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Thursday, September 2, 2010

Is salary hike for MPS justified

(Published at daily english news paper "Eastern Chronicle" on dated 01.09.2010)

On 19 August 2010 the Indian cabinet cleared a 300 percent salary hike for Members of Parliament (MP) and doubled their perks. However, out of 543 MPs, 315 parliamentarians from various parties were dissatisfied and stalled Lok Sabha proceedings seeking more money. The reason? The revised pay of a Member of Parliament in India is way below the salary of a secretary ranked bureaucrat draws after the implementation of the 6th Pay Commission’s recommendation two yeas ago. They were expecting a salary of approximately 80,001 per month, which is at least one rupee more than that of a bureaucrat.

Is demand for such a huge salary hike by MPs justified? Why they should compare their salary to secretaries. Secretaries have requisite minimum education qualification and expertise in management, whereas, an MP can be an illiterate. It is the job opted by MP`s themselves and not forced on them. If they are not satisfied they can resign and allow others to perform in their seat. May be salary is less, but the perks they enjoy is unimaginable including spouses of MPs get free train travel from their place of residence to Delhi. They also get up to eight free plane tickets a year from their place of residence to Delhi. They are entitled to free electricity, free telephone, free bungalow in Delhi, Interest free Car loan upto Rs. 4 lakh and still they are cribbing.

Pension benefits also increased from Rs.8000 to Rs. 20000 per month. MPs will be entitled for pension after rending five years of service to the nation. As per the Sixth Central Pay Commission recommendation all employees should be granted pension on completion of twenty years of service. Can the Ministry of Public Grievances and Pension look into how MPs eligible for pension after completion of five years?

Also the question arises is this salary and perks taxable? A meager sum of Rs. 20 per month payable to Central government employees as re-imbursement of tuition fees is taxable. One school of thought argues that Indian MPs’ salary would be much less than that of US, Japan, Canada and most of the developed countries Parliamentarians. If converted into Indian currency, the monthly salary of an US lawmaker, for example, is 6.5 lakh and a Parliamentarian in Singapore gets 4.5 lakh per month. But we should not forget that the per capita income in India is 10 to 20 times less than that of developed countries.

Before this 300 percent salary hike the Salaries and Allowances of Members of Parliament Act, 1954 has been amended 27 times since 1954 with the last salary of Rs 16,000 a month amended in 2006 and a constituency allowance of Rs 20,000 a month amended same year in addition to a daily allowance of Rs 1000. We cannot stop pay hikes whether for our politicians, bureaucrats, teachers or other employees of the State. However each rise in salary must be matched by performance. Former Lok Sabha speaker Somnath Chatterjee has voiced disappointment over the way MPs demand a salary hike and said he had suggested the setting up of a salary commission to decide on the issue.

MPs Salary Structure

                                                                     Old salary structure               New salary structure

Basic Salary                                                         Rs.16000                              Rs.50000

Constituency allowance                                       Rs.20000                              Rs.40000

Office expenses allowances                                Rs.20000                              Rs.40000

Conveyance allowance                                        Rs.100000                            Rs.400000

Total Expenses per month for one MP              Rs.156000                            Rs.530000

Total expenses per year for one MP                 Rs.1872000                          Rs.6360000

Total Expenses of one MP for five years          Rs.93.6 lakh                         Rs.3.18 crore

For 534 MPs expenses for five years                Rs.500 crore (approx)          Rs.1698 crore (approx)

Now the time for our policymakers to think about do the Indians want this kind of democracy where legislators vote to raise their own salaries to as much as they desire? This is matter of shame rather than pride. The MPs should realize that to maintain their own seat they have to ensure that the fire continues to burn in the kitchens of poor families. More than their own salary they should bother about meeting the basic needs of common man and eliminate corruption.

Wednesday, July 28, 2010

Changing face of Micro-Finance in India

(Published at Eastern Chronicle on dated 07-07-2010)

According to encyclopedia “Microfinance is the extension of very small loans to those in poverty designed to spur entrepreneurship.” Ideas relating to microfinance can be found at various times in modern history, with attention paid by economists and politicians worldwide, especially the Grameen Bank of Bangladesh in 1970 onwards for which its founder Muhammad Yunus was awarded the Nobel Peace prize in 2006.

As per the mouthpiece of Grameen Bank, in Bangladesh where 15 million families now benefit from small loans, micro savings, micro insurance and more than 40 percent of the overall reduction of rural poverty due to microfinance.

Indian Scenario
In India, a number of Microfinance institutions (MFI) were created in 1980s to provide credit facility to the poor, especially women, in both urban and rural areas. Microfinance Institutions are vital because they can speak for “Poor India” at a time when “Rich India” is getting rapidly richer.

Due to large size of population at around 100 million, India’s GDP ranks among the top 15 economies of the world. However around 300 million people are living below poverty line and only about 20 percent have access to credit from the formal sector. The challenge before Indian Microfinance Institution is to reduction poverty among people who are economically active but financially constrained and vulnerable in various states.

There are three main factors that count to the bringing up of microfinance as a policy in India. First- Indira Gandhi’s bank nationalization drive launched in 1969 which required commercial bank to open rural branches in India. Second- Introduced “Integrated Rural Development Program (IRDP) in 1978 to alleviate poverty through the provision of loans and Third- Liberalization of India’s financial system in 1990s characterized by financial policy reforms initiated by the Reserve Bank of India.

Important roles of Microfinance Institutions (MFI)

MFI have to help build grassroots movements by creating spaces for poor people to gather, mobilize and organize. To create the movements they have to support the grassroots organizations that will link poor people together and helping transform them into a movement. Encourage movements to use things like research and promote changes in the pattern of negotiations with state authorities. Enable movements with the range of other movements which will create the mass support and monitoring the relationship of the various related organizations and movement building.

Source of Funds
After the role now relevant question arise how MFI sourced the fund to keep up the movement building perspective? These funds are generally coming from three different areas, the government, public at large and foreign agencies. Government institutions like National Bank for Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), Regional Rural Bank (RRB) etc began lending to microfinance institutions in India. But sources said that the lending rates of MFI to borrowers were not cheap. For example, SIDBI lent to MFI at 9 percent and MFI in turn were allowed to charge up to 36 percent. Government initiative to bring the micro finance operations under control virtually foiled allegedly due to influence of some big Micro Finance Institutions, who are the lion beneficiary of micro finance activities. Also various studies have found that the loans are largely used by poor people to meet their daily consumption needs rather than such high interest rates funds use to undertake commercial ventures.

With liberal grants from international donor agencies like Ford Foundation, UNDP, Swiss Agency for Development and Cooperation (SDC) some micro finance operations are now being established in India. Critics said that such micro credit rather than resulting in poverty alleviation will simply bypass the poor people in favour of those who can afford credit at market rates. It is unacceptable when some NGO and MFI try to distort national image abroad for foreign help because they hardly talk about success of the country other than exaggerating their own achievements.

Finally, to enable the reach of micro finance services to the under privileged section of the society the problems associated with the legal, regulatory, organizational systems and the attitude should be addressed and the desired changes brought in these to make them more effective. The more rational way to help the poor could be the provision of sustainable economic opportunities at grass-root level especially provision of required services at competitive rates to support their investments and viable business activities.

Tuesday, July 27, 2010

Is it justified to stop medical insurer`s cashless facility?

(Published at Eastern Chronicle dated 28-07-2010)
Before we digest the process of “medical insurer’s cashless facility” we must first of all, explore its meaning. What is cashless facility? Cashless facility is service provided by an insurer wherein patient not required settling the hospitalization expenses at the time of discharge from hospital. The settlement is done directly by the insurance company. Cashless claims can be of two ways types. Planned where the insured is aware of the hospitalization 2-3 days in advance and emergency where the insured or any covered family members meets with sudden accident from bout of illness that requires immediate hospitalization.

Following are the situations under which one may be denied cashless hospitalization. First-If there is any doubt in the coverage of treatment of present ailment under the policy. Second- If the information sent to third party administrators is insufficient to confirm coverage and Third- If the ailment/condition is not being covered under the policy.

Why stop cashless facility

According to an official of the insurance company due to the hospitals make false claims and they charges higher amount from the insurance companies four of the major state run insurance companies namely United India, New India, Oriental Insurance and National Insurance have decided to stop cash less hospitalization facility at some 150 odd hospitals across the country with effect from 1 July-2010.

Though reason given is that hospitals make false claims but re-imbursement of bills would continue as if the problem of false claims and inflated bills will solve. The insurance company should try to catch the culprit hospitals and doctors with inflated bills rather than deny patients the facility. Experts said rather than such a retrograde step, insurance firms must sit with hospitals and professionals to standardize treatment, improving billing format to induce transparency in the system and build trust among stakeholders. The inability to remove bad apples does not mean that insurance company should throw away the basket.

Regulatory Stand Needed

The Insurance Regulatory and Development Authority (IRDA) chairman Hari Narayan said on 11 July that it had decided to scrutinize the matter of insurance companies stopping the cashless capability for hospitalization of patients to mediclaim policy holders. IRDA need to quickly implement provisions in the new cashless health reform law and stimulus legislation that focus on strengthening primary care, realigning incentives to reward higher quality and greater value, investing in preventive care and expanding the use of health information technology. Insurance companies which are bleeding because of what they claim are inflated claims, have been relying on special investigating agencies to verify the authenticity of many of the claims.

Impact on common people

The move by insurance companies to pull out the facility of cashless hospitalization has left the middle class in a reel who do not have ready cash available with them. A study conducted at Banglore based Manipal Hospital and New Delhi based Escorts Heart Institute revealed that more than 70 percent of the health insurance policyholders are relatively poor middle and lower middle class individuals who have giving premiums for the last 10-15 years with hope that they can avail the cashless benefit whenever they require. Medical costs are increasing to such an extent that paying medical bills become difficult.

Most of the state run insurance companies excluded the large hospitals those who have a transparent billing system. The smaller medical hospitals would continue to give the cashless benefits. Is it that indication in the small hospitals bill manipulations are not possible or is it that vested interests are more easily looked after there? We all know that serious injuries like joint replacements, heart surgeries cannot be done on small hospital. It is regrettable that even public sector insurance companies have joined private sector ones in their cold attitude towards their respective customers when large number of hospitals were de listed by these public sector insurance companies for extending the cashless benefits for availing medical facilities through mediclaim policies.

Finally, rather than withdraw cashless hospitalization facility insurance companies should encourage buying the medical insurance so that all the family members are able to avail quality medical treatment, if and when required as in the case of major developed countries in the world such as Canada, Germany, US, UK etc. Such a step would not only help insured avails treatment at the earliest but would also help for regular health check-up. This means that an insured can live healthy lifestyle as compared to uninsured.

Wednesday, June 23, 2010

Should Indian Government Deregulate Fuel Price?

(Published at Eastern Chronicle on 23rd of June-2010)
In the pace of ongoing rise in global crude oil prices, the Petroleum Ministry on 31 May, 2010 pitched for deregulation of fuel prices. As a first step towards decontrolling fuel prices, Indian government on 1 June allowed state run oil companies, ONGC and IOC to determine the retail prices for auto fuel at par with international market prices.

This is not the first attempt by the government to de-regulate fuel prices. In April 2002, the government dismantled the administered price mechanism allowed free pricing mechanism for petrol and diesel but when crude oil prices began to increase in 2004 and oil companies wanted to increase the prices government again interfere and halted the free pricing of petrol and diesel.

Deregulation debate

To keep pace with the global price trend another fuel price hike may be imminent when cabinet ministers meet to decide India’s fuel policy next week. How long will Indian government keep a tight control on the prices of petrol and diesel? When wills our policy makers recommended that this is the right time to free petrol and diesel prices and let free market forces takeover. If the price will cross above $100 mark our political class will say that to wait till price come down, but we saw what happened when price came down there was no action.

Due to global rising trend and continued extension of subsidies on petrol, diesel, LPG and kerosene the losses of the state owned oil companies will sky rocked and expected to suffer losses worth Rs.1 Lakh crore in 2010-11. Currently, petrol is sold Rs.6 a litre below its actual price, while diesel pricing is subsidized by over Rs.7 per litre.

Now the question arises if the deregulation is good then what are the reasons and why? As per the Prime Minister appointed Kirit Prakash committee report demand for fuel will increase day by day and if the fuel price not deregulate the burden of subsidy will increase and the loss of PSU`s will also increase. The committee recommended a hike of Rs.100 a domestic LPG cylinder, Rs.6 a litre for kerosene, Rs.4.72 a litre for petrol and a rise of Rs.2.33 a litre for diesel.

The Petroleum Federation of India, the apex body of public and private oil firms recommended complete decontrol of the fuel prices because currently public sectors retailers sell auto fuel at government subsidize rates, which private sector competition is unable to match with high crude oil prices.

Government should allow the fuel prices to be decided based on the demand and supply and international market rates. The imbalance in demand–supply and increase in prices always bring more innovative products like Bio-Fuels and other fuel saving technologies, which are dire need for the nation.

But another school of though says that instead of deregulating the fuel prices the government should introspect the real cause and priotize the usage to effective control. The competition in the market is limited for competition among the players, in the monopoly type the price will set to rise. Also, the inflation is slated to rise in a spiral fashion and burden will go on common man which is the working class of India and biggest tax payer. Government should spend more money on oil exploration and encourage private participation to the fullest which will help government can regulate the oil prices as per the common mans budget.

Pre-requisites for de-regulation

Stability in Crude price – Stability in crude prices is a prime requirement for successful implementation of price deregulation. But in the last year sharp correction in crude oil prices from $147 per barrel to a low of around US $32 per barrel and government might follow the wait and watch policy before taking a stand over price de-regulation.

Stable and reform oriented government – Inspite of being a stable government in India, the UPA is coalition government with the DMK and TMC as its key allies. With elections likely to take place in some state or the every year, complete de-regulation without the price bands is quite unlikely.

In conclusion we can say that major reforms is required to protect the state run oil companies and if necessary governments should taking a decision on freeing petrol and diesel prices.