Merger among public sector banks, on the government&rsquo;s agenda ever since reforms began, now seems to be off the priority list. The idea was given a special push in P Chidambaram&rsquo;s 2005 Budget Speech and bank chairmen thereafter picked it up on cue. Equally on cue, bank trade unions vehemently protested and moved those political parties which would give them a hearing. With Mr Chidambaram no longer shepherding the finance ministry, the idea has now lost some of its backers. The last nail seems to have been driven into the coffin of the idea, for the time being at least, by the Reserve Bank of India downgrading its priority and instead declaring financial inclusion to be very important.

Big no longer beautiful

Business Standard

The terms of reference of the Justice BN Srikrishna Committee on Telangana may be wide enough to satisfy all, but so wide that they may satisfy none. In constituting the committee the Central government seems to have been guided by the principle that no one with any knowledge of the problems of the state should be involved in seeking a solution. It is an interesting, and perhaps even a laudable, principle.

Listening to Andhra Pradesh

The Pune terror attack was only to be expected once the government announced its decision to resume official-level talks with Pakistan. That the Islamic jehadi and extremist elements in South Asia, as a whole, are opposed to any reconciliation between India and Pakistan is by now well established. The attempts on the life of former Pakistan President Pervez Musharraf and the assassination of Benazir Bhutto were part of the same agenda that has brought terror to the doorstep of so many in India and Pakistan. This is not to absolve elements within the Pakistan establishment who may be equally opposed to a normalisation of the bilateral relationship based on a practical and pragmatic resolution of longstanding differences and disputes between India and Pakistan.

Talking to Pakistan

It is tempting to dismiss the West Bengal government&rsquo;s decision last week to enforce 10 per cent reservation of jobs for Muslims in the state as vote-bank politics. The Left Front-ruled state has to go for elections next year and the Communist Party of India (Marxist), which leads the Front, is facing its biggest electoral challenge ever, after staying in power for well over three decades. Add to this the fact that Muslims account for about one-fourth of West Bengal&rsquo;s total population and it becomes clear why rival political parties have labelled the decision on job reservation as a move to placate a large and influential chunk of the electorate before the elections.

Going beyond reservation

While the jury is still out on whether Environment Minister Jairam Ramesh did the right thing by putting a moratorium on the use of Bt brinjal, or whether he simply played to the gallery by only taking into account the concerns of the environmentalists, policy-makers need to ponder over some other implications. The introduction of Bt cotton, for instance, led to production more than doubling between 2002-03 and 2007-08, from 13.6 million bales to 31.5 million bales &mdash; as a result of this rapid growth, India became the world&rsquo;s second-largest cotton producer in 2006-07 and the second-largest exporter of cotton the year after. Such was the benefit seen by the farmer that, by 2008, almost 65 per cent of the area under cotton was using the Bt variety. So, while the decision on Bt brinjal can be justified on the grounds that the research is inconclusive and it&rsquo;s better to be safe than sorry, the cotton experience suggests this may be replicated all over again.

Farming growth

Acommittee has been appointed under Rakesh Mohan, former deputy governor of the Reserve Bank of India, to devise a framework for a national transport development policy, keeping in mind the requirements of the next two decades and emerging technological trends. Its aim will be to create an environment that encourages competitive pricing and coordination between alternative modes of transport. It will also assess the investments required in different transport sectors like road, rail, air and shipping, and identify the role of the states and the private sector in meeting emerging needs. The committee will look at the resource-versus-cost scenario and suggest policy correctives to set right deviations from the optimum. The aim will be not so much to suggest ways of using multimodal options to meet logistical needs as to look at why particular modes of travel, like the railways, have not developed as well as they should have given the implied costs.

Committee for inaction

The agriculture ministry&rsquo;s revised farm output projections for this year, indicating just about a 7.5 per cent downturn in foodgrain production despite the worst drought in recent years, lend themselves to some significant inferences. For one, the performance of the crops has turned out to be far better than what was feared. The earlier projections, released in November last, had put the likely crop loss at over 21 million tonnes, or nearly 19 per cent, in the kharif season alone. The revised numbers indicate not only a lower loss in the kharif output but also marginally better production in the ongoing rabi. While the kharif foodgrain harvest is now assessed at 99.85 million tonnes, against 96.63 million tonnes projected earlier, the rabi output has been put at 117 million tonnes. In fact, this is only the second time in over a decade that the rabi foodgrain production has exceeded that of kharif.

The next green revolution

The key lesson that emerged from the collective soul-searching by the many central bankers who attended the RBI&rsquo;s conference (Challenges to central banking in the wake of the financial crisis) in Mumbai last weekend is that yesterday&rsquo;s heresies are fast becoming the new orthodoxy .For one, the financial crisis (that incidentally struck during a period of considerable price stability across economies) has shown that the narrow focus on inflation that underpinned monetary policy for more than a couple of decades does not necessarily guarantee financial stability. Policy-makers thus appear willing to jettison the minimalist &ldquo;single-target single-instrument&rdquo; approach of concentrating solely on checking headline inflation with variations in a short-term interest rate. The new orthodoxy demands constant vigil on a number of fronts and the nimble use of a variety of policy instruments.

New orthodoxy

The reported plea by the fertiliser and chemicals ministry to put on hold the Cabinet&rsquo;s recent decision to increase the level of mandatory mixing of ethanol with petrol seems reasonable and the government should accept it. The country&rsquo;s total production of ethanol, largely from the by-products of the sugar industry, is inadequate to meet the demand of the chemical industry. Besides, ethanol production also keeps fluctuating in tandem with the production of sugarcane and sugar. Now that the sugar output has been on the downturn since last year, the availability of ethanol has dipped, causing hardships for the industry. Even between 2006 and 2008, when the country reaped a bumper harvest of sugarcane, the sugar industry frequently defaulted on honouring its contracts for the supply of ethanol to the oil marketing companies for 5 per cent doping with petrol.

Time to quit doping

Finance Minister Pranab Mukherjee may have snubbed Railway Minister Mamata Banerjee by agreeing to clear the 24 projects worth Rs 15,000 crore that she wanted for her ministry with the proviso that she would have to find the money for them herself. But there&rsquo;s something eerily familiar with the script. More than anything else, it represents a return to the old days of &ldquo;commanding heights&rdquo;. Coming as it did, a day after the government finally made some moves on reducing fertiliser subsidies, it signalled the confusion within the government on whether it was finally ready to go ahead with economic reforms. In the weeks prior to this, this newspaper carried several reports on how the government was going back on its stated policy of encouraging private sector players in the field of defence production. These reports cited various examples of contracts where the government took a position that went against private sector Indian firms.

Commanding heights return

Finally, they have bitten the bullet on fertiliser subsidy. For the past three years, the Union government has agonised on the issue of mounting expenditure on this account and has not had the courage to cut the subsidy. While Finance Minister Pranab Mukherjee announced his intent to introduce a nutrient-based subsidy (NBS) in his last Budget Speech, he has finally shown courage to do so on the eve of this year&rsquo;s Budget presentation. Whatever fertiliser minister Alagiri&rsquo;s politically motivated reservations, this policy initiative has got the Cabinet&rsquo;s approval. Even as the government proposes to free some fertilisers from price control, it has promised to hike urea price, which remains under government control, by 10 per cent. Urea price was last revised in February 2002. Twice before in the past eight years, successive governments had proposed doing this but had to roll back the move in the face of organised opposition.

The soil for change

The controversy around Bt brinjal has served at least one good purpose. The government has fast-tracked the process of setting up a biotechnology regulator. A regulatory authority is to be set up under an Act of Parliament. A longstanding proposal that has been gathering dust in the Department of Biotechnology has seen the light of day. The Union Cabinet is expected to consider this proposal and bring it to Parliament. The draft of the Bill, which is currently in the public domain, seeks to create a three-member National Biotechnology Regulatory Authority (NBRA) to regulate and monitor the application of biotechnology for various purposes. It will oversee biotechnology businesses with separate divisions for agriculture and allied fields; human and animal health; and industry and environment. While the proposed structure of the NBRA has met with general approval, there are some issues that merit further consideration.

Biotechnology regulation

The decision of the opposition National Democratic Alliance (NDA) to appoint Mr Lal Krishna Advani as its &ldquo;working&rdquo; chairperson, in the place of an ailing Mr Atal Behari Vajpayee, could not have come a day sooner. It is time the main opposition alliance revived itself, stopped moping and whining about last year&rsquo;s defeat and started playing the role of a constructive and purposive opposition. It is possible that the NDA has woken up to the need for a more active leadership after watching the discomfort of some of the allies of the Congress party in the United Progressive Alliance (UPA). But even if Mr Sharad Pawar, Mr Karunanidhi, Ms Mamata Banerjee and Mr Mulayam Singh Yadav or Ms Mayawati come on board, it may still be difficult for the BJP to unseat the UPA government.

Towards a working NDA

Railway Minister Mamata Banerjee has perhaps unwittingly raised the bar for herself for the coming Budget by unveiling a vision for the railways for the next 10 years which borders on the grandiose. If the railways&rsquo; share of GDP is to rise from the present 1.18 per cent to 3 per cent, then the extra effort has to begin now.

Task before Ms Banerjee

With all the media song and drama around the Union Budget and the hype and hope vested in it, there is a woeful lack of public discussion about state government finances. In India&rsquo;s federal system, the state of state finances is equally important for the stability and sustainability of the growth process.

The other budgets

The Central government&rsquo;s proposal to bring a Bill to Parliament in the ongoing Budget session to enact a dam safety Act seems to be a positive initiative, even though water is a state subject and so the effectiveness of this statue will depend on how well the states implement it. The Bill seeks to establish an institutional system for regular monitoring of the safety of large dams. The states will, of course, have to set up their own systems to carry out repairs and maintenance of large dams and ensure their safe, sound and risk-free operation. A national law may have been found necessary given that only a few states like Kerala and Bihar have their own dam safety statutes. According to the National Register of Large Dams (2009), there are 4,710 dams in service and another 390 are under construction. India has the potential to build more dams, given the vast untapped hydro-power and irrigation potential.

Dealing with dam failures

It is not easy undoing a dozen years of damage inflicted by two successive Union ministers for human resources development. Pity Mr Kapil Sibal. He has the dual task of reversing the bad decisions of both Mr Murali Manohar Joshi and Mr Arjun Singh and doing some good of his own. So, it is not surprising that Mr Sibal has been working at a scorching pace trying to overhaul India&rsquo;s archaic educational system. Whether it is reviewing the board examination system, overhauling the higher education system, building links across borders, setting up model colleges in educationally backward areas, or setting up central universities in states where they do not exist, he is trying everything.

Tread carefully Mr Sibal

In China the railway system becomes bigger every year, in India railway ministers&rsquo; speeches become longer by the year! But pardon Ms Mamata Banerjee, the minister for railways, for having an eye on next year&rsquo;s elections in West Bengal. If she defeats the Left Front, she could contribute more to India&rsquo;s economic development than she hopes to with her plans for the Indian Railways. If Ms Banerjee is judged harshly for the poor performance of the railways this current fiscal, and for all the predictable populism of her budgetary proposals, it is because she has raised expectations by publishing her Vision 2020 for the Indian Railways. The sharp variance between the revised estimates of expenditure and the Budget estimates of seven months ago suggests that Ms Banerjee has been thinking too much about the long term and not enough about the here and now. Neither freight nor passenger rates have been touched.

Vision 2020 or 2011?

The precise role and import of the finance ministry&rsquo;s annual Economic Survey released before the Budget remains somewhat fuzzy. As a review of the government&rsquo;s performance for the past year and as a compendium of key events, policies and data, it is certainly a useful document for the researcher community. However, that alone can hardly justify the quantum of manpower and other resources that go into producing the hefty document. The policy prescriptions that the survey provides are usually eminently sensible but often do not consider the compulsions of real-politik. Thus, the recommendations provide a measure of how much the pressure of lobbies and vote-banks lead the government to stray from this ideal. This year, the Survey introduces a new chapter on the &ldquo;microfoundations of inclusive growth&rdquo; that spells out a new agenda of governance reform.

Enabling the unable

The Finance Commission, appointed every five years, performs a constitutional function of recommending the distribution of the &ldquo;divisible pool&rdquo; of Union taxes between the Central and state governments. The challenge is to divide fairly and efficiently. The former requires an impartial assessment of the needs of a state, while the latter ensures that the commission does not end up perversely rewarding backwardness. Efficiency also requires rewarding fiscal prudence. Thus the share is not purely on the basis of tax collection, nor on state GDP, nor on population. It is a judicious mix of all these factors and more. But, as the report of the Thirteenth Finance Commission (TFC) observes, there are three additional challenges: Central revenue now increasingly includes a non-shareable portion (e.g.

Devolving fiscal reform

One joke about Bollywood endings, one quote from Kautilya, but para after para of 1980s-style sector-specific duty exemptions made finance minister Pranab Mukherjee&rsquo;s budget speech a rather dull affair, but for the noisy interlude provided by a united Opposition that was determined to play spoilsport. The dullness was, however, understandable since Budget 2010-11 was almost along predictable lines. The fiscal deficit to GDP ratio was brought down to exactly the level the finance minister had promised: 5.5 percent, not a decimal point less or more; the excise duty rates were hiked by 2 percentage points, as we first reported they would be in the columns of this newspaper; not much tinkering with customs duties, despite the Economic Survey&rsquo;s suggestion that the peak rate be brought down to 7.5 per cent; and, a series of plans and schemes aimed at making the growth process more inclusive.

Good housekeeping

Incisive columns and editorial comment by top opinion leaders

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