. Employers have, therefore, taken recourse to employing contract labour for years on end, creating a huge mass of unorganised labour. Apart from breeding unrest in workers with highly uncertain futures (Maruti is a recent example), this also lowers labour productivity. There is also the tendency to go in for capital-intensive technology, a disastrous development for a labour-rich economy like India.
Again, an overriding concern for the welfare of tenants and the state-sponsored provision of housing for economically weaker sections of society saw the emergence of laws controlling rents and restricting urban land ownership. The Rent Control Acts, designed to regulate rentals in urban areas, were introduced between the end of the First and Second World Wars and have survived for over seventy to eighty years in a number of states of India. The Urban Land Ceiling Act, enacted in 1976, served to choke the stock of urban land available for development. These two Acts, coupled with politico-bureaucratic control of the land use process in urban areas, has led to a totally arbitrary, unpredictable manner of urban development, exacerbated by the rapid inflow of migrants to cities in search of work. Government efforts at directly adding to the stock of housing have been woefully inadequate and of shoddy quality. Attempts to associate the private sector through slum redevelopment schemes have generally failed, with allegations of favouritism and large-scale corruption.
However, it is in the area of food provision that public policy has fumbled the most. The National Food Security Act seeks to provide subsidised foodgrains to a majority of the Indian population. This process is to be administered through a mechanism that is riddled with inefficiency and leakages, right from the Food Corporation of India at the central level to the civil supplies machinery at the district level. Inspite of boasting of a decades old public distribution system, the state has failed to check food inflation, with grim consequences for the poor. Inadequate attention has been paid to promoting agricultural productivity and developing farm to customer supply chain networks. Soil conservation is an area that has been talked about incessantly, without any real commitment to it: major programmes of soil conservation works funded by rural employment guarantee schemes like the MGNREGA could well have augmented groundwater levels and promoted efficient agricultural practices. Foreign direct investment in retail is another area where kneejerk reactions motivated by specific interest groups have obstructed the introduction of technologies and systems that reduce food wastage and guarantee secure incomes for farmers.
What is evident from the three examples above is the way in which misplaced welfare concerns have not only failed to achieve their intended objectives but have also inhibited the adoption of long term measures that could have laid the foundations for sustained economic growth and development. Governments come and governments go in India but the same blinkered approach to public policy persists. Even today, politicians of different hues seem to think that welfare measures, like free rice, loan waivers, consumption loans, etc. lead to poverty reduction. Such measures fail to address the root problems of inadequate purchasing power and access to credit. Not only that, the huge public financial outlays on these and other welfare measures limit the capacity of the state to invest in physical and human infrastructure, which alone can be the basis for future growth. European countries moved to a welfare state after the foundations for sustained economic growth had been laid. By trying to put the cart before the horse, the Indian state is achieving neither its welfare objectives nor its growth goals.

Indians have a fascination for black money. If they don’t generate it, they love to talk about it. And yet they share a major misconception about it — it is as if the money itself has a colour, either black or white. They would do well to heed what an Economics Professor of mine used to say “Money by itself is neither black nor white; it depends on the use to which it is put.” To give you an example, let us say you pay a hefty donation of Rupees ten lakhs to get your daughter a seat in a private medical college. You have raised this amount from your hard-earned life savings, from the gratuity and provident fund paid to you when you retired (and, therefore, indisputably white money). But when the college has to park this money, they will not take recourse to their normal banking channels: the funds will be routed through avenues that seek to evade the attention of the income-tax authorities. White money has, in a trice, been converted to black money, with a change of user.
Why does this transaction hit the normal economy? Well, for one, the government is denied its share of tax revenues, impacting public expenditure. The money could be invested in assets like land or gold, driving up their value and fuelling inflationary trends. Or it could be spirited out of the country through hawala channels, decreasing the money supply available for lubricating economic activity within the country. The real killer is the multiplier aspect of such behaviour — when such transactions outside the banking system become the norm, a huge parallel economy develops alongside the regular economy. Governments may then find that their interventions to stabilise inflation or currency rates are having little impact, since the demand for and the supply of money is operating outside the regular system.
How can governments tackle this problem? Lowering tax rates does not solve the problem: rates have come down over the past twenty years but the black money menace is more pronounced than ever. When there is an incentive to pay zero income tax, there are strong motivations to conduct transactions outside regular banking channels. So we have the spectacle of professionals accepting fees in cash and not declaring their incomes and land/building sale transactions being conducted in a black and white combination.
Two possible solutions suggest themselves: (a) Demonetise higher value currency notes to make cash transactions more cumbersome in terms of volume; (b) legally mandate that all transactions above a certain value, say, Rs. 10000 have to have an electronic footprint. On demonetisation, we have the example of countries like the USA, where the highest currency denomination in current use is 100 US dollars (higher denominations were not even printed after World War II). Unfortunately, we are headed the opposite way in India — we introduced 1000 rupee currency notes and are now contemplating 1000 rupee coins as well. It would seem that we are trying to make things as simple as possible for people who wish to despatch trunk loads of cash for illegal payments. If India were to demonetise all currencies of Rupees 100 and above, there would be a tenfold increase in the volume of cash that has to be carted around for cash transactions. This is where the second solution kicks in. Since all transactions above Rs. 10000 have to come through official channels (which are electronically monitored), cash withdrawals by an individual customer can be restricted to a certain value per month, say Rs. 25000. Barring minor payments for items like bus tickets and vegetable purchases, there is no need to rely on cash purchases at all.
Electronic payments would necessitate opening of electronic bank accounts for all citizens above eighteen years of age, an objective the Nachiket Mor Committee on Comprehensive Financial Services has already stressed in its recent report to the Reserve Bank of India. Issuing Aadhaar and/or PAN cards to all citizens would enable linkage of these cards to the account, to keep track of receipts and payments and ensure compliance with tax and other laws of India. The electronic footprint would also restrict cash withdrawals by an account holder to the amount specified above, to prevent huge cash volumes illegally exchanging hands. Who knows, this may well discourage payments at election time and speed money payments, till Indian jugaad comes up with some other ingenious solution. Payments above Rs. 10000 can be through bank transfers, internet transfers, cheques and/or mobile money.
There is another virtuous cycle that will come into operation once the above measures are introduced. We love to repeat ad nauseam that “of every rupee meant for a poor beneficiary, only 15 paise reaches her”. An obvious solution is the introduction of cash transfers. Instead of cash being paid, the amounts are directly credited to the account of the beneficiary. A combination of conditional and unconditional cash transfers can be employed. Where the amount is meant for daily use as in old-age pensions, there would be no restriction on the free use of the funds by the beneficiary. Where the funds are linked to fulfilment of a specific condition like the purchase of food grains, payment for health care or school vouchers, the amount would be electronically transferred from the beneficiary’s account to the institution/person providing the good/service when the good/service has been provided to the beneficiary. This should pose no technological problem to our IT geniuses, given that the National Securities Depository Limited (NSDL) is already handling such a large volume of capital market transactions. In fact, there is no reason why the same NSDL system cannot be fruitfully employed for this purpose as well.
We can talk about the scourge of black money and poor service delivery till the cows come home but unless we bring in reforms on the lines suggested above, I do not see any meaningful solution to these problems. The marriage of modern technology with existing systems can definitely create the conditions for sustained, inclusive growth and development.

In an earlier blog on this site (5 August 2011), I had cautioned against what might be termed a short-term revenue based approach to infrastructure investments, arguing that this would seriously harm investor sentiment. A year and more down the road, I note with considerable anguish that my earlier apprehensions are coming true with a vengeance. While my earlier blog focused only on the upstream petroleum sector, we now see that the virus of short-term policy making expediency has spread like a cancer to various parts of the Indian ‘body economic’ which, if not halted at the earliest, can seriously affect investor sentiment. While my earlier focus was on the petroleum (specifically the upstream exploration and production) sector, I would now touch on events in other sectors which point to a spreading malaise. There are, as I see it, four primary factors for this state of affairs:

a)       Bumbling regulation:  My last blog (7 December 2012) highlighted major shortcomings in the regulatory framework in the upstream petroleum sector. In that blog, I had refrained from questioning the competence of the Directorate General of Hydrocarbons (DGH) to regulate and supervise the petroleum operations of companies with which the Government of India had signed production sharing contracts (PSC). Now, a friend who read that blog has brought to my notice that in the Ravva field (Krishna-Godavari basin) PSC, the DGH insisted that the contractor should drill more wells even though the contractor had achieved the agreed production levels by drilling a lesser number of wells (and no production gain would have resulted by drilling more wells). This must be the first case of its kind where a regulator sought to enhance the capital cost of a project, apparently unmindful of its adverse implications for the profit petroleum share that would accrue to the government. [My blogs of 30 November and 7 December 2012 have explained in detail the economics of upstream petroleum operations under a PSC]. While I am not aware of the final outcome in this case, it reflects a very poor understanding of both the technical and financial aspects of petroleum operations. Add to this the other episodes listed in my blog of 7 December 2012 and you would understand why there is increasingly lukewarm investor response to the offer of exploration blocks in successive bidding rounds under the New Exploration Licensing Policy.

b)      Contractual sanctity and pussyfooted policy: Considering that all major decisions in government (especially the Government of India) are taken after voluminous file notings and consultations with all concerned Ministries, the flip-flops in government policy in the past few years have been truly astounding. I will again take up examples from the petroleum sector (with which I am familiar). As far back as 1986, the Petroleum Ministry took a considered decision, with approval at the highest levels, to exempt investors in oil and gas exploration ventures from the payment of royalty. This was to encourage private foreign investment in exploration at a time when international prices were in the region of US$ 12 a barrel and any upfront deduction from revenue (as in the case of royalty) would have kept away investors. This policy was continued in the bidding rounds held after 1991; it was only with the advent of the New Exploration Licensing Policy in 1998 that royalty payment was incorporated in the fiscal package. This did not, however, deter the Government of India from departing from the contract provisions in the PSC with Cairn India for the Barmer block in Rajasthan and demanding, as a condition for approving the sale of interest in Cairn India to Vedanta, the payment of royalty. In my blog of 5 August 2011, I had pointed out how this move represented a breach of contract by the Government of India and why the payment of royalty would, in the final analysis, make little difference to the share of oilfield revenues accruing to the government. That Vedanta agreed to the condition in their anxiety to obtain government permission is beside the point; the government chose to alter the PSC when there was no logic in doing so and no interests of government or the country had been compromised. A second and more recent case is the gas price finalisation for gas produced from the D-6 gas field in the offshore Krishna-Godavari basin operated by Reliance Industries and its partners. The bid conditions when the block was offered clearly stipulated that the contractor was free to market the gas. The 2006 report of a Committee of officials of the Petroleum Ministry which prepared the guidelines for government approval for gas pricing under PSCs categorically stated that where gas prices had been arrived at on the basis of open competitive bidding (OCB), there was no need for government to interfere with the same. And yet, when the National Thermal Power Corporation was able to secure a deal for gas supply from Reliance at US$ 2.34 per million BTU, the Petroleum Ministry did not accept this bid. There was talk (fuelled by uninformed press reports) that the government stood to lose revenues from the field on account of the low gas prices. This was in spite of the fact that it was a government corporation that was benefiting from the lower gas price and the end-consumer would have been the ultimate beneficiary. And yet, when the same Reliance asked for gas prices higher than US$ 4.20 per million BTU, the Government of India was reluctant to look at a reasonable price for gas in the region. A higher gas price would have also given government a greater share of profit petroleum consequent on increased revenues from the gas field. In this Dr. Jekyll and Hyde situation, it will be very difficult for any private company to do business with the government, given that no one can predict flip-flops by future governments.

c)       Mistrust and bureaucratic inertia:  At the best of times, the private sector has found the Indian bureaucracy to be slow and obstructive, with petty harassment at various levels. Now, the prevailing atmosphere of suspicion of any major government decision has brought the bureaucracy at the higher levels to an almost complete stop. This paranoia seems to have affected the ministers as well: every decision goes to the Cabinet and/or to an Empowered Group of Ministers. Decision making has obviously been a casualty in such an environment. Matters are not helped by ill-informed and widespread media (especially electronic media) reporting that targets specific Ministers and bureaucrats. The slow, tortuous legal process in India is a matter of dread for any honest government functionary: once he is enmeshed in some enquiry, it can take anywhere from ten to twenty years to clear his name, with both his reputation and his career in tatters. At the same time, the failure to quickly bring to a closure corruption cases already under way only deepens the public suspicion that the powerful are above the law.

d)      Political posturing and doublespeak: Partisan politics has in the last couple of years played havoc with economic decision making. Take the case of foreign direct investment (FDI) in retail. The main opposition party had espoused this cause when it was in power – now, it suddenly discovers many evils in the policy. Other parties are no better – their response is dictated more by political exigencies and less by the merits of the policy. Opening up the insurance and pension sectors has run into the same roadblocks. Even the debate on the FDI retail issue has had its share of factual inaccuracies. The Bharatiya Janata Party (BJP) claimed that foreign fast food chains were importing potatoes for making French fries. The companies promptly issued rejoinders to the effect that the potatoes were wholly sourced from within India – in what is probably the greatest irony, the potatoes were sourced from farmers in Gujarat state, ruled for fifteen years now by the BJP. While the position of the Left is understandable, given their antipathy to foreign investment in any form (even when such investment makes sound economic sense), the position of other parties, especially those hoping to come to power at Delhi or in different states, seems to be dictated by political expediency. It is almost as if they are afraid to give any credit for successful policies to the political party currently in power and will back these policies once the levers of power are in their hands. Since this is likely to be a zero-sum game, given that no party looks like cobbling together a respectable majority to push through economic reforms, the result could well be legislative paralysis over an extended period of time.

2.                Opinion and decision makers in government, political parties, the media and academia need to clarify their positions on economic reforms, foreign investment and the overall role of the private sector in the growth process. Open thinking on these issues is all the more imperative since India is competing with a host of other nations to secure investment opportunities. Newer and newer countries are emerging as attractive investment destinations, ranging from the old Indo-China region to Africa and Latin America. India (and Indians) must shed their schizophrenic attitude to private investment. If India as a country wants to export its manpower and capital to other countries to earn foreign exchange and grab a greater share of the economic pie, it must equally welcome such investment. In fact, a situation is developing where, confronting the difficulty of doing business in India, even private Indian companies are looking for investment opportunities in other countries, thereby reducing the scope for job and income-creating opportunities within India. Let us pray that we do not reach a situation where private companies, Indian and foreign, take too literally the words of Mohammad Rafi’s immortal lines from the song from the film Pyaasa in beating a retreat from Indian shores:

Mere saamne se hata lo ye duniya

Tumhari hai tum hi sambhalo yeh duniya

Yeh duniya agar mil bhi jaaye to kya hai  

My last blog (30 November) detailed the fiscal regime in the upstream petroleum (exploration and production) sector. The intention was to show why the Government of India went in for a progressive resource rent taxation regime related to the profitability of a specific oil/gas field in the New Exploration Licensing Policy (NELP) bidding rounds. It would, however, be necessary to also point out the dangers inherent in any profit-based taxation scheme and the need for effective regulatory mechanisms to monitor pricing, production and costs in an oil/gas production venture to ensure that governments are not deprived of their rightful shares of revenue.
Let us start with the concept of ‘gold plating’ of costs. As the name suggests, this is nothing more than companies attempting to inflate costs of projects to show reduced profits, thereby reducing the tax they pay the government. In production sharing contract (PSC) systems, which (in the Indian context) should be more rightly termed ‘profit-sharing contract’ systems, since it is the profits from the project that are split between the government and the contractor, the contractor has (if not properly regulated) the incentive to show inflated estimates of the costs incurred by it on exploration, development and production operations. Since, under the NELP, cost recovery is the first charge (after royalty payment) on field revenues, higher costs translate into a lower volume of revenues available for profit sharing; as the previous blog shows, this also leads to the project showing a lower level of profitability (in terms of the pre-tax Investment Multiple {IM}) and placing the government-contractor sharing in the lower tranches of the IM. Government is then placed in a situation where it gets a lesser percentage of an already depleted profit petroleum.
Companies could conceivably attempt to restrict the share of profit petroleum flowing to the government by bidding absurdly high shares of profit petroleum for the government at relatively low IM tranches. Since lower tranches are reached relatively early in the life of field production, this distorts the net present value of the project at the time of bid evaluation in favour of such a bidder and ensures that it is successful in its bid. Subsequently, during the operation of the PSC, as long as the project does not enter the tranche where government draws a high share of the profits (or where low absolute profit petroleum gives only a meagre share of the overall field revenue to government), the contractor stands to garner a lion’s share of the field revenues. This situation can be brought about by the contractor in one or more of three ways:
(i) The contractor can enter into arrangements with sub-contractors to charge exorbitant prices for services rendered or goods provided in exploration, development and/or production operations. Of course, the contractor itself benefits financially from such an arrangement only if the sub-contractor is an affiliate or works out some system with the contractor to share the economic rent derived from overcharging for services. The contractor may also enhance production (or operational) costs by charging high overheads;
(ii) Cutting back on annual production enables the contractor to reduce the annual flow of revenue and thereby curtail profitability for a given level of cost recovery. This will push the profit-sharing numbers into a lower tranche, with a lesser percentage accruing to the government apart from also reducing the absolute amount of profit petroleum available in a particular year for division between the government and the contractor. There is also then a possibility that lower levels of annual production can be sustained over a greater number of years at lower levels of profitability, cutting into the government take;
(iii) Pricing of the final product – oil and/or gas – can influence the overall profitability of the venture. Sale of the oil/gas to a subsidiary or affiliate of the contractor or to a company with which the contractor has some undisclosed arrangement at prices lower than what would have obtained in a free market transaction will diminish the gross revenue as well as the profit petroleum.
It is in this context that strong and effective regulatory systems need to be in place to ensure that the contractor is carrying out petroleum operations in accordance with best industry practices. The experience of the Indian upstream petroleum sector in this regard has been discouraging, to say the least. Either the upstream regulator, the Directorate General of Hydrocarbons (DGH), has not performed the role assigned to it or the government has not empowered it in a manner enabling it to carry out its responsibilities effectively. So what are the attributes that make for a good regulator and how has the DGH fared in that regard? On two important criteria for a strong, effective regulator, the DGH comes out with a less than satisfactory report card:
(i) Autonomy: The selection of the person to head the regulatory body must be through an impartial, rigorous process. Right from 1993, the Government of India has kept the powers to appoint the DGH. Not only that, the DGH and the staff under him are drawn from the two national oil companies, Oil and Natural Gas Corporation and Oil India Ltd. In such a setting, with their future careers dependent on their respective government-owned corporations, there is every likelihood that any decision of the DGH would be seen as being weighted in favour of the government and the national oil companies, even if such is actually not the case. The temporary nature of their sojourn in the DGH also tends to make the DGH operatives naturally conservative and risk-averse – add to that the general tendency in the Indian system to view every decision with suspicion and you have a perfect recipe for a “pass the buck” syndrome to develop in the DGH. Not surprisingly, decision-making on PSC issues is almost totally Ministry-based, leading to interminable delays. As a party to the PSC, the Petroleum Ministry should not be the adjudicator in PSC issues where government and company interests and interpretations could (and often do) diverge. Recent history has thrown up instances where the Government of India has intervened in matters which ought to have been determined by the provisions of the PSC. The approval of the interest transfer in Cairn India to Vedanta only after the latter agreed to payment of royalty in the Rajasthan discovery (in contravention of the agreed PSC provisions) and the continuing imbroglio over the price payable for gas produced from the D-6 field in the Krishna-Godavari basin are but two instances where a straightforward interpretation of the PSC provisions has not been adhered to by the Government of India. Recently, we read of Cabinet approval being required for Cairn India undertaking exploration activity in its discovered field in the Barmer basin with the aim of augmenting oil reserves, when the matter related to essentially a technical decision that should have fallen within the jurisdiction of the DGH.
(ii) Competence: It is not my intention (nor within my abilities) to comment on the technical capabilities of the DGH personnel. Suffice it to say that deputing personnel for a certain tenure to the DGH is certainly not the best way to develop PSC and oil/gas field management competencies in the DGH. Three recent examples show how the DGH has not played the role that would have been expected of a strong regulator. Curiously, all three cases relate to the D-6 block where the Reliance-BP-Niko consortium is producing gas from an early NELP contract award. The first concerns the excessive expenditure allegedly incurred by the contractor in developing and producing gas from the field. An effective regulator would have analysed the expenditures in relation to the oil/gas production and taken a view on whether to allow the costs for cost recovery purposes. If the regulator was confident of its assessment, it would have been ready to face the challenge of determining the appropriateness of the costs incurred by the contractor through an arbitration process. In the D-6 case, at least from the newspaper articles, one only understands that approval to the development plan was withheld and subsequently granted. When challenged by the contractor to go in for arbitration, the government appears to have backtracked on its earlier stand. Such a knee-jerk approach shows neither the Petroleum Ministry nor the DGH in a favourable light. A second issue relates to the falling gas production from the field, far below the estimates originally projected by the contractor. While there have been all sorts of wild speculation on the reasons for the same, there has been no indication (or any clarification from the side of the DGH) as to why the production has fallen off so sharply. If the DGH was of the view that the contractor had wilfully reduced production, it should have taken necessary steps to compel the contractor to increase production by invoking the relevant provisions of the PSC. By failing to do so, the DGH created doubt in the public mind about the reasons for the fall in production, putting the government’s credibility at stake. Thirdly, there has been unseemly controversy over the pricing of the gas sold from the D-6 field. The PSC provides for the basis for valuation of the gas sold: it is not clear why there has been so much debate on what is essentially a commercial decision and why no effort has been made by the DGH (or the government, for that matter) to clarify the policy in this regard.
It is pointless blaming the DGH for the current state of affairs. The DGH is a creation of the government and it was (and is) the duty of the Government of India to create a strong and effective DGH which can safeguard the interests of the country while also providing a conducive environment for efficient oil and gas field operations. Unless the Government of India takes steps to strengthen the DGH and provide it with autonomy as well as managerial and technical competence, there is every likelihood that the interests of government (and of the country) will be compromised. Not only that, the trend of reduced investor interest in exploration ventures in India will be intensified, with long-term implications for the country’s energy security.

My earlier blog on India’s oil exploration policy (16 November 2012) has elicited responses from some old friends. Their comments have drawn my attention to two issues that are engaging the upstream petroleum (exploration and production) sector. The first relates to the ‘gold plating’ of exploration and production costs and its impact on government take from the producing field; the second concerns effective regulation of the upstream sector. Before taking up these two topics in my next blog, I feel it is necessary to acquaint my readers with the fiscal arrangements in place in the upstream petroleum sector. This blog will, therefore, explain the fiscal regime with some mathematical examples and highlight the rationale of its operation.

The New Exploration Licensing Policy (NELP) fiscal regime is modelled on the fiscal regime adopted for bidding rounds in the 1980s and 1990s, with some modifications. The contractor is entitled to recover in full the aggregate costs incurred on exploration, development and production operations as well as royalty payments (these are collectively referred to as cost petroleum). The contractor can opt to allocate 100% revenues from production to recover costs as long as aggregate costs yet to be recovered are greater than the revenue realised in any financial year or can opt for a percentage less than 100%: this is a biddable item. A notable feature of the NELP production sharing contract fiscal regime is that all costs (whether exploration, development, production or royalty payments) which are not recoverable from petroleum revenues in a particular year can be carried forward to subsequent years and recovered from revenue realised in those years. The pre-tax investment multiple (IM) for calculating the sharing of revenue net of cost petroleum between the contractor and the government in any year is worked out by the following formula:

IM_n+1 = (E_n+D_n+P_n+R_n) +PP_n – (P_n+R_n)/E*+D*

Where

IM_n+1 = Investment multiple in year n+1

E_n         = Cumulative exploration costs recovered for all years upto and including year n

D_n         = Cumulative development costs recovered for all years upto and including year n

P_n          = Cumulative production costs recovered for all years upto and including year n

R_n         = Cumulative royalty payments recovered for all years upto and including year n

PP_n      = Cumulative profit petroleum entitlement (including incidental income from petroleum operations) of the contractor for all years upto and including year n

E*     = Cumulative exploration costs upto and including year n

D*     = Cumulative development costs upto and including year n

Cost petroleum recovered by the contractor together with profit petroleum to which it is entitled (both computed over the contract period) constitute the gross revenue of the contractor. The IM being computed on net income, production costs (P) and royalty payments (R) are deducted from cost petroleum in its computation. Since exploration and development costs are incurred largely in the initial years of a PSC and taper off in later years (unless fresh discoveries warrant further expenditure on exploration and development), E_n+D_n will over time coincide with E*+D*. Essentially, it is PP, the profit petroleum share accruing to the contractor over the contract period, which will determine how high the IM rises. This value of the IM has great significance for the share of profit petroleum taken by the government on a year to year basis, as will be evident in the succeeding paragraph.

The main component of the bid evaluation process in the NELP is the percentages of profit petroleum offered to government by bidding companies in the first (less than 1.500) and last (greater than 3.500) tranches of the IM, since royalty payment is mandatory. Based on these two percentages, the percentage values for tranches between 1.500 and 3.500 would be interpolated based on a linear scale. An example would help clarify the picture:

As is clear from the above table, the share of government in net revenue rises progressively as the IM moves to higher tranches of profitability.

A view has been voiced in public discourse that the pre-tax IM method of determining government share is fraught with the danger that the producing company would be tempted to inflate (gold plate) costs to reduce the profitability of the venture and thereby confine government share to the lowest one or two tranches as well as reduce the quantum of profit petroleum available for division between the contractor and the government. It has, therefore, been suggested that a flat share of gross revenue (based on production) be taken by the government so that the ‘evils’ of gold plating do not lead to a reduction in government share. There are at least three problems with such an approach:

(a) royalty on oil and gas at between 10% and 12.50% of gross value is already levied on companies. A further flat rate levy implies an extension of the royalty approach. It also makes a risky, cost-intensive venture unviable at the outset by taking a large chunk of the pie away from the contractor, postponing the payback on its investment;

(b) the flat rate approach is insensitive to the fluctuations in economic rent arising from windfall gains. This could arise on account of rise in oil/gas prices, as has been witnessed over the past decade. Oil prices have climbed over fourfold since the turn of the century. A flat rate revenue sharing approach entered into in, say, 1998 (when oil prices were under US$ 20) would have greatly reduced the revenue share of government today (when oil prices stand at over US$ 80). There is also another possible scenario: a dramatic drop in exploration and development costs after contract execution because of advances in technology would also confer huge benefits to the contractor, with the government not sharing in the windfall gains.

(c) a flat rate regime could also adversely affect the exploration and development of marginally profitable discoveries. A ‘one-size fit all’ flat tax regime does not account for the varying geological prospectivity and the differing costs of exploration and exploitation of discoveries in different petroleum basins (both onshore and offshore) of the country. Varying the flat tax rate across different regions would invite the accusation of arbitrariness in rate fixation.

This is not to discount the need for vigilant monitoring of the contractor’s operations to ensure that government is not deprived of its legitimate share of profit petroleum. However, merely because, as a society and government, we lack confidence in our regulatory institutions is no reason to look for simplistic fiscal solutions that deny government its rightful share of economic rent from petroleum operations. This is a topic we will turn to in the next blog.

Coal, that black diamond, is currently generating more heat than light… at least that is the conclusion one reaches on reading and viewing the current debates on what is popularly referred to as “Coalgate”. At the heart of the controversy is the (apparent) failure of the government to allot coal blocks to private parties through a bidding process rather than by direct allotment, as has been done over the past decade. Unfortunately, the focus is largely on the allocations to apparently undeserving parties rather than on the issue of what is the most cost-efficient method of mining coal to meet the energy requirements of the country. Once again, we are in the uncomfortable situation of a public sector versus private sector debate rather than an assessment of how best to meet the country’s fuel requirements.
The first bogey that needs to be laid to rest is the contention that coal mining and extraction should vest entirely with the public sector. A public sector monopoly with its cumbersome processes can hardly be expected to meet the rising demand for coal. It would be interesting (and instructive) to analyse why the coal sector was not opened up to private investment at around the same time (1974) as the petroleum sector. After the first oil shock of 1973, surely India’s energy planners should have been giving serious thought to augmenting supplies of alternative fuels for the power sector, given India’s large coal reserves in relation to its petroleum reserves. There could be two possible reasons for this (in hindsight) costly oversight. The first (rather charitable) explanation could be that it was felt that the public sector could meet the coal requirements of the power sector. This explanation could probably have had credibility till 1991, when the Indian economy underwent a U-turn. By 1991, the capability of the public sector to meet crucial infrastructure needs was being seriously questioned. International agencies like the World Bank, IMF & ADB leant on the Indian government to fully open up the petroleum sector (from exploration for oil and gas to refining and marketing of petroleum products) to private (Indian and foreign) investment, when approving loans to bail out the Indian economy in a crisis situation. However, they exerted no similar pressure as far as the coal sector was concerned. It could be surmised that the clout of international oil and gas companies being significantly more than that of global coal mining companies, the pressures from the former influenced the views of international lenders to a far greater extent. But why did the Indian government not proactively go in for opening up the coal sector as well to private investment in 1991? After all, the critical balance of payments situation in 1990-91 should have awakened policy planners to the dangers of an energy crunch, which required concerted action in respect of all fuels, not just petroleum. The explanation for this policy failure will necessarily have to be not so charitable to the Indian government: it reflects the vested economic and political interests that were against giving up control over the lucrative coal sector. The major success in petroleum discovery and production post-1974 was in the offshore Bombay High field; since offshore allocation of petroleum exploration licenses lay squarely within the competence of the Indian government, it was relatively easy for the central government to offer offshore exploration blocks in successive exploration rounds between 1980 and 1995; even the offer of onshore blocks got little attention, because the production in onshore areas was located largely in the states of Assam and Gujarat and had not led to the development of powerful pressure groups as in the coal sector. In contrast all coal blocks were onland, in states like the then undivided Bihar and Madhya Pradesh, Odisha, Goa and Andhra Pradesh. Equally important was the coalition of interests that had developed in the coal sector (unlike in the limited onshore petroleum mining sector). Politicians, mining sub-contractors, transporters and labour contractors, among others, stood to gain from the many contracts that could be garnered from the operations of the public sector entity. With such an array of pressure groups opposed to any change in the existing system, it comes as no surprise that the coal sector remained a public sector monopoly.
What steps could, if taken over the past twenty years, have helped in avoiding the present brouhaha in the coal sector? This requires an examination of the possible policy framework that would not only have ensured a transparent system for entry of private players in the coal sector, but would also have enabled greater cost efficiency while also giving government a greater share in revenues generated from increased production (and value addition). The experience of a bidding process in the petroleum sector over three decades could well serve as a guide to the development of a robust allocation and management system in the coal sector.
First and foremost, there is need to shed ideological blinkers regarding private investment in the coal mining sector. It is not good economics to have an inefficient public sector that extracts lesser quantities of a mineral at costs which are higher (for given geological conditions) than the international norm. This was the logic behind the New Exploration Licensing Policy (NELP), introduced in the petroleum exploration sector since 1999, which required Indian public sector oil and gas companies to compete for oil and gas exploration blocks with domestic and international players in bidding rounds. Competition in the coal sector will improve economic efficiency by exposing all companies to best international mining practices and encourage cost reduction efforts to improve profit margins. There is, of course, the issue of how to permit companies with no previous expertise in coal mining to bid for blocks. Here, the path followed in the petroleum sector can be adopted. Indian private or public sector companies newly entering into coal mining activities could be considered if they bid jointly with Indian or foreign companies with previous experience in this sector. This was how companies like Reliance Industries, Gujarat State Petroleum Corporation and Videocon Industries were able to enter the petroleum exploration and production sector.
More importantly, there is need to lay out a specific contractual framework within which all companies (private and public sector) must carry out operations. Petroleum exploration and production activities have been carried out under the ambit of production sharing contracts. Developing similar contractual arrangements for the coal sector would not only streamline operations relating to prospecting for and extraction of coal but also enable putting in place a fiscal regime that allows companies to earn a reasonable rate of return on the capital invested by them while also giving government a share in the profits realised from the sale of coal produced. The important features that will need to be a part of such contracts are detailed in the succeeding paragraphs.
The first requirement is the specification of the duration for which the coal block will be allotted to the successful bidder and the manner in which coal resources in the block will be assessed and exploited. In case there is need for a company to carry out a geological assessment of the block, the period for such assessment should be specified, with the proviso that production plans must be prepared and approved in a specific time period. Any unreasonable delay on the part of the contracting company in commencing production should invite sanctions ranging upto termination of the contract. The specification of a contract period for the block (with provisions for extension by mutual agreement between the company and government) enables the computation of the likely revenues from the block (under different assumptions regarding future coal prices) and is crucial for determining the proportions in which revenues (net of costs) will be shared between the company and government.
The second aspect relates to the sharing of the “economic rent” from the sale of coal (and possibly coal gas) produced from the coal field. As in the petroleum sector, the company could first be required to pay a flat-rate royalty linked to the value of gross production. It would then be permitted to recover its costs of prospecting, capital investment and operation from the gross revenues less royalty. Revenue (net of royalty and cost recovery) would then be shared between the company and government based on a resource rent tax, which could, as in the petroleum sector, be based on the post-income tax return on investments in the project by the company. The company would also be liable for corporate income tax on its profits after payment of all government levies, including royalty and resource rent tax.
Profit determination is crucially linked to the pricing of coal and other by-products. Where coal is permitted to be sold in the open market, a fair third-party arm’s length sale price would have to be determined to ensure that government gets its due share of revenues. In the absence of a free market for sale of coal, prices may need to be set by an independent regulator to meet the needs of different sectors of the economy. Here, the pricing policy will have to be such as to meet the profit concerns of the private investor as well as the requirements of the economy.
Transparency and fairness in allotment of coal mining leases can be ensured through a single-stage bidding process. Once technically qualified bidders have been shortlisted, the financial packages offered by these bidders would be evaluated in terms of the net present value (NPV) of revenue streams accruing to the government over the life of the contract in the form of royalty, resource rent tax and income tax, discounted at an appropriate interest rate. The successful bidder would be the one offering the highest NPV to the government (based on assumptions regarding production over the contract period, coal price and the discount rate, applied to all the bids). This has been the approach adopted by the Indian government for award of petroleum exploration blocks in successive bidding rounds down to the present day and seems perfectly adaptable for use in the coal sector.
The introduction of such a system in the coal sector would go a long way in ensuring a transparent, rule-bound method for award of coal blocks. Of course, after the award of the blocks, a rigorous regulatory framework would be necessary to monitor production, set the price for sale of coal (and coal gas and other by-products, where produced) and approve costs incurred in extraction of coal. There is also the issue of coordination between the central and state governments, since many clearances for coal production would need to come from the state government. More significantly, there is the question of how the revenues which are to accrue to the government will be shared between the central and state governments. While royalty and a large portion of the corporate income tax will flow to the state governments in accordance with laid down financial devolution norms, a formula for sharing the resource rent tax between the central and state governments will need to be evolved, possibly through the recommendations of future Finance Commissions, by widening their terms of reference to include non-tax revenues.
What is evident is that there can be a well-defined path for allocation of a natural resource like coal, which meets the requirements of fairness and transparency while also addressing the differing concerns of the principal stakeholders – the operating companies, the state governments, the central government and local communities. Such an approach will reduce the likelihood of future controversies and will promote investment in a crucial natural resource sector, contributing crucially to the raw material requirements of a growing economy.

“It is a bad workman who blames his tools.” The constitution of the Rangarajan Committee to review the production sharing contracts (PSC) for petroleum exploration and production seems to be a case where the problems of the Government of India with private oil explorers and producers are sought to be blamed on the PSC rather than on those charged with its implementation. Since the media discussion on the subject has raised issues which one thought had been answered in the first flush of liberalisation in 1991, a dispassionate look is required at what really the problem in this sector is and whether the wrong area is not being focused on.

Actually, there is nothing wrong with the PSC devised for the New Exploration Licensing Policy (NELP). The NELP was fashioned on the PSCs of the 1980s and 1990s, with the only real change being the introduction of a royalty payment on oil and gas production. Even the royalty payment as part of the fiscal regime has been palatable to NELP bidders only because of the high oil prices: it is unlikely that companies would have accepted this levy in the low oil price scenario of the 1980s and 1990s. However, what has probably been the greatest plus point of the PSCs has been the linking of government revenue share to the profitability of the oil/gas venture. The statement in a recent Mint article attributed to the Director General of Hydrocarbons (DGH) is fraught with adverse implications for government revenue share. If government share is linked to production rather than profitability, windfall profits accruing to an investor from rising oil/gas prices will not be shared with the government. In fact, this was one of the major factors which influenced adoption of this fiscal model by the Government of India, which has thereby been a major beneficiary of the dramatic oil price increases from the 18 dollar per barrel level of the mid-1990s to the 90 dollar levels of today.

Regulatory inadequacies are a major cause for the recent controversies. The PSC mandates a clear procedure for sanctioning field development expenditures by companies. Nothing stopped the DGH from refusing to approve expenditures on the grounds of inflated costs. If the DGH was sure it was on firm ground on the Reliance D-6 field cost issue, it (or the government) should not have been worried over reference of the issue for resolution to a sole expert or to arbitration. To keep the issue dragging for months and years while all sorts of wild public speculation were encouraged is hardly the way to inspire investor confidence. The same applies to the company claiming that the gas reserve estimates are less than earlier anticipated. A clear technical view needed to be taken on this issue rather than indulging in public debate on geological reserves.

At the heart of the DGH supervisory riddle is the Petroleum Ministry’s approach to PSC administration. If the intention is to have a strong, independent regulator, the Petroleum Ministry ought to ensure that the DGH is staffed by permanent professionals from the oil industry who do not have to look over their shoulders each time they take a decision. Instead, the DGH refers each and every matter to the Ministry for resolution. Matters are not helped by immediate (often uninformed) public scrutiny of each and every move by the Ministry. The result is what might be termed policy paralysis. Instead of going by the letter and spirit of the PSC, issues settled by government decisions in the past are revisited at the cost of contractual sanctity. Take the example of the transfer of interest in Cairn India to Vedanta. The Petroleum Ministry was insistent that the company must meet the condition of royalty payment, never mind that the Fourth Round (1991) bidding conditions specifically exempted companies from royalty payments. That Vedanta agreed to pay royalty was more a reflection of its keenness to get government approval for the transfer of interest in Cairn India rather than on the merits of the contractual position.

What is more worrying is the schizophrenic approach to private investment in this sector. Let one thing be clear: India is a country with only moderate prospectivity as regards oil and gas reserves. International oil companies will invest risky exploration dollars only if they are guaranteed a stable contractual regime and consistency in government policy. It is the entry of these players (with or without Indian partners) that has seen oil/gas production from new exploration blocks in the last decade in the Krishna-Godavari, Rajasthan and Cambay (Gujarat) areas, at a time when the national oil companies, ONGC and OIL, have no new discoveries of any significance to show. Yet, when a major discovery of reserves, as in Rajasthan, by a private player takes place, there is an immediate uproar over the profits that the private company will realise, without an understanding of the revenue (and, of course, the petroleum) benefits that the country stands to gain from the venture. Everyone, from the media to the government and elected representatives, feels the country is being short-changed in the bargain. Instead of creating an environment which encourages more investment in what is undoubtedly a risky sector, attention is focused on how to extract “more golden eggs from the goose”.

Let us as a country be clear on what we want. If we want to be insecure and mistrust every investor, we must accept that scarce exploration dollars will flow to those countries which have far more attractive prospects. However, if we are prepared to deal maturely with private investment, with fair, impartial regulatory mechanisms in place, we can have our cake and eat it too.

Dear Prime Minister,

I went through your speech on the occasion of Civil Services Day on April 21 this year. The recent rash of arrests of senior civil servants in states like Maharashtra, Andhra Pradesh and Uttar Pradesh has certainly caused disquiet in the civil services. The merits of the charges against them in cases ranging from Adarsh to Emaar and the NRHM will be decided in the appropriate judicial forum. What causes greater concern is the failure to address the root causes of what I can only term as a growing tragedy. Tragedy not because of what it portends for individual civil servants but because of its implications for the health of the administrative system and the country as a whole.

There were three issues you touched on in your speech: neutrality, system and process change and bold decision-making (with no witch hunting for bona fide mistakes). Let me start with neutrality. Successive political leaderships at both the central and state levels have, over the past thirty years, diluted this concept almost to the point of no return. While proximity of the bureaucracy to the powers that be has always, to some extent, promoted individual advancement, the wholesale dominance of the political element in postings has sent a very strong message to the bureaucracy. Can we deny that postings even in the Government of India are very largely dependent on the fancies of individual Ministers? Gone are the days when a powerful Establishment Officer would send a panel of names to the Ministry, which could only accept one name or reject all of them and send them for reconsideration. Today, it is no secret that a word from the Minister decides the posting in a Ministry at the centre. The less said about the state governments, the better. The concept of a “committed bureaucracy” (first touted in the 1970s) is the norm in all states, give or take some honourable exceptions. If we really want neutrality, we should seriously implement the concept of Civil Service Boards in both the centre and states (with representation from outside the bureaucracy as well) so that postings are made on merit and suitability and not on political proximity.

System and process change is another area where there has been more talk and superficial action rather than any desire for deep-rooted reform. We still have extremely centralised (hence, discretionary) systems of procurement for items from supplementary nutrition under ICDS to arms purchases for the defence forces. Apart from some tinkering with e-tendering and the like, there has been no attempt to delegate procurement to different levels to check the temptation of centralised corruption. Moving to computerised systems, especially in areas of public interface, has been halting and disjointed, dependent more on flashes of individual brilliance and dedication. To give an example, the Bhoomi initiative in Karnataka is yet to be replicated on a national scale. Vested interests in different departments work against the implementation of such system-transforming changes. Our penchant for ascribing deeper motives to any effort is being manifested once again in the UID, where expert views are being trotted out to defend privacy and raise security concerns. We are in danger of letting the “best become the enemy of the good!” Thank God we were able to withstand the criticism of EVMs, which (as anyone who has participated in the election process will affirm) has, along with electoral ID cards (another system reform), greatly reduced the scope for booth capturing and bogus voting.

Of greatest concern is the pattern of politician and bureaucrat-chasing that we are seeing over the past two years. A PIL or a CAG report is used to conduct a trial by media, where guilt is proclaimed even before all facts and the legal position have been examined and before judicial or political processes have worked themselves out. A period of pre-trial incarceration in jail seems to have become the norm, even where the accused is unlikely to evade investigation or tamper with witnesses. The tortuous course of police (or CBI) investigations and subsequent judicial processes guarantee at least a decade or two of court attendance for a bureaucrat implicated in any such case. It would be in the interests of both the system and honest bureaucrats if all such cases were brought to a closure within a time frame of two to three years. The system would benefit by cleansing the Aegean stables of corrupt elements and the honest bureaucrat would be reassured that even if s (he) is charged in any case, s (he) would get justice fairly quickly. In the Adarsh case, the charge sheet has been filed well over a year after investigation started. The Kerala palmolein case has dragged on for over eighteen years with no hint of closure. In the 2G case, even a decision taken ten years ago has been made a ground for launching investigation against a former Telecom Secretary. Contrast this with the speed of the investigation and judicial process in the insider trading scandal in the USA! In such a scenario, no bureaucrat will go in for any decision (leave alone a bold decision).

In some ways, the situation is reminiscent of the period of Jacobin Terror in France after the French Revolution, with the bureaucrat in the place of the French nobility. A lynch mob mentality (with pre-judged guilt) seems to have become the social norm in recent times. It is not the corrupt bureaucrat who will suffer in such a situation. The honest bureaucrat, who lives only on his reputation, and does not have the resources to fight a protracted legal battle, will be the victim. The consequences are obvious: decision making will slow down at a time when the challenges confronting the country are growing at an alarming pace. Mr. Prime Minister, unless we address the basic causes of the current malaise, we are condemning ourselves to a period of continued ineffectual governance. The real sufferers will not be the bureaucrats: as in the case of post-Revolution France, it will be the people (in this case) of India.