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Ujjwal DISCOM Assurance Yojana (UDAY)- A Critical Anslysis

Context

• Launched in 2015, UDAY is aimed at reviving electricity distribution companies (discoms), improving demand and, in the process, resolving the woes in the sector.
• It took off well, with a large number of states joining the scheme.
• Several states took over the debt of their utilities, improving their liquidity situation, even as progress on other key parameters such as reduction in aggregate technical and commercial losses lagged.

Background

• For many decades, State discoms have been supplying electricity at tariffs that are far below cost.
• For obvious political reasons, States have been wary of revising power tariffs in line with rising costs.
• Inefficiencies in power distribution such as large transmission and distribution losses on power, have further strained the finances of the discoms.
• Discoms in the country had accumulated losses of approximately Rs 3.8 lakh crore. Between 2011-12 and 2014-15, the outstanding debt shot up from Rs 2.4 lakh crore to Rs 4.3 lakh crore. This debt is being serviced at interest rates as high as 15 per cent.
• Discoms have stopped buying electricity from power-generation companies and cut down supply to consumers.
• In turn, power-generation companies have suffered from the fall in demand — spot prices for electricity have crashed and are, at present, far below the long-term purchase agreement prices.
• The banks that loaned money to them are accumulating non-performing assets because the latter are in no position to repay.

What is it?

• Under the scheme, States will take over three-fourths of the debt of their respective discoms.
• The governments will then issue ‘UDAY bonds’ to banks and other financial institutions to raise money to pay off the banks.
• The remaining 25 per cent of the discom debt will be dealt within one of the two ways —
• conversion into lower interest rate loans by the lending banks
• or be funded by money raised through discom bonds backed by State guarantee.
• In return for the bailout, the discoms have been given target dates (2017 to 2019) by which they will have to meet efficiency parameters such as reduction in power lost through transmission, theft and faulty metering, installing smart meters and implementing GIS (geographic information system) mapping of loss making areas.
• States will also have to ensure that power tariffs are revised regularly.

How UDAY attempts to improve the situation?

• UDAY attempts to buffer the finances of the distribution companies, or discoms, from the subsidies that state governments may want to provide for power.
• This is done by asking states to issue bonds to banks as repayment for discom dues. The states will now have to directly bear on their budgets the entire cost of the subsidies.
• It attempts to enforce discipline on States as it requires them to absorb a part of future losses of the discoms.

What else can be done to improve the financial health of discoms?

• One way is to ask the consumer to pay full price, as determined by state regulators and later on the state governments can directly transfer subsidy payments to the consumer.
• This way, discoms’ financial health is protected and the subsidy becomes an explicit contract between the government and the beneficiary.
• Another way is to build the subsidy into the tariffs and have an annual budgetary provision for subsidies, which is transferred to discoms at periodic intervals.

What is left out of UDAY?

UDAY is silent on improving the operational efficiencies.

Following ways can be adopted to improve the operational efficiencies:

• Smart metering.
• Upgrading of transformers.
• Separating agricultural connections at the transformer level.
• Use of efficient LED bulbs, agricultural pumps, fans & air-conditioners

Significance of UDAY:

• UDAY aims at reforming the power sector. The discoms poor finances are constraining their electricity purchases, which in turn is forcing generation companies to idle their plants. Reliable, reasonably priced and sustainable power supply is critical for economic growth.
• The power sector’s debt woes have also exposed the banking sector to risks. With this debt now being taken over by the States, banks can be assured of timely repayment.
• It is seen as a path-breaking reform for realizing the Prime Minister’s vision of affordable and accessible 24×7 Power for All.
• It is also a shining example of the utilization of the best principles of cooperative and competitive federalism.
• UDAY also accelerates the process of reform across the entire power sector and will ensure that power is accessible, affordable and available for all.
• Rating agency Crisil believes that by fiscal 2018, UDAY can potentially reduce the power companies’ losses by 50%.

 

Critical Analysis-

• Years after the Ujwal Discom Assurance Yojana (UDAY) scheme was launched by the Centre to rescue tottering State electricity distribution utilities (discoms) the sector continues to be in a mess.
• Discoms of States such as Tamil Nadu, Madhya Pradesh and Maharashtra have defaulted on their PPA obligations forcing the Centre to consider options such as giving more powers to regulators to penalise them. This is not surprising because UDAY was an effective scheme to address the symptoms of the disease but not the disease itself.
• The basic problem is one of a mismatch between the revenues and expenses of the discoms. It appears that in general, in the 10 states that signed up for UDAY, upward tariff revisions have not gone into effect.
• According to the Central Electricity Authority, the average revenue realised by discoms per unit of electricity distributed by them is 3.76 while their cost of supply is 5.01 a unit, which is a deficit of 1.25 a unit straightaway.
• The overall picture is, however, worrying. It suggests that state electricity regulators are still not following one basic principle: that distribution companies must be allowed to charge prices that do not just reflect the cost of purchasing power, but also the cost of delivery and a reasonable return on capital.
• At the time of its launch, observers worried that UDAY did not create any structural reform that would end this dynamic – and the experience so far bears out these concerns.
• Unfortunately, it appears that – although the distribution companies may have petitioned for proper tariff increases – most state electricity regulators continue to be pressured by state governments to spare their constituents the necessary tariff hikes.
• The West Bengal and Delhi governments, in particular, made the nature of this pressure transparent in the past.
• The poor realisations can be attributed to two factors.
• First, the increasing base of rural electricity supply which is typically highly subsidised and non-remunerative,
• And second, the inability to control aggregate technical and commercial (AT&C) losses.
• Similar worries have been set off by the latest scheme, Saubhagya, which promises free connections to village houses. While the supply will be billed, it will be at a subsidised rate. The puzzle for States is one of subsidising the supply.
• The biggest failure of electricity reforms in the last decade and more is on the AT&C front. Though it has reduced from the time when reforms began, AT&C losses at around 22 per cent are still double the global average. Pilferage of power and free agricultural supply are the villains here.
• A recent study by ratings agency Crisil shows that as much as 21,000 MW of private coal-fired generation capacity is under stress for various reasons, including non-payment of dues by discoms.
• Clearly, State governments have to take the issue of discom health seriously and reform their ways of functioning.
• They have no choice anyway because under UDAY the share of discom losses that they have to bear will grow from 5 per cent in 2016-17 to 10 per cent this fiscal, and eventually to 50 per cent by 2019-20.

There are two key aspects to reforming discoms.

• First, reducing technical and commercial losses. Average T&C losses in India are 25 per cent — double the global average. This would require improved metering and cutting down on illegal connections, among other things.
• Second, allowing discoms to align electricity tariffs to the cost of power. Traditionally, discoms cannot charge what it costs them and as such they cannot come out of the debt cycle.
• Institutional safeguards for state electricity regulators are necessary so that they are less prone to being pressured by state governments.

Conclusion

• If the Centre wants UDAY to succeed, then it must not just work on this important structural reform – and, in the interim, put direct pressure on states to fulfil their end of the bargain.
• States should no longer be subject to a moral hazard – they should not feel that populism will go rewarded with another bailout in the future.
• A warning should be issued that states that do not co-operate with UDAY in both letter and spirit will be barred from any further round of reform-linked incentives.

 

Context

• Recently the Law Minister recommended All India Judicial Service as more than 5,000 positions of judicial officers in the district and subordinate courts are lying vacant thus contributing to pendency and a lack of representation in the judiciary from marginalised communities.

Background

AIJS:

• AIJS is a proposed cadre of judicial officers at the lower levels (below High Courts) recruited through an open competitive national level exam.
• It is proposed to be an All India Service under Article 312. A National Judicial Commission will also be constituted to oversee the AIJS, working on the lines of UPSC.
• Currently, the recruitment of lower level judicial officers is conducted by the respective state governments in consonance with the State High Courts.

How Will AIJS function?

• District judges will get recruited centrally through an all-India examination and allocated to each State along the lines of the AIS.
• It is well argued that it will ensure a transparent and efficient method of recruitment to attract the best talent in India’s legal profession.
• A slighter version of this, with judges recruited by High Courts on the basis of a common examination is currently being debated in the Supreme Court.

A Brief History Of AJIS

• The Constitution of India in its original form did not carry any provision on AIJS but the Drafting committee, at last, came out with Article 235 which puts the lower judiciary under the control of the High Court.
• The idea of formation of AIJS first came out as a proposal by the Law Commission of India in 1958.
• After the Swaran Singh Committee’s recommendations in 1976, Article 312 (which deals with creation of new All India Service (AIS)) was modified to include the judicial services, but it excluded anyone below the rank of district judge.
• The Chief Justices Conferences in 1961, 1963 and 1965 favoured the creation of an AIJS, but the proposal had to be shelved after some States and High Courts opposed it, as it takes away their powers to recruit lower level judiciary.
• Recruitment to lower judiciary is the responsibility of state governments which is either done by state High Courts and in other states by state level Public Service Commissions.

Need for All India Judicial Service:

• Huge vacancy of judges and delay in recruitment: Currently there are about 5400 vacant posts in lower judiciary across the country and a pendency of 2.78crore cases in lower judiciary primarily due to inordinate delay in holding regular exams by states.
• Dearth of good quality judicial officers: The ever continuing decline in their quality will delay delivery of justice, increase pendency of cases, impair quality of judgments, and in turn affect the competence of higher judiciary as well.
• Lack of finances with state governments: State judicial services are not attractive for ‘best talents’ due to low salaries, rewards and compensations by the state governments.
• Lack of specialized state training institutions: Adjudication is a specialization which requires state of the art training institutes and professors but state institutes don’t allow such exposure to interns.
• Discretion of a narrow body:The process of selecting a good judge is a difficult job and should not be left at the discretion of few persons (collegium) however sagacious they may be.
• Subjectivity in the process: Current judicial appointments at the lower level and upper levels suffer subjectivity, corruption and nepotism on the part of Collegium, hence there is a need to reflect the social reality and diversity of the country by establishing a neutral and impartial system of recruitment.

Objections to AIJS:

• Dilutes separation of power: If the control over state judiciary is transferred to Union government, through AIJS, by removing control of High Court as provided under Article 235 currently, independence of judiciary would be undermined.
• Problem of mismanaged legal education: Curriculum followed by law universities, overseen by Bar Council of India, lacks effective standards (barring few National Law Universities) which results into low-quality legal research and scholars, a problem unaddressed by AIJS.
• Uncertainty regarding posts to be covered: There is lack of consensus and uncertainty of the level upto which posts should be included in Indian Judicial Service.
• Local language problem: Courts up to District and Sessions Judge transact their business in State language and AIJS officers would find difficult to acclimatize themselves with local language, thus hampering dispensation of justice.
• Restricts promotional avenues for State officers:  Avenues for promotion would be curtailed for those who had already entered through the state services if officers at senior levels are taken through AIJS, which will affect the manning of State Judicial Service.
• Discriminatory for weaker sections: A “national exam” risks shutting out those from less privileged backgrounds from being able to enter the judicial services.
• Affects only tip of the iceberg:
• AIJS addresses neither the problem of disproportionately low pay nor unavailability of adequate judicial infrastructure (including courts or training of officers) in states nor the lack of career advancement.
• Though first two are responsibility of State governments, but the latter is judiciary’s responsibility, but no changes have been made to ensure better district judge representation in the High Courts, as less than a third of seats in the High Courts are filled by judges from the district cadre.
• Problem of local laws and customs: AIJS does not take into account the problem of local laws, practices and customs which vary widely across States, thus increasing the costs of training for judges selected through the mechanism.
• Instituting an AIJS would mean that nationally dominant SC, ST and OBC groups would be at an advantage as they can compete for posts across the country, which they would otherwise be disqualified from because of the domicile requirement. Thus an AIJS will have consequences for State-level politics.
• The argument that the centralisation of recruitment processes through the UPSC automatically leads to a more efficient recruitment process is flawed and not a guarantee of a solution. For example, the Indian Administrative Service — its recruitments are through the UPSC — reportedly has a vacancy rate of 22%, while the Indian Army’s officer cadre, also under a centralised recruitment mechanism, is short of nearly 7,298 officers.

Benefits of AIJS:

• Accountability and transparency: A career judicial service will make the judiciary more accountable, more professional, and arguably, also more equitable.
• Infuses objectivity in recruitment: Open competitive exam would bring objectivity in the recruitment process of judiciary by reducing discretion of selection panel.
• Securing the best talent: AIJS will ensure a transparent and efficient method of recruitment to attract the best talent in India’s legal profession. Also the prospects of promotion to High Courts, for lower judiciary, at an early age would increase as they currently join at much later age than judges from the Bar.
• Uniformity across the country: Quality of adjudication and the dispensation of justice would attain uniformity across the country by ironing out state-level differences in laws, practices and standards.
• Checks pendency of cases: Streamlined and objective recruitment process would ensure regular stream of good quality judicial officers for vacant posts, which would reduce pendency of cases.
• Representative Character: AIJS will improve the judiciary’s representative character by drafting in trained officers from deprived sections of society especially women and SC/STs.
• Overall Efficiency: A well-organized judicial service can attract talent from our law schools and young, well-informed judicial officers at the level of additional district judge will make a difference. As ADJs and district judges, they can help make the judicial system move faster and more efficiently,

Way-forward:

• In its report on Strategy for New India @75 which defines objectives for 2022-23, Niti Aayog suggested that
• an all-India judicial services examination on a ranking basis can be considered to maintain high standards in the judiciary.
• there is a need to facilitate the availability and usage of video-conferencing facilities to assist in speedy access to justice and to minimise logistical issues.
• To maintain judicial independence, the cadre should report to the Chief Justice in each High Court.
• AIJS is a sound idea to attract capable judicial professionals who can make our subordinate judiciary robust by speeding up disposal of cases, ensuring right decisions that do not lend themselves to appeal and thereby bringing down the possibility of appeals to the minimum.
• The competence and quality of the lower judiciary is crucial for revitalizing the entire edifice of Indian judiciary.

Also,

• Members of AIJS will be allocated to the states, and except the manner of recruitment, they will be subject to direct control of High Courts under Article 235.
• ‘All India Judicial Commission’ also recommended, on the lines of UPSC, with powers to take care of AIJS, hence independence of subordinate judiciary is expected to further strengthen rather than being eroded.
• Article 236 clearly defines what posts are included in the expression ‘District Judge’ and when read with Article 312, the level of posts to be included in AIJS and their nature becomes clear.

Conclusion

• If we want to create a robust judicial system at the subordinate level and a rich pool to draw from for the appointment of high court and, later, Supreme Court judges, the constitution of an Indian judicial service is a sound idea.
• Only a meritocratic service with a competitive recruitment, high-quality uniform training and assured standards of probity and efficiency would be able to ensure speedy and impartial justice in India.

Context

• The Indian Parliament passed the Constitution 124th (Amendment) Bill, 2019 that seeks to provide 10 per cent reservation in jobs and educational institutions to economically backward section in the general category.

Background

124th Constitution Amendment Bill (2019)

• Constitution 124th Amendment Bill, 2019 provides ten per cent reservation to the economically weaker sections (EWS) in the General category. The bill facilitates reservation for EWS in direct recruitments in jobs and admission in higher educational institutions.
• The reservation of EWS of general category will be given without tampering the existing quotas for SC, ST and OBCs people.
• The bill is expected to benefit a huge section of upper castes including Brahmins, Rajputs (Thakurs), Jats, Marathas, Bhumihars, and several trading castes including Kapus and Kammas.

What will the “Economically Weaker Sections Quota bill” amend in the Indian Constitution?

• Amendment to Article 15 (Reservation in Educational Institutions)
• In article 15 of the Constitution, after clause (5), the following clause shall be inserted, namely:—
  ‘Nothing in this article or sub-clause (g) of clause (1) of article 19 or clause (2) of article 29 shall prevent the State from making,— any special provision for the advancement of any economically weaker sections of citizens other than the classes mentioned in clauses (4) and (5) in so far as such special provisions relate to their admission to educational institutions including private educational institutions, whether aided or unaided by the State, other than the minority educational institutions referred to in clause (1) of article 30, which in the case of reservation would be in addition to the existing reservations and subject to a maximum of ten per cent of the total seats in each category.
• Amendment to Article 16 (Reservation in Jobs)
• In article 16 of the Constitution, after clause (5), the following clause shall be
  inserted, namely:— “(6) Nothing in this article shall prevent the State from making any provision for the reservation of appointments or posts in favour of any economically weaker sections of citizens other than the classes mentioned in clause (4), in addition to the existing reservation and subject to a maximum of ten per cent of the posts in each category.”.

Who comes under the “Economically Weaker Sections”?

The proposed amendment Bill will define the Economically Weaker Section (EWS) as one having:

• Annual household income below Rs 8 lakh
• Agriculture land below 5 acres
• Residential house below 1000 sqft
• Residential plot below 100 yards in notified municipality
• Residential plot below 200 yards in non-notified municipality area

Reservation in India – The Present and the Future…

• At present, reservations in India account for a total of 49.5%. If the 10% extra reservation for EWS is also taken into account, it would be 59.5%.
• 7.5%, 15%, and 27% quotas are reserved for Scheduled Tribes, Scheduled Castes, and Other Backward Classes respectively.
• If the EWS Quota Bill becomes an Act, only 40.5% of seats will be allocated in educational institutions/jobs based on the merit of candidates. As pointed by Supreme Court, increase in reservations can compromise the merit.

Is Present quota identical to one defining creamy layer among OBCs?

The proposed criteria for adjudging who is “economically weak” is identical to the one applied for defining “creamy layer” among the OBCs who are debarred from quota benefits.

The measure, which was criticised as “excessively liberal” when enforced for defining who constituted the “creamy layer” among the OBCs, will mean that almost the entire population, except the rich who number around just above a crore or so, cutting across communities, becomes eligible for quotas.

Does India need reservation?

• It’s the duty of the government to provide equality of status and opportunity in India.
• Reservation is one of the tools against social oppression and injustice against certain classes. Otherwise known as affirmative action, reservation helps in uplifting backward classes.
• However, reservation is just one of the methods for social upliftment. There are many other methods like providing scholarships, funds, coachings, and other welfare schemes.
• The way reservation is implemented and executed in India is largely governed by vote-bank politics.
• Indian Consitution allowed reservation only for socially and educationally backward classes. However, in India, it became caste-based reservation instead of class-based reservation.
• Initially, the reservation was intended only for SC/ST communities – that too for a period of 10 years (1951-1961). However, it got extended ever since. After the implementation of Mandal Commission report in 1990, the scope of the reservation was widened to include Other Backward Communities (OBCs).
• The benefits of the reservation were successively enjoyed only by a few communities (or families), excluding the truly deserving ones. Even 70 years after independence, the demand for reservation has only increased.
• Now, with the introduction of economic criteria for reservation, in addition to the caste-criteria which already existed, things have become more complicated.

Implications of Constitution 124th (Amendment) Bill, 2019

• This will be the first time that poor non-OBC non-SC/ST individuals will get a chance. And given that Muslims are the poorest (economically weakest), they should obtain preference in the EWS 10 per cent quota.
• general category jobs are open to everyone, including Scheduled Caste (SC), Scheduled Tribe (ST) and OBC individuals. Thus, by removing 10% jobs from the “open” category, it reduces the opportunities for currently reserved groups.
• In era when skill demands are rapidly outpacing supply of candidates in specialised fields, the EWS quota increases the constraints.

Unequals should not be treated equally, but is reservation the only solution?

• There is no doubt that unequals should not be treated equally. However, is the current system of unequal treatment perfect? Is it creating more injustice? Is it the only way out in a welfare-nation? It’s time to introspect.
• Reservation based entirely on economic criteria is not an all-in-one solution, though family income can be one of the parameters. Also, its time to fix a time period for the reservation system – rather than extending it to eternity.
• Denying India, the service of the meritorious candidates, who see them being overtaken by others with lesser academic performance or brilliance, is also a crime and injustice.
• Aren’t there any alternative mechanisms to uplift the marginalised so that everyone gets equal opportunities? How is affirmative action done in other countries?
• Reforms in the reservation system of India is the need of the hour. However, as the subject of reservation revolves around a lot of votes, parties are reluctant to disrupt the existing system.

Government’s view

• Reacting to the passage of the bill in Lok Sabha, Prime Minister Narendra Modi said, it is a landmark moment in the nation’s history and an effective measure that ensures justice for all sections of society.
• Finance minister Arun Jaitley, building the case for the 10 per cent quota, said, “If two individuals are not equal due to birth or for economic reasons, then they cannot be treated equally. Unequals cannot be treated equally,” he said.
• He further contended that the 50% cap on reservations imposed by the Supreme Court was only for caste-based reservations, and the Economically Weaker Section (EWS) reservation won’t be impacted by it.
• Union Social Justice and Empowerment Minister Thaawarchand Gehlot said the similar state laws for EWS quota were quashed by Courts because there was no provision for economic reservation in the Constitution before.  Now, the Law will not be struck down by the Supreme Court if challenged as it has been brought by making required provisions in the Constitution.

Will Supreme Court consider the 124th Constitutional Amendment Bill as valid?

• Except in a few states like Tamil Nadu, the cap of reservation is 50%. This limit is set by the Supreme Court to avoid the vote-bank politics of providing quotas thus compromising the merit. Tamil Nadu has a law which provides for 69% reservations, which has been inserted into the ninth schedule of Constitution to immunize it from judicial review.
• A nine-judge bench decision of the SC in the Indira Sawhney case(1992) had capped the upper limit of reservation at 50%. The Indira Sawhney case had further held that social backwardness cannot be determined only with reference to an economic criterion.
• So the limits imposed by the nine-judge bench in 1992 would be the major litmus test for this bill. If the same standards are upheld by the Supreme Court, the 124th Constitutional Amendment Bill will be declared null and void.
• The Gujarat Government had already brought an ordinance to provide 10% quota for EWS in the forward castes. However, in August 2016, the Gujarat High Court had quashed this ordinance. The High Court, however, observed that the “unreserved category itself is a class” and economic criteria was too fluctuating a basis for providing quota.

Future Implications:

• If the Supreme Court agrees to lift the 50% cap, all States of India can extend the quantum of reservation and “upper castes” will stand to lose in State services.
• If the Supreme Court rejects the idea of breaching the 50% cap, Economically Weaker Section (EWS) quotas can be provided only by eating into the SC, ST and OBC quota pie, which will have social and political implications.
• The move may have some appeal to upper castes in States.

Redesigning Reservation System

• One strategy may be to try and spread the benefits of reservations as widely as possible within the existing framework and ensure that individuals use their reserved category status only once in their lifetime.
• we need to focus on reducing inequalities where they first emerge, within primary schools.