There is a spring in the Indian economy&rsquo;s step. The past month has seen a spate of good news, barring the bad news with respect to food price inflation, and the potential risk of rising inflationary expectations. The last quarter&rsquo;s national income growth came in at 7.9 per cent against the expected 6.5 per cent; the index of industrial production went up by 10.35 per cent in October, from 9.6 per cent in September; and exports reversed a 13-month decline, growing by an impressive 18.3 per cent in November. All of this was reflected in renewed revenue buoyancy. So, it is not surprising that Moody&rsquo;s has revised from &ldquo;stable&rdquo; to &ldquo;positive&rdquo; its local currency rating for India. While this still remains below the even higher ratings of Standard &amp; Poor&rsquo;s and Fitch, the expectations are that India ratings will go northwards. The concern remains inflation, which is mainly supply-induced.

Spring in winter

Business Standard

The Union finance ministry&rsquo;s mid-year fiscal Review, tabled in Parliament last week, notes very correctly that the &ldquo;current period represents a crossroads for the Indian economy&rdquo;. Having weathered the global economic downturn, the Indian economy has performed better than expected. Hence, the Review&rsquo;s upbeat tone is understandable. Yet, the Review offers an honest account of the challenges ahead, hence the view that India is at a crossroads. Much of the near 7.0 per cent growth this year has come from the government&rsquo;s fiscal stimulus packages. As the government gradually winds down the stimulus, which it must in the interests of fiscal prudence, private consumption and investment will have to step in to sustain the growth process. For this, the economy needs policy reform and sustained investment, especially in infrastructure, that can drive the growth process forward.

Moving from crossroads

A white paper from the railways is eagerly looked forward to as it offers a whole lot of data which is not always readily available. It also adopts a longer-term perspective than do annual budget speeches. This helps inform the view on where the organisation is headed and what needs doing to get it to move along the right course. The latest exercise sets out to do something more &mdash; debunk the record of the previous minister, Lalu Prasad, and in particular question the unprecedented Rs 90,000 crore of cash surplus that he claimed the railways generated under him. Any attempt to remove window dressing from financial reporting and paint a truer picture should be welcomed. But the manner in which the exercise has been carried out raises the issue whether Ms Banerjee is more interested in running down her predecessor than delivering good performance herself. It also takes away from the forward-looking nature of the exercise.

Going off track

It is a measure of the overwhelming presence of the leadership of the original duo, Atal Bihari Vajpayee and Lal Krishna Advani, in the rise of the Bharatiya Janata Party (BJP) that the party has had some difficulty in making the transition from the Vajpayee-Advani era. But in choosing Ms Sushma Swaraj for the post of the Leader of Opposition in the Lok Sabha and Mr Arun Jaitley in the Rajya Sabha, the BJP has put its best foot forward. The challenge before the new duo is to strike a working relationship that is as productive as the one Mr Vajpayee and Mr Advani had. The party&rsquo;s choice for president, Mr Nitin Gadkari, is more a regional political leader from Maharashtra than a national leader, which Ms Swaraj certainly has become after having contested elections in various states, including Karnataka. In opting for a Maharashtrian, the BJP may be preparing for a post-Thackeray and post-Pawar era in Maharashtra politics.

BJP's new trio

While the government has said it will stick to its January auction of four slots for 3G mobile services, it seems more a case of the government trying to prove a point. There is little doubt the process has been badly mucked up and while many tried to blame Communications Minister A Raja for the delay, the real issue is that the government has not been able to get the armed forces to vacate the spectrum, though the issue has been around for several years.

The fourth 'G' of 3G

A committee of the Karnataka Assembly has issued a severe indictment of the manner in which Bangalore&rsquo;s new international airport was set up under the public private partnership (PPP) route and the standard of operations it has been able to achieve. A body of legislators will have a political agenda and this one is no exception, coming out strongly in favour of full public role in ownership and execution, as also a strong local branding. But there is enough besides in the report to make all those who wish to see the public sector inadequacies of the past partially addressed by successful infrastructure projects in the PPP mode to sit up and take note. The first and most glaring negative is that when the project was first globally tendered and the winning global consortium of Siemens, Unique Zurich and L&amp;T was selected as builders and concessionaires, there was no mention that the existing HAL airport would be closed down.

Take-off troubles

For decades, people have argued that the problem with the electoral system in India is that candidates/parties are winning with smaller and smaller shares of the popular vote. So, while the Congress party ruled with less than 30 per cent of the popular mandate in the earlier years, parties are in power with even less. The problem has got further accentuated with coalition politics now having become a way of life in the country, at both the central as well as state levels. The solution, proposed by Gujarat Chief Minister Narendra Modi, is to have compulsory voting at the local body level &mdash; presumably, if the results are to Modi&rsquo;s liking, he would like this to be done at the central level presuming the BJP comes back to power and that, within that setup, he counts for something.

Compulsory choice

Tax reform is always tricky business. Nothing should be done in a hurry and once reform is undertaken, the government must ensure policy stability. These principles should not be forgotten in implementing a unified indirect tax structure with a goods and services tax (GST). The benefits of GST are by now well established. For businesses, the benefit will be the availability of input tax credit across all categories of inputs, whether goods or services. A GST will also eliminate the plethora of ad hoc taxes such as surcharges and entry taxes that have become widespread in India&rsquo;s federal fiscal space. However, the problem is that the transition to the new regime will take place within our federal fiscal regime in which states have considerable autonomy. Thus, at times, the narrow self-interest of state governments will have to be balanced against the principles of efficient taxation.

Better safe than sorry

Every time inflation hits the headlines, the political blame game begins. This time too, as food prices soar, everyone in the ruling coalition and the government is passing the buck. It is possible that there is no one guilty party and a combination of factors, involving several actors, is responsible for the current price spiral. Of all the proximate factors, the most important appears to be expectations. Each time prices begin to rise, the expectation of a further rise can drive prices further up. That is precisely what is happening. At least one explanation of government spokespersons, that food price inflation is due to improved terms of trade for farmers, is not borne out by any data as yet. The gap between farm-gate prices and retail prices is so wide that farmers do not seem to be the most important beneficiaries of the recent spurt. Middlemen, wholesale and retail traders seem to be creaming off the better part of what consumers pay for food, especially vegetables.

Fixing food prices

By floating tenders to auction discarded electronic items for their appropriate recycling and safe disposal, the New Delhi Municipal Council (NDMC) seems to have set an example for the other civic bodies to emulate. Beginning with the sale of its own electronic waste (e-waste) to those competent of appropriately recycling such hazardous material, the NDMC proposes to expand this exercise to the residential and commercial areas falling under its jurisdiction. Mobile vans will visit different areas on designated days for collection of e-waste. Some six companies are said to have already obtained the environment ministry&rsquo;s approval for scientific recycling of junked mobile phones, television sets, fused bulbs and other electrical and electronic equipment. These household gadgets contain hazardous substances and chemicals, including lead, cadmium, mercury, barium, arsenic and the like.

The business of waste

Union Home Minister Palaniappan Chidambaram must be complimented for the loud thinking he did on India&rsquo;s internal security administration and counter-terrorism machinery. His key proposal to create an internal security czar, to whom all agencies dealing with internal security issues report, is well taken. The implied criticism that today there are parallel centres of authority is also correct. The proposal to create a National Counter-terrorism Centre (NCTC) that will prevent, contain and respond to terrorist attacks is also well taken. There are two aspects to Mr Chidambaram&rsquo;s proposals &mdash; first, a reform and restructuring of his own ministry; second, institutional changes that involve other ministries, including the Prime Minister&rsquo;s Office and the Cabinet Secretariat. As Home Minister, Mr Chidambaram has already done a lot to revitalise a moribund ministry that has suffered for long due to a lack of imaginative leadership.

Chidambaram's proposals

Once bitten, twice shy. After the Sharm el Sheikh fiasco, the government has gone into a blue funk on dealing with Pakistan. While Pakistan&rsquo;s unhelpful response to investigations into the 26/11 Mumbai terror attacks continues to make it difficult for India, it is also clear that any prime ministerial initiative now requires more political energy than may be available. Prime Minister Manmohan Singh was right to pose the rhetorical question, &ldquo;Who does one deal with in Pakistan?&rdquo; Between President Asif Ali Zardari, Prime Minister Syed Yousuf Raza Gilani and Army chief Ashfaq Parvez Kayani, there are three parallel centres of power in Pakistan. If one is to believe that Prime Minister Gilani has the backing of General Kayani, then there are at least two centres of power within the government and another outside, in the person of the Opposition leader Mian Mohammad Nawaz Sharif.

Engaging Pakistan

Last week&rsquo;s ruling of the appellate court of the World Trade Organisation (WTO) opening China&rsquo;s doors wider to entertainment exports from the United States can also boost Indian cinema&rsquo;s markets in China. The WTO appellate court has upheld an earlier ruling that China has been too restrictive in its import policies with respect to foreign music, cinema, literature and theatre. The WTO dispute settlement body will have to confirm this decision within 30 days after which China gets another 30 days to reply on how it proposes to respond to the ruling. If China falls in line with WTO discipline, it will have to adopt a more liberal import policy with respect to literature, film, music and other entertainment products, including mobile phone ring tones. China could still use its censor boards to restrict imports, and it can impose some ceiling on total imports, but it cannot any longer shut out foreign entertainment and literature from its markets.

Bollywood in Beijing

Cricket used to be an exciting game because every ball was an event. But that was before the game became big business. Which is why the pitch at Kotla should be hailed as a refreshing change, and not the demon everyone is making it out to be. Cricket became indisputably the batsman&rsquo;s paradise in the 2000s. With television taking over the game, the administrators organised more matches in the 2000s: 464 Tests compared with 347 in the 1990s and 1,402 one-day internationals (933 in the 1990s) to go with IPL, World Twenty20 and the Champions League. But more matches alone wouldn&rsquo;t suffice. So we got more commercials per over and, often, fewer deliveries. That, too, failed to quench the commercial thirst. They wanted more runs per match, and more runs per over, and that the matches last the distance. So pitches became flatter. Perth lost pace and Sydney its turn. India&rsquo;s mud cakes got baked to remove cracks and West Indian pitches lost their bite.

Reverse swing at Kotla

A working group&rsquo;s report on autonomy for Jammu &amp; Kashmir has sparked fresh debate on a contentious issue, debate that is likely to generate more heat than light. Arun Jaitley, a member of the group (one of five set up by the Prime Minister), has already condemned the report, asserting that the group has not met since September 2007, and has not approved the report that was handed over by its chairman (a retired Supreme Court judge) to the chief minister of the state last week. Within the Kashmir Valley, the separatists are known to be uninterested in the autonomy issue, being focused on a tripartite deal with Pakistan. Even the People&rsquo;s Democratic Party (PDP), led by Mehbooba Mufti, would like to go beyond autonomy (which operates in a Centre-state context) and take in &ldquo;self-rule&rdquo; &mdash; which brings in an external dimension. However, the PDP has not defined the term, and made no written submissions to the working group.

Unhelpful report

Nearly all large cities in India are in the grip of a serious water shortage, as revealed in a series of reports in this paper, which is likely to get worse as migration continues and rising incomes raise people&rsquo;s need for water. Mumbai is merely the worst affected right now because of poor rain last season, but the crisis goes deeper than one truant monsoon. As global warming makes the weather more unpredictable, the water economy of urban India will have to be planned without depending on reservoirs getting routinely filled up by rain every year. In this, the country is burdened with the historical legacy of cities having come up where commerce suited them to be rather than where they ought to have been with plentiful water and good weather enabling a disease- and hassle-free life. There is reason to be pessimistic about the future because most of the solutions being contemplated will not deliver.

Self-made water woes

Economists are known to be a fairly harmless lot with a penchant for disagreeing with each other. This can be mildly annoying or simply amusing, depending on one&rsquo;s perspective, and has given rise to a rather tame brand of &ldquo;economist&rdquo; jokes. But when the economists happen to belong to different agencies of the government and differ on their forecasts or their opinion on policy, the discord could have deeper consequences. Take the case of GDP growth forecasts for 2009-10. The Reserve Bank of India has a forecast of 6 per cent for the year. The Prime Minister&rsquo;s Council of Economic Advisers (CEA) has an official forecast of 6.5 per cent, but recent statements by its chairman suggest that it could revise its forecast up to a range of 7-7.5 per cent. The deputy chairman of the Planning Commission believes that growth could be somewhat higher than 7 per cent.

Tower of Babel

The national biofuel policy announced by the government last week is well-intentioned but is not really practical. It aims for achieving a 20 per cent blending of biofuels with petrol as well as diesel by 2017. Given that even the 5 per cent ethanol doping target &mdash; raised to 10 per cent last October &mdash; is yet to be achieved makes the target quite unachievable. The sugar industry, which is the major producer of ethanol (from its by-product molasses), and the oil marketing companies continue to wrangle over the pricing of ethanol. Thanks to government intervention, they had entered into a three-year contract (which expired on October 31) for the supply of ethanol at Rs 21.50 a litre, but many sugar mills defaulted, preferring to sell the ethanol to potable liquor manufacturers and others who were willing to pay higher prices.

Wasted effort

A year and a half after the chaotic launch of bus rapid transit in Delhi, BRT has been introduced in Ahmedabad to an altogether different reception. As several other cities are pursuing similar projects it is necessary to compare the two and learn useful lessons which can take the idea forward. The two projects may bear the same name but they are quite different in many ways. BRT was introduced in Delhi on a very busy section already extensively used by public transport.

Lessons to make BRT work

Even before the dust has settled from last week&rsquo;s status quo monetary policy announcement, analysts are already recommending and predicting tightening actions by the Reserve Bank of India (RBI) as early as December. Whether circumstances will change so dramatically for the better over the next couple of months is a legitimate question, the answer to which will determine the appropriate timing of any monetary response. As of now, the nature of the response is being seen by many as a largely predictable one &mdash; beginning with an increase in the cash reserve ratio and moving fairly quickly on to increases in the benchmark repo and reverse repo rates. But, it is important to point out that these standard responses to steadily increasing inflationary pressures will have to be done in an already complicated environment.

Lurking dangers

The India of tomorrow cannot be built from Delhi alone, said Prime Minister Manmohan Singh over the weekend, the country needs a forward-looking and development-oriented leadership at state and local levels to go forward. This observation could not have been more timely. In one state after another, irrespective of the political stability of the party or parties in power, there is a woeful lack of focus on governance.

State of the states

Incisive columns and editorial comment by top opinion leaders

Page 558 - Editorial Comment