The Securities and Exchange Board of India (Sebi) has made it cheaper for investors to park their savings in mutual funds; with no entry loads, investors will receive units for the entire amount they plan to invest. Distributors, who so far have received the 2.25 per cent load as a commission from the asset management company, will now have to do without this.

No front-loading

Business Standard

It is not clear how much money the government was hoping Bharat Sanchar Nigam Ltd (BSNL), the public sector telecom firm, would raise from its initial public offering (IPO) of shares. Whatever the figure, it is obvious that the IPO will now have to be put on the backburner, after the company&rsquo;s disastrous results.

Dial a disaster

The findings of a study sponsored by the British Food Standards Agency, that organic food is no healthier and provides no significant nutritional benefit when compared with conventionally produced food, may have irked the proponents of organic agriculture but it comes as no surprise to farm scientists. This latter group had always believed and argued that, qualitatively, there is hardly any difference between organically and inorganically produced foods.

A false choice

Bubble economies don&rsquo;t last, and crises bring you back to reality. The truth of both these assertions has become manifest in recent weeks. Consider the sectors where demand first nosedived, and has now revived&mdash;automobiles and housing&mdash;as well as other sectors where business models based on high-flying customers have been turned around. In all of them, businessmen see more clearly than before that the fortune lies at the bottom of CK Prahalad&rsquo;s pyramid.

Waking up to the mass market

Air India&rsquo;s impecunious Maharaja is now going to offer low-cost hospitality. The airline&rsquo;s chief executive, Arvind Jadhav, has articulated one of the most sweeping turnaround plans that India&rsquo;s national carrier has ever formulated. But if the Maharaja&rsquo;s wan smile lacks cheer, it&rsquo;s because the eight-step path charted by the National Aviation Co of India Ltd (Nacil) is virtually impossible to implement. Though he is barely three months into his job, Mr Jadhav knows this as much as anybody else. That explains his statement that the &ldquo;painful exercise is going to hurt a lot of people&rdquo;. The question is whether any of Air India&rsquo;s 31,500 employees is willing to share that pain. Mr Jadhav is silent on that aspect&mdash;which is why what he has spelt out looks like more wish than plan.

On a wing and a prayer

Most people assume that the Bills passed by Parliament become the law of the land. In recent times, however, the government has taken to notifying only selected parts of Bills passed, and then signed into law by the President. Take the Competition Act. Though passed in 2002, it was only in March this year that the government appointed the Competition Commission&rsquo;s members and chairman. And even now, the government has not notified Sections 5 and 6 of the Act, which deal with the regulation of mergers and acquisitions. Ironically, Section 1(3) of the Act allows for this possibility and says different provisions of the Act will come into force from the day they are notified. It is true that businesses have come out against the Act providing a maximum of 210 days for the Commission to give its verdict on M&amp;As.

Legislation - piecemeal

India&rsquo;s comprehensive economic partnership agreement with South Korea, coming after the free trade agreement that it signed with Singapore in 2005, can turn out to be significantly more beneficial than the immediate gains that accrue from freer trade. It could lead to more Korean investment in India, and the use of India as a low-cost manufacturing base for export to third-country markets. It signals the coming together of Asian economies, and the greater integration of the Asian market, so far dominated by China&rsquo;s growing influence in the region. For Korea, the agreement gives it an important advantage in that its companies can now compete more effectively in India against rivals from Japan and even China&mdash;as India has lowered tariffs for Korea on 85 per cent of its imports (Korea in turn has dropped tariffs for 90 per cent of its imports).

A strategic partnership

It is now widely accepted that the faith placed in independent directors, to improve the standards of corporate governance, has often been misplaced. Most of them, and not just in the case of Satyam Computers, tend to go along with the promoters who appoint them. Another experiment with &lsquo;independents&rsquo;, in this case as experts, appears to be going the same way. Consider the case of the director-general of hydrocarbons, VK Sibal, who recently cited reports by some independent experts to validate his claim that the capital costs of Reliance Industries&rsquo; operations in the Krishna-Godavari Basin were not exaggerated, as alleged by ADAG chief Anil Ambani. One of these was from the Mustang Group, which ADAG officials later pointed out had done a lot of consulting work for Reliance, and so could not be regarded as independent.

Judging oneself

Double-digit inflation may be a thing of the past, with the wholesale price index now in negative terrain, but that brings little relief to most people when food price inflation remains untamed. The prices of quite a few essential food items, notably pulses, sugar, vegetables and fruits, have been rising quite sharply, even doubling in one year in some cases. A study released recently by the Associated Chamber of Commerce and Industry (Assocham) reported that households have curtailed their intake of dals, a key source of protein, due to the unaffordable prices. The per capita consumption of pulses has plummeted to a mere 11 kg this year, less than half of what it was in the 1960s (27 kg). Indeed, Assocham projects it to drop further to 9 kg in the later part of the year as pulse prices are unlikely to soften. The scenario for vegetables and fruits is no different, with some of them selling at prices that are multiples of the levels last year.

Dealing with food inflation

With the government stiffening the minimum qualifications for contractors to bid for various infrastructure projects, there is a fear that the new conditions may end up favouring the big boys. By excluding the smaller firms, the government may also be driving up costs since the competition will be more restricted than before. The immediate provocation for the new criteria is the Request for Qualifications (RFQ) for various National Highway Authority of India (NHAI) projects. To qualify for a Rs 500 crore project, for instance, a firm should have executed projects worth at least Rs 1,000 crore in the last five years (as against Rs 500 crore stipulated till now). Given the country&rsquo;s need to invest vast sums in the physical infrastructure each year, it obviously needs a large number of players to do the job, and they can gain experience and acquire expertise only if they are encouraged to make their entry.

Building entrepreneurs

The numbers for the Index of Industrial Production for June 2009, published yesterday, indicate quite clearly that the early signs of a recovery in the previous month were no flash in the pan. The overall index grew by 7.8 per cent over June 2008, hardly symptomatic of sluggishness. All three components of the index registered impressive growth rates. Mining grew by 15.4 per cent, Manufacturing by 7.3 per cent and Electricity by 8 per cent. These numbers talk of a clear recovery, and take the growth numbers for the April-June quarter to much more reassuring levels. Looking at the more disaggregated picture, 12 out of 17 industry segments registered positive growth, a proportion that has been steadily climbing over the past few months. There were some lopsided figures, though, with Other Manufacturing Industries, a highly diversified set, and Wood &amp; Wood Products growing by about 32 per cent and 26 per cent, respectively.

Will upbeat numbers hold?

The worst fears about a swine flu epidemic are, unfortunately, coming true. A few weeks ago, it was just isolated cases of people returning from abroad, or their kin, reporting positive for the H1N1 infection; now the number of cases has begun to swell by the day, topping 1,100 in all. Deaths on account of this disease have risen to nearly a dozen in less than a week, and are also on the rise. While three states, including the worst-hit Maharashtra, have invoked the law on epidemics to cope with this menace, others need to do so too. The World Health Organisation (WHO) has already pronounced this as the fastest-spreading pandemic in history; between April-end (when the first case was formally diagnosed in Mexico) and now, the scourge has spread to over 120 countries and infected nearly 2,15,000 people, leading to 1,810 deaths.

The flu spreads

The draft direct tax code, released for discussion on Wednesday and scheduled to be placed before Parliament for its consideration during the winter session, is a complete rewriting of the country&rsquo;s direct tax regime, and the most radical such move in half a century. It has features that are mostly welcome, but also elements that will generate debate&mdash;and hopefully lead to a review. The broad thrust is along the right lines, because the code further moderates income tax rates, making them among the most attractive in the world if one leaves out city-states like Dubai, Singapore and Hong Kong. It thereby reduces the incentive for tax evasion, since the tax rate up to an annual income of Rs 25 lakh is just 20 per cent. The code also rationalises incentives for savings, through the introduction of an EET (Exempt savings, Exempt interest on savings, Tax on withdrawals) regime, which has much to recommend it because it taxes expenditure, not savings.

Radical tax changes

The Central Bureau of Investigation&rsquo;s probe into the favours allegedly shown to the Nhava Sheva International Container Terminal (NSICT) by the shipping ministry as well as the shipping regulator has come after unconscionable delay. The issues that the CBI is going to probe in the NSICT case &mdash; interference by the parent ministry and favouritism/laxity of the regulatory process &mdash; apply to other sectors as well. The government should use this opportunity to review and clean up the regulatory process in the different sectors.

Regulatory purgatory

Speeches made on Independence Day are rarely remembered on the morrow. That is in part because most of our national leaders have not mastered the art of formal oratory. Atal Behari Vajpayee, for instance, could be electrifying at an election rally, but he was mostly a bore when he reached the Red Fort. In part, it is because I-Day speeches tend to be written with the intention of touching all the right buttons politically (promise something for farmers, women, armed forces, minorities and the like, mention good relations with neighbours, and so on), not to move the audience that is physically present and the much larger one watching on television.

Unmemorable speeches

It is hard to understand what the leaders of the Bhartiya Janata Party (BJP) think they are doing. In the wake of the party&rsquo;s electoral defeat, its leader in Parliament first stepped down after accepting responsibility, then agreed to stay on for six months, and now looks like staying on indefinitely. No one else offered to resign for the electoral reverse, except the outspoken Yashwant Sinha who quit more in protest than anything else, and who has been sidelined for his pains. Arun Shourie lashed out too, and has been similarly sidelined. Two parliamentary party positions were filled through nomination, only for Jaswant Singh to blow a fuse. And now there is open revolt in Rajasthan, after the party president decided (Congress-style, it may be noted) to remove the leader of the opposition in the state assembly&mdash;who, it turns out, enjoys the support of 80 per cent of the party&rsquo;s legislators in the state.

Turmoil in the BJP

An accurate gauge for measuring a problem is the first requirement for finding a solution. A doctor who cannot read a patient&rsquo;s pulse or temperature is unlikely to know what the problem is, and what to do about it. Ditto for the economy; monetary policy is likely to be off the mark if the measures for inflation, like the wholesale price index, are faulty and misleading. In recent weeks, the index has been reporting an absolute decline in prices. But the truth is that the index has become so out of date as to be practically useless; out of date because it measures (and gives weight to) the prices of products that have become less important to the economy, and ignores in relative terms those that have done the opposite.

Which Price Index?

The difficulties in the government borrowing a record sum of Rs 400,000 crore this year, as proposed in the Budget, are becoming apparent. Such an outsize programme could drive up interest rates, which would adversely affect bond prices.

Overseas money no panacea

Most public goods in India are provided by the second and third tiers of government &mdash; states and local bodies &mdash; but fiscal decentralisation has made slow progress. While states have made some gains through federalism, they have been loath to pass on these gains to local bodies. This is despite the clear evidence that states which decentralise more tend to benefit more than others.

Money for the third tier

A study based on satellite imagery, by the US National Aeronautical and Space Administration (Nasa), says that North India&rsquo;s ground water table is dropping by nearly a foot every year. The estimation of total annual water extraction, at around 17.7 billion cubic metres (BCM) in four states (Punjab, Haryana, Rajasthan and Delhi) between 2002 and 2008, is 35 per cent higher than the government&rsquo;s assessment of 13.2 BCM. The study, published in the latest issue of Nature, the peer-reviewed scientific journal, reckons the total water depletion in the region in this period at a staggering 109 cubic km, twice the capacity of the country&rsquo;s largest water reservoir. Since the withdrawal of water is far higher than the recharge, this amounts to mining underground reserves built over thousands of years. The implications for the agriculture-based economy of the region as well as for national food security are obvious.

Dire water warning

Taking a fresh look at historical characters happens routinely in mature democracies. There have been enough historians re-evaluating the role of Nehru, and there is no shortage of interpretations of Gandhi. And the BJP leader Jaswant Singh&rsquo;s book on Mohammad Ali Jinnah is not the first to say that Jinnah was not to be solely blamed for the partition of India in 1947. Ayesha Jalal&rsquo;s The Sole Spokesperson, for instance, argued likewise, saying that he was merely using the threat of an independent state as a bargaining tool to ensure a better position for Muslims in India. For every view that Ms Jalal offers, however, there are others pointing to Jinnah being aided and abetted by the British who had played a game of divide and rule for decades and who did not trust &ldquo;Hindu&rdquo; India after the Congress launched its Quit India campaign at the height of World War II.

BJP's Jinnah obsession

Incisive columns and editorial comment by top opinion leaders

Page 566 - Editorial Comment