Author: cprindia

The State Capacity Initiative at the Centre for Policy Research (CPR)’s talk series titled: ‘Know Your Regulator’ is held in collaboration with the National Council of Applied Economic Research (NCAER), the Forum of Indian Regulators (FOIR) and the Indian Institute of Corporate Affairs (IICA). In this talk series, we are talking to chairpersons and members of India’s regulatory agencies about regulation of Indian markets and the economy.

Our guest for the fourth event in the series was Mr P.K. Pujari, Chairperson, Central Electricity Regulatory Commission (CERC).

He was in conversation with Ms Arkaja Singh, Fellow, CPR, Dr Abha Yadav, Associate Professor, IICA and Director, FOIR Centre at IICA, and Dr Ashwini K Swain, Fellow, Initiative on Climate, Energy and Environment, Centre for Policy Research.

Dr Mekhala Krishnamurthy, Senior Fellow, CPR and Ms Amrita Pillai, Consultant, IEPF Chair Unit on Regulation, NCAER made welcome remarks.

The event was held on 20 December 2021, and a full video recording is available above.

Here is a summary of the conversation:

Background, role and purpose of CERC

CERC was setup with a purpose to distance the government of the day from getting into running the power sector. From 1991, power generation was opened to accommodate private participants and dealing with these private players on commercial issues was not within the government’s expertise. This led to the creation of a regulator. Subsequently, in 2003, the government distanced itself from tariff setting and other commercial aspects of the power sector. The mandate of the regulator is very clear: CERC is an independent regulatory body, but it must work within the framework of the Electricity Act.

CERC frames its own regulations, and the objective is to strike a balance between the suppliers and the consumers. In the process, CERC’s role is to ensure that the cost of electricity is recovered in an affordable manner and that competition and efficiency are brought into the system.

Dealing with the transition to renewables

The power sector all over the world is undergoing a tremendous change because of the introduction of renewables. The regulator needs to keep itself abreast with these developments and create a legal framework that enables and facilitates the changes that the sector is experiencing. In India, the government has announced setting up of large-scale renewables with a capacity of 480 GW. The biggest challenge that the CERC faces at this time is to integrate this into the Indian grid. Battery and hydrogen alternatives are also showing a promising potential.

This has regulatory, commercial and operational aspects. The regulator needs to keep itself abreast of these developments and develop a legal framework to facilitate these changes. The regulator also needs to be able to anticipate what changes are going to happen, and create the necessary background so that they can be assimilated into the system.

CERC might frame regulations facilitating integration of renewables into the system but how does it play out in practice? CERC needs to address technological operations that involve forecasting and scheduling issues as well. The grid operator must upgrade itself but how can CERC facilitate this transition? These functions are not visible to the public. The public only know the generation and distribution part of the sector, but operating the grid is not something people see. It takes a lot of effort to manage the grid. EVs are coming up and those challenges needs to be addressed too. CERC must be prepared to facilitate these developments; it must also prepare the grid to absorb the changes without disruption. When we discuss market turbulence, market monitoring and new emerging trends are where the issues begin. CERC must be very quick to develop capacity in those areas. Either we recruit people, or we have in-house capabilities, and CERC usually takes a call on how to upskill its employees. But the nature of the requirements keeps changing and this is another challenge.

CERC is mandated to promote competition and increase the efficiency. The body also advises government on the removal of institutional barriers to bridge the demand and supply gap, and therefore to foster and develop the interest of the consumers. Has the CERC been able to fulfil this mandate for its consumers?

As far as bulk power generation is concerned, there are two ways in which we determine the cost. The Electricity Act provides for either the cost-plus approach, which means that, for example, for an NTPC plant, you determine the capital cost and tariff. Or you can have a competitive bid through which price is discovered. This is more appropriate when there are private sector generators. But it is not as if only the second approach is competitive. In the first one too, it is the job of the regulator to determine efficiency parameters and mimic the market in fixing tariff. So it is not that the cost-plus approach is based on actual expenses. Over the years, the regulator has had to analyse and find the most efficient norms. In either of these ways, what the regulator does is to discover the tariff that is competitive.

Electricity is a concurrent subject and the state regulators set the distribution tariff that is paid by the consumer. State regulators determine the tariff of distribution of power within the state. They take the price set by the central regulator (both through costless and competitive bid), add the transmission charges (determined by the central regulator) and once the cost is fixed, they fix the tariff for the utilities and this final cost is passed to the consumers. So, the benefit of efficiency that finally reaches the consumer is through both the central and state regulatory levels. The CERC is a central regulator and does not directly deal with consumer tariff. But CERC’s generation cost becomes a bigger input in consumer tariff, and the regulator is fully responsible for discovering tariff that is competitive. The approach that CERC takes is to fix the tariff within competitive and tight normative parameters, discover tariff through competitive bidding and make sure that the transmission system is planned in an efficient manner so that there are no strained assets, and lastly, ensure that the efficiency is passed on to the consumer. The bidding guidelines, based on which the competitive bidding takes place, are framed as per the Electricity Act. Over the years, solar prices have been reducing sharply after competitive bidding, and regulators have to see the benefits of these falling tariffs are also passed down to the consumer. This is the broad framework under which CERC makes sure that the efficiency, economies of scale and competitiveness of those tariff gets passed on to the consumer.

CERC’s legislative, executive and adjudicatory powers

CERC has powers that are quite similar to legislative powers; the regulator frames regulations and places it in the Parliament. The regulations made by CERC are adjudicated based on the Electricity Act and the regulator also adjudicates on its own regulations and in that, it functions like a civil court. The CERC also does operations functions. It is a whole system operator and thinks about how systems function and does transmission planning, which is almost like an executive function. The CERC as an organisation has all the three elements of legislative, judiciary and executive functions. The need of the organisation is not specialization in one part; for electricity is the sector where there is techno-commercial economics. Every technology has its own commercial use. Finance, technology, and legal components are important in decision making. So, there is a need to ensure that CERC has enough expertise in these areas. This is a challenge since it is difficult to get competent people in all the three areas. Being in the electricity sector, people with technical backgrounds understand finance and law easily. CERC also has in-house people who acquire capacity and contribute to the government’s decision making. The regulator has autonomy to the extent that it does not report to the ministries but there are general financial guidelines under which the body requires governmental approvals. The CERC does not depend on the government budget and there is financial independence since we have charges and fees. The Act also defines the nature of our independence. If the Act is followed in true spirit, there is enough independence. The government can give directions to the central regulator, but the regulator is not bound by their advice. They also cannot issue guidelines specific to commercial or tariff issues. There is also a provision where CERC can advise the government on competition and market regulation; these are not binding on the state governments. We are independent but we are guided by the national policies; the jurisprudence is very clear on what is meant by guided and what is mandated.

The Kerala High Court described the domain of regulation as “unfathomable ocean of technical gobbledegook”. One of the key features of a regulatory authority is to be able to respond to complex technical demands in a rapid timeframe. The that is not all, CERC also has considerable legislative, executive and adjudicatory power. In what ways is the exercise of power by a regulator distinct from what you would do in the ministry, and can you explicate what the term regulate means in the context of CERC?

The role of the ministry is to make broad policy framework; the Electricity Act provides tariff policy, national electricity policy etc. The ministry gives policy guidance for the sector and the regulator is guided by that policy framework. The regulator works on the nitty gritty functions of the Act. For example, if we say that there is 450 GW of renewables, that is a policy statement. To do that, the ministry may take a document and ask us to setup a solar generation project, but the regulator needs to think about how this gets integrated within the larger framework, commercial issues involved in the contract, etc. CERC’s regulations comes into the detailing of all these activities. Its regulations promote implementation of policy.

The judgement you refer to of the Kerala High court is about a simple order relating to transmission. There is a transmission network in the country, but you can’t identify the exact line that goes to a specific consumer. How do we account the cost for this and how do we regulate? We found out that X amount of money needs to be recovered from the consumer. It flows from the policy that money needs to be recovered but how do we apportion the cost? Should it be based on usage? Should it be based on distance from the generating system? This is what CERC determines. We frame regulations to figure out the percentage cost for reliability and security; we also determine the x% that is a national component, the x% that is a regional component and how we estimate components becomes complex. The nitty gritty of translating policy and making it workable is CERC’s job. A lot of detailing takes place and CERC’s underlying policy is to do it in an equitable, affordable, fair, and efficient manner.

How is CERC’s adjudicatory powers different from what the judiciary does?

CERC’s adjudicatory powers are derived from the Electricity Act. The Supreme Court recently pronounced that composite schemes fall under the domain of the CERC. A private or government generating station supplying to more than one state comes under the CERC. Transmission is a monopoly, and it comes under the CERC as well. Intra-state generation and intra-state transmission is investigated by the CERC. Any contractual issues are adjudicated by CERC, and the regulator has its own procedure, it has the powers of the civil court and follows the process of the civil courts. We adjudicate disputes and we also investigate tariff setting issues in the same manner we resolve disputes. Adjudication comes in when there are issues of power supply agreement or when there is a force majeure issue, we adjudicate for the provision in the contract based on the law prevailing and whether the parties can claim for compensation or additional costs for recovery etc. We follow the basic principles of adjudication; we issue orders, and our orders are self-speaking. In the earlier days, all entities were government entities and there were very few disputes.  Today, there are many private entities, and these issues are very important since huge amounts of commercial stakes are involved. Our intention is to adjudicate these issues in a fair and quick manner. We also investigate how many of our orders are appealed and how many of our orders the courts have set aside etc. Usually, our orders are very good. Parties do look up to us since we provide a quicker way of resolving issues, and both the distribution utilities and generating utilities accept our judgements.

How does CERC integrate the market at a national level and how does it help consumers in tariff and supply reliability?

One can have a power plant purely as a merchant power plant. One can go anywhere else in the market for power exchange. This is delicensing. Transmission is a natural monopoly; we will not have competition in this space. Earlier all the transmission lines were built by power grids belonging a common entity but now these lines are bidded out and then private players who build these lines, operate, and maintain them for 35 years. We license them so that they can run and manage those lines. In the last 2-3 years, close to 50% of transmission assets have been bidded out. In the distribution part, utility will not have competition, but the point is who manages the distribution. The issue is about bringing in efficiency in the delivery of these services.

One issue we thought about was the carriage and content separation. In distribution, we take the lines part and make it a separate company. For example, the Central Transmission Utility is the monopoly in transmission, and we allow entities to supply in that line. The lines remain as monopolies. Recently there was a talk about delicensing distribution utilities but again switching over form one supplier to another is difficult because of the way in which the Act stands and hence, there is limited competition on this side.

There are other developments which need to be looked at: traditionally we have long term Power Purchase Agreements (25 years) but now because of the dynamics within the power sector there are not many takers for long term PPAs. In the long term, if you look at the distribution utilities, even the good utilities in the states of Gujarat, Maharashtra and Tamil Nadu can lock in 40-50% in long term PPAs, 30% in medium term PPAs (3-5 years) and for the rest 10-20% they can look to the short-term market. The whole load curve is changing and if you lock into long term PPAs you don’t have that flexibility. This is happening now. The demand for the market will grow and because of necessity, we will go to the market and buy.

CERC’s job is to facilitate market operations. We have different types of products; our term end market was limited to 11 days but now we are going for products with longer periods, and we will have contracts of 3 or 6 months. Everyone is looking at flexibility and managing their portfolios in an efficient manner, rather than locking into a contract for the long term and paying unnecessarily. Second, the scheduling that takes place on a PPA basis sometimes doesn’t optimise the power sector. For example, if I don’t schedule cheaper power the gain to the system is minimised. Market based economic dispatch (MBED) says that instead of every individual player scheduling power based on their contract, we can pull everything together and put it in the market to schedule it. The schedule is done from cheaper to higher cost and cheaper power is dispatched 100% so that there is efficiency gain in the system.  This is the basic concept behind MBED.

The challenge is implementation. Not technology implementation, but that the Discoms are the larger buyers and have to agree to go out of the PPAs and go to the market. There is a financial issue, because once you go to the market you have to pay upfront, so they have to have the resources. A lot of effort is being made by the ministry and by us so that we proceed in that direction. It is a slow process, we have floated a paper, a lot of comments have come, we have been discussing with stakeholders. My understanding is that it will happen. Security Constrained Economic Dispatch has been happening for the last 1.5 years, that is a precursor to MBED.

This is very important because 80% of the tariff we pay as consumers is the bulk power cost, and this will bring down that cost. However, the challenges are also political. The way electricity has developed, we treat states as islands of electricity grid, and there is a state-level sense of energy security. But moving to integrated market is a necessity for the future.

The Draft National Electricity Policy discusses the need to shift to light touch regulations. There is a transition happening in the sector. Supply and demand were predictable but now with renewables and various behind the meter interventions, demand is going to be variable. We are also moving away from a control to a market-based economy. Given all these changes, what does light regulation mean? Will there be a reduced role for regulators, or a more substantive role?

In the value chain of electricity, generation is the first point. The main cost is the generation cost. If you go through the process of competitive bidding, it is much easier. You go through a guideline, bid document, follow a process, and discover tariff. You ensure that the process is fair and transparent. The difficulty comes in the cost-plus tariff setting, since you must discover the tariff based on ‘n’ number of factors which is time consuming. Initially, we thought that we will do away with the cost-plus efforts and move into competitive bidding, but we realised that we cannot do away with one option. Today, instead of a deterministic approach, we are thinking to build normative parameters and then determine some benchmarks to set the tariff. For example, there are ‘n’ number of NTPC plants with various sizes and types and if we can determine O&M expenses based on size and capacity as a formula, it will be easier to add weightage. Can we also have an average normative number for capital cost? Everything is much more predictable in these situations when the norms are fixed. But we cannot make a norm for 10 years and go to sleep, this needs to be updated. For this, the regulator needs to be much more sensitive to what is happening in the market.

Another point is that today we have multi-year tariffs. We notify norms applicable to whichever power plants come in and are operating during a 5-year period. There is some regulatory certainty. We notify it before the tariff period kicks in, so everyone knows about it and this makes everything simpler. We cannot do away with regulations, but we can make them more normative, predictable, and this will certainly reduce the burden on the regulators and uncertainty for the other entities. This is our effort, but we have a long way to go because fixing up normative numbers is a difficult task.

What is CERC’s role in making sure there is universal access to electricity? How does CERC do advocacy and engage with the public?

The Act itself provides for various advocacy roles for the state regulators, and state regulators deal with the retail consumers and their awareness campaigns. The PSU generators like NTPC also do their own awareness campaigns as part of their CSR activities.

Our role in awareness generation is limited because we are not dealing with retail consumers. However, at our level, public engagement in regulation-making is something that we promote and encourage. For any regulations we make, we do engage with the expert bodies. Secondly, we take out a staff paper and ask for public comments. Thereafter, we consider those public comments. Then we make a draft regulation, and we ask for comments on the draft regulations and do a public hearing, and then we finalise it. The whole process is transparent, and we value the comments we receive.

In cases where larger public interest is involved, we allow certain non-governmental bodies to participate in the hearing. They bring the other side of the picture, or the counter point. We have recognised some NGOs and they are expert bodies. We also have interactions with various associations and societies who are active in the field of power sector.

But if you look at the level of engagement in regulation-making it is quite surprising and effective. We recently made a special provision for waste-to-energy plants – there are only 5-6 plants in the country, but we want to encourage them, so we made a special provision. We received comments from people who had read very clearly and made comments.

Access all events as part of the Know Your Regulator series:

• Why you should ‘Know your Regulator’?
• ‘Know Your Regulator’ Event 2: Ms Rita Teaotia, Chairperson of the Food Safety and Standards Authority of India (FSSAI)
• ‘Know Your Regulator’: Mr Navreet Singh Kang, Chairperson of the Real Estate Regulatory Authority (RERA), Punjab

All in all, then, there would be some 4.5 million families – farmers and workers – dependent on sugarcane in UP. Inclusive of their members (4-5 per family), it would add up to 20 million persons. That works out to over 8% of UP’s total estimated 240 million population – in other words, one in every 12 persons in the state!

It’s not difficult to understand why sugarcane is so ubiquitous in UP. Virtually the whole of northern UP is a Ganna Pradesh. That encompasses the districts of the state’s North-West (Saharanpur, Shamli, Muzaffarnagar, Bijnor, Baghpat, Meerut, Ghaziabad, Hapur, Amroha, Moradabad, Bulandshahr, Sambhal and Badaun), North-Central (Rampur, Bareilly, Pilibhit, Shahjahanpur, Lakhimpur Kheri, Hardoi, Sitapur and Barabanki) and North-East (Bahraich, Balrampur, Gonda, Ayodhya, Ambedkar Nagar, Basti, Gorakhpur, Maharajganj, Kushinagar and Deoria) regions. Ganna Pradesh is essentially the northern half of UP, above Mathura-Aligarh, Lucknow, Amethi-Sultanpur and Azamgarh.

What is so unique about Ganna Pradesh making it suitable for sugarcane cultivation? Sugarcane, we know, requires more water than most other crops, the primary reason being its long duration of 11-12 months. Cane in UP is grown in the Upper Doabs – the lands between its great south-flowing rivers. Thus, the North-West ganna belt covers the riverine plains between the Yamuna, Ganga and Ramganga; the North-Central Doab is between the Ramganga, Gomti and Sharda-Ghaghara; and the North-East between Sharda-Ghaghara, Rapti and Gandak extending to Bihar.  The lands between these confluent rivers have extremely fertile alluvial soils, not to mention water, ideal for ganna. Unlike with Maharashtra, Karnataka or Tamil Nadu, water has not been a limiting factor in Ganna Pradesh, while also reinforced by a network of canals built from British colonial times. These include the Eastern Yamuna and Upper Ganga canals irrigating the North-West districts, the Sharda Canal in North-Central and the recently-inaugurated Saryu Canal project interlinking five rivers (Ghaghara, Saryu, Rapti, Banganga and Rohini) of North-East UP.

Ganna Pradesh’s potential, however, wasn’t really exploited till around 2004, when the then Mulayam Singh Yadav government in UP came out with a Sugar Industry Promotion Policy. Under it, a host of incentives were offered for establishing new or expanding existing mills: 10% capital subsidy on investment; exemptions from stamp duty and registration charges on land purchase, entry tax on sugar, purchase tax on sugarcane and trade tax-cum-administrative charges on molasses; and reimbursement of costs of transport of sugar up to 600-km distance, transport of cane from out-centres to factory gate and cooperative society commission on purchase of cane. The incentives were made available for a period of 5 years if companies invested a minimum of Rs 350 crore and 10 years for those investing more than Rs 500 crore.

Although most of the above sops never got delivered (https://indiankanoon.org/doc/107057029/), the policy induced large-scale investments in both greenfield and brownfield milling capacities. Till 2003-04, the total crushing capacity of UP’s mills was below 400,000 tonnes of cane per day (tcd). Today, the state has 120 mills with aggregate capacity of 787,275 tcd (see table below).

Region-wise capacity of sugar mills (tcd)

*Includes one 5,000 tcd mill in Ghaziabad; **Includes one 1,250 mill in Aligarh;

***Includes one 3,500 tcd mill in Kasganj; @Includes one 1,250 tcd mill in Farrukhabad;  @@Includes one 1,250 tcd mill in Sultanpur; @@@Includes one 3,500 tcd mill in Azamgarh and one 2,500 tcd mill in Mau.

Wonder variety

The second major breakthrough took place with the commercial cultivation of Co-0238, the blockbuster variety developed by Dr Bakshi Ram, former director of the Indian Council of Agricultural Research’s Sugarcane Breeding Institute at Coimbatore. Till 2012-13, this variety, officially released in 2009, was being grown only in select farmers’ fields under evaluation trials by the Indian Sugar Mills Association. In the 2013-14 sugar year (October-September), Co-0238 was cultivated on a full scale in 72,628 hectares across UP. From virtually nothing, its share in UP’s total sugarcane area rose to 3.09% in 2013-14, 8.30% in 2014-15, 19.64% in 2015-16, 35.49% in 2016-17 and 52.55% in 2017-18, and further to 69.02% in 2018-19, 82.21% in 2019-20 and 86.7% in 2020-21.

Co-0238 had two game-changing characteristics.

The first was its being an early-maturing variety. “Early-maturity” referred not to the crop’s duration per se, but to sucrose accumulation. UP farmers mostly plant sugarcane during February-April and it is ready for crushing in 11-12 months. From this harvested plant-cane, there is also a 9-11 month “ratoon” crop that sprouts automatically from its stubbles. The ratoon cane is what the mills first crush from November. Harvesting of the plant-cane happens after mid-January. The advantage with early-maturing varieties is that sucrose accumulation reaches 13-13.5% in the ratoon cane by November itself and by mid-January for the plant crop. This isn’t so with “general” varieties, where the same peak sucrose levels are obtained only after mid-December in the ratoon and from March for the plant-cane. Early-maturing varieties basically enable mills to achieve higher sugar recoveries right from November through the crushing season till April-end.

The table below shows how the average sugar recovery from cane crushed by mills in UP has gone up – from just over 9% to 11.5% over the last 10 years. This is largely courtesy of Co-0238. UP has, since 2016-17, even overtaken Maharashtra as India’s top sugar producer. Moreover, the average recovery rate recorded by its mills is today above that of Maharashtra (not all of the sucrose in cane is extracted/crystallized as sugar; the unrecovered part goes into the molasses used by distilleries).

The Big-Two: UP versus Maharashtra

*Sugar recovery is lower at 11.46% in 2018-19, 11.30% in 2019-20 and 10.76% after accounting for diversion to B-heavy molasses. Maharashtra’s recovery rates shown factor in such diversion.

But it’s not only mills that have benefitted from Co-0238. That links up with its second significant transformative impact. Prior to Co-0238, all cane varieties grown in northern India were “medium-thin”, with the average diameter of their sticks at 2-2.25 cm each. Co-0238 was “medium-thick”. Its individual cane sticks had a diameter of 2.5-2.75 cm. While increased thickness conferred greater yields, it could potentially also result in lower sugar recovery. The breeding challenge lay in breaking this negative correlation: The need was for a medium-thick variety giving higher yields to growers and simultaneously accumulating more sucrose for mills to recover early in the crushing season and through the winter.

That’s where Dr Bakshi Ram’s variety made all the difference. Water may not have been a limiting factor for cane in UP, but the winters were always so. Sugarcane has traditionally been viewed as a tropical crop requiring sunshine as much as water for both yields and sugar recovery. That limiting factor was circumvented through Co-0238 – proof of it being average cane yields in UP rising from below 60 tonnes to 80 tonnes-plus per hectare over the past 10 years. The extra 20 tonnes yield, thanks to Co-0238, would have considerably offset the effects of only marginal hikes in cane price – from Rs 315 to Rs 350 per quintal since 2016-17 – and steep jump in diesel, electricity, fertilizer and crop protection chemical costs. For mills, the extra 2 kg or so of sugar produced from every quintal of cane has been an unequivocal blessing. On the 110 mt of cane crushed annually by them, the additional revenue from 2.2 mt of extra sugar at Rs 30/kg average realization comes to Rs 6,600 crore!

One must mention here one other reason for cane yields going up in UP. It has to with farmers adopting trench planting – preparing raised beds on fields and sowing the cane seeds (‘setts’) on the furrows at 4-5 feet row-to-row distance. This technology – as opposed to conventional flat-bed planting at narrow 2-3 feet spacing – has led to better tillering and the canes coming out longer and thicker, besides making it easier to give water, fertilizers and crop protection chemicals through the furrows. Co-0238, in combination with the spread of trench planting and wide-row spacing, has brought about a revolution in the ganna fields of UP. Many farmers are also taking advantage of the wider space available between rows to plant short-cycle crops on the raised beds. These crops mature within four months, while the cane planted on the furrows continues to grow even after they get harvested (https://bit.ly/3mTTr3m).

Average cane yield in UP (tonnes per hectare)

Biofuel bonanza

A more recent boost to UP’s sugar industry has come from the Narendra Modi government’s National Policy on Biofuels unveiled in May 2018 – and, more significantly, the institution of a differential pricing regime in ethanol used for blending with petrol. Since 2018-19, mills are being paid higher rates for the ethanol that they produce from ‘B-heavy’ molasses and cane juice, than through the conventional ‘C’ molasses route.

Mills typically crush cane with 13.5-14% TFS or total fermentable sugars content (TFS includes sucrose and reducing sugars, namely glucose and fructose). From every tonne of cane, they recover around 115 kg (11.5%) sugar. The un-crystallized, non-recoverable TFS (2-2.5%) goes into ‘C’ molasses that yield about 10.67 litres of ethanol on fermentation. Alternatively, they can extract, say, 10% sugar and divert the 1.5% extra TFS into an earlier ‘B-heavy’ stage molasses yielding some 19.42 litres of ethanol. A third option is to not make any sugar and ferment the entire 13.5-14% TFS to produce roughly 76 litres of ethanol.

By fixing higher prices for ethanol derived from fermentation of whole sugarcane juice/syrup and the intermediate ‘B-heavy’ stage molasses than from ‘C’ molasses (see table below), mills have an added incentive now to put up new distillery capacities. Producing more ethanol from the first two routes has also reduced their dependence on revenues from sugar. In 2019-20 and 2020-21, mills grossed Rs 7,823 crore and Rs 13,598 crore, respectively, from ethanol sales to oil marketing companies (OMCs). Further, it enabled them to divert an estimated 0.8 mt and 2 mt equivalent of sugar in these two years.

Ex-mill price of ethanol in Rs per litre

Note: Ethanol supply year is from December to November.

The adoption of differential pricing has led to the supply of ethanol by mills to OMCs increasing, from a mere 38 crore litres in 2013-14 and 66.5 crore litres in 2016-17 to 255 crore litres in 2020-21. Much of this has come from ‘B’ heavy molasses, with the share of direct cane juice/syrup, too, set to surpass that of ‘C’ molasses in 2021-12 (see table below). In the current year, ethanol supply by mills is expected to cross 350 crore litres, while diverting up to 3.5 mt of sugar towards ethanol produced from ‘B-heavy’ molasses and cane juice. The ethanol-blending target of 10% also looks achievable in 2021-22, as against the all-India average of 8.1% in 2020-21, 5% in 2018-19, 2.07% in 2016-17 and 1.53% in 2013-14. The Modi government is aiming at diversion of 6 mt sugar annually by 2025, as part of its ambitious 20% blending plan. That should further bring down the industry’s reliance on sugar sales and improve the capacity of mills to make timely payments to cane growers.

Supply of ethanol under blending programme (in crore litres)

*Broken/damaged rice and maize; **Contracted so far.

The National Policy on Biofuels has stimulated huge investments in ethanol production capacities by UP’s sugar mills, reminiscent of the boom in the early 2000s. That one, we saw, involved the creation of milling (as against distillery) capacities following the then state government’s Sugar Industry Promotion Policy. Between 2016-17 and 2020-21, ethanol production in UP has more than doubled from 42.70 crore litres to 99.31 crore litres. The total number of ethanol distilleries and their annual installed capacity, too, has gone up from 38 and 87.05 crore litres to 55 and 166.17 crore litres, respectively. UP has become India’s leading ethanol producer, while also achieving the highest blending-in-petrol ratio among all states.  That, at close to 10% (see table below), is already the level targeted for all-India in 2021-22!

Ethanol blending % achieved*

*For 2020-21 (Dec-Nov) till 14.11.2021.

Many leading sugar industry groups of UP have undertaken major investments in ethanol distillery capacities in the last 2-3 years and proposed further expansions within the next one year.

Balrampur Chini Mills, in January 2020, commissioned a 160 kilo-litres per day (KLPD) distillery at Gularia (Lakhimpur Kheri), taking its total capacity to 520 KLPD. Subsequently, it announced the expansion of both its Balrampur and Gularia distilleries (by 170 KLPD and 40 KLPD, respectively), plus a greenfield 320 KLPD distillery at Maizapur (Gonda) to produce ethanol directly from cane juice/syrup during the crushing season (November-April) and from grains (broken/damaged rice and maize) in the off-season. All these projects, more than doubling its capacity to 1,050 KLPD, are slated for completion by November 2022. DCM Shriram Ltd, likewise, commissioned a 200 KLPD distillery at Ajbapur (Lakhimpur) in December 2019, adding to its existing 150 KLPD facility at Hariawan (Hardoi). Next on the anvil is a 120 KLPD distillery at Ajbapur that can use grain as feedstock, taking the unit’s total capacity to 320 KLPD. Triveni Engineering & Industries, too, doubled its ethanol capacity to 320 KLPD through a new 160-KLPD distillery at Sabitgarh (Bulandshahr) in April 2019. Two more – a 160 KLPD molasses/cane juice distillery at Milak Narayanpur (Rampur) and another 40 KLPD grain-based at Muzaffarnagar – are to be operational before the 2022-23 sugar season.

With the Ministry of Road Transport and Highways notifying the mass emission standards for 12% and 15% ethanol-blended petrol in October 2021 (https://bit.ly/3eS9cn1), the stage has already been set for the manufacture of E12 and E15 compliant motor vehicles. The UP government can, perhaps, take the lead in enforcing 12% and 15% blending for new vehicles within the state. This makes sense, especially when Ganna Pradesh is well poised to be India’s ethanol hub with all its cane, sugar mills and distilleries. 12%, 15% and 20% blending (all vehicles produced after April 2023 are supposed to be E20 compliant) is worth pursuing first in UP, Maharashtra and Karnataka rather than in the states that cultivate little or no cane!

The road ahead

Sugarcane requires more water than most crops (see table below). This is mainly because it is grown over 11-12 months, compared to 4-5 months for paddy or wheat. Also, the worst sugarcane grower will harvest at least 40 tonnes per hectare – UP’s average is two times that – whereas the best wheat and paddy farmers’ yields are 7-9 tonnes/hectare. Sugarcane consumes less water per day and even less for every unit weight of biomass produced. That has to do with it exhibiting ‘C4’ photosynthesis, a more efficient mechanism of deploying solar energy to convert atmospheric carbon dioxide and water into plant matter than the common ‘C3’ photosynthetic pathway (https://bit.ly/3qOX1gr). Sugarcane is one of the world’s few ‘C4’ crops – along with maize, sorghum and tropical grasses.

Water requirement for different crops (millimeters over growing period)

 Source: http://agropedia.iitk.ac.in/content/water-requirement-different-crops.

Mother Nature has, in a sense, already made sugarcane highly efficient at carbon sequestration and a prolific biomass producer.  Its green top leaves supply much of the fodder needs of UP farmers’ cattle and buffaloes during the winter and spring months. This is before straw and stover becomes available from wheat in April-June and jowar/bajra in July-October.

It is necessary to also note that cane contains around 70% water and 30% solids, the latter comprising 14-15% each of sugars and fibre. The high water and fibre content in cane allows for sugar to be a unique industry generating its own steam and power requirement. This, again, is on account of biomass, which is nothing but stored energy from photosynthesis that gets released as heat on burning. The high-pressure boilers used in modern sugar mills can generate around 130 kilowatt-hours of electricity from every tonne of cane (i.e. 300 kg bagasse or 660 kg steam). After deducting 25 units of in-process consumption by the mill and another 11-12 units of auxiliary consumption in the boilers/turbo-generators, about 95 units is exportable to the grid. Not for nothing that Balrampur Chini alone has a total installed cogeneration capacity of 278.47 megawatts (MW) at its 10 sugar mills in UP that can together crush 76,500 tonnes cane per day. Out of the 278.47 MW, as much as 168.70 MW represents saleable cogeneration capacity. DCM Shriram’s four mills of 38,000 tcd, similarly, have a combined cogeneration capacity of 141 MW, of which 84 MW is exportable.

As regards water, we have already noted that it accounts for 70% of sugarcane by weight. Out of that 70%, 15% goes into bagasse (the fibrous residue burnt as fuel in the boilers), 5% each into molasses and press mud, and 25% used during crushing/juice extraction and lost due to evaporation. That still leaves 20% surplus water from the cooling towers/spray pounds, which can be treated for use in irrigation. Sugarcane is, thus, a source of both surplus energy and water even after processing in mills.

The challenge next is how to make sugarcane part of a circular economy, wherein it gives back to nature what it takes, to the maximum extent possible. For farmers, ganna is both a cash and fodder crop, the cane being sold to mills and the tops fed to their animals. Ganna’s potential as an energy crop – producing sugar, ethanol and power – is also being harnessed by UP’s mills.

But it doesn’t stop there.

The press mud from mills – the residue cake after clarification and filtration of sugarcane juice – is used as a fertilizer, being rich in organic matter and also containing some nitrogen, phosphorus, potassium, calcium and magnesium (https://bit.ly/3HyND7o). Mills supply the raw press mud (about 3 tonnes is produced from every 100 tonnes of cane crushed) to farmers, who apply it in the soil after composting. A more recent initiative has been to use press mud as a feedstock for production of biogas using anaerobic digesters. The raw biogas is, then, upgraded to more than 95% methane content (after removing carbon dioxide, hydrogen sulphide and other impurities) and compressed for filling in storage cylinders (cascades). This final product – BioCNG – can be utilized as green fuel, whether for automotive, domestic or commercial application. The residue sludge coming out from the digester after extraction of biogas is a source of liquid fertilizer and organic manure (https://bit.ly/3JE8xUi and https://bit.ly/32TyvTh). In August 2021, a 9 tonnes-per-day compressed biogas plant of Indian Potash Ltd at Rohana Kalan in UP’s Muzaffarnagar district was dedicated to the nation by Prime Minister Modi. The gas produced by this plant is being marketed by three retail fuel outlets of the Indian Oil Corporation in Muzaffarnagar (https://bit.ly/3qWDkDv).

Another useful byproduct and potential fertilizer source is the spent wash from distilleries. This liquid effluent generated during alcohol production can pose serious environmental problems, if discharged into land and water bodies without proper treatment. There is, however, technology now  to simply concentrate the spent wash to 58-60% solids and feed it along with bagasse (as supporting fuel in 70:30 ratio) into an incineration boiler. The resultant ash coming out from the boiler in dry form has been found to contain up to 28% potash and 16.5-21% when converted into granules. For a country fully dependent on potash imports, this alternative production route can supply over a tenth of its consumption of the nutrient (https://www.aidaindia.org/Presentations2019/Delhi/Dr.%20Arvind%20Krishna.pdf). The Centre has even notified Potash Derived from Molasses (containing 14.5% of the nutrient) as a fertilizer and included it under the nutrient-based subsidy scheme.

UP’s sugar industry is today at an inflexion point where it can harness the full potential of ganna that engages almost a tenth of the state’s people. Co-0238 is evidence of what varietal breeding can do for cane yields and sugar recoveries. There is tremendous scope to also grow the crop in an environmentally-sustainable way using less water and giving back to Mother Nature what is taken from it. Mills in UP have gone beyond sugar to producing ethanol, cogeneration power and organic fertilizers. With forward-looking government policy, whether on biofuels or transparent formula-based pricing of cane (linking it to realizations from sugar and by-products), Ganna Pradesh can do much better than Brazil!

This note, part of the Understanding the Rural Economy series by CPR, has been authored by Harish Damodaran

Bhargav Krishna is a Fellow at the Centre for Policy Research (CPR). His research interests span areas of health policy, environmental policy, and environmental epidemiology, with a focus on the impact of air quality and climate change on health. Previously, he set up and managed the Centre for Environmental Health at the Public Health Foundation of India (PHFI).. In this capacity, he served on Union and State government expert committees on air pollution, biomedical waste, and critically polluted areas.

Krishna holds a Doctorate in Public Health (DrPH) from the Harvard T. H. Chan School of Public Health, a Master’s degree in Global Environmental Change from Kings College London and an undergraduate degree from Anna University, Chennai. He is Adjunct Faculty at PHFI and Visiting Faculty at Azim Premji University where he teaches environmental health and health policy respectively. He is also co-founder of Care for Air, a Delhi-based non-profit working to raise awareness of air pollution among school children.

In this edition of CPR Faculty Speak, Krishna talks about his work and interests at CPR, why they matter, what impact he hopes to achieve and more.

Tell us about your research work and interests at CPR.

My work at CPR spans areas of environmental policy, epidemiology, and health policy. Within these broad areas, the primary focus of my work is around air quality – understanding the scale of the problem, the impact that it has on health, and the institutional levers that need to be strengthened to improve it in the long-term. This means breaking down the processes by which laws or standards are arrived at, institutional bottlenecks to implementing them, and the ultimate impact they have in terms of illness and premature death.

Why do these issues interest you?

Poor air quality is a challenge that has plagued every developing country, but the scale at which it has affected India is unprecedented in many ways. It is pervasive across the country, within homes through cookstoves and in the ambient air due to a variety of sources like industries, power, and transport. It is also one of the largest risk factors for ill health in India, contributing to over a million premature deaths each year. These factors alone make it an area worthy of deep academic work. Solving this conundrum requires interdisciplinary work to arrive at solutions that blend technical, economic, sociological, and political considerations which makes it an adaptive challenge worthy of our collective attention.

How has this issue evolved in the country and globally over the years?

Global discourse on air quality has evolved significantly over the last half century, but India only really woke up to the scale of its own problem over the last decade. Unfortunately, a lot of the discourse has been centered on Delhi, ignoring the fact that large tracts of the country experience air quality as bad if not worse due to the plurality of sources in rural and urban India. Aside from some large-scale interventions like the Pradhan Mantri Ujjwala Yojana, there has been little in the way of systematic action to improve air quality across various sectors nationally. We hope that some of this action will be catalyzed through the National Clean Air Program city action plans and the 15th Finance Commission funds provided to urban local bodies, but this is yet to be realized.

 What impact do you aim to achieve through your research?

Given the complexity of the air pollution problem, we need to be thoughtful, proactive, and systematic in our approach to tackling it. However, air pollution policymaking has been largely ad-hoc and reactionary, resulting often in solutions like smog towers that are tangential to the science. Policymaking around air pollution has also largely ignored the health frame essential to drive effective action. Through my work, I hope to bring the structure and a health frame to work that is fundamental to addressing this complex, multi-faceted issue.

What are you currently working on and why is it important?

I’ve recently published a journal article that documents the effect of air pollution on mortality in Delhi, and will be building on this work to explore the effect of short-term air pollution policies on health. Starting with a webinar we are organizing in early December, we will also be working over the coming months to strengthen the systemic processes that go into defining India’s National Ambient Air Quality Standards (NAAQS). The NAAQS are the basis for what we define as clean air and feed into how we communicate health risks through the Air Quality Index. They are being revised for the first time since 2009, and by bringing the CPR approach to strengthening institutions and governance, we hope to ensure that the NAAQS reflect the scientific consensus in and define India’s ambitions viz. air quality improvement in the years to come.

To know more about Bhargav Krishna’s work and research, click here.

Namita Wahi is a Senior Fellow at CPR, where she leads the Land Rights Initiative. Her research interests are broadly in the areas of property rights, social and economic rights, and eminent domain or expropriation law. She has written extensively on these issues in various academic journals and edited volumes, as well as newspapers and magazines. She has taught courses in these areas at Harvard University, both at the Law School and the Department of Government, and at the National University of Juridical Sciences, Kolkata.

Wahi was recently awarded the New India Fellowship for her forthcoming book on the history of the Fundamental Right to Property in the Indian Constitution. She is an alumna of the Harvard Law School and the National Law School of India University, Bangalore. In this edition of CPR Faculty Speak, she talks about her work and interests at CPR, why they matter, what impact she hopes to achieve and more.

Tell us about your research work and interests at CPR.

My work lies at the intersection of property rights and social and economic rights. I founded and currently lead the Land Rights Initiative, a pioneering initiative in the land policy space. At the Land Rights Initiative, we have generated a tremendous body of knowledge, and intervened in key legislative, policy, and courtroom debates in the areas of land acquisition, land rights of Scheduled Tribes or Adivasi communities, demonetisation and online dispute resolution. Importantly, we have made a major contribution in reorienting the policy discourse on land, from the “utilitarian” development discourse, which is premised on the greatest good of the greatest number, to the “dignitarian” rights discourse, which is premised on empowering each individual and ensuring the realisation of a dignified life by all.

I also work in the area of social and economic rights, especially health and water rights. I am part of the International Social and Economic Rights project, an international network of lawyers, judges and activists, who seek to enforce and realise social and economic rights nationally and internationally.

Why do these issues interest you?

75 years after independence, 60% of all Indians are dependent upon land for their livelihood. Land provides a measure of security that is simply not experienced with labour or capital. We have witnessed this during the recent COVID-19 pandemic when millions of migrant workers have walked thousands of miles to return to the security of their lands in the villages. And yet, land is not merely an economic resource, it is central to individual and community identity, history and culture. Displacement of people from their lands for development projects like dams, mines, and infrastructure development, not only impoverishes them, it also uproots them culturally and socially with devastating psychosocial consequences. Such psychosocial consequences are exacerbated in the context of Scheduled Tribes or Adivasi communities that constitute only 8.6% of the population of India, but constitute 40% of all people displaced since independence – some more than once in one lifetime. And yet, we know very little about the labyrinth of land laws and land administration in India. Today, an estimated 7.7 million people are affected by conflict over 2.5 million hectares of land, threatening investments worth 200 billion USD. Land disputes clog all levels of courts, accounting for the largest set of cases in absolute numbers and judicial pendency. Conflicts between laws, and individual and government failure to comply with the rule of law, create legal disputes. Yet the number and extent of land laws is anyone’s guess because there is no existing publicly available comprehensive database of land laws. Moreover, administrative manuals in many states have not been updated since British times, which leads to administrative noncompliance with the rule of law. So, the need of the hour is to actually create knowledge on the legislative, administrative and judicial failures that contribute to legal and extra-legal disputes over land. Once we understand land conflict better, we can design policies to solve it, thereby ensuring greater economic, political, and social stability for the Indian republic.

How have these issues evolved in the country and globally over the years?

Land is a state subject under the Indian Constitution. At the state government level, the post-colonial Indian bureaucracy still follows the administration model of the British government, which divides the administration of land between the revenue and forest departments. At the central government level, the Department of Land Resources at the Ministry of Rural Development is charged with the coordination of land policy. However, as the largest owners of government land, the Ministries of Forests, Railways and Defence manage a lot of land resources. So, while there is a plethora of laws and delegated legislation governing land at the central and state levels across India, it is highly dispersed and fragmented. Moreover, there are hundreds of grassroots organisations all over the country that have historically advocated for the recognition of land rights of different communities, and have played a key role in the policy changes that have led to the enactment of the Forest Rights Act, 2006, and the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. Globally as well, there is a recognition of the limits of the present development model, and a recognition of the need to ensure land tenure security in order to achieve the Sustainable Development goals of Zero Hunger and No Poverty.

What impact do you aim to achieve through your research?

I hope to create an informed citizenry through our research. I believe that systemic and long-term policy change cannot occur without substantial buy in from the people on the ground. We spend as much time designing and working on massive research projects, as we do in simplifying our outputs so that they are not only comprehensible to informed stakeholders like policy makers, legislators, civil society organisations, and judges, but can be directly accessed by the people. For instance, our research report on Land Acquisition in India: A Review of Supreme Court Cases from 1950 to 2016, has been read by hundreds of ordinary litigants defending their lands against acquisition proceedings by the government. Hardly a day goes by without me getting a call from someone who is seeking legal advice for their particular legal dispute.

There was a time when land reforms and social redistribution of land were on the topmost agenda of the government. That had completely disappeared around the time I founded the Land Rights Initiative. Given that land is the source of sustenance for 60% of Indians, it needs to come back to the policy agenda of the government in a big way, and that’s the impact I am hoping to achieve.

What does a typical day look like for you in your initiative at CPR? 

Pretty varied but usually buzzing with activity! We are a small core team of five interdisciplinary researchers with backgrounds in law, social sciences, technology, and public policy, with a number of student interns who join us for short periods of time throughout the year. Each one of our projects takes about 3 to 5 years to complete and involves extensive archival data collection and field research, followed by rigorous analysis of the data and writing of research reports. So, there are days when we are glued to our computer screens and Zoom, as we work individually and collectively to analyse and refine the data. But there are also days, especially in the pre-pandemic time, when we are on the road for 8 to 10 days, when we go to particular states to conduct key informant interviews and focus group discussions with multiple stakeholders. There are also days when I am pulled into meetings with the government or when I have to go to the Supreme Court.

And then there are those few quiet days when I can return to my book manuscript!

What are you currently working on and why is it important?

We are now gearing up to launch the first ever, comprehensive online interactive architecture of land laws in India, as part of our One Thousand Land Laws: Mapping Indian Land Laws project. As part of this ambitious project that was undertaken over a period of five years, the Land Rights Initiative team travelled the length and breadth of the country to create a database of over one thousand colonial and post-colonial central and state laws. The LRI team has painstakingly collected officially authenticated copies of all originally enacted central and state laws from a geographically representative sample of eight states, namely, Andhra Pradesh, Assam, Bihar, Gujarat, Jharkhand, Meghalaya, Punjab, and Telangana, numbering five hundred. These five hundred laws include laws pertaining to land reforms and land acquisition, revenue and taxation and land use; forest and mining laws and laws applicable to the Scheduled Areas; laws promoting and regulating urban and infrastructure development; and finally, laws dealing with evacuee, enemy, ancestral and religious property. Further, the LRI team has meticulously analysed these laws according to thirty-one parameters of classification, and also summarised these laws so that they may be comprehended by a lay audience. Both the laws and the summaries run into thousands of pages of text that will now be freely accessible to anyone who wants to know the laws of the land.

To know more about Namita Wahi’s work and research, click here.

Setting the context for electricity regulation

The electricity sector has three divisions – generation, transmission and distribution. The electricity sector is constituted of both public and private sector. In generation, private utilities generate 46 percent of power in the country, with state utilities at 30 percent and central ones at 24 percent. Transmission remains largely govt-controlled, with the Power Grid Corporation of India responsible for planning, implementation and operation of the inter-state transmission system and operation of national and regional power grids. Distribution is mostly caried out by state-owned distribution companies (DISCOMs), with only 10% of India’s population being served by private DISCOMs (majorly in big cities like Delhi, Mumbai, Ahmedabad, Kolkata).

Electricity is a concurrent list subject, with a distinct federal dimension in the sharing of power and responsibility between the Centre and States. This is reflected in the structure of electricity regulation in that the Central Electricity Regulatory Commission (CERC) regulates tariff for generating companies owned or controlled by the Central Government and those with an inter-State dimension, and for inter-State transmission of electricity. The State Electricity Regulatory Commissions (SERC) regulate tariff for generation, supply, transmission and wheeling of electricity within the States.

State Electricity Boards (SEBs) were set up by the Electricity Supply Act, 1948 as integrated bodies overlooking generation, transmission and distribution activities. These were the backbone of the electricity infrastructure, and controlled 70 percent of electricity generation and almost all distribution by 1991. State governments performed the tariff-setting role. SEBs were essentially extensions of the state energy ministries, and financially dependent on them. The decision on electricity pricing was often a political one, and this led to a sharp deterioration of the financial condition and management practices of SEBs. A failed attempt to privatise the sector in 1991 was followed by a World Bank-supported reform effort in the state of Orissa, organized around unbundling and privatization in the sector. Despite the failure of the Orissa reforms to yield expected results, several states followed in its steps and finally in 1998 the Ministry of Power did the same through the Electricity Regulatory Commissions Act, 1998.

The CERC and SERCs were set up by the 1998 Act (later reconstituted under the Electricity Act, 2003) with the objectives of depoliticizing the sector and incentivising private investment. The context for this was the deterioration of the power sector due to poor health of SEBs caused by irrational tariff structure, and shortfall in planned capacity in the power sector.

The Electricity Act, 2003, designed to consolidate the various laws governing the electricity sector, brought in two key changes: (i) generation was delicensed; (ii) SEBs were to be ‘unbundled’ or separated into uni-functional utilities.

There is also Central Electricity Authority, which was reconstituted by the Electricity Act, 2003 to provide advice on technical and safety standards for electricity infrastructure.

Scope and design of electricity regulation

The CERC is established by the Centre, following procedures for appointment and constitution laid down in the Electricity Act. According to Section 79 of the Electricity Act, the CERC has the following functions:

• To regulate tariff for generating companies owned or controlled by the Central Government and with a composite scheme for operations in more than one State.
• To regulate inter-State transmission of electricity, including determining tariffs.
• To adjudicate disputes relating to the generating companies and transmission licensees for which it has regulatory powers.
• To specify and enforce various types of service standards.

CERC can advise the government on National Electricity Policy and tariff policy, and on promoting efficiency, competition and private investment in the sector. It is bound by Central Government/ CEA policy in the discharge of its functions.

The Appellate Tribunal for Electricity hears appeals against orders made by CERC.

SERCs are appointed by the State Governments to regulate generation, transmission, wheeling and distribution of electricity within the State. They regulate power purchase and procurement processes, issue licenses and determine tariffs for electricity operations in the State. They are also responsible for adjudicating disputes between licensees and distribution companies. They have similar standards setting and policy advisory roles as the CERC in relation to the State, and are bound to follow national electricity and tariff policy in the discharge of their functions.

Section 61 of the 2003 Act provides the guiding principles for tariff determination by CERC and SERCs.

Issues and challenges

The electricity sector faces some legacy issues as well as future challenges. There are continuing challenges of lack of independence and irregular tariff revisions at the state level, even several decades after the establishment of regulatory institutions for the sector. The regulators also face difficulties in enforcement and delay in the enforcement of orders and payments. There is a tendency to over-judicialise the field of regulation, which increases costs and tends to benefit financially stronger parties in legal disputes.

There are, in addition, some complicated futuristic challenges to be addressed by electricity regulators:

• Market promotion and integration for renewables: An integrated market is essential for the penetration of renewable electricity, which tends to be more variable than conventional electricity. CERC has already taken important steps in developing a Market Based Economic Dispatch model, but much remains to be done.
• Regulating uncertainties: The 20th century electricity system was relatively predictable, in terms of demand, supply and available resources. But the 21st century electricity system will lose that predictability with variable generation, behind-meter interventions and uncertain demand driven by various factors including rapidly changing weather patterns. All these will require more dynamic regulations and greater technical expertise at the electricity regulatory commissions.
• The central government has expressed interest to shift towards light touch regulation. This does not  imply less role for regulatory commissions, but rather, that the sector will be more complex with new kind of energy services (more decentralisation), greater number of players (diffusion) leading to more and complex adjudication, and greater responsibilities for protection citizens and businesses.

Food is regulated through a variety of activities that include setting food safety standards, developing guidelines, mandating disclosure, devising certification standards, testing of products, monitoring and supervision, and the imposition of sanctions and penalties. It also includes public education about food safety for the general public and for people and enterprises in the business of producing and selling food. The Food Safety and Standards Act, 2006 provides the legal framework for food regulation in India. Following this law, the Food Safety and Standards Authority of India (FSSAI) was established in 2008.

In this session of the Know Your Regulator series, Ms Rita Teaotia, Chairperson, FSSAI spoke of food regulation in India. She was in conversation with Dr Mekhala Krishnamurthy, Senior Fellow, State Capacity Initiative at the Centre for Policy Research and Dr. Abha Yadav, Associate Professor, Indian Institute of Corporate Affairs and Director of the Forum of Indian Regulators (FOIR) Centre at IICA. Dr KP Krishnan, IEPF Chair Professor in Regulatory Economics, National Council for Applied Economic Research (NCAER) provided welcome remarks and comments.

A summary of the conversation below:

An introduction to FSSAI

The Food Safety and Standards Authority of India (FSSAI) is a young regulator. It was established under the Food Safety and Standards Act, 2006. The primary aim of this law was to check the ever-growing problem of food adulteration in India. FSSAI has established a single point reference system to address problems related to food regulation. In 1954, the FSSAI brought in the Prevention of Food Adulteration Act that was enforced in 1955. But that did not last even for more than a year because the Essential Commodities Act came in the same year (1955) and these multiple orders – edible oil control order, milk products order, infant food order – were implemented by different ministries. It became a situation where the industry bodies and consumers were confused. In response to this, in 1998, the Prime Minister’s Council of Trade and Industry decided that there needs to be a model, comprehensive legislation that will perform all the functions instead of a piecemeal approach to food regulation. This led to enactment of the food safety legislation in 2006, and subsequent constitution of FSSAI in 2008.

FSSAI provides a seat to seven different ministries, including ministries for Health, Food Processing, Agriculture, Legislative Affairs, Consumer Affairs. In an ideal world, this is where the policy input happens (it may not always happen). Also, every single regulation is put out there for comments for sixty days and anybody is welcome to make comments and raise objections. This provides opportunities for all the stakeholders, including industry bodies, farmers, and consumers, to have a voice in this Authority. It is very important for these groups to have their say at this stage.

Challenges in FSSAI

When the SEBI Act was passed in 1992, it was decided that the members of the old administrative body (Controller of Capital Issues) will not be recruited into SEBI. India, at that time, was moving away from control to regulation. Additionally, it was decided that the new regulator will be based out of Bombay and will not have anything to do with the existing team in Delhi. This is very different from how the FSSAI was implemented.

The first team of the FSSAI consisted of people from the old administrative bodies that were involved in food regulation, and they brought their histories into this organisation. There was a conformity culture within the old organisation that members of the FSSAI had to unlearn. The old authority focussed on enforcing absolute standards, but the FSSAI wanted to improve on processes. This was a complete cultural shift and became a significant challenge to overcome.

Another challenge is the issue of uneven state capacity. This is a federal Act that expects for the implementation and enforcement of the regulations to be the joint responsibility of the centre and the state. It is true that the FSSAI touches every Indian but is the level of enforcement and compliance uniform across the country? Is the level of competency and skillset uniform? There is a challenge here that the FSSAI is dealing with.

The other challenge is in laboratory capacity. The Authority has primary laboratories, referral laboratories and reference laboratories that produce reference material. This is a three-tier system. Some of them belong to the FSSAI, many belong to the states, and some are from independent laboratories. Getting uniform NABL (National Accreditation Board for Testing and Calibration) regulations and having a comprehensive capacity across all these labs is a challenge. A lot of the Authority’s budget goes into improving laboratory capacity.

Are women represented well in FSSAI? Has FSSAI achieved one-third representation for women?

In terms of the number of women in the organisation, the first authority had six women, the second only had five women. It’s a hit and miss because sometimes the representative of an industry or a ministry could be a woman but there are no guarantees. This is a challenge, and the difficulty arises because there aren’t enough women in the right leadership positions to appointed. The FSSAI has never achieved one-third, but there is a conscious and brave effort to achieve one-third representation within the Authority.

Autonomy of FSSAI

Very early on, FSSAI adopted government pay scales, but the levels were compressed a bit to have a much leaner structure. FSSAI started out with a sanction strength of 356 people, but the organisation eventually started its own process of finding people, most of whom came on contracts. The Authority wrote and passed a set of rules for recruitment only in 2018 and it also got additional positions approved. So, for the first time, FSSAI is an authority with proper recruitment rules. There are 840 sanctioned positions in the FSSAI today of which 550 positions are filled. The organisation is still recruiting for positions and many food technologists are interested in joining the Authority.

Functions of the FSSAI

In terms of powers, the FSSAI does not do all the enforcements. The organisation only does some parts of dispute resolution. The Authority specifically investigates three categories of offences:

1. When the FSSAI tests food products, it may encounter labelling deficiencies. There are technical deficiencies aswell. These have been proposed in the amendment to the Act and is to be compounded by the designated officers. This gets settled with a fine and the Authority decides the fine quantum.
2. For quality issues, for example milk not containing enough fat is not harmful to the consumer’s health. This is a quality issue but not a safety issue. Issues such as these are first sent to FSSAI’s adjudicators who are additional district magistrates outside of the FSSAI administration. Appeals from there will go to an Appellate body constituted in each state headed by a retired high court judge.
3. Safety issues are first taken up by the lower criminal court. Criminal cases are where one must be worried about safety.

Minor infringements that affect quality and safety are easily resolved. If these issues cannot be easily resolved, then the issue is dealt with by an Adjudicating Officer who then transfers the issue to the Appellate body, and this process takes quite some time. In food, the penalty for an infringement must be immediate, it mustn’t be after five or ten years. The temporality is so critical.

How does standard setting work in food regulation?

Scientific risk assessment is required to set standards. New knowledge emerges and FSSAI keeps track of this.  FSSAI’s standards are not frozen in time, but the organisation also makes sure that they standards are not changed too often because it might not bode well for the industry. It takes two years for a standard to come out.

The Authority also needs to decide when standards need to be implemented. To think through these questions, FSSAI has created a network of scientific institutions working in food safety and nutrition. There are about 45 research and academic institutions part of this network. They have been grouped into eight groupings and they do horizon scanning for the FSSAI. They identify emerging research trends, new technological processes, emerging risks, and new products to our attention. Apart from the Chairman, the CEO and the Authority, the FSSAI has a scientific committee and 21 panels, each comprising eleven independent scientists or experts. These panels work on specific standards. They look at risk assessment, they look at data and then they set up an expert group to develop a standard. This matter then goes to the scientific committee that comprises the chairpersons of all the scientific panels as well as six independent experts. This body looks at the wider implications and cross-cutting issues. Finally, the standards go to the Authority where it is only approved as a draft. Here is where the inputs of the stakeholders come in and the final draft goes to the Ministry for concurrence. With that concurrence, it goes to the public for 60 days for comments.

For example, the Authority recently brought out the labelling regulations for which it received thousands of public comments.

The Authority decides only based on scientific evidence and if there is any technical or scientific issue that the Authority may have overlooked that comes through the comments, it tries to remedy it and then circulate the revised draft through the same route. During the second time, the draft goes to the legislature for it to get approved as regulations that the Authority will begin to enforce.

FSSAI gives almost up to a year before enforcing regulations. This is the transition time required for the industry to change whatever is required to comply with the new regulations.

The imposition of certain kinds of standards will have multiple implications. In the approach to making standards, how are multiple interests balanced?

Standards are not something very tough to achieve. It’s about balance. For example, in agriculture, we talk about good agricultural practices where we decide that only a certain percentage of pesticide or insecticide is allowed. The FSSAI’s regulations need to be practical and transmittable in terms of the organisation’s capacity building initiatives. The Authority is also keen to ensure that small businesses understand its regulations. There are conflicting interests, but the organisation aims to keep trying.

The global standard setting body is the Codex Alimentarius Commission. India has been a member of Codex since 1964 and we held the chairmanship from 2014-17. The Authority works with the Codex in the standard setting process and refers to Codex when it comes up with Standards. FSSAI is also actively trying to harmonise these standards, particularly in additives and contaminants where the organisation has investigated stakeholder assessments to contextualise standards for India.

On genetically modified crops in food

Section 11 in the Environment Protection Act (EPA) says that no Genetically Modified (GM) food shall be imported or processed in India without the approval of the Genetic Engineering Advisory committee (GEAC). So far, the GEAC has not approved any food crop that is genetically modified. FSSAI’s position is that GM products are not permitted in this country. In 2008, the GEAC and the Ministry of Environment clarified that processed food that may have GM origin ingredients without Live Modified Organisms (LMOs) will not fall under the ambit of section 11 of the EPA. In the FSSAI Act, section 22 talks about the many categories of products including GM products. There now exists a position where GM processed foods should be regulated and tested but there needs to be a regulation in place to do that. A draft regulation is under the government’s consideration and the intention is to permit GM-origin products that do not contain LMOs.

There are also no substitutes for making certain foods.  GM food products are imported to be used in the biotechnology industry and FSSAI does not permit them to be used in food. It is important to understand the boundaries and risks specific to GM food products. Our EPA requires that every single crop product of GM origin (24 in number) must be approved by the GEAC but if they are not presented to the authorities when they are imported, how would the government know? FSSAI now requires that all the food crops are checked and also requires a certificate from the country that it the food is imported from stating that the consignment is GM free. It then goes through the Authority’s regular risk management system at the port of entry where 20% of samples are tested. Along with regular testing, these systems also test for GM free products.

Methods to ensure compliance

In terms of compliance, there is the issue of what to look for.

1. Anybody in the food business, whether it is a street vendor on the street or a big chain, needs to have a license. If your annual turnover is below 20 lakhs and you are in the business of food, you should register with the FSSAI. If your turnover is above this number, you need a license. This is a method by which the Authority recognises all food businesses in the country.
2. While enforcement happens through the state machinery, FSSAI also advocates self-compliance. When a person signs on in the license, he accepts the standards and the code of practice. Schedule 4 in the Act specifies safety and hygiene practices that the vendor must follow. There are many kinds of checklists.
3. For compliance, the Authority inspects to collect samples for testing. FSSAI has only 2500 food safety officers while there are 46 lakh food businesses. It is impossible for the 2500 people to reach out to all these businesses. To solve for this, the Authority has designed a method where it determines its inspection frequency based on the risk and the profile of the food business.
4. FSSAI also does hygiene rating and third-party audits. The manufacturer is required twice a year to test his food samples at a laboratory at his own cost and keep those results with him for the next inspection. The Authority also has tools to help people comply like the ‘do it yourself’ checklist, codes of practice, etc.

FSSAI also has a very large capacity building programme with 262 training partners and 1000 trainers and 19 programmes for all the sectors. It is required that every organisation has at least one person who is trained with the Authority.

Inspection

FSSAI’s inspection tools are fully online. The web-app has geo-tagging features to determine who has accessed the app. The details of the inspection are all on the checklists and users cannot bypass inspection without these checklists.

FSSAI has also created a risk profile for states for all their food businesses. The 46 lakh food businesses are classified according to this list. States get a printout with the names of the businesses that needs to be inspected from the FSSAI. If there is a complaint, the Food Safety Officer is expected to inspect that business as well. FSSAI is keen to take subjectivity out of this system to make sure that there is transparency to create a history of records that includes samples, self-compliance checklists, inspection records and annual turnover. A risk profile is arrived at based on these metrics.

What kind of food system do we want?

There are big debates on commercialisation of food. What is the role of a regulator and a standard setting body in shaping “safe and wholesome food”?

During its first ten years, FSSAI focussed on getting the first set of regulations. Then the Authority moved to focussing on what was on its preamble: to ensure access to “safe and wholesome food”. FSSAI’s campaign called “Eat Right” is an effort to nudge people towards better diets and nudge the industry to rethink their role as providers of this nutrition.

The Authority has done this in a collaborative manner but there are regulatory components, capacity building components and certification components to this nudging effort. People were claiming that food was fortified but FSSAI did not have standards for fortified food. What the Authority chose to do instead was to set standards for five staples – rice, wheat flour, oil, milk, and double fortified salt – and set those standards at 30%-40% of recommended daily allowance. This is based on the premise that a diversified diet is important.

FSSAI has also brought out regulations on transfats. The global goal is that the world must be transfat free by January 2023. Ten years ago, the Authority focussed on bringing this number down in India and we were at 2% in January 202, in both oils and fats and processed foods. This nudging process has worked. FSSAI is well on its way to eradicate transfats in India by January 2023. Another goal has been to focus on less salt, sugar, and fats through health regulations.

Why do we need to know our Regulators?

Regulators touch our lives in many ways, and the FSSAI is an organisation that touches all Indians. Anyone who consumes food is touched by this agency.

Regulators are different from government departments. As Statutory Regulatory Authorities (SRAs), the regulatory agencies are distinct and separate. The word Statutory means that they are established by a law of the parliament; Regulatory in terms of the activity that they do and Authority because they are a distinct legal persona separate from the government departments.

What is striking about the SRAs is the fact that most regulators are not like the other standard organisations in the state. The SRAs have powers to legislate, the power to implement legislations (administrative law) and some regulators have some degree of powers to preside over disputes specific to the sectors they regulate. A situation that a regulator deals with is complex and dynamic since it depends on the sector. Detailed parliamentary legislations cannot envisage what lies ahead and hence there is a need to give the regulators the flexibility to write legislations based on the situation. It is equally important to keep it away from politics since the regulators must give certainty to the markets. Conferring vast powers over an organisation could lead to serious democratic deficit and other accountability issues. Hence there is a need to reach out to the public to create an awareness on the nature and function of regulators.

The idea of the KYR series is to have a public conversation with the regulators. These conversations are specifically meant for the intelligent layperson who is keen to know more about the organisations that touch her life through regulations. You can find out more information on our first event in this series here.

The Centre for Policy Research (CPR) completes 48 years on 2 November 2021. In this special episode of India Speak: The CPR Podcast, Mukta Naik (Fellow, CPR) speaks to Yamini Aiyar (President and Chief Executive, CPR) about her impressions of CPR’s journey, her vision for CPR in the years to come, the institute’s research agenda, impact, experiences and more.

Aiyar reflects on how CPR has remained relevant through the years with path-breaking multisectoral research. She discusses CPR’s core values of strict non-partisanship and fierce independence and ways in which the institute can deepen its engagements to contribute to the development of 21st-century India. She also highlights the challenges CPR faces, the need for deep and long-term engagement with ideas and research for effective policy implementation and the importance of democratic argumentation and dialogue.

Setting the context for real estate regulation

The establishment of a statutory regulatory authority for real estate regulation is a relatively recent phenomenon. The Real Estate (Regulation and Development) Act, 2016 requires each state to establish a Real Estate Regulatory Authority. As of July 2021, 26 States and Union Territories have established their own regulatory authorities. States are also mandated to set up a Real Estate Appellate Tribunal by this Act.

The real estate sector is subject to several types of regulation and control, such as building and planning regulations, environment law and labour law. Moreover, land itself is subject to a legal and administrative regime that controls its ownership and transfer.

However, as the real estate sector grew in the decades of the 2000s, there were concerns about the risky financial practices and misselling by promoter companies, the prevalence of black money and shady dealing, and the imbalance of market power between buyers and sellers. This gap was sought to be filled through the establishment of the real estate regulatory authorities.

Interestingly however, the regulation of the real estate sector in this way is not a widely prevalent global practice. The formulation of Indian real estate regulation seems to have been driven by the particularities of the Indian real estate sector.

In the Indian Centre-State scheme, housing, land and planning are largely managed by the State. The Authorities under this Act are established at the State level, with no centralized organizational hierarchy and no role for the Centre except to make law and rules. However, the fact that the law was to be made by the Centre was the subject of considerable debate in the run-up to its enactment. It was finally agreed that it would be in the general interest to have a uniform regulatory framework, which could be established and implemented at the State level. Moreover, the Centre’s role in the enactment of the law was justified on the ground that the law regulates contracts (between buyers and sellers), and the transfer of property, both of which are subjects of the Concurrent List on which the Centre and States share powers.

Scope and design of real estate regulation

The Act states that RERAs are to be established ‘for regulation and promotion’ of the real estate sector, to ensure that sales are carried out in an ‘efficient and transparent manner’, to ‘protect the interests of consumers’, and for speedy dispute resolution. This was re-stated by a former RERA chairperson as follows: (i) to ensure transparency through disclosures, (ii) timely completion of real estate projects, and (iii) rebuilding trust between buyers and sellers.[1]

The Act requires that all real estate projects (above <500 sq. meters land area or more than eight apartments) should be mandatorily registered with the Authority set up under the Act. The Act prohibits the advertisement and sale of real estate projects that are not registered. Registration includes details of the promoter or promoter company, and of all plans, approvals and clearances obtained for the project. The promoter is also required to declare the time in which it expects to complete the project. These details need to be updated periodically, and are maintained on a website available for public scrutiny.

The Act also provides for mandatory registration of real estate agents. By way of the Act, and through this registration process, many of the terminologies, legal obligations, commercial practices and contract conditions of real estate projects have been standardized.

Most significantly, it is mandated that 70 percent of the proceeds from project sales are to be maintained in a separate bank account of the promoter, and are to be used only for land and construction costs. Breach of this condition, or any of the other conditions can result in revocation of the project registration (after which further sales are barred) and freezing of the project bank account. The Authority can also issue other directions and take steps to protect the interests of allottees. Upon lapse or revocation of registration, there is an option for the Authority to pass directions for the remaining completion of the remaining work of the project through a state government agency, or by an association of the allottees.

The promoter is barred from making any changes in the sanctioned plan – such as by building additional sale units on the same property – without the consent of 2/3^rd of allottees. Any structural defects or defects in quality, workmanship and services that emerge within a period of five years from handing over possession to allottees are to be rectified by the promoter. The promoter is also not allowed to transfer its majority stake in the project without the consent of 2/3^rd of allottees and of the Authority.

In case a promoter fails to complete a project, or to complete it in accordance with the agreement or within the time specified, allottees have the option of withdrawing from the project and are entitled to be returned whatever money they have paid to the project, plus interest and compensation. Allottees who choose to remain invested in a delayed project are entitled to interest payments for every month of delay, until the time of handing over possession. Allottees are entitled to be compensated for any defects in the land title of the project.

As a corollary of its regulatory strategy, the Authority has a significant adjudicating role. Regulatory adjudication is initiated principally through compensation claims and complaints filed before it.  In the event of violations of any of the conditions specified in the Act, it can revoke registrations and also impose penalties and interest payments. The Act also mandates the establishment of an Appellate Tribunal.

The Authority however has a limited role in setting up rules and policy for the sector. Much of the work of norm-setting for the sector is already done under the Act. The Authority can make regulations on specified matters, and make recommendations to the state government, and provide an opinion on real estate law and policy when sought by the state government. Rule-making power in relation to the Act is vested with the State government. The Centre can also make rules under the Act. All rules and regulations made under the Act are to be laid before Parliament or State Legislature, as the case may be.

Issues and challenges

Many of the provisions of the Act are designed from a consumer protection perspective, with emphasis on compensation and on creating an exit option for buyers. However, regulators have found that these remedies could either not be enforced fully, if there were insufficient funds in the project, or would lead to the collapse of the project. This was prejudicial to the interests of both buyers and promoters as it leads to loss of value for all the parties concerned. For this reason, there seems to be broad consensus around the idea that promoters and sellers should be encouraged to come to a settlement and re-working of terms as far as possible. This is perhaps a practical solution, but quite a significant transformation in the role originally envisaged for the Authority. Notably, there is no structure for conciliation or mediation provided for in the Act, but nevertheless, many regulators have developed a framework to facilitate dispute settlement.

There is are also challenges around the enforcement of regulatory orders, and the extent to which wrongdoers can be brought to book through the provisions of the Act. This could be on account of the fact that RERA orders cannot be enforced beyond the project and promoter company, or that the promoter company’s lawyers can stretch out the legal process to such an extent as to reduce the salience of whatever remedies are awarded. The Act itself does not provide for a bar on registration of sales related to projects that contravene the provisions of the Act, but some RERA orders have asked registration departments not to register sales. This might help address some of these issues, but this issue is a subject of considerable debate at present.

Related to this is the question of choice of forum, and accessibility of different legal options. RERA covers a subject matter that was previously covered by various other agencies: parties aggrieved of breach of contract, cheating, misselling could approach the regular law courts, and they could have also approached the Consumer Courts or Competition Commission of India. Promoter companies are also sometimes the subject of insolvency proceedings, where buyers are recognized as creditors. For an individual home buyer, it might be difficult to know where to go. And moreover, the costs of pursuing a claim through RERA could be quite high.

There is also a broader question about whether regulation can, or needs to respond to the external environment. Projects might be delayed because of delays in approvals to be given by other agencies. They might also be delayed because of external market conditions that were unexpected, but do not fit the definition of a force majeure event. To what extent are these factors reflected in the everyday work, and in norms and practices developed by the RERAs?