Fourteenth Finance Commission report tabled in Parliament

The report of the Fourteenth Finance Commission
was tabled in Parliament on February 24, 2015.11

The Finance Commission is a constitutional body
that is constituted once in five years, and gives
suggestions on centre-state financial relations,
among other things. Recommendations of the
Commission include:

The share of taxes of the centre to states to be
increased from 32% to 42%. Additional
budgetary needs of the states will be filled by
grants-in-aid to the states.
 Revenue compensation to states for theGoods and Services Tax (GST) should be forfive years. 100% compensation should bepaid to states in the first, second and thirdyears, 75% compensation for the fourth year,and 50% compensation should be paid in thefifth and final year.
 An autonomous and independent GSTCompensation Fund to be set up in order tofacilitate compensation to states.
 Fiscal deficit of states should be aimed at 3%of the GSDP, with a flexibility of 0.25% over
this limit. If the interest payments are lessthan or equal to 10% of revenue receipts in a
year, states will be eligible for an additionalborrowing limit of 10% of GSDP. A state
can avail of these additional limits only if ithas no revenue deficit for the year in whichthe limits are fixed, and the preceding year.
 The Fiscal Responsibility and BudgetManagement Act (FRBM), 2003 should beamended. The definition of effective revenuedeficit (difference between revenue deficitand grants for creation of capital assets)should be removed from the Act.
 The FRBM Act should be amended tomandate the creation of an independent fiscal
council to evaluate the fiscal policyimplications of budget proposals, before thebudget. States are advised to amend theirFRBM Acts in the same man

Win-win on land

Critics of the proposed amendments to the land acquisition Act of 2013 have conveniently sought to frame the debate in terms of a win-lose proposition. They contend that any benefits to non-farming entities - whether they be school-going children, patients seeking hospital care, households looking for affordable housing, small businesses or large corporations - would be at the expense of the farmers whose land is acquired. But they neglect the fact that the amendments are a win-win proposition.

Underlying the critics' view is the assumption that regardless of the compensation offered, farmers do not want to part with their land. Ergo, any change that simplifies or speeds up land acquisition hurts them.

But is this assumption right? A recent survey published by the non-governmental organisation (NGO) Lokniti offers some answers. According to it, when asked whether they like farming, 28 per cent of the farmers reply outright in the negative. Among the 72 per cent who reply in the affirmative, a whopping 60 per cent say that they like farming because it is their "traditional occupation". Only 10 per cent of them say that farming gives them good income. Most revealingly, 62 per cent of all farmers say that they would quit farming if they could get a good job in a city.

The responses of women and children in farmer households reinforce this picture. When asked if agricultural income is sufficient to fulfil livelihood needs, 67 per cent of the women reply in the negative. And a solid 76 per cent of the children of farmers say that they would prefer to take a profession other than farming. With the spread of education and enhanced access to information on the developments around the world, the young in farmer households have the same aspirations as their counterparts elsewhere in the world.

Therefore, in assessing the proposed amendments, the question we must ask is whether they are consistent with the ambitions and aspirations of the young, including those from farmer families; with the promotion of social goals underlying the projects for which land is to be acquired; and with the interests of the farmers whose land would be acquired.

Under the 2013 Act, all land acquisition for public-private-partnership (PPP) projects requires the prior consent of at least 70 per cent of the affected families. Similarly, all land acquisition for private companies for public purpose requires prior consent of 80 per cent of the affected families. In both instances, the 2013 Act also requires a lengthy, time-consuming social impact assessment.

Experts calculate that even if an acquisition under these provisions proceeds flawlessly with no legal challenges, NGO agitation or bureaucratic delays, it would take close to five years to complete. Since few land acquisitions have such a smooth ride, the actual time taken would be much longer. Such a long-drawn-out process is likely to deter even the most determined governments from undertaking a project that requires a private entity to play a role whether solely or in partnership with a public entity. Unsurprisingly, by all available accounts, land acquisition for PPP projects and for private companies for public purpose has come to a standstill since January 1, 2014, when the 2013 Act came into force. After coming to power, when the present central government conducted a consultation with state governments, chief ministers from the Bharatiya Janata Party (BJP) as well as non-BJP states overwhelmingly complained about the obstacles posed by the consent and social impact assessment provisions of the law.

Delays of this magnitude in every PPP project and private project for public purpose can be scarcely good for anyone. On the one hand, they render many otherwise viable public-purpose projects unviable, thereby undermining economic development in such critical areas as infrastructure, housing, education and health. On the other hand, they eliminate or substantially displace the government as a buyer of land, thus, leaving for-profit buyers as the only major players in the market. For farmers wishing to sell their land - and there are many of them who wish to do so - this is hardly good news. For, the price the private buyers offer under such circumstances is bound to fall well below the handsome compensation that the 2013 Act prescribes. Thus, under the current law, socially desirable projects suffer, as do aspirant children of the very farmers whom the law is designed to help - and with no benefit to the farmers themselves.

It is this major shortcoming that the proposed amendment Act aims to correct. It provides that the appropriate government authority be empowered to exempt PPP and private projects for public purpose from the consent and social impact assessment provisions in five socially critical areas. The areas proposed are eminently defensible: national security and defence; rural infrastructure, including electrification; affordable housing; industrial corridors; and infrastructure and social infrastructure under PPP projects in which the ownership of land remains with the government.

The other major amendment proposes to extend the high compensation and resettlement and rehabilitation provisions under the 2013 Act to areas currently outside its purview. In its current form, the 2013 Act exempts land acquisition under 13 statutes listed in the Fourth Schedule from all of its key provisions. The amendment Act provides for the elimination of the exemption as it relates to compensation and resettlement and rehabilitation of families. The amendment, thus, extends the higher compensation and resettlement and rehabilitation measures under the 2013 Act to a large percentage of farmers and affected families not currently covered.

Some critics have rhetorically asked how the present government, which only a year ago unanimously supported the 2013 Act, could propose to alter some of its provisions. This line of reasoning against the amendments invites two comments. First, when a well-intentioned law reveals itself to be against the national interest, a sensible government shows the courage to amend it rather than fear being called out for having made a mistake and impose the misery on its citizens that the law inflicts.

Second, a government considering a populist legislation must think twice about possible unintended negative consequences of the latter. For, in a democracy, once such legislation is tabled, it is extremely difficult for even the most vocal opponents of the government to oppose it. Who, for example, would dare oppose a legislation termed National Food Security Act no matter what flaws it might carry?

Swachh Bharat Mission (Gramin)

Major schemes of the central government to improve rural sanitation

The central government has been implementing schemes to improve access to sanitation in rural areas from the Ist Five Year Plan (1951-56) onwards.  Major schemes of the central government dealing with rural sanitation are outlined below.

Central Rural Sanitation Programme (1986): The Central Rural Sanitation Programmewas one of the first schemes of the central government which focussed solely on rural sanitation.  The programme sought to construct household toilets, construct sanitary complexes for women, establish sanitary marts, and ensure solid and liquid waste management.

Total Sanitation Campaign (1999): The Total Sanitation Campaign was launched in 1999 with a greater focus on Information, Education and Communication (IEC) activities in order to make the creation of sanitation facilities demand driven rather than supply driven. Key components of the Total Sanitation Campaign included: (i) financial assistance to rural families below the poverty line for the construction of household toilets, (ii) construction of community sanitary complexes, (iii) construction of toilets in government schools and aganwadis, (iv) funds for IEC activities, (v) assistance to rural sanitary marts, and (vi) solid and liquid waste management.

Nirmal Bharat Abhiyan (2012): In 2012, the Total Sanitation Campaign was replaced by theNirmal Bharat Abhiyan (NBA), which also focused on the previous elements.  According to the Ministry of Drinking Water and Sanitation, the key shifts in NBA were: (i) a greater focus on coverage for the whole community instead of a focus on individual houses, (ii) the inclusion of certain households which were above the poverty line, and (iii) more funds for IEC activities, with 15% of funds at the district level earmarked for IEC.

Swachh Bharat Mission (Gramin) (2014): Earlier this year, in October, NBA was replaced by Swachh Bharat Mission (Gramin) (SBM-G) which is a sub-mission under Swachh Bharat Mission.  SBM-G also includes the key components of the earlier sanitation schemes such as the funding for the construction of individual household toilets, construction of community sanitary complexes, waste management, and IEC. Key features of SBM-G, and major departures from earlier sanitation schemes, are outlined in the next section.

III. Guidelines for Swachh Bharat Mission (Gramin)

The guidelines for SBM-G, released earlier this month, outline the strategy to be adopted for its implementation, funding, and monitoring.

Objectives: Key objectives of SBM-G include: (i) improving the quality of life in rural areas through promoting cleanliness and eliminating open defecation by 2019, (ii) motivating communities and panchayati raj institutions to adopt sustainable sanitation practices, (iii) encouraging appropriate technologies for sustainable sanitation, and (iv) developing community managed solid and liquid waste management systems.

Institutional framework: While NBA had a four tier implementation mechanism at the state, district, village, and block level, an additional tier has been added for SBM-G, at the national level.  Thus, the implementation mechanisms at the five levels will consist of: (i) National Swachh Bharat Mission (Gramin), (ii) State Swachh Bharat Mission (Gramin), (iii) District Swachh Bharat Mission (Gramin), (iv) Block Programme Management Unit, and (v) Gram Panchayat/Village and Water Sanitation Committee.  At the Gram Panchayat level, Swachhta Doots may be hired to assist with activities such as identification of beneficiaries, IEC, and maintenance of records.

Planning: As was done under NBA, each state must prepare an Annual State Implementation Plan.  Gram Panchayats must prepare implementation plans, which will be consolidated into Block Implementation Plans.  These Block Implementation Plans will further be consolidated into District Implementation Plans.  Finally, District Implementation Plans will be consolidated in a State Implementation Plan by the State Swachh Bharat Mission (Gramin).

A Plan Approval Committee in Ministry of Drinking Water and Sanitation will review the State Implementation Plans.  The final State Implementation Plan will be prepared by states based on the allocation of funds, and then approved by National Scheme Sanctioning Committee of the Ministry.

Funding: Funding for SBM-G will be through budgetary allocations of the central and state governments, the Swachh Bharat Kosh, and multilateral agencies.  The Swachh Bharat Kosh has been established to collect funds from non-governmental sources.  Table 3, below, details the fund sharing pattern for SBM-G between the central and state government, as provided for in the SBM-G guidelines.

Coal Block Allocations and the 2015 Bill

In September 2014, the Supreme Court cancelled the allocations of 204 coal blocks.  Following the Supreme Court judgement, in October 2014, the government promulgated the Coal Mines (Special Provisions) Ordinance, 2014 for the allocation of the cancelled coal mines.  The Ordinance, which was replaced by the Coal Mines (Special Provisions) Bill, 2014, could not be passed by Parliament in the last winter session, and lapsed. The government then promulgated the Coal Mines (Special Provisions) Second Ordinance, 2014 on December 26, 2014.  The Coal Mines (Special Provisions) Bill, 2015 replaces the second Ordinance and was passed by Lok Sabha on March 4, 2015.

Why is coal considered relevant?

Coal mining in India has primarily been driven by the need for energy domestically.  About 55% of the current commercial energy use is met by coal.  The power sector is the major consumer of coal, using about 80% of domestically produced coal.

As of April 1, 2014, India is estimated to have a cumulative total of 301.56 billion tonnes of coal reserves up to a depth of 1200 meters.  Coal deposits are mainly located in Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Andhra Pradesh and Maharashtra.

How is coal regulated?

The Ministry of Coal has the overall responsibility of managing coal reserves in the country.  Coal India Limited, established in 1975, is a public sector undertaking, which looks at the production and marketing of coal in India.  Currently, the sector is regulated by the ministry’s Coal Controller’s Organization.

The Coal Mines (Nationalisation) Act, 1973 (CMN Act) is the primary legislation determining the eligibility for coal mining in India.  The CMN Act allows private Indian companies to mine coal only for captive use.  Captive mining is the coal mined for a specific end-use by the mine owner, but not for open sale in the market.  End-uses currently allowed under the CMN Act include iron and steel production, generation of power, cement production and coal washing.  The central government may notify additional end-uses.

How were coal blocks allocated so far?

Till 1993, there were no specific criteria for the allocation of captive coal blocks.  Captive mining for coal was allowed in 1993 by amendments to the CMN Act.  In 1993, a Screening Committee was set up by the Ministry of Coal to provide recommendations on allocations for captive coal mines.  All allocations to private companies were made through the Screening Committee.  For government companies, allocations for captive mining were made directly by the ministry.  Certain coal blocks were allocated by the Ministry of Power for Ultra Mega Power Projects (UMPP) through tariff based competitive bidding (bidding for coal based on the tariff at which power is sold).  Between 1993 and 2011, 218 coal blocks were allocated to both public and private companies under the CMN Act.

What did the 2014 Supreme Court judgement do?

In August 2012, the Comptroller and Auditor General of India released a report on the coal block allocations. CAG recommended that the allocation process should be made more transparent and objective, and done through competitive bidding.

Following this report, in September 2012, a Public Interest Litigation matter was filed in the Supreme Court against the coal block allocations.  The petition sought to cancel the allotment of the coal blocks in public interest on grounds that it was arbitrary, illegal and unconstitutional.

In September 2014, the Supreme Court declared all allocations of coal blocks, made through the Screening Committee and through Government Dispensation route since 1993, as illegal.  It cancelled the allocation of 204 out of 218 coal blocks.  The allocations were deemed illegal on the grounds that: (i) the allocation procedure followed by the Screening Committee was arbitrary, and (ii) no objective criterion was used to determine the selection of companies.  Further, the allocation procedure was held to be impermissible under the CMN Act.

Among the 218 coal blocks, 40 were under production and six were ready to start production.  Of the 40 blocks under production, 37 were cancelled and of the six ready to produce blocks, five were cancelled.  However, the allocation to Ultra Mega Power Projects, which was done via competitive bidding for lowest tariffs, was not declared illegal.

What does the 2015 Bill seek to do?

Following the cancellation of the coal blocks, concerns were raised about further shortage in the supply of coal, resulting in more power supply disruptions.  The 2015 Bill primarily seeks to allocate the coal mines that were declared illegal by the Supreme Court.  It provides details for the auction process, compensation for the prior allottees, the process for transfer of mines and details of authorities that would conduct the auction.  In December 2014, the ministry notified the Coal Mines (Special Provisions) Rules, 2014.  The Rules provide further guidelines in relation to the eligibility and compensation for prior allottees.

How is the allocation of coal blocks to be carried out through the 2015 Bill?

The Bill creates three categories of mines, Schedule I, II and III.  Schedule I consists of all the 204 mines that were cancelled by the Supreme Court.  Of these mines, Schedule II consists of all the 42 mines that are under production and Schedule III consists of 32 mines that have a specified end-use such as power, iron and steel, cement and coal washing.

Schedule I mines can be allocated by way of either public auction or allocation.  For the public auction route any government, private or joint venture company can bid for the coal blocks.  They can use the coal mined from these blocks for their own consumption, sale or for any other purpose as specified in their mining lease.  The government may also choose to allot Schedule I mines to any government company or any company that was awarded a power plant project through competitive bidding.  In such a case, a government company can use the coal mined for own consumption or sale.  However, the Bill does not provide clarity on the purpose for which private companies can use the coal.

Schedule II and III mines are to be allocated by way of public auction, and the auctions have to be completed by March 31, 2015.  Any government company, private company or a joint venture with a specified end-use is eligible to bid for these mines.

In addition, the Bill also provides details on authorities that would conduct the auction and allotment and the compensation for prior allottees.  Prior allottees are not eligible to participate in the auction process if: (i) they have not paid the additional levy imposed by the Supreme Court; or (ii) if they are convicted of an offence related to coal block allocation and sentenced to imprisonment of more than three years.

What are some of the issues to consider in the 2015 Bill?

One of the major policy shifts the 2015 Bill seeks to achieve is to enable private companies to mine coal in the future, in order to improve the supply of coal in the market.  Currently, the coal sector is regulated by the Coal Controller’s Organization, which is under the Ministry of Coal.  The Bill does not establish an independent regulator to ensure a level playing field for both private and government companies bidding for auction of mines to conduct coal mining operations.   In the past, when other sectors have opened up to the private sector, an independent regulatory body has been established beforehand.  For example, the Telecom Regulatory Authority of India, an independent regulatory body, was established when the telecom sector was opened up for private service providers.  The Bill also does not specify any guidelines on the monitoring of mining activities by the new allottees.

While the Bill provides broad details of the process of auction and allotment, the actual results with regards to money coming in to the states, will depend more on specific details, such as the tender documents and floor price.  It is also to be seen whether the new allotment process ensures equitable distribution of coal blocks among the companies and creates a fair, level-playing field for them.  In the past, the functioning of coal mines has been delayed due to delays in land acquisition and environmental clearances.  This Bill does not address these issues.  The auctioning of coal blocks resulting in improving the supply of coal, and in turn addressing the problem of power shortage in the country, will also depend on the efficient functioning of the mines,  in addition to factors such as transparent allocations.

Lok Sabha clears Land Acquisition Bill

The Lok Sabha on Tuesday cleared the contentious land acquisition Bill, along with nine amendments proposed by the government. Though these amendments convinced some National Democratic Alliance (NDA) partners and parties such as the Biju Janata Dal (BJD) to come on board, these failed to dissuade the Congress and most Opposition parties, which walked out at the time of voting on the Bill.

However, in a reversal for the government, the Opposition in the Rajya Sabha insisted the Mines and Minerals (Development and Regulation) Amendment Bill be referred to a select committee, which is for scrutiny. For the government, in a minority in the Upper House, this is a possible indication of the fate that awaited the land Bill in the Rajya Sabha.

In the morning, Finance Minister Arun Jaitley, Parliamentary Affairs Minister M Venkaiah Naidu and Rural Development Minister Chaudhary Birender Singh briefed NDA MPs on the amendments proposed by the government. Following this, the debate in the Lok Sabha on the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015, was resumed.

The Congress termed the amendments to the Bill “cosmetic changes”. Along with the Congress, other Opposition parties, including the Janata Dal Parivar, the Left parties and the Trinamool Congress, are set to demand the Bill be referred to a select committee in the Upper House.

The amendments included specifying only land up to one km on either side of a railway line or highway can be acquired for industrial corridors. The list of exempted categories omitted social infrastructure. According to the amendments, the Bill will no longer cover land acquisition for private hospitals and schools; and any government will need to ensure the least required land is acquired for a project, carry out a survey of its wasteland and maintain a record on it. According to another amendment, compulsory employment will be provided to at least one member of a family of a ‘farm labourer’. Also, hearings or grievance redressal will be held in the district in which the land acquisition is carried out.

During the debate on the Bill, Chirag Paswan of the Lok Janshakti Party (LJP), an ally of the Bharatiya Janata Party, said following the amendments, his party had decided to support the Bill. The BJD’s Bhartruhari Mahtab withdrew some of his party’s amendments, following the government’s amendments.

Ranjit Singh Brahmpura of the Shiromani Akali Dal, an NDA member, maintained the consent of landowners should be made mandatory for any land acquisition. He said, “Care should be taken that only barren land is acquired, not fertile land. Also, compensation must be provided at market rates.” The Shiromani Akali Dal later came on board in terms of agreeing to the provisions of the Bill.

Other allies such as the Telugu Desam Party and Apna Dal supported the government on the Bill. The Congress, Trinamool Congress and Left parties vociferously opposed it, demanded it be referred to a parliamentary standing committee.

Replying to the debate, Birender Singh said the NDA government wouldn’t do anything that was anti-farmer, adding it would ensure their interests were protected. He said a false notion was being created that the amendments to the Bill would hurt farmers and rob them of their livelihoods. “But the fact is it is through the old land acquisition Act that Opposition parties want the farmers to remain poor and deprived, while we want them to join the development process,” he said.

Nutrient Based Subsidy Scheme for Fertilizers is Being Implemented

The Nutrient Based Subsidy (NBS) Policy is being implemented w.e.f. 1.4.2010 by the Department of Fertilizers and under the said policy, a fixed amount of subsidy decided on annual basis, is provided on each grade of subsidized Phosphatic & Potassic (P&K) fertilizers depending on its Nutrient Content. At present 22 grades of P&K fertilizers are covered under the NBS policy. The benefits accruing to the farmers are as under: i.        The P&K fertilizers are made available to farmers in adequate quantities. ii.      More grades of P&K fertilizers have brought under the purview of the NBS Scheme giving the farmers wider choice to use complex fertilizer grades. To improve fertility of soil and promote sustainable agriculture in the county, the Government is implementing the following schemes/projects: I.          Soil Health Management (SHM) programme under National Mission for Sustainable Agriculture (NMSA) assists State Governments in following components:             i.                    Setting up of static/mobile soil testing laboratories (STLs). ii.                  Strengthening of static/mobile STLs. iii.                Training and demonstrations on balanced use of fertilizers. II.        In current year, Soil Health Card Scheme has been introduced to assist State Governments to issue soil health cards to all farmers in the country. Soil health card will provide information to farmers on nutrient status of their soil along with recommendation on appropriate dosage of nutrients to be applied for improving soil health and its fertility. Soil Health status will be assessed regularly in a cycle of 3 years so that nutrient deficiencies are identified and amendments applied. Under SHM Programme, during the current year, 9 new static Soil Testing Laboratories (STLs), 56 new mobile STLs, strengthening of 2 STLs have been sanctioned to States, apart from 354 training and 420 demonstrations. Under ‘Soil Health Card’ scheme, a sum of Rs. 23.59 crore has been released to States towards soil sampling, training, awareness creation.

Share of Solar Energy

With an installed capacity of about 3000 MW solar power, the share of solar energy is about 2% in the power sector of the country. Ministry of New and Renewable Energy (MNRE) has proposed to scale up Grid Connected Solar Power targets from 20,000 MW to 1,00,000 MW by 2022. The target includes 40,000 MW roof-top solar photovoltaics, 57,000 MW large solar projects and 3,000 MW already installed. This was stated by Sh. Piyush Goyal, Minister of state for Power, Coal & New and Renewable Energy (Independent Charge) in a written reply to a question in the Rajya Sabha today. The Minister further stated that India already has installed capacity of over 34 GW from various renewable energy sources which is 13% of the total installed capacity of power generation in the country. As per Global Status Report, REN 21, India’s global position in renewable energy capacity installation is 5th in the world. The investment in renewable energy are mainly by private sector. The Government has approved an outlay of Rs. 33,003 crore for Ministry of New and Renewable Energy for promotion of new and renewable energy during 12th Plan period. This includes Rs. 19,113 crore as Budgetary Support and Rs. 13,890 crore from Internal and Extra Budgetary Support (IEBR). MNRE has organized First Global Renewable Energy Investors Promotion Meet (RE-INVEST 2015) during February 15-17, 2015 in New Delhi. As part of RE-INVEST 2015 initiative, 387 companies/firms (both private and public sectors) have submitted Green Energy Commitment Certificates (GEC), aggregating to about 270 GW power generation capacity during the next five years.