Everything we should know about the Lokpal

While the whole nation is desperately waiting for the Lokpal bill, do we actually know what the Lokpal is all about? Will the Lokpal really bring change against corruption in India? How will it change? What are the basic mechanisms? Why is the Government objecting to certain clauses? Why is the AAP objecting to the present bill introduced in the Parliament? What is in the bill…?

I have compiled information from various sources (which are given below with links), then I interpreted them and I came out with answers in easy language. So everything that we should know about the Lokpal – it is here!

1) What is Lokpal?

Lokpal is a Hindi translation for what is known internationally as “Citizen’s Ombudsman”. In Hindi, it literally means the caretaker of people. What does an ombudsman actually do? Generally speaking, the role of an ombudsman is to look into the cases of corruption and to oversee the inquiries made against corruption charges against government officers.

If somebody believes that any government officer is misusing his powers for corrupt practices, then the Lokpal is meant to see to it. For example, if a government officer is not sanctioning a highway project and is asking for bribe, or if a tax officer is unnecessarily harassing you, or if a government company is unethically favouring only one party in their services, you can go to the Lokpal. The ombudsman has the duty to initiate inquiry into the matter.

The Lokpal shall have 8 members. The Chairman shall be a former Chief Justice of India. 4 of these members will be from judicial background, while the other 4 shall be senior persons who have more than 25 years of experience in dealing with corruption related issues. 

2) What difference will the Lokpal bring when we already have the CBI?

Now this is the most important question we need to ask. We already have the Central Bureau of Investigation in India. Does it make sense to come up with another body called the Lokpal? What difference will the Lokpal bring?

Now understand that the basic problem with the CBI is that it is not independent. Many people have criticised that the CBI is a “caged parrot”. I have discussed in detail as to why the CBI is so called (see question 4 later). For now, let me begin by saying that the biggest difference that is being brought about by the Lokpal is that it will be independent.

What is the meaning of independence? Remember that independence is something which is governed by some basic factors like – who has the power to appoint or remove the Lokpal? What approvals does the Lokpal need to take before initiating any inquiry? The answers to these questions follow. I hope you shall understand the concept of independence in detail after reading the next two-three questions.

3) Who has the power to appoint or remove the members of Lokpal?

Let us first talk about appointment. The President of India will appoint the members of Lokpal. However, the President shall appoint the members only after recommendation from the Selection Committee. Therefore, effectively, the appointment is in the hands of the Selection Committee. Now who is in the selection committee? It has the Prime Minister, Speaker of the Lok Sabha, Leader of Opposition, Chief Justice of India and one eminent jurist.

Now consider this. The government does not have any role in the appointment of the members of Lokpal. So the first important test for independence is fulfilled. Now we shall talk about removal of the members of Lokpal. As regards removal, the bill says that –

The President shall have the power to remove the members of Lokpal. However, removal shall be ordered only after Supreme Court reports that the member is fit to be removed after conducting an inquiry. This inquiry can be done in three cases. The whole provision is summarised below (Users viewing on mobile can click on the image to enlarge it)

So we realise that the removal of members of Lokpal is also not very easy and is certainly not in the hands of the government since there is a Supreme Court monitored enquiry that is necessary before the removal is ordered. Therefore, it appears that the Lokpal is an independent body.

Now we move on to find out the other procedures that the Lokpal can do and check whether those provisions are based upon the principle of independence.

3) What power does Lokpal have over the CBI?

As per the Lokpal Bill, the Lokpal shall establish an inquiry wing for itself. However, apart from that the Lokpal can also order the CBI to investigate any matter. Practically speaking, a totally new inquiry wing for the Lokpal is definitely not possible. Therefore, let us settle for the fact that the Lokpal shall use the resources of CBI to conduct an enquiry.

Now suppose that any issue of corruption is brought to the notice of Lokpal. How does the Lokpal go ahead and investigate the matter? Simply speaking, the Lokpal shall order the CBI that an investigation should be conducted.

Point to be noted: The CBI is only an investigating agency. The CBI cannot conduct any investigation without obtaining approval of the Central Government. However, if an investigation is ordered by the Lokpal, then such approval is not required.

Present Scenario Suppose we find that any government officer is corrupt. Now, before the CBI can conduct any investigation, it had to seek approval from the Government only. Further, the CBI was supposed to report to the government. Isn’t that strange? Why would the government order an investigation against its own officer? Even if it does, it used to closely monitor the case.

After the Lokpal comes Suppose we think that any government officer is corrupt, the Lokpal can directly make a reference to the CBI. The CBI does not need any approval from the government. Also, the CBI does not have to report to the government. Therefore, the CBI can independently go ahead and conduct investigation against the Government, because it is monitored by the Lokpal, not the government.

4) Does that mean that the CBI is also independent?

Consider this – we now know that the Lokpal is independent. Also, the Lokpal can order the CBI to conduct any inquiry against the government officers, without requiring any approval from the government. So far, all is well. But who appoints or removes the CBI officers? Is the CBI really independent?

  

Present Scenario The CBI director is appointed by the Central Government, after recommendation by the Central Vigilance Officer, Home Ministry and Secretary to the Government. Other CBI officers are also appointed by the Central Government after recommendation by the above mentioned committee.

After the Lokpal comes The CBI director will be appointed by the Central Government, after recommendation by the Prime Minister, Leader of Opposition and Chief Justice of India. However, other CBI officers are still appointed by the Central Government after recommendation by the Central Vigilance Officer, Home Ministry and Secretary to the Government, after recommendation of the CBI Director

To a certain extent, the CBI director will be less afraid now since his appointment and removal is not completely in the hands of the government. But what about other CBI officers?

5) What is AAP talking about? What is the confusion between Anna Hazare and AAP?

The original Jan Lokpal bill for which Anna Hazare was fighting – insisted that the appointment and removal of CBI officers should be under the control of Lokpal. Originally, the demand was that the CBI should completely merge with the Lokpal. In that way, there would be a complete autonomy of CBI and the Government will have no powers to interrupt in the investigations against corruption.

However, the bill as passed by the Lok Sabha and which is pending in the Rajya Sabha says that the appointment of other CBI officers is still in the hands of the government (except the director). Therefore, the appointment of CBI is within the control of the government but the services of CBI will be used independently by the Lokpal.

It is like Lokpal telling the CBI – go ahead and freely conduct an inquiry against the government. However, if the government removes you, we cannot do anything to protect you. Because your appointment, removal and promotion is still in their hands!

6) Can the Lokpal initiate proceedings against all officers?

The provision of the Lokpal bill is as follows –

Prime Minister

The Lokpal can conduct any inquiry against the Prime Minister (present or past). However, the conditions are –

1) It cannot conduct any inquiry in matters related to international relations, defence, atomic energy and space.
2) It cannot conduct any inquiry (in other matters also) unless at-least 2/3^rd of the Lokpal members agree that such an inquiry must be made.
3) Inquiry should be made in camera.

Other ministers and Members of Parliament

The Lokpal can conduct any investigation against any other minister and any Member of Parliament without any conditions.

Group A and Group B Officers

These include officers like (random examples) the Commissioner of Income tax, Magistrates, Vice Chancellor of government universities etc. The Lokpal can monitor the cases against any of these senior officers.

Group C and Group D Officers

These are more junior level officers. For example, Central Excise Inspectors, Tax Assistants, Telephone Company operators down to the junior level of clerks and peons. However, the Lokpal does not have direct control over the cases against these officers. See the next question for details.

7) What is the procedure for conducting an investigation?

The whole process (clause 20 of the Lokpal bill) is summarised diagrammatically as below (Users viewing on mobile phones can click on the image to enlarge it) – 

After the preliminary enquiry, the Lokpal can decide whether to proceed with further inquiry or whether to drop the case. Before doing this, Lokpal shall give the concerned person an opportunity to explain his stand.

If the Lokpal decides that it wants to proceed with further inquiry – it shall refer the matter to the CBI and order the CBI to conduct a further inquiry. CBI should investigate the matter within 6 months. During this time, the CBI shall give reports to the Lokpal regarding how the case is progressing.

If the alleged corruption is found to be true, then the Lokpal can order the CBI to initiate the proceedings against the person in any Special Court of CBI for this matter. Thereafter, the court will decide whether the alleged act of corruption is true or not. And then, the court will give relevant punishment to the concerned person.

Key Points to be noted

1) The Jan Lokpal bill wanted that the CBI and CVC should merge with the Lokpal. In that case, the unnecessary time taken in transferring the cases from one place to another will be saved. Also, more transfers means lose hold. This is a major point.

2) Secondly, as I already pointed out, the appointment of CBI officers (other than the CBI Director) is still in the hands of the government only. This might mean that the officers will not be very much independent to conduct any inquiry against the government.

3) The CVC and CBI shall report to the Lokpal. However, for lower level officers, the Lokpal will not have a direct control. Therefore, this can be one loophole. In our day to day affairs, we need to interact with these junior level officers only, such as tax inspectors, over whom the Lokpal does not directly have a control.

Conclusion

All the important provisions of the Lokpal bill have been summarised above. Upon reading the same, we all have the right to decide whether the Lokpal bill presented in the Parliament, passed by the Lok Sabha and pending before the Rajya Sabha – whether it will help to curb the corruption cases in the country.

I am not here to give my opinion. I am only here to give the facts. I hope this was helpful. For verifying everything that I have written over here, I am also disclosing below the source of information for all these provisions.

Best regards,

CA. Palkesh Asawa

Sources of Information

1) The Lokpal Bill as passed by the Lok Sabha-

 http://www.prsindia.org/uploads/media/Lok%20Pal%20Bill%202011/Lokpal%20and%20Lokayuktas%20Bill%20as%20passed%20by%20LS.pdf

2) The Delhi Special Police Establishment Act (the law which governs CBI)

http://cbi.nic.in/aboutus/dspe.php

When rupee becomes cheaper, money becomes dearer!

Everyone has been expressing worries over the rupee losing substantially against the dollar. Indeed, there is something about this that should induce the feeling of worry. However, there are certain things that need to be kept in mind before we comment upon this. Presented below are some of the key facts and theories that should be associated with the context before taking a decision.

What happened?

Over the past week, there have been some strange movements in the financial markets across the globe which has drawn eyes from all over. In context of India, some important observations are –

·         Rupee fell to an all-time low of ₹58.90 against the US dollar.

·         The stock markets crashed with Nifty falling below 5800 and Sensex also losing 300 points

·         The prices of oil are expected to be increased by the end of this week

·         Something worth noticing is the net cash outflow of FII investments

On a close analysis, there are a lot of interlinked relationships that undermine how the economy would behave over the next week and what it means for you. In this post, I have tried to explain the underlying concepts and link them with the facts in hand in order to grasp a bigger and closer look at the situations in hand.

The reason for the downfall

Understanding economics is generally very easy. There is a big possibility that we establish the link between the cause and the effect. Nevertheless, the dispute arises when we are unable to determine whether an event serves as the cause or the effect! This fallacy is an inevitable part of economic analysis. In the given case, something similar happened.

According to experts, the basic reason for the downfall of the rupee is the heavy sale of debts by FIIs in India. Think of it this way, a lot of institutions from abroad had invested money in India in the form of debentures or bonds. Now, they suddenly began withdrawing their investments. How do they do this? Simply by selling the bonds in India and realising rupee; and then by SELLING the rupee to convert it into dollars and taking the dollar away! When the price of rupee begins to fall, other FIIs who have not sold the investments yet start to worry. This is because the value of their investment is likely to fall. Consider it this way – had I sold my investment to withdraw money earlier, I could have got $ 1 for every ₹ 55. However, now I shall have to sacrifice ₹ 58 to get one dollar (which means lesser number of dollars). This fear induces a further sale of investments and lead to a further fall in the price of the rupee!

The impact on the stakeholders

The news regarding the rupee crashing against the dollar has been in hype for quite a while now. It is apparent in such situations for everyone to be curious about how this significant change would impact their lives. Therefore, I have shortlisted some of the key observations that people may find interesting and important with regard to this economic observation –

The importers

Due to the depreciation in rupee, the purchasing power of the rupee has gone down. Therefore, the importers will find it costlier to pay the import bills. Since India is largely dependent on import, this is a reason to worry. Many companies that import raw materials will find that it clearly affects the cost. Most likely, the cost of depreciation will be transferred to the ultimate user who will then face increased cost.

The exporters

On the contrary, exporters have a merry time. Indian industries, such as the IT industry considers it a good news that the rupee is depreciating since it would mean a higher rupee earning for their export bills which are mostly denominated in the US Dollar. It is expected that the IT Industry, pharmacy and the BPO industry will be the largest gainers in this case.

Indian investors – stock market

As the fact speaks, stock prices are expected to tumble as a result of the rupee depreciation. However, it is interesting to observe that the exodus of the FIIs from the debt market has not been observed in the equity market. This means that the present downfall in the equity market is more due to the sentiments of Indian investors and not due to FIIs. In my view therefore, the stock markets will not continue this behaviour in the future and should recover soon.

Foreign Institutional Investors

In the debt market, most of the FIIs have already started exiting the Indian markets. A big reason for this is that the dollar is on the rise. That is to say, it is not the weakness of rupee but the strength of the dollar that is affecting it this way. The world economy has realised that the dollar would rise in the future, owing mainly to the Eurozone crises. In this case, it is generally advisable to invest in the dollar rather than the rupee. For this reason, the FIIs are expected to continue exiting from the Indian market. This will lead to a further rise. In my view, some corrective action by the market regulators like the RBI is required to prevent this from happening.

It has been observed that the RBI had actually intervened in the market by using its forex reserves to purchase Indian Rupee and thereby increasing the demand (and stabilising the price fall in the process). However, no significant action has yet been observed.

Borrowers

There are many organisations that have purchased debt from abroad. In other words, they have borrowed money from the US banks. For them, this is a bad news. They have to account for interest which is denominated in the dollar. It is interesting to note that a similar situation arose back in 2009 and heavy losses were depicted in the accounts of many companies. We should recall how AS-11 was amended to allow the companies to debit those losses over a period of time.

Generally speaking, the fall in the value of rupee will have a direct impact on the financial results of most of the Indian corporates; except maybe those that are net exporters (such as IT, Pharmaceuticals etc.). However, most of these exporters hedge their positions, which is why they may not gain extraordinarily.

The consumer – you and me

The consumers will generally have to bear the high cost of imports. The most significant impact will be observed in the petroleum industry. The Economic Times has already reported that the prices of oil are likely to increase by the end of this weekend. Apart from oil, imported products in general would get costlier. It should be noted that currency depreciation has a direct impact on inflation.

Lenders (Investors)

There are many people who invest their money in bank accounts in anticipation of interest. It is interesting to analyse how the interest rates in India will move as a consequence of this. Generally speaking, when the investments move out of the country, the demand for Indian rupee falls. As a result of this, the interest rates also fall. However, in case the RBI decides to intervene, a very major tool (apart from using the forex reserves) is to increase the interest rates in India.

When the interest rates in India increase, it will lure investors from abroad and will therefore allow the rupee to gain again as the demand for rupee rises. However, it should be noted that any such step will have a direct impact on the inflation. Therefore, a lot depends on how the central bank seeks to solve this situation.

The irony worth noting

The basic reason why the rupee began to fall is not an inherent weakness in the rupee, but a visible strength in the dollar. Think of it this way, the dollar is anticipated to rise in the future and so everyone expects to invest in the dollar. All other investments, whether in rupee or in any other currency are consequently withdrawn. This is evident from the fact that the Indian Rupee is not the only currency that has seen a steep fall in the recent time.

Therefore, there is not much to worry. As the rallying towards the dollar stops, FIIs will be attracted towards all the markets as such. The chief economic advisor to the government was yesterday reported as saying that the government is ready for short term intervention (such as selling the dollar by using up the forex reserves) but no fundamental intervention is required. What he probably meant was that there is no reason why the interest rates should be tampered with in this situation.

Rupee cheaper and money dearer

In the whole process, the net impact will be saddening due to the fact that the purchasing power of the rupee has gone down. Now, as a whole, you will be able to buy lesser material for the same amount of money than you used to buy earlier. This means inflation, in all the aspects of the term.

However, as I pointed out earlier, this is not an inherent weakness in the rupee which is causing this demise. It should be noted that rupee is amongst a barge of currencies that are being offloaded to invest into the dollar. How long the arbitrage continues depends on the inherent strength of the dollar, which is not so easy to determine. The good news is that many of the Indian companies had hedged their positions against the falling rupee. Due to this, the losses are likely to be restricted.

The future seems dismal, but there will be a sunlight soon. How soon? Well, we will have to wait and watch!

CA. Palkesh Asawa

Mumbai, India



 

Everything you should know about GST

We all have heard about Goods & Services Tax. It is one of the many legislatures that are pending in the list of changes that we might see in times to come. But GST is something totally different from all these. This tax is a consolidation of many indirect taxes already levied in India, thereby drastically overhauling the system of indirect taxes in India.

Service Tax – Reverse Charge Made Easy!

Change is for good – if you believe it, good enough; but if you do not, well – it will change! That is the only piece of advice that can be rendered to people who are confused owing to some of the amendments in the service tax law. A big chunk of the law was amended last year; and even as of today, there are a number of practical difficulties that are being experienced as a result of it. Here, we touch upon one of these sensitive matters and try to have a 360⁰ view of the issue – Reverse Charge.

General Budget 2013: Out of the L(Oops!)

Listening to the Budget Speech 2013 was more fun than I ever expected. The Finance Minister carried a simple and single attitude throughout the speech. His mindset was very clear the way he started it. He accepted the fact that Indian economy is going through a slowdown. He referred to the good old days back in 2009-10 when the average growth rate of GDP was over 8%. Using this fact to point out at our potentials, the minister focused on the need for growth. And then came his punch-line, and I would accept I became a fan of him the moment he said that – My motive of this budget is to ensure a higher growth leading to inclusive and sustainable development.