The development could be a big dampener for the global chains like Wal-Mart, Metro and Carrefour which have been waiting since long for India to open foreign direct investment in the multi-brand retail
PTI
New Delhi: In what could be a dampener to the global retail chains, the Centre is considering allowing 51% FDI in the politically sensitive sector with a rider that permission of the states would be a must to open stores, sources said.
“The states’ permission would be required, since the trade is a state subject,” an official said.
The development could be a big dampener for the global chains like Wal-Mart, Metro and Carrefour which have been waiting since long for India to open foreign direct investment (FDI) in the multi-brand retail, industry sources said.
They said even if the Centre were to throw open the sector to overseas investment, several states, particularly those ruled by the BJP, might not allow entry of these chains, thus impacting their front-end plans.
Committee of Secretaries (CoS) headed by cabinet secretary Ajit Kumar Seth, which met on 15 June, has discussed the issue of allowing FDI into the politically sensitive sector.
“All the secretaries were of the consensus to open the sector for foreign investors. However, before sending a final Cabinet note, the CoS will meet again soon to finalise the modalities,” the official said.
The Department of Industrial Policy and Promotion (DIPP), which is piloting the issue, is happy with the support it received from the Inter-Ministerial Group (IMG) on Inflation, headed by chief economic advisor in the finance ministry, Kaushik Basu.
The group has strongly advocated opening the sector to foreign investment, as it feels the layers between the farm gate and the consumers need to be cut through a strong supply chain and back-end logistics.
DIPP had proposed other riders as well. These included a minimum FDI of $100 million (about Rs450-460 crore) half of which must be invested in the back-end infrastructure like cold storage, soil testing labs and seed farming.
At present, India allows FDI only in single brand retail chains like Nike, Louis Vuitton with a cap of 51%. It also permits 100% overseas investment in wholesale cash-and-carry format.
Several of the big chains like Wal-Mart and Carrefour have set up their joint ventures in India, waiting in the wings for their full-scale entry into the multi-brand retailing.
A discussion paper on opening of the sector has been in the public domain since July 2010. Among others, states were also consulted by a committee which evaluated the feedback on the initial proposal.
India’s total retail sector is estimated at $590 billion, with unorganised sector accounting for $496, according to an Icrier report.
The government’s policy on retail investment will also help in boosting the country’s FDI, which declined by 25% to $19.42 billion in 2010-11 from $25.83 billion in the previous fiscal.
Sunday, July 31, 2011
‘Cabinet may approve FDI in multi-brand retail by August’
India currently allows 51% FDI in single-brand retail and 100% in wholesale cash-and-carry operations
Reuters
Mumbai: The cabinet is expected to approve a proposal to open up the multi-brand retail sector in Asia’s third-largest economy, allowing global chains to enter by next March, the Times of India reported on Friday citing government sources.
There will be riders such as areas where multinationals can enter and state governments will decide whether foreign chains are welcome or not, the newspaper said.
Global retailers such as Wal-Mart Stores, Carrefour, Tesco and Metro AG have long sought greater access to a fast-growing but restrictive Indian retail sector that is dominated by mom-and-pop operators.
India currently allows 51% FDI in single-brand retail and 100% in wholesale cash-and-carry operations.
The panel will also discuss a plan to mandate 25-30% sourcing from small and medium enterprises and intends to allow these chains to operate in large cities only, the paper said.
Reuters
Mumbai: The cabinet is expected to approve a proposal to open up the multi-brand retail sector in Asia’s third-largest economy, allowing global chains to enter by next March, the Times of India reported on Friday citing government sources.
There will be riders such as areas where multinationals can enter and state governments will decide whether foreign chains are welcome or not, the newspaper said.
Global retailers such as Wal-Mart Stores, Carrefour, Tesco and Metro AG have long sought greater access to a fast-growing but restrictive Indian retail sector that is dominated by mom-and-pop operators.
India currently allows 51% FDI in single-brand retail and 100% in wholesale cash-and-carry operations.
The panel will also discuss a plan to mandate 25-30% sourcing from small and medium enterprises and intends to allow these chains to operate in large cities only, the paper said.
Govt to take steps to compliment RBI action, says FM
RBI on Tuesday stunned investors by raising interest rates 50 basis points and indicated it would continue with its anti-inflationary stance
Abhijit Neogy and Manoj Kumar/Reuters
New Delhi: The government will take steps to support the central bank’s battle against stubbornly high inflation, which is likely to see further rate rises, the finance minister said, a day after the bank’s surprisingly high interest rate increase.
“I don’t think we have reached the end of tunnel,” Pranab Mukherjee said on Wednesday, referring to the central bank’s rate tightening cycle.
The Reserve bank of India on Tuesday raised interest rates for the 11th time since March 2010, lifting its key lending rate by 50 basis points and reiterating it would continue with its anti-inflationary stance despite slowing growth in Asia’s third-largest economy and uncertain global demand.
Although the Reserve Bank of India has raised its repo rate by 325 basis points in 17 months, headline inflation, at 9.44% in June, remains well above its comfort zone of 4-4.5% and is expected to stay high in coming months.
Analysts partially blame the government’s loose fiscal policy in the aftermath of the global financial downturn for fuelling price pressures. Bottlenecks in infrastructure and agriculture have also stoked inflation.
“Appropriate measures will be taken,” Mukherjee said, referring to government support of the central bank’s policy action, without giving specifics.
Economists say the government needs to rein in its fiscal deficit, which is under stress in the face of a mounting subsidy bill and a slowdown in net tax revenue receipts.
A higher subsidy bill is expected to widen the government’s fiscal deficit to over 5% of GDP for the current fiscal year, economists have said, from New Delhi’s 4.6% target, forcing it to borrow more from the market.
Finance ministry officials have repeatedly said the government would find ways to generate revenue to meet its fiscal gap target.
Mukherjee said the government would keep its spending in check to meet its deficit target but did not give details.
“We are looking at ways to compress expenditure. There is revenue buoyancy and together I think they will help us in reaching fiscal deficit target,” he said.
Early this month India announced austerity measures, including a ban on meetings in five-star hotels and restrictions on foreign travel to help curb spending.
Tuesday’s aggressive rate hike and the hawkish tone of the central bank bolstered expectations for more rate increases.
A Reuters snap poll after the move found six of 11 economists expect the repo rate, the central bank’s key lending rate, to go up to 8.50%, or 50 basis points higher than in a poll last week.
The repo rate is now 8.00%.
Abhijit Neogy and Manoj Kumar/Reuters
New Delhi: The government will take steps to support the central bank’s battle against stubbornly high inflation, which is likely to see further rate rises, the finance minister said, a day after the bank’s surprisingly high interest rate increase.
“I don’t think we have reached the end of tunnel,” Pranab Mukherjee said on Wednesday, referring to the central bank’s rate tightening cycle.
The Reserve bank of India on Tuesday raised interest rates for the 11th time since March 2010, lifting its key lending rate by 50 basis points and reiterating it would continue with its anti-inflationary stance despite slowing growth in Asia’s third-largest economy and uncertain global demand.
Although the Reserve Bank of India has raised its repo rate by 325 basis points in 17 months, headline inflation, at 9.44% in June, remains well above its comfort zone of 4-4.5% and is expected to stay high in coming months.
Analysts partially blame the government’s loose fiscal policy in the aftermath of the global financial downturn for fuelling price pressures. Bottlenecks in infrastructure and agriculture have also stoked inflation.
“Appropriate measures will be taken,” Mukherjee said, referring to government support of the central bank’s policy action, without giving specifics.
Economists say the government needs to rein in its fiscal deficit, which is under stress in the face of a mounting subsidy bill and a slowdown in net tax revenue receipts.
A higher subsidy bill is expected to widen the government’s fiscal deficit to over 5% of GDP for the current fiscal year, economists have said, from New Delhi’s 4.6% target, forcing it to borrow more from the market.
Finance ministry officials have repeatedly said the government would find ways to generate revenue to meet its fiscal gap target.
Mukherjee said the government would keep its spending in check to meet its deficit target but did not give details.
“We are looking at ways to compress expenditure. There is revenue buoyancy and together I think they will help us in reaching fiscal deficit target,” he said.
Early this month India announced austerity measures, including a ban on meetings in five-star hotels and restrictions on foreign travel to help curb spending.
Tuesday’s aggressive rate hike and the hawkish tone of the central bank bolstered expectations for more rate increases.
A Reuters snap poll after the move found six of 11 economists expect the repo rate, the central bank’s key lending rate, to go up to 8.50%, or 50 basis points higher than in a poll last week.
The repo rate is now 8.00%.
The European financial crisis
There is still time to fix the problem as the endgame--a full-scale run on sovereign debt--has not begun yet
Viral V Acharya & T Sabri, The Mint, Jul 31 2011
On 21 June, Fitch Ratings reported that the 10 biggest US prime money market mutual funds (MMMFs) had half of their assets exposed to European banks. On 23 June, when 16 Italian banks faced a possible rating downgrade, tensions in US MMMFs surfaced: about $3.6 billion in assets were pulled out of prime MMMFs and the three-month treasury bill rate went into negative territory, last seen in late 2008. On 24 June, after a rumour that Italian banks would have to raise more equity after the European stress test, Italian bank stocks crashed within minutes and the weakness of Italian bank stocks quickly spread across Europe.
Although markets showed some relief after the Greek parliament approved the €78 billion austerity programme on 29 June, US MMMFs remain wary of lending to European banks. A few hours before the Greek vote, senior International Monetary Fund officers warned given that many banks in Europe’s core countries are funded in good part by US MMMFs, a spillover of the Greece crisis into the rest of the continent could have dangerous effects. These events may appear reminiscent of the Lehman collapse in 2008. If history is any guide, however, we believe that we are still not there yet.
By Shyamal Banerjee/MintTo explain why, let us go back to 2006 and recall that most non-prime mortgages were securitized. When the US housing market changed course in 2006, the non-prime mortgage market began to deteriorate and many borrowers became insolvent. Since most non-prime mortgages were funded short-term in rollover debt markets, creditors began to refuse funding to their levered debtors in early 2007 and the crisis came in August following a “bank” run on two highly levered Bear Stearns hedge funds investing in non-prime mortgages in June 2007 in the repo market. It took eight months of further runs for Bear Stearns to collapse in March 2008; another five months of runs for Lehman to collapse and Merrill Lynch to merge with Bank of America in September 2008; and two more months for the entire Wall Street system of independent broker-dealers to collapse when Morgan Stanley and Goldman Sachs were forced to convert to bank holding companies.
Let us fast forward to the Europe of June 2011 and ask: Are we near June 2007, March 2008 or September 2008? We believe even June 2007 has not arrived yet which gives us hope that an appropriate policy response is still possible. In fact, the financial crisis that started in the US in 2007 offers valuable policy lessons in how to avoid the build-up to a Lehman event. One, while liquidity support from central banks to distressed entities can help them live another day, they do not provide a sustainable solution to their distress. Second, distressed entities can get addicted to the liquidity support refusing to make difficult choices to reduce their leverage and recapitalize. And third, a one-time decisive recapitalization of distressed entities based on transparent and credible assessment of how much capital the system needs is the only policy action that restores growth and stability by calming markets that are worried about distress.
While the European situation is more complex due to the inter-mix of bank and sovereign debt exposures, we believe that similar principles apply:
• First, a recapitalization of banks
• Second, a recapitalization of the distressed sovereigns
In particular, the possible steps of a comprehensive plan may be:
1. Sovereign bond holdings of the European Central Bank—where bonds are distressed—should be separated from its balance sheet into a special purpose vehicle. Any potential losses on these bond holdings should be met through the funds put into the European stabilization mechanism.
2. Sufficiently severe stress tests should be applied to systemically important European financial institutions, where the tests include reasonably plausible haircuts on sovereign bonds on both banking and trading books. Those systemically important financial firms found to be short of capital should be recapitalized privately and promptly. For those that cannot, stabilization funds should be used to do government recapitalization of these firms, as necessary.
3. Sovereign debt restructuring should follow this recapitalization of exposed financial firms. There is no way some of the troubled sovereigns can generate growth without first reducing the debt overhang. Further, any failure to reduce debt overhang puts at risk the welfare of future generations in these countries.
In summary, full bailouts of all troubled nations are beyond the pockets of even the wealthiest countries. Those who aim to avoid restructuring debt by simply window dressing it are delaying the inevitable; in the short run, their efforts help the financial sector in wealthy countries, but produce little to fix the core issue—the insolvency problem of troubled countries. The real risk is that in the end, as with Lehman bankruptcy, all will have to pay. This risk can be managed through appropriate policies as the endgame of full-scale run on sovereign debt—and the likely market freezes that may result— has not even started! (Source: The Mint)
Viral V Acharya & T Sabri, The Mint, Jul 31 2011
On 21 June, Fitch Ratings reported that the 10 biggest US prime money market mutual funds (MMMFs) had half of their assets exposed to European banks. On 23 June, when 16 Italian banks faced a possible rating downgrade, tensions in US MMMFs surfaced: about $3.6 billion in assets were pulled out of prime MMMFs and the three-month treasury bill rate went into negative territory, last seen in late 2008. On 24 June, after a rumour that Italian banks would have to raise more equity after the European stress test, Italian bank stocks crashed within minutes and the weakness of Italian bank stocks quickly spread across Europe.
Although markets showed some relief after the Greek parliament approved the €78 billion austerity programme on 29 June, US MMMFs remain wary of lending to European banks. A few hours before the Greek vote, senior International Monetary Fund officers warned given that many banks in Europe’s core countries are funded in good part by US MMMFs, a spillover of the Greece crisis into the rest of the continent could have dangerous effects. These events may appear reminiscent of the Lehman collapse in 2008. If history is any guide, however, we believe that we are still not there yet.
By Shyamal Banerjee/MintTo explain why, let us go back to 2006 and recall that most non-prime mortgages were securitized. When the US housing market changed course in 2006, the non-prime mortgage market began to deteriorate and many borrowers became insolvent. Since most non-prime mortgages were funded short-term in rollover debt markets, creditors began to refuse funding to their levered debtors in early 2007 and the crisis came in August following a “bank” run on two highly levered Bear Stearns hedge funds investing in non-prime mortgages in June 2007 in the repo market. It took eight months of further runs for Bear Stearns to collapse in March 2008; another five months of runs for Lehman to collapse and Merrill Lynch to merge with Bank of America in September 2008; and two more months for the entire Wall Street system of independent broker-dealers to collapse when Morgan Stanley and Goldman Sachs were forced to convert to bank holding companies.
Let us fast forward to the Europe of June 2011 and ask: Are we near June 2007, March 2008 or September 2008? We believe even June 2007 has not arrived yet which gives us hope that an appropriate policy response is still possible. In fact, the financial crisis that started in the US in 2007 offers valuable policy lessons in how to avoid the build-up to a Lehman event. One, while liquidity support from central banks to distressed entities can help them live another day, they do not provide a sustainable solution to their distress. Second, distressed entities can get addicted to the liquidity support refusing to make difficult choices to reduce their leverage and recapitalize. And third, a one-time decisive recapitalization of distressed entities based on transparent and credible assessment of how much capital the system needs is the only policy action that restores growth and stability by calming markets that are worried about distress.
While the European situation is more complex due to the inter-mix of bank and sovereign debt exposures, we believe that similar principles apply:
• First, a recapitalization of banks
• Second, a recapitalization of the distressed sovereigns
In particular, the possible steps of a comprehensive plan may be:
1. Sovereign bond holdings of the European Central Bank—where bonds are distressed—should be separated from its balance sheet into a special purpose vehicle. Any potential losses on these bond holdings should be met through the funds put into the European stabilization mechanism.
2. Sufficiently severe stress tests should be applied to systemically important European financial institutions, where the tests include reasonably plausible haircuts on sovereign bonds on both banking and trading books. Those systemically important financial firms found to be short of capital should be recapitalized privately and promptly. For those that cannot, stabilization funds should be used to do government recapitalization of these firms, as necessary.
3. Sovereign debt restructuring should follow this recapitalization of exposed financial firms. There is no way some of the troubled sovereigns can generate growth without first reducing the debt overhang. Further, any failure to reduce debt overhang puts at risk the welfare of future generations in these countries.
In summary, full bailouts of all troubled nations are beyond the pockets of even the wealthiest countries. Those who aim to avoid restructuring debt by simply window dressing it are delaying the inevitable; in the short run, their efforts help the financial sector in wealthy countries, but produce little to fix the core issue—the insolvency problem of troubled countries. The real risk is that in the end, as with Lehman bankruptcy, all will have to pay. This risk can be managed through appropriate policies as the endgame of full-scale run on sovereign debt—and the likely market freezes that may result— has not even started! (Source: The Mint)
US debt shakes Indian mkts, but economy safe
Sandeep Singh, Hindustan Times
Mumbai, July 31, 2011
Will the grim debt scenario that is being played out in the US embrace the Indian economy, or will it just be a passing gust of financial wind?
The US stock markets fell for the last six trading sessions, and the Dow Jones Industrial index lost 4.6% as the world's largest economy moved closer to a debt default and a rating downgrade.
The Indian markets followed suit, and in the last four sessions to Friday, the Bombay Stock Exchange benchmark Sensex lost 673 points or 3.6%.
The US debt-ceiling issue may well get sorted out before Tuesday, and even an actual US default may not have a broad impact on India's domestic growth and economic fundamentals. But market sentiments are a different story.
"Previous US debt ceiling revision experiences across several decades suggests that the ceiling will be revised upwards even this time," said Nilesh Shah, president, corporate banking, Axis Bank. "However it will be a big setback for investor sentiment if it technically defaults as the AAA rated economy will get downgraded."
But India's growth is not likely to be hit, feel economists.
"It won't impact India on the macro-economic front. (But) since the global recovery is fragile such a thing will shake the overall confidence," said DK Joshi, principal economist, Crisil.
On the contrary, a rating downgrade of US treasury from its current AAA may actually work to the benefit fo emerging economies, say experts.
US Treasury has been considered a safe haven, and in the past investors shifted from emerging markets to the US treasury in risk scenarios. In the event of a US default this pattern may well change.
"Their pain may become our gain in the medium term and it is possible that people will shift their money from US treasury to emerging markets including India," felt Shah.
"Talks of US debt default have been on for some time now... the immediate reaction will be muted as compared to 2008 (when Lehman Brothers folded up)," he said.
Mumbai, July 31, 2011
Will the grim debt scenario that is being played out in the US embrace the Indian economy, or will it just be a passing gust of financial wind?
The US stock markets fell for the last six trading sessions, and the Dow Jones Industrial index lost 4.6% as the world's largest economy moved closer to a debt default and a rating downgrade.
The Indian markets followed suit, and in the last four sessions to Friday, the Bombay Stock Exchange benchmark Sensex lost 673 points or 3.6%.
The US debt-ceiling issue may well get sorted out before Tuesday, and even an actual US default may not have a broad impact on India's domestic growth and economic fundamentals. But market sentiments are a different story.
"Previous US debt ceiling revision experiences across several decades suggests that the ceiling will be revised upwards even this time," said Nilesh Shah, president, corporate banking, Axis Bank. "However it will be a big setback for investor sentiment if it technically defaults as the AAA rated economy will get downgraded."
But India's growth is not likely to be hit, feel economists.
"It won't impact India on the macro-economic front. (But) since the global recovery is fragile such a thing will shake the overall confidence," said DK Joshi, principal economist, Crisil.
On the contrary, a rating downgrade of US treasury from its current AAA may actually work to the benefit fo emerging economies, say experts.
US Treasury has been considered a safe haven, and in the past investors shifted from emerging markets to the US treasury in risk scenarios. In the event of a US default this pattern may well change.
"Their pain may become our gain in the medium term and it is possible that people will shift their money from US treasury to emerging markets including India," felt Shah.
"Talks of US debt default have been on for some time now... the immediate reaction will be muted as compared to 2008 (when Lehman Brothers folded up)," he said.
Thursday, July 14, 2011
China’s GDP growth slows to 9.5 per cent
(Source: Indian Express/Associated Press Posted online: Thu Jul 14 2011, 01:53 hrs)
Beijing : China’s rapid economic growth slowed in the latest quarter to a still robust 9.5 per cent, easing fears of an abrupt slowdown and giving Beijing room to tighten controls to fight surging inflation.
Growth slowed from 9.7 per cent in the January-March quarter following repeated interest rate hikes and other controls, data showed Wednesday. Factory output rebounded and retail sales grew by double digits.
While the US and Europe try to shore up sluggish growth, Beijing wants to steer its breakneck expansion to a more manageable level and cool inflation that soared to a three-year high of 6.4 per cent in June. “The strength of the economy will make them confident and well prepared to impose more tightening measures if needed,” said Frances Cheung, a senior strategist for Credit Agricole CIB in Hong Kong.
Many analysts had expected second-quarter growth of 9.3 per cent to 9.5 per cent. Asian stock markets, which have wilted in recent days amid Europe’s worsening debt crisis, got a boost from the Chinese economy’s resilience.
The slowdown in the world’s second-largest economy could have global repercussions if it cuts into demand for iron ore, factory machinery and other imports. Data released earlier showed China’s import growth fell sharply in June.
Inflation is politically dangerous for the communist government because it erodes the public’s economic gains and can fuel unrest. Analysts expect inflation to ease later in the year but June’s unexpectedly sharp price rises, driven by a 14.4 per cent jump in food costs, prompted suggestions Beijing might hike rates again or tighten other controls.
“Stabilising prices remains the top priority for our macro-regulatory policies,” Premier Wen Jiabao told a group of businesspeople on Tuesday, according to the official Xinhua News Agency.
Beijing : China’s rapid economic growth slowed in the latest quarter to a still robust 9.5 per cent, easing fears of an abrupt slowdown and giving Beijing room to tighten controls to fight surging inflation.
Growth slowed from 9.7 per cent in the January-March quarter following repeated interest rate hikes and other controls, data showed Wednesday. Factory output rebounded and retail sales grew by double digits.
While the US and Europe try to shore up sluggish growth, Beijing wants to steer its breakneck expansion to a more manageable level and cool inflation that soared to a three-year high of 6.4 per cent in June. “The strength of the economy will make them confident and well prepared to impose more tightening measures if needed,” said Frances Cheung, a senior strategist for Credit Agricole CIB in Hong Kong.
Many analysts had expected second-quarter growth of 9.3 per cent to 9.5 per cent. Asian stock markets, which have wilted in recent days amid Europe’s worsening debt crisis, got a boost from the Chinese economy’s resilience.
The slowdown in the world’s second-largest economy could have global repercussions if it cuts into demand for iron ore, factory machinery and other imports. Data released earlier showed China’s import growth fell sharply in June.
Inflation is politically dangerous for the communist government because it erodes the public’s economic gains and can fuel unrest. Analysts expect inflation to ease later in the year but June’s unexpectedly sharp price rises, driven by a 14.4 per cent jump in food costs, prompted suggestions Beijing might hike rates again or tighten other controls.
“Stabilising prices remains the top priority for our macro-regulatory policies,” Premier Wen Jiabao told a group of businesspeople on Tuesday, according to the official Xinhua News Agency.
After 2 years, GoM wakes up to discuss opening up mining
(Source: Indian Express by Amitav Ranjan Posted online: Thu Jul 14 2011, 02:12 hrs)
New Delhi : The UPA government has suddenly revived a two-year old proposal to open up coal mining for commercial sale. A Group of Ministers under Finance Minister Pranab Mukherjee, constituted almost two years back on August 26, 2009, is scheduled to meet for the first time to consider re-introduction of a bill to amend the Coal Mines (Nationalisation) Act, 1973 that will allow private Indian companies extract coal for commercial sale.
The GoM meeting has been convened in short notice with the Coal Ministry drafting a proposal on Tuesday and circulating it today for vetting by other ministries. Given the large demand-supply gap that will only widen over the next five years, India will have to import over 100 million tonnes of coal each year — a step that will skew international prices, it has pointed out in its proposal.
According to the Planning Commission, that is servicing the GoM, coal demand for 2011-12, the terminal year of the 11th Plan, stood at 696 MT implying a compounded annual growth rate of 8.9 per cent.
As against this, production for this fiscal is pegged at 554 MT. To bridge the divide, the fuel’s end users have been resorting to imports, which surged from 49 MT on 2007-08 to 95 MT in 2010-11. The Plan panel has noted that coal imports could shoot up to 114 MT in 2011-12, although a lot would depend on the status of existing linkages.
If coal mines were to be denationalised, private investments would augment domestic supply as well as galvanise state-run coal companies to perform better, the ministry said.
It, however, warned that with trade unions opposing the move, the re-introduction of the Bill could result in strikes that could hamper other sectors such as power and steel. It has, therefore, left it for the GoM to provide directions if the amended Bill should be introduced in the coming session of Parliament.
At present, only public sector companies can mine coal for open market sale while private companies engaged in power generation and iron and steel production are allotted coal blocks only for captive use.
There have been numerous attempts since 1997 but an amendment could be introduced in the Rajya Sabha only in April 2000.
But this was stalled with trade unions demanding its withdrawal though the Standing Committee on Energy supported the move in 2001.
The proposal came up again in the Cabinet Committee on Infrastructure during the UPA regime but given strong opposition by trade unions, Prime Minister Manmohan Singh referred the issue to GoM for arriving at “a consensus”.
New Delhi : The UPA government has suddenly revived a two-year old proposal to open up coal mining for commercial sale. A Group of Ministers under Finance Minister Pranab Mukherjee, constituted almost two years back on August 26, 2009, is scheduled to meet for the first time to consider re-introduction of a bill to amend the Coal Mines (Nationalisation) Act, 1973 that will allow private Indian companies extract coal for commercial sale.
The GoM meeting has been convened in short notice with the Coal Ministry drafting a proposal on Tuesday and circulating it today for vetting by other ministries. Given the large demand-supply gap that will only widen over the next five years, India will have to import over 100 million tonnes of coal each year — a step that will skew international prices, it has pointed out in its proposal.
According to the Planning Commission, that is servicing the GoM, coal demand for 2011-12, the terminal year of the 11th Plan, stood at 696 MT implying a compounded annual growth rate of 8.9 per cent.
As against this, production for this fiscal is pegged at 554 MT. To bridge the divide, the fuel’s end users have been resorting to imports, which surged from 49 MT on 2007-08 to 95 MT in 2010-11. The Plan panel has noted that coal imports could shoot up to 114 MT in 2011-12, although a lot would depend on the status of existing linkages.
If coal mines were to be denationalised, private investments would augment domestic supply as well as galvanise state-run coal companies to perform better, the ministry said.
It, however, warned that with trade unions opposing the move, the re-introduction of the Bill could result in strikes that could hamper other sectors such as power and steel. It has, therefore, left it for the GoM to provide directions if the amended Bill should be introduced in the coming session of Parliament.
At present, only public sector companies can mine coal for open market sale while private companies engaged in power generation and iron and steel production are allotted coal blocks only for captive use.
There have been numerous attempts since 1997 but an amendment could be introduced in the Rajya Sabha only in April 2000.
But this was stalled with trade unions demanding its withdrawal though the Standing Committee on Energy supported the move in 2001.
The proposal came up again in the Cabinet Committee on Infrastructure during the UPA regime but given strong opposition by trade unions, Prime Minister Manmohan Singh referred the issue to GoM for arriving at “a consensus”.
Wages of virtue
(Source: Indian Express by P. Raghavan Posted online: Thu Jul 14 2011, 00:28 hrs)
The results of the 66th round of the National Sample Survey (NSS), which was conducted in 2009-10 and focused on employment, have been mired in controversy, with some experts questioning the credibility of the numbers. Its findings — a sharp deceleration the growth of the labour force, of the workforce and even of unemployment rates, have been challenged. However, the clamour about the robustness of the survey’s results has only served to camouflage its other major finding: the sharp surge in wages to an all-time high.
This is an important indicator of the growing impact of an inclusive growth strategy. And what is more significant is that wage gains have been extensive, covering all labour markets — both rural and urban, male and female, This, perhaps, explains the continued buoyancy in consumer markets despite the stagnant level of investment in the last few years.
Also interesting is the reversal of trends in growth rates. Wage gains have accelerated faster for women workers, in both salaried and casual-worker segments. For regular, or salaried, employees, the largest gains have been in urban markets; for casual workers, in rural markets — possibly due to the impact of NREGA. However, looking at the wage-gain numbers across genders shows that it was female workers who made the largest gains, in both rural and urban sectors. This might indicate a tightening in the availability of female workers across the board — perhaps due to withdrawals from the labour force.
On the positive side, the higher growth of wages for female workers has pushed up the ratio of female-to-male wages across most segments. The only exception is the urban casual-labour market, where the ratio has been relatively stable. This is a significant turnaround; the female-to-male wage ratio had steadily declined for almost three decades since 1983.
A look at the trends over the last 10 years would provide a better perception of these gains. While the wages of urban, salaried women workers grew an annual average rate of 15 per cent to Rs 309 in the five years between 2004-05 and 2009-10, the wages of regular women workers in the rural sector increased by 12.8 per cent, to Rs 156. In contrast, the wages of male salaried workers went up by only 13.2 per cent, to Rs 378 in the urban sector and by 11.4 per cent, to Rs 149 in the rural sector.
For casual workers, too, wages increases were the highest for female workers, up by 14.6 per cent to Rs 69 in the rural sector, and by 11.8 per cent to Rs 77 in the urban sector. For male casual workers, wages grew at a lower 13 per cent to Rs 102 in the rural sector, and 11.5 per cent to Rs 132 in the urban sector.
But despite the significant wage gains made in the last five years, wage rates remain highly skewed. Look, for instance, at the daily average earnings of male, salaried urban workers. This is the best-off, highest-paid labour segment; and in big states, their average earnings varied sharply, from Rs 283 to Rs 709. The most disadvantaged segment of the workforce, is female casual workers in rural areas; and here the disparity was even larger, with daily wages varying between Rs 58 to Rs 207 during the year.
And where was the average daily wages of the regular or salaried workers the highest? Interestingly, not in the richest states, but in middle- and low-income states, including Chhattisgarh, Jharkhand, Himachal Pradesh and Kerala. In sharp contrast, male urban regular workers were paid the lowest in the richest states like Gujarat, Haryana, and Tamil Nadu. (The difference is between Rs 150 and Rs 200.) It is indeed a puzzle why fast-industrialising states, like Gujarat and Tamil Nadu, with larger manufacturing sectors, continue to be among those with the lowest wages for regular salaried employees. Is it perhaps that the low wages here are an added incentive for rapid industrialisation?
Coming to the female casual workers in the rural sector — the most disadvantaged labour segment — states with the highest wages included Kerala, Himachal Pradesh, Haryana, Uttaranchal, Rajasthan and Punjab. In contrast, the states which paid the lowest daily wage to female casual workers in the rural sector included both middle-income and poor states: Madhya Pradesh, Maharashtra, Orissa, Karnataka and Chhattisgarh.
It certainly looks like it will take a long time for wage rates to converge across states.
The writer is a senior editor with ‘The Financial Express’
The results of the 66th round of the National Sample Survey (NSS), which was conducted in 2009-10 and focused on employment, have been mired in controversy, with some experts questioning the credibility of the numbers. Its findings — a sharp deceleration the growth of the labour force, of the workforce and even of unemployment rates, have been challenged. However, the clamour about the robustness of the survey’s results has only served to camouflage its other major finding: the sharp surge in wages to an all-time high.
This is an important indicator of the growing impact of an inclusive growth strategy. And what is more significant is that wage gains have been extensive, covering all labour markets — both rural and urban, male and female, This, perhaps, explains the continued buoyancy in consumer markets despite the stagnant level of investment in the last few years.
Also interesting is the reversal of trends in growth rates. Wage gains have accelerated faster for women workers, in both salaried and casual-worker segments. For regular, or salaried, employees, the largest gains have been in urban markets; for casual workers, in rural markets — possibly due to the impact of NREGA. However, looking at the wage-gain numbers across genders shows that it was female workers who made the largest gains, in both rural and urban sectors. This might indicate a tightening in the availability of female workers across the board — perhaps due to withdrawals from the labour force.
On the positive side, the higher growth of wages for female workers has pushed up the ratio of female-to-male wages across most segments. The only exception is the urban casual-labour market, where the ratio has been relatively stable. This is a significant turnaround; the female-to-male wage ratio had steadily declined for almost three decades since 1983.
A look at the trends over the last 10 years would provide a better perception of these gains. While the wages of urban, salaried women workers grew an annual average rate of 15 per cent to Rs 309 in the five years between 2004-05 and 2009-10, the wages of regular women workers in the rural sector increased by 12.8 per cent, to Rs 156. In contrast, the wages of male salaried workers went up by only 13.2 per cent, to Rs 378 in the urban sector and by 11.4 per cent, to Rs 149 in the rural sector.
For casual workers, too, wages increases were the highest for female workers, up by 14.6 per cent to Rs 69 in the rural sector, and by 11.8 per cent to Rs 77 in the urban sector. For male casual workers, wages grew at a lower 13 per cent to Rs 102 in the rural sector, and 11.5 per cent to Rs 132 in the urban sector.
But despite the significant wage gains made in the last five years, wage rates remain highly skewed. Look, for instance, at the daily average earnings of male, salaried urban workers. This is the best-off, highest-paid labour segment; and in big states, their average earnings varied sharply, from Rs 283 to Rs 709. The most disadvantaged segment of the workforce, is female casual workers in rural areas; and here the disparity was even larger, with daily wages varying between Rs 58 to Rs 207 during the year.
And where was the average daily wages of the regular or salaried workers the highest? Interestingly, not in the richest states, but in middle- and low-income states, including Chhattisgarh, Jharkhand, Himachal Pradesh and Kerala. In sharp contrast, male urban regular workers were paid the lowest in the richest states like Gujarat, Haryana, and Tamil Nadu. (The difference is between Rs 150 and Rs 200.) It is indeed a puzzle why fast-industrialising states, like Gujarat and Tamil Nadu, with larger manufacturing sectors, continue to be among those with the lowest wages for regular salaried employees. Is it perhaps that the low wages here are an added incentive for rapid industrialisation?
Coming to the female casual workers in the rural sector — the most disadvantaged labour segment — states with the highest wages included Kerala, Himachal Pradesh, Haryana, Uttaranchal, Rajasthan and Punjab. In contrast, the states which paid the lowest daily wage to female casual workers in the rural sector included both middle-income and poor states: Madhya Pradesh, Maharashtra, Orissa, Karnataka and Chhattisgarh.
It certainly looks like it will take a long time for wage rates to converge across states.
The writer is a senior editor with ‘The Financial Express’
Monday, July 11, 2011
A new system
''Pilot projects will be implemented in six states.''
The recommendations made by the task force on subsidies headed by Nandan Nilekani can change the entire system of administering subsidies in the country. In its interim report, the task force has presented a plan for introduction of a phased system of cash transfers in place of the existing leaky system in the case of kerosene, LPG and fertilizers.
Pilot projects will be implemented in six states, including Tamil Nadu and Maharashtra, this year and the system will be extended all over the country later. It is known that the present system of subsidies is inefficient and, more often than not, the intended beneficiaries do not gain and the undeserving take advantage of them. Ways to improve the system have long been discussed and now there is an opportunity to try a method based on technology and management.
The proposed system envisages direct cash transfers to the targetted sections of population instead of sale of subsidised goods to them. In the case of kerosene, LPG and fertilizers there are two prices at present -- the actual price and the subsidised price. But in the new system there will be only one open market price.
The beneficiaries of subsidies will buy the goods from the market and get the subsidy transferred to their bank accounts from the government. The system can eliminate diversion and misuse of subsidised items. Kerosene is used for adulteration of diesel, domestic LPG is diverted for commercial use and manufacturers and rich farmers benefit more from fertilizer subsidy than poor farmers.
Middlemen can be eliminated if safe and proper arrangements are made for adequate supply of the needed items and for reaching the subsidy amount to the right persons. The government will be able to considerably reduce the subsidy amount on these items from the present Rs 80,000 crore and ensure that the subsidy reaches the really needy. The UID number will form an important tool for cash transfer and it is likely to prevent impersonation and fictitious claims.
But technology and management can go only to an extent. The major task of identifying the beneficiaries will still be left with the government machinery. Those who have vested interests in the existing system will try to scuttle the new proposal. Powerful persons can connive with officials to claim eligibility for subsidies or to open accounts in the names of poor people. But the malpractices can be reduced and eliminated once the system gets going.
(Source: Deccan Herald, 11 July, 2011)
The recommendations made by the task force on subsidies headed by Nandan Nilekani can change the entire system of administering subsidies in the country. In its interim report, the task force has presented a plan for introduction of a phased system of cash transfers in place of the existing leaky system in the case of kerosene, LPG and fertilizers.
Pilot projects will be implemented in six states, including Tamil Nadu and Maharashtra, this year and the system will be extended all over the country later. It is known that the present system of subsidies is inefficient and, more often than not, the intended beneficiaries do not gain and the undeserving take advantage of them. Ways to improve the system have long been discussed and now there is an opportunity to try a method based on technology and management.
The proposed system envisages direct cash transfers to the targetted sections of population instead of sale of subsidised goods to them. In the case of kerosene, LPG and fertilizers there are two prices at present -- the actual price and the subsidised price. But in the new system there will be only one open market price.
The beneficiaries of subsidies will buy the goods from the market and get the subsidy transferred to their bank accounts from the government. The system can eliminate diversion and misuse of subsidised items. Kerosene is used for adulteration of diesel, domestic LPG is diverted for commercial use and manufacturers and rich farmers benefit more from fertilizer subsidy than poor farmers.
Middlemen can be eliminated if safe and proper arrangements are made for adequate supply of the needed items and for reaching the subsidy amount to the right persons. The government will be able to considerably reduce the subsidy amount on these items from the present Rs 80,000 crore and ensure that the subsidy reaches the really needy. The UID number will form an important tool for cash transfer and it is likely to prevent impersonation and fictitious claims.
But technology and management can go only to an extent. The major task of identifying the beneficiaries will still be left with the government machinery. Those who have vested interests in the existing system will try to scuttle the new proposal. Powerful persons can connive with officials to claim eligibility for subsidies or to open accounts in the names of poor people. But the malpractices can be reduced and eliminated once the system gets going.
(Source: Deccan Herald, 11 July, 2011)
Microfinance: Bill to bring in order
Source: Deccan Chronicle, July 11, 2011
The government’s proposed bill to bring the `22,000-crore microfinance industry under the regulation of a single entity — the Reserve Bank of India — has been widely welcomed, both by the industry and the public at large. In fact, the biggest listed name in the industry welcomed the move and saw its shares jump by 20 per cent on the day the proposed bill was announced. The government has invited comments on the bill from the public and will finalise it after taking these into account. Bringing the industry under one regulator was a long-felt need because if each state has its own rules and regulations, the situation can be pretty chaotic. The Reserve Bank deputy governor, Mr K.C. Chakrabarty, had said a few days earlier: “If we don’t act under a common set of regulations (for the microfinance industry), it won’t be practical to work. Five states having five different laws on the same subject will have practical difficulties for the industry.” Till a Central law is in place, the Andhra-type situation can arise again, and this will nullify whatever the RBI is trying to do to bring some order, he pointed out. AP is a classic example: the state government had passed an ordinance that contained stringent regulations for the industry to follow. Not surprisingly, it was up in arms as it was unable to collect crores of rupees from borrowers. The AP government, however, was not wrong to enact such an ordinance — its move had followed complaints about the use of muscle power against those who had failed to pay back loans, and subsequent suicides by borrowers who could not pay up. There was also a considerable amount of misuse of funds as borrowers in some cases had used the loans to pay back others from whom they had borrowed money, something called “evergreening” in banking terminology. This was far removed from the original concept of microfinance — as developed by its pioneer, Bangladesh’s Nobel Prize-winning Grameen Bank founder Muhammed Yunus, popularly known as the father of microfinance. The industry was accused of borrowing cheap from the banks and lending at exorbitant rates — of between 30 to even 60 per cent. It was not even sure if the borrowers, who were predominantly women, were really made financially independent or were able to have a sustainable business such as vegetable vending, which was the principal objective of microfinancing. It is to be hoped that the new bill will also provide for the independent monitoring of end users of loans — as it is absolutely vital for the borrowers to be made financially stable. Microfinance is in a way the device which can make possible “inclusive growth” — the mantra of both the Reserve Bank and the UPA government. The argument that the microfinance industry had tried to make was that it was being targeted by politically powerful moneylenders, who had a thriving business until the MFI firms came along. There may or may not be any truth in this, and it is for the government to act against usurious moneylenders. But this certainly cannot be used to justify the way some of the microfinance companies have behaved. This bill will hopefully go a long way in regularising the industry and in laying down guidelines so that the industry is able to fulfil its true objective — of helping the urban and rural poor as well as the disadvantaged. It gives the RBI the power to register microfinance companies and set benchmark and performance standards for the entire industry to follow.
The government’s proposed bill to bring the `22,000-crore microfinance industry under the regulation of a single entity — the Reserve Bank of India — has been widely welcomed, both by the industry and the public at large. In fact, the biggest listed name in the industry welcomed the move and saw its shares jump by 20 per cent on the day the proposed bill was announced. The government has invited comments on the bill from the public and will finalise it after taking these into account. Bringing the industry under one regulator was a long-felt need because if each state has its own rules and regulations, the situation can be pretty chaotic. The Reserve Bank deputy governor, Mr K.C. Chakrabarty, had said a few days earlier: “If we don’t act under a common set of regulations (for the microfinance industry), it won’t be practical to work. Five states having five different laws on the same subject will have practical difficulties for the industry.” Till a Central law is in place, the Andhra-type situation can arise again, and this will nullify whatever the RBI is trying to do to bring some order, he pointed out. AP is a classic example: the state government had passed an ordinance that contained stringent regulations for the industry to follow. Not surprisingly, it was up in arms as it was unable to collect crores of rupees from borrowers. The AP government, however, was not wrong to enact such an ordinance — its move had followed complaints about the use of muscle power against those who had failed to pay back loans, and subsequent suicides by borrowers who could not pay up. There was also a considerable amount of misuse of funds as borrowers in some cases had used the loans to pay back others from whom they had borrowed money, something called “evergreening” in banking terminology. This was far removed from the original concept of microfinance — as developed by its pioneer, Bangladesh’s Nobel Prize-winning Grameen Bank founder Muhammed Yunus, popularly known as the father of microfinance. The industry was accused of borrowing cheap from the banks and lending at exorbitant rates — of between 30 to even 60 per cent. It was not even sure if the borrowers, who were predominantly women, were really made financially independent or were able to have a sustainable business such as vegetable vending, which was the principal objective of microfinancing. It is to be hoped that the new bill will also provide for the independent monitoring of end users of loans — as it is absolutely vital for the borrowers to be made financially stable. Microfinance is in a way the device which can make possible “inclusive growth” — the mantra of both the Reserve Bank and the UPA government. The argument that the microfinance industry had tried to make was that it was being targeted by politically powerful moneylenders, who had a thriving business until the MFI firms came along. There may or may not be any truth in this, and it is for the government to act against usurious moneylenders. But this certainly cannot be used to justify the way some of the microfinance companies have behaved. This bill will hopefully go a long way in regularising the industry and in laying down guidelines so that the industry is able to fulfil its true objective — of helping the urban and rural poor as well as the disadvantaged. It gives the RBI the power to register microfinance companies and set benchmark and performance standards for the entire industry to follow.
We recorded history and we've made history
News of The World,Last Edition,July 10, 2011
Thank you and goodbye
After 168 years, we finally say a sad but very proud farewell to our 7.5m loyal readers
"IT is Sunday afternoon, preferably before the war. The wife is already asleep in the armchair, and the children have been sent out for a nice long walk. You put your feet up on the sofa, settle your spectacles on your nose and open the News of the World."
These are the words of the great writer George Orwell. They were written in 1946 but they have been the sentiments of most of the nation for well over a century and a half as this astonishing paper became part of the fabric of Britain, as central to Sunday as a roast dinner.
An advertisement for our first ever edition on Sunday, October 1, 1843, announced the News of the World as "the novelty of nations and the wonder of the world... as worthy of the mansion as the cottage."
That has informed our journalism through six monarchs and 168 years. We lived through history, we recorded history and we made history - from the romance of our old hot-metal presses right through to the revolution of the digital age.
In our first Christmas Eve edition, for example, on December 24, 1843, we reviewed and told the story of a new novel by a writer published just a week earlier: A Christmas Carol, by Charles Dickens.
Fortunately we gave it a good review and, like us, it became part of a national heritage. In May 1900, we broke the news of the relief of Mafeking on the same evening details first arrived in London, the only newspaper to do so.
We also recorded the death of Queen Victoria, the sinking of the Titanic, two world wars, the 1966 World Cup victory, the first man on the moon, the death of Diana... the list goes on.
But we also recorded and most often revealed the great scandals and celebrity stories of the day. Many of them are recalled in this final edition of the News of the World.
In sport, too, we have led the way with the best, most informed coverage in the country - a tradition we have upheld proudly since 1895, when we published our first soccer report (quickly followed by the first picture album: Famous Footballers 1895-1896, proving that some things never change!)
But we touched people's lives most directly through our campaigns. In the 19th century we crusaded against child labour.
Our more modern campaigns have famously included the fight for Sarah's Law, which has introduced 15 new pieces of groundbreaking legislation - including the crucial right of parents to information about paedophiles living in their area.
This year we forced the government into a U-turn to enshrine the Military Covenant in law.
At Christmas, we delivered toys to the children of every serviceman and woman in Afghanistan.
We forced computer giants to police their sites to protect children.
We railed against cyber- bullying and, of course, we have run our annual Children's Champions Awards, celebrating those heroes who work beyond the call of duty for youngsters.
We praised high standards, we demanded high standards but, as we are now only too painfully aware, for a period of a few years up to 2006 some who worked for us, or in our name, fell shamefully short of those standards.
Quite simply, we lost our way.
Phones were hacked, and for that this newspaper is truly sorry.
There is no justification for this appalling wrong-doing.
No justification for the pain caused to victims, nor for the deep stain it has left on a great history.
Yet when this outrage has been atoned, we hope history will eventually judge us on all our years.
The staff of this paper, to a man and woman, are people of skill, dedication, honour and integrity bearing the pain for the past misdeeds of a few others.
And as a small step on the long road to making some amends, all profits from the sale of this final edition will be split equally between three charities: Barnardo's, the Forces Children's Trust, and military projects at the Queen Elizabeth Hospital Birmingham Charity.
Meanwhile, we welcome and support the Prime Minister's two public inquiries, one into the police handling of the case and another into the ethics and standards of the Press.
But we do not agree that the Press Complaints Commission should be disbanded. Self-regulation does work. But the current make-up of the PCC doesn't work. It needs more powers and more resources. We do not need government legislation.
That would be a disaster for our democracy and for a free Press.
But most of all, on this historic day, after 8,674 editions we'll miss YOU, our 7.5 million readers.
You've been our life. We've made you laugh, made you cry, made your jaw drop in amazement, informed you, enthralled you and enraged you.
You have been our family, and for years we have been yours, visiting every weekend.
Thank you for your support. We'll miss you more than words can express.
Farewell.
Thank you and goodbye
After 168 years, we finally say a sad but very proud farewell to our 7.5m loyal readers
"IT is Sunday afternoon, preferably before the war. The wife is already asleep in the armchair, and the children have been sent out for a nice long walk. You put your feet up on the sofa, settle your spectacles on your nose and open the News of the World."
These are the words of the great writer George Orwell. They were written in 1946 but they have been the sentiments of most of the nation for well over a century and a half as this astonishing paper became part of the fabric of Britain, as central to Sunday as a roast dinner.
An advertisement for our first ever edition on Sunday, October 1, 1843, announced the News of the World as "the novelty of nations and the wonder of the world... as worthy of the mansion as the cottage."
That has informed our journalism through six monarchs and 168 years. We lived through history, we recorded history and we made history - from the romance of our old hot-metal presses right through to the revolution of the digital age.
In our first Christmas Eve edition, for example, on December 24, 1843, we reviewed and told the story of a new novel by a writer published just a week earlier: A Christmas Carol, by Charles Dickens.
Fortunately we gave it a good review and, like us, it became part of a national heritage. In May 1900, we broke the news of the relief of Mafeking on the same evening details first arrived in London, the only newspaper to do so.
We also recorded the death of Queen Victoria, the sinking of the Titanic, two world wars, the 1966 World Cup victory, the first man on the moon, the death of Diana... the list goes on.
But we also recorded and most often revealed the great scandals and celebrity stories of the day. Many of them are recalled in this final edition of the News of the World.
In sport, too, we have led the way with the best, most informed coverage in the country - a tradition we have upheld proudly since 1895, when we published our first soccer report (quickly followed by the first picture album: Famous Footballers 1895-1896, proving that some things never change!)
But we touched people's lives most directly through our campaigns. In the 19th century we crusaded against child labour.
Our more modern campaigns have famously included the fight for Sarah's Law, which has introduced 15 new pieces of groundbreaking legislation - including the crucial right of parents to information about paedophiles living in their area.
This year we forced the government into a U-turn to enshrine the Military Covenant in law.
At Christmas, we delivered toys to the children of every serviceman and woman in Afghanistan.
We forced computer giants to police their sites to protect children.
We railed against cyber- bullying and, of course, we have run our annual Children's Champions Awards, celebrating those heroes who work beyond the call of duty for youngsters.
We praised high standards, we demanded high standards but, as we are now only too painfully aware, for a period of a few years up to 2006 some who worked for us, or in our name, fell shamefully short of those standards.
Quite simply, we lost our way.
Phones were hacked, and for that this newspaper is truly sorry.
There is no justification for this appalling wrong-doing.
No justification for the pain caused to victims, nor for the deep stain it has left on a great history.
Yet when this outrage has been atoned, we hope history will eventually judge us on all our years.
The staff of this paper, to a man and woman, are people of skill, dedication, honour and integrity bearing the pain for the past misdeeds of a few others.
And as a small step on the long road to making some amends, all profits from the sale of this final edition will be split equally between three charities: Barnardo's, the Forces Children's Trust, and military projects at the Queen Elizabeth Hospital Birmingham Charity.
Meanwhile, we welcome and support the Prime Minister's two public inquiries, one into the police handling of the case and another into the ethics and standards of the Press.
But we do not agree that the Press Complaints Commission should be disbanded. Self-regulation does work. But the current make-up of the PCC doesn't work. It needs more powers and more resources. We do not need government legislation.
That would be a disaster for our democracy and for a free Press.
But most of all, on this historic day, after 8,674 editions we'll miss YOU, our 7.5 million readers.
You've been our life. We've made you laugh, made you cry, made your jaw drop in amazement, informed you, enthralled you and enraged you.
You have been our family, and for years we have been yours, visiting every weekend.
Thank you for your support. We'll miss you more than words can express.
Farewell.
Sunday, July 10, 2011
India has potential to see double-digit growth, says OECD
India has potential to see double-digit growth, says OECD
India has the potential to clock double-digit growth in medium term, provided right policies are in place and demographic developments push savings rate higher, according to Paris-based think tank OECD.
"Inclusive growth of 10 % per year is feasible given that demographic developments are set to push up saving, but will only be achieved if the administrative and regulatory barriers facing companies are reduced," OECD's Economic Survey of India released on Tuesday said.
The Indian economy is projected to expand at over 8 % this fiscal.
Speaking on the occasion, Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan said the country is likely to see a growth of about 8.5 % in 2011-12 and has the potential to grow by 9 % annually.
Organisation for Economic Cooperation and Development (OECD) noted that sustainability of growth would depend on increased capital inflows and higher domestic savings.
Calling for further reductions in trade and foreign direct investment barriers, the report said that growth is set to remain strong in the near term on the back of private consumption and investment.
"However, sustaining high growth hinges on sound monetary and fiscal policies," it added.
OECD, a 34-member grouping of mostly industrialised nations, also cautioned against rising inflation and volatile capital inflows.
Regarding price rise, OECD has pitched for "further incremental tightening" since the economy is back on a high-growth trajectory.
Headline inflation rose to 9.06 % in May, a development that is likely to see the Reserve Bank of India further hiking rates.
"Longer term capital inflows can be increased by eliminating remaining controls over direct investment and allowing foreigners to purchase government bonds," OECD said.
Noting that India has been a "stand out performer" in the global economy, OECD Secretary General Angel Gurria said the nation has benefited from reforms.
On India's financial sector, the report said that a small number of "state-owned banks will continue to need capital injections, which could be best done via sales of shares".
Source:Press Trust Of India, New Delhi, June 14, 2011
India has the potential to clock double-digit growth in medium term, provided right policies are in place and demographic developments push savings rate higher, according to Paris-based think tank OECD.
"Inclusive growth of 10 % per year is feasible given that demographic developments are set to push up saving, but will only be achieved if the administrative and regulatory barriers facing companies are reduced," OECD's Economic Survey of India released on Tuesday said.
The Indian economy is projected to expand at over 8 % this fiscal.
Speaking on the occasion, Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan said the country is likely to see a growth of about 8.5 % in 2011-12 and has the potential to grow by 9 % annually.
Organisation for Economic Cooperation and Development (OECD) noted that sustainability of growth would depend on increased capital inflows and higher domestic savings.
Calling for further reductions in trade and foreign direct investment barriers, the report said that growth is set to remain strong in the near term on the back of private consumption and investment.
"However, sustaining high growth hinges on sound monetary and fiscal policies," it added.
OECD, a 34-member grouping of mostly industrialised nations, also cautioned against rising inflation and volatile capital inflows.
Regarding price rise, OECD has pitched for "further incremental tightening" since the economy is back on a high-growth trajectory.
Headline inflation rose to 9.06 % in May, a development that is likely to see the Reserve Bank of India further hiking rates.
"Longer term capital inflows can be increased by eliminating remaining controls over direct investment and allowing foreigners to purchase government bonds," OECD said.
Noting that India has been a "stand out performer" in the global economy, OECD Secretary General Angel Gurria said the nation has benefited from reforms.
On India's financial sector, the report said that a small number of "state-owned banks will continue to need capital injections, which could be best done via sales of shares".
Source:Press Trust Of India, New Delhi, June 14, 2011
Wednesday, July 6, 2011
Answer to Question sent by Rituparna of Garia by sms
Rituparna's Question: Can any one get selected in the IAS if he/she has little knowledge of Economics/Indian Economics?
Answer: Probably not.
If you scan through the question papers of both Prelims and the Mains of the last five years, you will find that Indian Economics has become the Most Important Subject these days, both in the Prelims and in the Mains. This year 33 questions out of 100 in the GS Prelims are from Indian Economics. Therefore, if you do not study Indian Economics with special emphasis, there is little chance that you can make it.
Secondly, in the Mains, it is much more difficult. Last year, out of 600 marks GS Mains questions, 140-150 marks questions were from Indian Economics. Here, you need to express yourself by writing, that too within strict word limit. Economics, being a technical subject, you need to use technical terms like deflation, fiscal policy, speculative bubble, fiscal consolidation etc properly. A mere narration or description in your own non-technical words may not be appropriate for Economics. Since economics is given nearly 25% weight in GS Mains questions, it is almost impossible to get through the Mains without scoring reasonably high marks in economics.
Thirdly, if you see the English Essay papers of the previous years, you will find that several topics are from economics.
Fourthly, at the interview, you will definitely be asked questions on the recent trends in the Indian economics.
Therefore, study methodically, write more, get it checked.
Answer: Probably not.
If you scan through the question papers of both Prelims and the Mains of the last five years, you will find that Indian Economics has become the Most Important Subject these days, both in the Prelims and in the Mains. This year 33 questions out of 100 in the GS Prelims are from Indian Economics. Therefore, if you do not study Indian Economics with special emphasis, there is little chance that you can make it.
Secondly, in the Mains, it is much more difficult. Last year, out of 600 marks GS Mains questions, 140-150 marks questions were from Indian Economics. Here, you need to express yourself by writing, that too within strict word limit. Economics, being a technical subject, you need to use technical terms like deflation, fiscal policy, speculative bubble, fiscal consolidation etc properly. A mere narration or description in your own non-technical words may not be appropriate for Economics. Since economics is given nearly 25% weight in GS Mains questions, it is almost impossible to get through the Mains without scoring reasonably high marks in economics.
Thirdly, if you see the English Essay papers of the previous years, you will find that several topics are from economics.
Fourthly, at the interview, you will definitely be asked questions on the recent trends in the Indian economics.
Therefore, study methodically, write more, get it checked.
Monday, July 4, 2011
Is India going off track or staying on course?
"What slowdown?" asks Amit Kinariwala (46), smiling, as he reels off his recent destinations — Ethiopia, Nigeria, Lebanon and Egypt — and talks of three signed contracts. "There's a lot of business out there." As the Bangalore-based MD of Everett Middleware Consulting, a Dutch company specialising in identity and access management, Kinariwala believes there is much business to be wrung out of a global economic slowdown. "There's money abroad and in India, where we just won a big contract, but companies have to see value," he says, "Then they will spend."
Deepening global gloom does bring opportunities; the IT sector alone hopes to add some 225,000 jobs this year, and India reported its highest ever exports for the year ended March 2011. For millions of Indians not skilled enough, however, the last 12 months of high prices, particularly of food and manufactured products, have eroded incomes. That has slowed consumption and corporate spending and sparked a series of slowdown cycles.
On Wednesday, the Prime Minister emerged from his cocoon of silence to predict that inflation will slow to 6.5% by March 2012. Even if that happens — many warn of even higher prices instead — it is clear India needs radical changes beyond current challenges.
First, the immediate problems. At 7.8%, the growth of India's GDP from Jan to March 2011 was the lowest in five quarters. It could get worse. "Growth is expected to moderate to 7.5% in 2011-12," says Rajiv Malik, senior economist at Singapore broking and research firm CLSA. The manufacturing sector — it accounts for 80% of industrial output — grew at 5.5%, the slowest in 18 months. The latest data for factory output, for April, reveal that growth fell from last year by more than half, from 13.1% to 6.3%.
Slow manufacturing hurts corporate profits and employment prospects at India's 160,000-odd factories, employing about 110 million people. With such gloominess, the Bombay Stock Exchange's Sensex has fallen 9.8% so far this year, closing Friday at 18,763 points, shutting down a major avenue for raising money. Six companies have withdrawn plans for share offerings, three public sector companies (including giants ONGC and Steel Authority of India) have postponed disinvestments, and 42 companies are waiting for an opportune time to sell shares.
The RBI's strategy: Raise interest rates to mop up money, slow the economy and lower inflation. It's working — partially. But inflation is at its highest in 16 years. This is also undermining the poverty gains of the last decade. The 9.6% inflation (based on wholesale prices) of 2010-11, bad as it is, hides soaring food prices. Over the last year, milk has become costlier by 16%, prices of eggs, meat and fish by 20% and fruits by 22%.
In April, the Asian Development Bank warned that with poorer households spending up to a sixth of their income on food, a 10% increase in food prices can send 10 million Indians (three-fourths from rural areas) into poverty; a 20% rise could increase the rural poor by 45.6 million and urban poor by 13.3 million.
Exacerbating these problems are petrol, diesel, cooking gas and kerosene hikes, enough to boost inflation by 1%. "Due to these hikes, inflation could be close to 10% by July," says C Rangarajan, Chairman of the PM's Economic Advisory Council.
For some weeks, inflation in non-food articles, such as cotton textiles and minerals, has been 20%-25%. Higher fuel prices won't help. Without tax cuts for petroleum products last month, things may have been worse, but this sets off another vicious cycle that will leave the government poorer by Rs 49,000 crore for 2011-12. So, less money for the things India needs to reduce poverty-social-welfare and infrastructure. India lauds itself for escaping the worst effects of the economic meltdown in 2008, but figures quoted by Planning Commission Deputy Chairman Montek Ahluwalia in a journal article in May showed that 33 million people were added to the ranks of the poor within two years.
There is no current data available, but inflation is likely pushing millions who had just climbed out of poverty (measured at the ability to spend $1.25 a day) back in, worsening India's worry under — and unemployment. So far, the government has made no progress with major policy reforms, stalled since 2004.
This picture reveals, according to data released by the government 10 days ago, that even during the rosiest years of growth, between 2004-05 to 2009-10, when growth averaged 8.43%, the economy generated no more than 2 million jobs for the 55 million people who joined the workforce. This low employment comes at a time when every sector is short of skilled workers — from masons to teachers to waiters to engineers — a reflection of an education system that is not imparting skills the economy needs.
"Deeper social disparities should never be viewed as the inevitable price of rapid growth, and more egalitarian outcomes in education, health, and gender should not be considered "second-stage" reforms," writes Ejaz Ghani, economic advisor to the World Bank and author of The Poor Half Billion in South Asia, in a new blog post. Or, as the newly revealed ravages of the meltdown indicate, growth alone can't create and sustain a new India. So, companies and the middle-class are asking tough questions of the present reform-less business environment.
"Business confidence has seen a decline since September 2010, not surprising, given the corruption, environmental and governance issues that stalled all policy action during the winter session of Parliament, which is reflected in (declining) corporate fixed capital spends," says Anand Mahindra Managing Director of the Rs 57,000-crore Mahindra Group, spread across 18 industries. Mahindra says he intends to launch new models "to generate excitement" despite a sharp fall in auto sales.
The invisible army
Mahindra and India Inc are the visible, aggressively global, flag-bearers of an emerging nation, but they are, in a sense, incidental to its future, which appears to lie in the dank tanneries of Mumbai's Dharavi slum township, in the room-sized waste-recycling units of outer Delhi, in 30 million small, micro and medium enterprises. Put together, these grubby factories contribute to half of India's factory output, 45% of exports and employ more than 60 million people (India's high-profile service sector employs no more than 33 million). "Their investments, collectively, are more than that of the government as well as that of the private corporate sector," economist and former J&K Bank Chairman Haseeb Drabu wrote this month in Mint.
Least recognised is the ailing agriculture sector, which employs half of India's population, about 600 million people, produces no more than 15% of GDP and lives from monsoon to monsoon. A good monsoon this year may reduce food prices and keep the economy stable, but India's agriculture will remain one of the least productive in the emerging world — about 64% of the world average. In 1977, Indian and Chinese farmers harvested about the same amount of wheat. By 2009, wheat yields in China were 1.7 times more than India, according to UN data.
Galloping food prices are linked to agricultural problems. Uncertain agriculture and rising prices are a global issue, but India's small, failing farms can't keep pace with growing demand.
With reforms stalled, these unheralded engines of entrepreneurship and employment bear the brunt of corruption, crumbling infrastructure and discrimination (small, medium units get less than a tenth of commercial credit).
The push for new reform comes most recently from India's ally, itself under economic strain.
"India is at the point now where future growth will depend on the success of the next wave of reform," US Treasury Secretary Timothy Geithner said this week in Washington D.C., particularly seeking finance-sector reform. In response, finance minister Pranab Mukherjee said reforms of banking, insurance and pension-fund sectors were now in Parliament, awaiting consensus.
These reforms are vital to finance the $1 trillion — the value of the national GDP — India will require over the next five years to overhaul its collapsing infrastructure, which, if built, could potentially catalyse every sector, from farm to factory.
As our top 5 reforms sheet indicates (alongside), India needs not just reforms in diverse areas but a governance makeover. Unless that begins, a cycle of upturns and slowdowns will continue — with more of new India's people sliding back to the old.
Jairam kanojia (50) laundry man (Delhi)
"Whatever I earn is spent on food and essentials"
Jairam Kanojia, 50, earns his keep as a laundry man in a local society in west Delhi's Paschim Vihar. For the past two decades, his daily routine has more or less followed a set pattern: fire the charcoal, heat the iron and "press" clothes for residents of the Meera Bagh Housing Society.
But the last year-and-a-half has been different and difficult.
Pummelled by soaring prices of most food items, Kanojia is struggling to make both ends meet for a family of eight. "Whatever I earn is spent on food,
household items, school fees and other expenses. I have two young daughters and I end up saving nothing for their marriage."
The earnings from ironing clothes alone do not suffice. Till about 18 months ago, Kanojia used to earn about Rs 5,000 a month. Today he earns more, but is poorer. Skyrocketing food prices have forced him to dabble in odd jobs.
Untrained in any other skill, Kanojia now-a-days cleans vehicles in the same society to earn an extra buck, which still leaves him with a deficit at the end of the month. Costlier essential items leave him with no extra money to fulfil life’s bigger aspirations: educating his children for a better life. "I also dream of giving the best education to my children," he says in a choked voice.
— Himani Chandna Gurtoo
Dilip Mark Mendens, 41 Entrepreneur (Bangalore)
"I'd love to have a driver, two cars"
Mendens is momentarily rueful. He had a full-time staff of 45, worked all day, locking up the office every night and lived it up in pubs and restaurants, as his annual turnover reached Rs 4 crore by 2007. A former courier boy, Mendens embodied the opportunities of the flat world.
His human resource consultancy, Ascro Transatlantic Pvt Ltd, provided staff, entry level to senior management, to 40 clients, including multinationals. When the world economy melted down in 2008, his turnover tumbled 99.8% to Rs 5 lakh.
Mendens had to give up his office, and "settle" his 45 employees in other jobs. This time, as Bangalore grows jittery again, he’s prepared. "I foresee a bust, no way India will escape," he says.
He works out of his father's home and is happy with five clients — one markets holistic healing, another trade fairs. "What I do now is very satisfying," says Mendens, who now begins his work day leisurely after a game of squash and ends at home with his children or a drink at the local Catholic Club. He doesn't miss the expensive nightlife, but it would be nice to have that driver.
— Samar Halarnkar
Gopal Gupta (28) Public Relations executive (Mumbai)
"With rising EMIs, I don't have money to get married"
He has drastically reduced socialising, postponed his vacation plans and even shelved matrimony.
Seven hikes in his equated monthly installment (EMI) over the last one year have hit public relations executive Gopal Gupta hard.
Over the last year, Gupta, 28, employed with a public relations firm in Mumbai, has seen his EMI rise from Rs 12,500 to Rs 15,800 (a hike of 26%).
These days Gupta resides with his mother and younger brother at Bandra. Last year, when the going wasn't as tough, he had purchased a house on Mira Road and was thinking of moving in there. But that looks like a distant dream now. "My plans have gone for a toss. Another hike in the EMI will leave me with no option but to sell the home I bought last year as I won't be able to service it from my current salary," says a dejected Gupta.
He cannot even contemplate changing jobs for a better compensation package, as a new job will bring with it, its own set of uncertainties.
In the last two months, owing to rising EMIs and expenses, Gupta has stopped going to clubs with friends and even quietly excused himself from joining his friends on a Lonavala and Khandala trip.
Worse, the quagmire of EMIs and rising inflation has forced him to defer his marriage plans at least for this year and also affected his higher education dreams.
"Under family pressure, I was thinking of getting married this year, but now I can't plan marriage because of rising
outflows. I have also not been able to save for my higher studies," adds Gupta.
"My salary has been revised only once in a year but the expenses and EMIs have seen several revisions."
— Sandeep Singh
Answers beyond fighting inflation
We asked 5 people with varied experience of India's growth story to make sense of the present jitters. The bottom line: the economy will come through, but sweeping, new reforms are essential.
C Rangarajan Chairman, PM's Economic Advisory Council
Use all policy tools to tame inflation
Controlling inflation is a priority concern of the government. What started as food inflation has become more generalised. However, food inflation is coming down. More particularly, the rise in the prices of foodgrains has been modest in the current year.
We must use all policy instruments —interventions in the foodgrains market and fiscal and monetary policies — to bring down inflation to a more acceptable level.
The fuel price hike has become inevitable. Crude prices have risen sharply. Domestic prices of petroleum products must reflect this. Subsidies on petroleum products must also be contained to prevent the fiscal deficit from rising. The fuel hike may add to inflation by a little over half a percentage point.
India's growth rate in 2011-12 will be in the range of 8 to 8.5 %. This is due to a variety of circumstances. The process of recovery in the advanced economies is slow. Domestically, the investment sentiment is weak. Nevertheless, a growth rate above 8 % must be considered respectable and high in the current world situation. Revenue targets are in nominal terms. The nominal income may still grow at the rate implicit in the budget estimates.
Even as revenue targets are achieved, we need to keep a watch on expenditures so that the fiscal deficit is contained at the budgeted level. This will also help in taming inflation.
Anand Mhaindra Vice Chairman, Mahindra Group
Strike a labour, income security balance
The economy is likely to see slower growth (this year), but this will be more in the nature of a moderation (7.5%-7.7% GDP growth) rather than a slump. Prevailing inflation rates, to my mind, are the bigger threat at present. To increase supply capacities, we need higher investment rates, but instead what we saw last year was a sharp decline in capital expenditure — public and private.
Private consumer expend, by the way, was fairly robust last year right through Q4 (January to March, 2011). Business confidence has seen a decline since September 2010. However, we're a noisy democracy, and the noise always signals the first step towards resolution. The issues raised in the last few months are important, and I now see steps being taken towards resolution, which makes me hopeful. Note, the government has submitted 32 bills for enactment or amendment this (coming) session (of Parliament). The three things government must do to keep growth on track and reinfuse confidence into business are the Land Acquisition Bill — stalling many infrastructure and industry projects; rationalise environmental clearances; and labour regulation reforms. We need to make a beginning in labour reforms. We have one of the most restrictive labour security regulations in the world, and this is limiting both labour employment and industrial growth. We need reforms here that strike the right balance between income security and flexibility in labour hours employed.
Rajiv Kumar Secretary General, Ficci
Time to implement structural reforms
The slowdown in the economy is now evident. It is reflected in the steep decline in investment growth rate, which slowed down to 0.4% in March 2011 as compared to more than 15% in March 2010.
If that was not enough evidence, there is a downturn in the investment cycle, which had driven Indian economic growth since 2003-04.
Private consumption is also beginning to be affected by higher costs of borrowing. The slowdown should not be a surprise as it has been policy induced. The Reserve Bank of India, in its pursuit of lower inflation, has raised interest rates by 275 basis points in 10 steps during the last 12 months.
But monetary policy on its own will not suffice to achieve macro stability along with rapid growth and fiscal policy will also have to play its due role. Moreover, given that inflation is largely a result of supply shortages, it is imperative that structural reforms are implemented to remove supply-side bottlenecks and expand production capacity.
The current policy regime appears to be based on the assumption that increasing consumption demand through large scale transfer payments will suffice for rapid growth.
With lack of private corporate investment, production capacities are not keeping pace with demand, thereby resulting in persistent inflation.
Ajay Shah Professor, National Institute for Public Finance and Policy
Need to restore confidence of investors
Firm databases, which are the most reliable element of Indian statistics, show a mixed picture. On one hand, the Jan-Feb-March 2011 quarter showed moderately good performance for sales and profit. But the CMIE 'Capex' data, where we measure new project announcements, has been reporting difficult times from mid 2010 onwards. New project announcements by foreigners and by the government have dropped sharply. New project announcements by the Indian private sector have also dropped a bit.
The behaviour of the private sector may reflect reduced optimism about the future. The behaviour of the government directly influences investment in the economy. In either event, these patterns are likely to give a slowdown in investment.
In one element, difficulty is already visible: capital goods imports have not had robust and sustained growth after the crisis. Investment makes up a large slice of Indian GDP.
These two factors (public investment and the optimism that shapes private investment) thus have a strong impact upon business cycle conditions. Monetary policy is, and should be, absorbed in the fight against inflation.
Fiscal policy has little room to manoeuvre given India's chronic fiscal crisis. Finding a way out of this dark situation thus rests on only one lever: economic and governance reforms, that will restore confidence of domestic and foreign investors.
Bharat Ramaswamy, Economist
Reform agriculture and invest in R&D
When you talk of long-term reform, there is a very simple fact: Over the last 20 years, except for one year, the amount of grain the government buys is larger than the amount it dispenses through the public-distribution system (PDS), which was never reformed. So, you build mountains of grain, then you try and get rid off them through targeted subsidies. This kind of regime is no longer stabilising foodgrain prices, as it was meant to.
At the same time, our agricultural productivity is one of the lowest in emerging markets. Our R&D system, one of the largest in the world, has failed. We have fallen so far behind, it's shameful.
Market reforms — agricultural pricing, opening of retail — are very important, but there is a lot of basic R&D to be done, which the private sector will not do. Agricultural extension has collapsed, and the Centre has shown no leadership. Mr (Sharad) Pawar (Union agriculture minister), keeps telling us agriculture is a state subject, but R&D is completely in central hands. Innumerable experts have reviewed this and all have said almost exactly the same thing. Similarly, the Kaushik Basu committee on inflation has recommended reforms in agricultural markets in opening of retail. The Vaidyanathan committee told us what to do to about irrigation productivity. We know what needs to be done. But there is no strategic thinking, no urgency. The Vajpayee government did a lot to reform agriculture, but there's been nothing since.
(Source: Hindustan Times,July 02, 2011, by Samar Halarnkar and Gaurav Choudhury)
Deepening global gloom does bring opportunities; the IT sector alone hopes to add some 225,000 jobs this year, and India reported its highest ever exports for the year ended March 2011. For millions of Indians not skilled enough, however, the last 12 months of high prices, particularly of food and manufactured products, have eroded incomes. That has slowed consumption and corporate spending and sparked a series of slowdown cycles.
On Wednesday, the Prime Minister emerged from his cocoon of silence to predict that inflation will slow to 6.5% by March 2012. Even if that happens — many warn of even higher prices instead — it is clear India needs radical changes beyond current challenges.
First, the immediate problems. At 7.8%, the growth of India's GDP from Jan to March 2011 was the lowest in five quarters. It could get worse. "Growth is expected to moderate to 7.5% in 2011-12," says Rajiv Malik, senior economist at Singapore broking and research firm CLSA. The manufacturing sector — it accounts for 80% of industrial output — grew at 5.5%, the slowest in 18 months. The latest data for factory output, for April, reveal that growth fell from last year by more than half, from 13.1% to 6.3%.
Slow manufacturing hurts corporate profits and employment prospects at India's 160,000-odd factories, employing about 110 million people. With such gloominess, the Bombay Stock Exchange's Sensex has fallen 9.8% so far this year, closing Friday at 18,763 points, shutting down a major avenue for raising money. Six companies have withdrawn plans for share offerings, three public sector companies (including giants ONGC and Steel Authority of India) have postponed disinvestments, and 42 companies are waiting for an opportune time to sell shares.
The RBI's strategy: Raise interest rates to mop up money, slow the economy and lower inflation. It's working — partially. But inflation is at its highest in 16 years. This is also undermining the poverty gains of the last decade. The 9.6% inflation (based on wholesale prices) of 2010-11, bad as it is, hides soaring food prices. Over the last year, milk has become costlier by 16%, prices of eggs, meat and fish by 20% and fruits by 22%.
In April, the Asian Development Bank warned that with poorer households spending up to a sixth of their income on food, a 10% increase in food prices can send 10 million Indians (three-fourths from rural areas) into poverty; a 20% rise could increase the rural poor by 45.6 million and urban poor by 13.3 million.
Exacerbating these problems are petrol, diesel, cooking gas and kerosene hikes, enough to boost inflation by 1%. "Due to these hikes, inflation could be close to 10% by July," says C Rangarajan, Chairman of the PM's Economic Advisory Council.
For some weeks, inflation in non-food articles, such as cotton textiles and minerals, has been 20%-25%. Higher fuel prices won't help. Without tax cuts for petroleum products last month, things may have been worse, but this sets off another vicious cycle that will leave the government poorer by Rs 49,000 crore for 2011-12. So, less money for the things India needs to reduce poverty-social-welfare and infrastructure. India lauds itself for escaping the worst effects of the economic meltdown in 2008, but figures quoted by Planning Commission Deputy Chairman Montek Ahluwalia in a journal article in May showed that 33 million people were added to the ranks of the poor within two years.
There is no current data available, but inflation is likely pushing millions who had just climbed out of poverty (measured at the ability to spend $1.25 a day) back in, worsening India's worry under — and unemployment. So far, the government has made no progress with major policy reforms, stalled since 2004.
This picture reveals, according to data released by the government 10 days ago, that even during the rosiest years of growth, between 2004-05 to 2009-10, when growth averaged 8.43%, the economy generated no more than 2 million jobs for the 55 million people who joined the workforce. This low employment comes at a time when every sector is short of skilled workers — from masons to teachers to waiters to engineers — a reflection of an education system that is not imparting skills the economy needs.
"Deeper social disparities should never be viewed as the inevitable price of rapid growth, and more egalitarian outcomes in education, health, and gender should not be considered "second-stage" reforms," writes Ejaz Ghani, economic advisor to the World Bank and author of The Poor Half Billion in South Asia, in a new blog post. Or, as the newly revealed ravages of the meltdown indicate, growth alone can't create and sustain a new India. So, companies and the middle-class are asking tough questions of the present reform-less business environment.
"Business confidence has seen a decline since September 2010, not surprising, given the corruption, environmental and governance issues that stalled all policy action during the winter session of Parliament, which is reflected in (declining) corporate fixed capital spends," says Anand Mahindra Managing Director of the Rs 57,000-crore Mahindra Group, spread across 18 industries. Mahindra says he intends to launch new models "to generate excitement" despite a sharp fall in auto sales.
The invisible army
Mahindra and India Inc are the visible, aggressively global, flag-bearers of an emerging nation, but they are, in a sense, incidental to its future, which appears to lie in the dank tanneries of Mumbai's Dharavi slum township, in the room-sized waste-recycling units of outer Delhi, in 30 million small, micro and medium enterprises. Put together, these grubby factories contribute to half of India's factory output, 45% of exports and employ more than 60 million people (India's high-profile service sector employs no more than 33 million). "Their investments, collectively, are more than that of the government as well as that of the private corporate sector," economist and former J&K Bank Chairman Haseeb Drabu wrote this month in Mint.
Least recognised is the ailing agriculture sector, which employs half of India's population, about 600 million people, produces no more than 15% of GDP and lives from monsoon to monsoon. A good monsoon this year may reduce food prices and keep the economy stable, but India's agriculture will remain one of the least productive in the emerging world — about 64% of the world average. In 1977, Indian and Chinese farmers harvested about the same amount of wheat. By 2009, wheat yields in China were 1.7 times more than India, according to UN data.
Galloping food prices are linked to agricultural problems. Uncertain agriculture and rising prices are a global issue, but India's small, failing farms can't keep pace with growing demand.
With reforms stalled, these unheralded engines of entrepreneurship and employment bear the brunt of corruption, crumbling infrastructure and discrimination (small, medium units get less than a tenth of commercial credit).
The push for new reform comes most recently from India's ally, itself under economic strain.
"India is at the point now where future growth will depend on the success of the next wave of reform," US Treasury Secretary Timothy Geithner said this week in Washington D.C., particularly seeking finance-sector reform. In response, finance minister Pranab Mukherjee said reforms of banking, insurance and pension-fund sectors were now in Parliament, awaiting consensus.
These reforms are vital to finance the $1 trillion — the value of the national GDP — India will require over the next five years to overhaul its collapsing infrastructure, which, if built, could potentially catalyse every sector, from farm to factory.
As our top 5 reforms sheet indicates (alongside), India needs not just reforms in diverse areas but a governance makeover. Unless that begins, a cycle of upturns and slowdowns will continue — with more of new India's people sliding back to the old.
Jairam kanojia (50) laundry man (Delhi)
"Whatever I earn is spent on food and essentials"
Jairam Kanojia, 50, earns his keep as a laundry man in a local society in west Delhi's Paschim Vihar. For the past two decades, his daily routine has more or less followed a set pattern: fire the charcoal, heat the iron and "press" clothes for residents of the Meera Bagh Housing Society.
But the last year-and-a-half has been different and difficult.
Pummelled by soaring prices of most food items, Kanojia is struggling to make both ends meet for a family of eight. "Whatever I earn is spent on food,
household items, school fees and other expenses. I have two young daughters and I end up saving nothing for their marriage."
The earnings from ironing clothes alone do not suffice. Till about 18 months ago, Kanojia used to earn about Rs 5,000 a month. Today he earns more, but is poorer. Skyrocketing food prices have forced him to dabble in odd jobs.
Untrained in any other skill, Kanojia now-a-days cleans vehicles in the same society to earn an extra buck, which still leaves him with a deficit at the end of the month. Costlier essential items leave him with no extra money to fulfil life’s bigger aspirations: educating his children for a better life. "I also dream of giving the best education to my children," he says in a choked voice.
— Himani Chandna Gurtoo
Dilip Mark Mendens, 41 Entrepreneur (Bangalore)
"I'd love to have a driver, two cars"
Mendens is momentarily rueful. He had a full-time staff of 45, worked all day, locking up the office every night and lived it up in pubs and restaurants, as his annual turnover reached Rs 4 crore by 2007. A former courier boy, Mendens embodied the opportunities of the flat world.
His human resource consultancy, Ascro Transatlantic Pvt Ltd, provided staff, entry level to senior management, to 40 clients, including multinationals. When the world economy melted down in 2008, his turnover tumbled 99.8% to Rs 5 lakh.
Mendens had to give up his office, and "settle" his 45 employees in other jobs. This time, as Bangalore grows jittery again, he’s prepared. "I foresee a bust, no way India will escape," he says.
He works out of his father's home and is happy with five clients — one markets holistic healing, another trade fairs. "What I do now is very satisfying," says Mendens, who now begins his work day leisurely after a game of squash and ends at home with his children or a drink at the local Catholic Club. He doesn't miss the expensive nightlife, but it would be nice to have that driver.
— Samar Halarnkar
Gopal Gupta (28) Public Relations executive (Mumbai)
"With rising EMIs, I don't have money to get married"
He has drastically reduced socialising, postponed his vacation plans and even shelved matrimony.
Seven hikes in his equated monthly installment (EMI) over the last one year have hit public relations executive Gopal Gupta hard.
Over the last year, Gupta, 28, employed with a public relations firm in Mumbai, has seen his EMI rise from Rs 12,500 to Rs 15,800 (a hike of 26%).
These days Gupta resides with his mother and younger brother at Bandra. Last year, when the going wasn't as tough, he had purchased a house on Mira Road and was thinking of moving in there. But that looks like a distant dream now. "My plans have gone for a toss. Another hike in the EMI will leave me with no option but to sell the home I bought last year as I won't be able to service it from my current salary," says a dejected Gupta.
He cannot even contemplate changing jobs for a better compensation package, as a new job will bring with it, its own set of uncertainties.
In the last two months, owing to rising EMIs and expenses, Gupta has stopped going to clubs with friends and even quietly excused himself from joining his friends on a Lonavala and Khandala trip.
Worse, the quagmire of EMIs and rising inflation has forced him to defer his marriage plans at least for this year and also affected his higher education dreams.
"Under family pressure, I was thinking of getting married this year, but now I can't plan marriage because of rising
outflows. I have also not been able to save for my higher studies," adds Gupta.
"My salary has been revised only once in a year but the expenses and EMIs have seen several revisions."
— Sandeep Singh
Answers beyond fighting inflation
We asked 5 people with varied experience of India's growth story to make sense of the present jitters. The bottom line: the economy will come through, but sweeping, new reforms are essential.
C Rangarajan Chairman, PM's Economic Advisory Council
Use all policy tools to tame inflation
Controlling inflation is a priority concern of the government. What started as food inflation has become more generalised. However, food inflation is coming down. More particularly, the rise in the prices of foodgrains has been modest in the current year.
We must use all policy instruments —interventions in the foodgrains market and fiscal and monetary policies — to bring down inflation to a more acceptable level.
The fuel price hike has become inevitable. Crude prices have risen sharply. Domestic prices of petroleum products must reflect this. Subsidies on petroleum products must also be contained to prevent the fiscal deficit from rising. The fuel hike may add to inflation by a little over half a percentage point.
India's growth rate in 2011-12 will be in the range of 8 to 8.5 %. This is due to a variety of circumstances. The process of recovery in the advanced economies is slow. Domestically, the investment sentiment is weak. Nevertheless, a growth rate above 8 % must be considered respectable and high in the current world situation. Revenue targets are in nominal terms. The nominal income may still grow at the rate implicit in the budget estimates.
Even as revenue targets are achieved, we need to keep a watch on expenditures so that the fiscal deficit is contained at the budgeted level. This will also help in taming inflation.
Anand Mhaindra Vice Chairman, Mahindra Group
Strike a labour, income security balance
The economy is likely to see slower growth (this year), but this will be more in the nature of a moderation (7.5%-7.7% GDP growth) rather than a slump. Prevailing inflation rates, to my mind, are the bigger threat at present. To increase supply capacities, we need higher investment rates, but instead what we saw last year was a sharp decline in capital expenditure — public and private.
Private consumer expend, by the way, was fairly robust last year right through Q4 (January to March, 2011). Business confidence has seen a decline since September 2010. However, we're a noisy democracy, and the noise always signals the first step towards resolution. The issues raised in the last few months are important, and I now see steps being taken towards resolution, which makes me hopeful. Note, the government has submitted 32 bills for enactment or amendment this (coming) session (of Parliament). The three things government must do to keep growth on track and reinfuse confidence into business are the Land Acquisition Bill — stalling many infrastructure and industry projects; rationalise environmental clearances; and labour regulation reforms. We need to make a beginning in labour reforms. We have one of the most restrictive labour security regulations in the world, and this is limiting both labour employment and industrial growth. We need reforms here that strike the right balance between income security and flexibility in labour hours employed.
Rajiv Kumar Secretary General, Ficci
Time to implement structural reforms
The slowdown in the economy is now evident. It is reflected in the steep decline in investment growth rate, which slowed down to 0.4% in March 2011 as compared to more than 15% in March 2010.
If that was not enough evidence, there is a downturn in the investment cycle, which had driven Indian economic growth since 2003-04.
Private consumption is also beginning to be affected by higher costs of borrowing. The slowdown should not be a surprise as it has been policy induced. The Reserve Bank of India, in its pursuit of lower inflation, has raised interest rates by 275 basis points in 10 steps during the last 12 months.
But monetary policy on its own will not suffice to achieve macro stability along with rapid growth and fiscal policy will also have to play its due role. Moreover, given that inflation is largely a result of supply shortages, it is imperative that structural reforms are implemented to remove supply-side bottlenecks and expand production capacity.
The current policy regime appears to be based on the assumption that increasing consumption demand through large scale transfer payments will suffice for rapid growth.
With lack of private corporate investment, production capacities are not keeping pace with demand, thereby resulting in persistent inflation.
Ajay Shah Professor, National Institute for Public Finance and Policy
Need to restore confidence of investors
Firm databases, which are the most reliable element of Indian statistics, show a mixed picture. On one hand, the Jan-Feb-March 2011 quarter showed moderately good performance for sales and profit. But the CMIE 'Capex' data, where we measure new project announcements, has been reporting difficult times from mid 2010 onwards. New project announcements by foreigners and by the government have dropped sharply. New project announcements by the Indian private sector have also dropped a bit.
The behaviour of the private sector may reflect reduced optimism about the future. The behaviour of the government directly influences investment in the economy. In either event, these patterns are likely to give a slowdown in investment.
In one element, difficulty is already visible: capital goods imports have not had robust and sustained growth after the crisis. Investment makes up a large slice of Indian GDP.
These two factors (public investment and the optimism that shapes private investment) thus have a strong impact upon business cycle conditions. Monetary policy is, and should be, absorbed in the fight against inflation.
Fiscal policy has little room to manoeuvre given India's chronic fiscal crisis. Finding a way out of this dark situation thus rests on only one lever: economic and governance reforms, that will restore confidence of domestic and foreign investors.
Bharat Ramaswamy, Economist
Reform agriculture and invest in R&D
When you talk of long-term reform, there is a very simple fact: Over the last 20 years, except for one year, the amount of grain the government buys is larger than the amount it dispenses through the public-distribution system (PDS), which was never reformed. So, you build mountains of grain, then you try and get rid off them through targeted subsidies. This kind of regime is no longer stabilising foodgrain prices, as it was meant to.
At the same time, our agricultural productivity is one of the lowest in emerging markets. Our R&D system, one of the largest in the world, has failed. We have fallen so far behind, it's shameful.
Market reforms — agricultural pricing, opening of retail — are very important, but there is a lot of basic R&D to be done, which the private sector will not do. Agricultural extension has collapsed, and the Centre has shown no leadership. Mr (Sharad) Pawar (Union agriculture minister), keeps telling us agriculture is a state subject, but R&D is completely in central hands. Innumerable experts have reviewed this and all have said almost exactly the same thing. Similarly, the Kaushik Basu committee on inflation has recommended reforms in agricultural markets in opening of retail. The Vaidyanathan committee told us what to do to about irrigation productivity. We know what needs to be done. But there is no strategic thinking, no urgency. The Vajpayee government did a lot to reform agriculture, but there's been nothing since.
(Source: Hindustan Times,July 02, 2011, by Samar Halarnkar and Gaurav Choudhury)
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