FREQUENT and unrelenting protests against land acquisition seem to have compelled political parties to take the issue seriously. The Centre has promised to introduce a redrafted land acquisition Bill during the winter session of Parliament. As per official pronouncements, the Bill will provide for higher compensation to the affected parties. Besides, acquisition for private companies will be restricted to less than 30% of the total land required for the project.
However, it will be naive to expect the above measures to solve many of the problems resulting from misuse of the acquisition law. In the past, state governments have been highly innovative in devising newer ways ever to subvert the law for political and private gains. The prospective legislation must provide safeguards against misuses. Here, an enquiry into the actual abuses can be helpful.
Excessive acquisitions for private companies and inadequate compensation have been the primary causes behind the past protests against compulsory acquisition. However, courts have been rectifying the latter problem to an extent. In most instances, the affected parties have been resorting to litigation to seek higher compensation. On this count the judiciary has been very sympathetic; generally, it has been increasing the compensation amount. But, as far as the legitimacy of the acquisition per se is concerned, exceptions apart, the judiciary has left the issue to the prudence of the executive. Left unrestrained, states have ruthlessly violated not only the spirit but also the letter of the law, especially when it came to acquiring land for companies.
Part VII of the existing Land Acquisition (Amendment) Act, 1984, provides rules for acquisition for private companies. The company gets to own the acquired land. However, sections 38-44 of this part impose several restrictions. For instance, there is no provision for emergency acquisition. Besides, the company and the state government are required to sign an agreement stating the purpose of acquisition. The agreement must specify the terms on which general public will be entitled to use the company-provided services. The objective behind these riders is to restrict the compulsory acquisition to limited activities of companies from which public can benefit directly, such as school, hospitals, etc. These stringent requirements notwithstanding, the states have acquired land for all sorts of activities of companies, including ones that cannot even remotely serve any public purpose. Moreover, in numerous instances, acquisition has been done using the emergency clause. How have these blatant violations of the law been possible?
Generally, acquisitions for companies have been undertaken under Part II of the Act. This part concerns acquisitions by government entities for public purpose. It does not impose the above restrictions on acquisition for companies, but requires the compensation to be paid out of public funds. In order to justify acquisition for companies under this part, states have been contributing nominal amounts toward the cost of acquisition. Some governments have gone to the extent of contributing just . 100! Due to such legal ambiguities, states have been able to violate the law with impunity.
Companies clearly find it profitable to use the state machinery to acquire land at subsidised rates; direct purchases from the owners, in contrast, are costlier and timeconsuming. Indeed, the acquisition process stands captured by private interests of companies and the decision-makers.
EVEN if the compensation rate is increased and acquisition for companies is restricted to less than 30%, the law will remain vulnerable to several abuses. For instance, a state will still be able to justify acquisition for company simply by declaring the project at hand to be its joint venture with the company. Moreover, it can subsidise the company by acquiring parcels that are costlier to buy through voluntary transactions.
Public-private partnerships have emerged as a new tool for misusing the law. Under these partnerships, the government acquires land and retains de jure ownership rights over it. The cost of acquisition is also borne out of the state exchequer. Nonetheless, de facto control rights over land are passed on to the project company on the basis of long-term and renewable lease. Ostensibly, partnerships are formed to provide infrastructure and public services such as education and health. In reality, however, excess land is acquired and the company is allowed to use a part of it for real estate projects — partnerships for Delhi airport, and Yamuna and Ganga expressways are a few of the many cases in point. So, the company gets the land it needs and that too without any cost!
Since the legal ownership of the land rests with the state, the acquisition, technically speaking, is not for the company. Therefore, the above-mentioned limit on acquisition for private companies, howsoever small, is irrelevant. An increase in compensation rate is also of no avail here, since the cost of acquisition is borne not by the beneficiary company, but by the taxpayer!
The new law must create strong incentives for companies to buy land directly from owners. The following measures will be helpful. First, apart from enhancing compensation, wherever possible, the affected people should be made stakeholders in the project. Depending on the context, there are several ways of doing it. Second, whenever a company is going to use the acquired land, the acquisition should be treated as ‘acquisition for company’, regardless of whether ownership of the land is to be transferred to the company or not; whether the cost of acquisition is to be paid partly or fully using public funds or not. Third, before acquiring land for a company, the government should be required to publish project details such as details of total area to be acquired, who will bear the cost of acquisition, how public will benefit from the project, etc.
Finally, there is a need to set up an independent and representative land acquisition regulatory authority. Approval from this authority should be a prerequisite for acquisitions for companies as defined above. Any change in land use after acquisition should also require its permission. Bestowed with suitable powers, along with checks and balances, the authority should be able to enforce the letter and intent of the law.
Wednesday, January 12, 2011
Enemy Property Bill...
This Bill — The Enemy Property (Amendment and Validation) Second Bill, 2010 — would replace an earlier Bill introduced in the last session which would have nullified court orders stretching back three decades. The courts have consistently asked the government to return properties seized from “enemy subjects” in the time of war to owners or heirs.
At the centre of the whole ruckus, over the past few decades, was the case of Mohammad Amir Mohammad Khan, the Raja of Mehmudabad. Properties worth several thousand crores of his late father — a Pakistani citizen — in undivided Uttar Pradesh had been confiscated by the government during the 1965 Indo-Pak war. It was only in 2005 that the Supreme Court ruled that properties be returned to the Raja, him being an Indian citizen.
In fact, the whole controversy has been over a simple question: does the government have the right to permanently hold onto property seized as part of temporary measures enacted in the time of a war? Courts have always said no.
The new amendments proposed in the Bill tabled in Parliament this week recognise all this. Which means those who can prove that they are legal heirs of “enemy subjects” would get back their property from the government.
But the door has been closed on enemy properties without owners or legal heirs. The government can effectively sell such properties it confiscated after the 1965 war with Pakistan and placed under state-appointed custodians — something which courts had earlier said the government could not do. Furthermore, the courts cannot pass any new orders, which restore property back to the owners or their heirs. Only the government can do that.
At a recent press conference, there was a telling comment by home minister P Chidambaram, who came under sharp attack from ministerial colleague Salman Khurshid over the home ministry’s handling of the issue. When asked why he had decided to include certain amendments to the Bill, he said: “When we went to the history, we found that the first judgement came in 2005 and subsequently, there have been high court judgments following that from many courts. …We then decided that the only way was to reverse the statement of law and restore the original position of law as stated in 1968.”
Ironically, it was precisely this law that courts, since at least 1976, have relied on to take a stance that was in stark contrast to that of the government. And to understand why, we need to go back to the source of all the controversy, the law itself and the context in which it was made.
PROPERTY IN THE TIME OF WAR During wars, states have always seized properties of those whom they consider enemies, or more often, those whom they consider potential enemies. The idea is to prevent such property being used to finance or support the other side.
After 1962 when the Indian government first authorised the seizing of “enemy” property, the next bunch of orders were issued later in 1965 during the war with Pakistan and it was then that the properties of the Raja of Mehmudabad — father of the current Raja who had emigrated to Pakistan in 1957 — were seized. Rules on enemy property were temporary in nature, and would have lapsed with the lifting of the emergency act. It was because it was faced with a possible legal vacuum that the government introduced the Enemy Property ordinance in 1968, and then followed it up with the Act. By the time of the 1971 war, the office of the custodian was well on its way to becoming a permanent one.
IT IS SIMILAR ELSEWHERE In theory, the holding of enemy property by the government should not be permanent — it lasts only as long as the war itself. In fact, governments have often hemmed and hawed before handing the property back.
During the First World War, for instance, the US appointed a custodian of “alien” property very much like the one in this country. In that case, the custodian, a political appointee named Mitchell Palmer went on to govern an empire of properties seized from German nationals worth more than $700 million, which he, unsurprisingly, was reluctant to give up, even after the war ended.
When countries have returned enemy properties, they have often done so because of international agreements. After the Islamic Revolution in Iran in 1979, the Iranian government seized foreign assets in that country, following which the US froze Iranian assets in the US. Yet, in 1981, both countries came to an agreement, mediated by Algeria under which the US agreed to release Iranian assets. In return, Iran agreed to the setting up of a tribunal, staffed by both countries, which would hear all cases of compensation filed by Americans against Iran — the deal may well have been possible because Iranian state assets had been frozen instead of the personal assets of citizens.
Under the Tashkent Declaration of 1966, which India signed with Pakistan, both sides agreed to come to a mutual agreement at some point in future about the “enemy” properties seized by each other. No such deal was ever made. “We found that by the early 1980s, Pakistan had sold off most of the properties they had seized,” says an Indian government official who asked not to be named. In India, this meant that owners or their descendants had effectively one avenue of redress only: the courts.
UNAMBIGUOUS STANCE BY COURTS The country’s courts have been very clear about what the Act meant. “According to the Supreme Court, when the property ‘vested’ with the custodian, it was only for purposes of management and administration,” says Ashok Desai who was one of the counsels for the Raja in the 2005 case. “At no time did the title pass to the custodian.”
The Calcutta High Court — in a judgement about enemy properties in Kolkata — was more explicit. “I must say that there is no provision [in the Act], not even any indication that the enemy owner of the property shall be stripped of all his rights,” said the high court judge deciding the case. This was in 1976.
But the principle goes back even further. As early as 1949, Alladi Krishnswamy Aiyar, during Constituent Assembly debates over citizenship, had argued that the laws of property had little to do with nationality or citizenship. “During a war, the conditions may require the state to exercise some control over enemy property or the property of foreigners. That is not to say that the property of the foreigners or the enemy has been confiscated. No principle of international law recognises this principle.”
At different points, judges have also pointed to two other facts about the enemy property law. First, the very way the law is worded implies that the vesting of property with the government was only temporary. For instance, at one point the Act says clearly that the government can pass orders to “return” the property to its owner or to anyone else. And second, the Act specifically excludes Indian citizens — such as the Raja — from being defined as “enemies”.
It was on the basis of these two or three basic facts that the Supreme Court in 2005 arrived at its momentous decision.
Before the Raja ever saw the inside of a courtroom, he had already been issued a letter from the government (in 1981), informing him that the Cabinet had decided to return 25% of his properties. “Why 25%?” asks Vivek Tankha, additional solicitor general, who had also represented the Raja before the apex court. “Either, he gets it all or he gets nothing.” The government subsequently backtracked on this decision.
On other occasions though, the government seemed to be simply groping for reasons to hold on. Again, in the Raja’s case, the government told the Bombay High Court in the late 1990s that the only way properties could be released was if there was an agreement with Pakistan and Bangladesh over the issue.
ORIGINAL POSITION It’s in the context of the various court judgements that the ordinance promulgated on July 2 this year has to be seen. Rather than restoring the “original position” of the law as it was in 1968 — as Chidambaram said in his press conference — the Centre, in fact, overturned it. Because, for the first time the law clearly declared that when the government took over an enemy property, the title, and all other rights to ownership, would pass to it as well.
This included the right to sell the property. “Till the early 1980s, the government had sold properties off and on,” says the government official. “However since then, various courts had made it clear that the custodian did not have the power to sell properties, but only to manage them.”
Even as latest changes concede the right of heirs to get back “enemy property”, the Bill proposes to retain provisions that give the government the right to sell such properties in the absence any claimants. According to the amendments proposed in the latest Bill, even if the government did not have the original papers to a property, it could still issue a certificate of sale to anyone who bought an enemy property from the government. And such a certificate would be as good as any title deed. This principle is reflected in the current Bill as well.
By introducing these changes, the government expects to close the door once and for all on a conflict that has far outlived the wars it grew out of.
Some of the Raja’s Prominent Properties
• Butler Palace (10,000 sq ft with a pond is located in a tony residential area of Lucknow).
• Mehmudabad Mansion in Hazratganj (70,000 sq ft of commercial space in the most prominent market of Lucknow).
• Lawrie Building also in Hazratganj (80,000 sq ft has several famous showrooms for which the current rents are not more than a few hundred rupees).
• Part of Halwasiya and Janpath market in Hazratganj (90,000 sq ft)
• The official bungalow of the Superintendent of Police (SP) Lakhimpur
• Bungalows of the DM, SSP and CMO in Sitapur
• Metropole Hotel in Nainital
At the centre of the whole ruckus, over the past few decades, was the case of Mohammad Amir Mohammad Khan, the Raja of Mehmudabad. Properties worth several thousand crores of his late father — a Pakistani citizen — in undivided Uttar Pradesh had been confiscated by the government during the 1965 Indo-Pak war. It was only in 2005 that the Supreme Court ruled that properties be returned to the Raja, him being an Indian citizen.
In fact, the whole controversy has been over a simple question: does the government have the right to permanently hold onto property seized as part of temporary measures enacted in the time of a war? Courts have always said no.
The new amendments proposed in the Bill tabled in Parliament this week recognise all this. Which means those who can prove that they are legal heirs of “enemy subjects” would get back their property from the government.
But the door has been closed on enemy properties without owners or legal heirs. The government can effectively sell such properties it confiscated after the 1965 war with Pakistan and placed under state-appointed custodians — something which courts had earlier said the government could not do. Furthermore, the courts cannot pass any new orders, which restore property back to the owners or their heirs. Only the government can do that.
At a recent press conference, there was a telling comment by home minister P Chidambaram, who came under sharp attack from ministerial colleague Salman Khurshid over the home ministry’s handling of the issue. When asked why he had decided to include certain amendments to the Bill, he said: “When we went to the history, we found that the first judgement came in 2005 and subsequently, there have been high court judgments following that from many courts. …We then decided that the only way was to reverse the statement of law and restore the original position of law as stated in 1968.”
Ironically, it was precisely this law that courts, since at least 1976, have relied on to take a stance that was in stark contrast to that of the government. And to understand why, we need to go back to the source of all the controversy, the law itself and the context in which it was made.
PROPERTY IN THE TIME OF WAR During wars, states have always seized properties of those whom they consider enemies, or more often, those whom they consider potential enemies. The idea is to prevent such property being used to finance or support the other side.
After 1962 when the Indian government first authorised the seizing of “enemy” property, the next bunch of orders were issued later in 1965 during the war with Pakistan and it was then that the properties of the Raja of Mehmudabad — father of the current Raja who had emigrated to Pakistan in 1957 — were seized. Rules on enemy property were temporary in nature, and would have lapsed with the lifting of the emergency act. It was because it was faced with a possible legal vacuum that the government introduced the Enemy Property ordinance in 1968, and then followed it up with the Act. By the time of the 1971 war, the office of the custodian was well on its way to becoming a permanent one.
IT IS SIMILAR ELSEWHERE In theory, the holding of enemy property by the government should not be permanent — it lasts only as long as the war itself. In fact, governments have often hemmed and hawed before handing the property back.
During the First World War, for instance, the US appointed a custodian of “alien” property very much like the one in this country. In that case, the custodian, a political appointee named Mitchell Palmer went on to govern an empire of properties seized from German nationals worth more than $700 million, which he, unsurprisingly, was reluctant to give up, even after the war ended.
When countries have returned enemy properties, they have often done so because of international agreements. After the Islamic Revolution in Iran in 1979, the Iranian government seized foreign assets in that country, following which the US froze Iranian assets in the US. Yet, in 1981, both countries came to an agreement, mediated by Algeria under which the US agreed to release Iranian assets. In return, Iran agreed to the setting up of a tribunal, staffed by both countries, which would hear all cases of compensation filed by Americans against Iran — the deal may well have been possible because Iranian state assets had been frozen instead of the personal assets of citizens.
Under the Tashkent Declaration of 1966, which India signed with Pakistan, both sides agreed to come to a mutual agreement at some point in future about the “enemy” properties seized by each other. No such deal was ever made. “We found that by the early 1980s, Pakistan had sold off most of the properties they had seized,” says an Indian government official who asked not to be named. In India, this meant that owners or their descendants had effectively one avenue of redress only: the courts.
UNAMBIGUOUS STANCE BY COURTS The country’s courts have been very clear about what the Act meant. “According to the Supreme Court, when the property ‘vested’ with the custodian, it was only for purposes of management and administration,” says Ashok Desai who was one of the counsels for the Raja in the 2005 case. “At no time did the title pass to the custodian.”
The Calcutta High Court — in a judgement about enemy properties in Kolkata — was more explicit. “I must say that there is no provision [in the Act], not even any indication that the enemy owner of the property shall be stripped of all his rights,” said the high court judge deciding the case. This was in 1976.
But the principle goes back even further. As early as 1949, Alladi Krishnswamy Aiyar, during Constituent Assembly debates over citizenship, had argued that the laws of property had little to do with nationality or citizenship. “During a war, the conditions may require the state to exercise some control over enemy property or the property of foreigners. That is not to say that the property of the foreigners or the enemy has been confiscated. No principle of international law recognises this principle.”
At different points, judges have also pointed to two other facts about the enemy property law. First, the very way the law is worded implies that the vesting of property with the government was only temporary. For instance, at one point the Act says clearly that the government can pass orders to “return” the property to its owner or to anyone else. And second, the Act specifically excludes Indian citizens — such as the Raja — from being defined as “enemies”.
It was on the basis of these two or three basic facts that the Supreme Court in 2005 arrived at its momentous decision.
Before the Raja ever saw the inside of a courtroom, he had already been issued a letter from the government (in 1981), informing him that the Cabinet had decided to return 25% of his properties. “Why 25%?” asks Vivek Tankha, additional solicitor general, who had also represented the Raja before the apex court. “Either, he gets it all or he gets nothing.” The government subsequently backtracked on this decision.
On other occasions though, the government seemed to be simply groping for reasons to hold on. Again, in the Raja’s case, the government told the Bombay High Court in the late 1990s that the only way properties could be released was if there was an agreement with Pakistan and Bangladesh over the issue.
ORIGINAL POSITION It’s in the context of the various court judgements that the ordinance promulgated on July 2 this year has to be seen. Rather than restoring the “original position” of the law as it was in 1968 — as Chidambaram said in his press conference — the Centre, in fact, overturned it. Because, for the first time the law clearly declared that when the government took over an enemy property, the title, and all other rights to ownership, would pass to it as well.
This included the right to sell the property. “Till the early 1980s, the government had sold properties off and on,” says the government official. “However since then, various courts had made it clear that the custodian did not have the power to sell properties, but only to manage them.”
Even as latest changes concede the right of heirs to get back “enemy property”, the Bill proposes to retain provisions that give the government the right to sell such properties in the absence any claimants. According to the amendments proposed in the latest Bill, even if the government did not have the original papers to a property, it could still issue a certificate of sale to anyone who bought an enemy property from the government. And such a certificate would be as good as any title deed. This principle is reflected in the current Bill as well.
By introducing these changes, the government expects to close the door once and for all on a conflict that has far outlived the wars it grew out of.
Some of the Raja’s Prominent Properties
• Butler Palace (10,000 sq ft with a pond is located in a tony residential area of Lucknow).
• Mehmudabad Mansion in Hazratganj (70,000 sq ft of commercial space in the most prominent market of Lucknow).
• Lawrie Building also in Hazratganj (80,000 sq ft has several famous showrooms for which the current rents are not more than a few hundred rupees).
• Part of Halwasiya and Janpath market in Hazratganj (90,000 sq ft)
• The official bungalow of the Superintendent of Police (SP) Lakhimpur
• Bungalows of the DM, SSP and CMO in Sitapur
• Metropole Hotel in Nainital
What drives stock indices?
THE Sensexor Nifty is taken to be a barometer of the overall level of economic optimism wherein good news or adverse shocks get factored. The India shining story is often linked with the reflection seen in these numbers. At the same time, sceptics hold that the market is sentimentdriven and hence, at times, even good news on the economy front can be overwhelmed by random events. The market buzz on hiking of interest rates could lead to a decline in the market when economic conditions are otherwise sanguine. What really is the true picture?
The right way to go about this exercise is a regression analysis looking at changes in the Sensex and juxtaposing them with economic variables which prima facie have a bearing. The variables that can affect the market mood are growth in credit, industrial growth, capital issues, inflation, FII investments, exchange rate movements, changes in forex reserves and mutual funds investments. The period chosen is from April 2006 to September 2010 and data has been reckoned on a monthly basis. This takes care of the day to day aberrations in the stock market movements. It has been noticed that even on a daily basis news affects the Sensex only momentarily which is generally mean reverting by the end of the day.
The multivariate regression model gives some interesting results. The first is that growth in credit, industrial production, exchange rate and changes in forex reserves do not really affect the Sensex. In fact, industrial production growth has a negative effect on the Sensex (though it is not significant, meaning the relation is spurious). The sign is also negative for the exchange rate suggesting that a falling rupee pushes down the market mood. Usually one would associate credit growth to mirror industrial buoyancy, but when it comes to the market, it doesn’t really matter.
How about the significant variables? The other four variables are significant. Higher inflation actually pushes back the Sensex and goes with a negative sign, which makes sense. But it questions the thought that the stock market buffers one from inflation. Primary issues have a negative relation with the Sensex, which is not what one would expect as the two are expected to move in consonance as IPOs become more visible when the market is on the rise.
The other two important variables are net FII and mutual fund investments, which have coefficients of 0.003 and 0.00097. A net inflow of $1 million of FII funds leads to 0.003% increase in the Sensex or $1 billion implies 3% increase in the same. The impact of mutual funds is more muted with the coefficient being 0.00097. While these numbers by themselves are not sacrosanct, the major takeaway is that these four variables explain 48% of the variation in the Sensex, also called the coefficient of determination. What does this mean? This implies that roughly half of the variation in the stock indices is driven by economic factors, while the rest is guided by sentiments that cannot really be explained. Therefore, when we talk of market sentiment which is positive or negative, it is really a collection of different trading thoughts that are not amenable to statistical calculation. The implication is significant as it also means that we should not get swayed by this index in terms of being reflective of something dramatic in the economy. Maybe, this is why the stock market gyrations are often associated with the human emotion of exuberance — albeit irrational, when things move downwards.
The other important metric that can be examined within the world of econometrics is causation. While FIIs and mutual funds appear to be drivers of the market in statistical terms, is it possible to say that they cause the Sensex to move? The Granger Causality tests carried out do not show a relation either ways — FIIs or mutual funds causing the Sensex to move or the Sensex causing these flows to expand or contract. What all this means is that the stock market movements will remain an enigma for the statistically minded investor where economic fundamentals explain part of the story, while the rest will remain the proverbial mystery.
The right way to go about this exercise is a regression analysis looking at changes in the Sensex and juxtaposing them with economic variables which prima facie have a bearing. The variables that can affect the market mood are growth in credit, industrial growth, capital issues, inflation, FII investments, exchange rate movements, changes in forex reserves and mutual funds investments. The period chosen is from April 2006 to September 2010 and data has been reckoned on a monthly basis. This takes care of the day to day aberrations in the stock market movements. It has been noticed that even on a daily basis news affects the Sensex only momentarily which is generally mean reverting by the end of the day.
The multivariate regression model gives some interesting results. The first is that growth in credit, industrial production, exchange rate and changes in forex reserves do not really affect the Sensex. In fact, industrial production growth has a negative effect on the Sensex (though it is not significant, meaning the relation is spurious). The sign is also negative for the exchange rate suggesting that a falling rupee pushes down the market mood. Usually one would associate credit growth to mirror industrial buoyancy, but when it comes to the market, it doesn’t really matter.
How about the significant variables? The other four variables are significant. Higher inflation actually pushes back the Sensex and goes with a negative sign, which makes sense. But it questions the thought that the stock market buffers one from inflation. Primary issues have a negative relation with the Sensex, which is not what one would expect as the two are expected to move in consonance as IPOs become more visible when the market is on the rise.
The other two important variables are net FII and mutual fund investments, which have coefficients of 0.003 and 0.00097. A net inflow of $1 million of FII funds leads to 0.003% increase in the Sensex or $1 billion implies 3% increase in the same. The impact of mutual funds is more muted with the coefficient being 0.00097. While these numbers by themselves are not sacrosanct, the major takeaway is that these four variables explain 48% of the variation in the Sensex, also called the coefficient of determination. What does this mean? This implies that roughly half of the variation in the stock indices is driven by economic factors, while the rest is guided by sentiments that cannot really be explained. Therefore, when we talk of market sentiment which is positive or negative, it is really a collection of different trading thoughts that are not amenable to statistical calculation. The implication is significant as it also means that we should not get swayed by this index in terms of being reflective of something dramatic in the economy. Maybe, this is why the stock market gyrations are often associated with the human emotion of exuberance — albeit irrational, when things move downwards.
The other important metric that can be examined within the world of econometrics is causation. While FIIs and mutual funds appear to be drivers of the market in statistical terms, is it possible to say that they cause the Sensex to move? The Granger Causality tests carried out do not show a relation either ways — FIIs or mutual funds causing the Sensex to move or the Sensex causing these flows to expand or contract. What all this means is that the stock market movements will remain an enigma for the statistically minded investor where economic fundamentals explain part of the story, while the rest will remain the proverbial mystery.
India willing to close Doha Round..!!
As long as its farm sector is protected, meaningful liberalisation is secured in services and a fair deal on industrial goods is promised, India will be a deal-maker in the WTO talks, says Pradeep S Mehta
THE jury is still out whether the Doha Round of the WTO is a development round or not, observed the Brazilian and US ambassadors at a recent workshop on the Doha Round of trade negotiations held in Geneva on November 2. At the concluding session moderated by WTO director-general Pascal Lamy, ambassadors from China, India and EU asserted that this is a development round. It was a candid assessment of the geopolitics of the trade and reflected the grim scenario that countries continue to speak to each other, with each looking in different directions. But, the workshop was not only about geopolitics; it was also about numbers. Many analysts opined that up to $200 billion could be added to global welfare by the current package of offers. More importantly, they contended that the world could see a 10% contraction in trade if the Doha Round fails.
Jayant Dasgupta, the Indian ambassador, succinctly summarised the discussions by reminding the meeting of the old metaphor that it is time to enter a period of give-and-take negotiations and that it is no longer feasible to raise ambitions. This author was speaking at the workshop on rules and environment, not too easy but certainly, no hurdles in sewing up the Doha Round.
India has been playing a leading role in the Doha Round negotiations. Indian commerce minister Anand Sharma was recently at Geneva to test the waters and reaffirm India’s willingness to negotiate. India has not only been a part of the complex variable geometry of delegations meeting to thrash out differences and pull the negotiations out of its decade-old quagmire, but it also has taken a lead to pull them along when required.
India has contributed to the emergence of credible draft chair texts on agriculture and non-agriculture market access negotiations that led to the last two most hope-generating efforts in July and December 2008. The efforts failed, though Lamy gives it 80% marks. In the fall of 2009, when appetite for a trade liberalisation deal was minimal in the wake of the financial crisis, India hosted a mini-ministerial where Lamy unveiled a road map for intense negotiations with capital-based senior negotiators. That effort, too, fizzled out by the next spring, and the focus of Genevabased delegations shifted to more procedural and practical matters like the templates for making commitments, collection of data to determine base years and so on. In the meanwhile, political leaders continued to meet on the margins of various occasions, with this November seeing the Apec meeting in Yokohama that followed the G-20 meeting in Seoul. Another spring is coming, yet no deal appears on the horizon.
In this pessimistic scenario, what can India do? As an engaged trading partner, it can reassess its offers for others to emulate. The critical decision area that needs attention is the ‘modalities’ on agriculture and non-agriculture market access (Nama): involving reduction of tariffs on agriculture products; elimination of export subsidies and reduction of domestic subsidies; and reduction of tariff and non-tariff barriers on industrial products.
In Nama, the discussions focus on three issues — ‘coefficients’ for tariff reduction, the anti-concentration clause and ‘sectorals’. On the first two, while India may not accept blanket restriction on flexibility built into the December 2008 texts, it is not likely to block a deal. The issue of sectorals, where members may agree to undertake deeper tariff reduction commitments in selected sectors, is more sensitive. India has not shown any aversion to engage on the issue in its effort to get a deal through.
DURING the last couple of rounds of talks, India has come out with more substantive economic arguments on the difficulties in sectors of interest to others and submitting joint proposals in sectors like chemicals. These contributions should enable its trading partners to make a balanced assessment of how far to push India. India has also been at the forefront of developing a mechanism to address non-tariff barriers, a joint proposal on which was discussed at length in the last round of negotiations in October.
Agriculture negotiations are more important for India, with two-thirds of its population dependent on subsistence farming. Although a number of issues appear to be far from settled in these negotiations — like cuts in overall trade distorting support, percentage of products to be declared as sensitive and the connected issue of tariff rate quota expansion, tariff capping and special products — the critical issue that calls for innovative handling is the proposed special safeguards mechanism (SSM) for developing countries. The SSM would enable developing countries like India to take remedial action through higher tariffs in case of import surges or import-induced price declines. The main differences are between India and the US about the extent of increase in import volume (i.e., the volume trigger) required to cross the Uruguay Round (UR)-bound levels of tariffs and the extent to which these tariffs could be exceeded. Rather than try and reach a compromise, the waters are being muddied by some newly proposed instruments. However, the feeling is that India will agree on a new trigger benchmark, and the US should show flexibility on these new issues as well.
The state of negotiations is unclear at present. The technical work in various committees appears to have moved forward, with the task on scheduling having progressed in parallel to the deliberations about commitments. Given the broad support to calibrated liberalisation accompanied by regulatory and institutional flanking policies among our political establishment, India will not be the deal-breaker. It will continue to sit on the high table as a deal-maker rather than a deal-breaker so long as its farm sector is protected, no commitment of a zero-for-zero in industrial goods sector is insisted upon, commercially meaningful liberalisation is secured in services and a commitment to accommodate the UN Convention on Biodiversity in TRIPs is agreed to...
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