When a telecom company is asked to stop operations on security grounds, it&rsquo;s time to sit up and introspect, more so if the company in question has a case against the government in the Supreme Court. In the STel case, the government appealed to the apex court after a division bench of the Delhi High Court upheld an earlier judgment in favour of STel, which had in 2008 filed a case against the government&rsquo;s arbitrary policy on granting mobile phone licences.

Taking cover

Business Standard

India has done well to reiterate its commitment to peace, reconstruction, relief and development in Afghanistan. Given the long history of India&rsquo;s friendship with Afghanistan, and the affection that the ordinary people of Afghanistan have for India and the Indian people, India has no option but to stay the course, despite the dastardly attacks on Indians. India&rsquo;s ambassador in Kabul, Jayant Prasad, his brave band of diplomats and officials, and the army of civilians engaged in humanitarian relief, reconstruction effort, healing, educating, training and building infrastructure in Afghanistan deserve the highest praise, support and sympathy. Equally, they deserve security. Both the governments of Afghanistan and India owe it to the Indians, who are engaged in helping Afghanistan, to ensure their safety and security, one way or another.

The options in Afghanistan

First, the mishandling of the Sharm-el Sheikh joint statement issued by Prime Minister Manmohan Singh and Pakistan Prime Minister Yousuf Raza Gilani. Second, the knee-jerk response to Telangana Rashtra Samiti leader K Chandrasekhar Rao&rsquo;s feigned fast. Now, making a mess of a long-pending Bill for reservation for women in Parliament. With three self goals, the ruling United Progressive Alliance (UPA) has breathed life into a moribund Opposition and alienated allies, and wasted three precious sessions of Parliament. More striking than the mishandling of an issue or the absence of a strategy to deal with opposition is the insensitive handling of allies within the ruling coalition. The Congress party has dispensed with the mechanism of a Coordination Committee, which has met sporadically only in response to a crisis, not as a matter of course. The institutional mechanism of the Cabinet Committee on Political Affairs (CCPA) has also been neglected.

Dangers of hubris

It is natural for a sector like microfinance, which is growing exponentially, to face problems on the way. But the current crop affecting microfinance institutions (MFIs), which are constituted as non-banking financial companies (NBFCs), is somewhat more serious and require a relook at the roots. Microfinance has been celebrated for bringing institutional credit to the poor who have no security or collateral to offer. The model&rsquo;s success lies in extremely high loan recovery rates of 98 per cent or more. This is why microfinance is now considered mainstream and is attracting private equity funding from all over the world. Founders of some of the best-run MFIs who started off as philanthropists are exiting at phenomenal profit and giving MFIs hitherto undreamed of valuations like half a billion dollars. The importance of private equity will grow as MFIs go public and with this will come the need for private equity to chart its exit according to pre-determined schedules.

MFIs must remember basics

The revelation by the developer of pest-protected Bt cotton Bollgard, Monsanto-Mahyco, that pink bollworm pest has developed resistance to the killer Bt gene, Cry1Ac, in parts of Gujarat, and the rebuttal of this by a government-funded cotton research institute have created a fresh, albeit avoidable, controversy around genetically modified (GM) crops. The Monsanto statement had claimed that during field monitoring of the 2009 cotton crop in Gujarat, the company&rsquo;s scientists had detected unusual survival of pink bollworms on Bt cotton hybrid Bollgard in four districts &mdash; Amreli, Bhavnagar, Junagarh and Rajkot. The firm also said that this has been conveyed to the Genetic Engineering Approval Committee (GEAC), the apex GM regulator, following the principle of transparency and accountability.

Limits to biotechnology

Unrestricted entry of foreign equity into the Indian pharmaceuticals sector is being questioned on three grounds, one serious and two non-serious. The least serious of the three comes from the National Security Council, which has proposed that the sector be put on the &ldquo;sensitive&rdquo; list, requiring prior scrutiny by the Foreign Investment Promotion Board. This is difficult to understand as there is no intellectual property to guard against foreign takeover, the Indian industry being entirely generic. The second non-serious reason, given by the department of pharmaceuticals, is that Indian firms are not on a level playing field &mdash; they do not have deep pockets to do the kind of R&amp;D necessary for survival in a free-for-all which global firms do.

Medicines for all

Twenty-five years ago, thousands of Bhopal residents fell victim to a gas leak from a local Union Carbide plant. Five years later, the Supreme Court put its imprimatur on a deal between Carbide, the government and others, setting Carbide&rsquo;s liability at $470 million, which sum Carbide soon handed over to the government. It took another 17 years for the government to fully spend the money, giving compensation to all the &ldquo;original&rdquo; claimants. Thousands of people, who have not received compensation, continue to suffer from the effects of the gas leak. Arguably, Bhopal&rsquo;s aftermath has been a bigger scandal than the original accident.

Don't repeat Bhopal

The government&rsquo;s plan to vaccinate people against the H1N1 virus is a bad idea since the virus, which caused a pandemic last year, is now ebbing and the number of fresh cases being reported every day is pretty near negligible. And, with temperatures rising as summer approaches, the spread of the virus will be limited even more. In which case, if the government does go ahead with the mass vaccination for the frontline health staff that typically deal with swine flu cases and are, therefore, the most vulnerable group, it will probably just be because it has imported 1.5 million doses of the swine flu vaccine &mdash; these have now been found safe to use and have been cleared for use. And, by the time the vaccine is distributed to all hospitals and the frontline health staff are identified for vaccination, the summer will have set in firmly and will automatically kill the virus.

A shot too late

If laws could solve social problems India would be a happy place! There is a certain irony in the United Progressive Alliance (UPA) government&rsquo;s plans to table a Bill on preventing communal violence when the preamble to the Indian Constitution describes India as a &ldquo;sovereign socialist secular democratic republic&rdquo;. The incongruity seems to have escaped the Congress party, the largest of the UPA allies, in its eagerness to highlight its secular credentials. Even if it is assumed that the UPA is being realistic in introducing such a Bill &mdash; India, after all, has recently suffered an upsurge of communal violence &mdash; it is difficult to see how its provisions will constructively address the issue.

An Act for every act?

While RBI readies to start issuing new banking licences and looking at criterion like increasing the net worth requirements, it would do well to look back at the Bank of Rajasthan case and see if it has learnt any lessons from it. And these involve looking at the history of those allowed to run banks where thousands of crores and more of public deposits are at stake. With the Bank of Rajasthan&rsquo;s extraordinary general meeting last week resulting in P K Tayal, the bank&rsquo;s largest shareholder, not getting re-elected as a director, RBI&rsquo;s immediate worries may be over; but the details of whether Tayal, in fact, used his position to influence the bank&rsquo;s lending will be known only after the special audit report by Deloitte Haskins and Sells is out by the end of the month &mdash; the bank, it turns out, didn&rsquo;t even have credit committees to clear large loans, according to an interview given by its managing director and chief executive officer.

Better be bankable

Indian industry seems to be on a roll. The index of industrial production (IIP) for January 2010 grew by 16.7 per cent over last year, fuelled by 17.9 per cent growth in the manufacturing index (its principal component) and a robust 14.2 per cent growth in mining. This follows growth of 17.6 per cent in December 2009. While the January print is certainly impressive, there were some early indications that the December momentum would sustain in January. The January core sector index that includes sectors like oil and gas, electricity, steel and cement (and is released before the IIP) grew by a solid 9.4 per cent as did non-oil imports, known to correlate well with industrial activity. The purchase managers&rsquo; index (PMI), another &ldquo;leading indicator&rdquo; for industrial production that is based on a survey of manufacturing firms, had also perked up in January.

Feel-good IIP numbers

If spending years, even decades, on getting court verdicts is not bad enough, the government just added a brand-new dimension to the travails of companies trying to do business in the country. Depending on whether you want to be charitable to the government, you could call it arm-twisting &mdash; blackmail, however, is a more honest way of describing it. While most lacked the courage to take on the government after it played favourites in the award of telecom licences in 2008, STel (a joint venture between the Sivasankaran group and Bahrain Telecom) went to the Delhi High Court arguing it had been hurt by the arbitrary cut-off dates announced by the telecom ministry under A Raja. The company had applied for licences for 16 telecom circles on September 28, 2007, well before the last date of application (October 1, 2007); on January 10, 2008, however, the telecom ministry said only those firms that had applied before September 25, 2007, would be considered.

Arbitrary Raja

The Medical Council of India (MCI) has taken a further step in improving ethical standards in the medical professional by quantifying punishments (after banning gift taking in the first place) for doctors who break the new rules of conduct. It is now necessary to take the matter forward as a long distance still needs to be traversed before a reasonably comprehensive set of rules are there to cover all angles and stakeholders. One of the less important issues raised is that no time dimension has been indicated while allowing receiving of gifts up to Rs 1,000, that is a person can keep receiving an endless stream of gifts not exceeding the limit in any given time period. While the foregoing can be easily clarified and a possible loophole closed, there are two more serious issues that need urgent addressing.

Two steps forward

The Securities and Exchange Board of India (Sebi) is reportedly considering two changes to the takeover code which, unfortunately, will not improve the lot of the independent or small investor. The first is to make it mandatory for the boards of target companies to advise shareholders on how to weigh competing bids. This happens in well-regulated markets but is not obligatory in India. Ideally, if a board, with its knowledge of the company it runs, offers impartial advice in a fiduciary capacity on which is the best suitor for the company, then that will indeed be helpful to small shareholders who have neither the acumen nor the resources to get expert advice. On the other hand, people who run a company cannot be impartial about it, particularly when the induction of a new shareholder will be of enormous significance to them.

Tinkering with the code

It has been said before but is worth repeating. The India-Russia bilateral relationship is like a good, stable marriage &mdash; lots of substance, not much excitement! The India-US relationship used to be the exact opposite, like a stormy affair, lots of excitement, very little substance. Things are changing. There is much greater substance to the India-US relationship today &mdash; at all the three levels that matter in a bilateral relationship: people-to-people (P-2-P), business-to-business (B-2-B) and government-to-government. The recent visit of Russian Prime Minister Vladimir Putin showed very clearly that the government-to-government relationship is robust and doing well, but there is still not enough of a P-2-P and a B-2-B relationship worth talking about. Things are improving a bit on the B-2-B front, as reported from time to time in the columns of this newspaper, with more Indian companies doing business in Russia and the other way round.

Put in more

It is true that, at 119 crore person-days, the employment created this year by the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), the government&rsquo;s flagship programme, is tiny, a fraction of one percentage point of the total employment in the country. But a more meaningful way of looking at its potential impact, however, is to see that around half the country&rsquo;s workforce has registered for a job under it (21.5 crore individuals have registered for MNREGS job cards so far this year, and 9.7 crore have got them, out of the total workforce of around 45 crore). In other words, in just three years, the programme has come a long way. Indeed, while there are no all-India figures, there are enough reports of a shortage of labour for agriculture in several key states in the harvesting season. This, in turn, has led to wage rates in the country going up.

Guaranteeing unemployment

It is heartening for this newspaper to see all major political parties lend their support to the campaign against paid news launched by the Editors&rsquo; Guild of India. Paid news is a phenomenon that attracted public attention last year during the elections when it came to light that some political parties and candidates had paid news organisations not for advertising time or space but for news time or space, and got published or aired news favourable to them. While it is true that there are many among both political parties and the media guilty of encouraging this unwholesome phenomenon of paid news, the fact also is that there is a sizeable section of upright opinion both among politicians and journalists who resent and abhor this practice. Hence, increasing the circle of dissenters is important to outlawing the practice.

Paying the piper

The opening up of Indian higher education to foreign competition by allowing foreign universities to start campuses in India has the potential to have the same impact as the post-1991 opening up had on the overall economy. A final assessment of the move has to await the enactment of the legislation and the shape it eventually takes. The best case scenario is global best practices coming in and forcing Indian higher education to reform in the face of competition. The worst case scenario is second-class institutions coming in and that too only in areas with good revenue potential, taking away some of the good teachers from leading national institutions and eventually having little impact on the overall scene in terms of quality or quantity (seats).

Compete and survive

Most shareholders in Indian companies tend to interpret their rights in terms of dividends, bonuses, rights and the gains that accrue from capital appreciation. Their notion of the right to information is, at best, hazy and mostly limited to an opaque annual report and the odd stock exchange filing on significant developments. Likewise, their role in takeover battles tends to be limited to which side has the better offer price, irrespective of the impact on corporate governance or the long-term interests of the company. In that context, the Securities and Exchange Board of India&rsquo;s proposal to make it mandatory for boards of target companies to guide shareholders in the event of competing offers is a significant leap forward in terms of strengthening shareholder rights.

Guiding light

There are two aspects to the summons Gujarat Chief Minister Narendra Modi has been issued by the Special Investigation Team (SIT) to appear before it, in connection with the Gulbarg Society massacre of 2002, a legal one and a political one. Mr Modi appears to be concentrating on the legal one at the moment and legal eagle Ram Jethmalani has been pressed into service &mdash; appearing on behalf of one of the BJP MLAs accused of having a role in the post-Godhra riots, Jethmalani has argued that the April 2009 order by the Supreme Court (to establish the SIT) was taken without hearing the 63 accused, which include Mr Modi. The Supreme Court has indicated it will hear Jethmalani&rsquo;s plea early next month. So one course of action for Mr Modi is to argue that he should not be asked to make a personal appearance before the Supreme Court case is disposed off.

Mr Modi's stand with SIT

The day the Reserve Bank of India (RBI) raised the repo and reverse repo rates by 25 basis points, taking them back to just last March&rsquo;s pre-election level, the Indian Meteorological Department announced that this year&rsquo;s monsoon is likely to be normal. The message from the moneymakers, the rainmakers and the macroeconomic authorities is clear &mdash; yesterday&rsquo;s &ldquo;skewflation&rdquo; will not be allowed to become tomorrow&rsquo;s generalised inflation. The central bank may have surprised all with the timing of its announcement, but the better informed would not have been surprised by the direction of policy. Even though senior RBI officials told the media after the January 28 policy statement was issued that the central bank would not raise rates till its next policy statement in April, the central bank&rsquo;s own statement did not give that assurance.

Message to market

Incisive columns and editorial comment by top opinion leaders

Page 550 - Editorial Comment