Normal reaction of any MP or MLA to a problem, even if economic, is generally that it would be resolved through a legislation. However, whether the legislation can be enforced or not is never analysed, says Dr Bibek Debroy
Our laws range from retrograde to obsolete and almost always complex. But, what really are the reasons behind this stagnation? What does it take to get rid of ancient and often expendable laws? For any problem, even if it is economic, most of the members of Parliament (MPs) and members of Legislative Assembly (MLAs) will tell you that it would be resolved through a legislation. Whether the legislation can be enforced or not is never analysed by them. As a result, we have a bunch of legislations that have never even been used.
Dr Bibek Debroy, an eminent economist, scholar and columnist answered these and other important questions in an informative session organised by Moneylife in Mumbai. Let's take a look at what he had to say.
In the year 2000-2001, the movement for law reform intensified. What were the challenges and achievements?
Dr Debroy said that the process entails several steps. When it comes to old laws, the simplest task is when you identify the entire piece of legislation as redundant. Such a piece can be repealed in its entirety, however this happens very rarely. In the year 2000-2001, when the movement towards legal reform gained momentum, about 200 such laws were identified and amendments to the Civil Procedure Code (CPC) were also passed.
He added that most legislations have dysfunctional sections and are not entirely inapplicable. In such cases, modification becomes difficult as one needs to then examine and identify the particular sections that need to be repealed. In addition, if repealed, one needs to find out whether an alternative legislation needs to be prepared and the job becomes more tedious.
The first step to identification of laws that need to be looked at would be to have an exhaustive list of the total number of statutes. While the central statutes can be numbered down to around 2,000-2,500, the state statutes have still not been counted down in records. This exercise needs much more focus and diligence.
What is the process to repeal a law? How does it vary for different kinds of laws?
Dr Debroy elucidated the process by discussing the different possibilities involved in the birth of the laws. The process for repealment depends on where the statute was enacted. A statute enacted by the union government has a bearing as pe the seventh schedule of the Constitution of India. If the statute is enacted from the Union List, it has to be repealed by the Parliament. A statute enacted from the state list will be repealed by the state legislature. For a statute enacted from the concurrent list to be repealed, a rectification from two-third of the total number of states is a pre-requisite.
In matters of Constitutional Law, he said that an amendment to the Constitution is more difficult than other laws.
Laws in India are too complicated for a common man's understanding. Isn't there a need to simplify the law?
Dr Debroy agreed that laws should be more lucid. Going a step further, he explained the reasons behind this state of affairs. He also highlighted how apart from just old laws, the Indian Parliament is also known for using legislation as the primary tool to tackle all kinds of issues.
He went on to explain an important doctrine related to the enactment of laws - the discipline of cost and benefit. Under this principle, the legislator studies the gains and losses of enacting a particular law. This principle of discipline of cost and benefit, although globally present, has not been applied in India. As a result, many pieces of legislations enacted post 1991 have been enacted in isolation. The normal reaction of any member of Parliament (MP) or member of Legislative Assembly (MLA) to a problem, even if economic, is generally that they must solve it through legislation. Whether the legislation can be enforced or not is never analysed. Consequently, we have a bunch of legislations that have never even been used! The legislator not only needs to do a cost and benefit analysis, he must also take stock of all the existing laws that impinge on it.
Reformations should initiate at our legislature. Do you think the way the Parliament functions needs a change? Does the time-span for which the Parliament functions need to be extended?
With the new trend of constant disruptions and adjournments, the dissatisfaction with the functioning of the Parliament is genuine and intense. Dr Debroy threw light on how an average MP is generally not interested in legislation. The position of the MPs are undermined by the standing committees.
Usually, in case of a straight forward draft, the Parliament does not object. This draft, however, has to originate from a certain Ministry or Department. Highlighting the role of the Law Ministry as a catalyst for change, he said that this was the job of the Law Ministry. It has been observed that since 1991, the Law Ministry has not acted as a catalyst for change. In order for this to happen, a prompt follow up by the Law Commission is inevitable. The nature of the bureaucracy of the Law Department also needs to be designed to be more active and pro-reform.
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Followed by Modi wave, Indian stock markets surged up in last few weeks, as usual the business channels has spread the 'noise' by bombarding 'free expert advices.' Know the truth behind the noise, says Ajit Dayal of Quantum!
Over the past few weeks since Narendra Modi lead Bhartiya Janta Party (BJP) received full majority in the Loksabha Election, stock markets have moved up on expectations from the new government. While the new prime minister is yet to implement his plans for the nation and come through on the hope vested in him by the people, business channels are already in a tearing hurry to pass a judgment with their panels and experts.
On 16th May when the Sensex hit 25,000 mark and made a new high, several business TV channels bombarded viewers with free advices from its 'experts' panel'. During last few week business channels have carried following messages,
• There is a new India story
• Indian stocks are rising to new highs
• Individual investors are not in the market - and they must buy equity.
• It is not too late, the party has just begun. Buy right now!
Ajit Dayal, director at Quantum Advisors and Quantum Asset Management Company wrote on equitymaster.com that, “The problem with the message is that a lot of it is based on excessive hope and expectations.Yes, that hope may materialize but what if it does not? Is there any probability that the expectations are way above the possible reality? Is anyone even discussing that?”
There is no harm in having expectations from the government, but the new government still needs to take the full charge, implement its plans, revive policies and bring reforms, which requires time and cannot be done overnight. While experts are freely advising retail investors to 'Buy', it is the savers who needs to take own investments decisions, after all it is they who will gain or lose and not the experts.
“While there may be a debate on the message and the merits of the message, there can be little debate on the messengers: Most of the messengers are part of a warped and crooked financial system which is out to steal your wallet. These financial experts have done it in the past and SEBI did not shut them down. Like the eternal cockroach, they have survived - and they will steal from you again,” said Mr Dayal.
The experts, who often appear on business channels to share views and advice are part of the financial industry that has taken investors for a ride in the past. Many portfolio management service (PMS) providers, brokers and fund mangers who mismanaged retail investors' wealth over the past years have earned commissions, fees and brokerages for themselves.
The same 'experts' come on TV channels and pass on wisdom about what one should buy or sell.The 'free advice' ends with, “I don't own this stock in my portfolio”, which simply means that 'the expert' is not following his own advice! In addition, no expert discloses his company's involvement with the stock, either as merchant banker or in any other form.
Experts sometimes blame investors for missing the rally and not buying enough equities.
Moneylife has long argued that investors pulled out of the stock market because they found it unsafe and complex. India’s investor population dwindled from 20 million to just 10 million (according to a SEBI-NCAER survey of 2011) in the 25 years under SEBI’s watch. This has happened despite automation, trade guarantees, tax concessions and a sharp decline in brokerage charges over the years. But investors pulled out in droves because SEBI stood by and watched their investments get decimated due to shady practices with no opportunity for redress.
Moneylife wrote: For Indian investors, kyaa achche din aanewaale hain…?
and Moneylife Magazine in its latest issue carried, “Achche Din for Savers?” which discussed “What should be Narendra Modi’s moves to help savers”, who have been suffering the brunt of capricious and maddening tax rules, apathetic regulators, poor grievance redressal for faulty financial products and rampant mis-selling?
Questions the TV anchors do not ask experts
Most of the times, anchors on TV news channels do not ask the tough questions. Try to recall the last time a business channel TV anchor asked the 'expert' about his own performance and practices!
Mr Dayal said business channel anchors should ask following questions to their guests and experts:
• Did your real estate fund give the spectacular performance that was so implicitly promised?
• Do any of you have insurance companies which sell ULIPs? How did those products reward the agents and how did they perform for the investors whose money was used (without their knowledge) to pay the agents for roping them in? Can you describe how your PMS products were run? Is it true that your employees were given goals to "convert capital to revenue in 12 months" which is a way of saying that make the client trade so much that his corpus gets converted into broking commissions?
• Do you have any view on the recent rule from SEBI that effectively reduces the number of fund houses that can launch mutual funds?
• Does your CFA degree have a charter of being honest to your clients?
• Can you tell me, honestly, that this is a great move for your clients and for investors in general?
• How come you are so rich when your clients are, typically, poorer from your advice?
Mr Dayal says, “Don't hold your breath for such important questions. Your friendly business TV channel anchor plays along with the web of lies that emanate from the well-heeled guests. Today's guest is tomorrow's advertiser: when the next bull market starts and the IPO machine pumps and dumps you the next DLF, Suzlon, and Reliance Power, those advertising revenues will be chased.” He said, “A roaring bull market is good for all - but not for you. The retail investors, are the insects the financial firms wish to capture and squeeze your wallet for its contents.”
“We know that the market is surging. But has your anchor told you what else is rising - besides their ratings? Have the guests on their shows told you what else is galloping - besides their bonuses? Does the financial service industry have a right to make the retail investor feel stupid for being 'under-invested' in equity? The fact is that the same people who now appear on TV lied to you and misled you. They were not punished. They were rewarded. You were taken to the cleaners. Your favourite business TV Channels are doing a pretty lousy job of protecting you from the financial mafia. The regulator, meanwhile, has no concept of how to regulate the industry: their committees are populated with the same people you see on TV,” says Ajit Dayal.
As Moneylife always suggests to its readers to avoid taking free 'advice' and 'stock tips' for investing. Investors can eliminate speculative activities by proper research and analysis. Some of the biggest private equity (PE) investors, foreign institutional investors (FIIs), venture capitalists, and mutual fund companies also make wrong decisions. Investors cannot outsource the job of assessing risks associated with their investments, selection of right stocks, and right time to enter and exit. Hence, savers need to shut off their 'Idiot Box' and avoid the 'noise' that business channels make and do their own research to take informed decisions while investing.