In the world of economic diplomacy where gestures often mean much more than concrete action, China&rsquo;s move to abandon its currency peg against the dollar is significant. It is, therefore, no coincidence that the move comes roughly a week before the G20 summit in Toronto where pressure on China to adopt a more flexible currency regime was expected to intensify. China has clearly pre-empted some of this by agreeing to more exchange flexibility.

Yuan diplomacy

Business Standard

Last week&rsquo;s civil nuclear cooperation agreement between India and the Republic of Korea is a fitting culmination of the strategic engagement between the two countries that began close to two decades ago. While India and South Korea have both civilisational (ancient historical) links and more recent diplomatic links dating back to the partition of the Korean peninsula, the real meaningful contact between the two began with India opening itself up to Korean investments in the early 1990s. For a country that sent its economists in the early 1960s to India&rsquo;s Planning Commission for training in long-term planning, South Korea had developed an impressive capability in the manufacturing sector that Indian consumers only discovered after 1993, following the visit of former Prime Minister P V Narasimha Rao to Seoul in that year.

A soulmate in Seoul

The Group of Ministers (GoM) that re-examined the legal, human and environmental issues pertaining to the infamous gas leak tragedy at the Bhopal unit of Union Carbide Limited in December 1984, has put together a mix of recommendations shaped by the government&rsquo;s humanism, pragmatism and extant political considerations. If the same decisions had been taken two decades ago, things would not have come to this pass. No single governmental functionary or business executive can be held responsible for the long and unfortunate delay in what is now being proposed to be done. Successive governments were not adequately sensitive to the cries of the victims and their survivors. Far too often did government officials and corporations take a legalistic view rather than a humane view, or indeed a political view. The political space vacated by mainstream political parties was filled by civil society activists who have kept the candle burning.

Better late than never

The abrupt resignation of B M Vyas, managing director of Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns the Amul brand, several months before his term was to expire, signals a storm brewing over one of the most successful business experiments that India can truly call her own. On the face of it, there is nothing amiss in Mr Vyas laying down the mantle, which he has been carrying for over a decade, and particularly when he has reached 60, the usual age of superannuation in India. There is also no reason to believe that GCMMF is devoid of a second-rung leadership and Mr Vyas is personally indispensable. Hence a properly planned succession should have been already in the works. But this is not how events have unfolded. The provocation for Mr Vyas to put in his papers is apparently the Gujarat government decision to appoint state auditors for GCMMF instead of picking one from the panel of private auditors maintained by the cooperative.

Save Amul, India's pride

While the debate on whether or not the Reserve Bank of India (RBI) should hike interest rates immediately in response to still high inflation rages on, the short-term benchmark rate for banks has effectively moved up by a hefty one-and-half percentage point over the last three weeks. A severe liquidity squeeze in the banking system since the end of May has meant that banks are no longer parking with RBI huge surpluses that fetched a return of 3.75 per cent at the &ldquo;reverse repo&rdquo; window. They are, instead, borrowing massive amounts from RBI at the repo (repurchase) window, paying interest on these overnight loans equal to the repo rate of 5.25 per cent. Reverse repo and repo rates are the so-called &ldquo;policy&rdquo; rates that RBI sets periodically to influence all lending and borrowing rates in the economy. Which of these two policy rates is the effective short-term benchmark depends on whether banks on average are cash surplus or deficit.

The crowding-in effect

The Food and Agriculture Organisation (FAO) and the Organisation for Economic Cooperation and Development (OECD) have warned that farm commodity prices, especially foodgrains, may rise by as much as 40 per cent by the end of this decade. This warning must be taken seriously given its implications for food insecurity. FAO&rsquo;s Agricultural Outlook 2010-2019 projects prices of wheat, coarse grains and dairy products rising by 15 to 40 per cent in real terms (after adjusting for inflation) in the coming decade. Though, at present, international food prices are ruling lower than their peaks in 2008, FAO expects them to begin picking up again due to a surge in consumer demand as well as demand from biofuel producers. The current concern over worsening food security can be traced to near stagnation in food productivity in most part of the world, shrinking public investment in technology generation and diversion of wheat, coarse grains, vegetable oils and sweeteners to biofuel production.

Food, fuel and farms

The idea goes all the way back to ancient Rome and the Bible, and the words are those of Jesus himself: &ldquo;Render, therefore, to Caesar the things that are Caesar&rsquo;s, and to God the things that are God&rsquo;s.&rdquo; (Matthew 22: 21). India&rsquo;s Union finance ministry has done well to rediscover this secular principle of taxation. Why should a government forego its tax income if a citizen wishes to contribute part of his income to a religious institution/trust/fund as an act of faith? Money spent as a gesture to one&rsquo;s faith need not be tax exempt. It is money spent by an individual in pursuit of that individual&rsquo;s personal faith. It may or may not have positive social externalities, its welfare implications may be good or bad, but at the end of the day, it is money being spent by an individual in pursuit of that individual&rsquo;s personal faith, not social welfare even if it contributes to it indirectly.

Faith without exemption

Justice N Santosh Hegde, till this week the lok ayukta of Karnataka, a former Supreme Court judge and the son of the famous late Justice K S Hegde, who resigned from the Supreme Court of India in protest against his supersession by former Prime Minister Indira Gandhi, contributing to events that culminated in her imposition of national Emergency, has spoken for millions of concerned citizens across the country by quitting his post. The immediate provocation for Justice Hegde&rsquo;s resignation was his grievance that the state government of Karnataka had devalued the institution of lok ayukta and was not cooperating with him and the institution in its work to root out corruption in the state. Media reports suggest that Justice Hegde was particularly concerned about the growing influence of what has been dubbed the &ldquo;mining mafia&rdquo; in the state. Neither is Karnataka unique in this regard nor are Justice Hegde&rsquo;s complaints unique to the mining sector alone.

The other Justice Hegde

In &lsquo;hydraulic societies&rsquo; state power, suggested Karl Wittfogel, flows from the control of water. His thesis on &lsquo;oriental despotism&rsquo; was based on the observation that in many Asian societies rain water had to be collected and made available for irrigation and consumption, often using human and animal power to collect, store and draw such water. Wittfogel believed hydraulic societies, as Max Weber dubbed them, tend to produce powerful bureaucratic and despotic states.

Another lake dries and dies

While consumers will, of course, be unhappy and the country&rsquo;s opposition political parties will exploit this unhappiness, the Union government had no option but to move away from the ancien regime of administered prices for petrol and return to the path of deregulation that the National Democratic Alliance government had, in fact, first opted for. Sooner rather than later, it must also deregulate the prices of other petroleum products, including kerosene and diesel. Before moving to deregulation of the latter, it must at least take the steps it is now beginning to take of raising administered prices to more realistic levels. There is no convincing case for subsidising petrol, even if there can still be some case for subsidising diesel and kerosene. These are all old arguments that have been gone through for over a decade now.

Pricing scarce resources

Turf wars are distinct from informed debates. The episode between the two regulators, the Insurance Regulatory and Development Authority (Irda) and the Securities and Exchange Board of India (Sebi), on the unit-linked insurance policies (Ulips) issue was in large part a turf war but in essence also one of differing perceptions. The end of such turf wars is not to be celebrated with congratulations and jubilations, but with a sigh of relief and a few lessons learnt. First of the lessons is that such disputes must not be allowed to brew so long that it turns toxic and necessitates a remedial action through the court. It is alright to say that settlement of regulatory disputes through courts helps establish the jurisprudence. It may even be argued that one salutary outcome of the unseeming publicity of the dispute is that changes are now being made in Ulips to benefit those who invest in the instrument.

No winners in this battle

At a time when central banks around the world are getting empowered to deal with a range of market- and growth-related challenges, it is disturbing to see the government of India use the subterfuge of a weekend ordinance to diminish the status of the Reserve Bank of India (RBI).

Devaluing RBI

The G20 summit in Toronto has sought to ensure that nothing will be done to threaten the global recovery process, described by some as &ldquo;feeble&rdquo;, and create a double-dip depression. It is reassuring that the leaders of the economically most important nations have undertaken to carry out their adjustment processes in such a way that recovery in private demand is sustained. The concession made to political realities is that countries will adopt a &ldquo;differentiated and tailored approach&rdquo; in restoring their fiscal balance, meaning they will go about it the way it suits them best. If Britain wishes to undertake fiscal correction right away and Germany from next year, then they will be free to do so. But G20 members have also agreed that they will progress towards &ldquo;rebalancing&rdquo; global demand. Rich countries whose citizens have been acquiring a mountain of debt should boost national savings and surplus countries should boost domestic growth.

One step forward

Some called it the &ldquo;mixed economy&rdquo;, some called it the &ldquo;mixed-up economy&rdquo;, some others termed it state capitalism and some even dubbed it a &ldquo;bureaucratic socialist&rdquo; economy. For the first 50 years after Independence, the Indian economy has been described by many epithets. The bottom line was, of course, the fact that a large part of India&rsquo;s modern industrial and services economy was in the public, or state, sector. While the agricultural economy was largely characterised by private ownership, manufacturing was predominantly in the public sector till the 1980s, and following the nationalisation of banks, the financial sector too was dominated by state-owned institutions. All that began to change in the 1980s. The 1990s witnessed dramatic changes in policy and the unleashing of Indian enterprise. However, it is only since 2000 that private Indian enterprise has come into its own.

Enterprise India

India has everything it takes to become a respected name in aerospace &mdash; scientific, engineering and software expertise. But while it has forged ahead in space, it has till now failed to make a mark one level below in aviation. It has successfully launched others&rsquo; satellites but there is no globally commercially successful aircraft that it can call its own.

Ambition in the sky

The committee set up by Nasscom, the IT-BPO industry body, under the leadership of Infosys mentor N R Narayana Murthy after the Satyam scandal last year has made a series of recommendations which aim to make the industry, already known for its high governance and ethics standards, the flag-bearer of best practices in corporate governance across industries.

NASSCOM's medicine

Defending his initiative to seek an agreement with the United States for promoting cooperation in civil nuclear energy development, Prime Minister Manmohan Singh famously told Parliament that he was aware he was taking some political and diplomatic risks in seeking a new strategic engagement with the US but that it was a &ldquo;risk worth taking&rdquo;. The notion that there are risks involved with major diplomatic initiatives but that some risks are worth taking has shaped Dr Singh&rsquo;s thinking on foreign policy. In seeking to engage Pakistan and try and improve relations with it, Dr Singh took his first risk when he invited President Pervez Musharraf to visit India in April 2005 to watch a cricket match. This decision was taken at the time against establishment advice since the dominant view in India after the infamous Agra Summit was that Mr Musharraf could not be trusted.

The Thimphu thaw

Beware, the Trojans were warned, of Greeks bearing gifts. One has to be just as careful these days of Greeks bearing bonds. The euro 110 billion ($147 billion) bailout package announced jointly by the International Monetary Fund (IMF) and the eurozone countries raises more questions than it answers and, like so many of the policy responses of western governments in the past two years, may well be too little too late. The crisis in Greece was essentially fiscal, but its implications for Greece and the eurozone countries go well beyond the purely economic. The very existence of the eurozone has come under question and the political future of the European Union (EU) is under threat. Germany&rsquo;s dithering, for domestic political reasons, has cast a long shadow and it remains to be seen how, if not &ldquo;if&rdquo;, the EU will survive this crisis.

A Greek tragedy

The spectacular opening ceremony for the Shanghai World Expo on April 30 would have surprised no one. As the 2008 Beijing Olympics demonstrated, China favours the &ldquo;shock and awe&rdquo; philosophy when it puts itself on international display. Still, even by its own ultra-competitive standards, China may well find the Shanghai Expo extravaganza a case of overkill and, maybe, hubris. Consider, first, the numbers. At a stunning $46 billion &mdash; more than the cost of cleaning up Beijing ahead of the Olympics &mdash; the Shanghai Expo is the most expensive industrial fair in the history of world fairs; it is also the world&rsquo;s largest expo site, covering almost 6 sq km, and is expected to attract the highest number of visitors at 70 to 100 million over its six-month duration.

The dragon preens

The recent high-profile cobalt radiation exposure case in Delhi is a warning signal for bigger disasters waiting to happen. While the reported incident is not commonplace, India is home to a large and rapidly growing inventory of hazardous waste. Much of this is handled by the poor in an extremely crude manner without observing any safety norms. Part of this hazardous waste is even dumped in landfill sites where many of their toxic substances, such as lead, mercury, chromium and even cyanide, tend to leach down to contaminate groundwater. Nearly five million people, mostly poor and destitute, are reckoned to be directly engaged in the highly risk-prone waste-handling and processing activity, also exposing, in the process, several millions more to health hazards due to emission of harmful gases and radiation, environmental degradation and water contamination, among hosts of other perils. There are far too few legalised and registered hazardous waste recycling units.

Hazard from waste

Fifty years after their formation as different states of the Indian Union, Gujarat and Maharashtra have much to be proud of. Both states are among India&rsquo;s developed and industrialised states. Both states have above-average human development indicators and a record of good performance across many sectors. In the world of business and commerce, both states have distinguished themselves. On the occasion of their golden jubilee, the point has been made that at the time of their creation, there was a view that Bombay, now Mumbai, should be made a Union Territory. It is possible to imagine that Gujarat could have had its capital in Baroda and Maharashtra in Pune, and Bombay (Mumbai) could have remained a more cosmopolitan city. Today it is difficult to turn the clock back and there is not much popular support for the idea either in Maharashtra or Gujarat.

Metros and the states

Incisive columns and editorial comment by top opinion leaders

Page 544 - Editorial Comment