The digital year India Inc will remember 2014 as the year when the threat and the opportunity of the digital world became real

It was a year when foreign airlines finally invested in Indian carriers, old and new - Emirates in Jet and AirAsia andSingapore Airlines in AirAsia India and Vistara respectively. And another one, SpiceJet, came close to going kaput. It was also a year of big-bang acquisitions as Sun Pharma gobbled up Ranbaxy and Kotak Mahindra Bank proposed a merger of ING Vysya Bank with itself. In all, $43 billion was spent onmergers and acquisitions involving Indian firms this year. Adesi, Satya Nadella, took the corner room at the world's biggest tech firm, Microsoft, and Vishal Sikka, an expat Indian, took the reins at Infosys as the promoters finally bid adieu.

Two corporate biggies were sent to jail, Subrata Roy and Jignesh Shah, and one stayed there as the year drew to a close. And many a firm faced the regulator/judicial/shareholder whiplash - realtor DLF found its appeal against the competition regulator turned down by the Supreme Court and Maruti and Tata Motors faced the ire of institutional investors over new investments and executive pay respectively. And as many as 230 coal blocks awarded by the previous government were cancelled by the Supreme Court.

But perhaps the most life-changing trend was the advent of the digital age on the Indian business firmament. It disrupted neatly built business models, changed staffing patterns in people-driven industries, and even forced policy to take cognisance of new ways in which people and businesses were interacting.

Digital touched every business - apparel, consumer durables, electronics, property development and broking, retailing, even taxi services! It was a year when digital attracted money, talent and consumers by the hordes. Much has been written on the fund raising by e-commerce firms such as Flipkart, Snapdeal, Housing.in and so on, but just to reiterate, the sector raised over Rs 25,000 crore of private money, higher than what all new public issues managed to raise on the stock market this year. Japanese technology investor SoftBank alone invested $1 billion in Indian firms, and Flipkart alone raised around $2 billion in 2014.

 

 

 

Flush with funds, e-commerce firms made a beeline for premier engineering campuses, becoming perhaps the biggest recruiters at the IITs. By one estimate, apparel e-tailers Jabong and Myntra will, in a year or two, overtake traditional ones such as Trent and Shoppers Stop in sales. And Flipkart has already pipped the Daburs, Godrej Consumers and Maricos of the world in valuation.

The response from traditional businesses was varied, depending on the level of unease the online brigade has put them through. There was much protest against the deep discounts offered by the new kid on the block - mostly from consumer durable firms that saw these upstarts undermining their brands. They threatened to deny warranties on products sold through the online platform. Why, even big businesses-led traditional retail complained, believe it not, about level playing fieldvis-à-vis e-commerce! Reminds one of the Bombay Club, the famous protectionist group of leading Indian industrialists in the 90s that tried, unsuccessfully, to halt the march of global competition that started crowding our shores post liberalisation in 1991. Others, like the mobile retailers in the south, closed ranks and tried to build on the elusive economies of scale through common sourcing. The consumer, however, continued to flock to online sales unperturbed.

Indians across metros and small cities took to online shopping like duck to water. According to an eBay survey, e-commerce has already touched people in over 3,000-odd cities and hold your breath, over 1,200 villages! No wonder, the chief of the country's biggest conglomerate, the salt-to-software Tata group, asked its firms to delve deep on how the digital ecosystem is changing consumer behaviour in their respective sectors.

The going though was not all smooth for e-businesses. When business models have run ahead of rules, as they invariably would with an intrinsically innovative ecosystem like digital, scraps with regulators and government are inevitable. So taxi hailing service Uber was first made to change its payment model to comply with the banking regulator's two-step authentication, and then hauled over the coals and banned nationally when it came to light after an unfortunate rape incident in the national capital that it was not registered with transport departments across states. The world's largest e-tailer Amazon found itself in the tax department's crosshairs over stocking supplier products in warehouses. And there was much heartburn during Flipkart's Big Billion Day sale, when its IT systems were overwhelmed by consumer traffic. The site's owner managers promptly apologised to all visitors, perhaps a first for an otherwise thick-skinned India Inc, proving that the challengers are not just innovative, but quick learners too.

Three areas of regulatory attention for 2015

The process of selecting and appointing personnel to run the regulatory agencies is the weakest link in the system

It is that time of the year. As 2014 winds down, it is time to take stock of where things stand in the legal and regulatory policy space. The community of those interested in India (within and without) has extraordinarily high expectations from the government they have voted into office.

The expectations that have been sold this year are prone to causing disappointment next year. Media reports suggest that industry has already started expressing disappointment, behind closed doors for now. Rome was not built in a day. But the building blocks of expectations, and of disappointment, take time to put in place and one has to be careful in placing them.

Large segments of policy that can directly affect the community are under the control of those who are not elected to office, such as regulators - for good reason, but equally trapping an important component of policy in a vacuum without accountability. What then, should regulatory policy-makers worry about in 2015? Three broad areas, this column will argue.

First, is the lack of clarity in approach to regulatory policy: increasingly, not only the legislative strategy, but also the enforcement strategy appears unhinged. When a problem is germinating, no regulator wants to own it. Classic examples: collective investment schemes; Sahara's purported fund-raising; and Uber's taxi service that claims not to be one. The last among these can even be attributed to regulators feeling shy of being perceived as "un-cool" and "backward" by asking whether in the name of innovation the system is being gamed. Yet, at the first sign of trouble, imposing a ban comes easiest. Sticking to the same examples: treating any pool of Rs 100 crore as a collective investment scheme regardless of character; asking Sahara to repay (obviously non-existent "investors") tens of thousands of crores within weeks; and banning Uber.

With enforcement, matters are worse. One example is: using emergency powers and remedial powers to inflict serious penal pain without justifying the choice of a measure. Seeking to prohibit a person from economic activity without justifying why the restraint is necessary or why a real legal penalty would not better serve the purpose, is now par for the course. Worse, one penal officer of a regulator imposes extraordinary and harsh penalties while another takes a realistic view, both, in parallel on identical facts and circumstances. Financial firms with a pedigreed name get treated right while those with mom-and-pop shop names come in for harsh treatment. Faced with the risk of this criticism, highly pedigreed names become prime targets for extraordinarily harsh action to be made poster-boys of how regulators are not deterred by pedigree.

Not for nothing is it said that every statement about India can be as true as the diametrically opposite statement. Coming up with a reasonable and logical regulatory and enforcement policy is critical to make doing business predictable. Political correctness in not speaking up about regulatory excesses merely because the one at the receiving end of unfair treatment being a "violator" lays the foundation for ill-treatment of the non-violators with the only requirement being levelling an allegation that a non-violator is a violator.

Second, is accountability of regulatory actions. The discourse is currently divided on the if-you-are-not-with-us-you-are-against-us principle that George Bush sold for his "war on terror". Indeed, the shrillness of the debate is as high as discussions on terrorism - with one end of the spectrum saying that any oversight erodes regulatory autonomy and the other end arguing that unless every single regulatory move including policy can be second-guessed, there would be no accountability.

The quest of each side seeking what it considers to be the "best" becomes the enemy of the "good". Fixing a good middle ground and starting with judicial review of penal regulatory decisions is a good place to start. Every piece of oversight need not be judicial. There are other means of building institutional strengths of accountability for policy decisions including, the regulation of how regulators should formulate policy. This comes in for far greater opposition from incumbents in regulatory agencies. If one does not bite this bullet and focus on pinning down a clear and accountable path for regulatory transparency and accountability, we will have a bunch of sheriffs running amuck grabbing headlines every day, but with a market that feels no more secure or clear about how to conduct itself.

Finally, the mode of selecting and appraising performance of regulators needs serious reform. No matter how good a policy may be, it can only be as good as the people implementing it. The single weakest link in the regulatory food chain is the selection and appointment of personnel who would run the regulatory agencies. Even weaker is the process of how to select the selectors. Selection committees are formed but their incumbents either do not take it seriously and delegate the work to colleagues, or expect to go by intuition and gut and back horses that are unable to cope with running on race day. Selection committees are not given a mandate to invite applications either. No other aspect of regulatory policy needs greater attention than this one.

Excerpts from the Mid-Year Economic Analysis, 2014-15

Medium-term economic growth depends on ensuring macroeconomic stability (which India is achieving) and on creating an enabling environment for the private sector to invest which the new government has embarked upon reflected in the policy reforms enacted thus far.

Fundamentally, India’s medium-term growth prospects are promising, and trend rate of growth of about 7-8 per cent should be within reach.

With basic public good provision and investment tapping into cheap labour, India can easily get closer to its growth frontier laying a strong foundation for the long run.

But India faces challenges. Investment has not durably rebounded. There are the usual headwinds from the external sector. But at the current conjuncture the gradual reversion to normal monetary policy in the US is less of a threat to India, given the improved macroeconomic situation, broad balance in the external sector and reserves that provide a modicum of insurance against shocks.

And, barring exceptional developments such as the ongoing turmoil in Russia, the external environment in terms of oil and agricultural commodity prices, is not likely to turn adverse.

Rather, India faces challenges that are mostly domestic. The most important among them relates to the experience of the past few years that led to over-exuberant investment, especially in the infrastructure and in the form of public-private partnerships (PPPs). There are stalled projects to the tune of Rs 18 lakh crore (about 13 per cent of GDP), of which an estimated 60 per cent are in infrastructure.

In turn, this reflects low and declining corporate profitability as more than one-third firms have an interest coverage ratio of less than one (borrowing is used to cover interest payments). Over-indebtedness in the corporate sector with median debt-equity ratios at 70 per cent is among the highest in the world.

The ripples from the corporate sector have extended to the banking sector where restructured assets are estimated at about 11-12 per cent of total assets. Displaying risk aversion, the banking sector is increasingly unable and unwilling to lend to the real sector.

India has been afflicted by what might be characterised as the “balance sheet syndrome” with Indian characteristics”. Like Japan after the real estate and equity boom of the late 1980s, and like the US after the global financial crisis, balance sheets are over-extended. The Indian case resembles Japan more than the US, since it is firms’ balance sheets (and not those of consumers) that are over-extended, exerting a drag on future investment/spending.

This syndrome has three distinctively Indian characteristics. First, India is not suffering from recession or stagnation. Economic growth, despite all the difficulties, is still 5.5 per cent not 1 per cent or negative.

Second, drawbacks in the Indian real sector co-exist not with weak macroeconomic demand but with moderately strong demand (at least relative to supply) reflected in moderately high inflation and a moderately high current account deficit. Japanese and American balance sheet recessions were associated with price deflation. A consequence, which contrasts with the current predicament in the Euro area, is that India’s fiscal indebtedness (ie the stock problem) has been improving, courtesy of high inflation, while that in the euro area is worsening from deflation.

Another consequence is that fiscal pump-priming is less of an option for India.

Third, perhaps even more distinctly, the Indian balance sheet problem has also arisen partly out of public-sector financial concerns, which led to the encouragement of private-sector investment in infrastructure via the so-called public-private partnership (PPP) model.

Growth in real capital formation was around 15 per cent and private corporate investment surged, East-Asia-style, over a very short period — from 6.5 per cent in 2003-04 to 17.3 per cent in 2007-08, amounting to an increase of nearly 11 percentage points of GDP. Investment was based largely on the perception that growth rates of 8.5 per cent would continue indefinitely and banks, especially public-sector banks could lend to private sector investors in infrastructure.

As the growth boom faded, projects turned sour, leaving a legacy of distressed assets. This stock problem is weighing down profits and, hence, investment. The problem is compounded by relatively weak institutions. Effective legal processes (the corporate debt restructuring system and the SARFAESI Act) that can allocate the pain of past decisions among investors, creditors, consumers, and taxpayers are a work-in-progress.

The way forward
First, the backlog of stalled projects needs to be cleared more expeditiously, a process that has already begun. Where bottlenecks are due to coal and gas supplies, the planned reforms of the coal sector and the auctioning of coal blocks de-allocated by the Supreme Court, as well as the increase in the price of gas which should boost gas supply, will help.

Speedier environmental clearances, reforming land and labour laws will also be critical.

But even if the backlog is cleared, there is going to be a flow challenge: Attracting new private investment, especially in infrastructure.

The PPP model has been less than successful. The key underlying problem of allocating the burden from the past — the stock problem that afflicts corporate and banks’ balance sheets —needs to be resolved sooner rather than later. The uncertainty and appetite for repeating this experience is open to question.

In this context, it seems imperative to consider the case for reviving public investment as one of the key engines of growth going forward, not to replace private investment but to revive and complement it.

Note... that while private corporate investment surged in the boom phase, public investment, too, grew by about 3 percentage points. And just as corporate investment declined by 8 percentage points between 2007-08 and 2013-14, so too has public investment by about 1.5 percentage points.

Pro-cyclical public investment during the downward phase has been driven in part by fiscal targets which have resulted in large cuts toward the end of the financial year as the constraints of fiscal consolidation have loomed large.

The case for public investment going forward is threefold. First, there may well be projects for example roads, public irrigation, and basic connectivity — that the private sector might be hesitant to embrace. Second, the lesson from the PPP experience is that given India’s weak institutions there are serious costs to requiring the private sector taking on project implementation risks: Delays in land acquisition and environmental clearances, and variability of input supplies (all of which have led to stalled projects) are more effectively handled by the public sector. Third, the pressing constraint on manufacturing is infrastructure. Power supply and connectivity are key inputs that determine the competitiveness of manufacturing.

For these reasons, especially the difficulty of repeating past experience under conditions of weak institutions, consideration should be given to address the neglect of public investment in the recent past and also review medium-term fiscal policy to find the fiscal space for it. It is worth emphasising that India has a fiscal flow problem but not a stock problem because the ratio of government debt to GDP has declined substantially over the past decade due to a combination of high growth and high inflation.

Going forward, debt dynamics will continue to work in India’s favour as long as growth remains around 6 per cent and the primary deficit remains in the current range of 1 per cent of GDP. A case not just for counter-cyclical but counter-structural fiscal policy, motivated by reviving medium-term investment and growth, may need to be actively considered.

To be sure, a greater role for the public sector will risk foregoing the efficiency gains from private sector participation. A balance may need to be struck with targeted public investments, carefully identified and closely monitored, by public institutions with a modicum of proven capacity for efficiency, and confined to sectors with the greatest positive spill-overs for the rest of the economy.

These may then be able to crowd in greater private investment.

Jaitley says industry, common man to benefit from GST

Finance Minister Arun Jaitley said GST would bring more transparency, better compliance, increase in gross domestic product growth and revenue collections

Union Finance Minister Arun Jaitley on Monday told members of Parliament the industry and the common man stood to gain from the rollout of a proposed goods and services tax (GST), besides state governments. Some MPs asked Jaitley to bring out a White Paper on the new tax system.

Speaking at a meeting of the Parliamentary Consultative Committee attached to his ministry, Jaitley said GST will help reduce tax-on-tax and will be beneficial to consumers. GST like state-level value added tax (VAT) is imposed on value addition in each stages of production and, hence, avoid cascading effect, or tax-on-tax.

"GST will benefit most of the states from Day 1, especially consumer states," he said, according to a statement issued by the finance ministry. GST is a destination-based tax imposed on products and services in the states where these are consumed.

Jaitley said GST would be beneficial to the Centre, states, industrialists, manufacturers, the common man and the country at large since it will bring more transparency, better compliance, increase in gross domestic product growth and revenue collections.

As the volume of trade expanded and growth momentum picked up, every state would benefit with the rise in their revenue collections, he added.

He said the Centre proposed to levy a non-vatable additional tax of one per cent on goods involved in inter-state trade which would be assigned to states. While this tax will be levied for two years, it could be extended if recommended by the GST council.

A Constitutional Amendment Bill on GST was introduced in the Lok Sabha on December 19. It would be taken up by Parliament in the next session.

The government intends to roll out GST, which will subsume most of the indirect taxes, from April 1, 2016. Jaitley also said the government was open to suggestions for making further improvements to the GST Bill.

"GST is a continuing process, which would further evolve and improve with time," the statement quoted him as saying.

In this regard, members made suggestions, including that the Centre brings out a White Paper, giving details on revenue to the Centre, states and who will be the ultimate beneficiaries. Clarity was also sought on whether the manufacturers, suppliers or consumers would be the ultimate beneficiary of the move.

A member also suggested the Finance Commission be made a permanent body for allocation of funds to states.

To remove apprehensions among states about the fall in their revenue collections, provisions had been made in the GST Bill, Jaitley said.

The government, Jaitley added, was in favour of strengthening the cooperative federalism and make all efforts to evolve as much consensus as possible on GST.

The minister also said the Centre would compensate states for any loss of revenue arising on account of implementation of the GST for a period of five years.

The statement said most of the committee members supported the decision of the government to implement GST.

"They said since the number of departments will also reduce in due course, which, in turn, will lead to less corruption," it added

Vinod Rai to infuse transparency in Railways Former CAG might take up the assignment without a fee

Vinod Rai, the former Comptroller and Auditor General of India, is likely to head a committee to suggest ways for infusing more transparency in the functioning of Indian Railways (IR).

Rai is widely credited with taking the former government to account for the various legal breaches which led to the telecom spectrum and coal block allocation scams.

The committee would be the first assignment from the government which Rai would be taking after retiring last year.

“A decision has already been put in place that takes away the power to approve tenders from the minister, based on Sreedharan’s (E Sreedharan, the noted implementor of metro rail projects, asked to suggest better business practices at IR) recommendation. Now, the minister has asked Vinod Rai to look at (bringing in) complete transparency in the railways,” a top ministry official told reporters, asking not to be named.

The terms of reference for the committee are yet to be finalised but a person privy to the process said ministerSuresh Prabhu had asked Rai to choose who else should be on the panel. Rai is likely to take up the assignment without a fee, in public interest.

Prabhu had promised to turn around the operational and financial position of IR, immediately after assuming charge last month.

He had begun by setting up the single-member Sreedharan panel, to improve transparency in systems and operational processes, including tendering for award of works.

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OTHER SIMILAR POSITIONS

C G Somiah
CAG from 1990-1996; headed a committee set up to vet Air India’s Rs 35,000-crore fleet acquisition plan in 2005

V K Shunglu
CAG from 1996-2002; headed various committees including those on corruption allegation in conduct of Commonwealth Games 2010; financial position of power distribution utilities;  displacement caused by Sardar Sarovar Project; the demand of Indian Institutes of Management for a fee raise; he was part of the prime minister’s empowered committee to select excellent IAS officers in 2007

V N Kaul
CAG from 2002-2008; currently serving on the eminent persons advisory group, Competition Commission of India

Year end Review for the Ministry of Agriculture for the Year 2014-15

YEAR END REVIEW The Immediate challenge to the Ministry of Agriculture when the new Government had taken over, was to sustain the increasing agricultural output of the country in the face of impending deficit rainfall in this year 2014-15. All the requisite preparatory measures were made in coordination with the State governments to have the District-wise contingency action plans in place and to bring in flexibility in the various schemes in order that the States are enabled to cope with any desired changes in the Approved Action Plans for tackling the situation arising out of deficit rainfall. With the perspective the Central Research Institute for Dry Land Agriculture (CRIDA) in collaboration with State Agricultural Universities and the State Governments has prepared crop contingency plans in respect of 576 districts across the country. Further, all necessary and appropriate steps have been taken to meet the seed and fertilizer requirement and to disseminate information and on suitable farming practices to be followed in such a situation.   INDIAN AGRICULTURE AT A GLANCE v     Agriculture continues to be the backbone of Indian economy. v     Agriculture sector employs 54.6% of the total workforce. v     The total Share of Agriculture & Allied Sectors (Including Agriculture, Livestock, forestry and fishery sub sectors) in terms of percentage of Gross Domestic Product is 13.9 percent during 2013-14 at 2004-05 prices. [As per the estimates released by Central Statistics Office] v     For the 12th Plan (2012-17), a growth target of 4 percent has been set for the Agriculture Sector v     As per the 4th Advance Estimates of Production of food grains for 2013-14, total food grain production is estimated to be 264.77 Million Tonnes. GROWTH STRATEGY In order to keep up the momentum gained during the 11th Plan and achieve the targeted growth rate of 4% during the 12thFive Year Plan as also the ensure focused approach and to avoid overlap, all the ongoing 51 schemes of the Department have been restructured into five missions viz. National Food Security Mission (NFSM), Mission for Integrated Development of Horticulture Mission (MIDH), National Mission on Oil Seed and Oil Palm (NMOOP), National Mission for Sustainable Agriculture (NMSA), and National Mission on Agricultural Extension & Technology (NMAET); five Central Sector Schemes viz. National Crop Insurance Programme (NCIP), Intergrated Scheme on Agri-Census & Statistics (ISAC&S), Integrated Scheme of Agriculture Marketing (ISAM), Integrated Scheme of Agriculture Cooperation (ISAC) and Secretariat Economic Service; and one State Plan Scheme viz. Rashtriya Krishi Vikas Yojana. Recognizing the importance of Agriculture Sector, the Government during the budget 2014-15 took a number of steps for sustainable development of Agriculture. These steps include enhanced institutional credit to farmers; promotion of scientific warehousing infrastructure including cold storages and cold chains in the country for increasing shelf life of agricultural produce; Improved access to irrigation through Pradhan Mantri Krishi Sichayee Yojana; provision of Price Stabilisation Fund to mitigate price volatality in agricultural produce; Mission mode scheme for Soil Health Card; Setting up of Agri-tech Infrastructure fund for making farming competitive and profitable; provide institutional finance to joint farming groups of “Bhoomi Heen Kisan” through NABARD; development of indigenous cattle breeds and promoting inland fisheries and other non-farm activities to supplement the income of farmers. Details of the Initiatives are as follows: v     Rashtriya Gokul Mission             India ranks first among the world’s milk producing Nations are such 1998 and milk production peaked at 137.97 million tonnes in 2013-14.  India has the largest bovine population in the world.  The bovine genetic resource of India is represented by 37 well recognized indigenous Breeds of cattle and 13 breeds of buffaloes. Indigenous bovines are robust and resilient and are particularly suited to the climate and environment of their respective breeding tracts.  Rashtriya Gokul Mission a project under the National Program for Bovine Breeding and Dairy Development is being launched with the objective of conserving and developing indigenous Breeds in a focused and scientific manner.  The potential to enhance the productivity of the indigenous breeds through professional farm management and superior nutrition, as well as gradation of indigenous bovine germplasm will be done with an outlay of Rs. 550 crores. v     Rail Milk Network In order to promote Agri Rail Network for transportation of milk, overs have been placed by AMUL and NDDB on behalf of Dairy Cooperative Federations for procurement of 36 new Rail Milk Tankers and will be made available by Railways.  This will help in movement of milk from milk surplus areas to areas of demand providing dairy farmers with greater market areas. v     An allocation of Rs. 50 crore for development of indigenous cattle breed has been provided. v     ‘Blue Revolution’ for development of inland fisheries being initiated with a sum of Rs. 50 crore v     Target for providing institutional agricultural credit to farmers during 2014-15 has been    enhanced to Rs. 8 lakh crore which is expected to surpass. v     Agriculture credit at a concessional rate of 7% with an interest subvention of 3% for timely repayment will continue during 2014-15. v     An allocation of Rs. 5,000 crore for 2014-15 has been made for scientific warehousing infrastructure for increasing shelf life of agricultural produce and thereby increasing the earning capacity of farmers. v     A higher allocation of Rs. 25,000 crore has been made to the corpus of Rural Infrastructure Development Fund during 2014-15 which helps in creation of infrastructure in agriculture and rural sectors. v     An initial corpus of Rs. 4,000 crore is being created to set up long term rural credit fund in NABARD to give a boost to long term investment credit in agriculture. v     For ensuring increased and uninterrupted credit flow to farmers and to avoid high cost market borrowings by NABARD an amount of Rs. 50,000 crore during 2014-15 has been made for Short Term Cooperative Rural Credit (STCRC-refinance fund). v     To improve access to irrigation, Pradhan Mantri Krishi Sichayee Yojana has been initiated with a sum of Rs. 1,000 crore in the year 2014-15. v     To mitigate price volatility in the agricultural produce a sum of Rs. 500 crore has been provided for Price Stabilization Fund. v     Government has initiated a scheme for Soil Health Card for every farmer in a mission mode with an initial allocation of Rs. 100 crore in 2014-15. v     An additional amount of Rs. 56 crore has been made to set up 100 mobile soil testing laboratories countrywide. v     National Adaptation Fund for climate change has been established with an initial allocation of Rs. 100 crore. v     To protect landless farmers from money lenders 5 lakh joint farming groups of Bhoomiheen Kisan will be financed through NABARD in the current financial year. v     A Kisan TV - Channel dedicated to agriculture will be launched with the initial allocation of Rs. 100 crores in the current financial year. v     An initial allocation of Rs. 200 crore has been allocated for establishing Agriculture Universities in Andhra Pradesh and Rajasthan and Horticulture Universities in Telangana and Haryana. v     An allocation of Rs. 100 crore has been made in the current financial year for setting up of two institutions of excellence in Assam and Jharkhand which will be at par with Indian Agricultural Research Institute, Pusa. v     An allocation of Rs.100 crore is made for 2014-15 for setting up Agri-tech Infrastructure Fund with a view to increasing public and private investments in agriculture and making farming competitive and profitable. v     Various initiatives taken by Government to support agriculture and allied sectors is to sustain the growth rate at 4%. v     In order to increase profitability for small and marginal farmers, Rs. 200 crore has been earmarked for setting up of 2000 Farmer Producer Organisations. v     Wage employment under MGNREGA will be mainly used for more productive asset creation substantially linked to agriculture & allied activities. v     Sum of Rs. 14,389 crore for Pradhan Mantri Gram Sadak Yojana for 2014-15 which will improve access for rural population including farmers. v     With a view to promoting farmers and consumers interest setting up of a national market will be accelerated by encouraging States to modify their APMC Act and other market reforms. v     With a view to develop commercial organic farming in the North Eastern Region a sum of Rs. 100 crore has been allocated. Central Government recognizes and discharges its responsibility to assist State Governments in overall development of Agriculture sector. Effective policy measures are in position to improve agricultural production and productivity and address problems of farmers. State Governments are also impressed upon to allocate adequate funds for development of agriculture sector in State plan, as well as initiate other measures required for achieving targeted agricultural growth rate and address problem of farmers.

Lima, a new low for climate action

A climate deal cannot be achieved by endless squabbling, but by accepting responsibility and acting decisively

After nearly a fortnight of prolonged talks, some of it acrimonious, there was little that made anyone happy — except perhaps the developed world which was not called on to make any more clear-cut mitigation or financial commitments — in the Lima Call for Climate Action.

Twenty-two years after the United Nations Framework Convention on Climate Change (UNFCCC) and five assessment reports of the Intergovernmental Panel for Climate Change (IPCC) — the last report of the IPCC perhaps being the most conclusive on human impacts on climate change — the world is still waiting for decisive action. As the Lima talks were going nowhere, the Peruvian Environment Minister and president of the Conference of the Parties (COP), Manuel Pulgar-Vidal, was called on to lead the consultations a day before the conference ended. Earlier, he had made a strong emotional appeal for consensus which received sustained applause from countries which had gathered there to further a new treaty in Paris and decide the scope of the Intended Nationally Determined Contributions (INDC)s. After nearly 10 days of negotiations — which the European Commissioner for Climate Action and Energy, Miguel Arias Cañete, described as “exceedingly slow” — the seven-page text which emerged on December 18 was pulled out after protests, and Mr. Vidal called for a new text.

No matter for celebration

In the first week, the process of going through the text and making additions was finally accepted by the two co-chairs of the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP). With countries making many additions, the text almost reached 60 pages. But in the lean seven-page version that was later revised more than once, most of the additions were left out. Mr. Vidal later apologised for introducing a new brief text on December 12 without consultation, which angered developing country blocks. After a flurry of revisions, the final text or the Lima Call for Climate Action which was agreed upon seemed to be more the result of a need for some bare consensus to get ahead, and was low on commitment and ambition. The final text only “underscores” its commitment to reaching an ambitious agreement in 2015 that reflects the principle of common but differentiated responsibilities and respective capabilities, “in light of different national circumstances”. It also “urges” developed countries to provide and mobilise enhanced financial support to developing countries for ambitious mitigation and adaptation actions.

There was much jubilation over the Green Climate Fund (GCF) crossing the $10 billion mark, but this is hardly a matter for celebration since the original target was to reach $100 billion by 2020. Countries have pledged various amounts for four years and GCF will disburse funds for projects from 2015. The developed countries were reluctant to commit to a year-on-year financial road map or mitigation actions to cut emissions. A lack of transparency and equity, apart from deep divisions between developed and developing countries was reflected in the final text.

A ‘Sputnik’ moment

As U.S. Secretary of State John Kerry’s impassioned speech for a climate deal clearly indicated, the onus was on all countries to curb emissions. “We have to remember that today more than half of global emissions — more than half — are coming from developing nations. So it is imperative that they act too,” he said while addressing the press in his brief stopover in Lima. The whole principle of polluter pays and historical responsibilities has been diluted over the years and developing countries now face a double burden, that of reducing their pollution and, since there is inadequate financial flows from the developed world, also raising funds to pay for climate actions. The new deal, which will be negotiated in Paris, is unlikely to have a strong base to ensure any binding commitments from the developed countries post 2020.

The failure of Lima lies precisely in not arriving at a level playing field for a new deal. It is left to each country to come up with what it can do in its own capacity, which will not even be subject to scrutiny of any sort. As climate adaptation expert Dr. Salimul Huq pointed out, we need to ask: “Are the targets of each country adequate and are there enough funds?”

The global response is limp, even as the world suffers one extreme climate event after another. During the climate talks, typhoon Hagupit was another harsh reminder of what the Philippines has to undergo year after year. As always, the debate has been hijacked by some of the rich and powerful, who are now not only seeking to shrug off their responsibilities but pass it on to the developing world. Even mitigation efforts in the developing countries cannot take place without finance, as Lidy Nacpil of Jubilee South Asia Pacific pointed out. With U.S. President Barack Obama making climate change a priority, the U.S. seemed to be keen, for once, on moving ahead and achieving a new agreement next year. As a senior negotiator remarked, this is a “Sputnik moment” for the U.S.; it cannot let China take the global lead in climate change.

Optimistic position

India and other developing countries, while making strong points at first, could not leverage their collective position to demand stronger commitments. On the final text, the Indian position was one of optimism. Minister of State for Environment and Forests Prakash Javadekar had said that India was committed to protecting the interests of the poor. Even though the final agreement in Lima was against that spirit, he expressed happiness that it had addressed the concerns of developing countries and that the efforts of some countries to rewrite the UNFCCC have not fructified. It gives enough space for the developing world to grow and take appropriate nationally determined steps, he added.

According to the agreement in Lima, the UNFCCC will publish on its website the INDCs as communicated, and prepare by November 1, 2015, a synthesis report on the aggregate effect of the INDCs communicated by countries by October 1, 2015. This would form the basis for the new treaty in Paris. While there is a brief mention of loss and damage in the text, the idea was to link it with adaptation which was opposed by developing countries. The climate summit in Warsaw agreed to create a separate mechanism for loss and damage and groups like the Alliance of Small Island States want this to be anchored in the 2015 agreement, distinct from adaptation.

In the background of the climate talks in Lima were issues related to the killing of environmental activists who are demanding rights in the Amazon, apart from the destruction of forests and easy concessions for mining and oil exploration. A new climate deal has to take the future of the planet into consideration. This cannot be achieved by endless squabbling but by accepting responsibility and acting decisively. Lima marks a new low for climate action and while the multilateral process has been kept alive, there needs to be a real and immediate momentum for change on the ground.