The Real Potential of MGNREGA is Yet to be Realized

MGNREGA workers

The UPA government’s Aam Aadmi scheme – Mahatma Gandhi National Rural Employment Guarantee Act – has seen falling allocation lately. Two years ago it received the highest allocation of Rs 40,000 crores; now Rs 33,000 which was the same as last year’s. Many believe that the NREGA (as the scheme was known then and until Oct 2, 2009) helped the UPA get its second term. It offers a legal guarantee to provide employment if there is demand. But strangely the employment provided to the rural poor is falling under NREGA: 284 crore person days in 2009-10, it went down to 257 crore in 2010-11 and now 216 crore person days in 2011-12.

While the program is widely touted as designed for livelihood security of the rural poor, the biggest challenge has been the creation of productive assets. Lacks of unfinished projects put a question mark on the manner in which the funds have been utilized. Over half of the 151 lakh projects taken up in 2010-11, whether digging water ponds or construction of roads – are still incomplete after two years.

By now shortcomings in the implementation of MGNREGA are amply clear. They point to the need for strengthening the PRIs through capacity building, raising awareness about MGNREGA and various rights it offers to the workers, strengthening project selection and planning at the grassroot level, consistent hammering on corrupt practices, creation of useful assets, strengthening social audit mechanisms, and keeping political influence away from the program.

On the healthier side, the Ministry of Rural Development is adding additional projects to enable development of SC/ST lands and construction of toilets and anganwadis under the scheme. In fact, MGNREGA should not be seen as an independent scheme merely for rural employment. It has the potential to revolutionize democracy by providing inclusive economic growth. It also has the capacity to obliterate the plethora of cast and regional divides and provide dignified livelihood to women, elderly and the disabled. Women participation is particularly poor in the northern region. By providing further teeth to the social audits and accountability measures, MGNREGA offers direct empowerment to the weaker and marginalized sections of Indian society.

A well constructed by NREGA workers

MGNREGA has another healthy dimension. About 70% of works under the MGNREGA are “green jobs” such as water harvesting, afforestation and land development. The program is not only an anti-poverty project that also yields co-benefits of adaptation to climate change and reduction of vulnerabilities against climate change. Needless to say that the poor are also the most vulnerable towards climate change adverse effects. Ironically, the poor NREGA workers are working towards sustainable green development that the rich have failed to do.

The 100 days of employment as offered by the scheme has remained grossly under-utilized is evident from the fact that the household who came forward to work received on an average less than 50 days of work: 48 days (2008-09), 54 days (2009-10), 47 days (2010-11) and 42 days (2011-12). There are several reasons for this: reluctance of gram Panchayats to take work under MGNREGA because it adds to their burden besides being ill equipped to plan projects; demand of bribery to approve projects by higher officials, lack of awareness among poor people about entitlements MGNREGA offers them, and so on.

The slake attitude and some of the states and the implementing officials has been jokingly described in some circles: JO NAREGA KAREGA WHO MAREGA, JO NAHI KAREGA WHO BHI MAREGA — Those who implement nrega will get into trouble and those who do not will also be in trouble. One major problem has been that the NREGA is a demand driven program, but the implementing bodies continue to remain in the supply mode.

Andhra Pradesh, Rajasthan and Tamil Nadu are the top states in implementation of MGNREGA. There is need to analyze there are laggards and how to cox them into action.

Proper implementation of MGNREGA invariably goes through strengthening the PRIs and that means providing depth to the grassroot democracy in the country. Hence lessons learned so far should go into making the MGNREGA – 2 a far bigger success.

Click here for a detailed PDF report: MGNREGA Status 2006 – 12 

Does Right to Education mean Right to Schooling Only?

After three years what has the Right to Education Act achieved? Not much, is the honest answer. In reality RTE only means Right to Schooling – not right to learning or right to be literate. The RTE has improved the facilities, brought more kids to the school and increased number of toilets but has failed to provide them with right or quality education. Reports and studies of NGOs/CSOs only confirm what the common man already knows: status of schooling and basic learning in rural India is pathetic. While school enrollment numbers have gone up (96.5% of all children in the 6-14 age group go to school) and school infrastructure has improved, attendance (in government schools) and the overall ability of children to read and do simple mathematical exercises have dipped in India’s rural classrooms.

Automatic promotion to the next standard, in reality, has translated into “teachers don’t have to teach, students don’t have to learn.” The Act guarantees a diploma to all students after eight years, regardless of what they learned and how much they learned. It is useless to ask what is the value of such a diploma. This is wonderful addition to the list of paper degrees: after BA and MA now also have Standard VIII diploma. Exams were eliminated because they produce stress in children. How will they learn to handle stress of life?

On expected lines the latest Annual Status of Education Report (ASER 2012) of NGO Pratham underscores an all round decline in performance of students, from the already low levels. In 2010, 50% fifth grade children could read second grade text; it declined to 41% in 2012. Likewise, in 2010 71% fifth graders could do a simple two digit subtraction; it 2012 it declined to 53.5%.

The generally poor training and status of the primary school teachers, decline in classroom teaching and scrapping of exams and assessments are major factors for the decline in the quality of education. In the absence of the traditional annual examination (students cannot be detained in the same class up to class VIII) the student’s poor learning cannot be detected until class IX. The ASER report also claims that primary school outcomes have deteriorated since the RTE Act came into force in 2010. It is also found that children in private schools seem to be doing better academically than their counterparts in government schools. The study also showed that students from government schools across states tend to go for private tuition classes more than their counterparts in private schools, underlining again the absence of quality education in government schools.

Although some of the infrastructural parameters under the RTE Act have improved, it’s far from where it should be. For instance, 27% of all schools visited had no drinking water facility in 2012, proportion of schools with useable toilets is only 56.5% and mid-day-meal was served in 87% of the schools. The desired student-teacher ratio is missing in nearly 60% of the schools across India.

On the healthy side, quality has been found to improve whenever the community as a whole has been involved and village representatives have a say in teacher recruitment, monitoring and accountability. Hence, involvement is the key to the issue of quality.

Poor Quality of Education in Government Schools

Poor quality of government run schools is encouraging migration to private schools where enrollment has risen from 18.7% in 2006 to 28.3% in 2012. If the trend continues, then by 2018, India may have 50% children in private schools. It means they have to pay for their own education even in primary level. In fact, more than 40 percent of the children in Jammu and Kashmir, Punjab, Haryana, Rajasthan, Uttar Pradesh, Goa and Meghalaya were already enrolled in private schools. In Kerala and Manipur, the figure was even more than 60 percent. The irony is that most of the government schools not only have better infrastructure but better paid teachers compared to the many small private schools. Private schools have proved to be better than government schools because of higher level of commitment of teachers, though government school teachers are more competent generally but indifferent to teaching.

About a quarter of elementary school children in rural areas take private tuition. The report also said that tuition-going students were much clearer with their arithmetic concepts. Whether enrolled in government school or private school, children receiving this addition support have better learning outcomes than those who do not. It also said that in 2012, of all the children enrolled in standard I to VIII, close to 45 per cent were going to private schools or taking to private tuition.

Why turn Social Goals into Fundamental Rights?

Indian Constitution has placed social and economic goals such as education, healthcare, or food for all in the directive principles rather than under fundamental rights. It also recognized fundamental rights  - such as the freedom of speech and religion or equality before law. When these rights are “negated” or violated, courts could enforce them through writs. In contrast, economic or social rights require “positive” or “affirmative” action by the state; courts can’t enforce them readily.

It must be clearly understood that unlike the fundamental rights, the economic or social rights are not absolute; they change over time and place. What is minimum acceptable healthcare or education today may turn unacceptable tomorrow; what is acceptable in Tamil Nadu may not be acceptable in Haryana.

Converting social goals into rights that the government can’t enforce is unwarranted. It also undermines the original fundamental rights and mockery of the constitution makers.

You may like to read a detailed report in pdf format: Status of Implementation of RTE 2013

Will Waters of Peaceful Tibet become cause for Future Conflicts in Asia?

Many of the wars this century were about oil, but those of the next century will be over water. – Ismail Serageldin, World Bank President, 1995

Increasing Water Demand, Decreasing Supply

A Polluted River in China

Tibet’s vast glaciers and high altitude make it the biggest source of water in the world. With control of Tibetan plateau, China is in the ideal position to influence the water supply to a number of countries downstream – India, Bangladesh, Myanmar, Bhutan, Nepal, Cambodia, Pakistan, Laos, Thailand and Vietnam. These countries form almost half the world population. No wonder any Chinese activity on Tibetan rivers makes its neighbors restless. With rapid industrialization of China, water is fast becoming a scars commodity not only due to increasing consumption but also because of pollution of water bodies. Another irony is that Asia is rather water deficit continent despite being home for over half of humanity. Asia has only about 3920 cubic meter of water per capita, only better than Antarctica.

Pressure on water resources also come from the spread of irrigated farming, water guzzling industries like steel and paper and a growing middle class which is increasingly adopting comforting lifestyle based on washing machines and dishwashers. The fast growing middle class population in Asia (more importantly in India and China) aspires to live like Americans, whose daily consumption is of the order of 400 liters – about 2.5 times the Asia average.

Added to growing water consumption is the adverse effect coming from global warming, climate change and environmental degradation in the form of shrinking forest and swamp covers. They foster cycles of abrupt flooding and droughts which are increasingly putting pressure on people’s well being. The shrinking Himalayan glaciers do not portray a good picture for the future of most Asian rivers.

In this backdrop, Chinese efforts to dam rivers on the Tibetan plateau or talk of redirecting their water towards its northern cities provoke anxiety among its downstream neighbors. Among Asian mighty rivers, only the Ganga originates from the Indian side of the Himalayas. Major rivers originating from the Tibetan plateau include Mekong, Yangtze, Yellow, Salween, Kamali, Brahmaputra (Yarlung Tsangpo) and Sutlej.

Industrial Pollution

As the water is becoming scars in the northern mainland due to ever increasing consumption and river pollutions, China increasingly looks towards the bounteous water reserves of the Tibetan plateau. It has dammed rivers not only for hydropower but also channels water for irrigation and other purposes. Its five dams on Mekong has inflamed Vietnam, Laos, Cambodia and Thailand. It is currently toying with the idea of massive inter basin and inter river water transfer proposals.

China Taking Control of Water Resources

The control over 2.5 million sq km Tibetan plateau gives tremendous strategic leverage to China, besides access to vast natural resources. Its efforts to harness rivers of the Tibetan plateau for water and energy are endangering the water ecosystems of its neighbors in the south and Southeast Asia.

It is not difficult to foresee that if China enters a conflict with any of its neighbors in the future, the reason would be water. Rivers from the Tibetan plateau flow down to eleven countries and supply fresh water to over 85% of Asia’s population, approximately 50% of the world’s population. Four of the world’s ten major rivers, the Yarlung Tsangpo (Brahmaputra in India), the Yangtze, the Mekong and the Huang Ho (Yellow River) originate from Tibetan Plateau. In addition there are other important rivers such as the Salween, the Irrawaddi, the Arun, the Karnali, the Sutlej and the Indus that owe their birth in Tibet.

China’s economic growth of the past decade has been remarkable and in order to maintain the growth rate it has turned itself into an ogre devouring raw materials, energy and natural resources. Along the way it has ended up polluting most of its major rivers meandering the mainland region. It only means increasing demand for water and threat of water diversion from Tibet to north China.

All it means is that China’s downstream neighbors can no longer take their river water supply for granted in the future. With China in the driving seat on the Tibetan plateau and its awe inspiring military might, they can only watch the Chinese activities and diplomatic posturing with sense of dismay and resignation. Naturally, every report of damming of rivers in Tibet or news of Chinese plans to divert waters towards arid north, causes alarm in its downstream neighbors.

When it comes to hydro projects on the Brahmaputra (Yarlung Tsangpo), both India (for its northeast states) and Bangladesh (because it receives over half of its water from Brahmaputra) have to take it seriously.

The Brahmaputra River

Mighty Brahmaputra

About 2900 km long Brahmaputra River or Yarlung Tsangpo, as it is known in Tibet, has an immense bearing on the lives of millions of people in the sub-continent. It originates from the Angsi Glacier near Mt Kailash and runs eastward along southern Tibet for about 2057 km before flowing into India to become the Brahmaputra. It is considered to be the highest river on earth with an average altitude of 4,000 meters. An interesting feature of the river is the sharp U turn (known as the Great Bend) at its east-most point near Mt. Namcha Barwa close to the Indian border. Just like the Nile in Egypt, the Yarlung Tsangpo has fed and nourished the Tibetan civilization along its valley, especially in the Central Tibet.

After entering India in Arunachal Pradesh it penetrates Assam, where it is joined by two other rivers (the Dihang and Lohit). It has been considered as the soul of Assam by poets and ordinary folk alike due to its fertile valley. In Bangladesh, it takes the name Jamuna and unites with the Ganga and then ultimately divides into hundreds of channels to form a vast delta before emptying into the Bay of Bengal.

Fresh Chinese Hydro Projects

Recently China approved proposals to set up 3 new dams in the middle reaches of Yarlung Tsangpo at Dagu, Jiacha and Jiexu, under a new energy development plan for the twelfth Five Year Plan (2011 – 2015). The Chinese government announced that “it will push forward vigorously the hydropower base construction” on the middle reaches of the Yarlung Tsangpo. It is already constructing a major hydropower dam for a 510 MW project in Zangmu in the Tibet Autonomous Region (TAR). When its construction started in 2010 it triggered concern in India. But the Chinese assured that the project was only a run-of-the-river type hydropower project and not storage or diversion of Brahmaputra’s waters. The four projects are within few dozen km from each other. The current proposed construction of the 124 meters Dagu dam (with a 640 MW capacity) along with two others only adds more apprehensions.

There are 12 small dams on the Brahmaputra’s upper reaches and tributaries which prepared the ground for bigger projects as being revealed now. It is easy to see that the minor projects are always innocuous but the situation changes as progressively larger projects come up. They could not only affect water flows but also remove nutrient-rich silt that helps nourish agriculture downstream.

From the Yangtze to the Mekong and now the Brahmaputra, Chinese dam-building follows a well-established pattern. It starts with small dams on the river’s upper reaches and eventually moves to large size dams downstream.

Fear of Future Mega Hydro Projects

The next logical step on the Brahmaputra is to prepare for a gigantic hydropower project near the Great Bend area where the fall is steepest. For now it can easily be dismissed as too fanciful and technically challenging. But looking at Chinese technical capability after building world’s largest hydropower project at Three Gorges Dam and their penchant for mega projects, it is very much possible that at some time in the future they decide to go for it. Such gigantic technological adventure is fraught with risks for the downstream neighbors not only in terms of reduced water flow and loss of soil fertility but also probable catastrophic seismic disasters. A dam in the Great Bend area would also allow implementation of water diversion projects to transport water to the northern region. Such a scenario would be no less than a silent declaration of water wars on India and Bangladesh. This is what worries them the most.

The dangers of earthquake and dam collapse are other serious concerns for India. A recent study of the Nanyang Technological University in Singapore revealed for the first time that in 1255 and 1934, two great earthquakes ruptured the surface of the earth in the Himalayas. Professor Paul Tapponnier of the French Academy of Sciences, using new high-resolution imagery and latest dating techniques, confirmed that the 1934 earthquake did rupture the surface of the earth and damaged the ground across an area over 150 km, in the Himalayas. Quakes of magnitude between 7.8 and 8.9 on the Richter Scale also occurred in 1897, 1905, 1934 and 1950 and caused tremendous damage.

Hydro Projects in Tibet: Thirsty Dragon, Restless Neighbors

Any Solution?

The ideal solution is to set up an International Brahmaputra River Water Tribunal or a tripartite agreement between India, China, and Bangladesh for cooperative water management in the region. But the opaque style of functioning in communist China makes such peace inducing initiatives unfeasible.

Incidentally, in May 1997, when the UN General Assembly adopted a Convention on the Law of the Non-Navigational Uses of International Watercourses, China along with Turkey and Burundi voted against it and India abstained from the vote. The rather mild Convention “aimed at guiding States in negotiating agreements on specific watercourses.”

Risk Factors for Solar Power Producers

Solar power developers must be aware of the following three types of risks before they take final decision to set up a solar power plant.

A. Risk due to poor health of Distribution Company

The power off-taker risk is the most crucial from the perspective of long term payment security. A payment delay or default can make a project unviable and possibly eliminate a project owner’s ability to structure the debt.

For most Feed-in-Tariff based projects, a government entity is the off-taker. As an example, NTPC Vidyut Vyapar Nigam (NVVN), a government-owned power trading company, has been the off-taker for projects allocated under the National Solar Mission (NSM). Similarly, Tamil Nadu Generation and Distribution Corporation (TANDEGCO) is the off-taker for projects allocated under Tamil Nadu’s state solar policy. While the NVVN can be considered a credible off-taker, as it is an Indian AAA rated company with a healthy balance sheet, TANGEDCO cannot be considered a low-risk off-taker as it is in poor financial health and has a track-record of delayed and defaulted payments to wind power generators in the state. The selection of a PPA signing authority and payment security measures such as payment guarantee funds together determine the risk associated with payment security.

The sound financial health of the Gujarat PPA signing entity, Gujarat Urja Vikas Nigam Limited (GUVNL), which is responsible for the generation, transmission, and distribution of electricity in the state, has gone a long way in creating interest amongst investors and lenders in solar projects in the state. Andhra Pradesh also received a decent response owing to the relatively better health of DISCOMs. On the other hand, Tamil Nadu received an interest for just 499 MW out of the 1,000 MW offered in January 2013 under its solar policy, primarily due to the poor financial health of its PPA signing entity (TANGEDCO).

Apart from the bankability of the PPA signing authority, the exact terms under the PPA itself are equally crucial. For example, the PPA in Gujarat does not explicitly guarantee that all the power produced will be bought by the off-taker.

Going forward, the government-entity-backed PPAs are slowly giving way to private third-party PPAs. These PPAs are partially driven by the increasing commercial viability of solar power in India and may avail additional benefits under mechanisms such as the REC mechanism or Viability Gap Funding (VGF). In addition, Solar RPOs and SPOs in Tamil Nadu) on various private obligated entities also drive private PPAs.

For state policy-backed PPAs that are usually signed with the state distribution companies (DISCOMS), it is important to assess the financial health of the counterparty. Typically, DISCOMS in India are heavy loss makers. Majorities of the State Electricity Boards are financially very fragile and their situation is only becoming worse. This puts their PPAs at risk. In the past, they have been bailed out by the governments in an irregular manner. Now, the central government has offered to bail them out systematically through a debt restructuring. In return, states have been asked to raise tariffs on a regular basis which is a difficult political decision.

Features of a good power purchase agreement

A sound power purchase agreement must consider the following for it to be bankable:

1. The tariff mentioned in the PPA, should be approved by the state electricity regulatory commission (SERC).
2. The term of the PPA should be longer than the debt repayment period (debt repayment period for rupee term loans is usually 8-10 years). The recent solar policy of the UP government offers PPA for 10 years.
3. The off-taker should commit to buying all the solar power produced as governed by some range of the Capacity Utilization Factor (CUF) or the Performance Ratio (PR).
4. Payment security should be ensured through a revolving monthly letter of credit (LOC). This  ensures short term payment security; the long term security should come from a dedicated fund since most PPA signing discoms are loss making entities.
5. A course of action for a probable default by either the power producer or the off-taker should be clearly outlined.
6. During any litigation, payment should typically not be held up. The power producer or the procurer can be asked to submit bank guarantees in lieu of payments being made during the litigation period. The procedure for this should be specified in the PPA itself.

B. Risk from Uncertainty in solar irradiation data

Comparing GHI data for Charanka Solar Park from different data sources

Irradiation data from various sources in India is mostly based only on satellite data. According to experts, the margin of error for specific locations could be as high as 10% for some commonly used global satellite based data sources such as NASA-SSE and WRDC.

Meteonorm is a combination of satellite and ground based data. In places where irradiation measurement is not available for an area of 200km around the selected location, it uses satellite information. If the nearest site is more than 30km away, a mixture of ground and satellite information is used. However, the satellite covers a period of just three years (2003-2005) and there are less than 15 locations in India for which Meteonorm uses ground data and this data too cannot be considered as high quality.

Most satellite data available only covers 10 years as compared to the 20+ years in mature markets. Satellite based irradiation sources generally use monthly averages of Linke Turbidity function and have no credible methodology to correct this based on ground measurements. Further, traditional Satellite based data is generally of low resolution – this can be as high as 30-40 kms for some sources. Many people claim that it was high level of uncertainty in direct normal irradiation (DNI) data considered at the time of planning was responsible for cancellation of  concentrated solar power (CSP) projects under phase one of the NSM.

Ground based measuring stations have only recently been installed under the Center for Wind Energy Technology (C-WET), an initiative by the Ministry of New and Renewable Energy (MNRE). Therefore, there is very little ground measured irradiation data available in the country till date. A network of 51 Solar Radiation Resource Assessment (SRRA) stations have been installed just recently in the first phase. So the real-time data is now available from these stations for short duration.

Since solar power plants were set up only within 1-2 years, so the actual generation data of operational plants is only available for just over a year. Hence, it is really difficult to check the accuracy of irradiation data with the performance of the generating plants. This uncertainty of actual performance predictions is a risk for the lenders which they generally cover by charging a higher rate of interest and assuming a discount on the projected generation, while determining the viability of a project.

Ideally, irradiation data for more than 10 years should be considered for accurate prediction models. For India, such data is available from SolarGIS and 3TIER. Since their data is available in real-time, it can be combined with ground-measured data. Such a process results in a 10+ years  with accuracy of a ground sensor. Many people prefer these sources.

C. Risks due to Quality of Plant Installation

A preliminary review of the power production data in Gujarat from January to April 2012 shows that despite similar irradiation and temperature conditions, there is significant variation in their output. While most of the plants have a CUF – based on actual power injected into the grid – of around 20%, some plants have achieved a CUF as high as 25% while a few are as low as 14%.

What it means is that many projects are performing lower than expected. Generation data for projects under the NSM in Rajasthan also shows similar variations in project performances. This variation is primarily due to component selection, engineering and construction.

In the extremely competitive PV landscape of India, cost reduction is a major point of concern for developers to be able to offer winning tariff bids. However, this needs to be managed in a comprehensive manner. It is not wise to use just the right modules and inverters and ignore the balance of system (BOS) components and sound construction in order to cut costs. Regular breakdowns due to inferior components can not only increase the recurring costs on maintenance of structures, electrical equipment and wiring, but can also result in significant losses in power due to frequent shut-downs in generation over the plant lifetime. Plants with a below average CUF will struggle to be profitable.

Most projects in India have not insisted on performance guarantees from the EPC provider as it comes at an additional cost. Internationally, such guarantees are structured in such a way that the EPC pays a penalty to the plant owner, if the plant performance ratio of the plant is lower than a certain pre-decided limit. In India, this trend has yet to catch up.

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Poor Financial Health of Discoms in India

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Fragile Financial Health of Power Distribution Companies

India’s power distribution system is historically plagued by high transmission and distribution losses, inadequate maintenance, low plant load factor, inept planning, lack of investment in up gradation, power theft, non-billing, inefficiency of collection, political unwillingness to raise electricity tariff etc. The end result is that the discoms are finding it very difficult to service their debts; raising alarm in the banking sector and the lending community. Even the finance ministry asked banks to stop providing working capital to utilities sitting on huge losses.

The overall loss was about 39 percent in 2001-02 and 24 percent in 2012. The accumulated losses of state power distribution companies (discoms) is estimated at about Rs 2 lakh crores. Non-revision of tariffs, subsidy arrears, the high cost of buying short-term power and high distribution losses are some key reasons for their financial ill-health. Just 7 (out of 28 Indian states) – Andhra Pradesh, Haryana, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh – account for over 70 percent of the losses. Unless action is taken immediately, the discom losses would amount to about 1.2 percent of the GDP in 2014 up from 0.9 percent in 2009.

They have generally availed short-term borrowings from banks and financial institutions to cover cash losses. It has raised serious concern not only for the discoms but also for the banks/ financial institutions that gave them money. State governments also extend support to the discoms through various direct and indirect channels. Budgetary support by the state governments is in the nature of subsidies and grants in lieu of subsidised power provided to certain categories such as agricultural and domestic consumers, and equity/bond investments and direct loans to discoms. Off-budget support is in the form of state government guarantees for the loans obtained by discoms from banks/financial institutions.

Annual Report 2011-12 on The State Power Utilities – Pl. Comm.

The growing concerns over the financial health of discoms in recent years have led to setting up of several committees at various levels to examine and suggest remedial actions. The Expert Group on ‘Financial Health of State Distribution Utilities’ was constituted by the Planning Commission to assess the cumulative losses of the distribution utilities in seven states and work out financial restructuring and turnaround plans for the power distribution companies in these states. Based on its recommendations and its own assessment, the Center has brought out a scheme for the financial restructuring of state discoms. Under the scheme, banks are expected to support the restructuring of debt by waiver of penal interest, moratorium on repayment of principal and restructuring of existing loans.

The restructuring of the short-term liabilities of state discoms to bring about a turnaround in their financial position can be successful only under the following conditions:

(a) Removal of systemic deficiencies of the state discoms;

(b) Elimination of the gap between average revenue realised and average cost of supply as early as possible through periodic tariff revisions; and

(c) Rationalization and better targeting of subsidies.

Therefore, in an attempt to enable the turnaround of state-owned power distribution companies and ensure their long term viability, the Ministry of Power announced a scheme for the financial restructuring of state discoms on October 2012. The scheme aims to eliminate the systemic deficiencies in the working of the discoms and contains various measures required to be taken by state discoms and state governments to improve the operational performance of the discoms.

The Union Government is also planning to bring a State Electricity Distribution Responsibility Bill to hold state discoms accountable for their performance. States would be expected to enact similar legislation with 12 months. This is expected to provide teeth to the financial restructuring scheme.

Rating of Discoms

Distribution function is a crucial link in the electricity chain as it provides the last mile connectivity in the Electricity Sector. Over 90% of the country’s power distribution business comes under the ailing state distribution companies. Hence, achieving improvements in the financial and operational performance of the State Power Distribution Utilities is of paramount importance for the robust overall development of the Indian power sector. The state power distribution sector today presents a grim scenario with mounting financial losses and is plagued by operational and cost inefficiencies besides regulatory infirmities.

With increasing losses, and inadequate support from the State Govt., most of the State Distribution Utilities have been forced to increase their level of borrowings, mostly bank borrowings, beyond their sustainable limits. Banks in the past have generally relied on sovereign guarantees for taking loan exposures to the State Power Distribution utilities and have continued to increase their lending exposure sizably. As on date a major portion of the losses of state distribution utilities are funded by bank borrowings, mostly short term borrowings. With signs of severe financial strain emerging in the distribution sector in certain states, lending institutions, especially banks had become cautious as a result of which the fund flow to the entire state power sector had been affected adversely .

The Ministry of Power developed an Integrated Rating methodology for the State Power Distribution Utilities as a measure of their financial health. The main objectives of developing the integrated rating methodology for the state distribution utilities are:

• To devise a mechanism for incentivizing/dis-incentivizing the entities in order to improve their operational & financial performance.
• To facilitate realistic assessment by Banks/FIs of the risks associated with lending exposures to various distribution utilities and enable funding with appropriate loan covenants for bringing improvement in operational, financial and managerial performance.
• May serve as a basis for Govt. assistance to the state power sector through various schemes like RAPDRP, NEF, etc.

The MoP mandated Power Finance Corporation (PFC) to co-ordinate the rating exercise, which in turn has appointed ICRA & CARE to carry out the rating exercise. The exercise does not cover State Power/Energy Departments and private sector distribution utilities.

Of the 39 utilities from 20 states, all four electricity distribution utilities from Gujarat got A+ rating with Dakshin Gujarat Company Ltd receiving the highest 89%. They were followed by West Bengal and Maharashtra Distribution companies with A grade. The tail end was occupied by the four discoms from Uttar Pradesh with C grade.

Get the Complete Report: Integrated rating of State Distribution Utilities

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Right to Education Act: Status of Implementation after 3 years

It appears that the RTE is ensuring right to schooling and not right to education. According to the Annual Status of Education Report (ASER), published by NGO Pratham, the RTE has improved the facilities, brought more kids to the school and increased number of toilets but has failed to provide them with right or quality education. This year’s report has exposed the dismal status of schooling and basic learning in rural India. While school enrolment numbers have gone up (96.5% of all children in the 6-14 age group go to school) and school infrastructure has improved, attendance (in government schools) and the overall ability of children to read and do simple mathematical exercises have dipped in India’s rural classrooms.

The survey also revealed that most children in primary schools today are at least three grades behind from where they should have been now and the situation appears worsening. For example, while half of the Class 5 children in government schools were able to read Class 2 texts in 2010, the number has gone down to 41.7% in 2012. Similarly, in 2012, around 50% of the Class-5 students were able to do a two digit subtraction as against 71% in 2010. In fact, barring Andhra Pradesh, Karnataka and Kerala, every state registered a drop in arithmetic learning levels. Only 30 per cent of class 3 students could read a class 1 text book in 2012, down from 50 per cent in 2008. The number of children in government schools who can correctly recognize numbers up to 100 has dropped to 50 per cent from 70 per cent over the last four years, with the real downward turn distinctly visible after 2010, the year RTE came into force.

The generally poor training and status of the primary school teachers, decline in classroom teaching and scrapping of exams and assessments are major factors for the decline in the quality of education. In the absence of the traditional annual examination (students cannot be detained in the same class up to class VIII) the student’s poor learning cannot be detected until class IX. The ASER report also claims that primary school outcomes have deteriorated since the RTE Act came into force in 2010. It is also found that children in private schools seem to be doing better academically than their counterparts in government schools. The study also showed that students from government schools across states tend to go for private tuition classes more than their counterparts in private schools, underlining again the absence of quality education in government schools.

Although some of the infrastructural parameters under the RTE Act have improved, it’s far from where it should be. For instance, 27% of all schools visited had no drinking water facility in 2012, proportion of schools with useable toilets is only 56.5% and mid-day-meal was served in 87% of the schools. The desired student-teacher ratio is missing in nearly 60% of the schools across India.

On the healthy side, quality has been found to improve whenever the community as a whole has been involved and village representatives have a say in teacher recruitment, monitoring and accountability. Hence, involvement is the key to the issue of quality.

Poor quality of government run schools is encouraging migration to private schools where enrollment has risen from 18.7% in 2006 to 28.3% in 2012. If the trend continues, then by 2018, India may have 50% children in private schools. It means they have to pay for their own education even in primary level. In fact, more than 40 percent of the children in Jammu and Kashmir, Punjab, Haryana, Rajasthan, Uttar Pradesh, Goa and Meghalaya were already enrolled in private schools. In Kerala and Manipur, the figure was even more than 60 percent. The irony is that most of the government schools not only have better infrastructure but better paid teachers compared to the many small private schools. Private schools have proved to be better than government schools because of higher level of commitment of teachers, though government school teachers are more competent generally but indifferent to teaching.

About a quarter of elementary school children in rural areas take private tuitions. The report also said that tuition-going students were much clearer with their arithmetic concepts. Whether enrolled in government school or private school, children receiving this addition support have better learning outcomes than those who do not. It also said that in 2012, of all the children enrolled in standard I to VIII, close to 45 per cent were going to private schools or taking to private tuitions.

For overall improvement in the quality of education, the qualities of teacher training, infrastructure, teaching resources and community involvement in ensuring teacher and school accountability must go hand in hand.

In Chhattisgarh and Madhya Pradesh, adivasi children need special attention: both their enrollment and dropout rates are rather high. Naxal violence is another factor that causes internal migration and lower school enrollments. In Rajasthan, dropout rate of girls in the age group 11-14 years is a cause for concern.

Two Major Trends

The ASER report reveals two major findings which are not very flattering for the right to education movement in India and universalization of education.

A. Poor quality of education

In 2008, only about 50 percent of Standard 3 students could read a Standard 1 text, but by 2012, it declined to 30 percent – a fall of 16 percent. About 50 percent of the Std 3 kids cannot even correctly recognize digits up to 100, where as they are supposed to learn two digit subtraction. In 2008, about 70 percent of the kids could do this.

Not only that the country is unable to improve the learning skills of half its primary school children in the last four years, it has fallen to alarming lows. Similar deterioration in standards of education was also noted among Std 5 students.

The report further notes that the decline is cumulative, which means that the “learning decline” gets accumulated because of neglect over the years. The poor quality of education from Std 1 pulls down their rate of learning progressively so that by the time they are in Std 5, their level of learning is not even comparable to that of Std 2. The private schools are “relatively unaffected” but their low standards remain low. They have also shown a “downturn” in maths beyond number recognition.

The poor quality of education and rate of decline are however not uniform across India. Some states are low in quality, but are staying where they are (Karnataka, Tamil Nadu and Andhra Pradesh) while some have higher levels of education, which are neither improving nor deteriorating (Himachal Pradesh, Kerala and Punjab). The decline is more noticeable since 2010, when the RTE came into effect, indicating targets of blanket coverage compromising quality and standards.

B. Privatization

The report notes that the private sector is making huge inroads into education in rural India. Before 2020, private schools will be the majority service provider. Private schools have problem admitting children from poor parents, but not when somehow parents can arrange for fees.

Quoting DISE (District Information System of Education) data, the report says that Kerala, Tamil Nadu, Puducherry and Goa have more than 60% of private enrollment in primary schools. Andhra, Maharashtra and Karnataka are at 40 percent, while UP is at 50%. Ironically, the highest private sector enrollment is in Kerala, where successive governments claim commitment to welfare policies, particularly on education and health. Besides private schools, parents also spend considerable amount of money on private tuitions, making quality education more inaccessible to people without money.

Read detailed pdf report: Status of Implementation of RTE 2013

CSR in the Companies Bill 2011: Fly in the Milk!

Forced Corporate Responsibility

The government is toying with the idea of making the CSR mandatory for companies to spend at least 2% of net profits on CSR through the Companies Bill, 2011 which is pending in the parliament since November 2011. Currently, businesses follow provisions of the Companies Act, 1956, which are no longer appropriate to the today’s business and economic environment. Thus, a revision process was started in 2003 and a Companies Bill 2008 was tabled in Parliament, but lapsed with the dissolution of the Lok Sabha in 2009.

Industry has been almost totally against a mandatory clause; it was suggesting tax breaks for those who meet the voluntary targets. Critics argue that companies may resort to camouflaging activities to meet such regulations, particularly during recessionary periods and economic downturns. Some NGOs and philanthropic community also have similar concerns. Some others have called it “outsourcing of governance.” They see it as government burdening its failure on the corporate.

In the Western nations, laws do not stipulate mandatory CSR quantum; they only make disclosure of CSR spending mandatory in the annual reports. Thus, once the Bill passes in the parliament India will become the first country to have CSR spending mandated by the law.

Poverty in India: Who Cares?

It is an open secret that the so-called economic reforms, initiated and led by international lending agencies, of past two decades are designed for GDP growth offering incentives to money lenders and corporate houses. As a result, in the past decade the rich-poor gap has only increased; creating a few hundred millionaires and a dozen more billionaires is being touted as a success story of India.

Another sad fact of governance in India is that the rulers appear to have no clues about how to make any meaningful dent in the poverty. It also fails to appreciate that population is not number problem; it is a “people development problem.” Corruption scams in India now routinely involve thousands of crores; gone are the good old days when bureaucrats-politician nexus would settle for few lakhs or few crores of kick-backs. This is sure sign of “economic” progress of India consisting of around 300 million people; this is the Rich-India known to the world. Economic reforms are designed only for them. For rest of the three-fourth population, there is a game of poverty-line played by well-fed bureaucrats whose hourly expense exceed many times the monthly income of people of the Poor India, below the poverty line.

Under the so-called economic liberalization policies, governments and bureaucrats have absolutely no compunction handing over lands, forests, water and other natural resources to the rich elites by displacing scores of poor landless farmers, tribals and other disadvantageous class who survived on them. Rich man’s hunger for wealth has become a problem for survival for those already poor. This is the development model rich nations have dictated and India proudly follows. As a result, GDP grows and those who are already well-off acquire more money and the people of Poor-India remain where they are – battling for survival.

A question everyone wants to ask, but no one answers, is: Is the trickle down model of US economy appropriate for a populous country like India? I wonder why no economist has ever commented on how the excluded and marginalized class of India can possibly benefit from the trickle down economy?

How will millions of poor people, who are more or less cut-off from the mainstream economy, gain any benefit from rich people’s activities which only suit the educated or those already with money?

CSR and the Companies Bill 2011

Corporate India may not be excited about the mandatory nature of CSR provisions of the Clause 135, but they are waiting eagerly for several other important features contained in the Companies Bill 2011.

The major aim of the Bill is to decrease regulation and to shift the onus of oversight onto shareholders. The Bill makes some effort to address corporate governance in general through Western mechanisms such as formal, impartial audits and an increased number of independent directors on boards. It also provides a safety net to the whistleblowers. The Bill also allows shareholders to band together and file class action lawsuits; this kind of tort framework is currently not available in India. It establishes a National Company Law Tribunal to expeditiously handle these corporate lawsuits. However, it is worth noting that class action lawsuits will only be available to shareholders—not to the average Indian. Companies themselves have long advocated for a more expeditious corporate law system, as it would reduce the uncertainty inherent in international litigation.

The listed companies shall have at least one-third independent directors on the board. They shall be responsible for all acts of omission that occurred with his knowledge or with his consent or connivance or where the director had not acted diligently. The Bill is certainly more pro-business than it seems at first glance.

While other provisions of the Companies Bill are of great importance to industry, it’s the CSR provision that has become the bitter pill for the corporate world. The Companies Bill, 2011 proposes that companies with net worth above Rs. 500 crore, an annual turnover of over Rs. 1,000 crore, or annual net profit of Rs 5 crore shall earmark 2 percent of average net profits of three years towards CSR. In the draft proposal, it was only declaratory which works through peer and public pressures as in many western nations but the Finance Committee added the mandatory 2 percent clause.

Is the Schedule VII really Vague?

The Schedule VII of the Companies Bill 2011 lists activities that constitute CSR from government’s perspective. Here is the Schedule VII of the Bill, as proposed:

SCHEDULE VII

In their CSR policies companies may include the following activities related to:

1. Eradicating extreme hunger and poverty;
2. Promotion of education;
3. Promoting gender equality and empowering women;
4. Reducing child mortality and improving maternal health;
5. Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;
6. Ensuring environmental sustainability;
7. Employment enhancing vocational skills;
8. Social business projects;
9. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and
10. Such other matters as may be prescribed.

Many from the business community find these activities too vague and feel that it would open way for bureaucratic interpretations and meddling leading to unnecessary disputes. Some social activists fear that business houses might also resort to “creative accounting” to offset the 2 percent CSR financial burden. In fact, there is no end to such arguments as long as social responsibilities are seen as burden. People look towards businesses for such initiatives because they have the money, expertise as well as resources that can make social advancements easier.

India ranks 134, out of 183 countries on the World Bank’s index of ‘Ease of Doing Business’.

It is another well known fact that governance in India is highly poor. Laws only reflect high ideals and expectations of people but when it comes to implementation, bureaucratic ineptitude and corruption washes out all end results. Besides, a political broker class has evolves that has acquired mastery in siphoning funds designed for weaker sections of the society. People know very well that, of the numerous schemes designed for weaker sections, less than 20 percent of the government funds reach the actual beneficiaries; the rest goes into the pockets of intermediaries.

Given this scenario, people’s expectation from businesses has risen hoping that they would come forward to take initiatives towards sustainable development and look after people as well as the nature. For those business houses who are already taking social initiatives the CSR provisions of the Bill only make their task somewhat clearer. For them the nature of CSR provisions is immaterial.

Let’s hope that other business houses also learn to think differently and seriously. Today the world is sitting on a planet that has been badly damaged and polluted leading to global climate mess up. The pure money culture propagated by the western corporate world, and followed everywhere, has emerged as the biggest threat not just for the local societies but the world as a whole.

You may like to read a detailed report of corporate social responsibility: Mandatory CSR Proposal