The collapse in India&rsquo;s growth over the past year and a half is driven by a deep-rooted unwillingness to invest on the part of corporate India. One reason for this is the high cost of capital in a restrictive, inflation-fighting interest-rate regime. And, the other reason is a climate of regulatory and policy uncertainty.

A false dawn

Business Standard

The government&rsquo;s proposal that a buffer stock of skimmed milk powder (SMP) be created in order to minimise volatility in milk prices is so unsound a proposition that it should be shelved. The proposal, sent to the inter-ministerial group on inflation by the food ministry, involves keeping a reserve stock of SMP with milk-processing units by offering them a handsome subsidy. The move, obviously, is in response to the milk industry&rsquo;s plea that private- and cooperative-sector dairies are laden with unsustainable SMP inventories &ndash; around 130,000 tonnes in total &ndash; which may impinge upon their capacity to buy fresh milk from farmers during the current flush season (when supplies swell). The procurement prices of milk may, thus, crash, hurting milk producers. The industry is also pleading for an export subsidy to get rid of the excess SMP stocks in view of the depressed international prices.

A dangerous intervention 

One of the suggestions of the Kelkar Committee on fiscal consolidation is that the government should increase its revenues over the next 24-36 months through the monetisation of its &ldquo;unutilised and under-utilised&rdquo; land resources in urban areas. Certainly, this does appear like money for nothing &mdash; and, if used to fund the build-up of capital assets by the government, could be a tempting course of action indeed.

Unreal estate management 

Over the next few months, Maruti Suzuki, Tata Motors, Ford, General Motors and Mahindra &amp; Mahindra will launch new sports utility vehicles (SUVs). That&rsquo;s because the market for SUVs is booming. Sales have grown 57 per cent in the first five months of this financial year (to 207,000 units), while passenger car and van sales have fallen 0.33 per cent, according to the Society of Indian Automobile Manufacturers. SUV sales were 15.6 per cent of car (and van) sales in April-August 2011-12; in April-August 2012-13, they became 24.6 per cent, or almost a quarter, of car sales. Other car makers, like Hyundai, Nissan and Toyota, are studying the market to launch low-cost mini SUVs &mdash; a clear signal that the market is ready to attain critical mass. Simultaneously, many argue SUVs should be taxed higher than cars because these are fuel guzzlers and the unintended beneficiaries of the subsidy on diesel.

Bigger, not better

Over the past three months, the rupee has recovered much of the ground that it lost in its precipitous fall to 57.16 to the dollar in July this year. Indeed, the rupee has seen a greater increase in value than any other Asian currency in recent weeks. Steady inflows from foreign institutional investors (FIIs), courted by the government to keep the capital markets happy, have let the currency steadily appreciate.

Don't forget the CAD

Those who tuned in to watch the debates between the two US presidential candidates will have been struck by how much the Republican challenger, Mitt Romney, rose above expectations. Mr Romney, who dived in the polls after he was secretly recorded writing off &ldquo;47 per cent&rdquo; of the electorate, seemed reasonable and moderate. President Barack Obama, who has a professorial and didactic air when talking about policy, chose not to pin Mr Romney down on his evasions about his policy platform. Thus Mr Romney could keep his message positive and upbeat. This will only have helped the former governor of Massachusetts with undecided voters &mdash; and, indeed, the first polls seem to suggest that he received a significant bump, of around two per cent, in closely contested swing states like Virginia, Ohio and Florida.

Fighting history's tide 

If DLF is right in its assertion that all the flats acquired from it by Robert Vadra&rsquo;s companies were at the ruling market prices &ndash; and the numbers cited with regard to prices per square foot seem to bear out the assertion &ndash; then Arvind Kejriwal and company have some explaining to do as to how and where they got their quite different sets of numbers.

Tell us more

The Union Cabinet has finally mustered the courage to allow 49 per cent overseas investment in insurance and repeat the clause for pensions. It&rsquo;s unclear how the government will rustle up the numbers to push the legislation through Parliament. But, cheap politics apart, there can&rsquo;t be any economic logic for opposing the long-delayed proposals. Increased foreign direct investment (FDI) in the insurance sector will lead to neither loss of jobs nor loss of ownership control by Indian entities. On the contrary, it will help bring in more products and hopefully better services for India&rsquo;s underinsured citizens. In India, total premiums underwritten each year are just about 4.5 per cent of GDP, compared with eight per cent in Japan and 9.5 per cent in Britain. The fact that the insurance sector needs capital is stating the obvious.

Long-awaited, necessary

The government&rsquo;s plan to create a Brahmaputra River Valley Authority makes little sense for several reasons. For one, the objective of the new authority &ndash; to put the waters of this extensive river system to gainful use instead of letting them wreak havoc in recurring floods &ndash; is no different from that for which the Brahmaputra Board was created in 1980 under an Act of Parliament. This goal has remained elusive and is unlikely to be realised by replacing the Board with another body &mdash; especially one with a governing system that may further complicate the process of taking consensus-based decisions. For, though the planned authority is to be chaired by the Union water resources minister, the chief ministers of all the riparian states will be its vice-chairmen. They will, obviously, have their own political agenda.

Rivers of dispute 

Anti-corruption activist Arvind Kejriwal&rsquo;s recent campaign against power tariff increases by distribution companies in Delhi raises many valid issues, but the manner in which he has chosen to register his protests is unlikely to further that cause beyond a point. Instead, the campaign is likely to get embroiled in avoidable controversies, leading even to its derailment.

Open access to all 

By clearing the Bill to amend the 60-year-old Forward Contracts (Regulation) Act, or FCRA, the Union Cabinet has sought to rectify a past error.

Forward the regulator

On October 5, the Directorate General of Civil Aviation, or DGCA, finally wrote to the troubled Kingfisher Airlines, asking it to show cause why its licence should not be revoked. Kingfisher&rsquo;s employees, many of whom have not been paid for seven months, are currently on strike; the company itself has declared a lockout till October 12. The company&rsquo;s share price, already low, has lost another quarter of its value. And last week Pratip Chaudhuri, chairman of State Bank of India (SBI), said there was &ldquo;no more room&rdquo; for bank loans to Kingfisher. It certainly looks like the end of the road for the airline &mdash; but is it? Its owners and management continue to insist that a revival plan is just around the corner, and it is reported that some online portals are selling tickets on the airline from October 13 onwards.

The Kingfisher exemption

The decision by the railway ministry to set up a Rail Tariff Authority to take care of periodic changes in passenger fares and freight rates needs to be welcomed in unequivocal terms. As C P Joshi, minister for road transport, is holding additional charge of the railway ministry and so may not have the perspective to initiate fresh policy moves in key areas, the thought process behind the move may have originated from the prime minister himself. The Cabinet&rsquo;s ability to take a positive decision in the matter has been enhanced by the end of the overbearing presence of Mamata Banerjee, West Bengal chief minister, who considered the Railways to be part of her fiefdom and was opposed to any passenger fare hike. To put it plainly, an inability to raise fares and freight rates to take care of rising costs will mean the kiss of death for the national carrier. Such a calamitous situation has to be avoided at all costs.

What Railways needs most

Prime Minister Manmohan Singh, addressing the annual conference of the Central Bureau of Investigation (CBI) and state anti-corruption bureaux, said that the Prevention of Corruption Act would be amended to focus on corporate bribery, and that investigative agencies should upgrade their &ldquo;skills and techniques&rdquo; to deal with &ldquo;newer methods of corruption&rdquo;. He added that his government &ldquo;stands firm in its commitment to do everything possible to ensure probity, transparency and accountability in governance&rdquo;. These are fine words, and should be welcomed. However, it is far from clear why the prime minister was addressing them to the CBI and its cohorts rather than to his own Cabinet. For here the government appears to be speaking in two voices; as the prime minister talks of the need to examine newer forms of corruption, his ministers are busy defending DLF&rsquo;s dealings with Robert Vadra well in advance of the full facts.

Loyalty above duty

The gradual roll back of the licence raj since 1991 was expected to, among other things, free business enterprises from the shackles of government red-tapism, unleash their &ldquo;animal spirits&rdquo; and catapult India into prosperity. The fact that two decades later, the Cabinet will soon consider the establishment of a National Investment Board (NIB) to fast-track clearances of large infrastructure projects suggests that the exercise has not been entirely successful. At one level, the NIB can thus be seen as a practical solution to an issue that has not just leashed animal spirits but also left India a critically infrastructure-deficient state. Given the plethora of clearances and approvals that complex projects require from a bewildering array of ministries and authorities, an empowered standing committee that can provide a single window of approvals certainly makes sense.

Fast-tracked problems 

The report of the committee appointed by the government to look into taxation-related matters, headed by Parthasarathi Shome, is now public. While much in the report can be questioned, it is certain that it can form the framework for the government to move forward on the high-profile tax disputes that have worried investors of late &mdash; particularly the one involving the transfer of Indian mobile phone operations from Hutchison Essar to Vodafone. The transfer took place in an offshore tax haven, as a result of which capital gains tax on the deal became disputed; when the income-tax department tried to get hold of the tax withholding liability from Vodafone, lengthy litigation ensued. The Bombay High Court ruled against Vodafone; that verdict was then overturned by the Supreme Court, which said the intent of the legislature was unclear.

Time to move on 

The Nobel Peace Prize for 2012 has been awarded to the European Union because it has &ldquo;for over six decades contributed to the advancement of peace and reconciliation, democracy and human rights in Europe&rdquo;. Coming as this does in the midst of a full-fledged European economic crisis &mdash; one with political overtones, as the right-wing riots in Athens accompanying the visit of German Chancellor Angela Merkel to that city show &mdash; the award has been, fairly predictably, attacked. This ranges from the infuriated, from Eurosceptic British tabloids &mdash; The Sun&rsquo;s headline was &ldquo;EU have got to be joking&rdquo;, and the Daily Mail went with &ldquo;Nobel Peace Prize for Idiocy&rdquo; &mdash; to the amused. More than one commentator pointed out that at least Europe did not win the Nobel Prize for economics; also common was the joke that Europe could do with the $1.4 million prize money.

Something worth saving   

On Friday, the ministry of statistics and programme implementation released its first estimates of industrial production for the month of August. Given that the index of industrial production (IIP) was 2.7 per cent higher than it was for the corresponding month in 2011, some were tempted into declaring that the worst was over, and that the long bottoming-out of the Indian manufacturing sector was finally over. However, such claims are considerably premature. Similar statements were made after a positive blip in the index earlier this year &ndash; the figure for May 2012, for example, stands at 2.5 per cent growth year-on-year &ndash; which eventually proved to be an illusory trend. It would be very dangerous for the government and the central bank to assume that these most recent data are in any way different.

Still at bottom

The long-standing dispute between Karnataka and Tamil Nadu over the sharing of the waters of the Cauvery river is back on the boil after a gap of several years &mdash; thanks mainly to the poor monsoon. Karnataka is facing its worst drought in decades, and flows into the Cauvery river basin have been 41 per cent less than normal. As a result, it has tried to deny water to Tamil Nadu, the lower riparian state. When the Cauvery River Authority asked Karnataka to release 9,000 cusecs of water daily till October 15, as per the interim award of the Cauvery Water Disputes Tribunal, Karnataka protested and asked for a review of the situation on the ground by a central team.

Cauvery isn't about rivalry

India&rsquo;s extremely poor score in successive years in the global hunger index (GHI) should remind policy makers of the unfinished agenda of liberalisation. In 2012, the International Food Policy Research Institute (IFPRI), which constructs the index, ranked India 65th out of 79 countries. In its South Asia report, India is clubbed with Nepal and Bangladesh in the category of &ldquo;alarming&rdquo; (just one rank better than &ldquo;extremely alarming&rdquo;); Pakistan and Sri Lanka come in at a higher rank of &ldquo;serious&rdquo; (below &ldquo;moderate&rdquo; and &ldquo;low&rdquo;). South Asia itself comes in at the bottom of the league, rubbing shoulders with sub-Saharan Africa. India cannot quite think of itself as being one of the most promising of emerging economies, an engine of future global economic growth, while these numbers remain true.

Still hungry

Mahanagar Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL), the two big state-controlled telecom companies, have written to the government asking that it bear the entire cost of the additional spectrum assigned to the two giants. Under the recommendations that are before the Empowered Group of Ministers, or EGoM, all telecom companies with more than 4.4 gigahertz of spectrum are to pay a one-time fee for it.

Govt must exit telecom PSUs

Incisive columns and editorial comment by top opinion leaders

Page 609 - Editorial Comment