Even if one were to believe that Coal India&rsquo;s decision to roll back the rise in coal prices was just poll-time politics, it is a decision that signals another step backwards in economic liberalisation. Coal India moved to pricing coal on the basis of the gross calorific value from January 1, which caused, on an average, a 12.5 per cent rise in coal prices. Power producers, state-owned as well as private, said this had started to erode their profitability. Coal India has given in, albeit saying that it will review the situation three months from now. The lobby against the new pricing system was led by state-owned NTPC, the largest thermal power generator, which said its input costs had risen 40 per cent. Under current rules, all non-merchant power plants are free to pass on any rise in input costs to their customers, the state electricity boards and distribution companies.

Yet another rollback

Business Standard

News emerged on Tuesday that the Rafale fighter aircraft, manufactured by France-based Dassault Aviation, is the lowest bidder among the candidates vying for the contract to supply 126 medium multi-role combat aircraft (MMRCA) to the Indian Air Force (IAF). The remaining contender was also a European product, the Eurofighter Typhoon, produced by a consortium of four countries. The Rafale, it was determined, would be distinctly cheaper to buy, fly, make and maintain. The matter now moves to contract negotiation, for which there is a special committee within the defence ministry. The total contract is expected to be around Rs 75,000 crore.

Bid low, fly high

In a much-anticipated judgment, the Supreme Court has ruled that the telecom licences issued by the United Progressive Alliance (UPA) government in 2008 are invalid. The overall implications of the judgment are not yet clear, but it is apparent from the information emerging so far that the government has been directed to begin the process of cancelling and reissuing the licences, which must conclude in four months. The Court has also directed the sector regulator, the Telecom Regulatory Authority of India or Trai, to come up with a fresh set of recommendations within two months; the government should auction the licences and associated spectrum a month after that. The Court deserves to be complimented for its verdict and indeed for doing what the government should have done long ago.

Time to redial 

The sugar industry&rsquo;s wait for an end to stifling restrictions and regulations seems to be eternal. Even as the Prime Minister&rsquo;s Economic Advisory Council, headed by C Rangarajan, had reportedly chalked out a detailed road map for sugar decontrol, the prime minister, instead of acting on it, chose to appoint another committee &ndash; headed by Rangarajan himself &ndash; to go into all the related issues. This has given rise to more suspicion than it has quelled about the government&rsquo;s real intentions concerning deregulation. The timing of the announcement, coming in the middle of the Assembly election process in three major sugar-producing states of Punjab, Haryana and Uttarakhand, further compounds misgivings, given the sector&rsquo;s deep-rooted politicisation.

The bitter sweet truth

What are the policy directions in which India&rsquo;s political parties are taking its citizens? Studying the manifestos released before the Uttar Pradesh assembly elections helps answer that. Three of the four major competing parties, the Bharatiya Janata Party, the Congress, and the Samajwadi Party, have released manifestos. The fourth, the incumbent Bahujan Samaj Party, has always taken a stand against manifestos &mdash; one that reveals its leadership&rsquo;s traditional belief that control over administration and the transfer of the levers of power to the disadvantaged is more important than specific policy proposals.

Everybody gets a cow

It has been more than ten years since the term &ldquo;Bric&rdquo; was coined. The Bric nations &ndash; Brazil, Russia, India and China &ndash; were supposed to be the engines of global growth, the new poles of the world economy as Europe and North America slipped slowly into twilight. Yet Jim O&rsquo;Neill of Goldman Sachs, the man leading the team that coined the phrase in 2001, has been quoted as saying that &ldquo;there are important structural issues about all four, and as we go into the 10-year anniversary, in some ways India is the most disappointing&rdquo;.

Falling Bric

West Bengal Chief Minister Mamata Banerjee has taken serious exception to the Union government&rsquo;s inability to accede to her request for a one-time special financial package to enable the state to tide over its precarious financial condition. Her more explicit reason for seeking this special favour is that the previous Left Front government has bequeathed a critical financial situation. The less explicit reason is that the Trinamool Congress&rsquo; support is crucial for the survival of the United Progressive Alliance (UPA) government, and this should come at a price. The inability to get what she wants partially explains the manner in which, at critical junctures, Ms Banerjee has refused to stand by the prime minister, forcing him to retreat with loss of face.

Downhill with Trinamool

For years, economists did not know how to think about services. The tertiary sector of the economy was an afterthought for many early economists, and that caused a bias in economic theory and policy that lasts to this day. India&rsquo;s high economic growth rates of the past few years have come on the back of sustained service sector growth. But this should not be seen as a completely new phenomenon. In fact, the productivity gap between developed countries and India in services has been consistently smaller than in other sectors for almost a century. Today, services contribute the majority of national income, but only a tiny fraction &ndash; 8.7 per cent &ndash; of central taxes. This is not a state of affairs that can be allowed to continue. The goods and services tax, or GST, has long been planned to rationalise and simplify the tax system. Yet its introduction continues to be stalled, largely for political reasons.

Negative list, positive news

India&rsquo;s railway network should be one of its greatest strengths. It has considerable penetration, an adequate land bank and an independent cadre of managers. In the creation of a single market for goods, one of the most growth-enhancing measures possible, it is a crucial tool. Yet Indian Railways (IR) has become a casualty of populist politics, and the numbers being scrutinised in advance of the Railway Budget for 2012-13 should demonstrate how badly that has served the network. Over a third of the 2011-12 Budget outlay is serviced through a borrowing liability &mdash; of Rs 20,594 crore. Fund balances have plunged for years now, which has impacted the capital fund in particular; from over Rs 10,000 crore in 2007-08 to a tenth of that. Capital is not being utilised to create new projects, either, bringing the essential upgrade of the network to a halt.

Off the tracks

Few will be surprised at the headline numbers in the advance estimates of growth in India&rsquo;s gross domestic product (GDP) in 2011-12 released by the Central Statistics Office (CSO) on Tuesday. GDP growth, according to the CSO, will clock in at just 6.9 per cent this year, down from 8.4 per cent in 2010-11. This is not too far from the recent estimate by the Reserve Bank of India, which was revised downwards to seven per cent. The World Bank has projected 6.8 per cent growth in 2011-12. So these numbers are not likely to shock too many observers &mdash; even though they are two whole percentage points below the estimates for this fiscal year made in the Budget and Economic Survey. Even if there is little shock, however, there should be widespread concern. Not since the year of the financial crisis, after Lehman Brothers fell in 2008 and credit seized up, has growth been this low.

Gloomy numbers

The crop output estimates for 2011-12 put out by Krishi Bhawan last week &ndash; even while projecting a record foodgrain output that would cross the 250 million-tonne mark for the first time &ndash; reveal some worrisome inter-commodity imbalances as well. The harvests of wheat and rice &ndash; both of which are facing the prospect of a glut with the official grain coffers brimming over &ndash; are projected to swell further. But those of pulses and oilseeds, which are scarce and need to be imported, are forecast to shrink by five or six per cent, further constraining their supplies. The output of coarse cereals, too, is forecast to decline; they have witnessed a rapid spurt in demand, for food, feed and industrial uses like manufacture of starch and malt. Although the agriculture ministry is attributing the drop in the output of these commodities to uneven monsoon rains and lack of winter showers, the real problem lies elsewhere.

Balanced diet

In the last five weeks, Indian stock markets have seen a spectacular recovery. The indices have swung up over 15 per cent. This rise has been driven by a shift in the attitudes of foreign institutional investors (FIIs), who have, since January 1, 2012, bought a net $3.4 billion of Indian stocks (and put a slightly larger amount into rupee debt). In contrast, domestic institutional investors have been net sellers. The forex inflow has also pushed the rupee up by eight or nine per cent against most hard currencies. There has been little apparent change in geopolitical dynamics or global economic indicators to justify this turnaround. The Greek debt crisis remains a big question mark; worries persist about contagion and larger euro zone nations have seen downgrades. Tensions persist in West Asia and Iran, causing upward pressure on energy prices.

Spring on Dalal Street

Two decisions by a Group of Ministers (GoM) on Tuesday demonstrated the government&rsquo;s continuing inability to come to grips with the problems being faced by the aviation sector. Both are wrong-headed, but in different ways. Allowing airlines to directly import aviation turbine fuel (ATF) may sound at first like a reasonable approach, in that it allows them to avoid paying local taxes that are, in some states, among the highest in the world.

Still delaying take-off

In estimating the chances of a recovery for India&rsquo;s economy in 2012-13, the amount of growth in the rest of the world is a major unknown variable. Europe is stuttering, and the euro zone&rsquo;s problems are far from over; if Greece leaves the single currency in a disorderly manner, the effects will ripple across the world economy, and hit demand for Indian products, as well as the corporate bottomlines of increasingly global India-based companies. The question, therefore, is whether growth in the United States can recover to the degree necessary to compensate for Europe&rsquo;s continuing weakness.

Morning in America?

The rate of growth in India&rsquo;s software and services exports is declining.

IT looks closer to home

There was a time, sometime in December, when it was impossible to walk down the street in an Indian metropolis without hearing a snatch from &lsquo;Kolaveri&rsquo;. The song, recorded by a group of Tamil actors and singers, has now been watched over 42 million times on the internet website YouTube; Sony Music, which owns the copyright, has seen a comparable number of downloads. Its amateurish, relaxed feel served to enhance its popularity. The group&rsquo;s leader, the actor-singer Dhanush &mdash; born Venkatesh Prabhu Kasthuri Raja &mdash; pointed out in the course of a seminar on viral marketing at the Indian Institute of Management, Ahmedabad last week, that the film with which it is associated &mdash; 3 &mdash; received an enormous amount of publicity as a result. The film will now be released not just in Tamil, but also in Telugu and Hindi; and instead of just 400 prints, as originally planned, over 1,000 will be screened. When viral marketing works, it works spectacularly.

The secret of ad energy  

As the Supreme Court judgment on February 2 cancelling the issue of 2G licences in 2008 reiterated, auctions are the preferred method of handing over natural resources to the private sector for exploitation. Properly designed and implemented, they are useful methods to discover the true price of the resource being allocated.

Another 2G, in mining? 

Fault lines have appeared in the primary market. These have been recurring, but recent actions taken by the regulator in some of the initial public offerings (IPOs) helped highlight the issue (see the previous column &ldquo;Fault lines in the Indian IPO market,&rdquo; January 9). A serious reparation effort of these fault lines would involve a careful analysis of the three primary factors that have largely influenced the behaviour of the market, and the pricing of issues, the participation in issues and the processes involved. Interlacing these factors is the behaviour of the investors.

Pratip Kar: Repairing the IPO market's fault lines

On Monday, Commerce Minister Anand Sharma walked across the Wagah land border between India and Pakistan on his way to attend the closing ceremony of the extremely popular &ldquo;India Show&rdquo;, a trade fair organised to highlight Indian products in Lahore. The agenda for his visit is to move forward on liberalising trade between the two neighbours, following along from negotiations in Islamabad last year. The &ldquo;normalisation&rdquo; of trade has been repeatedly touted by New Delhi as a possible game-changer in bilateral relations. Yet it does not appear that Mr Sharma&rsquo;s visit will pay the dividends that would have been possible had India&rsquo;s bureaucracy capitalised on the gains made last year. Trade relations seem to still be held hostage to a mindset that believes that the only successful outcome is if the other side appears to have given more than you have.

Walking across Wagah 

Now that General V K Singh is on foreign shores for a while, the controversy over whether the commander of the world&rsquo;s second-largest army was born in 1950 or 1951 appears destined for a quiet burial. And now that the Supreme Court has dismissed his petition challenging the government&rsquo;s rejection of his demand for a reconciliation of his birth date, General Singh can be expected to retire in May this year, just as he was supposed to do when he was appointed chief. With that, the uncertainty over his successor has ended, and many believe that, with the Supreme Court having rapped both the government and the general on their knuckles &ndash; indicating that the dispute should never have been brought before it in the first place &ndash; the odds are even.

General in a labyrinth

Minister for Law and Company Affairs Salman Khurshid has justly been criticised for what was seen as a direct attack on the authority of the Election Commission (EC). Mr Khurshid was warned by the EC that he was violating the model code of conduct when he promised that, if voted in, the Congress would increase the sub-quota for Muslims within the larger category of reservations for Other Backward Classes, or OBCs, from 4.5 per cent to nine per cent.

Code breaker

Incisive columns and editorial comment by top opinion leaders

Page 488 - Editorial Comment