Author: B2B

  • e-governance: Models, Successes and Opportunities

    Recognizing that e-Governance is playing an increasingly important role in modern governance, various agencies of the Government and civil society organizations have taken a large number of initiatives across the country.

    Key models implemented in the country 

    • Customs and Excise (Government of India)
      1. 98% of export and 90-95% of import documentation computerized.
      2. Electronic filing through ICEGATE.
      3. Service Tax returns electronically processed
    • Indian Railways (Government of India)
      1. Anywhere to Anywhere reservation from Anywhere.
      2. Electronic Booking of tickets.
      3. Online Information of Railway reservation on Internet.
    • Postal Department (Government of India)
      1. Direct e-credit of Monthly Income Scheme returns into the investors accounts
      2. Dematerialization of Savings Certificate (NSC) and Vikas Patras (KVP), offering full portability
    • Passport / Visa (Government of India)
      1. 100% passport information computerized.
      2. All 33 Regional Passport Offices covered.
      3. Machine readable passports available.
    • AP Online (State Government of Andhra Pradesh)

    An Integrated Citizen Services Portal providing citizen centric services such as: Birth/Death Certificates, Property Registration, Driver’s License, Govt. Applications & Forms, Payment of taxes / utility bills etc.

    • Bhoomi – Automation of Land Records (State Government of Karnataka)

    Bhoomi (meaning land) is the project of on-line delivery and management of land records. It provides computerized Record of Rights Tenancy & Crops (RTC) – needed by farmer to obtain bank loans, settle land disputes etc. It has also ensured increased transparency and reliability, significant reduction in corruption, exploitation and oppression of farmers. This project has benefited more than 20 million rural land records covering 6.7 million farmers.

    • CARD – Registration Project (State Government of Andhra Pradesh)

    Computer Aided Administration of Registration Department (CARD) impacting more than 10 million citizens. The system ensures transparency in valuation of property and efficient document management system. The estimated saving of 70 million man-hours of citizen time valued at US$ 35 mil (investment in CARD – US$ 6million). Similar initiatives in other states like SARITA (State Government of Maharashtra), STAR (State Government of Tamil Nadu), etc. have further built upon this initiative.

    • Gyandoot: Intranet in Tribal District of Dhar (State Government of Madhya Pradesh)

    This project offers e-governance services including online registration of applications, rural e-mail facility, village auction site etc. It also provides services such as Information on Mandi (farm products market) rates, On-line public grievance redressal, caste & income certificates and Rural Market (Gaon ka Bazaar).

    • LOKMITRA (State Government of Himachal Pradesh)

    Offers e-governance services:

    1. Online registration of applications,
    2. Rural e-mail facility, village auction site etc.
    3. Information on Mandi (farm products market) rates
    4. On-line public grievance redressal
    5. Sending and receiving information regarding land records, income certificates, caste certificates and other official documents.
    6. Market rates of vegetables, fruits and other items
    • e-Mitra – Integrated Citizen Services Center/ e-Kiosks (State Government of Rajasthan)
    1. Implemented using a PPP (Public Private Partnership) model
    2. Private partner paid by the government department / agency
    3. G2C services like:
    4. Payment of electricity, water, telephone bills
    5. Payment of taxes
    6. Ticket Reservations
    7. Filing of Passport applications
    8. Registration of birth/death
    9. Payment by cash/cheque/ credit card

    The above-mentioned models of e-Governance are only illustrative. 

    Many of the State Governments have successfully implemented several such initiatives. This has positively impacted the quality of life of citizens.

    Hence e-Governance affords an excellent opportunity for India to radically improve the quality of governance and thereby:

    1. Allow for two-way communication between government and citizens not only for service delivery but also to receive opinions of citizens on policies and government performance
    2. Provide greater access to excluded groups, who have few opportunities to interact with government and benefit from its services and schemes
    3. Include all sections of the society in the mainstream of development
    4. Enabling rural and traditionally marginalized segments of the population to gain fast and convenient access to services in their own neighbourhoods.
  • Challenges to e-governance and requirements for successful implementation

    There are many challenges in implementing E-governance model in India as well as at global scale.

    The actual challenge is how to develop and withstand successful e-governance projects and deliver state of the art e-services to inhabitants.

    Unfortunately, it is not as easy to develop e-governance website in service delivery mechanism. Efficacious e-governance initiatives can never be taken in hurriedness. With reference to India, e-Governance should enable seamless access to information and seamless flow of information across the state and central government.

    With reference to India, e-Governance should enable seamless access to information and seamless flow of information across the state and central government.

    Security drawbacks

    There are several security drawbacks of an E-Governance mechanism.

    1. Spoofing: In this practice, the attacker attempts to gain the access of the E-Governance system by using fallacious identity either by stealth or by using false IP address. Once the access is gained, the assailant abuses the E-Governance system by elevation of the privileges.
    2. Tampering of E-Governance system: As soon as the system is compromised and privileges are raised, the classified information of the E-Governance mechanism becomes very much susceptible to illegal adjustments.
    3. Repudiation: Even the attacker can mount refutation attack during the E-Governance transaction, which is the ability of the user to reject its performed transaction.
    4. Disclosure of E-Governance Information: In case of the compromised E-Governance system, the undesirable information disclosure can take place very easily.
    5. Denial of Service: In this technique, attacker can perform Denial of Service (DoS) attack by flooding the E-Governance server with request to consume all of its resources so as to crash down the mechanism.
    6. Elevation of privilege: Once an E-Governance system is compromised; the attacker pretending to be a low profile user attempts to escalate to the high profiles so as to access its privileges to initiate further damage to the system.
    7. Cyber Crimes: Advancement of science and technology increase the rate of the cybercrime. It is a threat to the transactions accomplished between the Government and its Citizenry within the E-Governance methodology.

    Other challenges

    • Funding

    Funding is the foremost issue in e-Governance initiatives. The projects that are part of the e-governance initiatives need to be funded either through the Government sector or through the private sector.

    For the private sector to step into the funding activity their commercial interests needs to be ensured. The projects can be built either on BOO (Built Own Operate) or BOOT (Built Own Operate Transfer) basis.

    Also the Government interest of Value Addition in services also needs to be taken care of while transferring the services to private sector. Advertising, sharing of Government information etc could be a few revenue generators for the Government.

    • Management of Change

    The delivery of Government services through the electronic media including EDI, Internet and other IT based technologies would necessitate procedural and legal changes in the decision and delivery making processes.

    It demands fundamental changes in Government decision management. The employees need to be delegated more authority. De- layering of the decision-making levels leads to re-engineering and appropriate sizing of the decision-making machinery.

    These changes need not only be accepted by the Government and citizens but also be accepted by various interests groups like Employees unions. Under such circumstances bringing in a change will involve changing the mindsets of the people, and a complete Reengineering process needs to be carried out for the same.

    This will involve training of the personnel at all levels, more so, at the lower rung of Government management organizations. There will also be a loss of vested interests and power amongst the legislature and the executive, which may lead, to resistance to change.

    • Privacy

    The privacy of the citizen also needs to be ensured while addressing the issues. Whenever a citizen gets into any transaction with a Government agency, he shells out lot of personal information, which can be misused by the private sector. Thus, the citizen should be ensured that the information flow would pass through reliable channels and seamless network.

    • Authentication

    Secured ways of transactions for the Government services are another issue of concern. The identity of citizens requesting services needs to be verified before they access or use the services .

    Here digital signature will play an important role in delivery of such services. But the infrastructure needed to support them is very expensive and requires constant maintenance. Hence a pertinent need still survives, compelling the authorities to ensure the authenticity in their transactions thereby gaining absolute trust and confidence of the citizen.

    • Interoperability

    A major design issue for integrated service delivery sites is, how to capture data in a Web-based form and transfer it to an agency’s systems for processing and sharing that information in a common format. Infact the interoperation of various state Governments, the various ministries within a state Government is a critical issue. Further how the various islands of automation will be brought together and built into one is another key issue of e-Governance.

    • Delivery of services

    The ability of citizens to access these services is another major issue. Since the penetration of PCs and Internet is very low in the country, some framework needs to be worked out for delivery of the e-Services that would be accessible to the poorest of the poor.

    What will be the Government’s network to deliver those services? Could we have something like a single stop shop of the Government? A proposed mechanism is delivery of the same through the Government Post Offices, for they already have the brick and mortar support and the most extensive network in the nation.

    • Standardization

    Defining the standards for the various Government services is another issue that needs to be addressed. The standards need to be worked out not only for the technologies involved but also for issues like naming of websites to creating E-Mail addresses.

    • Technology Issues

    A number of organizations, both in the Centre and the States, have taken commendable initiatives to develop hardware and software platforms to address the challenges offered by e-Governance. At the central level in particular, the C-DAC, CMC and a number of others are noteworthy.

    The e-Governance initiative would have to address these Technology Issues/Objectives by identifying the appropriate hardware platforms and software application packages for cost-effective delivery of public services.

    This knowledge repository should be widely available through appropriate Demo- Mechanisms. Offering a basket of these models to the State departments, both in the Center and the State, could be suitably customized as per location and work specific requirements.

    • Use of local language

    The access of information must be permitted in the language most comfortable to the public user, generally the local language. There already exist technologies such as GIST and language software by which transliteration from English into other languages can be made.

    Requirements for implementing successful e-governance across the nation are

    1. e-Governance framework across the nation with enough bandwidth to service a population of one billion.
    2. Connectivity framework for making the services to reach rural areas of the country or development of alternative means of services such as e-governance kiosks in regional languages.
    3. National Citizen Database which is the primary unit of data for all governance vertical and horizontal applications across the state and central governments.
    4. E-governance and interoperability standards for the exchange of secure information with non-repudiation, across the state and central government departments seamlessly.
    5. A secure delivery framework by means of virtual private network connecting across the state and central government departments.
    6. Datacenters in centre and states to handle the departmental workflow automation, collaboration, interaction, exchange of information with authentication.
  • Applications of e-governance, Essentials for achievement

    E-Governance is the use of information and communication technologies to support good governance.

    It has the following main applications:

    Government To Citizen (G2C)

    G2C will aim at connecting citizens to government by talking to citizens and supporting accountability, by listening to citizens and supporting democracy, and by improving public services. It will involve better services to the citizens through single point delivery mechanism and will involve areas like:

    • E-Citizen

    Under e-citizen integrated service centers are created. The purpose of these centers is to provide various customer services. It offers services like issue of Certificates, Ration Cards, Passports, Payment of Bills and taxes etc. These centers will become one-stop Government Shops for delivery of all services.

    • E-Transport

    The transport aspects that can be easily e-governed include: Registration of motor vehicles, Issue of driving licenses, Issue of plying permissions (Permits), Tax and fee collection through Cash and Bank Challans and Control of Pollution.

    • E-Medicine

    It involves linking of various hospitals in different parts of the country, thus providing better medical services to the citizen.

    • E-Education

    E-Education constitutes various initiatives of educating the citizen and the Government with the various Information Technologies.

    • E-Registration

    E-Governing the registration and transfer of the properties and stamp duty to be paid thereon brings substantial reduction of paper work and reduces the duplicating of entries. Further the transparency in work increases and the overall time of process registration reduces.

    Essentials for achievement:

    1. Information for All: Keeping the citizen informed, providing him with details of Government activities. The citizen will act as a watchdog to the Government if the information is available to him. Certain interest groups like the journalists, the opposition will always keep an eye on the expenditure of the Government, status of which will be available online. The same will bring accountability amongst Civil Servants. The rationale is to increase the pressure on staff to perform well and to improve public understanding of the government.
    2. Citizen Feedback: Citizen Feedback is a must for improving the Government Services. Unless the Government listens to its citizens, it will not be able to find out what he wants. Thus it is an effort to make the public sector decision responsive to citizens’ view or needs.
    3. Improving services: World’s best companies have done it, Indian companies have copied them, Governments abroad have followed the suit, why can’t the Indian Government. The aim should be improving the services delivered to citizens on dimensions such as speed, quality, reliability, convenience and cost. Information Technology will have a big role to play in the same; the services can be delivered from 24-hour one-stop Government shops.

    Consumer To Government (C2G)

    C2G mainly constitutes the areas where the citizen interacts with the Government. It includes areas like election when citizens vote for the Government; Census where he provides information about himself to the Government; taxation where he is paying taxes to the Government.

    • E-Democracy

    The e-democracy is an effort to change the role of citizen from passive information giving to active citizen involvement. In an e-democracy the Government informs the citizen, represents the citizen, encourages the citizen to vote, consults the citizen and engages the citizen in the Governance.

    Taking the citizens input about the various government policies by organizing an e-debate will further strengthen the e-democracy. The concept of e-debate is similar to chat over the Internet, wherein not only the citizens but also the political leaders contesting the elections participate.

    The citizens give their feedback about the various policies of the parties and particularly the manifesto of the party. The initiative will further strengthen the process by enhancing the representative role, improving accessibility of citizens to their elected members and developing the capacity of elected representatives to engage in e-government.

    Elected members will also be provided with access to the local authority’s Intranet and e-mail systems so that they become available online for decision making and people can easily access them.

    Essentials for achievement:

    • Citizen Participation: For achievement of the above initiative the citizen has to participate in the Government Business and therefore spreading awareness becomes the responsibility of the State.

    The elections should not be fought on the principle of what one party or other has to offer. But they should be fought on the principle of what the citizens require.

    Market research programs should be carried out using the Information Systems to determine the needs of the citizens. GIS could be used as a tool to find out potential gaps in the services offered.

    Government To Government (G2G)

    This can also be referred as e-Administration. It involves improving government processes by cutting costs, managing performance, making strategic connections within government, and creating empowerment. It involves networking all Government offices so as to produce synergy among them. The major areas are:

    • E-Secretariat

    Secretariat which is the seat of power has a lot of valuable information regarding the functioning of the State. The cross-linking of various departments and exchange of information amongst various components simplifies the process of Governance.

    • E-Police

    E-Police will help to build citizen confidence.

    There will be two databases: one, of police personnel and the other of criminals.

    The database of personnel will have the records of their current and previous postings. This will help to track policemen specialized in certain geographical regions and skills. For example, we want to look for a forensic expert. The database within seconds gives the list of all forensic experts. The same database will keep a track of their details like service record, family background etc which will also be helpful in intelligent posting and promotion of personnel.

    The second database will be of criminals. This database has to be upgraded to national database for its total utility. By just typing the name of a criminal a police officer will be able to know the details of his past activities, including his modus operandi and the area of operation. Further, a database like this will help tap the criminals easily as all the police stations will have simultaneous access to their record.

    The module also includes G2C activities like online filing of FIR’s, finding the case status of an FIR etc. Creating a database of Lost and Found can assist further lost and found of valuables and individuals.

    • E-Court

    The pending court cases in India have brought the legal system to a halt. Not only are the consumers asking for changes in the administration, but also the system will collapse if it continues in this manner.

    Information Technology can transform the system and bring in the court cases to a level of zero dependency. Creating a database of cases can do the same.

    In fact such a system will help to avoid all the appeals to High Courts and Supreme Court, for the Judges can consider the appeals from an intranet wherein the case remains in the same district court but the Higher Court gives their decision online based on the recorded facts of the case.

    Such a step will not only help the citizens but will also reduce the backlog of cases. Further the use of IT in the areas like recording of court proceedings, high resolution remote video to identify fraudulent documents, live fingerprints scanning and verification, remote probation monitoring, electronic entry of reports and paper work will further speed up the court proceedings.

    • State Wide Networks

    This involves linking all the departments of the Government with various district headquarters and the state capital, facilitating the flow of information between the various state departments and its constituents. Here various blocks are linked to district Headquarters, district headquarters to State Headquarters and State Headquarters to the National Capital.

    Essentials for achievement:

    1. Cutting Expenditure: With proper process control the input output ratio can be improved. The same can be achieved by cutting financial time costs. Cutting Government expenditure will lead to saving and accountability.
    2. Organize around outcomes, not tasks: This principle suggests that a single person should perform all the steps in a process and that the person’s job be designed around the outcome or objective rather than a single task. Say, for example, a citizen applies for a permit – it becomes the duty of the receiving authority that the citizen gets the same, rather than moving around to get it done.
    3. Managing process performance: planning, monitoring and controlling the performance of process resources (human, financial and other). Informatisation supports this by providing information about process performance and performance standards. The rationale is to make more efficient or effective use of process resources.
    4. Establish a network: Treat geographically dispersed resources as though they were centralized. Government can use databases, telecommunications networks, and standardized processing systems to get the benefits of scale and coordination, while maintaining the benefits of flexibility and service. Strategic connections in Government should be established like central-to-local, ministry-to-ministry, executive-to-legislature, and decision maker-to-data store.
    5. Delegate and Empower: Put the decision point where the work is performed, and build control into the process.

    Thus, for overall Government Process Reengineering (GPR) to succeed the decision making should pass on to the people who do the actual work, from the people who are just monitoring it. People engaged in actual activities should be empowered to make decisions at the required focal point and hence to delegate such activities on their own so that the process itself can have built in controls. This will not only speed up the process but will cut cost as well.

    Government To Business (G2B)

    • E-Taxation

    This constitutes the various services that a business house needs to get from the Government, which includes getting licenses etc. In a similar scenario, it can also flow from a business house to the Government as in the case of procurements, from such business houses by the Government. This will become a B2G service.

    Essentials for achievement:

    1. Standards: Standards for Electronic Transactions or E-Commerce needs to be built. The standards will also include standards on content etc.
    2. Payment Mechanism: A secure payment mechanism needs to be built to enable payments over the electronic medium.
    3. PKI: PKI or Public key Infrastructure is required for secure and authentic transactions.

    Government To NGO (G2N)

    • E-Society

    Building interactions beyond the government boundaries by developing communities, building government partnerships and civil society.

    It involves building various associations or interest groups that will ensure the betterment of the society. Such initiatives deal particularly with the relationship between government and citizens: either as voters/stakeholders from whom the public sector derives its legitimacy, or as customers who consume public services.

    Essentials for Achievement:

    1. Publishing: Delivering data to citizens. This involves open access to Government Information. The citizen has a right over Government information and its activities.
    2. Interaction: Delivering data to citizens and receiving data from citizens. This involves taking feedback from the citizens and interacting with the interest groups.
  • Interactions between main groups in e-governance, Action plan for India

    E-Governance implemented by the government of India allows for government transparency.

    Government transparency is significant because it allows the public to be informed about what the government is working on as well as the policies they are trying to implement. It encourages accountability in all government dealings, in recent times many Indian states have come up with various e-Governance patterns to expedite smooth functioning in their daily administrative activities.

    Though extreme efforts have been made to develop infrastructure and internal information handling by government officials as well as public services, the diffusion of technologies in moving towards e-governance have been slow.

    There are some reasons for sluggishness

    1. Lack of IT Literacy and awareness regarding benefits of e-governance: There is lack of awareness regarding benefits of e-governance projects. The administrative structure is not geared for maintaining, storing and retrieving the governance information electronically. The general tendency is to obtain the data from the files as and when required instead of using Document Management and workflow technologies.
    2. Underutilization of existing ICT infrastructure: Second reason is that the computers in the department are used for word processing only, resulting in the underutilization of the computers in terms of their use in data mining for supporting management decisions. The time gap between the procurement of the hardware and development of the custom applications is so large that by the time application is ready for use, the hardware becomes out-dated.
    3. Attitude of Government Departments: Government officials have different attitude as compared to private sectors. Conventionally the government executives have derived their sustenance from the fact that they are important repositories of government data. Thus any effort to implement DMS and workflow technologies or bringing out the change in the system is met with resistance from the government servants.
    4. Lack of coordination between Government Department and Solution developers: Designing of any application requires a very close interaction between the government department and the agency developing the solutions. Currently, the users in govt. departments do not make efforts to design the solution architecture. Subsequently, the solution developed and implemented does not address the requirements of an e-governance project and hence does not get implemented.
    5. Resistance to re-engineering of departmental processes: Many experts have stated that in order to implement e-governance projects successfully, executives must make efforts in restructuring in administrative processes, redefining of administrative procedures and formats which finds the resistance in almost all the departments at all the levels. Moreover, there is lack of expertise of departmental MIS executives in exploiting data mining techniques, updating and collection of real time content onto website. Therefore the content as is collected or maintained by various e-governance portals is unreliable or full of gaps. In such a situation, it is difficult for any e-governance solution to accomplish its anticipated results.
    6. Lack of Infrastructure for sustaining e-governance projects on national level: In Indian scenario, Infrastructure to support e-governance initiatives does not exist within government departments. The frustrating fact is that the government departments are not prepared to be in a position to project the clear requirements nor are there any guidelines for involving private sector.

    The infrastructure creation is not guided by a constant national policy, but is dependent on the needs of individual officers championing a few projects. Therefore, the required networking and communication equipment is either non-existent in government departments, or if it exists at all, it does not serve any concrete purpose as far as the requirement of e-governance project is concerned. The use of connectivity options provided by govt. agencies are used in a very limited manner for data transmission purpose between various locations.

    Most state governments have established the IT task force and have their IT policies in place. Although policies may have supercilious goals, much seems to have happened only in automation and computerization. The disadvantage is that these IT policy documents are not made based upon the requirements and intrinsic capabilities of the state but are based on the surveys and strategies used by other nations or other states.

    Interaction between various stakeholders

    E-Governance enables interaction between different stakeholders in governance.

    1. G2G (Government to Government): In this interaction, Information and Communications Technology is used to reorganize the governmental processes involved in the functioning of government entities as well as to increase the flow of information and services within and between different entities.

    Gregory (2007) indicated that G2G is the online communications between government organizations, departments and agencies based on a super-government database.

    This kind of interaction happen horizontally such as between different government agencies as well as between different functional areas within an organisation, or vertical such as between national, provincial and local government agencies as well as between different levels within an organisation. Main intent of this interaction is to increase efficiency, performance, and output.

    2. G2C (Government to Citizens): G2C maintains the relationship between government and citizens. It allows citizens to access government information and services promptly, conveniently, from everywhere, by use of multiple channels. Government-to-Citizens (G2C) model have been designed to facilitate citizen interaction with the government. In this situation, an interface is generated between the government and peoples that enables the citizens to benefit from efficient delivery of array of public services.

    This expands the availability and accessibility of public services on the one hand and improves the quality of services on the other. In G2C model, clienteles have instant and convenient access to government information and services from everywhere anytime, via the use of multiple channels.

    Additionally, to make certain transactions, such as certifications, paying governmental fees, and applying for benefits, the ability of G2C initiatives to overcome possible time and geographic obstacles may connect citizens who may not otherwise come into contact with one another and may in turn facilitate and increase citizen participation in government (Seifert, 2003).

    3. G2B (Government to Business): In this type of interaction, e-Governance tools are used to help the business organizations that provide goods and services to seamlessly interact with the government. G2B can bring significant efficiencies to both governments and businesses. G2B include various services exchanged between government and the business sectors that include distribution of policies, memos, rules and regulations.

    Business services offered include obtaining current business information, new regulations, downloading application forms, lodging taxes , renewing licenses, registering businesses, obtaining permits, and many others (Pascual, 2003). The major aim of this interaction is to cut red tape, save time, reduce operational costs and to create a more transparent business environment when dealing with the government.

    4. G2E (Government to Employees): G2E denotes to the relationship between government and its employees only. The aim of this relationship is to serve employees and offer some online services such as applying online for an annual leave, checking the balance of leave, and reviewing salary payment records, among other things (Seifert, 2003).

    In this case, Government is major employer and it has to interact with its employees on a regular basis. This interaction is a two-way process between the organisation and the employee. Use of ICT tools helps in making these interactions fast and efficient on the one hand and increase satisfaction levels of employees on the other.

    Action Plan

    A tentative action plan is presented to help implement the e-governance initiatives as under:

    E-Governance Action Plan in India: Government officials in India have realized that e-governance is vital technology for economic progress of country in highly competitive environment. It requires an increased participation from citizens. Providing services online is no longer going to remain optional for local and central government as demand for providing services @ internet speed has been coming from the citizens. 

    In this period of accountability and performance measurement, government will face huge pressure to make the services more accessible to their inhabitants. The pressure comes directly from the new legislatures and govt. policies to implement high-end technologies in governing the nations; but also indirectly and perhaps more intensely from citizens.

    E-governance is about more than streamlining processes and improving services. It plays major role in transforming Governments and renovating the way citizens participate in democracy.

    For governments, the more overt inspiration to shift from manual processes to IT-enabled processes to increase efficiency in administration and service delivery, the will be visible to all. This change can be conceived as a valuable investment with huge returns. Some of the recent e-governance projects are implemented by various state governments.

  • Concept of e-Governance and its advantages

    In the arena of advanced technology, e-government has distinct place and it facilitates to huge number of customers to perform their task speedily. As the Internet supported digital communities grow, they present the national governments with numerous challenges and opportunities.

    e-Governance which also known as electronic governance is basically the application of Information and Communications Technology to the processes of Government functioning in order to bring about ‘Simple, Moral, Accountable, Responsive and Transparent’ governance (Governance for The Tenth Five Year Plan (2002-2007), Planning Commission, November, 2001 ).

    E-governance involve the use of ICTs by government organisations for exchange of information with citizens, businesses or other government departments, faster and more efficient delivery of public services, improving internal efficiency, reducing costs / increasing revenue, re-structuring of administrative processes and improving quality of services.

    Concept of e-Governance

    E governance has gained more popularity in convoluted business world. Many management scholars have described the concept of e governance which is emerging as an important activity in the business field.

    It is established that E-governance is the application of information and communication technologies to transform the efficiency, effectiveness, transparency and accountability of informational and transactional exchanges with in government, between government & govt. agencies of National, State, Municipal and Local levels, citizen & businesses, and to empower citizens through access & use of information (Mahapatra, 2006).


    Use by government agencies of information technologies (such as Wide Area Networks, the Internet, and mobile computing) that have the ability to transform relations with citizens, businesses, and other arms of government.

    These technologies can serve a variety of different ends: better delivery of government services to citizens, improved interactions with business and industry, citizen empowerment through access to information, or more efficient government management. The resulting benefits can be less corruption, increased transparency, greater convenience, revenue growth, and or cost reductions.

    -World Bank, on E-governance


    A transparent smart e-Governance with seamless access, secure and authentic flow of information crossing the interdepartmental barrier and providing a fair and unbiased service to the citizen.

    – Dr. APJ Abdul Kalam


    Historical review and current position of e-governance

    It has been documented that in the decade of nineties, there was major Global shifts towards increased deployment of IT by governments due to emergence of the World Wide Web. The technology as well as e-governance enterprises have come a long way since then. With the upsurge in Internet and mobile connections, people are learning to utilize their new mode of access in various ways. They have started expecting more and more information and services online from governments and corporate organizations to advance their public, professional and personal lives.

    Objectives of E-governance

    The tactical objective of e-governance is to support and streamline governance for all parties such as government, citizens and businesses through effective use of ICTs.

    E-governance evolution in India

    The notion of e-governance evolved in India during the seventies with a focus on development of in house government applications in the areas of defence, economic monitoring, planning and the deployment of information technology to manage data intensive functions related to elections, census, and tax administration.

    In Indian scenario, there were great efforts of the National Informatics Center (NIC) to join all the district headquarters during the eighties. In the beginning of nineties, IT technologies were improved by ICT technologies to extend its use for broader sectorial applications with policy emphasis on reaching out to rural areas and taking in greater inputs from NGOs and private sector as well.

    There has been an increasing involvement of international donor agencies under the framework of e-governance for development to catalyse the expansion of e-governance laws and technologies in developing nations.

    Stages of e-Governance

    It is apparent in various research studies that e-Governance is fundamentally linked with the development of computer technology, networking of computers and communication systems. In developing nations such technologies and systems became available with observable time lag as compared to developed nations.

    When appraising the e-governance model in India, it is established that with the liberalization of the economy from the early 1990s onwards, there has been a convergence in the availability of progressive technologies and opportunities in this field.

    The inception of e-Governance proceeded through four stages in India

    1. Computerisation: In the first stage, with the availability of personal computers, majority of Government offices are well equipped with computers. The use of computers began with word processing, quickly followed by data processing.
    2. Networking: In this stage, some units of a few government organizations are connected through a hub leading to sharing of information and flow of data between different government entities.
    3. On-line presence: In the third stage, with increasing internet connectivity, a need was felt for maintaining a presence on the web. This resulted in maintenance of websites by government departments and other entities. Generally, these web-pages/ web-sites contained information about the organizational structure, contact details, reports and publications, objectives and vision statements of the respective government entities.
    4. Online interactivity: A natural significance of on-line presence was opening up of communication channels between government entities and the citizens, civil society organizations etc. The main objective of this stage was to lessen the scope of personal interface with government entities by providing downloadable Forms, Instructions, Acts, Rules.

    It has been observed that there was more emphasis on automation and computerization, state governments have also endeavored to use ICT tools into connectivity, networking, setting up systems for processing information and delivering services.

    At a micro level, this has ranged from IT automation in individual departments, electronic file handling and workflow systems, access to entitlements, public grievance systems, service delivery for high volume routine transactions such as payment of bills, tax dues to meeting poverty alleviation goals through the promotion of entrepreneurial models and provision of market information.

    The push has varied across initiatives, with focusing on facilitating the citizen-state interface for various government services, and others focusing on bettering livelihoods. Every state government has taken the initiative to form an IT task force to outline IT policy document for the state and the citizen charters have started appearing on government websites.

    Advantages of e-governance

    E-Governance is improvement in governance which is enabled by the resourceful use of Information and Communications Technology. 

    E governance brings better access to information and excellence services for inhabitants. It also brings simplicity, efficiency and accountability in government.

    Through the use of ICT to governance combined with comprehensive business process reengineering would lead to simplification of complicated processes, simplification in structures and changes in statutes and regulations.

    E governance is advantageous to citizens and government as rapid growth of communications technology and its adoption in governance would support to bring government machinery to the doorsteps of the citizens.

  • Monetary Policy Agreement in India

    Monetary Policy Agreement

    What is Monetary Policy Agreement?

    • In 2015 The Government of India and Reserve Bank of India signed a Monetary Policy Framework Agreement. The new monetary policy framework was formed following the recommendations of a committee headed by RBI Deputy Governor Urjit Patel.
    • The objective of monetary policy framework is to primarily maintain price stability while keeping in mind the objective of growth.
    • As per the agreement, RBI would set the policy interest rates and would aim to bring inflation below 6 per cent by January 2016 and within 4 per cent with a band of (+/-) 2 per cent for 2016-17 and all subsequent years.
    • The central bank will be deemed to have missed its target if consumer inflation is at more than 6 percent or at less than 2 percent for three consecutive quarters starting in the 2015/16 fiscal year.
    • If the central bank misses the inflation target, it will send a report to the government citing reasons and remedial actions.
    • The central bank will also need to give an estimated time-period within which it expects to return to the target level.

    Significance of Monetary Policy Agreement 

    • While the agreement gives a free hand to the RBI Governor to decide on the monetary policy measures to achieve the inflation target, it also requires the RBI to give out to the Central Government a report in case the target is missed for a period of time. Thus, it is a fine balance between autonomy and accountability.
    • The World over, the Central banks are moving towards an inflation targeting based criteria for managing monetary policy. The MPA is a step in that direction.
    • The MPA will put India into the League of Nations that followed a rule based monetary policy mechanism.

    Monetary policy committee

    What is the MPC?

    • The monetary policy committee framework will replace the current system where the RBI governor and his internal team have complete control over monetary policy decisions. While a technical advisory committee advises the RBI on monetary policy decisions, the central bank is under no obligation to accept its recommendations.
    • The committee will have six members, with three appointed by the Reserve Bank of India (RBI) and the remaining nominated by an external selection committee. The RBI governor will have the casting vote in case of a tie.
    • According to the Finance Bill, the committee will consist of the RBI governor, the deputy governor in charge of monetary policy and one official nominated by the central bank.
    • The other three members will be appointed by the central government through a search committee.
    • This search committee will comprise of the cabinet secretary, the secretary of the Department of Economic Affairs, the RBI governor and three experts in the field of economics or banking as nominated by the central government.
    • The members of the MPC appointed by the search committee shall hold office for a period of four years and shall not be eligible for re-appointment.
    • The idea to set up a monetary policy committee was mooted by a RBI-appointed committee led by deputy governor Urjit Patel in 2014.
    • The current members of the MPC are:
      1. Governor: DR Urijit Patel
      2. DY Governor RBI: DR Viral Acharya
      3. Executive Director RBI: Michael Patra
      4. External Member: Prof. Pami Dua
      5. External Member: Prof. Chetan Ghate
      6. External Member: Prof Ravindra Dholakia

    Analysis of the MPC

    • There is very little to disagree about the desirability of transitioning from the current decision process to that of an MPC, imparting as it does a greater diversity of views, specialized experience and independence of opinion.
    • With the introduction of the monetary policy committee, the RBI will follow a system similar to the one followed by most global central banks. The US Federal Reserve sets its benchmark rate—the Fed funds rate—through the Federal Open Market Committee (FOMC). The Bank of England’s monetary policy committee is made up of nine members.
    • Setting up of MPC would make monetary policy making more democratic since currently, the RBI governor alone decides key interest rates. The committee will take a decision based on the majority vote. Each member will have one vote.
    • The final composition of MPC announced by the government seems to tread the middle path as it tries to address concerns over excessive government influence over monetary policy in the country Which the draft MPC invoked since under it proposed to strip the Governor of veto vote on the monetary policy besides powers for the government to appoint four of the six members.. The government, however, has reserved the right to send its views to the monetary policy committee, if needed.
    • Communicating the rationale of monetary policy actions is central to both the credibility of the central bank and to enable the incidence targets of the policy to adjust behavior appropriately.

    By
    Himanshu Arora
    Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

  • Monetary Policy tools and Money Supply in India

    RBI Tools for Controlling Credit/Money Supply

    Broadly speaking, there are two types of methods of controlling credit.

    Bank Rate Policy

    • Bank rate is the minimum rate at which the central bank of a country provides a loan to the commercial bank of the country.
    • Bank rate is also called discount rate because the central bank provides finance to commercial banks by rediscounting bills.
    • The RBI uses bank rate to control credit in the economy.
    • For instance, in an inflationary scenario, the RBI increases the Bank Rate, which increases the cost of borrowing for commercial banks, this would discourage the commercial bank from borrowing from the RBI, hence lending in the economy will fall along with increase in lending rates by commercial bank, increase in lending rate will discourage investment and hence Aggregate Demand will fall. A fall in AD will reduce income and output in the economy. Thus, Inflation will Subside.

    Open Market Operations

    • OMO are another important instrument of credit control.
    • OMO means the purchase and sale of securities by the RBI.
    • For instance, in an inflationary scenario, the RBI will start selling government securities, the selling of securities will reduce money supply from the system (Since the buyer of the securities will pay for them in Rupee, hence currency from the system goes out), reduction in money supply will lead to reduction in funds with the commercial banks, which further reduce their lending capability. A fall in lending thus contracts credit in the economy.
    • However, there are certain limitations that affect OMO viz; underdeveloped securities market, excess reserves with commercial banks, indebtedness of commercial banks, etc.

    Cash Reserve Ratio

    • Banks in India are required to keep certain proportions of their deposits in the form of cash with themselves as reserves.
    • If the legal CRR is 10%, then the bank will have to keep Rs 100 as reserves against the deposit of Rs 1000.
    • If at any time, the RBI decides to increase the CRR from 10 to 20%, then bank have to keep Rs 200 as reserves against the deposit of Rs 1000. This will reduce the credit in the economy as the banks now have less money to lend (800 in our example), less lending means less borrowing and investment and hence reduction in income and aggregate demand.
    • Similarly, a reduction in CRR from 10 to 5%, will reduce the reserve requirement and hence increases the lending capacity of the banks. Increased lending will lead to increased investment, increase investment will increase AD and Income.

    CRR Controversy

    Context: Time and again many Bankers and economists have recommended scrapping of CRR. With Banks facing rising NPA in recent years, demand has again been raised my few experts to scrap CRR.

    Why CRR should be abolished

    • All banks put together maintained a cash balance of Rs3,14,900 crore with the RBI every day, and this keeps on growing with the growth in deposits of the banking industry. This huge amount does not earn any interest for the banks. If you calculate the interest on this amount at the average lending rate of banks, say at 10%, the total loss to the banking industry is in excess of Rs31,000 crore per year.
    • According to many Bankers, CRR policy had denied the country growth, and its abolition would allow banks to lower the lending rate.
    • Since the RBI did not pay any interest, the CRR acted like a tax on the banking system, placing the banks at a competitive disadvantage versus non-banking financial companies and mutual funds who do not require to pay CRR.
    • According to experts, the loss to the banking sector due to CRR was Rs 21,000 crore.
    •  If a bank falls short of its CRR requirements, the RBI collects interest on the shortfall from the bank at the bank rate as if the defaulting bank has borrowed that money from the central bank. While the RBI’s action is justified, as it is the only way the central bank can enforce discipline among the banks, this is a source of irritation to the Banks.
    • Most of the central banks in developed countries have dispensed with the system of CRR and have been using the tool for open market operations to control inflation.

    Why should it not be abolished?

    • CRR system act as a hedging strategy for banks. CRR is important as it provides banks with the immediate liquidity of their own. Since bank operates on a minimum reserve system, any bad situation like bank run will push millions of depositors withdrawing their money at the same time. In such a situation if banks have its liquidity reserves it will stop the banking system from total collapse.
    • Till the time the crisis day doesn’t come this is just blocked fund which is not put to full use, but when the crisis day comes CRR serves a useful purpose – surely banks and thereby customers have to bear the cost, but it comes at the price of increased safety.
    • CRR and SLR are two Safety Valves built in the system by prudent bankers to protect banks from all types of adversities.
    • If a bank falls short of its CRR requirements, the RBI collects interest on the shortfall from the bank at the bank rate as if the defaulting bank has borrowed that money from the central bank. While the RBI’s action is justified, as it is the only way the central bank can enforce discipline among the banks, this is a source of irritation to the SBI.
    • A few years ago RBI had ceased to pay an interest rate on CRR, which affects the commercial banks. This is one of the main reasons why SBI chairman wanted CRR to be abolished.

    Liquidity Adjustment Facility

    • LAF is a monetary policy instrument which allows commercial bank and primary dealers to borrow money through repurchasing agreement or repos/reverse repos.
    • LAF is used to aid banks in adjusting day to day fluctuations in liquidity.
    • RBI extends LAF facility only to commercial banks (excluding RRBs) and Primary dealers.
    • LAF allowed banks to park their excess money with the RBI in case of excess liquidity or to avail liquidity from the RBI at the time of deficit on an overnight basis against the collateral of government securities.
    • The operations of LAF are conducted by way of repos and reverse repos.
    • Repos or Repurchase Agreements is an instrument which allows banks to borrow money from the RBI to manage short term needs of liquidity against the selling of government securities with an agreement to repurchase the same government securities at a predetermined date and rate. The rate at which the RBI lends to the banks is called Repo Rate.
    • Reverse Repo is an instrument which allows the RBI to borrow from the banks by lending government securities. The rate at which the Banks lends to the RBI is called Reverse Repo Rate.
    • Repo injects money into the system whereas Reverse Repo takes money out of the system.
    • The RBI increases the Repo Rate during the time of inflation and decreases the Repo Rate during the time of deflation and low growth.
    • The important point to remember is that the window of LAF does not allow the banks to borrow the unlimited amount from the RBI. The Banks are permitted to borrow only a limited percentage of its Net Demand and Time Liabilities under LAF window.

    Marginal Standing Facility

    • MSF is a new scheme announced by the RBI in the year 2011-12.
    • MSF is a penal rate at which banks can borrow money from the RBI over and above of what they can borrow from the RBI under the LAF window.
    • MSF is a penal rate and is always fixed at a higher rate than the Repo rate.
    • The MSF would be a penal rate for banks, and the banks can borrow funds by pledging government securities within the limits of the statutory liquidity ratio.
    • The scheme has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.

    Statutory Liquidity Ratio

    • SLR is that percentage of the deposits which the banks have to hold with themselves in highly liquid government securities.
    • SLR is one of the many arrows in the RBI’s monetary policy quiver. These are used, sometimes in isolation, sometimes in combination, to manage the money supply, interest rates and credit availability in the country.
    • The SLR is an important tool of monetary policy, and its primary aim is to ensure that banks always have enough liquidity (cash and cash equivalent securities) to honour depositor’s demands and that they don’t lend away all their funds.
    • The current rate of SLR is 20%. It simply means that the bank has to invest 20 Re out of every 100 Rupee deposited with him in government securities.
    • The SLR is being used by the RBI to tighten or easing money supply in the economy. For instance, a 50 BPS reduction in SLR will leave more money with the banks to lend. More lending means more investment and hence more income and growth.
    • Over the years, the use of CRR and SLR as instruments of monetary control has been reduced. From 37-38 percent in the early 1990s, the RBI has reduced the SLR to 20 percent now. But this is still significant to influence credit and rates.
    • The RBI doesn’t always prefer bringing out the big guns in its monetary tools armament for fear of causing collateral damage — the risk of stoking inflation due to a repo rate cut.
    • In such situations, SLR can be an effective pistol, so to speak. Reducing SLR can free up banks’ funds, which if deployed for lending can boost investment cycle. The RBI lowering SLR this time was broadly seen as an attempt to revive the slack credit demand in the economy.

    Bank Base Rate

    • The Base Rate is the minimum interest rate of a bank below which it is not permissible to lend, except in some cases if allowed by the RBI.
    • BR is the minimum interest rate that a bank must charge because below the base rate it is not viable for the bank to lend.
    • The base rate, introduced with effect from 1st July 2011 by the Reserve Bank of India, is the new benchmark rate for lending operations of banks.
    • Thus, all categories of domestic rupee loans should be priced only with reference to the Base Rate.
    • The reason for introducing Base Rate was to bring out the transparency in bank lending rates as well as to improve monetary transmission mechanism.
    • Base Rate has replaced the previous benchmark prime lending rate (BPLR) which bank charged to its most trustworthy customers.
    • The committee constituted under the than DY Governor of the RBI Deepak Mohanty recommended the abolishment of the BPLR and establishment of more transparent Base Rate.

    Qualitative Measure of the RBI

    Fixing Margin Requirements

    • The margin refers to the “proportion of the loan amount which is not financed by the bank”. Or in other words, it is that part of a loan which a borrower has to raise in order to get finance for his purpose.
    • A change in a margin implies a change in the loan size. This method is used to encourage credit supply for the needy sector and discourage it for other non-necessary sectors. This can be done by increasing margin for the non-necessary sectors and by reducing it for other needy sectors.
    • Example, If the RBI feels that more credit supply should be allocated to agriculture sector, then it will reduce the margin and even 85-90 percent loan can be given.

    Consumer Credit Regulation

    • Under this method, consumer credit supply is regulated through hire-purchase and instalment sale of consumer goods. Under this method, the down payment, instalment amount, loan duration, etc., is fixed in advance. This can help in checking the credit use and then inflation in a country.

    Publicity

    • This is yet another method of selective credit control. Through it, Central Bank (RBI) publishes various reports stating what is good and what is bad in the system. This published information can help commercial banks to direct credit supply in the desired sectors. Through its weekly and monthly bulletins, the information is made public, and banks can use it for attaining goals of monetary policy.

    Credit Rationing

    • Central Bank fixes credit amount to be granted. Credit is rationed by limiting the amount available for each commercial bank. This method controls even bill rediscounting. For certain purpose, the upper limit of credit can be fixed, and banks are told to stick to this limit. This can help in lowering banks credit exposure to unwanted sectors.

    Moral Suasion

    • It implies to pressure exerted by the RBI on the Indian banking system without any strict action for compliance with the rules. It is a suggestion to banks. It helps in restraining credit during inflationary periods. Commercial banks are informed about the expectations of the central bank through monetary policy. Under moral suasion, central banks can issue directives, guidelines and suggestions for commercial banks regarding reducing credit supply for speculative purposes.

    Control Through Directives

    • Under this method the central bank issue frequent directives to commercial banks. These directives guide commercial banks in framing their lending policy. Through a directive, the central bank can influence credit structures, the supply of credit to a certain limit for a specific purpose. The RBI issues directives to commercial banks for not lending loans to the speculative sector such as securities, etc. beyond a certain limit.

    Direct Action

    • Under this method, the RBI can impose an action against a bank. If certain banks are not adhering to the RBI’s directives, the RBI may refuse to rediscount their bills and securities. Secondly, RBI may refuse credit supply to those banks whose borrowings are in excess to their capital. The Central bank can penalize a bank by changing some rates. At last, it can even put a ban on a particular bank if it does not follow its directives and work against the objectives of the monetary policy.

    Measure of Money Supply in India

    M1 M2 M3 M4
    It is also known as Narrow Money. It is a broader concept of the money supply. It is also known as Broad Money. M4 includes all items of M3 along with total deposits of post office saving accounts.
    M1= C+DD+OD

    C= Currency with Public.

    DD= Demand Deposit with the public in the Banks.

    OD= Other Deposits held by the public with RBI.

    M2= M1 + Saving deposits with the post office saving banks.

    M1 is distinguished from M2 because the post office saving deposits are not as liquid as Bank deposits.

    M3 = M1+ Time Deposits with the Bank.

    Time deposits serve as a store of wealth and represent a saving of the people and are not as liquid as they cannot be withdrawn through cheques or ATMs as compared to money deposited in Demand deposits.

    M4= M3+Total Deposits with Post Office Saving Organisations.

    M4 however, excludes National Saving Certificates of Post Offices.

    It is the most liquid form of the money supply. M3 is the most popular and essential measure of the money supply. The monetary committee headed by late Prof Sukhamoy Chakravarty recommended its use for monetary planning in the economy. M3 is also called Aggregate Monetary Resource

     

    By
    Himanshu Arora
    Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

  • Monetary Policy in India: Inflation, deflation, Recessionary and Inflationary Scenarios

    How Monetary Policy Works

    The Inflation 

    The Deflation

    How RBI Controls Recession

    The Recessionary Scenario

    The Relationship between Interest Rate and Bond Prices.

    The Bond Price and Interest Rate always have an inverse relationship with each other.

    How RBI Controls Inflation

    The Inflationary Scenario

     

    By
    Himanshu Arora
    Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

  • Central Banking in India: Functions of RBI

    Central Banking in India

    Key Facts:

    • In the monetary system of all countries, the central bank occupies a most important place.
    • The Central Bank is an apex institution of the monetary system which regulates the functioning of the commercial banks of a country.
    • The Central Bank of India is ‘Reserve Bank of India’.
    • A Central Bank is primarily meant to promote the financial and economic stability of the country.
    • The Central Bank of a country promotes economic growth and stability and controls inflation

    Functions of the Central Banks/RBI

    Issue of Currency Notes

    • Under section 22 of RBI Act, the bank has the sole right to issue currency notes of all denominations except one-rupee coins and notes.
    • The one-rupee notes and coins and small coins are issued by Central Government, and their distribution is undertaken by RBI as the agent of the government.
    • The RBI has a separate issue department which is entrusted with the issue of currency notes.

    Banker to The Government

    • The RBI acts as a banker agent and adviser to the government. It has an obligation to transact the banking business of Central Government as well as State Governments.
    • Example, RBI receives and makes all payments on behalf of the government, remits its funds, buys and sells foreign currencies for it and gives it advice on all banking matters.
    • RBI helps the Government – both Central and state – to float new loans and manage public debt.
    • On behalf of the central government, it sells treasury bills and thereby provides short-term finance.

     Banker’s bank And Lender of Last Resort

    • RBI acts as a banker to other banks. It provides financial assistance to scheduled banks and state co-operative banks in the form of rediscounting of eligible bills and loans and advances against approved securities.
    • RBI acts as a lender of last resort. It provides funds to the bank when they fail to get it from any other source.
    • It also acts as a clearing house. Through RBI, banks make inter-banks payments.

     Controller of Credit

    • RBI has the power to control the volume of credit created by banks. The RBI through its various quantitative and qualitative measures regulates the money supply and bank credit in an economy.
    • RBI pumps in money during recessions and slowdowns and withdraws money supply during an inflationary period.

    Manages Exchange Rate and Is Custodian of the Foreign Exchange Reserve

    • RBI has the responsibility of removing fluctuations from the exchange rate market and maintaining a competitive and stable exchange rate.
    • RBI functions as custodian of nations foreign exchange reserves.
    • It has to maintain a fair external value of Rupee.
    • RBI achieves its objective through appropriate monetary and exchange rate policies.

    Collection and Publication of Data

    • The RBI collects and compiles statistical/data information on banking and financial operations, prices, FDIs, FPIs, BOP, Exchange Rate and industries etc., of the economy.
    • The Reserve Bank of India publishes a monthly Bulletin/publication for the same.
    • It not only provides information but also highlights important studies and investigations conducted by RBI.

      Regulator and Supervisor of Commercial Banks

    • The RBI has wide powers to supervise and regulate the commercial and co-operative banks in India.
    • RBI issues licenses regulate branch expansion, manages liquidity and Assets, management and methods of working of commercial banks and amalgamation, reconstruction and liquidation of the banks.

    Clearing House Functions

    • The RBI acts as a clearing house for all member banks. This avoids unnecessary transfer of funds between the various banks.

    Measures of Credit Control in India

    The management of the money supply and credit control is an important function of the Reserve Bank of India. The money supply has an important bearing on the functioning of the economy.

    By
    Himanshu Arora
    Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

  • Monetary Economics: Barter System, Definition, Function and Evolution of Money

    The Barter System

    Money as a medium of exchange was not used in the early history of mankind. Exchange of the goods was not very frequent as households were self-sufficient. Whatever exchange took place between the households was in the form of barter, that is, exchange of goods for other goods.

    The barter system does not provide for the direct purchase of goods since there was no common unit of account and medium of exchange (Money).

    Note for Students: Example, if a person grows only wheat and after his self-consumption, he wants to exchange it for apple. He can do so only if the other person having apples wants wheat. If that is not the case, no exchange will take place. This problem is called double coincidence of wants.

    Moreover, if they both agree to trade an apple for wheat, then the next problem is how to determine how much apple is worth one kg of wheat and vice versa. Both the individuals will argue for more of another person commodity in return of his. Therefore, exchange of goods will be limited and most of the time will not take place at all.

    Difficulties under Barter System of Trade

    To overcome the problems of Barter trade, early humans started devising a system of payments and exchange that allows direct purchase of goods using any instrument that has following features:

    • A unit of Account (it must be measured)
    • High Liquidity
    • It can be stored
    • It must be wanted by everyone (It should have high demand)
    • It can be exchanged easily (Medium of Exchange)

    Evolution of Money

    Commodity Money Metallic Money Paper Money
    In the very beginning, there exist few commodities which were needed by everyone. Commodities like arrows, bows, sea shells which are used mostly in hunting become the first form of medium of exchange and hence acted as money. With further progress of civilisation commodity money is replaced by precious items like Gold and Silver for monetary use. Gold and Silver largely formed the Metallic Money. The advent of State and political structure had given rise to a new form of money which although has no underlying value but has a guarantee by the governments. The government guaranteed money is known as Paper Money.
    In the second stage of the evolution, when the early human shifted from hunting to agriculture, animals like cattle’s, goats, sheep become the medium of exchange and acted as money. The Metallic money offered several advantages.

    They were easy to handle. They can be easily stored.

    They do not deteriorate.

    They have the right degree of scarcity which made them valuable for all, hence acted as a perfect medium of exchange.

     

    Paper money acted as money not because it has some value (unlike gold which has high value) but simply because they are guaranteed by the governments and are scared.

    With time, paper money took the form of Bank Notes to be printed by the Central Banks.

    Since commodities have certain limitations like lack of a standard unit of account, limited supply and natural factors etc. Their use limited and replaced by other forms of money. With time and technology, the hard form of gold and silver was replaced by coinage system (gold and silver coins) which were to widely used as money. The last stage of evolution of money was in the form of Bank Deposits Especially Demand deposits, which people hold with the commercial banks and that can be withdrawn at any time. Thus, providing high liquidity.

    Money and its Functions

    Definition of Money:

    “Anything which is widely accepted in payment of goods or in the discharge of other kind of payment obligations”.

    “Money can be defined as anything that is generally acceptable as a medium of exchange and at the same time act as a measure and a store of value”.

    Economist has simply defined money as “Money is what Money does”. That is money is anything which performs the function of money.

    Functions of Money:

    The four main functions of money are;

    Medium of Exchange Store of Value Measure of Value Standard of Payments
    A can sell goods to B and in return can demand money for his sale.

    B can use the money to buy other goods from C.

    As long as the money is accepted, the process of exchange keeps on happening.

    This feature of money is known as Medium of Exchange.

    Money act as a store of value.

    Money being the most liquid asset is the most convenient way to store wealth.

    Thus, money can be stored as an asset.

    It thus, becomes very important that the good chosen as money should be such that can be easily stored.

    The case for other liquid assets like gold or real estate is different; they first have to be sold and converted into money. The money realised from them can be used to buy goods and services.

    Money serves as a common measure of value or a unit of account.

    As the value of all goods and services are now measured in terms of money, the relative comparison of goods is possible.

    Each commodity has its own price and monetary value now. A car is worth Rupee 10 Lakh, and A kg of apple is worth Rupee 100. One can simply pay the price and buy car or apple.

    Money also serves as a standard mode of Deferred payments.

    If a loan is taken today, it will be paid back in future time using the money.

    The loan amount is measured in terms of money and is paid back in money.

     

    Modern Monetary Systems

    Convertible Paper Money/Full Reserve System In-convertible/ Fiat Money Minimum Reserve System
    Paper money has come to occupy a very important place in the modern monetary system of almost all the countries.

    The term paper money applies only to the notes issued by the government and the central banks.

    With the passage of time, the relative scarcity of gold and silver has increased. Therefore, the governments find it very difficult to back all their legal currency with an equal value of gold and silver. Thus, nowadays paper currency is of inconvertible type. The ‘Minimum Reserve System’ is the current form of currency system practised World over and in India too since 1957.
    For quite a long time, Paper money remained a convertible paper money. Under this system, money is convertible into standard coins made of gold and silver.

    The Paper money issued by the governments and central banks was fully backed by the gold and reserve of equal value. Therefore, this paper currency system is called ‘Full Reserve System’.

    Under the Inconvertible monetary system, money is not convertible into gold or silver or other precious metals.

    The paper money issued by the central banks is not backed by underlying precious metal. The issuing authorities is not responsible to convert the paper notes into gold and silver.

    Thus, the currency notes issued by the Central Banks are ‘Fiat Money’, that is, they are issued by a ‘Fiat’ (which means ‘Order’) of the government.

    Fiat Paper money is in the form legal tender promised by the governments. Since they are legal tender, they can be widely used to purchase goods and services.

    Under this system, the central banks are required to keep only a minimum amount of gold and other approved securities (In India the RBI is required to keep Rupee 200 Crores).

    On the basis of minimum reserve, the central banks can issue the currency in any number subject to the economic condition of the country.

     

    Importance and Significance of Money

    By
    Himanshu Arora
    Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

     

  • Citizen’s Charter: Importance, Objective, Features, Problems faced in implementation, Guidelines

    In any nation, there is a need of good governance for sustainable development, both economic and social.

    The three major aspects highlighted in good governance are transparency, accountability and responsiveness of the administration.

    What is Citizen’s Charter?

    Citizens’ Charters initiative is a response to the mission for solving the problems which a citizen meets, day in and day out, while dealing with the organisations providing public services.

    The charter is the declaration of commitment to superiority in service to customers of the department. The citizen charter declares the standards for various services offered. It includes expectations of the Organisation from the Citizens for fulfilling its commitment. Citizen charter is available on India post website.

    The concept of Citizens’ Charter protects the trust between the service provider and its users.

    Citizens’ Charter was first expressed and implemented in the United Kingdom by the Conservative Government of John Major in 1991 as a national programme with aim to constantly improve the quality of public services for the people of the country so that these services respond to the needs and wishes of the users.

    Importance of Citizen’s Charter in India

    1. To make administration accountable and citizen friendly.
    2. To ensure transparency.
    3. To take measures to improve customer service.
    4. To adopt a stakeholder approach.
    5. To save time of both Administration and the citizen.

    Objective of the Citizens’ Charter

    Fundamental objectives of Citizens’ Charter are as follows:

    Goal of Citizens’ Charter is to empower the citizen in relation to public service delivery.  

    Six principles of the Citizens’ Charter movement as originally framed were:

    1. Quality: Improving the quality of services
    2. Choice: Wherever possible
    3. Standards: Specify what to expect and how to act if standards are not met
    4. Value: For the taxpayers’ money
    5. Accountability: Individuals and Organisations
    6. Transparency: Rules/ Procedures/ Schemes/Grievances

    Later on, these were elaborated by the Labour Government as following nine principles of Service Delivery (1998):

    1. Set standards of service
    2. Be open and provide full information
    3. Consult and involve
    4. Encourage access and the promotion of choice
    5. Treat all fairly
    6. Put things right when they go wrong
    7. Use resources effectively
    8. Innovate and improve
    9. Work with other providers
    10. The Indian Scenario

    Since many years, in India, noteworthy progress has been made in the field of economic development. This, along with a considerable increase in the literacy rate, (from 51.63% to 65.38% in the last decade) has made Indian citizens increasingly aware of their rights.

    Citizens have become more articulate and expect the administration not merely to respond to their demands but also to anticipate them. It was in this climate that since 1996 a consensus had evolved in the Government on effective and responsive administration.

    Department of Administrative Reforms and Public Grievances in Government of India (DARPG) initiated the task of coordinating, formulating and operationalising Citizens’ Charters.

    Guidelines for formulating the Charters as well as a list of do’s and don’ts were communicated to various government departments/organisations to enable them to bring out focused and effective charters.

    For the formulation of the Charters, the government agencies at the Centre and State levels were advised to constitute a task force with representation from users, senior management and the cutting edge staff.

    Principally, an adaptation of the UK model, the Indian Citizens’ Charter has an additional constituent of ‘expectations from the clients’. Involvement of consumer organisations, citizen groups, and other stakeholders in the formulation of the Citizens’ Charter is highlighted to confirm that the Citizens’ Charter fulfills the needs of the users.

    Regular monitoring, review and evaluation of the Charters, both internally and through external agencies, are commanded.

    Till April, 2006, 111 Citizens’ Charters had been articulated by the Central Government Ministries/ Departments/ Organisations and 668 Charters by various agencies of State Governments & Administrations of Union Territories.

    Most of the national Charters are posted on the government’s websites and are open to public scrutiny. The organisations with Citizens’ Charters are advised to give publicity to their Charters through such means as print/ electronic media and awareness crusades.

    Salient Features of a Citizen’s Charter 

    The salient features of a Citizen’s Charter are:

    1. Agreed and published standards for service delivery;
    2. Openness and information about service delivery;
    3. ‘Choice’ and Consultation with users;
    4. Courtesy and helpfulness in service delivery; and
    5. Provision of redressal of grievances.

    Let us elaborate these points:

    Standards: The Charter should lay out explicit standards of service delivery so that users understand what they can reasonably expect from service providers. These standards should be time‐bound, relevant, accurate, measurable and specific. The actual performance vis‐à‐vis the standards adopted must be published and independently validated. The tendency among organizations to develop targets and standards based on their own convenience as opposed to the needs of the citizens must be avoided.

    Information and openness: A key attribute of good service is the availability of relevant and concise information to the users at the right time and at the right place. The Charters should contain, in plain language, full and accurate information about services available, levels and quality of service to be expected, available channels for grievance redressal etc. Handbooks, guides, posters, websites are some of the channels through which information can be provided to citizens.

    Choice and consultation: The Charter should provide choice of services to users wherever practicable. There should be regular and systematic consultation with the users of the service to fix service standards and to ascertain quality of service delivery.

    Courtesy and helpfulness: The Charter can help embed a culture of courteous and helpful service from public servants. In addition, small initiatives such as ‘name badges’, ‘May I help you’ counters etc. can go a long way in building customer confidence.

    Grievance redressal and complaints handling: There is a strong link between the provision of quality service and effective handling of complaints. Firstly, by facilitating and responding to complaints, the causes for complaint can be reduced. Secondly, by identifying ‘trends’ in complaints, the service provider can resolve systemic and recurring problems.

    Problems faced in implementing the Charters

    As indicated, the Citizens’ Charters initiative in India had started in 1997 and the Charters formulated are in embryonic stage of implementation. Introduction of a new thought is always difficult in any organisation. Introduction and implementation of the concept of Citizens’ Charter in the Government of India was much more complicated due to the old bureaucratic set up/procedures and the rigid attitudes of the work force.

    The major obstacles encountered in this initiative were:

    1. The general perception of organisations which formulated Citizens’ Charters was that the exercise was to be performed because there was a direction from the top. The consultation process was minimal or largely absent. It thus became one of the routine activities of the organisation and had no focus.
    2. For any Charter to thrive the personnel responsible for its implementation should have proper training and orientation, as commitments of the Charter cannot be expected to be delivered by a workforce that is unaware of the spirit and content of the Charter. However, in many cases, the concerned staff was not sufficiently trained and sensitised.
    3. Sometimes, transfers and reshuffles of concerned officers at the critical stages of formulation/implementation of a Citizens’ Charter in an organisation severely destabilised the strategic processes which were put in place and hampered the progress of the initiative.
    4. Awareness campaigns to teach clients about the Charter were not conducted systematically.
    5. In some cases, the standards/time norms of services mentioned in Citizens’ Charter were either too negligent or too tight and were impractical and created an unfavourable impression on the clients of the Charter.
    6. The notion behind the Citizens’ Charter was not accurately understood. Information brochures, publicity materials, pamphlets produced earlier by the organisations were mistaken for Citizens’ Charters.

    Deficiencies in the Existing Citizens’ Charters

    1. Lack of awareness and knowledge and inadequate publicity, hence loss of trust among service seekers
    2. No training to the operative and supervisory staff
    3. Lack of infrastructure and initiative
    4. Hierarchy gap between the Officers and the Operative Staff-Need of team effort
    5. Different mind-sets of officers and the Staff- Insensitiveness on the part of the Supervisors and the Staff because they are yet to be sensitized
    6. Staff is not prepared to shoulder the responsibility due to lack of motivation and accountability
    7. Non-revision, complicated and restrictive rules & procedures

    Guidelines for the Citizens’ Charters in India

    1. List all Offices according to type of services they provide to public – Indicate their location, areas they cover, type of services being rendered to public, and phone numbers.
    2. There should be a separate Citizens’ Charter (i.e., Local Citizens’ Charters) for each office covering the services they provide. For example, there should be a separate Charter of the Directorate, its subordinate offices, Hospitals, Schools, etc. according to the particular services they provide.
    3. Mention Service Standards – Step-by-step-Procedure based on ‘Where to go; how to proceed’, simple and easy to fill-in Forms, specimen of duly-filled in forms, documents, fees, etc. required, reasonable time schedule, Do’s & Don’ts, etc., names, addresses and Tele. Nos. of concerned Officials, his alternate for each service, etc.
    4. Minimum documentation, self-attestation and self-declaration.
    5. No duplication – In case desired information and document submitted earlier like proof of residence (if there is no change), birth certificate, etc., it should not be asked again.
    6. If promised services are not provided as per specified time schedule, an effective grievance redressal mechanism (including the provision of compensation to the concerned citizen in order to introduce accountability) should be introduced.
    7. Provision of TATKAL (Immediate) Services if somebody is in urgent need (as in the case of Passport, Railways, etc.) to avoid touts, bribery, etc.
    8. Simultaneous changes in the Performa and other requirements to be effected along with the changes made in the Citizens Charter.
    9. Database of frequently required information, like ownership of property, vehicle, etc., tax and dues paid or pending, etc.
    10. If possible, the services and their related information may be presented in a tabular form.
    11. Salient features of each service should be prominently displayed in simple and easy language at all places likely to be visited by the service seekers.

    Key lessons

    The following pitfalls need to be avoided:

    1. Since Citizen’s Charters are likely to raise the aspirations of the users of the service, the departments should guard against the tendency to promise more than they can deliver. A realistic assessment of the capabilities of the service provider must be taken into account in drafting the Charter.
    2. A critical review of the current systems and processes in the department should be undertaken to examine whether they are likely to have an adverse impact on the Charter.
    3. Implementing the Charters without the staff owning them will defeat the purpose of the Charter. Motivating the staff and involving them in the preparation of the Charter are extremely important.
    4. The Charters will remain merely a paper exercise of limited value if there is no consultation with the users. Departments should ensure user involvement at all stages of preparation and implementation of the Charter.
    5. Independent audit of results is important after a period of implementation of the Charter.
    6. Complex systems for lodging complaints or poor access to officers for redressal of grievances defeat the purpose and the spirit of the Charter.

    To summarize, A Citizens’ Charter denotes the promise of an organisation towards standard, quality and time frame of service delivery, grievance redressal mechanism, clearness and accountability.

    Based on the foreseen expectations and aspirations of public, Citizens’ Charters are to be drawn-up with care and concern for the concerned service users.

    They allow the service seekers to avail the services of the government departments with minimum inconvenience and maximum speed.

    FAQs

    Why is Citizen’s Charter relevant for the UPSC syllabus?

    It is crucial for topics like governance, public administration, and accountability, covered in GS papers and optional subjects.

    Can questions on Citizen’s Charter appear in the UPSC Prelims?

    Yes, questions may appear in the Polity section, focusing on its principles and role in service delivery.

  • The Cost of Inflation

    The Cost of Inflation

    • The inflation is considered to be bad for an economy mainly because it destroys the purchasing power of the money. When Price rise, each Rupee that you had will but less quantity of goods and services. Therefore, inflation destroys the real income of the people and makes them worse off.
    • The argument is particularly true for a country like India, which has a large informal sector and agriculture sector. Since most of the population is employed in informal and agriculture sector where minimum wage laws and social security benefits do not apply, the people in such sectors suffer the most due to inflation. The wages in these sectors are not indexed for inflation. Thus, when the price rises their wage does not rise, and they lose due to a reduction in real income on the one hand and no rise in wages on the other.

    There is also two associated social cost of inflation.

    • The Shoe Leather Cost

    Suppose in an economy the inflation is rising at the rate of 5% from the past few years. In such a case, everybody will expect the inflation to be 5% in future also. In such a case, all the economic transactions will be done adjusting for 5% inflation. In such an anticipated inflation scenario, the only cost of inflation will be shoe leather cost.

    The Shoe Leather Cost occurs because of the cost associated with holding money during inflation. Since inflation destroys the real power of money, and cash holding does not pay any interest, people will start depositing their money in banks to earn interest rate.

    The less money they hold in cash, the more they have to visit banks or ATMs to withdraw money. Since going to the bank is not free of cost both in terms of time and the transaction cost levied by banks on ATM usage, counter withdrawals, as well as the cost of travel to banks will all add to Shoe Leather Cost.

    • Menu Cost

    Menu cost is another social cost associated with anticipated inflation. The name menu cost is derived from the restaurants business. Menu cost arises because inflation makes the business change their listed price often. The change requires the firm to bear expense related to printing of new catalogues, new price list etc. they also have to incur expenditure on advertisement to inform customers about their new prices.

    Effects of Inflation on Different Sections

    Creditor/lender Debtor/Borrower Pensioner Producers Wealth Holders
    Inflation harms creditors, as they lose in real terms.

    A 1000 RS lent @ 5%, will pay an interest rate of 50. If inflation rises to 10%, the price of goods will be 1100, but after interest, the return will only be 1050.

    Inflation benefits the Debtor as they gain in real terms. Inflation harms the pensioners, if their pensions are not indexed to inflation, and loses money. They stand to gain by inflation since the price of goods and services rise faster than the cost of production as wages take time lag to react. They stand to lose due to inflation, as their real returns fall due to rise in prices.

     

    By
    Himanshu Arora
    Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

  • Types of Inflation: Demand Pull, Cost Push, Stagflation, Structural Inflation, Deflation and Disinflation

    This is a key topic for UPSC aspirants, as understanding the types of inflation in India is essential for economics and current affairs sections.

    Types of Inflation In India

    In India, inflation can be classified into the following types:

    1. Demand-Pull Inflation: This happens when there’s excessive demand for goods and services, often due to increased consumer spending, economic expansion, or government spending, driving prices up as supply struggles to keep pace.

    2. Cost-Push Inflation: Rising production costs, such as higher wages or increased raw material prices, lead to cost-push inflation. Producers pass these costs onto consumers, resulting in higher prices across the economy.

    3. Stagflation: A rare phenomenon where inflation and unemployment rise simultaneously, stagflation is marked by slow economic growth, often making it challenging for policymakers to manage both inflation and stagnation.

    4. Structural Inflation: Caused by structural challenges in the economy, such as supply chain inefficiencies, market rigidities, or outdated infrastructure, structural inflation often requires long-term policy changes to address root causes.

    Each type requires targeted measures, making inflation management in India complex and multifaceted.

    Causes of Inflation

    Inflation is mainly caused either by demand Pull factors or Cost Push factors. Apart from demand and supply factors, Inflation sometimes is also caused by structural bottlenecks and policies of the government and the central banks. Therefore, the major causes of Inflation are:

    • Demand Pull Factors (when Aggregate Demand exceeds Aggregate Supply at Full employment level).
    • Cost Push Factors (when Aggregate supply increases due to increase in the cost of production while Aggregate demand remains the same).
    • Structural Bottlenecks (Agriculture Prices fluctuations, Weak Infrastructure etc.)
    • Monetary Policy Intervention by the Central Banks.
    • Expansionary Fiscal Policy by the Government.

    Demand and Supply factors can be further sub divided into the following:

     

    Demand Pull Inflation

    • Demand Pull Inflation is mainly due to increase in Aggregate demand. The increase in Aggregate demand mainly comes from either increase in Government Expenditure (Expansionary Fiscal Policy) or by an increase in expenditure from Households and Firms.
    • The root cause of demand pull inflations is- Aggregate demand > Aggregate Supply. This simply means that the firms in the economy are not capable of producing the goods and services demanded by the households in the present time period. The shortages of goods and services due to increase in demand fuels inflation.
    • Imagine what happened when there was an outbreak of swine flu in India. Due to the outbreak of swine flu epidemic in India, the government notified a warning that people should wear Breathing Masks to protect them from the infection. As a result, the demand for mask had risen to a very high level, but the supply being limited as the producers of the mask had no anticipation of the swine flu epidemic. Due to the high demand and limited supply of masks, the prices had risen manifold. The case above captures the mechanism of demand pull inflation.
    • The above example only captures the mechanism of Demand led inflation and that too for a particular product. What happens at Macro level? What fuels inflation in the entire economy? Before answering the question. Let’s understand some basic concept related to the economy:
    • Full Employment Level: Full employment is an economic situation in which all the available resources of the economy are fully utilised, and there exists no further scope of improvement in the economy. The Full employment level represents that economy is operating at its maximum potential. The level of unemployment is minimum, the prices in the economy are stable, resources are fully utilised, whatever firms are producing is getting sold, and there exist no shortages in the economy.

    Inflationary Gap

    The Inflationary gap is a situation which arises when Aggregate demand in an economy exceeds the Aggregate supply at the full employment level.

    Inflation in a Demand-Pull scenario is basically caused by a situation whereby the Aggregate demand for goods and services in the economy rises and exceeds the available supply of the goods and services. In such a situation, the excessive pressure on demand will fuel the inflation in the economy.

    Deflationary Gap

    Deflationary Gap is a situation which arises when Aggregate demand in the economy falls short of Aggregate Supply at the full employment level.

    Cost Push Inflation

    • There exists a situation in an economy where inflation is fuelled up, not because of increase in Aggregate Demand but mainly due to increase in the cost of producing goods and services.
    • The cost can be increased mainly due to three factors:

    Wage Push Inflation Profit Push Inflation Raw Material Push Inflation
    When the employees push for an increase in wages which are not justifiable either on the grounds of employee productivity or increase in the cost of living. In such scenarios, an unwarranted wage increase leads to increase in the cost of production and hence cost push inflation. The firms sometimes decide to increase their profit margins and starts charging higher prices for their product. This phenomenon pushes the price upward and results in Profit Push Inflation. The raw material push inflation also known as supply shock inflation is the main and the most important reason for cost push inflation.

    If for any reason the economy under goes a supply shock in the form of a rise in the price of essential raw materials like crude oil, it will fuel inflation due to rise in the cost of production.

    Wage Push Inflation generally happens during high growth periods. During which workers anticipate a hike in their wages due to rising cost of living. The employer responds to their demand by increasing wages in the hope that he will pass them on to the consumers in the form of higher prices. The Profit Push Inflation generally happens when there are few of single producer producing the goods for the entire market. For Example, during the 1970s, the OPEC countries decided to increase the price of crude oil, this acted as a supply shock for the entire World economy and price of petroleum products (an essential raw material) went up, fuelling inflation.

    Let’s understand Cost Push Inflation with an Example

    Suppose, Indian economy is operating at its maximum potential. Prices are stable, resources are fully utilised, everyone who is willing to work is getting the work (unemployment is at its minimum). In such a scenario people will form the expectation that the future of the economy is good and they planned their saving and investment decision accordingly.

    However, one day the USA decides to attack Iran in order to dismantle their nuclear weapons. As a repercussion of the attack, the crude oil prices around the world start moving up. India who imports 90 percent of its oil imports suddenly find itself in trouble. The rise in crude oil price puts a break on booming Indian economy and cost of essential products start rising (crude oil is a key input for many industries and is a lifeline of transport economy). As a result of increase in cost of production, the manufacturers decide to increase the price of their product. Hence fuelling first round of cost push inflation (Raw material).

    After a lag of sometime, the final consumer gets to know that the prices of the product have increased. The consumer expectations about the future movement of prices will change as he expects prices to rise further in future. To compensate himself against the future price rise, he starts demanding more wages from his/her employer. This will fuel the second round of cost push inflation (wage push).

    Cost Push Inflation/Supply Shock

    Stagflation

    The most important difference between the Demand Pull and Cost Push Inflation is that while in the case of Demand Pull Inflation the overall output in the economy does not fall. Whereas, in case of Cost Push Inflation, along with an increase in prices the output level of the economy also falls.

    The fall in output will cause employment to fall in the economy along with fall in growth. The falling growth along with rising prices makes cost push inflation more dangerous than the demand-pull inflation. The situation of rising prices along with falling growth and employment is called as stagflation.

    Hyperinflation

    Hyperinflation is a situation when inflation rises at an extremely faster rate. The rate of inflation can increase from 50 times to 300 times.

    The effects of hyperinflation can be devastating for the economy. The situation can lead to total collapse of the value of the currency of the economy along with economic crisis and rising external debt and fall in purchasing power of money.

    The major causes of the hyperinflation are; government issuing too much currency to finance its deficits; wars and political instabilities and unexpected increase in people’s anticipation of future inflation.

    When people anticipate that future inflation will rise at a very fast pace, they start consuming more goods and services due to the fear that higher inflation in the future will destroy the purchasing power of money. As a result of this, the demand for goods and services rises and fuels further inflation. The cycle continues and results in a hyperinflation scenario.

    Structural Inflation

    • Structural Inflation is another form of Inflation mostly prevalent in the Developing and Low-Income Countries.
    • The Structural school argues that inflation in the developing countries are mainly due to the weak structure of their economies.
    • They further argue that increase in money supply and government expenditure could explain the inflationary scenario only partially.
    • The Structuralist argues that the economies of developing countries like, Latin America and India are structurally underdeveloped as well as highly volatile due to the existence of weak institutions and imperfect working of markets.
    • As a result of these imperfections, some sectors of the economy like agriculture will witness shortages of supply, whereas some sectors like consumer goods will witness excessive demand. Such economies face the problem of both shortages of supply, under utilisation of resources as well as excessive demand in some sectors.
    • Example: In India, let’s assume that the farmer produces fruits and vegetables at 10000 per quintal. But the final consumer gets the same at 20000 per quintal. The huge disparity between what farmer receives and consumer pays is due to infrastructure and agriculture bottlenecks. The bottleneck arises mainly due to lack of roads, highways, cold chains and underdeveloped agriculture markets. All these increases the cost of transporting goods from farmers to consumers leading to inflation.
    • The major bottlenecks/road blocks of developing economies that fuels Structuralist form of inflation are:

    Deflation versus Disinflation

    Deflation: Deflation is when the overall price level in the economy falls for a period of time.

    Disinflation: Disinflation is a situation in which the rate of inflation falls over a period of time. Remember the difference; disinflation is when the inflation rate is falling from say 5% to 3%.

    Deflation is when, for instance, the price of a basket of goods has fallen from Rs 100 to Rs 80. It’s the reduction in overall prices of goods.

    Reaganomics

    Reaganomics is a popular term used to refer to the economic policies of Ronald Reagan, the 40th U.S. president (1981–1989), which called for widespread tax cuts, decreased social spending, increased military spending and the deregulation of domestic markets. These economic policies were introduced in response to a prolonged period of economic stagflation that began under President Gerald Ford in 1976.

    Back to Basics:

    Headline Inflation versus Core Inflation

    The headline inflation measure demonstrates overall inflation in the economy. Conversely, the core inflation measures exclude the prices of highly volatile food and fuel components from the inflation index.

    The inflation process in India is dominated to a great extent by supply shocks. The supply shocks (e.g., rainfall, oil price shocks, etc.) are temporary in nature and hence produce only temporary movements in relative prices. The headline CPI inflation in India tends to increase whenever there is a surge in food and fuel prices. Since monetary policy is a tool to manage aggregate demand pressures, the response of the policy to such temporary shocks is least warranted according to traditional wisdom.

    Core inflation excludes the highly volatile food and fuel components and therefore represents the underlying trend inflation. The trend inflation drives the future path of overall inflation. Hence, even when food and fuel inflation moderates over time, persistently high inflation in non-food, non-fuel components pose an upward risk to overall future inflation, creating challenges to monetary policy.

    How to Control Inflation

    Let’s understand some basic relationship before proceeding further.

    Money Supply and Interest Rate

    The Money supply in an economy is controlled by the Central Banks. Whenever there is a threat of Inflation, the central bank intervenes to control the money supply to control the inflation.

    The mechanism through which the central banks controls inflation depends on interest rate. Interest Rate and Money supply moves in opposite directions. As money supply is increased the interest has the tendency to fall and vice versa.

    But why does it happen?

    Suppose at any given point in time, the economy is suffering from low growth. The central bank intervenes by using its monetary policy tools (Bank Rate, Repo Rate, Statutory Liquidity Rate). The result of such loose monetary policy is increase in money supply in the economy.

    The increased money supply means at any given point in time, there will be excess money in the economy than what the people are willing to hold. What will happen to this excess money? People will not want the excess money to be kept idle in their wallets. So they will try to invest it in alternative financial instruments like Bonds.

    As a result of this, the demand for financial assets (Bonds) will increase which will lead to increase in the price of the bonds. An established relation in financial economics is, as bond price rises, Interest will fall.

    A Fall in interest rate>>> Increase in Investment>>> Increase in output/production>>> increase in employment and national income. Hence end of slowdown.

    1. Government Spending and Interest Rate.

    Fiscal policy affects equilibrium income and the interest rate. An increase in government spending (expansionary fiscal policy) to boost economic activity will lead to increase in interest rate. This happens because, at any given point in time, the economy will have limited saving capacity. When the government increase its spending, it competes with the private sector for these limited saving. In the process, this tend to put upward pressure on the interest rate.

    Monetary Policy and Inflation

    Fiscal Policy and Inflation

     The Relationship Between Inflation and Interest Rate.

    In order to understand the relationship between Inflation and Interest Rate, it is necessary to understand the distinction between Real interest rate and nominal Interest rate.

    Back to Basics: Example, if you decide to deposit all your money (Rs 1 Lakh) in a Bank as Fixed Deposit, Banks will pay you Interest rate @ say 10%. The rate of interest that banks pay you is Nominal Interest Rate. Going by this logic, you will be expected to earn Rs 10,000 as interest on your Fixed deposit in a year. In the second year, you will be having Rs 1,10,000 in your bank account.

    But what about the value or purchasing power of your deposit? Is the money worth Rs 1,10,000 is sufficient for you to buy the same basket of goods that you were purchasing last year? Will Rs 1,10,000 will buy you the same amount of goods, less amount of goods or more amount of goods will all depend on the rate of inflation in the economy.

    Let’s say, the inflation rate in the economy during the period is 20%. What will be the value of your deposit at 20% inflation rate?

    The real value in terms of goods that can be purchased from Rs 1,10,000 is actually much less than what it used to be a year ago. The basket of goods that had cost Rs 10,0000 in the previous year is now costing Rs 1,20,000. But the bank has paid you only Rs 1,10,000 in return. The interest rate of the bank has failed to beat the inflation in the economy. Therefore, the real interest adjusted after inflation that the banks have paid you on your deposit is actually negative 10%.

    Real Interest Rate= Nominal Interest Rate – Inflation Rate.

    -10 = 10 – 20

    FAQs

     

    By
    Himanshu Arora
    Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

  • Inflation in India: CPI, WPI, GDP Deflator, Inflation Rate

    Inflation in India

    Understanding Inflation

    Back to Basics: In 1947, when India got independence, the Indian economy was suffering from low growth, poverty and resource shortages. The salary of an average Indian was very low. Ask your Grand Parents ‘how much they use to earn in the 1950’s?

    Today, an average Indian earns 100 times more than what his grandparents use to earn. Does it mean that the standard of living of the people has also risen 100 times? Before reaching to such a conclusion, one must remember that the prices of goods and services in the economy has also risen.

    In 1950’s a Delhi-Mumbai air ticket cost in some hundreds, today it cost in thousand. Similarly, the price of Wheat was in few Paisa; it cost around Rupee 50/kg. Therefore, it is not clear from income, that whether the standard of living of people have risen or not.

    To compare the salary of your grandparents to yours, we need some measure of purchasing power or price. The meaningful measure that can perform the task is “Consumer Price Index”.

    Consumer Price Index: CPI is used to monitor changes in the cost of living over time. When the CPI rises, the average Indian family has to spend more on goods and services to maintain the same standard of living. The economic term used to define such a rising prices of goods and services is Inflation.

    Inflation: Inflation is when the overall general price level of goods and services in an economy is increasing. As a consequence, the purchasing power of the people are falling. For example, if the inflation rate is 4 percent, then a basket of goods (food, clothing, footwear, tobacco, electricity etc) that costs Rs 100 in year 2016-17 will cost Rs 104 in the year 2017-18. As more money is required to purchase the same basket of goods and services, we say the value of money/purchasing power has fallen.

    Inflation Rate: Inflation Rate is the percentage change in the price level from the previous period. If a normal basket of goods was priced at Rupee 100 last year and the same basket of goods now cost Rupee 120, then the rate of inflation this year is 20%.

    Inflation Rate= {(Price in year 2 – Price in year 1)/ Price in year 1} *100

    Whole sale Price Index: WPI is used to monitor the cost of goods and services bought by producer and firms rather than final consumers. The WPI inflation captures price changes at the factory/wholesale level.

    The WPI and CPI are different indices and are used for different purpose.

    1. The WPI and CPI use different basket of goods to calculate the inflation.
    2. The weights assigned to food, fuel, manufacturing items etc. are different. For example, the weight of food in CPI is far higher at 46% than in WPI at 24%.
    3. The WPI inflation does not capture price changes of services but the CPI does.

    GDP Deflator: Another important measure of calculating standard of living of people is GDP Deflator. GDP Deflator is the ratio of nominal GDP to real GDP. The nominal GDP is measured at the current prices whereas the real GDP is measured at the base year prices. Therefore, GDP Deflator reflects the current level of prices relative to prices in a base year. Example, In India the base year of calculating deflator is 2011-12.

    The Difference

    Consumer Price Index GDP Deflator
    CPI reflects the price of goods and services bought by the final consumers. GDP deflator reflects the price of all the goods and services produced domestically.
    Example: Suppose the price of a satellite to be launch by ISRO increases. Even though the satellite is part of the GDP of India, but it is not a part of normal CPI index, since we don’t consume satellite. The price rise of the ISRO satellite will be reflected in GDP deflator.
    Similarly, India produces some crude oil, but most of the oil/petroleum is imported from the West Asia, as a result, when the price of oil/petroleum product changes, it is reflected in CPI basket as petroleum products constitute a larger share in CPI. The price change of oil products is not reflected much in the GDP deflator since we do not produce much crude oil.
    The CPI compares the price of a fixed basket of goods and services to the price of the basket in the base year. The GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. Thus, the group of goods and services used to compute the GDP deflator changes automatically over time.

    Producer Price Index

    PPI measures the average change in the sale price of goods and services either as they leave the place of production or as they enter the place of production. It estimates the change in average price that producer receives. PPI measure the average change in the prices received by the producer and excludes any type of indirect taxes. Moreover, PPI includes services also.

    The PPI measure the price changes from the perspective of the seller and differs from CPI which measures price changes from buyer perspective.

    National Housing Banks: Residex

    It is India’s first housing price index which is an initiative of the National Housing Bank undertaken at the behest of Ministry of Finance. The index was formulated under the guidance of Technical Advisory Committee. It was launched in 2007 and updated periodically with 2007 as base year. The coverage of Residex expands to 26 cities.

    Initially, NHB RESIDEX was computed using market data, which 2010 onwards, was shifted to valuation data received from banks and housing finance companies (HFCs). Thereafter, data was sourced from Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) from 2013 to 2015.

    The scope has been widened under NHB RESIDEX brand, to include housing price indices (HPI), land price indices (LPI) and building materials price indices (BMPI), and also housing rental index (HRI).

     

    By
    Himanshu Arora
    Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

     

  • Electoral reform decisions by Supreme Court

    The following Supreme Court judgments were directed towards bringing electoral reforms:

    1. Persons in Custody to be debarred from contesting elections

    As per the 2004 judgment of the Patna High Court in Jan Chaukidari v Union of Indiaupheld by the Supreme Court on 10 July 2013— all those in lawful police or judicial custody, other than those held in preventive detention, will forfeit their right to stand for election.

    The judges relied on the Representation of the People Act (RPA), which says that one of the qualifications for membership of Parliament or State legislature is that the contestant must be an ‘elector’. Since Section 62(5) of the Act prevents those in lawful custody from voting, the reasoning goes, those in such custody are not qualified for membership of legislative bodies.

    Reasoning Against the Judgement

    For a person to be qualified for the membership of legislature, Representation of People Act, 1951 states that one has to be an ‘elector’ as defined in Section 2(e). Section 2(e) defines an elector as “a person whose name is entered in the electoral roll of that constituency and who is not subject to any of the disqualifications mentioned in section 16 of the RP Act, 1950.”

    As the law mentions Section 16 of RPA, 1950 as the basis of disqualification from being an elector, the SC relied on Section 62(5) which does not define ‘elector’ and only debars a person in jail from voting, not from contesting an election. Thus Section 62(5) distinguishes between an ‘elector’ and ‘voter’. The Supreme Court’s judgement effectively amends the law passed by the Parliament.

    2. MPs, MLAs to be disqualified on date of criminal conviction 

    In Lily Thomas v. the Union of India, the Supreme Court declared Section 8 (4) of the Representation of the People Act, 1951, (RPA) which allowed legislators a three-month window to appeal against their conviction — effectively delaying their disqualification until such appeals were exhausted — as unconstitutional.

    Section 8 of the Representation of People Act, 1951 deals with disqualification on conviction for certain offences: A person convicted of any offence and sentenced to imprisonment for varying terms under Sections 8 (1) (2) and (3) shall be disqualified from the date of conviction and shall continue to be disqualified for a further period of six years since his release.

    But Section 8 (4) of the RP Act gives protection to MPs and MLAs as they can continue in office even after conviction if an appeal is filed within three months.

    The Bench found it unconstitutional that convicted persons could be disqualified from contesting elections but could continue to be Members of Parliament and State Legislatures once elected.

    Reasoning Against the Judgment:

    The constitution enlists the disqualification criteria in Article 102(1) includes office of profit, unsound mind undischarged insolvency and citizenship.

    This article also empowers the Parliament to make law specifying any other criterion for disqualification. In accordance with the constitutional mandate, the Parliament enacted the RPA 1951, mentioning the disqualification criteria in Section 8.

    The Supreme Court has given two reasons for its verdict:

    1. First, it held Section 8(4) to be in violation of Article 102, and its corresponding provision for the States, Article 191, of the Constitution. A careful reading of the article 102 clearly empowers the Parliament to define the criterion for disqualification by enacting a law and none of the five clauses of Article 102(1) are attracted to invalidate Section 8(4).
    2. Second, the Supreme Court has held that Parliament had no legislative competence to enact Section 8(4). This reasoning, too, is difficult to accept because Entry 72 to List 1 of the 7th Schedule in the Constitution specifically allows Parliament to legislate on elections to Parliament or the State legislatures. It is well-settled that legislative entries in the Constitution are to be widely construed, and in any case Parliament has residual power to legislate under Entry 97 to List 1.

    3. Voter’s right to cast negative vote

    With a view to bringing about purity in elections, the Supreme Court on Friday held that a voter could exercise the option of negative voting and reject all candidates as unworthy of being elected.

    The voter could press the ‘None of the above’ (NOTA) button in the electronic voting machine. The court directed the Election Commission to provide the NOTA button in the EVM.

    The NOTA option would indeed compel political parties to nominate sound candidates. The bench noted that giving right to a voter not to vote for any candidate while protecting his right of secrecy is extremely important in a democracy.

    Such an option gives the voter the right to express his disapproval of the kind of candidates being put up by the parties. Gradually, there will be a systemic change and the parties will be forced to accept the will of the people and field candidates who are known for their integrity.

    The right to cast a negative vote will foster the purity of the electoral process and also fulfill one of its objectives, namely, wide participation of people. Not allowing a person to cast a negative vote would defeat the very freedom of expression and the right to liberty.

    The Bench held that Election Conduct Rules 41(2) and (3) and 49-O of the Rules were ultra vires Section 128 of the Representation of the People Act and Article 19(1)(a) of the Constitution to the extent they violate secrecy of voting.

    4. The VVPAT Ruling

    Supreme Court (SC), in the case of Subramanian Swamy vs Election Commission of India (ECI), has held that VVPAT (Vote Verifiable Paper Audit Trial) is “indispensable for free and fair elections”.

    In accordance to that, the Supreme Court has directed the ECI to equip Electronic Voting Machines (EVMs) with VVPAT systems to “ensure accuracy of the VVPAT system”. The Court directed the government to provide the key financial assistance to the ECI to cause VVPAT systems to be deployed along with EVMs.

    Reiterating the stand of the Delhi High Court in an earlier judgment, the Apex Court maintained that costs and finances cannot and should not be a deterrent to the conduct of free and fair elections.

    This ruling is obviously a victory for accountable voting in India, but it leaves a few questions unanswered. While this was an exclusive prerogative of the Executive to decide the manner in which fair and efficient elections can be held, but in this case the court not only decided the mechanism but also asked the government to allocate funds.

    5. Ruling on election manifesto

    On a petition filed by an advocate S Subramaniam Balaji, challenging the state’s decision to distribute freebies, the Supreme Court said that freebies promised by political parties in their election manifestos shake the roots of free and fair polls, the, and directed the Election Commission to frame guidelines for regulating contents of manifestos.

    It was stated in the petition that the freebies amounts to bribery under Section 123(1). The Supreme Court rejected the contention that the promises made by a political party are violative of Section 123(1) of the RPA. The provisions of the RPA place no fetter on the power of political parties to make promises in the election manifesto, the court held.

    Secondly, the court held that the concept of state largesse is essentially linked to the Directive Principles of State Policy. Whether the state should frame a scheme, which directly gives benefits to improve the living standards or indirectly does so by increasing the means of livelihood, is for the state to decide and the role of the court is very limited in this regard.

    It held that judicial interference was permissible when the action of the government was unconstitutional and not when such action was not wise or when the extent of expenditure was not for the good of the state.

    The court, however, agreed with the appellant that distribution of freebies of any kind undoubtedly influenced all people. “Freebies shake the root of free and fair elections to a large degree,” it said.

    Considering that there was no enactment that directly governed the contents of the election manifesto, the court directed the E.C. to frame guidelines for the same in consultation with all the recognised political parties. The court also suggested the enactment of a separate law for governing political parties.

    6. Stay on caste-based rallies in UP

    The Allahabad high court stayed caste-based rallies in Uttar Pradesh, a move that will block off a key avenue that the major political parties use to expand their support base, especially before elections.

    The Lucknow bench of the high court sent a notice staying caste-based rallies to four major political parties, the Union and the state governments, and the Election Commission. The four parties are the Congress, the Bharatiya Janata Party (BJP), the Samajwadi Party (SP) and the Bahujan Samaj Party (BSP).

    Holding political rallies by certain groups to address issues specific to them and seeking to win their electoral support is a common practice in the country, most prominently in Uttar Pradesh, where two of the major parties have specific caste bases.

    The petitioner said there had been a spurt of such rallies in the state, damaging social unity and harmony, and that they were against the spirit of the Constitution.

    There is no legal bar to a caste rally, as long as no law is violated. In fact, Article 19(1)(b) of the Constitution gives citizens a Fundamental right to assemble peacefully.

    A political party can call a meeting of a caste, for example, of Dalits to discuss the problems facing that community, and there is no law barring such a meeting. The aforementioned decisions of the Supreme Court and the Allahabad High Court may be perceived as making or amending the law, a function that is in the domain of the legislature.

    7. Ruling on nomination Papers

    The Supreme Court on 13th Sep, 2013 ruled that returning officer can reject nomination papers of a candidate for non-disclosure and suppression of information, including that of assets and their criminal background.

    The apex court said that voters have fundamental right to know about their candidates and leaving columns blank in the nomination paper amounts to violation of their right.

    The court passed the judgment on a PIL filed in 2008 by NGO Resurgence India, a civil rights group, which detected a trend among candidates of leaving blank the columns demanding critical information about them.

    The Election Commission had supported the NGO’s plea that no column should be allowed to be left blank which tantamount to concealing information and not filing complete affidavit.

    It had also taken a stand that the returning officer should be empowered to reject the nomination papers of a candidate who provides incomplete information by leaving some columns blank in the affidavit.

    To summarize, The Representation of the People Act postulates the provisions for the allocation of seats in, and the demarcation of constituencies for electoral purposes, the House of the People and the Legislatures of States, the qualifications of voters at such elections, the preparation of electoral rolls, the manner of filling seats in the Council of States to be filled by representatives of Union territories and matters connected therewith.

  • Model Code of Conduct: Evolution, Enforcement, Effects, Legal Status

    Free and fair elections form the bedrock of democracy. This envisages a level playing field for the contestants and an equal opportunity for all parties for presenting their policies and programmes to voters. In this context, the Model Code of Conduct (MCC) gains relevance.

    The need for MCC is felt for the following reasons:

    1. to provide a level playing field for all political parties, keep the campaign fair and healthy, avoid clashes and conflicts between parties, and ensure peace and order.
    2. to ensure that the ruling party, either at the Centre or in the states, does not misuse its official position to gain an unfair advantage in an election.

    The MCC is a set of norms for conduct and behavior on the part of the Parties and candidates, in particular.

    The uniqueness of the MCC is the fact that this was a document that originated and evolved with the consensus of the political parties.

    The origin of the MCC dates back to 1960 when the MCC started as a small set of Dos and Don’ts for the Assembly election in Kerala in 1960.

    The Code covered conducting of election meetings/processions, speeches, slogans, posters and placards. In 1962 Lok Sabha General Elections, the Commission circulated this code to all the recognized political parties and the State Governments were requested to secure the acceptance of the Code by the Parties.

    The Model Code of Conduct was consolidated and issued in the current form in 1991.

    Evolution of the MCC and its implementation since 1967

    1. In 1968, the Election Commission held meetings with political parties at State level and circulated the Code of Conduct to observe minimum standard of behavior to ensure free and fair elections.
    2. In 1971-72, during General Election to the House of the People/State Legislative Assemblies the Commission circulated the Code again.
    3. At the time of general elections to some State Assemblies in 1974, the Commission issued the code of conduct to the political parties in those States.
    4. The Commission also suggested constituting committees at district level headed by the District Collector and comprising representatives of political parties as members for considering cases of violation of the code and ensuring its compliance by all parties and candidates.
    5. For the 1977 Lok Sabha general election, the Code was again circulated to the political parties.
    6. In 1979, Election Commission, in consultation with the political parties further amplified the code, adding a new Section placing restrictions on the “Party in power” so as to prevent cases of abuse of position of power to get undue advantage over other parties and candidates.
    7. In 1991, the code was consolidated and re-issued in its present form.

    Effects of Application of MCC

    1. The present code contains guidelines for general conduct of political parties and candidates (no attack on private life, no appeal to communal feelings, discipline and decorum in meetings, processions, guidelines for party in power – official machinery and facilities not to be used for electioneering, prohibition against Ministers and other authorities in announcing grants, new schemes etc.).
    2. Ministers and those holding public offices are not allowed to combine official visits with electioneering tours.
    3. Issue of advertisements at the cost of public exchequer is prohibited.
    4. Grants, new schemes / projects cannot be announced. Even the schemes that may have been announced before the MCC came into force, but that has not actually taken off in terms of implementation on field are also required to be put on hold.
    5. It is through such restrictions that the advantage of being in power is blunted and the contestants get the opportunity to fight on more or less equal terms.

    Enforcement

    MCC has got the judicial recognition of the highest court of land. The dispute over the date when the Model Code of Conduct should come into force, the issuance of the press release by EC announcing the poll dates or the date of actual notification in this regard was resolved in the Union of India V/s Harbans Sigh Jalal.

    The apex court gave the ruling that the Code of Conduct would come into force the moment the Commission issues the press release, which precedes the notification by a good two weeks. This ruling lay at rest the controversy related to the dates of enforcement of MCC. Thus the MCC remains in force from the date of announcement of elections till the completion of elections.

    MCC a hindrance in developmental activities?

    One often gets to hear the complaint that the MCC is coming in the way of developmental activities. However, even during the short period when MCC is in operation, the ongoing development activities are not stopped and are allowed to proceed unhindered, and only the new projects, etc. which have not taken off on the ground that have to be deferred till the completion of elections.

    If there is any work that cannot wait for any reason (relief work on account of any calamity, etc), the matter can be referred to the Commission for clearance.

    Legal status of conduct. In what way can the MCC be made more effective?

    The Model Code of Conduct does not a have a statutory backing and it is more a consensus driven code arrived at after consultation with all political parties to ensure free and fair elections and to see that the ruling party does not misuse its dominant position.

    The Parliamentary Standing Committee on Law and Justice recommended in its 2013 report that statutory status be accorded to the MCC.

    The committee held that most of the stipulations of the MCC are already contained in various laws and are therefore enforceable like the violation of secrecy of voting, causing enmity among communities, the prohibition of public meetings 48 hours prior to the conclusion of polls, besides other offences, are covered by the Representation of People Act, 1951.

    Besides, impersonation at voting, offering inducements to voters, or accepting gratification to do something they never intended, amount to bribery under the Indian Penal Code.

    On the basis of the above, the Standing Committee contends that the MCC as a whole could not be construed merely as voluntary in its application. Furthermore, since most of its provisions are enforceable, the remaining stipulations in the MCC should also be accorded statutory backing.

    Another reason for the above recommendation by the Standing Committee is the absence of an immediate appeal mechanism against the decision of the returning officer to cancel the nomination of a candidate. In this case, the decision can only be challenged in the High Court after the announcements of election results.

    The logic against Legal status to MCC

    1. The decision making power will go to the Judiciary and thus the swiftness, expedition and promptness in dealing with the cases of violation of MCC will be gone.
    2. If the model code of conduct is converted into a law, this would mean that a complaint would lie to the police/Magistrate. The procedures involved in judicial proceedings being what they are, a decision on such complaints would most likely come only long after the election is completed.
    3. The legal codification of these norms would be a potential nightmare, exposing the entire electoral process to needless litigation. The broad objectives of MCC are best achieved by oversight of an impartial election watchdog.
  • Administrative machinery for the conduct of elections in India

    Part IV provide for delegation of functions of Election Commission i.e. the functions of the Election Commission under the Constitution, the Representation of the People Act, 1950, and Representation of the People Act, 1951 Act or under the rules made there under may be performed also by a Deputy Election Commissioner or by the Secretary to the Election Commission on the basis of directions as may be given by the Election Commission in this behalf.

    Chief Electoral Officer: The Election Commission of India nominates or designates an Officer of the Government of the State/Union Territory as the Chief Electoral Officer in consultation with that State Government/Union Territory Administration.

    Chief Electoral Officer of a State/ Union Territory is authorized to supervise the election work in the State/Union Territory subject to the overall superintendence, direction and control of the Election Commission.

    District Election Officer: The EC nominates an Officer of the State Government as the District Election Officer in consultation with the State Government.

    The district election officer is authorized to coordinate and supervise all work in the district or in the area within his jurisdiction in connection with the conduct of all elections to Parliament and the Legislature of the State subject to the superintendence, direction and control of the chief electoral officer.

    With the previous approval of the Election Commission, DEO provides a sufficient number of polling stations for every constituency the whole or greater part of which lies within his jurisdiction, and publishes a list showing the polling stations so provided and the polling areas or groups of voters for which they have respectively been provided.

    Observer: The Election Commission may nominate an Observer who shall be an officer of Government to watch the conduct of election or elections in a constituency or a group of constituencies. Earlier, the appointment of Observers was made under the plenary powers of the Commission.

    But with the amendments made to the Representation of the People Act, 1951 in 1996, these are now statutory appointments. They report directly to the Commission. The Observer has the power to direct the returning officer for the constituency or for any of the constituencies for which he has been nominated, to stop the counting of votes at any time before the declaration of the result or not to declare the result if in his opinion booth capturing has taken place.

    In case of stopping the counting of votes or non-declaration of result, a report shall be sent by the Observer to the EC, which issue appropriate directions.

    Returning Officer: The Election Commission of India nominates or designates an officer of the Government or a local authority as the Returning Officer for each of the assembly and parliamentary constituencies in consultation with the State Government/Union Territory Administration.

    Same person can be appointed as the returning officer for more than one constituency. In addition, the Election Commission of India may appoint one or more Assistant Returning Officers for each of the assembly and parliamentary constituencies to assist the Returning Officer in the performance of his functions in connection with the conduct of elections. Every such person must be an officer of Government or of a local authority.

    Every assistant returning officer, subject to the control of the returning officer, is competent to perform all or any of the functions of the returning officer except functions which relate the scrutiny of nominations unless the returning officer is unavoidably prevented from performing the said function. While Returning officer may always include an assistant returning officer in performing any function which he is authorized to perform him.

    It is the general duty of the returning officer at any election to do all such acts and things as may be necessary for effectually conducting the election in the manner provided by RPA, 1951and rules or orders made there under.

    Presiding Officer: The district election officer appoints a presiding officer for each polling station. If a polling officer is absent from the polling station, the presiding officer may appoint any person who is present at the polling station other than a person who has been employed by or on behalf of, or has been otherwise working for, a candidate in or about the election, to be the polling officer during the absence of the former officer, and inform the district election officer accordingly.

    Same person can be the presiding officer for more than one polling station in the same premises. It is the general duty of the presiding officer at a polling station to keep order thereat and to see that the poll is fairly taken.

    Polling Officer: A polling officer performs all or any of the functions of a presiding officer based upon his direction. 

    If the presiding officer is absent from the polling station due to illness or other unavoidable cause, his functions shall be performed by such polling officer as has been previously authorized by the district election officer to perform such functions during any such absence. It is the duty of the polling officers at a polling station to assist the presiding officer for such station in the performance of his functions.

    The returning officer, assistant returning officer, presiding officer, polling officer, and any other officer appointed so and any police officer designated for the time being by the State Government, for the conduct of any election shall be deemed to be on deputation to the Election Commission during the election period and such officers shall be subject to the control, superintendence and discipline of the Election Commission.

  • Process of election to Parliament, State Legislatures in India

    When the term of the legislature is over, or the legislature has been dissolved and new elections have been called, the Election Commission puts into effect the machinery for holding an election.

    In case of Lok Sabha elections have to be concluded before the limit of 6 months that is stated by the Constitution as the maximum possible duration of the last session of dissolved Lok Sabha and the recalling of new House.

    Schedule of elections is usually announced by the Election Commission in a major press conference a few weeks ago before the formal process starts. The model code of conduct immediately comes into effect after such an announcement.

    Formal process of an election starts with calling electorates to elect members of concerned legislature. As soon as notifications are issued, candidates can starts filling their nomination in the constituencies from where they wish to contest.

    These are scrutinized by returning officer of the concerned constituency, after last date for filling the nomination is over (that is about a week). Validly nominated candidates can withdraw from the contest within two days from the date of scrutiny. About two weeks, before actual poll date, is given to contesting candidates for political campaign.

    For national election polling is held on a number of days, this is because of the vast magnitude of operations involved and massive size of electorates. A separate date for counting is fixed and result is declared for every constituency by the concerned returning officer.

    The complete list of the members elected is compiled by the commission and it issues an appropriate notification for due constitution of house. This marks the completion of election process.

    It is necessary for a candidate to make and subscribe an oath or affirmation before an officer authorized by the election commission (Returning Officer or Asst. Returning officer).

    The candidate, in person, is required to make the oath or affirmation immediately after presenting his nomination paper and in any case not later than the day previous to the date of scrutiny.

    In the case of a candidate confined in a prison or under preventive detention, the superintendent of the prison or the commandant of the detention camp in which he is so confined or is under such detention is authorized to administer the oath and in the case of candidate confined to a bed in a hospital or elsewhere owing to illness or any other cause, the medical superintendent in charge of the hospital or the medical practitioner attending on him is similarly authorized.

    If the candidate is outside India, the Indian Ambassador of High Commissioner or diplomatic consular authorized by him can also administer oath/affirmation.

    Election Campaign

     

     

    The campaign is the period when the political parties put forward their candidate and argument with which they hope to persuade people to vote for their candidates and parties.

    Candidates are given a week to put forward their nomination. These are scrutinized by the Returning Officers and if not found in order can be rejected after a summary hearing.

    The official campaign lasts at least two weeks from the drawing up of the list of nominated candidate and officially ends 48 hours before polling closes.

    During the election campaign, political parties and contesting candidates are expected to abide by the model code of conduct evolved by the election commission on the basis of a consensus among political parties.

    The model code lays down broad guidelines as to how the political parties and candidates should conduct themselves during the election campaign.

    It is intended to maintain the election campaign on healthy lines avoid clashes or conflict between political parties and their supporters and to ensure peace and order during the campaign period and thereafter until the results are declared. The model code also prescribes guidelines for the ruling party either at the centre or in the state so that a level field is maintained and ensures that ruling party does not use its official position for election campaign.

    The model code also prescribes guidelines for the ruling party either at the centre or in the state so that a level field is maintained and ensures that ruling party does not use its official position for election campaign.

    Once an election has been called, parties issue manifesto detailing the programmes they wish to implement if elected to government, the strength of their leaders and weaknesses of opposite party and their leaders.

    Voting procedure

     

     

    Voting is by secret ballot.

    Polling stations are usually set up at public institutions such as schools and community halls.

    To enable as many electors as possible to vote the officials of election commission try to ensure that there is a polling station within two kilometer of every voter, and that no polling station should have to deal with more than 1500 voters.

    Each polling station is open for at least 8 hours on the day of the election.

    Electronic Voting Machine

     

     

    An EVM is a simple electronic device used to record votes in place of ballot papers. EC took a decision to use only EVMs in 2004 Lok Sabha elections. SC has passed a judgement to equip all EVMs with VVPAT (Voter Verifiable Paper Audit Trail).

    It has following advantages over traditional voting mechanism:

    1. It eliminates the possibility of invalid/doubtful vote which in many cases are the root causes of controversies and election petitions.
    2. It makes the process of counting of votes much faster than the conventional system.
    3. It is eco-friendly as it reduces the use of paper.

    Election expenses

    According to the section 77 of RPA, 1951, every candidate contesting in election to the House of the People or to the Legislative Assembly of a State, shall, either by himself or by his election agent, keep a separate and correct account of all expenditure in connection with the election incurred or authorized by him or by his election agent.

    Currently the limits on expenditure by candidates are as follows:

      1. Lok Sabha elections: maximum of 70 lakhs; for north eastern and hilly states – 54 lakhs rupees.
      2. State assembly election: maximum of 28 lakhs; for north eastern and hill states – 20 lakhs rupees.

    Every contesting candidate at an election shall, within thirty days from the date of election of the elected candidate or, if there are more than one elected candidate at the election and the dates of their election are different, the later of those two dates, lodge with the district election officer an account of his election expenses which shall be a true copy of the account kept by him or by his election agent.

  • Procedure of registration of political parties with Election Commission

    Any association or body of individual citizens of India calling itself a political party should make an application to the Election Commission for its registration as a political party.

    Every such application, duly signed by the Chief Executive Officer of the association or body (Secretary or any other designation) must be presented to the Secretary of the Election Commission.

    It must contain the following particulars, namely:

    1. the name of the association or body;
    2. the State in which its head office is situated;
    3. the address to which letters and other communications meant for it should be sent;
    4. the names of its president, secretary, treasurer and other office-bearers;
    5. the numerical strength of its members, and if there are categories of its members, the numerical strength in each category;
    6. whether it has any local units; if so, at what levels;
    7. whether it is represented by any member or members in either House of Parliament or of any State Legislature; if so, the number of such member or members.

    The application must be accompanied by a copy of the memorandum or rules and regulations of the association or body and such memorandum or rules and regulations must contain a specific provision that the association or body shall bear true faith and allegiance to the Constitution of India as by law established, and to the principles of socialism, secularism and democracy, and would uphold the sovereignty, unity and integrity of India.

    After considering all the particulars as aforesaid in its possession and any other necessary and relevant factors and after giving the representatives of the association or body reasonable opportunity of being heard, the Commission decides either to register the association or body as a political party, or not so to register it; and the Commission communicates its decision to the association or body. The decision of the Commission is final.

    Every political party may accept any amount of contribution voluntarily offered to it by any person or company other than a Government company, but no political party can accept any contribution from any foreign source.

    The treasurer or any other person authorized by the political party must prepare a report in each financial year listing the contribution in excess of twenty thousand rupees received by such political party from any person or company (Other than Government) in that financial year.

    This report must be submitted to the Election Commission before the due date for furnishing a return of its income of that financial year. If the political party fails to submit a report then it shall not be entitled to any tax relief.

    A recognized political party shall either be a National party or a State party. A political party shall be treated as a recognized National party, if, and only if:

    1. If it secures six per cent of valid votes polled in any four or more states at a general election to the Lok Sabha or to the legislative assembly; and, in addition, it wins four seats in the Lok Sabha from any state or states; or
    2. If it wins two per cent of seats in the Lok Sabha at a general election; and these candidates are elected from three states; or
    3. If it is recognised as a state party in four states.

    At present there are 6 national parties in the country namely BJP, BSP, CPI, CPM, INC and NCP. A political party, other than a National party, shall be treated as a recognized State party in a State or States, if, and only if:

    1. If it secures six per cent of the valid votes polled in the state at a general election to the legislative assembly of the state concerned; and, in addition, it wins 2 seats in the state assembly; or
    2. If it secures six per cent of the valid votes polled in the state at a general election to the Lok Sabha from the state concerned; and, in addition, it wins 1 seat in the Lok Sabha from the state concerned; or
    3. If it wins three per cent of seats in the legislative assembly at a general election to the legislative assembly of the state concerned or 3 seats in the assembly, whichever is more; or
    4. If it wins 1 seat in the Lok Sabha for every 25 seats or any fraction thereof allotted to the state at a general election to the Lok Sabha from the state concerned; or
    5. If it secures eight per cent of the total valid votes polled in the state at a General Election to the Lok Sabha from the state or to the legislative assembly of the state. This condition was added in 2011.

    The status of national or state party is contingent on the performance of a political party’s performance the respective elections. Thus the number of National or State parties vary depending on the assembly or General elections.

    The candidates of recognized parties are entitled for free supply of certain materials like such number of copies of electoral rolls, as finally published under the Representation of the People Act, 1950 and such other material as may be prescribed.

    The Central Government in consultation with the Election Commission can decide items to be supplied to the recognized political parties.

    Other exclusive benefits enjoyed by recognized parties are

    1. Free airtime on Doordarshan and All in Radio for election campaign.
    2. A recognized party needs not to have to get his nomination paper subscribed by at least 10 voters in his constituency.
    3. The name of the candidates nominated by the recognized party are organized in alphabetical order and printed on the top of Ballot paper followed by candidates nominated by registered party and independent candidates.
    4. If a candidate nominated by a recognized party passes away before the commencement of the polling then the election shall be adjourned and the political party concerned will be given one week time to re-nominate a candidate and there after the election process will be completed.
    5. Recognized political parties are entitled to the allotment of symbols given for its exclusive use.
    6. The proposed amendments to the Representation of People act, 1951 for the introduction of state funding of election provides for extending financial assistance only to the recognized party.