It is a measure of the continuing drift and listlessness in the India-United States relationship that Prime Minister Manmohan Singh spent an entire 36 hours more than he had originally planned in Washington DC for a 50-minute conversation with US President Barack Obama on terrorism and related issues. Apart from the usual spin about how the two get on famously, the official briefing suggested nothing substantial was achieved. It is, therefore, not clear why the meeting was arranged at all. If it was the case that both sides wanted to be seen conversing with each other a day before the presidents of the US and China were to meet, then the differing agenda of the two conversations should say it all. President Obama talks business and the world with President Hu Jintao and terrorism and the region with India.

Shrunk India-US canvas

Business Standard

On April 1, the government came out with a comprehensive document detailing for the first time in one place all its various policy provisions pertaining to foreign direct investment (FDI) in the country. Laudable as it was, the exercise lent clarity to the entire gamut of FDI policy issues. It also created a semblance of stability on the government&rsquo;s FDI policy front as it promised a review of the policy only twice a year. In other words, the next review of the policy was expected to take place on October 1. For foreign investors, this was a welcome relief as they could at least keep a six-month horizon in mind while they planned their projects in India in the secure thought that no sudden policy shifts would take place in this period. How naive they were must have dawned on them on April 7, when the Union Cabinet Committee on Economic Affairs, the government&rsquo;s highest economic policy-making body, decided to ban all new foreign direct investment in cigarettes.

Shifts in FDI

With all his years of experience as the public relations man for United Nations officials, Union Minister Shashi Tharoor knows how to stay in the news. This time, however, it is someone else&rsquo;s tweet that&rsquo;s got him into trouble. While Mr Tharoor&rsquo;s popularity may be rising among Kerala&rsquo;s youth, and understandably so given that the state has had a paucity of charismatic and good-looking leaders for a long time, the latest Tharoor tweet once again draws attention to a larger problem facing the United Progressive Alliance government. This relates to the problem of ministerial conflict of interest. There is, of course, the more narrowly defined concept of &ldquo;conflict of interest&rdquo; in politics, wherein a public official may be handling, as part of his official duties, a portfolio or a matter wherein she has a direct and personal interest.

Conflict of interest

Recent industrial production numbers confirm that industrial growth is on track. The year-on-year growth rate of 15.1 per cent for February 2010 was a tad lower than expected, but strong enough to give confidence to producers that demand for their products is robust. The monthly growth number is still benefiting from a low base effect of last year, and the month-on-month sequential growth has slowed down marginally. But the manufacturing sector still grew by 16 per cent, though a tad lower than the nearly 19 per cent growth experienced in the more recent past. Capital goods and consumer durables grew at 44 and 30 per cent, respectively. Mining output grew at a healthy rate of over 12 per cent, and electricity growth rate was up at close to 7 per cent. Basic and intermediate goods&rsquo; output grew at a more modest rate of 8.4 per cent and 15.6 per cent, respectively. Consumer non-durables continued to show weakness, although there was improvement from the previous month.

Industry chugging along

The current trend in crude oil prices gives cause for much concern and if this persists, many of the calculations indicating further recovery and improved growth for the economy can be nullified. This year, oil prices have risen from $70 per barrel to briefly touch $87, falling back somewhat thereafter. Such levels have not been seen since October 2008. That year, oil crossed a historic $140 per barrel, falling sharply thereafter to under $40 as recession gripped the global economy. It is the continued upward trend through the latter part of last year, which shows no sign of abating even after crossing $80, that has the tea leaf readers worried. Globally, the rising price underlines the fact that recovery is gaining ground, but if the price continues to rise, it can stall the recovery, which is not yet fully established, in mature economies. Some analysts have even gone on to say that high energy prices have the potential to trigger a recession.

Oil price warning

The Bible&rsquo;s Book of Isaiah warns that there is no rest for the wicked. The same could be said of the Reserve Bank of India (RBI) and of central bankers in general. RBI&rsquo;s tireless efforts to put the economy back on track seem to be paying off but it can hardly afford to take a break. Inflation has been climbing up steadily and wholesale price inflation for March is likely to print in double digits. What is more worrying is the fact that inflation is no longer confined to food. Core or non-food inflation has moved up sharply in the first quarter of 2010 and is likely to climb higher as more companies respond to improving demand for their products by hiking prices. In December 2009, core inflation was 0.5 per cent; by February 2010, it had moved up to 4.5 per cent. High commodity prices that currently prevail in global markets aren&rsquo;t helping either. Unfortunately, the central banker&rsquo;s book has a limited set of tricks.

The task at hand

With official foodgrain stockholdings topping 45 million tonnes on the eve of the rabi harvest and the public grain-handling agencies all set to mop up over 25 million tonnes more wheat in the next few weeks, the government&rsquo;s food coffers are likely to swell to unmanageable, perhaps undesirable, levels. Even in the beginning of April, when the new rabi harvest entered the market, the government had nearly 16 million tonnes of wheat, four times the required buffer of four million tonnes; and close to 30 million tonnes of rice, about two-and-half times the needed buffer of 12.2 million tonnes. Since the procurement of rice from the last kharif crop is also in progress, there is every possibility that the country might face a situation similar to the one in June 2002 when foodgrain inventories had soared to a whopping 65 million tonnes, forcing the then government to export grains at heavily subsidised prices.

Problems of plenty

Tendering a resignation, even if it is not warranted, requires courage. In politics, as in a good Shakespearean play, an actor&rsquo;s persona and profile are often shaped by the timing of her entry and/or exit from the stage. An actor who is remembered even when off stage is the true hero. In Indian politics, there is no gesture that is more powerful than that of renunciation. Mahatma Gandhi was immortalised by it. Sonia Gandhi has benefited from it. Consider the examples of Prime Minister Manmohan Singh and home minister P Chidambaram. Their political stature was enhanced, and their political career advanced, by their willingness to quit. A resignation tendered on time is a passport to a future political career. But, a resignation offered under duress or too late is a political epitaph. Former external affairs minister Natwar Singh and home minister Shivraj Patil discovered that by delaying their letters of resignation.

The power of a resignation

The failure of the GSLV D3 launch and more specifically, the failure of the indigenous cryogenic engine is undoubtedly a major setback for the space programme. It must have been heart-breaking for the development team that slogged 17-odd years. But the crash has to be taken in its stride and written off to statistical probability. Just five nations have reliable cryogenic technology.

Stay committed to space

The questions the Comptroller and Auditor General (CAG) of India has asked the communications ministry under A Raja really cut to the heart of the heart of the 2G licence scam in 2008, a scam estimated by many to have cost the government around $8-10 billion in terms of lost revenues.

Can't audit government

A chain always snaps at its weakest link. Shashi Tharoor was the weakest link in a chain of mounting misdemeanour in the United Progressive Alliance (UPA). His exit became inevitable for a variety of reasons, ranging from the manner in which he defended himself to the government&rsquo;s concern about managing its narrow majority in Parliament. Mr Tharoor became, in a manner of speaking, the Bangaru Laxman of the UPA. Just as Mr Laxman&rsquo;s misdemeanours paled in significance compared to the humongous corruption of some members of the Atal Behari Vajpayee government, so may Mr Tharoor&rsquo;s, even though the &ldquo;sweat equity&rdquo; snapped up by his companion is not exactly a paltry sum. Mr Tharoor&rsquo;s misdemeanours became amplified by his own attempt to differentiate himself from the run-of-the-mill politician.

Tip of an iceberg?

Better late than never. After having sat on the files for so long, the government has finally ordered investigations into the finances of the Board of Control for Cricket in India (BCCI) and the Indian Premier League (IPL). The IPL chief, Lalit Modi, may also have his wings clipped soon &mdash; certainly the income tax investigations that are currently on will mean it will be a while before Mr Modi regains his trademark swagger. To stop here, however, would be unfortunate. The Shashi Tharoor affair shows that the rot in Indian cricket runs a lot deeper. News reports suggest that other politicians may also be involved in the emerging IPL scam. At the meeting where Mr Modi is supposed to have offered $50 million to the Kochi franchisees to back off, the daughter of a Cabinet minister was reportedly present. The meeting was followed by one at the Mumbai residence of the minister. No cleaning up of the IPL can be complete unless it addresses this political link.

Now complete the job

The Reserve Bank of India (RBI) has sent a firm signal that it will stay the course on fighting inflation. While RBI forecasts that the recent surge in headline rates of inflation is set to roll back and prices are expected to moderate, it would like medium-term inflation to return to levels closer to 4-4.5 per cent. However, in effecting only a 25 basis points (bps) increase in repo and reverse repo rates, RBI has sent two messages. First, that it will most likely hike the rates by 25 bps every quarter through the financial year. Second, that there is only that much monetary policy can do to reverse inflationary expectations, without hurting growth, and the rest of the job must be done by fiscal policy. Since the markets had already discounted this action, sentiment is likely to be steady across the board.

Staying the course

As far as conventional practice goes, management thinker C K Prahalad has received his due share of eulogy when he died last week. Many rated him on a par with Peter Drucker. Shorn of the hyperbole, Prahalad&rsquo;s real legacy may be less glittering or practical. True, he has been a permanent fixture in annual listings of top ten management thinkers for over a decade. His lectures were always House Overfull. Indian businessmen idolised him because he was (rightly) a champion of Indian entrepreneurial talents.

Prahalad's pyramid

Within days of changing over to the much-hyped nutrient based subsidy (NBS) regime for fertilisers, doubts have arisen about its success in achieving the twin objectives of reducing fertiliser subsidy and remedying the imbalance in fertiliser use. Being a half-hearted exercise in reform, the new policy has failed to improve price parity between urea and other fertilisers. This is essential to ensuring a balanced use of all the three nutrients &mdash; nitrogen (N), phosphorus (P) and potash (K). The NBS system, even while envisaging fixed subsidy linked to the nutrient content of different fertilisers, also simultaneously decontrols the farm gate prices of fertilisers other than urea.

Fertiliser price mismatch

When George Mallory was asked why he wanted to climb Mount Everest, he reportedly said, &ldquo;Because it is there.&rdquo; That is about the best answer heads of state and government can give these days for attending all the summits they do. In the bad old days of the Cold War, there was only one summit and at that peak sat the United States and the Soviet Union. The first post-War economic crisis of the 1970s led to the creation of a second summit of significance &mdash; the G-7 &mdash; which morphed into the G-8 when the Soviet Union collapsed and the West hugged the Russian bear. The post-Cold War world, however, is full of summits. The decline of the West, the rise of China and the emergence of a wide range of middle powers like India, Brazil, South Africa and Indonesia have contributed to the creation of multiple platforms that heads of state and government are quite happy to run away to every now and then for a break from domestic headaches.

Because they are there!

Any assessment of Goldman Sachs&rsquo; alleged &ldquo;fraud&rdquo; is likely to run into two problems. First, the armada of jargon that surrounds the financial derivatives market could mean that the essence of the case is lost in translation, leaving the non-specialist bewildered as to the exact nature of the Wall Street giant&rsquo;s alleged perfidy. Second, given the firm&rsquo;s role in the financial crisis and its patently insensitive decision to hand out obscenely large bonuses to its employees at the peak of the US recession, it would be difficult to find too many hearts that bleed for Goldman Sachs. This is likely to bias judgment. However, an objective assessment is likely to show that US securities market regulator SEC&rsquo;s case against Goldman Sachs is far from being open and shut. The key elements of the case are as follows.

Goldman smacks?

The cynics have a hierarchy on facts &mdash; lies, damned lies and statistics! But, modern economies live on numbers and economists love numbers. So, one must be deferential towards statisticians and statistics. Even so, India&rsquo;s poverty numbers and their repeated re-engineering test one&rsquo;s patience. It is possible to imagine that there would be as many estimates of poverty in India as there are estimates of it. So, one should not normally make much of statistical differences.

Poverty of numbers

If proof was ever needed that cricket is no longer just a &lsquo;gentleman&rsquo;s game&rsquo;, an avalanche of evidence was available this past fortnight in the Indian media. The Indian Premier League (IPL), a three-year-old cricket competition that has removed the distinction between sports pages, politics, Page 3 and the crime beat, has become a gladiatorial sport.

India's sports raj

After sitting on the proposal for four years, the Planning Commission has approved the union agriculture ministry&rsquo;s modified national agricultural insurance scheme. More than half a dozen different models of farm insurance have been tried out since the early 1970s but without much success. None of these schemes has been economically viable. We now have one more experiment being launched. No more than a fraction of the country&rsquo;s over 120 million farmers have access to crop insurance and even they have not benefited much. This was clear from the widespread distress among farmers due to crop failures, leading to a large number of suicides in recent years, prompting the government to waive off their loans. A sound insurance system could have alleviated, if not wholly averted, this distress. The previous farm insurance schemes, including the National Agricultural Insurance Scheme (NAIS) which is now sought to be modified, had serious limitations.

Protecting farmers

By 2030, 590 million Indians will live in cities, a number that&rsquo;s twice the population of the United States; between 700 and 900 million square metres of commercial and residential space needs to be built up, that&rsquo;s a new Chicago every year; 7,400 kilometres of metros and subways will need to be constructed, a number that&rsquo;s 20 times the capacity added in the past decade&hellip; the list of jaw-numbing numbers goes on. A path-breaking study by McKinsey Global Institute of how urban India will look in the next two decades is both a source of inspiration and despondency. Investment opportunities are obviously great. According to the McKinsey estimate, an investment of $1.2 trillion is required in terms of capital investment.

From Dharavi to Shanghai

Incisive columns and editorial comment by top opinion leaders

Page 548 - Editorial Comment