India&rsquo;s policy makers react best when gripped by tension! Faced with the news of a 25 per cent fall in foreign direct investment (FDI) inflows in 2010-11, at a time when Indian firms are happily investing overseas, the government acted finally to scrap Press Note 1 of 2005. This is a positive signal to foreign investors. There were several quirky points about Press Note 1. For one, it was a guideline &mdash; not a law or even an ordinance. It speaks volumes for the policy-making milieu in India that a guideline that did not have parliamentary approval governed FDI policy! It was essentially a backdoor means of protecting Indian joint venture promoters by denying the automatic approval route for foreign investors, who have or had previous joint ventures or technical and trademark agreements in the same field, from setting up wholly-owned subsidiaries.

End of an irritant

Business Standard

The curious thing about the dog in the night-time&rdquo;, Sherlock Holmes explained to the bewildered Scotland Yard detective in Conan Doyle&rsquo;s celebrated short story &ldquo;Silver Blaze&rdquo; &ldquo;is that it did nothing&rdquo;. A similar thing can be said about the rupee&rsquo;s recent behaviour.

The rupee in slumber

The Union government is considering the introduction of a minimum support price (MSP) for non-timber forest produce, which is a source of livelihood for forest-dependent people. This will involve creating a central pricing body on the lines of the Commission for Agricultural Costs and Prices (CACP) for fixing the prices of forest produce and state-level corporations or cooperatives for procuring the stuff at the MSPs, which, in turn, will be sold to user industries. These proposals would be welcomed by those concerned about the welfare of tribals who subsist on secondary forest produce &ndash; such as bamboo, tendu leaves, tamarind, mahua, sal seeds and so on &ndash; and are exploited by contractors who pay very low rates for the produce. That tribals should get a &ldquo;fair price&rdquo; for forest produce is unquestionable.

Sustainable forestry

The Union Cabinet&rsquo;s decision to refer Vedanta&rsquo;s proposed buyout of Cairn India to a group of ministers (GoM) after months of inter-ministerial consultation is yet another example of the government&rsquo;s indecisiveness. The contentious issues of royalty and cess referred to the GoM headed by Finance Minister Pranab Mukherjee are not new. They have been in existence ever since Cairn India began pumping crude oil from its Barmer block in August 2009, and even when Cairn Energy informed the petroleum ministry about the deal (August 16, 2010). It took the petroleum ministry a month to write to Cairn that a formal consent was required for clearance. And when Cairn applied, the ministry responded nearly two months later saying that an application for pre-New Exploration Licensing Policy (Nelp) contracts would also be required.

Group of minders

Earlier this week a two-member bench of the Supreme Court decided that illegitimate children, born out of wedlock, have the same rights to ancestral property as legitimate children, born to married parents. The country&rsquo;s higher judiciary deserves full marks for this progressive verdict, which is a step forward in empowering innocent offspring of unwed parents. The growing maturity of judicial opinion on such matters is reflected in the honourable judges&rsquo; observation that once live-in relationships are recognised by law, it is natural that &ldquo;illegitimate&rdquo; children must also be recognised in the same way as other children. That is consistency &mdash; a trait of maturity in a society. The advantage of the common law system is evident in the fact that by passing this judgment the court has written into law an important element of a just society.

Empowering the illegitimate

Once upon a time, and not too long back, the rage of the tiger lover was louder than the roar of all of India&rsquo;s tigers. Tiger lovers like Valmik Thapar and Sunita Narain roared against each other trying to prove to the country&rsquo;s bewildered prime minister that each was more worried about the threat to India&rsquo;s tiger population than the other! Both stepped in with ideas and the government implemented many of them.

The tiger roars again

Showing grace in defeat Prime Minister Manmohan Singh declared, &ldquo;The fact that civil society and the government have joined hands to evolve a consensus to move this historic (lok pal) legislation augurs well for our democracy.&rdquo; Caught between the need to defend the institutional processes of the State and the desire to respond to the anger and anguish of civil society, the prime minister went more than halfway in conceding the demands of an assortment of civil society activists led by Anna Hazare of Maharashtra. Only history will judge whether this uneasy compromise between the government and social activists is a blow for Indian democracy or a blow to the Indian State. History will also have to judge whether the institution of Lok Pal will reverse the rising tide of corruption in public life.

Another institution

Cracks are beginning to appear in the great wall of liquidity built by developed economies&rsquo; central banks that has so far propped up high-yielding assets like commodities and emerging-market stocks and bonds. On Thursday, the European Central Bank raised interest rates for the first time since July 2008 in response to rising inflation. If analysts are to be believed, a couple of more increases are due over the rest of the year. With inflation rates in the UK at over four per cent, the Bank of England could follow with an increase in May. However, the real market mover going forward could be the mother of all central banks, the United States Federal Reserve (Fed). US labour market data for the last few months have been nothing short of spectacular with the unemployment rate dropping from a peak of 9.7 per cent in November 2010 to 8.8 per cent in March 2011. The problem is that better employment conditions than expected suggest a sharper recovery in the real economy.

Inflation ahoy!

The government has tweaked the eligibility rules for those aspiring to the posts of chairman-cum-managing director (CMD) and executive director (ED) of nationalised banks. There&rsquo;s nothing wrong with that since these rules are arbitrary beyond a point. But look at the nature of changes made. You need to have at least 18 months of residual service &ndash; and not two years, which was the rule last year &ndash; to be considered for the post of CMD. But in the case of EDs, there has been no such change. Why is it that what is good for CMDs is not good for EDs? The absence of a rational explanation will give the impression that such tinkering is aimed at accommodating one or more candidates with high-powered connections.

Playing favourites

The year 2011 could end up being the mother of all years as far as corporate succession is concerned. Search panels constituted by Infosys and Tata Sons will name replacements for two of India&rsquo;s biggest companies and even bigger corporate icons &mdash; Narayana Murthy and Ratan Tata. For years, the big buzz in corporate circles has been about who would take over from these charismatic gentlemen.

Corporate banyan trees

The Union minister for many things, Kapil Sibal, made good his promise to present a new telecom policy in 100 days by delineating its broad contours bang on deadline. The original announcement was made on January 1 when he took over from scam-tainted telecom minister A Raja. The details will take a year to finalise to take all stakeholder opinion on board. Monday&rsquo;s announcement &ndash; which will replace the 1999 policy that many regard as being at the root of the 2G scam &ndash; was mostly on expected lines and will not surprise mobile service providers. They are unlikely to welcome it wholeheartedly, of course. Most operators have accepted that licence costs will have to rise from the current Rs 1,650 crore, but there is bound to be some nervousness on the pricing of licence and spectrum, the airwaves that enable mobile calls and the epicentre of the current controversy and CBI investigations.

Redialling policy

The Index of Industrial Production numbers for February 2011 released by the Central Statistical Organisation provide little cheer from the pervasive grey enveloping the sector over the past few months. Industrial production for the month was 3.6 per cent higher (year-on-year) than the corresponding figure last year. The results are even more sobering when seasonally adjusted production figures are considered: production in February was down 0.6 per cent as opposed to a marginal increase of 1.3 per cent in January. A review of the performance of each industry within the sector is instructive. Capital goods production declined for the third consecutive term registering a decline of 18.4 per cent, though a high base effect (the sector grew 47 per cent during March-July 2010) adversely affected performance. Consumer goods production, on the other hand, grew by 11.4 per cent (year-on-year), driven by a sharp increase in the production of consumer durables.

Not so industrious

The good news is that the Indian economy is likely to grow at around 8 per cent in fiscal 2011-12. The bad news is that the Indian economy is likely to grow only at around 8 per cent this fiscal. The other good news is that India, along with China, Brazil and a few other emerging economies, is likely to be among the fastest-growing economies in the world. The bad news is that with 8 per cent growth, Finance Minister Pranab Mukherjee will have to re-work his Budget arithmetic that was based on a 9 per cent rate of growth. There are no surprises in the reports emanating from the International Monetary Fund (IMF) on the eve of the Fund&rsquo;s annual spring meetings, but these reports, especially the Fund&rsquo;s fiscal monitor, draw attention to the need for sustained fiscal consolidation and inflation expectations management in India.

Managing expectations

The new chairperson of the Commission for Agricultural Costs and Prices (CACP), Ashok Gulati, has used the very first opportunity available to impart his professional imprimatur to a policy report. The CACP&rsquo;s report on kharif prices, presented to the government last week, has gone beyond just recommending an increase in minimum support prices (MSPs) of paddy and other kharif crops. The report has drawn attention to fundamental flaws in official policies, which continue to hurt farmers and impede agricultural growth. The CACP believes that regulations imposed by the government on trade in agricultural products prevent farmers from securing better prices and better incomes. Freer trade, including external trade, says the CACP, will benefit farmers. Many agricultural commodities, including rice and wheat, are barred from being exported. This means Indian farmers are not benefiting from rising global commodity prices.

Dr Gulati's debut

After the &ldquo;new assertiveness&rdquo; of 2010 that Prime Minister Manmohan Singh complained about, there seems to be a &ldquo;new accommodativeness&rdquo; in 2011 between China and India. The first sign of a cooling down of temperatures came during Chinese Premier Wen Jiabao&rsquo;s visit to New Delhi in December 2010. At Sanya, on the sidelines of the BRICS summit, China&rsquo;s President Hu Jintao, the more conservative and hard-headed leader, exuded uncharacteristic warmth and seems to echo the sentiments of the more liberal and reform-minded Premier Wen. That Prime Minister Singh and President Hu have agreed to not just hold a Strategic Economic Dialogue and promote people-to-people contacts, but also resume defence and military exchanges and put in place a working mechanism for consultation and coordination on border affairs, augurs well for the bilateral relationship.

Hu-Singh's new tune

Two seemingly disparate statements by the Union ministry of power in the past month are confounding in that they portend two very different scenarios for future capacity addition in the domestic power sector. The first, disturbingly familiar, was a sombre announcement that the 11th plan target of 78,000 Mw would be missed by more than a third. The second announcement, more heart-warming, was that India would add over 20,000 Mw of power during FY 2012. A simple extrapolation of the second announcement would imply that India has developed the capacity to add over 100,000 Mw in a five-year period, exactly what the 12th five year plan envisions. So, has India&rsquo;s power sector turned the corner in meeting the ambitious goals it has set for itself? It would be tempting to assume it has, but the reality on the ground is less palatable.

Power without ability

Water may be a renewable resource but that does not mean that it can be exploited beyond a limit. That limit is set, in the Indian sub-continent, by the rate of replenishment of water through yearly monsoon rains. This cardinal principle is, however, being disregarded in the case of groundwater in many parts of the country, where it has already become scarce due to reckless use for agriculture and industry.

Water, water...nowhere

Infosys Technologies appears to have set out on a journey of generational change which will unravel over the next few years. While the retirement of N R Narayana Murthy, the foremost among the founders of India&rsquo;s most iconic software firm, as chairman later this year has been pre-announced, the big surprise is Mohandas Pai, director for human resources and number three in the executive hierarchy, deciding to hang up his gloves.

Gen Next at Infosys

Despite all the rhetoric about shared economic interests, the summit meeting of leaders of Brazil, Russia, India, China and South Africa (Brics), at Sanya in China last week, stood out for the shared concern of these countries about the &lsquo;new assertiveness&rsquo; of western Europe and the United States, as witnessed in West Asia and North Africa. The Libyan intervention and talk about a &lsquo;new great game&rsquo; in Africa and the fear of rising oil prices (not shared by Russia) seem to have created enough chemistry between the Brics heads of government. The Brics statement on Doha also papers over internal differences between Brics members on what they hope to achieve from the round (here again Russia is an outlier since it is not yet a member of the World Trade Organization).

Brick by brick

When the full Planning Commission meets later this week, its chairman &ndash; the prime minister &ndash; is likely to be presented with two scenarios for India&rsquo;s 12th five-year plan (2012-17). The first scenario is based on a percentage point improvement in the overall growth rate of the economy in the 12th plan compared to the 11th five-year plan (2007-12). Against the performance of 8.1 per cent in the 11th plan period, the first scenario would seek a 9 per cent growth rate in the 12th plan. The second scenario would be more ambitious and seek a 10 per cent growth rate. However, attaining either target will require considerable homework by the Indian government and business. It has been found during the 11th plan period that whenever economic growth accelerates beyond 8 per cent, inflationary pressures seem to develop owing to a variety of supply-side constraints.

Credibility of planning

For all those who seek a new institution as an answer to the corruption of existing ones, here is an invaluable reminder from a learned judge: it is people who make and unmake institutions. Delivering the fifth M C Setalvad Memorial Lecture, the Chief Justice of India (CJI), Justice S H Kapadia, offered fellow judges some valuable homilies on how they should conduct themselves in public and private, on the bench and off it. He reminded the Indian judiciary of the limits of its constitutional role. In defining the role of the judiciary and its relationship with the executive and the legislature and in stating baldly some dos and don&rsquo;ts, Justice Kapadia has elevated the status of the CJI and of the judiciary as a whole. One man has restored to the highest court of the land dignity and prestige that had been robbed by another man.

The CJI's mirror 

Incisive columns and editorial comment by top opinion leaders

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