It was almost inevitable that some commentators would describe India&rsquo;s inaugural Formula 1 Grand Prix as an inappropriate event in a country that still qualifies for lower middle-income status. Certainly, it is difficult to ignore the contrast between the unabashed capitalism demonstrated by this 65-year-old tournament and the abysmal human development record of Uttar Pradesh, the state in which the event was hosted. The observation may be valid, but to focus exclusively on this issue is to miss the useful takeaways from an event that has done India&rsquo;s global reputation no harm.

An elusive formula

Business Standard

In 2002, in response to a Supreme Court order, the government decided to formulate a fresh pharmaceutical pricing policy, an exercise it has completed now after a gap of nearly a decade. Meanwhile, the ambit of price control has shrunk. Of the 74 bulk drugs that were placed in the 1995 national list of essential medicines (NLEM), only 47 are being produced now and only 34 of the list have made it to the latest 2011 list. A manufacturer can always not produce a drug whose price is controlled or, better still, tweak a controlled formulation a little so that it gets out of price control. To rectify this, the new list of 348 essential medicines, prepared by the health ministry on the basis of guidelines issued by the World Health Organisation, will cover 60 per cent of the domestic pharmaceutical market.

A better medicine

The proposed initiative of the National Bank for Agriculture and Rural Development (Nabard) to help primary agricultural credit societies (PACSs) improve their fiscal health through deposit mobilisation is laudable, even though there could be doubts about its effectiveness. Nabard has proposed an institutional protection and deposit safety scheme for PACSs to attract more deposits from their members. The current lack of depositor confidence is largely because the deposits in these societies do not enjoy the protection ensured by the Deposit Insurance and Credit Guarantee Corporation. Though several states have launched deposit insurance schemes for the cooperative sector, including PACSs, these are largely non-functional. The collapse of several cooperative banks in recent years, moreover, has further eroded the depositors&rsquo; trust in PACSs already suffering from a low and inadequate capital base.

Tread with caution

The Group of Ministers formed to turn around Air India has recommended that the government should infuse equity of Rs 23,000 crore into the ailing national carrier by 2020-21. This includes Rs 6,500 crore this year. So, if the Cabinet agrees, the government will have to invest Rs 16,500 crore over the next eight years. It is not clear if the investment will be front-loaded or back-loaded; if it&rsquo;s evenly spread out, the bill will come to Rs 2,062.5 crore per year.

Bailing out Air India

Minister of Information and Broadcasting Ambika Soni may vehemently disagree with Azim Premji&rsquo;s statement that the current government is guilty of a &ldquo;complete absence of decision-making&rdquo;. But she will be hard put to find any takers for her view that Mr Premji&rsquo;s forthright criticism was a matter of &ldquo;perception&rdquo; that needed to be &ldquo;rectified&rdquo;.

Illusion & disillusion

Pakistan&rsquo;s decision to grant India the Most Favoured Nation (MFN) status may have rekindled hopes of a significant increase in bilateral trade between the two neighbouring countries. However, it will be useful to remember that according MFN status to a trading partner alone is not always a sure-fire way of boosting bilateral trade. India had given MFN status to Pakistan in 1996, which effectively meant that imports from Pakistan from that year began enjoying the same terms as those applicable to imports from its other trading partners. In spite of that, Pakistan&rsquo;s exports to India have made no major gains in the last 14 years. Last year, exports from Pakistan to India, estimated at $332 million, accounted for less than two per cent of its total merchandise exports. Worse, India&rsquo;s imports from its western neighbour as a percentage of its total imports have declined in this period.

Not by trade alone

The good news from the Human Development Report, or HDR, for 2011 is that India&rsquo;s rank &ndash; 134 out of 187 &ndash; has remained unchanged. If we look at countries relevant to India &ndash; fellow BRICS members (Brazil, Russia, China and South Africa) and India&rsquo;s neighbours (Bangladesh, Pakistan and Sri Lanka) &ndash; four have held their positions and three countries have gone up one notch. Thus, credit can be taken for not falling behind, but not for making any substantial progress. If human development is meant foremost to attack poverty in all its ramifications, then the recently crafted multi-dimensional poverty index provides the most useful guide to the state of things. According to this measure, India and its two underperforming neighbours &ndash; Pakistan and Bangladesh &ndash; form a distinctly backward cohort, whereas the rest are in a different league altogether.

A wake-up call

The move of Indian Railways to introduce dynamic pricing in passenger fares was long overdue. It allows the railways to change passenger fares frequently, depending on demand, and this is made easier by computerisation. There is also considerable unmet demand for reserved accommodation on most trains on busy routes. Reservation, which is available up to 90 days before the scheduled date of a journey, is virtually impossible to get if you need to undertake it at short notice. Tatkal booking, by paying a little more than the normal fare, was a help for those undertaking emergency travel when it was first introduced. However, this has now ceased to be a meaningful option, as it is quite common for wait-listed passengers with Tatkal tickets not to get a place on the train eventually. Conversely, upper class reserved accommodation goes partially empty in off-peak seasons, signifying wastage of capacity already created at great cost.

It's time railways moved

The telecom industry is likely to welcome the Telecom Regulatory Authority of India&rsquo;s (Trai&rsquo;s) latest recommendations on mergers and acquisitions (M&amp;As) in the sector but consumers may have cause for anxiety. The new norms certainly mark a major relaxation on the old ones. For one, they allow the merged entity to retain up to 25 per cent of the spectrum available with all operators in the circle in which the merger takes place against the earlier retention limit of 14.4 MHz (the rest was to be returned to the government). Under the new norms, Trai officials&rsquo; calculations suggest operators will be able to retain at least 2 to 3 MHz more.

Dial M for M&As

The Greek debt crisis had cast its shadow on the sixth summit of the Group of Twenty (G20) even before it could begin its two-day deliberations at Cannes last Thursday. Predictably, therefore, the crisis in Greece, made worse by its prime minister George Papandreou&rsquo;s flip-flop on a referendum on its bailout package, threatened to hijack the agenda for discussion that the leaders of the G20 countries had earlier prepared. Europe&rsquo;s leaders were so preoccupied with the crisis in the euro zone that French President Nicolas Sarkozy, who hosted the summit, was mostly huddled with other European leaders to prevent the Greek problem from snowballing into a contagion. This perhaps forced him to even cancel his meeting with Indian Prime Minister Manmohan Singh on the sidelines of the summit.

New initiatives at Cannes

Maruti Suzuki has paid a hefty severance amount to a few of its agitating workers at its factory at Manesar in Haryana. Newspaper reports have estimated the payment at Rs 16 lakh per employee. The number of such beneficiaries is estimated at 30 and this includes Sonu Gujjar, who led the agitation last month significantly disrupting production at India&rsquo;s largest manufacturer of passenger cars. For Rs 4.8 crore, the company has been able to safeguard itself against another production breakdown, at least for the time being. With their leaders gone, workers will take time to regroup and press their demands for better working conditions. Until then, the company can afford to breathe easy.

Setback for workers

The new grain pricing policy for 2012-13 rabi marketing season seems a half-hearted attempt to make farmers grow more oilseeds and pulses, which are in short supply. This is apparent from a hefty hike of Rs 650 to Rs 700 a quintal, or around 35 per cent, in the minimum support prices (MSPs) of oilseeds and pulses and a relatively modest increase of Rs 115, or 10 per cent, in those of wheat, which is the main rabi crop. The timing of the announcement, coinciding with the onset of the rabi sowing season, is another indication of the government&rsquo;s intention to send out a clear signal to the farmers to this effect. However, achieving such an objective may not be that easy. For, even after the handsome increase, the new support prices of oilseeds (rapeseed and mustard) and pulses (gram and lentil) remain below the current market rates and, therefore, offer little incentive to farmers to produce more.

Moving beyond MSP

The group of tiny islands in the Indian Ocean known as the Maldives is about to round off a remarkable burst of neighbourhood diplomacy by the Manmohan Singh government. In the last few weeks, agreements with breakthrough potential have been signed with Afghanistan, Nepal, Bangladesh and Myanmar. The Maldives will now join that list. Even Pakistan could figure, if that wayward country decides finally to give India &ldquo;most favoured nation&rdquo; status for trade. There have been hiccups, of course. West Bengal Chief Minister Mamata Banerjee caused one on the sharing of Teesta waters with Bangladesh.

New mood in neighbourhood

It is not often that the government accepts the report of a committee promptly without detailed scrutiny. But an exception has been made &ndash; and with good reasons &ndash; in respect of the report of the task force on reforming the public distribution system (PDS). The committee, headed by Unique Identification Authority of India Chairman Nandan Nilekani, has made several valuable recommendations that can cure some of the critical ills of the PDS. However, the implementation of these recommendations may pose some practical problems. It is noteworthy that the committee has sought to rely on the power of information technology (IT) to plug loopholes in the PDS. Going further, it has offered the beneficiaries the choice to select the PDS outlet and choose the mode of receiving supplies, in kind or cash, in a fully computerised PDS system.

Learning from each other

West Bengal Chief Minister Mamata Banerjee may have begun to discover the difference between being a populist, street-level crusader and a political leader who is required to behave responsibly. Her decision to defer exiting the United Progressive Alliance (UPA) in protest against the latest petrol price rise suggests a belated understanding of power politics. After all, there is little to gain from biting the central hand she needs to fund her bankrupt state government. No doubt Finance Minister Pranab Mukherjee&rsquo;s gentle reminder that she did not oppose the Cabinet&rsquo;s June decision to decontrol fuel prices also encouraged her to soften her opposition. The prospect of losing a portfolio as powerful and lucrative as the Railways, now headed by a Trinamool MP, must have also weakened her compulsions to exit.

Fuel for thought 

The verdict of the Central Administrative Tribunal (CAT) setting aside the appointment of Dr T C A Anant as the country&rsquo;s chief statistician is retrogressive. Hopefully, better judgement will emerge on appeal. The issue is more important than a single appointment for two reasons: one, important principles are at stake and, two, the country&rsquo;s statistical set-up is in poor shape and needs imaginative leadership urgently. To take the second issue first, the requirements of shepherding a modern, changing economy cannot be met by the country&rsquo;s present statistical structure. It is in need of a drastic overhaul which cannot automatically be delivered by those who are familiar with the present system and can, at best, run it according to extant rules and practices. You need new ideas, structures and rules to run it. People promoted from within over time are not the best equipped to think out of the box to deliver these.

Closed shop at the top

The trend in corporate results in the quarter ended September 30, 2011 (Q2, 2011-12) is grim and unequivocal. India Inc is struggling to cope with a toxic combination of high inflation, rising interest costs and unpredictable currency movements. Overall, this bids fair to be the worst quarterly corporate performance since October-December 2008. There are a few isolated outperformers. But most firms in the Business Standard database of 1,457 listed companies have not been able to maintain margins in the face of adversity. As many as 339 have reported outright losses, while another 689 have reported lower profit after tax (PAT) compared to the quarter ended September 2010 (Q2, 2010-11).

Not out of the woods

A proposal mooted by the Union power ministry to revive the financial health of electricity distribution companies in the states has resurrected the debate over what ails the country&rsquo;s power sector and what remedial measures ought to be taken. The proposal says that the state governments should free their electricity distribution firms from the burden of their accumulated losses by either issuing them bonds or taking over these losses as loans in their books. The ministry also expects the state governments to not allow distribution companies to run up any more cash losses once their balance sheets are cleaned up.

Fixing power reforms

A year ago, the government and the Reserve Bank of India (RBI) doubled the limit that foreign institutional investors (FIIs) could invest in government paper, to $10 billion. Now, if news reports are to be believed, it is proposed to double the limit again, to $20 billion. In itself, this is not a large enough sum to cause worry, but the context is important &mdash; at a time when the large interest rate differential between India and much of the world presents a temptation to overseas lenders. FIIs have put a total of Rs 90,000 crore (about $18 billion) into Indian debt paper in the last five years, with the bulk of that money coming in during 2010 and 2011. On top of this, external commercial borrowings by Indian companies have ballooned, and now top $100 billion &mdash; with about 20 per cent of it not even hedged to protect against currency movements.

Danger in soft options 

Without too much fanfare and without too many expectations, India&rsquo;s relations with all its South Asian neighbours seem to be gradually improving. And, while the Afghanistan-Pakistan border remains a tinder box, the situation in the region may be becoming more manageable as options shrink for Pakistan&rsquo;s troublemakers. Consider the facts. Despite all the provocations and ups and downs, the India-Pakistan relationship has been moving forward from one milestone to another and is on the verge of crossing a psychologically important milestone, namely Pakistan extending to India the &ldquo;most favoured nation&rdquo; (MFN) status. This may not mean much in material terms and certainly is no big deal given that Pakistan has been obliged to do so as part of its own commitment to the World Trade Organisation (WTO). But so far it has merrily flouted WTO discipline on the grounds of national security.

Better neighbourhood

Last week Prime Minister Manmohan Singh pulled an old rabbit out of his hat, or turban so to speak, to win the sympathy of the media and the general public for his government when he referred to the threat to India&rsquo;s economic growth and political stability from external destabilisers. While many in the media pooh-poohed the prime minister, few opposition political parties did so. The reason being that most Indian political leaders and security specialists are all too familiar with the history of such attempts and one should not ridicule a prime minister when he talks of such threats to the nation. However, given the context, many would imagine that the PM was exaggerating the problem only to buy some respite from his critics. This may well be so, but even then one cannot entirely ignore the possibility that those who wish to see India weakened would make the most of the current situation.

Domestic destabilisers

Incisive columns and editorial comment by top opinion leaders

Page 530 - Editorial Comment