The governor of the Bank of Israel and former deputy managing director of the International Monetary Fund (IMF), Stanley Fischer, has announced his candidature for the top job at the IMF. By stating that the IMF&rsquo;s next managing director should be chosen on the basis of the candidate&rsquo;s professional qualifications rather than nationality or other &ldquo;political factors&rdquo;, Dr Fischer has identified his main target &mdash; France&rsquo;s Finance Minister Christine Lagarde, a lawyer and politician rather than an economist, whose initial candidature was sold on the basis of her nationality and gender. Equally, he has strengthened the candidature of a fellow Chicago-trained economist &mdash; Mexico&rsquo;s central bank Governor Agustin Carstens, also a former IMF deputy managing director. Ms Lagarde is widely viewed as the front runner in the race.

The dark horse

Business Standard

The latest headline inflation data should queer the pitch for the Reserve Bank of India (RBI) as it makes up its mind on the end-quarter monetary policy action this week. The wholesale price index (WPI) has been reported to have risen by 9.06 per cent in May 2011 over May 2010, up from the 8.66 per cent jump in April over April last year. Given observed data and continuing expectations, it remains to be seen whether the RBI will prefer a 25 basis point (bp) increase in its policy statement this week, or would want to administer one more shock, as it did six weeks ago, and opt for a 50 bp hike. Most expect a milder dose of 25 bps this Thursday. The higher-than-expected rate of inflation is in large part on account of a sharper increase in the price index for manufactured products, where the inflation rate has gone up from 6.18 per cent in April over April to 7.27 per cent in May over May.

More of the same

At a time when even successful professional CEOs in Indian companies find themselves playing musical chairs and merry-go-round, Yogesh (Yogi) Chander Deveshwar is clearly in a class of his own. It is, therefore, not surprising that the ITC board has given him a five-year extension after a 15-year term as executive chairman. With this extension, Mr Deveshwar becomes ITC&rsquo;s longest-serving chairman. Longevity in office, of course, is not a virtue in itself but it does enable CEOs to consolidate in a way their shorter-tenure counterparts may not always manage. Cases in point are A M Naik, executive head of Larsen &amp; Toubro since 1999 (as managing director; he added chairman to the designation in 2003), and E Sreedharan, managing director of the Delhi Metro Rail Corporation since 1997. Both are outstanding performers and have fashioned themselves as prominent public figures. Mr Deveshwar, by contrast, is low-profile, but he has arguably been the better performer.

Unique Mr Deveshwar

The head of a leading Indian credit rating agency has complained that there is unhealthy competition among too many players in the sector. This is leading to &ldquo;rating shopping&rdquo; by issuers of paper and competitive undercutting of fees by agencies. It will inevitably lead to dependence on poorly paid analysts doing a substandard job.

The investor should pay

The Union government&rsquo;s recent announcement of a policy for disposing of electronic waste (e-waste) is a step in the right direction. The E-Waste (Management and Handling) Rules, 2011, are in line with the norms followed in several countries to hold producers of electronic goods liable for the safe recycling or disposal of out-of-use e-products. Manufacturers of e-products have been given a year to put in place an e-waste collection system, with collection centres or other methods of taking back age-expired equipment for proper extermination. Significantly, the government also seeks to involve bulk consumers of electronic equipment, such as business enterprises and government departments, in ensuring that e-products discarded by them are channelled to authorised collection centres.

Managing e-waste

Those who did not get the message in May when the Reserve Bank of India (RBI) raised policy rates by 50 basis points (bps), ignoring expectations of a 25 bp hike, should get it at least now. By ignoring pleas for a pause this time, RBI Governor Duvvuri Subbarao has clearly shown that he meant business when he said six weeks ago that the central bank will maintain &ldquo;an interest rate environment that moderates inflation and anchors inflation expectations&rdquo;. There&rsquo;s a new gun in town and he&rsquo;s determined to take on the persisting problem of high inflationary expectations. It was amusing to see those who were votaries of &ldquo;pause&rdquo; on television earlier this week forecast another 25 bp hike six weeks from now minutes after the RBI made its announcement at noon time on Thursday. This fact alone should prove that central bank sceptics have finally taken note of the new mood.

New gun in town

What is driving the recent surge in Indian exports? Improved competitiveness even in a slowly growing world economy? An ability to serve buoyant markets in Asia better? Or, just a rush to beat the now-extended deadline for the winding-up of the Duty Entitlement Pass Book (DEPB) scheme? The last hypothesis suggests that Indian exporters are simply relocating inventories from godowns at home to warehouses abroad to get the benefits of DEPB before the scheme is wound up. Whatever the reasons, the fact remains that the April 2011 exports of $23.85 billion represent a year-on-year increase (in dollar terms) of 34.4 per cent. This comes on top of an even more impressive performance in March 2011. An uncomplicated extrapolation of these numbers would suggest that exports for FY 2011-12 would be of the order of $286 billion, while imports would correspondingly be $394 billion. The resultant annual deficit of $108 billion would be slightly lower than the $115 billion witnessed last year.

Trick or trade?

Much criticism is heaped on cricket these days for the commercialism that has permeated the game. This commercialism appears to have reached its apogee in the Indian Premier League (IPL), the four-year-old tournament that is driven by private sector money and which purists love to hate.

Inclusive cricket

The 13-day strike at Maruti Suzuki India Ltd&rsquo;s Manesar plant, which ended last Friday, may well be the beginning of a new phase in labour relations for India&rsquo;s largest car maker and for big industry in general. It has also brought into focus the issue of the rights of contract labour.

A temporary truce

India&rsquo;s herbal medicine industry is facing some daunting challenges including the imposition of stringent quality and regulatory standard by the United States and European Union (EU) and a growing shortage of raw material at home. The latest export hurdle is a move by the EU mandating all traditional medicines to be registered with healthcare regulatory agencies in EU member countries.

Saving herbal medicines

There is still more than a year left for former Madhya Pradesh chief minister and Congress party General Secretary Digvijay Singh&rsquo;s self-imposed ten-year exile from political power to end. So, no one can accuse Mr Singh of harbouring personal ambition when he routinely criticises his own party&rsquo;s ministers for their acts of omission and commission. The Congress party has perfected the art of hunting with the hounds and running with the hares, but its too-clever-by-half strategy of playing the role of both ruling party and Opposition can sometimes go awry. There is a difference between a party leader criticising a minister in her own party&rsquo;s government on policy issues, as Mr Singh did when he upbraided Union Home Minister P Chidambaram and in flying kites about whether it is time for a new leader to head the government.

Decoding Digvijay

Shortages, outages, load shedding, poor-quality supply and transmission and distribution (T&amp;D) losses continue to haunt India&rsquo;s power sector. Despite these problems, India has now acquired the capacity and capability to add at least 15,000 Mw a year, having demonstrated the ability to add 12,000 Mw a year in the past five years. This still compares poorly with China&rsquo;s ability to add 100,000 Mw every year.

Power problems

The real estate market in India is heading for what looks like a double dip. After correcting somewhat from the sharp setback suffered in 2008, with some sectors managing to exceed previous peak prices in 2010, the sector entered 2011 with cautious optimism. But halfway through the year, the outlook has turned distinctly sombre. The current economic deceleration is pouring cold water on demand for office space, always driven by the overall economic climate. The retail segment has yet to absorb the excess supply that has characterised it since the last slowdown. But it is the bread and butter affordable-to-middle volume part of the residential segment that has suffered a clear setback with successive policy rate increases raising interest rates and equated monthly installments (EMIs) and the promise of more to come. Banks, which had already turned cautious about lending to developers on receiving the signal from the banking regulator, are likely to become even more careful.

Double dip ahead

Stock market investors are a notoriously fickle lot. So it is not surprising that the market capitalisation of firms and business groups keeps changing from time to time. Even by these yardsticks, the news that the Tata group has overtaken the combined market capitalisation of Mukesh Ambani&rsquo;s group and the Anil Dhirubhai Ambani Group (ADAG) draws attention to an important recent trend in corporate India &mdash; investors value professionally-managed companies more than predominantly family-run companies. Though Ratan Tata is indubitably a hands-on promoter, his group is increasingly professionally managed. The Ambani brothers, on the other hand, can certainly boast of some fine managerial talent within their groups but no one is likely to claim that their companies are professionally managed &mdash; and certainly not to the degree the Tata group is.

A capital idea

The term &ldquo;civil society&rdquo; has been used and abused at will these past few months in India. In a clever coup staged with the active involvement of a section of the media, a clutch of social activists and retired civil servants was allowed to project itself as &ldquo;a representative of civil society&rdquo;. A confused government, a directionless ruling alliance and a revenue-hungry media allowed this dubious claim to go unchallenged, portraying a few good men and women as the people&rsquo;s voice. The elected representatives chosen by the people to be their voice in Parliament virtually abdicated their constitutional responsibility, allowing the so-called &ldquo;civil society&rdquo; leaders to fill the vacuum created by the absence of an organised parliamentary discourse on issues pertaining to corruption in high places. Every political party &ndash; in government and in opposition &ndash; is equally guilty of this.

Let Parliament decide

A rational fertiliser policy always seems to be sabotaged by the very minister who is expected to implement it. Union Fertiliser Minister M K Alagiri has come out against the idea of decontrolling urea prices, ostensibly in the name of the farmer. The nutrient-based subsidy (NBS) system, as opposed to product-based subsidy, is unworkable if producers do not have the freedom to fix sale price. The fundamental objective of this system is to promote balanced use of fertilisers and rationalisation of the ever-mounting fertiliser subsidy. What the fertiliser minister is disregarding is that the NBS regime has been working well ever since it was introduced for phosphatic (P) and potassic (K) fertilisers in April 2010 and was subsequently extended to several other plant nutrients, barring N (urea).

Fertilising policy

The Union government cannot expect the media and Parliament to remain silent on the news report that Finance Minister Pranab Mukherjee had written Prime Minister Manmohan Singh a letter demanding an inquiry into a possible breach of security in the Union finance ministry, involving the possible placing of listening devices in the rooms of the finance minister, his personal secretary and advisor. These are key functionaries of a highly sensitive ministry. The finance ministry would rank on a par with the defence ministry and the Prime Minister&rsquo;s Office as far as the need for foolproof security is concerned. Any leak of classified information and privileged conversations can have significant economic and national security ramifications.

Chewing the bubblegum

Just when it seemed that stable fuel supply linkages to the domestic power sector were crystallising comes the double whammy of lower domestic gas availability (mainly from the Krishna-Godavari basin) and higher prospective price of coal imports due to a global surge of &ldquo;resource nationalism&rdquo; in countries ranging from Australia to Indonesia. The downstream effects are beginning to be felt, particularly in the domestic power and fertiliser industries.

Downstream dilemmas

Remember the food riots of 2008? Is the world heading towards another food crisis? That, worryingly, seems to be the conclusion that a new publication on food prices and availability in the next decade (2011-20), issued jointly by the Organisation for Economic Cooperation and Development (OECD) and the United Nations Food and Agricultural Organisation (FAO), arrives at. The OECD-FAO report forecasts agricultural commodity prices, in real terms, remaining higher over the next 10 years than the price levels registered over the previous decade. This would put poor consumers at a higher risk of malnutrition. Cereal prices are forecast to swell, on an average, by 20 per cent and meat prices by 30 per cent. Worse, the world&rsquo;s food production is foreseen to grow annually between 2011 and 2020 only by 1.7 per cent, compared with 2.6 per cent in the previous decade. The slowdown in crop productivity growth will, obviously, exert pressure on international prices.

A spoonful of policy

The United States may have become increasingly insular both in terms of economic policy and foreign and security policy, returning to an isolationist phase that it has lived through time and again. But as the world&rsquo;s largest and still globally important economy, it continues to have an impact on the fortunes of big and small economies around the world. What the US government, Congress and the country&rsquo;s macroeconomic authorities do has a bearing on currencies, markets, and capital and trade flows around the world.

A new Washington consensus

The Union government has brought the protests against the the fuel price increase on itself by opting for a one-time sharp price escalation over gradual and graduated increases in response to global market trends. It is understandable that there would be some amount of public resentment, and that opposition political parties would try to exploit that. However, the government has a strong case, especially for increasing the prices of kerosene, diesel and LPG, so it should educate public opinion, defend itself and stay the course. The Union government should have known that it would be damned if it increased prices and damned if it didn&rsquo;t. India cannot endlessly afford the luxury of subsidising energy, especially imported energy.

Getting prices right

Incisive columns and editorial comment by top opinion leaders

Page 502 - Editorial Comment