INTERVIEW

Claudia McKay, Microfinance Specialist, Consultative Group to Assist the Poor(CGAP)

Q) How has the mobile banking system facilitated microfinance operations in Africa?

A) Africa is the birthplace of the most successful mobile banking (m-banking) service in the world – M-PESA in Kenya. In just three years, M-PESA has attracted nearly 10 million customers, about half of Kenya’s adult population. The success of M-PESA has inspired more than 70 imitator mobile banking systems across the globe. However, m banking to date has largely been driven by mobile network operators (MNOs) and to a lesser extent, by some large banks. Microfinance institutions have by and large not played a

significant role in this exciting new industry. The MFI world uses human-driven methodology to provide mostly credit while the m-banking world uses very sophisticated backend systems to provide transfers and payments.

However, in recent months MFIs located in countries like Kenya where there are widespread m-banking services have started linking into these services to offer their customers more convenient ways to repay loans and make deposits, where applicable. Customers report that paying loans with M-PESA is easier, faster and much less risky than the traditional method of collecting payments at a group meeting and then sending group members to a bank branch. Other MFIs are learning about m-banking services and earning additional revenue by acting as agents on behalf of the service. For example, four MFI networks in Mali use their branches as agent outlets for Orange Mali.

Unfortunately, many MFIs are located in countries where there is no existing m-banking service. Developing an m-banking service is expensive, time consuming and complex and very few MFIs have significant financial, technical and managerial capacity that is required. MFIs in these contexts can experiment with other ways to use mobile phones to increase customer convenience (such as automatic loan reminders) and strengthen the institution and its management information systems (MIS) so it will be ready to link to a system once it is developed.

Q) How safe is mobile banking and is it accessible to the target group of microfinance?

A) Mobile banking transactions are securely processed and settled between the agent and the customer in real-time so there is minimal risk for the customer. Many African countries are in the midst of drafting regulations to ensure mobile banking customer funds are protected. Regulators are understandably concerned since non-banks (like mobile network operators) are not subject to the same prudential regulation that applies to banks. For this reason, most regulatory approaches include provisions for ‘fund safeguarding’ – requiring non-banks to maintain liquid assets equal to the amount of issued electronic value and other measures to ensure that customers have access to their funds whenever they need it.

There are currently more than three billion unbanked people in the world. One billion of these unbanked people do have mobile phones. In fact, according to Vodafone, a parent company of Safaricom, at least 50% of current M-PESA users are unbanked, meaning that they are using money transfer services to help manage their financial lives even if they do not have bank accounts. CGAP looked at the outreach of 8 providers across the world and found that 37% of clients were unbanked. Somewhat less data is available about the income levels of mobile banking clients. In Brazil, low-income people comprise a clear majority of branchless banking clients. In three other mobile banking services (including WIZZIT in South Africa) low-income consumers comprised just one-quarter of active clients. So, while the majority of mobile banking customers today are not low-income and unbanked, there are enough low-income, unbanked users to bring confidence that mobile banking is accessible for this group.

Q) What segments do you think need special technical attention to mobilise microfinance system in the continent?

A) As m-banking services expand across Africa, MFIs with strong management teams, stable management information systems and effective internal controls will be the best placed to take advantage of these services and benefit the most. Strengthening these areas are good for the core mission of an MFI anyway, and they will make the MFI that much more ready to adopt m-banking when it does become available.

Q) How many African microfinance institutions are you linked with at present and what are the major problems they face at present?

A)The Technology Program at CGAP funds a small number of projects around the world that are designed to demonstrate technology-based models that will dramatically expand the reach of financial services to low-income people. This program is co-funded by the Bill & Melinda Gates Foundation and the UK Department for International Development. Currently, we are funding 14 projects, including 4 in Africa. Since most MFIs do not have the technical or financial resources to lead large-scale implementations in this sector, most of our grants are to banks, mobile network operators and payment system providers. For example, one of our projects is with Equity Bank which is offering an interest-bearing savings account via M-PESA. However, we hope to support the involvement of MFIs in this sector through technical support to our donors, publications, conferences and other relevant avenues.

MFIs in countries with existing m-banking services face some technical challenges. MFIs with weak MIS sometimes resort to manual reconciliation between their MIS and that of the mobile network operator. There is also concern that individual repayments via mobile phone may have a negative impact on group cohesion, which is a critical element of traditional microfinance. Finally, MFIs will need to educate customers about the new processes and overcome potential customer reticence in using new technology. Those MFIs in countries without any existing m-banking services face greater challenges and have fewer options available.

Microfinance and Mobile banking in Africa

Ross Levine, economist at Brown University, once wrote in his book Finance and Growth, “The quality and reach of a country's financial services are crucial determinants of economic growth.” In Africa, mobile or m-banking has been the latest trend explored by microfinance institutions (MFI) to provide more affordable, accessible, convenient and secure banking services.

Kenya

In 2007, it introduced the concept of m-banking in microfinance and has been the most successful African country in this regard. MFIs like Kenya Woman’s Finance Trust (KWFT) and Faulu allow clients loan repayments and deposits with advantages like SMS alert for payments, low operating charges and unlimited banking hours. The platform has helped MFIs reduce high operational costs and increase focus on core functions. A 2008 survey found that the m-banking service as a system was five times safer than traditional methods. More than 95 % users found the services not only safer but also faster, more convenient, easier to use, and cheaper.

At the Africa-Middle East Regional Micro-Credit Summit in Nairobi in April this year, Kenyan President Mwai Kibaki praised the MFIs’ initiative to extend m-banking to a massive 62% of the population who have no access to traditional banking. Mobile bankers use their mobile accounts as de facto savings accounts by keeping cash credit.

Some Kenyan MFIs have developed close partnerships with technology provider companies like PesaPot, Red Could and Safaricom through schemes like M- Pesa (m for mobile and pesa is Swahili for money) and M Keso.

In M-Pesa, microfinance borrowers can conveniently receive and repay loans using the network of Safaricom airtime resellers which enable MFIs to offer more competitive loan rates to their users as there is a reduced cost of dealing in cash. M Kesho is an improvised m-banking system from Safaricom and Equity Bank of Kenya. The scheme facilitates easier banking transactions like deposits, withdrawals and loan applications through mobile phones. According to Michael Asola, CEO PesaPot, “Mobile banking has fast become an important part of microfinance institutions in Kenya. Today, M-Pesa has roughly 10 million customers in Kenya, 40%t of the adult population.”

The economic outcome has been striking. This year Safaricom’s projects contributed to 20 % of Kenya's GDP through M-Pesa. Olga Morawczynski of the University of Edinburgh estimates that rural households that are mobile money subscribers saw their incomes increase 5 to 30%.


Uganda

In Uganda, The Microfinance Deposit Taking Institutions (MDI) Act of 2005 regulates deposit mobilising MFI (called MDIs) and provides a legal framework for savings mobilisation of those MFIs. Like its neighbouring Kenya, Uganda introduced similar banking technologies where m-banking especially the M-Pesa schemes has been a success in scaling-up microfinance.

Malawi

The Opportunity Bank of Malawi also initiated m-banking earlier this year to reach out to 80% Malawians who live in rural and semi-urban areas. Around 60% of these already have mobile phones. Prior to this, the bank had introduced biometric ATMs, POS devices with cash-back services at agent shops and trucks that brought banking services to remote areas.


Drawbacks

Despite the immense potential for m-banking, the MFIs are still struggling to take full advantage of it. Till date, a large share of m-banking is regulated by Mobile Network Operators (MNOs) rather than MFIs.

Another major problem is that the MFIs tend to apply the strategies blindly without modifying them. Kabir Kumar, a microfinance analyst, says, “MFIs, while dealing with the local payments through mobile phones tend to copy the method, which has been recommended for large banking institutions. In most cases, MFIs probably should not be getting
into setting up these mobile payments and thereby ending in a mess.”

He feels microfinance lenders will gain from allowing m-banking
to spread because of the better access and care given to borrowers. He explained,” As we’ve seen in Kenya, where in the absence of a widely available retail payment environment, mobile payment infrastructure provides a lot of convenience to microfinance borrowers.”

Potential of m-banking in India

Seeing the success of the Kenyan model, many Indian MFIs like Sahitya in Rajasthan are starting mobile banking services. According to economists Robin Burgess and Rohini Pande, 1 % increase in the number of rural locations banked per capita reduce rural poverty by 0.42 % and the economic productivity is increased by 0.34%. The high
potential of the system, however, is yet to be explored fully as the Indian model is still agent-based.

Interview:

We believe in delivering a complete value package to our consumers: Karl Slym

General Motors India is all set to enter the Light Commercial Vehicle market by FY 2011-12 in one and sub one tonne categories. They will also introduce two other passenger cars by that time, in a joint venture with SAIC (Shanghai Automotive Industry Corporation). The LCVs will be produced at the Halol facility in Gujarat, while the passenger vehicles will be manufactured at the Talegaon plant in Maharashtra. Karlos Slym, President and M D, General Motors, India shared some of his plans with BE’s Priyalina Basu in this regard.

Q) In India, General Motors sales have increased 45% this July. What have been the reasons for this?

A) There are a number of factors working behind this sales growth. However, I would like to say there are two major factors that attributed to this. First, is the growing demand of Indian customers, especially for Chevrolet Spark and Beat and secondly, the development of the brand image of Chevrolet.

Q) What is the present market trend? Are people investing on luxury cars?

A) Yes, investments in some segments of luxury cars have increased. SUVs like Chevrolet Captive are in high demand. However, it is also important that the demand for light commercial vehicles in India is likely to rise by 24% in next 3-4 years.

Q) What are your export plans? Would you go for increasing market shares or your target will be to increase sales volume?

A) We are planning to export the Beat and products manufactured in the SAIC and we will be looking to increase sales volume rather than market share because on market share basis, we are already in a good position.

Q) For export, which market would you be concentrating on?

A) Right now, we are concentrating mainly in the Asia-Pacific region, especially in the four neighbouring countries- Nepal, Bhutan, Bangladesh and Sri Lanka for the next 12 months. Then we will think of expanding to the ASEAN nations and Latin American countries.

Q) Have you ever nurtured the idea of selling INR1 lakh car like Tata to capture small income group customers?

A) No, we have not, because we believe in delivering a complete value package to our consumers, which include safety and comfort rather than the price. But I think the Chevrolet Spark and Beat in the INR 3-4.5 lakh ranges will be helpful for the small income group customers.

Copyright@ Business Economics, August 1 2010

FTA negotiations expected this year: Mouneer Agbariya

India and Israel share a bilateral relationship that is getting stronger with time. In technology and skilled services, both have a lot to offer each other. A high level delegation is all set to come to India to discuss various factors like FTA, food processing technology, irrigation and many more. Mouneer Agbariya, the Economic Counsellor of the Embassy of Israel spoke to BE’s Priyalina Basu about their future plans.

Q) What is the progress of India and Israel free trade agreement?

A) The professional teams met in last May and discussed the chapters that the agreement will include and other matters related to the negotiations. It is expected that by the end of this year the two countries will have the first meeting of negotiations.

Q) How can Israeli technology help the food processing industry of India?

A) This can be mainly done by the transfer of technology of shelf-life, cooling chains, packaging, storage, etc. I think a key rule would be for the dairy to expand the variety of products to the consumers as well as the quality.The Indian Union Minister of Food Processing is expected to visit Israel accompanied by official and business delegations by the end of this year.

Q) An Israeli delegation is scheduled to visit Kolkata. What areas would they be looking at?

A) The delegation will be on water technologies. These technologies include water management, water treatment, desalination, waste water treatment, filtration, municipal supply and so on.

Q) How can Israeli know-how help to enhance the productivity of the dairy and agricultural industry in India?

A) The best way is by increasing the collaboration between the business communities of the two countries with the support and the guidance of the governments. The exchange of the business delegations, exhibitions, conferences, etc., will bring more interaction and definitely more exchange of opportunities.We have decided to open a trade office in Kolkata to assist the Embassy to increase and intensify its activity in this important part of India.

Britain seeks a bigger role in Asia starting with India

“Britain has lost an empire and has not yet found a role.”

— Former US Secretary of State Dean Acheson, 1962.

Margaret Thatcher, John Major, Tony Blair and Gordon Brown failed to rebut him. Can David Cameron, the new Prime Minister of Britain, be able to help Britain get an image makeover? Cameron during his maiden visit to India made it clear that Britain wanted to establish its strong presence through the dynamic economies of Asia.

Disillusioned by the ‘special relationship’ with the US and the overtly bureaucratic European Union (EU), Britain has subtly revamped its foreign policy. After India, Cameron is scheduled to visit China in November this year and William Hague, the UK Foreign Secretary who has already been to China and Japan, has written to all the employees of his office to make the best use of the country’s extensive diplomatic network.

Political:

From the moment he became the resident of 10 Downing Street, Cameron stressed a ‘special relationship’ with India. His ‘frank’ comments about Pakistan exporting terrorism and that it should do more to “crack down on and eliminate” terrorists, earned praise from Indian officials who had been lukewarm in their response to the staid Labour government led by Gordon Brown.

Britain, one of the five permanent members of the United Nations Security Council, has been backing India’s claim for a permanent membership.

Economic:

According to several indicators, while the diplomatic relations between India and Britain have been cordial, from the British perspective, there were ground level gaps on the economic front.

India dominates in sectors like financial services, retail and education. Jo Jones, a Tory MP from Orpington, commented, “Market access to India in these areas that are important to Britain is still not very easy.” Eyeing these sectors to help in the acceleration of economic growth back home, Cameron requested India to further open up these sectors to the mutual benefit of both countries. At present, India allows 51% FDI in the single brand retail sector, but multi-brand retailing is still a closed sector for foreign investment. The FDI from Britain to India has fallen steadily in the last five years. In 2007-08, it was INR 4,690 crore out of INR 9,8664 crore that declined in 2009-10, to INR 3,094 crore out total of INR123,378 crore.

On the trade front, India is in an advantageous position. According to the latest report released by UK Trade and Investment, India is the fourth largest investor in the UK, ahead of Germany and China and behind only the US, Japan and France. Britain, on the other, has fallen from being the third to the thirteenth largest trade partner of India. According to Keith Vaz, Labour MP from East Leicester-shire, “India today is so powerful that it does not need to count UK anymore but the UK cannot do business outside EU without India.”

While Britain’s market might not be big, India will benefit from stronger economic ties with Britain as it will help in quicker realisation of the Free Trade Agreement with the huge EU market. India and EU have at present a GBP50 billion a year two-way trade. In his media address, Cameron stressed Britain’s strengths: “We have access to European markets. We have a highly trained workforce and as I have said, we are one of the most open and welcoming economies.”

Britain also sought India’s help to get over the sovereign debt crisis. The economic recovery in Britain has been rather sluggish in the post-meltdown period. Faced with the spiralling fiscal deficit, the UK government has resorted to massive austerity measures. Its economy grew by just 1.1% in the second quarter of 2010 after clocking 0.3% expansion in the previous three months.

In the energy sector, India can reap the benefit of buying offshore stakes of BP in Vietnam.

Defence:

India will benefit by the 700-million pound (about ` 5,500 crore) military deal to acquire 57 additional Hawk advanced jet trainers for the Indian Air Force and Navy, in two separate contracts. This means getting access to the higher and sophisticated technology in which Britain excels. Cameron said, “We have a very strong defence industry and I am delighted to see the BAE-HAL agreement. I think we bring lots of expertise we can share with you.”

Education:

Prior to Cameron’s visit, education was thought to be the bone of contention between the two countries as the British government had decided to put a cap on the non-EU immi-gration of skilled labour. While Valerie Vaz, a Labour MP, argued that Britain must encourage more doctors from India to work in Britain’s national health services, there was no concrete discussion on the issue. This was overshadowed in noise over issues like the return of the Kohinoor. The only comment made on skilled labour was by the British Business Secretary Vince Cable who said that the coalition partners of the ruling regime in Britain had agreed to form a pact on immigration outside the EU, but it would not hamper investments from India.

Indian students are a majour source of revenue for the British government just as degrees from famous British colleges are of value to Indian students. This understanding was evident in Cameron’s statement to the press, “I think we have some of the best universities of the world and I have brought 14 Vice-Chancellors with me. We have one of the strongest science bases in the world and we brought institutions like Welcome Trust with us.” The two sides agreed to launch a new phase of the UK-India Education and Research Initiative. But there was no promise to reduce the amount in the education bond that the Indian students will have to pay before going there to study.

The three-day visit was not about overnight changes in bilateral relations. What Cameron did was to try and transform a “cordial” relation-ship into a “better, highly fruitful” one. Time, as usual, will be the performance evaluator.

Copyright@Business Economics August 1 page no 8-9

Voice for Veto

India is willing to compromise on the veto power for a permanent seat in the UNSC stating that it is more important to make itself heard on issues of international security

Priyalina Basu

For a country, a permanent seat in the United Nations Security Council (UNSC) is to declare that it has ‘arrived’. But the elite club that controls world politics, especially its permanent members, the P5 (Britain, the US, France, Russia and China), is far from rolling out the red carpet for the arriveste powers like India and Brazil or for that matter even Germany and Japan.

The emerging powers, rather than push their way in with a bang, are willing to go slow and steady and compromise on the distinguishing feature of the power seat – the right of veto.

Hardeep Singh Puri, India’s envoy to the UN said, “The new permanent members shall not exercise the right of veto until the question of the extension of the right of veto to new permanent members has been decided upon in the framework of the review mandated fifteen years after the entry into force of the Council reform.”

Anachronistic Approach

At a time when other multilateral set-ups like the IMF (International Monitory Fund) or the World Bank are going through reforms to be in touch with the new realities and shifting power-dynamics of the world, the UNSC prefers to be frozen in the past. This despite there being constant calls for its reform.

In 2004, a team of advisers came up with recommendations for reforming the UNSC. The G4 nations issued a joint statement to back each other’s claims for permanent membership. In 2006, India decided to run for a Security Council seat and has been canvassing for the spot since then. Nineteen countries including Nepal, Sri Lanka, Afghanistan and Bangladesh spoke in favour of giving Indian a seat on the Security Council table starting January 2011 at a meeting in New York.

Most of the permanent members do realise that the time has come to accept that the emerging powers cannot be kept waiting or away from key decisions that affect them. According to former British Prime Minister Tony Blair, “A UNSC without India as a permanent member is an anachronism. An IMF or a World Bank without a proper role for India will no longer do, India will demand and India will receive the position due to one of the world’s major powers.”

William Burns, the US Under Secretary of State for Political Affairs, favoured India’s bid by saying, “India’s expanding global role will naturally make it an important part of any future consideration of reform of the United Nations Security Council.”

But in all the support, there has been no mention of India’s veto right. So it is assumed that the new permanent members shall be deprived of this power.

Necessity or Not?

Now the question is: Do we really need to have a veto power? Yes. Being an UNSC permanent member without the veto is like fighting without a weapon. It gives an edge during negotiations.

According to the UN charter, each of the per-manent members enjoys certain powers

· Investigate any situation threatening international peace.

· Recommend procedures for peaceful resolution of a dispute.

· Call upon other member nations to completely or partially interrupt economic relations as well as sea, air, postal, and radio communications, or to sever diplomatic relations.

· Enforce its decisions militarily or by any means necessary.

· Oversee workings of the Counter Terrorism Committee (sets the benchmarks of counter terrorism practices at the global level) and the Military Staff Committee (that plans UN military missions and assists in the regulation of armaments)

However, all these are useless without the veto. Any of the UNSC’s permanent members can prevent the adoption of any (non-‘procedural’) UNSC draft resolution they dislike by using the veto. Even the mere threat of a veto may lead to changes in the text of a resolution, or it being withheld altogether (the so-called ‘pocket veto’). Therefore, it is probable that India’s initiative on these issues would be rejected if it goes against the interest of the P5, especially of China.

Moreover, it goes against the democratic set-up of the Security Council. Each of the permanent members of the Council should have the same power. Only five members having exclusive veto power sometimes goes against the interest of the members of other countries. On the other hand, it is argued that if too many powers have the veto then UNSC resolutions will be few and far between. The core issue then becomes whether there should be a veto or a vote by majority only.

But as the veto is not likely to be given up by the P5, a more realistic approach would suit India, especially when sharing the table with powers like China with whom it has some major disputes. It is felt that if the new entrant to the UNSC will compromise from the beginning, it will start from a weak position and will always be at a disadvantage. But with hardly any progress on the UNSC reform front, weariness has set in. India prefers being a partner in discussions on issues of global concern rather than wait for the diplomatic trump card of overturning decisions contrary to its position.

Consumers interested in sustainable products

Albe Zakes

Vice President

Media Relation Terra Cycle

Terra Cycle, Trenton, New Jersey, is one of the fastest growing eco -friendly manufacturers of the world . Founded in 2001, it makes affordable eco friendly products from a wide range of different non- recyclable waste materials. The company makes 50 products available at major retailers like Walmart, Target, The Home Depot, OfficeMax, Petco and Whole Foods Market. Albe Zakes, Vice President, Media Relations, spoke to BE' Priyalina Basu about the innovative eco friendly enterprise.

Q) What is the annual turnover of the company?

A) In 2009, we made 7.6 million in revenue. In 2010, we project 15 million.

Q) How much trash do you recycle each year?

A) We collect roughly 15 million units per week at the moment and have collected close to 2 billion units of waste since 2007.

Q) What kind of trash do you mainly recycle?

A) We use food and other consumer goods packaging that is difficult to recycle. For example, used drink pouches, crisp bags, yoghurt containers, used writing instruments, glue bottles, granola bar wrappers etc.

Q) What technology do you use?

A) Fusing the materials, also densifying and pelletizing as well as direct reuse.

Q) What are your future plans and does it include making use of the wastes in India?

A) We plan to continue expanding the types of materials we can collect and upcycle (currently 32 different types of materials). We will continue to expand throughout the world. We are currently operating in the US, Canada, Mexico, Brazil, the UK, and Ireland and are quickly moving into mainland Europe. Then we hope to start moving into the Asian markets and India!

Q) Has the demand for recycled products increased and does this reflect growing consumer awareness on good environ-ment practices?

A) Yes, we believe so. We have sold more products every year since our founding. I believe it represents two separate interests moving ‘closer’ together. The consumer has become more educated and thus interested in sustainable products; but also sustainable products are becoming more affordable, more effective and more available making it far easier for the consumer to make the switch.

Q) You have mentioned partnerships with consumer goods companies to find new ways of making use of waste. What are these ways and what lessons can be imbibed by India in this regard?

A) We collaborate with the consumer good manufacturers that make the product or the packaging we collect. They have an incentive to fund the collection of their packaging because it makes their product more sustainable and more attractive to an ever-growing segment of consumers.

In addition, the dollars are easy to come by: they simply buy slightly less advertising and use the dollars they save to fund our programmes. This concept could easily be replicated almost anywhere.

Reusable Bags, a US-based company, was founded in 2002. It has been a leading force in the reusable movement and has been fighting the mindless over-consumption of “use & toss” items. Realising early on the absurdity of the prevailing disposables mentality, it inspired a grassroots movement towards more sensible, conscious consumption of disposables. Vincent Cobb, founder of reusablebags.com spoke to Priyalina Basu about the growing consumer demand for eco-friendly products.

Q) How receptive are buyers to using bags from what would otherwise have been “trash”? Is there a conscious effort to buy recycled stuff?

A) There is definitely an interest in bags made from recycled materials. Buyers of reusable bags are people who are already concerned with their impact on the environment, so they are very receptive to the idea of taking something that would be thrown away and putting it to better use. There are a lot of innovative, recycled fabrics coming to market that look just as good, if not better than virgin materials.

Take Eco-Circle fabric, for example. It is durable, has a gorgeous look and can be used in place of materials such as nylon. And, it’s made of recycled, post-consumer materials such as plastic bottles. The downside of this trend is that many recycled materials are virtually indistinguishable from virgin materials, so it opens the door for counterfeits in the market.

Q) Do you see the trend for this kind of products increasing?

A) Absolutely. More of these kinds of products are hitting the market, and consumers are interested. Another trend I have seen is “upcycling”, which is the repurposing of other types of materials into bags. It gives these materials a second life and is basically recycled material in its purest sense. For example, our reuseit rice bag totes are made from bags that hauled rice or other goods in freighters. With just a few cuts and stitches, the bag can be reused as a shopping bag and the original rice bag is kept out of the landfill. Because it still has the look, texture and strength of a rice bag, it’s a very unique product that customers love to carry. And, it’s incredibly durable. You can also find old billboards and juice boxes repurposed as bags.

Q) Are you planning to diversify your end-products?

A) Yes. Innovation and development are things we are very passionate about. The market and breadth of recycled materials are rapidly growing and evolving and so are we.

Tale of two tragedies

Iconic images of a dead child after the poisonous gas leak in Bhopal in 1984 (Below) and of a pelican struggling in the water polluted by the BP oil spill in the Gulf of Mexico this year (Above)

Recently two compensations have made headlines- British Petroleum (BP) oil spill in the Gulf of Mexico and the Bhopal gas tragedy (1984). BP has settled a compensation of USD 20 billion with a sincere apology within 56 days of the oil catastrophe, considered as the largest offshore oil spill in the US.
In an interview with Politico, President Obama said, “In the same way that our view of our vulnerabilities and our foreign policy was shaped profoundly by 9/11, I think this disaster is going to shape how we think about the environment and energy for many years to come.”
The Union Carbide India Limited (UCIL) Gas leak disaster at Bhopal provides a stark contrasting picture. The court fined the seven convicted UCIL officials USD 2715 apiece and UCIL INR 5 lakh for causing the death of some 15,000 people and affecting nearly five lakh people over the years with several defects and diseases.
In India, instead of strongly criticising the Court’s soft judgement on the offenders, the former Chief Justice of India, A. M. Ahemedi said, “The hue and cry is happening because people want to raise the issue.”
This leads to a serious question: Are our laws more lenient for foreign companies unlike in the US? The answer unfortunately is YES. The entire procedure of compensation and regulation of a foreign/domestic company depends on how stringent the law of the land is and how determined are its enforcers to carry out their responsibilities.

Laws and implementation:
The US was able to extract a hefty compensation along with USD 75 million for cleaning the oil with the collaboration between federal and state authorities and BP by a legal process known as the Natural Resource Damage Assessment (NRDA) established under the 1990 Oil Pollution Act.
However, in India, we do not have such strict laws that the MNCs are bound to observe. Even now, as the Pollution Control Board’s report states, the cyclone prone industrial zones of the country like Haldia are disaster-prone due to the lack of constant monitoring system and disaster resistant infrastructural mechanisms.
If we take the Nuclear Liability Bill for instance, we can see that certain clauses indirectly allow a way out for the manufacturers and the builders of the nuclear reactors from any financial and legal liability. The maximum financial liability in case a nuclear accident occurs in nuclear reactors would be USD 458 million- a similar law in US has set the financial liability for such accident at USD 10.5 billion.
Moreover, the operator will have to pay INR 500 crore and the remaining amount will be paid by the Indian government. The victims will not be able to sue anyone. So foreign companies will not pay an individual’s compensation once they have paid the total of INR 500 crore.

Corporate law:
There are very few laws in the world that give immunity to the corporates. However, in India, we do not have an effective corporate liability law for either Indian or foreign companies especially in cases of ' mass disaster’ where the killing could have been anticipated but profits were counted.
 Corporate offences relating to hazardous activity like in Bhopal have already been treated as cases under civil law. In criminal law, they are not counted as cases of strict liability with the accused (including corporations) having to show a lack of fault.
 There is no law to charge MNCs who control, are in charge of or are involved in the activity or its beneficiaries.
What Union Carbide did, was to find the loopholes and evade the responsibility. Therefore, the extradition of Warren Anderson, the CEO of Union Carbide during disaster, would not help much to get an exemplary verdict.
Union Carbide got the Supreme Court (SC) to reduce the charges to causing death by negligence - and limit punishment. This is unfortunate. The charge carried a punishment of up to two years or fine, or both (section 304A). Otherwise, corporate liability would have been tested under culpable homicide amounting to murder, carrying an imprisonment for 10 years (section 304 Part II).
In 1989, the deal included exculpating Carbide from criminal proceedings altogether. Mercifully, in 1992, the SC lifted the immunity it gave to Carbide. But Union Carbide (US) denied criminal jurisdiction to India. Anderson, a prime accused in the charge sheet on 1987, was denied extradition in 2004 for the lack of more “concrete” evidence. The trial, thus, became an Indian affair, as nine other accused were Indians.

Too Little, Too Late:
Realising the growing anguish of the people, the Indian government quickly convened a meeting of the Group of Ministers to come out with an acceptable compensation package.
 The total package costs around INR 1,500 crore.
 INR 10 lakh for the dead.
 INR 5 lakh for those with permanent disability .
 INR 3 lakh for those with partial disability.
 INR 100 crore to destroy the Union Carbide plant in Bhopal and construct a memorial in its place.
 Separate INR 300-crore remediation proposal to dispose of toxic waste.
 Treatment of second and third generation people.
All companies go through constant monitoring and reviews. None can feign ignorance of potential disasters. Therefore, it is imperative to have laws that deter companies from being criminally negligent. But more than that, there is a need for an apolitical and efficient administrative and judicial set-up to enforce these laws. The lesson of Bhopal must be learnt.