The Civil Damage for Nuclear Liability Bill, 2010 has been criticised on many grounds (Also click here), including (a) capping liability for the operator, (b) fixing a low cap on the amount of liability of the operator, and (c) making the operator solely liable. We summarise the main principles of civil nuclear liability mentioned in IAEA's Handbook on Nuclear Law: Strict Liability of the Operator: The operator is held liable regardless of fault. Those claiming compensation do not need to prove negligence or any other type of fault on the part of the operator. The operator is liable merely by virtue of the fact that damage has been caused. Legal channeling of liability on the operator: "The operator of a nuclear installation is exclusively liable for nuclear damage. No other person may be held liable, and the operator cannot be held liable under other legal provisions (e.g. tort law)...This concept is a feature of nuclear liability law unmatched in other fields of law." The reason for this has been quoted in the Handbook as:
"...Firstly, it is desirable to avoid difficult and lengthy questions of complicated legal cross-actions to establish in individual cases who is legally liable. Secondly, such channelling obviates the necessity for all those who might be associated with construction or operation of a nuclear installation other than the operator himself to take out insurance also, and thus allows a concentration of the insurance capacity available.”
Limiting the amount of liability: "Limitation of liability in amount is clearly an advantage for the operator. Legislators feel that unlimited liability, or very high liability amounts, would discourage people from engaging in nuclear related activities. Operators should not be exposed to financial burdens that could entail immediate bankruptcy....Whatever figure is established by the legislator will seem to be arbitrary, but, in the event of a nuclear catastrophe, the State will inevitably step in and pay additional compensation. Civil law is not designed to cope with catastrophes; these require special measures." Limitation of liability in time: "In all legal systems there is a time limit for the submission of claims. In many States the normal time limit in general tort law is 30 years. Claims for compensation for nuclear damage must be submitted within 30 years in the event of personal injury and within 10 years in the event of other damage. The 30 year period in the event of personal injury is due to the fact that radiation damage may be latent for a long time; other damage should be evident within the 10 year period." Insurance coverage: "The nuclear liability conventions require that the operator maintain insurance or provide other financial security covering its liability for nuclear damage in such amount, of such type and in such terms as the Installation State specifies....This ensures that the liability amount of the operator is always covered by an equal amount of money. The congruence principle is to the advantage both of the victims of a nuclear incident and of the operator. The victims have the assurance that their claims are financially covered, and the operator has funds available for compensation and does not need to convert assets into cash.
The Monetary Policy Committee (MPC) has decided to conduct an off-cycle meeting today to discuss the failure to meet the inflation target under Section 45ZN of the Reserve Bank of India Act, 1934. As per the Reserve Bank of India Act (RBI), 1934, MPC is required to meet at least four times each year, to discuss the macroeconomic issues in the country, and take policy decisions to address those. This is the second time MPC has conducted an off-cycle meeting in 2022-23. The meeting is scheduled in light of inflation being consistently high for nine consecutive months.
In this blog, we discuss what the inflation targeting framework is, examine retail and wholesale prices, and the divergence between them.
What is the inflation targeting framework, and what happens if inflation is persistently high?
In 2016, Parliament amended the RBI Act, 1934 to change the monetary policy, and introduce an inflation targeting framework. This framework prioritises price stability to achieve sustainable GDP growth. Price stability allows investors to confidently invest their money for productive activities, without worrying about it losing value. Price stability also maintains the purchasing power of consumers, i.e., the ability to purchase a good (or service) with a given amount of money.
As per the new framework, the central government, in consultation with RBI sets: (i) an inflation target, and (ii) an upper and lower tolerance level for retail inflation. The target has been set at 4%, with an upper tolerance limit of 6% and a lower tolerance limit of 2%. The upper and lower limits indicate that although it is desirable for inflation to be close to 4%, deviation between these limits is acceptable. The target and bands are revised every five years. In March 2021, the existing targets were carried forward.
Retail inflation has been above 6% for the past nine months, and it has been above 4% from October 2019 onwards (See Figure 1).
Figure 1: Consumer price index (year-on-year; in percentage)
Sources: Database on Indian Economy, Reserve Bank of India; PRS.
If inflation is above or below the prescribed limits for three quarters, RBI must submit a report to the central government explaining why prices have been rising (or falling) persistently, what will be done to correct that, and an estimate as to when the target will be achieved.
The MPC uses tools such as interest rates to control the level of inflation in the economy. One such rate is the policy repo rate, which is the rate at which RBI lends money to banks. An increase in the policy repo rate makes borrowing money more costly, and hence is expected to control inflation by reducing the money supply. MPC increased this rate from 4% in April 2022 to 4.4% in May 2022, to 4.9% in June 2022, to 5.4% in August 2022, and to 5.9% in September 2022.
Breaking down the Consumer Price Index and the Wholesale Price Index
Consumer Price Index (CPI) measures the general prices of goods and services such as food, clothing, and fuel over time. Retail inflation is calculated as the change in the CPI over a period of time. Goods and services such as petrol, food products, health, and education are considered for its calculation, which are assigned different weights (See Table 1). Between February 2022 and August 2022, the average annual inflation was 6.9%. The rise in prices of subcomponents of the CPI during this period is indicated in Table 2.
Table 1: Assigned weights for the calculation of CPI
Sources: MOSPI; PRS.
Table 2: Average inflation of some CPI components
Sources: Database on Indian Economy, RBI; PRS.
CPI is not the only index that measures inflation in an economy. The Wholesale Price Index (WPI) measures the wholesale prices of goods. A change in wholesale prices reflects wholesale inflation. Table 3 indicates the weights assigned to goods for calculating the WPI. Manufactured goods include metals, chemicals, food products, and textiles.
Primary articles (23%) include food articles, and crude petroleum and natural gas. Fuel and power (12%) include mineral oils, electricity, and coal. WPI has remained above 10% from April 2021 onwards. It reached an all-time high of 17% in May 2022. This was driven by the inflation in metals, kerosene and petroleum coke, fruits and vegetables, and palm oil.
Table 3:Assigned weights for the
Sources: Ministry of Commerce and Industry; PRS.
Why has WPI inflation been consistently above CPI inflation?
Movements in the WPI have an impact on the CPI. For almost a year and half, CPI inflation has remained below WPI inflation. However, as per the design of the indices, it is expected that CPI would remain above WPI, and that any increase in WPI would reflect in the CPI after a time lag. This is because retail prices include taxes (as a percentage of price), while wholesale prices do not. Additionally, some of the goods in WPI act as inputs in the goods considered in CPI. An increase in input prices would lead to higher retail prices after a time lag.
We discuss possible reasons for why CPI has remained below WPI for a year and a half.
Figure 2: Consumer Price Index and Wholesale Price Index
Sources: Database on Indian Economy, Reserve Bank of India; PRS.
Composition of indices
As indicated in Table 2 and 3, the composition of the two indices varies. For instance, prices of manufacture of basic metals, chemicals, and machinery grew at an average rate of 13% between February 2021 and September 2022. They contribute 7% to the WPI. These are input goods for producing final goods and services such as automobiles, which are included in the CPI. The rise in prices of transport vehicles, communication devices, fuel for transport, and housing (CPI components) rose by 6% during this period.
The Ministry of Finance has observed that wholesale prices did not feed into retail prices (from March 2021 onwards) as wholesalers absorbed the rising input costs and did not pass them on to retailers. In August 2022, it noted that as retail prices are rising now, the pass-through may occur.