Correcting the road-rail skew

We must make a national goal of reversing the road-to-rail ratio to at least 50:50, if not 30:70, in the next 10 years

Transportation is an integral part of economic development. It also shares a two-way relation. As the speed, cost and reach of transportation improves, it leads to higher incomes and development, which in turn leads to greater demand for transport and mobility. In the digital age, this maxim is applicable to digital connectivity too. Some developed nations, notably in Europe, have sanctified digital access and mobility as a basic right of all citizens. Cities in Europe have dense grids of public railway transport, while even the remotest mountaintop villages of Switzerland have road access. In the motor car dominated US, the road and highway networks connect dispersed suburbia to cities and workplaces.

The actual mix of various modes may vary, but economic development and transport infrastructure go hand in hand. The denser, the better. More recently, there have been concerns about the contribution of transport-related emissions to air quality and climate change. However, the importance of transportation to the economy is unquestioned.

That conviction was behind India’s aggressive push to build the national highway system called the Golden Quadrilateral, launched during the Atal Bihari Vajpayee years. Infrastructure spending on roads has multiple round impacts. There’s a first-round impact in terms of increased demand for road materials and employment. Then, there’s also a significant second-round impact on people’s income and livelihood. Several studies have documented how villages in proximity to national highways witnessed greater increase in incomes than those far away. Better connectivity affords better earning opportunities, lower commuting time, and also increases in land values adjacent to major roads. There could be a third round-impact through dynamic externalities. For instance, farmers’ produce can fetch better prices for perishable goods, as they can reach further markets quicker.

That the highway construction boom has been a boon to India’s economy is well known. But what is less known is that this has led to a peculiar skew. The aggregate ratio of goods transported by road as compared to rail is now at 70:30. This ratio is the reverse of what it should be. Worldwide, more goods travel by rail than road. It is less costly, more efficient and environmentally cleaner to use rail. In today’s world, cargo moves even from Hamburg to remote Northern China by rail. There is an active rail link between Yiwu in Eastern China and Iran, by a route that passes through Kazakhstan and Turkmenistan.

In India, however, the growth of cargo carried by rail has fallen far behind that by road. This has been due to decades of neglect in terms of capital spending on rail infrastructure. That may be changing now. The irony is that the highly successful national roadway programme was funded by a one-rupee fuel cess on diesel, to which the major contributor was the Indian Railways. So, the railways was paying for the success of its rival. Road cargo services offer convenience, flexibility, better tracking and door-to-door services. Unless the railways can match this, they will keep losing cargo business to roadways.

However, this skew has led to higher logistics costs for the nation. Apart from its inherent fuel inefficiency, road transport is also subject to arbitrary entry and toll taxes. India’s logistics costs can be as high as 15-17% of total delivered cost of the industrial product. This is inexcusably high, makes Indian industry highly uncompetitive and is perhaps a great impediment to Make in India. The revival of cargo by rail is an urgent priority.

We must make a national goal of reversing the road-to-rail ratio to at least 50:50, if not 30:70, in the next 10 years. This year, finance minister Arun Jaitley provided budgetary support of almost Rs.2.2 trillion to road and rail infrastructure. More will be spent using off-budget funds. The ratio of 50:50 should be well-defined goal (sort of like “Project Tiger”), time-bound and in the same league as increasing India’s global rank in the ease of doing business to the top 50.

An important and unexpected opportunity is in the offing for extending the rail cargo network in India. This is a direct consequence of the spread of national roadways. As interstate multi-lane highways get built around the country, the median section becomes an extremely useful piece of real estate and right of way. For this, there is no additional cost or complication of additional land acquisition. On this median strip, elevated rail tracks on thin pillars and modular, containerized cargo system can be built.

It is then possible to develop a continuous throughput of goods transport with automatic switching and use of modern technology such as global positioning system and driverless trains. Such a system will be characterized by high utilization and safety, even at moderate speeds, and a high convenience factor.

Many years ago, the government of Maharashtra took great pride in having built 37 flyovers all over Mumbai city, greatly easing vehicular traffic. What was missed in that euphoria was the permanent loss of precious right-of-way and median strip access, so crucial for public transportation. There’s also a belated realization that flyovers merely transport traffic jams from one end to another. But that’s a topic for intra-city public transportation. As for the national cargo system, we can use the national highway system greatly to the advantage of railways using the median space. And thereby correct the road-to-rail skew.

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The new energy policy makes essential changes

It could signal market-oriented reforms that have been long overdue

Last week was a good one for the Narendra Modi administration. Complaints that it was merely tinkering around the edges of its reform agenda had been proliferating for a while. But it has pushed back now with two major moves. The real estate bill, as we wrote in these pages on Tuesday, has considerable potential. The other—the Hydrocarbon Exploration Licensing Policy, or HELP, which puts in place a new regime for oil and gas exploration—is even more significant. It could, in fact, signal one of the most important market-oriented sectoral reforms of the past two decades.

The new policy’s overarching theme is plainly to reduce government intervention at every stage of the upstream industry, from securing blocks to licensing to marketing. The open acreage aspect of the policy—allowing investors to bid for blocks of interest to them at any time—is a step towards casting the government in the role of an enabler.

The earlier process of a yearly auction of a cluster of blocks, on the other hand, saw it operate more as a heavy-handed gatekeeper. And the move towards a single licence for exploration and production of all forms of hydrocarbons is such an obvious prerequisite for streamlining regulation that it’s baffling it has taken as long as it did.

But perhaps the biggest gains in incentivizing investment stand to be made from HELP’S switch to a revenue-sharing model, wherein the government is not concerned with the cost of production. The previous profit-sharing model’s pitfalls became more obvious the longer the dispute with Reliance Industries Ltd over declining output from the KG D6 field dragged on.

If the government’s cut is to be calculated from a revenue minus cost of production base, it has a necessary interest in maintaining oversight of the latter—just as it becomes profitable for the investor to exaggerate cost. Cue micromanaging, endless rounds of audits and an antagonistic relationship from the get-go, with the government embroiled in a production process it has no business concerning itself with.

To see the full potential of these policy shifts and HELP’s other changes—like market-based pricing for hydrocarbons from deep water, ultra deep water and high-pressure-temperature areas where operations are difficult—they must be seen in context.

The commodities crash has boosted demand for refined products at a growth rate that hasn’t been seen in 15 years. That may be a short-term phenomenon—although it seems unlikely that oil prices will rise substantially any time soon—but the long-term trend of rising demand is well-established. According to the International Energy Agency, Indian demand will hit 10 million barrels per day by 2040, the steepest rise for any country.

An upstream sector that can keep pace with that demand is essential. For an idea of what happens in its absence, look back no further than 2013’s taper tantrum. Investor sentiment about emerging markets nosedived and the rupee hit a record low against the dollar—not good news for a country that relies on imports for three-quarters of its domestic crude requirements and a third of its gas needs. The government had to consider ideas such as banning night-time sale of fuel.

This vulnerability to the vicissitudes of the global economy and geopolitics aside, the import bill is a constant drain on the exchequer.

Nine rounds of the New Exploration Licensing Policy kicked off in 1999 have failed to enable the upstream sector adequately. Over 250 blocks were awarded in that time, but production remains comparatively anaemic. Investors have run into regulatory hurdles time and again.

Those hurdles and pricing controls have ensured international oil companies have been wary of wading into Indian waters as well. BP Plc’s $7.2 billion outlay in 2011 for a 30% stake in 23 oil and gas contracts operated by Reliance Industries in India, including the KG D6 block, has proved to be a less than advantageous buy-in.

Whether HELP will succeed in bringing in the necessary investment or not remains to be seen. But it sends out the right signal. There are other reforms that must be put in place for a truly coherent energy policy—scrapping the current method of having the various energy ministries operate in silos and merging them, for one—but this is a good start.

Will the new energy policy improve the health of the upstream sector

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The budget and higher education

Increase in enrolment calls for improvement of the quality of education, which is in a dismal state

In a move towards realizing the increasing aspirations of young India, the government, for the year 2016-17, has earmarked Rs.28,840 crore for the department of higher education under the human resource development (HRD) ministry, as against Rs.26,855 crore in 2015-16, registering a significant increase of 7.4% over the previous year.

However, the budget has reduced plan funds for higher education to Rs.14,428 crore in its revised estimates (RE) for fiscal year 2015-16, as against Rs.15,855 crore in its budget estimates (BE ), a decline of 9.9%. There is a well- intended and concerted focus to improve higher education by the government, but the share of the HRD ministry’s department of higher education of the total central plan outlay has come down from 2.54% in 2015-16 to 2.15% in 2016-17; budgetary allocations for higher education as a percentage of total education has continued to be only around 39%.

This has to be seen in the context of the changing demographic structure and increased enrolment in elementary and secondary education, which essentially requires more investment to be made in higher education to meet the demand for a skilled workforce and progression of school graduates.

The proposed Higher Education Financing Agency (HEFA), with an initial capital base of Rs.1,000 crore is a step towards improving the infrastructure of educational institutions. Even though it will be a non-profit organization, it will leverage funds from the market and supplement them with donations and corporate social responsibility (CSR) funds. Therefore, its operative and regulatory mechanisms are crucial to ensure its stability and check the burden.

In the context of reduction of the plan outlay (BE) of student financial aid fromRs.2,373 crore in 2015-16 to Rs.2,220 crore in 2016-17, the HEFA needs to be studied more carefully to analyse its strengths.

The gross enrolment ratio (GER) in higher education has doubled from around 11.6% in 2005-06 to 23.6% in 2014-15, according to the provisional report of the All India Survey on Higher Education 2014-15, with 33.3 million students enrolled in 2014-15 as compared to 14.3 million in 2005-06. But it lags much behind the global average of 30%. Despite many attempts to improve the access and outreach, social disparity persists in higher education. For instance, GER for the male population is 24.5%, while for females it is 22.7%. For Scheduled Castes, it is 18.5% and for Scheduled Tribes it is 13.3%.

The increase in enrolment calls for improvement in the quality of education, which is in a dismal state. To improve the standard, among many other factors, the quality of teachers is crucial. The Pandit Madan Mohan Malviya National Mission on Teachers and Teaching aims to look at teacher education in a holistic manner, to strengthen the institutional mechanism in a single continuum covering school to universities and to create synergies among the various related initiatives.

However, the plan allocations to this umbrella scheme have been reduced to Rs.60 crore in the 2015-16 RE as against Rs.90 crore in 2015-16 BE. It is indeed a welcome step that the BE (plan) in 2016-17 has been increased to Rs.165 crore, which is likely to help in improving the quality of teachers, attracting talent into teaching and investing in infrastructure related to innovative teaching.

In a situation when more than 94% of the workforce in India has no technical education and merely 8% in rural and 30% in urban areas have general education of higher secondary and above, more emphasis on technical education is likely to play a crucial role in fuelling the government’s well-intended initiatives such as Skill India, Make in India, Digital India and Jan-Dhan Yojana.

This needs to be supplemented with the skill development initiatives. But we see a reduction in the plan grant (2015-16 RE) to the ministry of skill development and entrepreneurship by 33%. The increase this year is only by 13%. In the budget speech, it was mentioned that the National Skill Development Mission has imparted training to 7.6 million youths. It is indeed very progressive and to improve it further concurrent evaluations of these initiatives should be made. The proposal to set up 1,500 multi-skill training institutes and to link the National Board for Skill Development Certification with the industry and academia is likely to fill the skill gap and will attract more pupils into higher education.

This budget is very crucial at a time when the government is finalizing its “New Education Policy”, which envisions making India a knowledge superpower. To realize it, we need to develop a focused and multipronged strategy, which again requires increased expenditure on education. And the latter remained stagnant at about 3% of gross domestic product (much below the recommended 6% by the Kothari Commission in 1966) and about 11% of total expenditure over the past six years (Economic Survey 2015-16).

Higher education is a feeder to the workforce and to make India the “human resource capital of the world” in its truest sense, to reap the demographic dividend and to ensure access, quality and equity. Increased expenditure along with sustained focus and interventions will enhance the productivity of the workforce, improve welfare of the population and yield higher economic outcomes.
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14 Indians among world’s top 100 venture capitalists

The CB Insights report evaluated the investors on the basis of their investments since 2008

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Dr. Justice Balbir Singh Chauhan appointed as chairperson of the Law Commission of India

Dr. Justice Balbir Singh Chauhan appointed as chairperson of the Law Commission of India

Government has appointed Dr. Justice Balbir Singh Chauhan, retired Judge, Supreme Court of India, as Chairperson, 21st Law Commission w.e.f. afternoon of today (15th March, 2016). He will remain on this post upto 31st August, 2018. Apart from this, Mr. Justice Ravi R. Tripathi, retired Judge, Gujarat High Court, has been appointed as Member (full-time) from yesterday (14th March, 2016) upto 31st August, 2018.

The 21st Law Commission of India was constituted by the Government of India on 14th September, 2015 for a period of three years since September 1st, 2015 till 31st August, 2018. 

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Lok Sabha clears Real Estate Bill as passed by Rajya Sabha

Lok Sabha clears Real Estate Bill as passed by Rajya Sabha

Shri Venkaiah Naidu clarifies various issues of the Bill

Real Estate Bill is Prime Minister’s Gift to the Nation, says Shri Naidu

The Bill shall have a bearing on the ongoing projects and houses

70% is for both construction cost and land cost to be maintained by the promoter is a separate account and not an escrow account

Imprisonment Provision for non-compliance, as a last option

Single window approval system is being developed for ensuring timely completion of housing projects

Lok Sabha today approved the Real Estate (Regulation and Development) Bill, 2016. The bill seeks to create a set of rights and obligations for both the consumers and developers and encourage both of them to live up to the expectations of each other as per the agreement entered into by both of them.

Moving the Bill pending in Lok Sabha after it got passed in Rajya Sabha on March 6, Minister of Housing & Urban Poverty Alleviation Shri M. Venkaiah Naidu clarified the position on the issues such as how the Bill will be applicable to existing projects; the Rules on setting aside 70% of customer advances in an escrow account; compulsory approvals prior to project launches, and payment of similar interest rate to customers as charged from them for delays will impact launches and increase compliance costs. The clarifications by the Minister on different issues are as below:

Requirement to deposit 70% of collections:

• The account to be maintained by the promoter is a separate bank account and not an escrow account.
• Also, the deposit of 70% is for both construction cost and land cost, and if the land cost has already been incurred the promoter can withdraw to that extent
• Requirement to be met for such withdrawals is provided in the act.
• This provision has only been provided to ensure that project funds are not diverted and projects are completed on time.

Ongoing Projects:

• Upon passage of this Bill existing/ongoing projects would not come to a standstill, as is being made out by some respondents from the industry.
• The Bill does not provide that the existing projects should stop all operations until complied with the provisions of the Bill.
• The Bill only provides that upon the formation of the Regulatory Authorities all promoters of existing projects, coming within the ambit of the Bill, would need to register and provide and upload all project details on the website of the Authority.
• A window of 3 months from the date of commencement of the said clause/section has been given to the promoters for registration.
• The developers need to to specify the project details of such apartments so that prospective buyers will make informed choices, project status is known to all and to ensure that the projects are completed on time.

Imprisonment Provision:

• Regarding the provision of imprisonment for any violations of the orders of the regulatory authorities or the Appellate Tribunal, it is certainly not a first option but only the last option.
• There are many regulatory laws in the country with imprisonment provisions under which 3 to 10 years of imprisonment is provided for. Under Securities Act, Insurance Act and Pension Fund Act, 10 years of imprisonment is provided. Food security Act has 7 years provision while it is 5 years under Electricity Act and Reserve Bank of India Act.
• There can’t be a consumer without a developer and vice versa. Keeping in mind the importance of developers for mobilization of land and resources for housing projects, the last option of imprisonment has been kept at 3 years.

Ensuring timely approvals for housing projects

The act also provides under clause 32(b) for the Real Estate Regulatory Authority to take up with appropriate government of competent authority, the creation of a single window system for ensuring time bound project approvals and clearances for timely completion of projects.

Shri Naidu has said that with a target is to ensure that all required approvals are given in about a month’s time, he held 7 high level meetings with the Ministers of Environment, Forests and Climate Change, Civil Aviation, Defence, Consumer Affairs, and Culture for streamlining such approvals. All these ministries as a result have taken significant measures to ensure online and timely approvals. Single window approval system is being developed to standardize and settle timelines for approvals and use of IT & GIS for automation of such systems, setting up nodal agency & empowered committees, Shri Naidu added.

• M/o Civil Aviation – Coloured Coded Zoning Maps (CCZMs) of 13 major airports available online, 9 more by June 2016, Automated NOC approval system & height clearance operational (on 6.1.2016)
• M/o Culture – Online NOC process notified,handheld APP, heritage byelaws.
• M/o Defence – Review of Ammunition Storage Policy, LMA’s instructed to share restricted zone details with municipal bodies. CCZM’s for four defence airports by April, 2016.
• Model Building Bye Laws finalized by Ministry of UD in consultation with MoEF & CC.
• MoEF & CC has agreed to integrate environmental conditions and norms in building approval process and now included in the Model Building Bye laws by MOUD. Now it’s up to the States, to adopt this model building by laws and there shall be no need separate clearance by MOEF up to 1.5 lakh Sq.Mtrs .
• Revision of National Building Code National Building Code, 2015 finalized after incorporating MoUD’s Model Building Bye Laws (MBBL).

The Minister assured the industry that with the establishment of a regulatory mechanism there would be greater flow of investment, both national and foreign, into the sector, resulting in reduction in cost of borrowing.

The Bill requires project promoters to register their projects with the Regulatory Authorities disclosing project information including details of promoter, project including schedule of implementation, lay out plan, land status, status of approvals, agreements along with details of real estate agents, contractors, architects, structural engineers etc. Shri Naidu said that this enables transparent, accountable and timely execution of projects.

The Minister further said that the Real Estate Bill, 2016 enables the people meet their genuine aspirations of owning a house including those of urban poor by giving a fillip to affordable housing initiative under which the Government intends to enable construction of 2 crore by the year 2022 under Prime Minister’s Awas Yojana (Urban).

Shri Naidu has said that the Real Estate Bill is a gift to the nation by the Prime Minister. The passage of the bill is an example of Prime Minister’s commitment to total transformation, added the Minister.

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Safety Standards for Cars

Safety Standards for Cars

The Government has formulated safety standards for car manufacturers to make safe cars. These are contained in the Automotive Industry Standards (AIS) under the Central Motors Vehicles Regulations, 1989 (CMVR). There is provision under rule 126 of Central Motor Vehicle Rules, 1989 (CMVR) that every manufacturer of motor vehicles other than trailers and semi-trailers requires to submit the prototype of the vehicle to be manufactured by him for test by any of the agencies specified therein for granting a certificate to the compliance of provisions of Central Motor Vehicle Act, 1988 and Central Motor Vehicle Rules, 1989. Rules 126A of CMVR requires the test agencies, referred to in Rule 126, to also conduct test on vehicles drawn from the production line of the manufacturer to verify whether these vehicles conform to the provisions of Rules under Section 110 of the Motor Vehicle Act, 1988. Enforcement of provision of CMV Act and CMV Rules come under the purview of the State Governments/UTs.

Further, India is taking steps towards harmonization of national regulations of safety standards for passenger cars with UN-ECE regulations. Ministry of Road Transport & Highways has formed a dedicated panel for introducing safety features in new vehicles under ‘Bharat New Vehicle Safety Assessment Programme’ which will be voluntary from October, 2017 and mandatory by October, 2020.

However, if a safety defect which poses risk of accident or harm to the vehicle occupant is recognized in vehicles, the manufacturers conduct a voluntary recall and offer to rectify the vehicles free of charge.

All safety norms prescribed under the CMVR 1989 are based on the UN/European Regulations which are internationally accepted. Some of the regulations like Frontal Crash Test which requires mandatory fitment of airbags, the Ministry of Road Transport & Highways has already notified crash regulations for new vehicles from 1st April, 2017.