Sunday, February 6, 2011

Why claims of RBI to regulate NBFC (MFIs) is > Federal state govt claims. An analysis of constitutional provisions.

This article was first posted on the "IFMR Blog". Am cross posting it here.

A verdict on the Malegam committee reports efficaciousness is still out. However there is a consensus arising about the benefits of a few suggestions. One of these being, if the recommendations of the Malegam report are accepted, the need for a separate Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act (henceforth the Act) will not survive.[1]

The AP state government has responded to the report in general and this recommendation in particular with dour criticism and expression of support for its legislation. Further the AP government is claiming the protection and empowering cloak of the Indian constitution for the continuance of its Act. Rural development principal secretary R Subrahmanyam was cited in a news report claiming:
“According to the List II of the Constitution, the regulation of money lending is the original jurisdiction of the state government. An Act is the will of the people. Accordingly, whether or not the need for AP MFI (Regulation of Money Lending) Act exists will be decided only by the AP Legislature and not by the RBI”.[2]
Other criticisms were levelled at the report which was submitted to the RBI in a 5 page report, excerpts of which can be found in the public domain[3]. However for the purpose of this article we will focus only on the above statement, whereby state government regulation is given primacy over central regulation.

The constitutional powers debate:
The primary issue in our context is one of jurisdiction. Is regulation by federal units of India valid if a class of institutions are already under the purview of ‘central watchdogs’.

The primary argument utilised by the AP govt deals with the concept of separation of powers which is enshrined by the Indian constitution via Article 246. This article combined with Schedule VII lists the areas which are the exclusive domains of the Centre, the State and common areas of interest.

Under List I which lists central government’s sphere of responsibility the following entries are relevant:
Entry 38: Reserve Bank of India.
Entry 43: Incorporation, regulation and winding up of trading corporations including banking, insurance and financial corporations but not including co-operative societies.
Entry 44: Incorporation, regulation and winding up of corporations, whether trading or not, with objects not confined to one State, but not including universities.

Under List II which lists state government’s sphere of responsibility the following entries are relevant:
Entry 30: Money-lending and money-lenders; relief of agricultural indebtedness.
Entry 32: Incorporation, regulation and winding up of corporations, other than those specified in List I, and universities; incorporated trading, literary, scientific, religious and other societies and associations; co-operative societies.

The Rural development principal secretary R Subrahmanyam is depending on entry 30 List II cited above to derive sustenance for the Act. A preliminary reading of the above entries leads us to see AP government’s Act as a case of constitutional over reach; especially when the act seeks to infringe onto RBI’s turf. The entries and hence the constitution is clear that the state government can only regulate those financial corporations which are not regulated by the central govt. Further the RBI is under the exclusive control of central regulation. Money lending under entry 30 list II cannot be given such a wide interpretation so as to encompass areas under exclusive central regulation and thus defeat the language and spirit of the constitution.

If we assume the above argument to be valid, RBI and its regulatory powers are derived from List I and will be equivalent to central government regulation. Thus in the present context we are dealing with over-regulation of NBFCs’ by state and central laws.

With the insertion of chapter IIIB in the RBI act, it has become compulsory for NBFCs to register with the RBI, which has specified various restrictions in the context of income recognition, asset classification, capital adequacy norm, provisioning requirements and disclosures in the balance sheet.
The objects and reasons for insertion of Chapter-IIIB would assume importance in order to better understand the controversy. The same reads as under:
……..For ensuring more effective supervision and management of the monetary and credit system by the Reserve Bank, it is desirable that the Reserve Bank should be enabled to regulate the conditions ……… The Reserve Bank should also be empowered to give any financial institution or institutions directions in respect of matters, in which the Reserve Bank, as the Central Banking institution of the country, may be interfered from the point of view of control over the credit policy. The Reserve Bank's powers in relation to commercial Banks should also be enhanced and extended in certain directions, so as to provide for stricter supervision of the operations and working……..[4] (emphasis added)

The aforesaid makes it clear that the intention of the Parliament to insert the provisions of Chapter-IIIB inter alia is to control and regulate the conditions for acceptance of deposit and to control the credit policy of Non-Banking Finance Companies and the financial institutions.[5] The overarching nature of RBI regulation can be seen through section 45Q:
“The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.]” 
This non-obstante clause overrides provision of any other law for the time being in force. Further, besides section 45Q, section 45JA is important as it allows the RBI to direct all or a class of financial institutions and to formulate policy for the same. This will put the burden on RBI to direct MFI NBFCs as it has the wherewithal and legislative competence for the same; not state governments who have experience of only regulating state corporations and money lenders. The Malegam report supports this notion when it forwards the idea that the State is often not the best agency to act as a regulator and this task is best left to an independent regulator[6].
The High Courts of Maharashtra and Gujarat have upheld the primacy of RBI over state regulation on these same grounds, in the cases of Vijay P vs. State of Maharashtra[7] and Sundaram Finance vs. State of Gujarat[8].

The Malegam report records that ideally there should not be any overlap of regulation and regulators for the smooth functioning of financial services. The above point’s buttress this argument and show that legally speaking there cannot be any overlap and the NBFCs must either be governed by List I or II.


[1] Page 49; Para 25.7.
[3] http://www.dnaindia.com/money/report_andhra-pradesh-to-deep-six-malegam-panel-recos_1497525; Last visited on 31st January, 2011.

[4] (2010)51GLR1529
[5] Ibid.
[6] Page no 48; Para no 25.6 (a).
[7] (2005) 128 Comp Cas 196 (Bom)
[8] (2010)51GLR1529



A foreign policy doctrine for India.


Hopes of emulating the success of an ‘Iraqi surge’ in Afghanistan may not have been fully realised. With the US stuck in a quagmire of economic crisis and a perception of loss of power, USA increasingly is looking for a way out. India should have been the traditional go to nation for sharing some of the burdens of the Afghan war, however with Pakistan objecting to even token Indian presence, this seems unlikely.

There is a fair amount of analysis on possible outcomes of USA withdrawal and role of India in such a post-USA Af-Pak world. One of the constants of such analysis has been the certainty of a de-facto Pakistan takeover of Afghanistan. With a return of Taliban and strengthened Pakistani elements, the 60 year old Indian endeavour of settling its western borders would be considerably weakened. A victorious Pakistan would be a recalcitrant negotiator.

Such a gloomy forecast is among others a case of simplification of an unclear narrative. We have frequently looked at the Pakistani and Afghani players as a monolith, with shared interests and common foes. The participants in this story are diverse and engaged in a fight with every other participant, including their supposed allies. Notably the Tehrik-i-Taliban and allies are opposed by the Punjabi governing elite, , national parties, the MQM and partly by the Balochs. Further the areas bordering Afghanistan wherein the Taliban and other extremist agencies are based have not been conclusively lost. Instead FATA, Quetta, Mohammed Agency are frontlines, with Pakistan being the prize.

Let us here for the moment assume Taliban’s victory over Afghanistan, with active Pakistani involvement. Is this really the nightmare situation for India, as has been painted in public discourse. In this author’s personal opinion, partition was the actual nightmare for Indian political and military strategists. All we are facing now are the after-shocks. It reflects negatively that we have yet to come up with a coherent public policy for dealing with results of said nightmare. Lack of communication of Indian foreign policy objectives to the public la the USA is a very significant lacuna on part of Indian administrators. This is so as it is the public which bears the cost for all policies.

In this article we will attempt to look at steps that India may take to turn around a Taliban takeover of af-pak region into a beneficial stand.

In our present context, it is interesting to note that the USA is looking at employing its time tested tactic of dividing a region it cannot hold. The Korean peninsula and Vietnam are prime examples of this approach. It is the US belief that short of an outright victory, a region clearly divided into blue and red is the most effective tactic in stopping a domino effect for the whole region. Vietnam being an example where after US withdrawal, the whole region became communist. A partition of Afghanistan will be of dubious benefit to USA and allies, as it will require continued expenditure of men and political will, to prop up and defend Northern Afghanistan. While this might be an easier task, with a friendlier population, the USA would be stuck in a semi-permanent deployment. From the Indian perspective this would be a very helpful development as;

  1. The USA will continue to take an active interest in reducing Pakistani radical structures and manpower,
  2. The focal point of Islamic extremism will continue to be divided between Kashmir and Afghanistan,
  3. Northern Afghanistan will comprise of friendly elements of the Northern Alliance, which India shares a long standing relationship with.

Though this is a very brief summary of benefits, the logistics would allow India to establish a limited presence on the ground. The challenges for USA would be varied and would require renewed involvement with cold war era players, i.e. the CIS and Russia for setting up such a partition. The one nation which would be the clear beneficiary would be Iran, as it will gain prominence as a stabilising and influencing agent. The challenges for USA would however be gigantic and any partition may at best be a de-facto arrangement.

India needs to formulate a foreign policy doctrine for public consumption which takes into account the history of engagement with Pakistan and ways to deal with the threat of violence centred around the Af-Pak region. An attempt will be made to formulate an example of such a doctrine, later in this discussion.

Monday, January 24, 2011

Creative writing -1

Okay not 2 paragraphs just one; but hey "baby steps". It describes what i was thinking when i was sitting in a airplane recently.

I am lost in my in-flight magazine with only the irritating but strangely hypnotic cabin music to ignore. In time safety instructions are issued, passengers trudge in, disregarding all this i ignore life. The plane nonchalantly trundles along, just another moment in a boring life.

The plane stops, a few seconds of silence and suddenly violence assails my senses, the ferocity of physics drags me from my mental stupor and drowns me in life. 

Post script: Is it too early for me to start thinking of sending airmails to Norway.

Heads up

One of my favourite pet theories is the one which talks about dealing with the potential of "bottom of the pyramid". This can encompass everything from markets to social and cultural phenomenon. In India TATA "Nano" is the most visible example of such an attempt. I will try to look at this concept through the traditional idea of importance of credit expansion; in the present context it would mean personal reflections on the Malegam Committe report on "Micro-finance" institutions. I will be handicapped in this analysis with lack of adequate industry experience and will depend primarily on open source information.

I am also trying to write a short opinion piece on why the "Taliban" winning in Afghanistan may be good for India. Also as part of my 10,000 project am trying to dabble in creative writing and will put up my first original work (only 2 paragraphs) of quasi-fiction in some hours.

In reply to Sushant K Singh

A few days ago Acorn posted the following article entry:
"http://acorn.nationalinterest.in/2011/01/18/scrap-offsets-and-foreign-investment-caps/#comments"; For the record i believe that the blog "Acorn" and other affiliated blogs, sites and magazines are an interesting attempt at articulating Indian opinion and any criticism on my part should not be considered to be against the site.

The article talked about the problems with offsets in defence contracts and how recent modifications by the Indian government were a death knell for this policy. Further the author suggested the scrapping of offsets to jump start the Indian private defence industry. I agree to one of his suggestions but am against his conclusions; my dissent is given below.

Dear Mr. Sushant,
This article may be called a good primer for the uninitiated to the topic of ‘Defence Offsets’ (henceforth DFO). However i have a few objections to the conclusions drawn here.

Offsets began as a policy decision in the post 2nd WW era, when western Europe was being re-built and outfitted by USA for the cold war. DFOs helped W-Europe to channel its defence spending to productive national causes. The present article looks at the changes in the DFO policy of India as so many nails to the offset policy coffin. In my personal opinion the situation does not warrant such a bleak outlook. The changes may be considered to be a part of the learning curve for handling technology imports through a private sector initiative. This is an unavoidable situation for India due to the lack of a pvt sector defence capability.
To understand the present situation on DFOs, we need to understand why it introduced in the first place.
India is on an unprecedented expansion of its armed forces. A conservative estimate pegs India’s defence spending by 2022 to be around 100 billion dollars . With the current DFO limit being 30% of a contract value and if the above amount is assumed to be a reasonable figure then domestic manufacturers will get orders worth 21 billion dollars. However the Indian defence offset policy was undeveloped in the area of managing this massive inflow.
To cite a few areas:
1. The idea of multipliers was absent in the offset policy. Hence offsets pertaining to multi-functional display (MFDs) would be on par with offsets dealing with jet engines or AESA radar technology or submarine hull fabrication know-how.
2. Identification of industries which are considered to be priorities for domestic defence industry development. An attempt was made by introducing the concept of ‘Rakhsa Udyog Ratnas’ (RURs), however the same was scuttled due to opposition by the OFBs and other DPSUs.
3. Creation of a national offset policy with a hierarchy of requirements and a clear roadmap laid out for the duration of the Long Term Integrated Perspective Plan (LTIPP).

The author does identify the problem of low FDI as a significant hurdle to building partnerships with foreign players. The easiest solution to this problem would be to increase the FDI limit to at least 49%. However in a deadlock as in the present situation, the Govt may follow the selective route of allowing FDI through the approval instead of an automatic route. This will not require dramatic changes to the present policy along with retaining a measure of control over foreign access to domestic industries.

There are a number of other additions that may be made to the DFO policy including allowing offset trading and increasing the tenure for banking of DFO. However I fail to understand how the author of this article is suggesting that the ‘offset policy’ per se be dismantled due to perceived problems. This is akin to throwing the baby out with the bath water.

Using the example of a Czech aviation firm, he seems to make a case for allowing higher FDI limits. However to make a case for the removal of offsets as a policy, the author will have to provide more inputs as well as examples to make his case. Presently he is only pointing out the inadequacies of Indian DFO policy; to prove his point he will need to argue on-
1. The actual harm caused to the Indian private and-or public sector defence industry due to the offset policy.
2. As a corollary, how imports of defence equipment without a DFO policy will contribute and help the DPSUs and pvt industry build capacity.

I hope that Mr. Sushant or the blog admin for "Acorn" takes the time to respond to these queries. 


Sunday, November 28, 2010

Harayana families buy Brides: some thoughts.

This is a link to an article which mentions that 'Harayana families' are now sourcing their supply of brides from all over the nations. Particularly non-North Indian regions.

http://timesofindia.indiatimes.com/city/chandigarh/In-Haryana-get-a-bride-for-Rs-1000-from-Bihar/articleshow/7003264.cms

Agreed, this is a gloomy story and points to a fundamental malaise in the Harayana society at large. However is it possible that there might be a silver lining here. Imagine with marriages between people from regions which are poles apart and primarily from the non-north Indian regions; does any one see a enriching of culture; or a change in the Harayana society; and or a national integration to begin with.

It will be helpful if the study can be expanded to see how these women are integrated into Harayanvi society. Is their treatment better; what is the influence on the household, also how is their mother-side house affected. Is there regular people to people contacts between the bride's family and the Harayana family.

Is there a shift in opinion in the households that had to buy 'brides' from outside the state. What is the status and-or perception of women and more importantly girl children in these 'importing' (sic) households.

These and more questions when answered will reveal whether the situation is actually as black as it seems; or is there a 'proverbial' silver lining to this issue.

Sunday, October 10, 2010

Antarctic Treaty System: Indian and chinese perspectives.

This paper was written a long time ago. Was more of a jotting than a essay.

Antarctica, India and China.

The 20th century is arguably the re-birth of Asia after a hiatus of more than 200 years; And at the vanguard of this Asian renewal are the regional behemoths India and China. Combined they hold within themselves 1/3rd of the world’s population. Except for the brief period of time when the European nations subdued and overtook them, for a major period of the known history they have been acknowledged polarities in a co-existing multi-polar world. And this status of power was maintained by wide ranging trade relations and a robust economy. After the end of the era of colonialism these countries are again looking at reclaiming their rightful status as global leaders.
To do this India and China must face and successfully challenge a number of issues primary among which is providing and maintaining a stable and prosperous living standard for a majority of their populations. To achieve this in the present consumption driven economies requires an enormous amount of resources in all forms. Primary among which are human capital, investment, technology and raw materials. Considering their sizes human capital is a non-issue, investment is outside the scope of this discussion while technology has to be home grown. Raw materials are the crucial issue for both these nations for though both have been blessed with a wide variety of natural resources within their national boundaries, technological considerations as well as requirements makes it imperative to scout for resources in other regions. This is evident from the rush and competition between the two nations to curry favour in the continent of Africa to secure mineral resources primarily Oil; As well as the attempts at playing their own version of the ‘Great Game’ in East Asia. Within this perspective Antarctica gains vital importance for India and China as:
1. It is the last piece of virgin land on Earth and as nations aspiring to world leadership they each desire their share.
2. Taking into account the Gondwana theory as well as research carried out in the Antarctic, the white continent is supposed to be very rich in mineral resources. Coupled with the fact that there is no indigenous population in the Antarctic, the continent becomes too tempting an area to be ignored.
3. The vital importance of the Polar Regions to global environment.
4. Research opportunities and suitability as a testing base for technological innovations.
5. With the melting of polar ice, control of emerging sea routes becomes an issue.
This paper attempts to understand the importance of Antarctic to India and China, while looking at the most beneficial system of governance for the Antarctic taking into account the interests of both the nations. Accordingly we first look briefly at the present systems governing the Antarctic, we then look at their relative merits-demerits vis-à-vis Indian and Chinese interests and finally we try to deal with various alternatives.




1. ATS and the Mineral Resources Convention.
Antarctica has been a site of peace and scientific exploration for the last fifty years, largely due to a series of agreements known collectively as the Antarctic Treaty System (ATS). One of the most crucial features of this system has been the freezing of all territorial claims to the landmass of Antarctic. Preceding the establishment of such an organization, seven territorial claims had been made to the landmass of Antarctic. These were: Britain in 1908, New Zealand in 1923, followed by France in 1924, Australia in 1933, Norway in 1939, Chile in 1940 and Argentina in 1927 where it made a series of claims up till 1957 . These claims came to a head in the early to mid 1950’s along with rising cold war tensions between USA and USSR. Involvement of non-claimant states USA and USSR due to their super-power status raised the specter of hostilities occurring on and for Antarctic. Also increasing tensions between Chile, Argentina and Britain over territorial claims raised the possibility of USA having to choose sides; when all these three nations were its allies To alleviate the conflict, all nine of the claimant countries, along with USA and USSR and three other non-claimant nations Belgium, Japan, and South Africa, negotiated the Antarctic Treaty in Washington, D.C. on December 1, 1959. This treaty came into force in the June of 1961. The most salient feature of this treaty was the “freeze” it had put on all territorial claims of all ratifying members. That is it did not destroy any claims, nor prohibit there continuance, it just created a system of status quo, whereby claims were all put in suspended animation and no activity could be undertaken to further such a claim or make a new claim by member states through the duration of the treaty.
The advantages of the Antarctic Treaty System have been summarized as follows :
(a) It is open to accession by any Member State of the United Nations, or any country which may be invited to accede with the consent of the Consultative Parties--it is thus as universal as the interest of States in Antarctica;
(b) It is of unlimited duration and establishes Antarctica as a region of unparalleled international co-operation in the interests of all mankind;
(c) It is based on the Charter of the United Nations, promotes its purposes and principles and confirms Antarctica as a zone of peace; it is, in fact, the only effective, functioning nuclear weapons-free zone in the world today;
(d) It excludes Antarctica from the arms race by prohibiting any measures of a military nature, such as the establishment of military bases and installations, the carrying out of military maneuvers or the testing of any types of weapons, including nuclear weapons, and forbids the dumping of nuclear waste;
(e) It encourages and facilitates scientific co-operation and the exchange of scientific information, which is made available for the benefit of all states;
(f) It protects the natural environment of Antarctica, including the Antarctic ecosystem;
(g) It provides for a comprehensive system of on-site inspections by observers to promote the objectives and to ensure compliance with the provisions of the Treaty;
The immediate and the most important use however has been the averting of international strife and conflict over Antarctica; by putting aside the question of claims to sovereignty in Antarctica, thereby removing the potential for dispute. However it should be noted that the original seven claimants still continue to hold their territorial claims on the Antarctic. Further among the original five non-claimant nations USA and USSR reserved the right the right to make claims in the future. This was acknowledged and sanctified in Article IV of the treaty. The USA and USSR assume a unique place among the treaty members, for they follow a ‘no claims’ policy whereby they assert no claims and acknowledge no claims by others, while still reserving the right to make future claims. The other non-claimant states have to agree to the frozen claims while not acknowledging the claims of the of claimant nations, however not having the equivalent right of USA and USSR (now Russia) to make future claims. India and China ratified the treaty and became members in 1983. By ratifying the Treaty, these countries agreed to the compromise in Article IV to freeze past territorial claims and also agreed not to advance any new claims of their own. Over the years, this compromise of disallowing anyone to make claims on the Antarctic has spawned a variety of theories in support of keeping the continent unclaimed. These theories range from the idea of ‘global commons’ whereby all the nations have a say, to the idea of an ‘environmental park’ to the idea of a UN trust administered territories. All these theories have as their core shifting the focus of no claims from a compromise to other philosophical and practical ideas.

From the time of its creation the Antarctic Treaty has grown to have 26 consultative parties and 17 contracting parties . Over the years the Antarctic Treaty mechanism has included the recommendations and policies which have been passed at the yearly meetings by the member states. The treaty thus now encompasses the original article and the subsequent policies and resolutions and is hence known as the Antarctic Treaty system. Special conferences were held over the years to develop various Protocols, some of which the Consultative parties eventually ratified. So long as all Consultative parties ratify a protocol, these measures become part of the ATS.
The first successful, large-scale addition to the Antarctic Treaty was the 1964 Agreed Measures for the Conservation of Antarctic Flora and Fauna. Next was the 1972 Convention for the Conservation of Antarctic Seals (Seals Convention). After the Seals Convention entered into force in 1978, the Convention on the Conservation of Antarctic Marine Living Resources (CCAMLR) was discussed in 1980 and was ratified in 1982.

One of the most recent measures to deal with an Antarctic issue was the Convention on the Regulation of Antarctic Mineral Resources (CRAMRA) which took six years of negotiations to finalise; from 1982 to 1988. With increasing access to the continent and advances in technology, access to mineral resources seems to be the issue that might disturb the status quo of the ATS. The member states have placed a lot of emphasis on creation of the Antarctic Minerals Convention. There primary concerns were:
 To protect the Antarctic environment and
 To preserve the Antarctic Treaty regime.

Accordingly the member states of ATS developed several principles for the creation of a governance system regarding mineral exploitation.
As summarized by Christopher Joyner, a noted commentator in this area, the principles are as follows:
(1) The [Consultative Parties] should continue to play an active and responsible role in dealing with the question of Antarctic mineral resources.

(2) The protection of the unique Antarctic environment and its dependent ecosystems should be a basic consideration.
(3) The Antarctic Treaty must be maintained in its entirety.
(4) The interests of all mankind should not be prejudiced.
(5) The balance of interests embodied in Article IV of the Antarctic Treaty [freezing claims of territorial sovereignty to Antarctica] should not be endangered.
A careful study of these principles shows that more than resolving the issue of mineral exploitation the members are concerned more about the survival of their interests and claims in the region.
The convention was never brought into force as it was never ratified. Consensus was never achieved for this convention and with the withdrawal of support of ‘France and Australia’ ostensibly for environmental reasons, the convention did not become a part of the ATS.
The failure raises various questions regarding the Antarctic treaty system and the impact and need for a convention on mineral resource exploitation.

More generally, it has raised questions of whether the treaty regime, which has worked successfully for 25 years, can survive. Some of these questions go to the very root of the principles that the member nations had evolved to guide the mineral exploitation convention.
It creates doubt about the ability of the members to establish a mineral exploitation regime, which satisfies both the ATS members as well as the UN general body. It also casts a doubt on whether territorial claims, international community claims and environmental concerns can be dealt with effectively within the ATS structure.
After the failure of the Convention on Mineral Resource exploitation, a new protocol was negotiated in Madrid, which proposed that instead of regulating mineral resources in the Antarctic, the ATS would outright place a moratorium of 50 years on all mineral resource exploration and exploitation. This ban could be overturned or modified if the ATS members felt the need to do so. Such a move placed the issue of mineral resource exploitation on the back burner, thereby allowing a breather to the member states. Such an action of postponement of the issue is generic to the ATS, whose survival is dependent on the avoidance of all sources of conflict.

2. Chin-India perspective of the ATS and the region.
Antarctic problems are going to assume greater significance in the Indian Ocean region with the focusing of world opinion in the UN, NAM and other fora. Mineral and living resources on the Antarctic are attracting the attention of the world as probably being the last great land rush on our planet. Until the 1980’s the ATS was largely insulated from the world and was quietly managed by the 14 Antarctic Treaty members. As argued above this was a compromise system among the various claimants and led to a creation of a two tier system. A nation could get a consultative status if it had undertaken substantive scientific research on the continent. Due to the remoteness and hostile climate technological sophistry and significant financial expenditure became de facto requirements, prohibiting a number of countries from participating in the ATS. This exclusivity drew increasing amounts of criticism from the developing world, who demanded internationalization of the continent on the principle of ‘common heritage of mankind’. Increasing demand in the 1980’s caused concern to the ATS member states.
It was in such an atmosphere that the first Indian scientific expedition reached the Antarctic in 1981-82. While the Indian government maintained that its expedition was purely scientific, the members of the ATS grew apprehensive. Indian observers themselves believed that India would challenge the dominance of Antarctic by a few nations and take up the cause of internationalizing the continent according to principles of ‘common heritage of mankind’. There was therefore wide spread disbelief in India itself when it was immediately granted consultative status .
The treaty powers were keen to deflect criticism of the treaty and expand the participation to include at least those countries that could not be excluded for too long. Thus both Brazil and India were granted consultative status followed by China. India and China by joining the ATS have placed themselves in a delicate situation with regard to their claims to be representatives of the Third World. This is especially true for India, who leads regional and multi-lateral third world agencies such as NAM and SAARC as well as the BRIC nations and other coalitions.
However looking at the general behavior of India and China in the ATS and their respective agencies as well as the UN, it seems that they are both pursuing to an extent identical policies of not actively supporting oppositions to the ATS while at the same time attempting to maintain their moral high ground as representatives of the Third World.
For example the PRC supports the existing Treaty system because over the years the Treaty has demonstrated “the validity of its purpose and principles,” as noted by a PRC representative to the UN. A similar sentiment is echoed by the Indian side as evidenced from the continued and active participation in the treaty system. India is in the process of setting up its second research system while China is establishing its third station .
The secrecy of the minerals regime negotiations and the scarce publicity concerning Indian and Chinese Antarctic activities makes a reliable examination of their respective positions difficult. However taking into account the context of their accession to the Treaty and subsequent practices some assumptions might be made about the merits and demerits of the ATS to the interests of India and China.
Merits of the ATS:
 That it creates a common territory, disallowing any territorial claims to be made or built upon; while at the same time restricting these benefits to an exclusive club of members. It also creates a free zone for the enjoyment of any future benefits gained through negotiations or conciliation.
 As for being a member, one requires substantial investment, a high entry barrier is automatically created, whereby only nations having considerable economic, technological prowess become members. This achieves two purposes:
• Creates an exclusive club, while maintaining the façade of equality of access.
• Due to the high entry barrier, only strong political, economic powers would become members, thus augmenting the capacity of the ATS to resist third world challenges.
 Creates an arena for the participation of non-claimant states like India-China on par with original claimant states like Britain, Australia. Passing resolutions on the basis of consensus is one example of this.
 By imposing and maintaining a status quo, provides crucial time to India and China, to increase participation in Antarctic and create basis for an eventual territorial claim.
Demerits:
 The inherent inequality of Article IV, whereby territorial claims are frozen not destroyed. Also though territorial claims cannot be utilized neither can they be prejudiced.
 China and India might be placed in a disadvantageous situation for, due to the exclusiveness of the ATS, they might have to primarily deal with claimant states or their allies.
 Problem of addressing the dilemma of being leaders of third world nation conglomerates, while seeking to strengthen claim in an exclusive club.
Accordingly we can categorise Antarctic interests of India and China as follows:
 Political.
 Resource Considerations.
 Environmental, Scientific Interests.
Within these interests would be included areas such as ensuring access to all of Antarctica, especially in areas where mineral resources might be present. Attempt to create a basis of territorial claims, while preventing the manifestation of existing ones. Prevent the continent from becoming a center of discord and ensuring its use for peaceful purposes. Continue the present structure for scientific research and increase co-operation in data sharing. Safeguard the role of Antarctic in maintaining global environment
Above discussions show that the ATS is at least partially an exclusive club, which has an impressive record of maintaining and governing the Antarctic for over 40 years now. India and China have been included within this organization more to buy their acquiescence rather than any recognised claim. Existence of such claim and ability to act upon it has been the primary consideration for membership when the ATS was founded. Even today lack of a territorial claim acts as an added disadvantage when negotiating about aspects of the continent. This is especially so when the issue concerns mineral resources and commercial exploitation. Keeping this in mind let us look at the alternatives that are open to India and China. For the purpose of this article whereby possibility of exploitation is a necessary requirement, there are three options:
1. Create and assert a territorial claim in the Antarctic.
2. Support earlier models of treating Antarctic as ‘common heritage of mankind’, or as a world park, or bring it under the auspices of the UN trust administered territories or
3. Look for solutions within the existing framework of ATS.
The first option of asserting territorial claims is the most aggressive and one which can if successfully concluded promises to give substantial and immediate benefits. However for it to be successful there has to be taken into consideration:
1. Competing territorial claims which have been existing before the claims of India-China.
2. Lack of existence of any territorial continuity, early expedition or even of any continental shelf or of pre-existing rights passed on to the present states. Even the sector principle is not of much use as it does not enjoy a wide recognition in international law.
3. Opposition of the other nations besides the Treaty members, to such an action.
Such an action by India and china would open veritably the Pandora’s Box as all competing claims that have been exiting before the assertion by India-China would be brought forth. The status quo would be destroyed and we would be back in the 1950’s when tensions’ regarding Antarctic territories was leading to war. Most importantly such an action would require that both the nation’s first withdraw from the ATS, this would not only leave them without a support base but would also be of limited benefit, as under international law, discovery without effective occupation at beast creates inchoate land and would be ineffective when other claimants have already exercised their claims to sovereignty. Though exceptions to this rule exist in international law in the cases of “the Clipperton Island Award ; The Palmas Island Case ; the Legal status of the coast of Eastern Greenland ”. These cases stand for the proposition that while sovereignty is generally exercised over people, there is no valid reason for requiring actual settlement and possession of territory in uninhabited areas. Rather, effective administration is all that is reasonably necessary to establish occupation. Assuming a state that effectively administers a territory, establishes legal order, and protection over it, physical possession of every portion of that territory should not be required. Such a theory would give a legal basis for the assertion of territorial claim by India-China.
However the negative results of such a claim in the present situation are far too many. As one U.S. Government analysis stated:
“A U.S. claim could take one of several forms. Delineation of a U.S. claim to full sovereignty, even if we could identify our major interests at this time, might prove to be an abortive effort because of the lack of internationally agreed rules for acquiring sovereignty in the Antarctic. It would also be a sharp break with our past policy of refusing to recognize claims to sovereignty when not accompanied by occupation. More important, the principles underlying any selection of the precise areas of superior U.S. 'rights' would be applied elsewhere as a yardstick of comparison by other powers, possibly to our disadvantage. Inferior U.S. 'rights' outside the area of a 'sovereignty' claim would be impaired, at least by implication, even though they might eventually acquire significance as the result of further U.S. activities, or through default by other powers.”
This same analysis could be extrapolated to the situation if India or China made territorial claims. Thus, assertion of a territorial claim in Antarctica by India and china would not be a cost-effective method to protect their interests on the continent. The historical inaction in this area has created, if not by some theory of equitable estoppel then by passage of time, a situation in which India and china have put themselves in a zero sum game. They cannot therefore in the present scenario assert a territorial claim without jeopardizing overall national interests
With regard to the second option of converting the present Antarctic governance system to either a nature park or into a UN trust administered territory, these were the claims of India and to an extent China before they became consultative members of the ATS. Such a move would be very useful as it would provide an equitable representation to all the states of the world, however if there are pressures on world resources be they food or mineral, such a nature park becomes unrealistic. Also the relative control that India or China exercised in the ATS would be drastically reduced as other non-members states demand and exercise their own powers. Though representational problems would be solved, negotiations would be so much more problematic. There are however benefits of such a conversion, as it would destroy all territorial claims of all parties and ensure a more equitable distribution of resources and attendant benefits. Consequently such a move would never be supported by any of the original seven claimant nations.
We thus see that continuation of the Antarctic Treaty regime, with appropriate modifications, is the best option that India and china have to protect their extensive interests in Antarctica now and in the future. Though it is true that the overall problem of mineral resource exploitation exits, looking at how the treaty has dealt with other issues like environmental and living resources, proves the usefulness of staying with a proven governance structure. The "good faith" administration by the Antarctic Treaty regime has to be acknowledged; and its present success cannot be denied. The consultative parties have vested interests in the maintenance of the Treaty regime, but political reality dictates that these interests will not be exercised exclusively for the benefit of Treaty members. The Antarctic Treaty system has been described as:
"a pragmatic formulation deprived of ideological connotations of any sort which enables it to sustain a continued process of compromise and adaption to the changing realities relevant to the Antarctic."
This lack of an ideological bias and focus on avoiding conflicts between the super-power members has managed the show till the present. So long as the will to co-operate and negotiate exists among the members, non-claimant states like India and china should not find it impossible to get around their claim related disadvantage to secure a reasonable share of Antarctic resources. This essay would have concluded differently if the nations were some other third world nations, but looking at the growth of India and china in the recent past their value to the ATS is only growing to increase and their interests cannot be ignored. Conversely unless India and china build a sustained campaign and create wide support base, they cannot individually with their present strengths build an alternative to the ATS.
The ATS is therefore one of the only practical organizations for these Asian nations in the present times.