The Reserve Bank of India (RBI) has at last rung down the curtain on administered lending rates by freeing the interest rate on savings bank accounts. The interest rate was pegged at four per cent in May after remaining unchanged for eight years. Banks will now be free to pay whatever they like as long as they offer a uniform interest rate on savings bank deposits of up to Rs 1 lakh, beyond which differential rates can be offered depending on the size of deposits. Being able to get away with paying less was a crutch that was offered to the state-owned banks in order to give them time to get ready to face competition implicit in a level playing field. Twenty years, since the reforms began, is a long time in which to grow up. The move will be an invaluable gain for ordinary depositors, who have been getting the short end of the stick by earning a pittance for their money at a time when inflation has been running close to 10 per cent.

Saved by RBI

Business Standard

The first-cut data on national income growth in the first quarter, showing a deceleration in the growth rate of gross domestic product to sub-eight per cent level, are along expected lines. India&rsquo;s macroeconomic authorities have been warning that in fiscal 2011-12 the economy is likely to grow between 7.5 and 8.5 per cent. A variety of explanations can be offered for the slowdown, ranging from questions about the quality of data and changes in data computation methodology to global economic and domestic political factors. While the big picture is along expected lines, the sharp deceleration in the construction sector remains unexplained. To the extent that this is a response to monetary policy, not only is the deceleration to be expected, but it must also be condoned. After all, it was a stated objective of monetary policy that the observed increase in bank lending to the real estate sector should be squeezed a bit. However, this is unlikely to be the complete explanation.

Growth and policy

Anyone who thinks there is no economic price to pay for prolonged political instability has to only look at Japan. The sixth prime minister in five years has just taken charge. Prime Minister Yoshihiko Noda, the latest occupant of the hot seat, will have to contend with a fractious political system, both within and outside his party, which makes his task of reviving a moribund Japanese economy even harder. Mr Noda is described as a &ldquo;reformer&rdquo; who favours tax increases to pay for sharply increasing social security costs as Japan&rsquo;s population ages and also to curb its staggering public debt. His contention that Japan&rsquo;s population will have to share the financial burden of reconstruction following the tsunami-earthquake combination in March is also unlikely to draw serious opposition. Mr Noda is also a political revivalist of sorts. His comments exonerating convicted Japanese World War II criminals have expectedly drawn loud protests from China.

Raising a fallen giant

The charge of government interference in the functioning of the Securities and Exchange Board of India made by its former member K M Abraham is serious and he deserves a fairer hearing from the powers that be in New Delhi than has been the case so far. To paint him as a disgruntled and corrupt element, because he was denied an extension of term and had invested in an apartment in Mumbai built by someone who had business dealings with the National Stock Exchange, as the Union finance ministry has done, is both unfair and unconvincing. It is shocking that when Mr Abraham approached the then Union Cabinet secretary and the principal secretary to the prime minister for help, the correct thing to do by a member of the Indian Administrative Service, he was asked to beseech the very person against whom he was complaining, namely Omita Paul, advisor to Union Finance Minister Pranab Mukherjee.

Time to come clean

Despite the clear delineation of the line of command between India&rsquo;s civil and military leadership, a clash of egos between chiefs of staff (CoS) and senior civil servants has been a recurrent problem for India&rsquo;s political leadership since the days of Prime Minister Jawaharlal Nehru. Many an army general has clashed with a defence secretary and vice versa. Sometimes the armed forces leadership has directly clashed with the political leadership. Such differences of opinion are understandable and should normally be handled through established codes of civil-military conduct. It is, however, regrettable that a purely administrative and institutional matter pertaining to the procedure for ascertaining the date of birth, and hence the longevity of tenure, of Army Chief General V K Singh, is being sought to be politicised by General Singh.

General and generalists

Lionel Messi may have duly mesmerised the crowds at the massive Yuva Bharati Krirangan Stadium at Salt Lake, Kolkata. But anyone hoping for the resurgence of football in India from the first international friendly to be hosted in the country would have been disappointed.

Missing the goal

Coming after more than a decade, the bilateral visit of an Indian prime minister to Bangladesh is being viewed by many in both countries and the region as &ldquo;important&rdquo;, perhaps even &ldquo;historic&rdquo;. A clutch of agreements intended to benefit both countries, including territorial exchange of enclaves, providing India greater access to its north-eastern states and lifting the ban on India&rsquo;s exports of yarn and fabric, is in the works. India&rsquo;s decision to provide duty-free access to textile imports from Bangladesh, a long-standing demand from Bangladesh, will be an important concession, as an agreement on Teesta waters. Having taken tough action against anti-India elements in that country, including insurgents and terrorists, the government of Prime Minister Sheikh Hasina hopes to get these concessions as a return gift. India should be generous, despite some grumbling by lobbies at home, since these gestures make both economic and diplomatic sense.

Weaving a friendship

The sudden rise in food inflation last week, with the rate hitting double digits after many weeks, was caused by an episodic rise in onion prices as well as the sustained rise in the price of protein-rich and high-value foods. The data, however, suggest that perishable high-value foods are contributing more to the high inflation rate than protein foods, which have a relatively longer shelf life. This category of inflation-drivers includes fruit, vegetables, milk, eggs, meat and fish but excludes protein-rich, relatively less perishable items, notably pulses, the main drivers of inflation till last year. This is borne out by the fact that the price of fruit soared during the week ended August 20 by 21.58 per cent and that of eggs, fish and meat by 12.62 per cent even as the price of pulses dipped by 4.16 per cent.

Double digits again

The prospects for India&rsquo;s export-oriented information technology and services industry can only get more daunting, given the current global economic trends. At present, 18 per cent growth has been projected in the current financial year, the same as last year, but a lot can change quickly once the steady stream of bad news from the developed countries has its inevitable fallout. Within this sector, the odds are stacked even higher against the business process outsourcing (BPO) players. What happens to this space is important for the country because it is an employment-intensive sector, with wage rates lower than in IT proper. Over the last decade, the acute problem of the educated unemployed in India has been partially addressed by BPO jobs (835,000 direct ones in financial 2011), which have played their part in reducing social tension.

Safeguarding BPO

A favourite phrase of Indian politicians who wish to demonstrate that they are not using their political power to influence the judiciary and law enforcement authorities is: &ldquo;the law will take its own course.&rdquo; True, the law must take its own course, all the more so in the cases involving the infamous Reddy Brothers of Karnataka. The arrest of the state&rsquo;s former tourism minister G Janardhana Reddy and his brother-in-law B V Srinivas Reddy, managing director of the Obulapuram Mining Company, is only the first step in the &ldquo;law taking its own course&rdquo;. Though the Central Bureau of Investigation (CBI) has shown uncharacteristic courage in recent months in arresting powerful and influential people, it has not shown equal evidence of competence in gathering data and defending its case.

The Reddy land mine

Is foreign policy entirely the domain of the Union government, with no role for state governments? That, at any rate, seemed to be the point that two Union ministers, Pranab Mukherjee and P Chidambaram, reportedly made in a meeting of the Cabinet Committee on Political Affairs (CCPA) convened to discuss the proposed India-Bangladesh Teesta river agreement. West Bengal Chief Minister and Trinamool Congress leader Mamata Banerjee has refused to give her consent to an agreement that the Union government had proposed. There are two dimensions to the controversy. The first is about facts. Was Ms Banerjee briefed properly? Did she first agree to come on board and then shy away? Does she really object to the terms of the proposed accord or was she throwing a political tantrum with other things in mind? It would appear that though Ms Banerjee was briefed properly, she chose to withdraw her consent for political reasons.

Federal foreign policy

The view expressed by a committee headed by Saumitra Chaudhuri, member of the Planning Commission and Prime Minister&rsquo;s Economic Advisory Council, that ethanol prices should be market-determined and not fixed to suit any particular sector (read the sugar industry) makes immense sense. Equally sensible is the advice that blending ethanol with petrol should not be mandatory and must be left to the discretion of oil marketing companies. The Chaudhuri committee has said the first priority in ethanol allocation should be given to the potable alcohol sector, followed by the chemical industry, and then blending with vehicular fuel. The panel wants the price of ethanol to be linked to petrol prices. The committee rightly believes that the interests of the well-established alcohol-based industries cannot be sacrificed for petrol doping or for helping the sugar sector.

Mr Chaudhuri's formula

The rupee has been under pressure since early August as risk aversion fuelled by the European sovereign crisis and downgrade of US sovereign debt by Standard and Poor&rsquo;s drove away equity investments from Indian markets. In August alone, foreign institutional investors dumped $2.3 billion worth of Indian stocks and sought safer havens like US treasury bonds. Despite this rise in risk aversion, the correction in oil prices (and indeed other commodities) was shallow and helped lower India&rsquo;s current account deficit only to a limited extent. The payment of dues to Iran (of roughly $5 billion) in this period abetted depreciation. All this should please the often vociferous group of economists who believe that an undervalued, or at least a fairly valued, rupee is critical for growth. The real effective exchange rate (REER) terms (measured against a basket of 36 currencies) showed a value of about 103 in June (the latest data available).

Rethinking rupee

The arrest of Rajya Sabha member Amar Singh for his alleged involvement in the &ldquo;cash-for-votes&rdquo; scam of 2008 has once again drawn attention to the role of money in Indian politics. Paying cash for votes is an old and widespread malaise. There are several levels at which money enters the political process. The lowest, rather simplest, form of such corruption is when candidates contesting elections offer cash incentives to voters. The next level is when candidates offer money to political parties, or influential individuals involved in ticket distribution, to secure nomination. The third level is when an elected legislator offers cash to party bigwigs to buy a berth in the council of ministers. Then there is the cash that legislators earn by asking questions on behalf of various interested parties or by writing letters of recommendation or complaint to government functionaries or others willing to be influenced by such requests.

Encashing democracy

Ten years after the Twin Towers of the World Trade Centre came down in New York, the world is taking stock. In the ensuing &ldquo;war on terror&rdquo;, though the Al Qaeda has been defeated, it hasn&rsquo;t been destroyed. The terrorist organisation&rsquo;s key calculation, that a furious United States homing in on targets in West Asia would provoke a general Arab uprising, has been belied. Osama bin Laden and many of his key aides are dead, and no Arab nation wants to have anything to do with the organisation. If anything, the &ldquo;Arab Spring&rdquo; is a negation of Al Qaeda-style terrorism and a vote for representative democracy (different from bin Laden&rsquo;s dream of a unifying caliphate). No one can rule out fresh outrages by motivated groups in isolated cells, but in a decade when there have been Al Qaeda-inspired attacks in Britain, Spain, Indonesia and elsewhere, there have been none in the US, or none that have been successful.

A costly victory

On balance, Prime Minister Manmohan Singh&rsquo;s visit to Bangladesh has been good and useful, with several important agreements that will strengthen the bilateral relationship. However, it hasn&rsquo;t turned out to be the much-anticipated &ldquo;historic&rdquo; visit envisioned originally. The author of this sorry chapter was West Bengal Chief Minister Mamata Banerjee. The Teesta and Feni river waters agreement was, of course, not as important as the trade concessions that India has offered and the land transfers and border agreements on which both countries have agreed. It took the Indian government a considerable effort to make the concessions on textile trade, and Bangladesh has appreciated this fact.

Good, not historic

The alert issued by the Food and Agriculture Organisation (FAO) about a possible resurgence of the dreaded bird flu virus needs to be taken seriously for several reasons. For one, India is among the six countries identified as being at high risk. The others so identified are Bangladesh, China, Egypt, Indonesia and Vietnam. Worse, this danger comes from a mutant strain of the common bird flu virus H5N1, which can bypass the protection offered by existing vaccines and can, therefore, pose unpredictable risks to poultry and human health. The FAO has explicitly indicated the presence of the new strain, described as H5N1 2.3.2.1, in China and Vietnam, from where wild and migratory birds are carrying it even to previously virus-free countries like Israel, the Palestinian Territories, Bulgaria, Romania, Mongolia and Nepal. Clearly, no country, least of all India, can consider itself safe.

Early bird warning

The government&rsquo;s troubles mount, with the Comptroller and Auditor General (CAG) coming out with two more damning reports, one on Air India/Indian Airlines and the other on oil and gas. The criticism has been long anticipated (parts of a draft report had leaked), and many of the findings reflect what has been aired earlier in the media. What view Parliament&rsquo;s Public Accounts Committee (PAC) takes of the reports is, of course, another matter; the PAC has been split down the middle on the telecom spectrum issue, and become more partisan than in the past. Meanwhile, there are elements in the reports that would warrant the criticism once again that the government&rsquo;s auditor is over-stepping its brief.

Two more

The government has done well to quickly bring to Parliament a Bill for replacing the 1894 law on land acquisition, and thrown into the bag new provisions for relief and rehabilitation. A draft version of the composite Bill was put out for discussion some weeks ago by the rural development minister. Some key changes have been made to that draft, and the minister has said that further changes can be considered as the Bill goes through parliamentary scrutiny. Indeed, although the issue has gained some political urgency because of the protests over forcible land acquisition in many states, it would do well to hasten slowly so that what gets enacted into law is not one that creates new, unanticipated problems.

Hasten slowly

The industrial production numbers for July confirm the slowdown in tempo, with the month&rsquo;s growth in output at 3.3 per cent being the slowest in two years. Growth during April-July has averaged a sub-par 5.8 per cent.

Tougher choices for RBI

While New Delhi&rsquo;s Krishi Bhawan has good reason for urging states that do not have an agricultural produce market committee (APMC) Act to put in place a proper regulatory mechanism for agricultural markets, the fact also is that the APMC laws where they exist have not always been helpful instruments of market regulation. The concept of legally mandated regulation of agricultural markets, aimed at encouraging the orderly growth of farm marketing infrastructure and ensuring fair trade practices, has not worked as intended. It has not enabled the growth of an efficient marketing infrastructure, nor has it prevented unfair trade practices. In fact, the fence has been eating the field and market committees have been abetting unfair trade practices, hurting both producers and consumers. The beneficiary is the intermediary.

Markets for farmers

Incisive columns and editorial comment by top opinion leaders

Page 533 - Editorial Comment