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

Business Standard

The Indian Pharmaceutical Alliance, which represents a large section of the country&rsquo;s pharmaceutical companies, has taken the rather unusual step of asking the government to come to the aid of the industry, which has seen a string of foreign acquisitions of Indian players. None of these acquisitions is hostile. So, where does the government come in, particularly when there is no security issue at stake? It is also quite clear that some of these deals, like the most celebrated one of Ranbaxy going to its Japanese acquirer Daiichi Sankyo, have been very attractively priced. So, the industry has been doing quite well and managements have been able to exit at a premium. If the industry were in trouble and, therefore, needing government assistance, the scenario would have been different.

Not the right medicine

The government&rsquo;s decision not to extend the tenure of VK Sibal as Director General of the Directorate General of Hydrocarbons (DGH) brings to an end yet another saga of controversy surrounding the office of a sectoral regulator. Whatever the merits of the criticism of Mr Sibal&rsquo;s various decisions, and a new regulator may choose to reflect on some of these, there is certainly a case for the government to take a relook at the procedure that allows two of the four member-team that clears an operator&rsquo;s capex to be from the operator&rsquo;s firm itself &mdash; the other two are from the DGH and the petroleum ministry. There are larger issues that arise from Mr Sibal&rsquo;s departure. The most important being the limited set from which governments tend to pick persons for such jobs. It is a sad commentary on the institution that so many of our regulators are retired civil servants.

Rethinking regulators

Even before the global financial crisis of 2008 precipitated, there was a widening view among policy analysts that the issue of cross-border capital movements needed to be re-examined. It was all very well for the International Monetary Fund (IMF), which was closely identified with the full-convertibility view, to argue that this was the best way to give comfort to foreign investors and also ensure that currencies and country risk were priced correctly. The reality was far more ambiguous. The experience of many emerging markets that opened up to foreign investors indicated great vulnerability to massive swings in the direction of capital flows. Even the IMF became somewhat more guarded in its advocacy of full convertibility after the East Asian crisis of 1997-98, emphasising the need for certain conditions to be fulfilled before it was viable or desirable.

Revisiting the orthodoxy

The re-election of Hamid Karzai as President of Afghanistan augurs well for the future of democracy-building in this troubled nation. Whatever the merits and demerits of the election process, President Karzai still retains the ability to keep his nation united and ensure that it has a fighting chance to win the war against the Taliban and Al Qaeda. Karzai&rsquo;s critics may have a good case against him on many counts, but he remains the best bet for the future of Afghan democracy. His main rival, Dr Abdullah Abdullah, is also a good and competent man, but he would not have been able to fill the space that would have been vacated by Karzai, if for no other reason than his ethnic identity. As a Pashtun, Karzai represents a larger, and politically more important, segment of the Afghan people. Retaining their commitment to democracy-building is vital, before Afghan democracy can focus on empowering other, minority, groups like Dr Abdullah&rsquo;s Tajik brethren.

Saving Afghan democracy

The purchase of 200 tonnes of gold by the Reserve Bank of India (RBI) from the International Monetary Fund (IMF) for $6.7 billion has evoked a rather sentimental response in this country. The memory of the 67 tonnes of gold that was pledged to the Bank of England in 1991 as India struggled to find its way out of a severe balance-of-payments crisis still rankles. Almost 19 years later, the country&rsquo;s ability to buy three times that amount with barely a ripple being caused in its $285-billion foreign exchange reserves is a huge vindication of all the things that various governments have over the years done to reinforce and consolidate on the reform process that was initiated in the aftermath of the 1991 crisis. Well, perhaps a little bit of sentimentality is appropriate, but this is also an opportunity to look back over the past two decades and reflect on whether the reform process delivered on its promises.

All that glitters...

With close to 500 officially confirmed deaths reported in India due to H1N1 influenza, popularly still referred to as &ldquo;swine flu&rdquo;, and over 6,000 globally in the last six months, the flu pandemic seems far from under control. The danger of the virus turning even more virulent has, in fact, risen manifold with the onset of winter. A recent World Health Organisation (WHO) report has already indicated a spurt in influenza cases in the temperate zone countries where winter has set in early. With international travel picking up, thanks to an improvement in the global economic situation, and the weather having already changed in India, it is only a matter of time before H1N1 cases begin to surge here as well. The H1N1 virus is already rampant in the country and people coming from abroad are adding to this infection load owing largely to lax screening of incoming passengers at the country&rsquo;s 22 international airports.

If winter comes...

Justice RV Raveendran recusing himself from the case of the warring Ambani brothers on the grounds that his daughter was employed in a law firm which was advising Mukesh Ambani&rsquo;s Reliance Industries Limited (RIL) is, at one level, in keeping with the finest traditions of the judiciary. Justice, as Justice Raveendran has been quoted as saying, must not only be done, it must be seen to be done. Indeed, it is in keeping with the tradition that, on the same day, in the same Supreme Court, Justice Markandey Katju also recused himself &mdash; this time in a case involving the same RIL and the government-owned Bharat Petroleum. In Justice Katju&rsquo;s case, he cited shares held by his wife in RIL as the reason for wanting to recuse himself. While we have to laud the two judges for being so transparent, especially at a time when the judiciary has come increasingly under the good governance scanner, there is a case for assessing what constitutes conflict of interest.

And then there were none...

The trade numbers for September 2009, released earlier this week by the Ministry of Commerce and Industry, broadly conform to the trends that are visible in the global economy. The year 2008-09 was a sharply differentiated year for exports. From April-September 2008, exports grew by over 20 per cent year-on-year. By sharp contrast, they dropped by over 20 per cent year-on-year during the October 2008-March 2009 period. Given the state of the global economy in the first half of 2009-10, the high base of the previous year would have been expected to result in rather sharp declines during the current year, and so it was. During April-September 2009, exports declined by almost 30 per cent in dollar terms. However, tracking the turnaround in major destination economies, the rate of decline has been gradually easing off. It fell below 20 per cent last in August and has come in at 13.8 per cent in September.

Bottoming out

It is an eloquent comment on the deplorable state of the country&rsquo;s higher education system that Visva Bharati, a central university founded by none else than India&rsquo;s first Nobel laureate Rabindra Nath Tagore, was allowed to remain shut for about six weeks from September 24. Worse, neither the education ministry at the Centre nor the government of West Bengal, where the university is located, intervened in any constructive manner to defuse the crisis. At the centre of the controversy was the university&rsquo;s vice-chancellor (VC), Rajat Kanta Ray, an academician of repute. The striking employees and teachers had alleged corruption, financial mismanagement and nepotism in a few of the decisions Mr Ray had taken. The VC&rsquo;s response to these charges was to call for an external inquiry not only into the allegations against his conduct, but also into the &ldquo;activities&rdquo; of some of the workers.

Abode of turmoil

In a recent article (October 19, 2009), Financial Times quoted Tim Adams, former under secretary for International Affairs at the US Treasury, as saying: &ldquo;The exchange rate is the tail on the dog. If you get the fundamentals right, the exchange rate will follow over time.

A V Rajwade: Managing G3 currencies

Prime Minister Manmohan Singh flagged all the right issues and pressed all the right buttons inaugurating the India Economic Summit in New Delhi on Sunday. But his speech had more of what is already known and not enough of what he thinks he can do with the new political opportunity at hand. The whole world knows his government is committed to making economic growth socially inclusive and that we need political consensus to speed up governance and policy reform. The whole world also knows that India managed to come out of the trans-Atlantic financial crisis and the global economic slowdown less bruised than most others and that the economy is likely to grow at the long-term average growth rate of the past two decades, namely 6.5 per cent, rather than the impressive 9.0 per cent of the last half a decade.

India economic opportunity

The Central government&rsquo;s proposal to amend the Constitution, during the winter session of Parliament, to make it obligatory for the states to ensure autonomy and democratic functioning of cooperatives is a welcome, if belated, move. However, there are limits to what even constitutional amendments can do in reviving institutions that have been deliberately subverted by rival political institutions at the state level. If a Constitution amendment was all that was required to revive panchayats, the 73rd amendment ought to have done it. Cynics would suggest that state-level politicians will do to this amendment on cooperatives what they did to the one on panchayats. Barring exceptions in a few sectors and states, the cooperative sector, particularly cooperative credit societies numbering over 120 million, has for a long time been in a shambles with all kinds of vested interests using them as personal fiefdoms and ladders to political power and means of personal aggrandisement.

Cooperating for cooperatives

A common thread runs through the political crisis in Karnataka and the investigations into the money-laundering by Jharkhand&rsquo;s former chief minister Madhu Koda. This is the rising influence of resource extracting contractors and other moneyed interests in national politics. The ancient regime of the &ldquo;Licence-Permit Raj&rdquo; was supposed to end the role of money power in politics. But India&rsquo;s unreformed party political funding system and the new opportunities for politicians to seek kickbacks from business interests have contributed to a snowballing of rent-seeking. Most political parties are guilty of contributing to this syndrome.

Mining political rents

The Internet Corporation for Assigned Names and Numbers (Icann) is launching a fast-track process for &ldquo;internationalised domain names&rdquo;. Put simply, this will enable website domain names and extensions in characters in various languages that have non-Latin scripts. Finally, Indians would be able to create and visit websites by using any Indian language. The Internet will no longer be limited to only those who can read and type in English. While international organisations and technologies evolve to enable greater inclusiveness in electronic domains, we find that India lags far behind in looking after the interests of its own citizens. PCs were sold in India for many years without a standardised set of Indian language fonts and scripts preloaded. By the time they finally were, private operators had developed and popularised hundreds of electronic fonts &mdash; most of them could not be read by conventional programs and Web browsers.

Icann&#39;t

Given how they&rsquo;ve followed the prime minister&rsquo;s statements on an increased disinvestment target, it is obvious the timing of Securities and Exchange Board of India&rsquo;s (Sebi&rsquo;s) moves on follow-on public offers (FPOs) is related to that &mdash; needless to say, the policy applies to all companies, not just government-owned ones.

More follow-on required

With all the media and public focus on Pakistan&rsquo;s political problems, few are paying attention to its economic woes. After five years of 6 per cent growth, the Pakistan economy has slumped to a 2 per cent rate of growth in 2008-09, making the country the region&rsquo;s worst performer.

Pakistan's slowdown

One striking feature of the economic landscape over the past few months is how sharply asset and, particularly, commodity prices have rebounded from their troughs of late 2008 and early 2009. For example, crude oil prices, which had dropped below $40 per barrel when there were widespread expectations that the global economy was entering a deep and prolonged recession, have rapidly reached the $80 mark in recent weeks and threaten to go higher. Even though economic conditions have improved during this period, they have hardly done so to the extent that one would expect such a rebound in the prices of oil and other commodities. From the perspective of demand-supply balance, in most sectors it is still a buyer&rsquo;s market, with capacity utilisation levels nowhere near the peaks achieved in the pre-crisis boom. So, something else is obviously at work.

Futures shock?

Prime Minister Manmohan Singh&rsquo;s assertion at the India Economic Summit that the futures market needs to be improved for better price discovery and regulation is well placed. For, this important function of futures trading is currently not being performed efficiently by the Indian commodity exchanges. Nor are the other key objectives of futures trading, such as price stability and hedging, being adequately served. As a result, both traders and investors are being denied the kind of guidance they look for from futures trading. While global commodity exchanges probably perform this role more competently, the price signals they transmit are often not of much value to Indian commodity sector players because the domestic commodities market is not yet fully integrated with the global market.

Fixing India's 'future'

The Index of Industrial Production numbers for September 2009 revealed a growth rate of 9.1 per cent for the overall index and 9.3 per cent for the manufacturing sector, which comprises almost 80 per cent of the index. This was slower, but only slightly so, than the impressive 10.4 per cent notched up by the general index last month. This took the first half (April-September) growth rate of the index up to 6.5 per cent, appreciably better than the 5 per cent recorded in the corresponding period of 2008-09. The steady acceleration of the index over the past three months reinforces the perception that the economy is on a relatively robust, even if still moderate, recovery path.

Breathing easier

The release of the first discussion paper on the introduction of a goods and services tax (GST) is a welcome relief in that the country is now a step closer to the much-needed reform in its indirect tax regime. The 57-page document, produced by the empowered committee of state finance ministers and made public on Tuesday, however, leaves no one in doubt that the government will not be able to meet its target of rolling out GST from April 2010. Several legislative hurdles, at the Centre and in states, have to be cleared and a consensus on the key features of the new taxation system is yet to be reached among all the state finance ministers. For the finance ministry and the empowered committee, therefore, the task of putting in place a GST system has just begun. The tougher part of the battle lies ahead.

Miles to go

Incisive columns and editorial comment by top opinion leaders

Page 559 - Editorial Comment