Results this weekend from electoral contests in Europe are likely to reshape the European Union&rsquo;s approach to the crisis in which it finds itself. In France, 17 years of rightist domination ended; Fran&ccedil;ois Hollande will be the first Socialist occupant of the Elysee Palace since Francois Mitterand. And, Greece&rsquo;s austerity-hit electorate handed out a confused and angry mandate. Greece&rsquo;s mainstream parties, which had agreed on a sensible set of proposals, had their share of votes reduced by two-thirds; extremists of the left and the right have benefited on the back of ugly anti-German and anti-immigrant rhetoric. It looks more likely than ever that Greece will be forced to leave the single currency, even though an overwhelming majority of Greeks want to stay in it.

Rebalancing strategy

Business Standard

On the heels of Standard &amp; Poor&rsquo;s decision to downgrade its India outlook, Morgan Stanley has issued a warning that India is vulnerable to a balance of payments shock. This cannot be a surprise to the Reserve Bank of India, since its governor has described the situation as &ldquo;disturbing&rdquo;. An unhealthy combination of a record trade gap and a record current account deficit (CAD) has left the central bank perched on a tightrope. The CAD may hit four per cent of GDP in 2011-12 (it exceeded 4.3 per cent in the third quarter). The trade deficit, at $185 billion, was about 10.5 per cent of GDP. External obligations, at $335 billion, also exceed reserves ($295 billion). The government hopes to reduce the CAD to below three per cent in 2012-13. That is still very high and not easy to achieve. The trade gap may widen. In March 2012, exports were down 5.7 per cent year-on-year. IT industry guidances suggest slow 2012-13 growth.

Touching 54

India&rsquo;s dependence on external sources of energy has vastly complicated its foreign policy. Of late, one of the biggest flashpoints has been relations with Iran, which was India&rsquo;s second-biggest supplier of crude oil. As the relationship between Iran and the West broke down following concerns over Iran&rsquo;s nuclear programme, concerns began to be expressed that India and China would &ldquo;undermine&rdquo; Western sanctions on Iranian oil. The biggest achievement of US Secretary of State Hillary Clinton&rsquo;s trip to India seems to have been that this issue can no longer be seen as an irritant on Capitol Hill &mdash; where voices had been raised in anger at what was seen as a &ldquo;betrayal&rdquo;. Indeed, the dependence of some Indian refineries on Iranian oil seems to have been decreased.

Thinking about Teheran

In her speech to the Congress Parliamentary Party on Wednesday, Congress President Sonia Gandhi said that the party and its government were &ldquo;fully committed&rdquo; to strengthening federalism. This comes after the United Progressive Alliance-controlled government organised a meeting with state chief ministers on May 5 that saw CM after CM berating the Centre for the design of the National Counter-Terrorism Centre, or NCTC.

Failing on federalism

A few proposals from overseas companies to invest in Indian drug makers are stuck with the government, although 100 per cent foreign direct investment is allowed in the sector under the automatic route. That&rsquo;s because domestic producers have argued that multinational pharmaceutical corporations are buying local companies only to stifle competition. The day is not distant, they say, when the Indian market will be controlled by multinationals, and medicine will become prohibitively expensive for the aam admi. So, guidelines are being framed that will enable the Competition Commission of India (CCI) to vet all cases of acquisition of an Indian drug maker by an overseas company. And permission will come with stringent riders: the acquired company will have to take the CCI&rsquo;s permission before discontinuing production of an essential drug.

Bitterest pill

On Friday, more clearly than ever before, India&rsquo;s political class revealed its deepest, darkest fear: that someone, somewhere, is smiling. In an enviable feat of cross-party unanimity in this partisan and divided age, India&rsquo;s parliamentarians decided that a cartoon by that unparalleled chronicler of the birth of independent India, Shankar, was too offensive for a government-sanctioned textbook on modern Indian history. The cartoon, from 1949, showed Jawaharlal Nehru and B R Ambedkar whipping a snail labelled &ldquo;Constitution&rdquo;; it was Shankar&rsquo;s comment on how long the Constitution-drafting process was taking. It was more than harmless enough, and more than informative enough, to find a place in a history textbook.

Open to ridicule 

The United Progressive Alliance&rsquo;s second government, which has become almost synonymous with inaction, is accustomed to citing its unruly allies as responsible for its inability to make policy. Major reforms like foreign direct investment (FDI) in retail or a land acquisition law, for example, have been put on hold because alliance partners like Mamata Banerjee have declared themselves uncomfortable with their passage. Yet, in the Cabinet&rsquo;s treatment of the long-awaited insurance Bill, it becomes clear that the Congress party needs no outside agency to catalyse its paralysis; it is capable of holding up reform perfectly well on its own. The Insurance Laws (Amendment) Bill, 2008, has been hanging fire since that year; industry observers have said the Bill is crucial for mobilising more funds for that sector, reducing its costs of operation, and modernising mergers and acquisitions. On Thursday, however, the Cabinet deferred its passage.

The anti-reform Congress

The green bench of the Himachal Pradesh High Court has ordered Jaiprakash Associates Ltd to dismantle the thermal power unit at the company&rsquo;s cement plant campus in Bagheri, near Solan (Himachal Pradesh), and also pay Rs 100 crore as damages for obtaining environmental clearance in a &ldquo;dubious&rdquo; manner. The bench, moreover, turned down the company&rsquo;s plea that, since the thermal plant was already functioning, it should not be demolished. Though this judicial decree is path-breaking in some respects, instances of companies being asked to shut down their running units on ecological considerations are not that rare any more. Not too long ago, the Supreme Court barred the French multinational Lafarge from supplying limestone from Meghalaya to a cement plant in Bangladesh on environmental grounds. The Supreme Court&rsquo;s forest bench took exception to tribal land in the East Khasi Hill District being transferred to the French company, and ordered mining to be stopped.

Greening the white water

It is impossible to feel optimistic about Air India without completely suspending rational judgement. Every time the state-owned airline looks like it might be slowly turning its fate around, it runs into trouble, usually self-inflicted. The latest round of flight cancellations by the airline will be particularly damaging; India&rsquo;s flyers are coming to detest uncertainty, and they will be willing to pay a greater-than-ever premium to ensure that the flight they&rsquo;re booking at least takes off. The pilots&rsquo; strike that has caused the cancellations is a reflection of two things: first, the inability of the airline&rsquo;s pilots to realise the perils that the company is in, and their addiction to blackmailing the government. And, second, the incomplete and ill-judged nature of the merger between the erstwhile Indian Airlines and Air India.

Your move, Mr Singh

Stability is not the hallmark of the Indian government&rsquo;s trade policies. This is true particularly of trade in agricultural products, which is switched on or switched off frequently &mdash; often at inappropriate times. The slew of recent decisions regarding the liberalisation of exports of agricultural commodities, such as sugar, cotton, onion, milk casein and staple cereals like wheat and rice, provides ample evidence of this. Curiously, most of these decisions were taken not by the ministries concerned, but by groups of ministers (GoMs) or at a still higher level. Such an ill-conceived approach towards exports helps neither to gainfully tap the global market to fetch better prices, nor to steady domestic commodity markets. Even an administrative decision like doing away with the minimum export price (MEP) for onion was taken at a meeting chaired by the prime minister.

Destroying farm exports

There are considerable implications for corporate governance in the structure of the initial public offering (IPO) of&nbsp;Facebook. The equity of the eight-year-old social media platform is divided into Class A and Class B shares. Class A shares control one vote each, while Class B shares control 10 votes each. A Class B share sold to the general public is transformed into a Class A share. This enables the founders, who own Class B shares, to keep control &mdash; while raising large sums without debt service obligations. Mark Zuckerberg will control over 57 per cent of voting rights while owning about 28 per cent of Class B equity. Further dilutions by Class B shareholders may actually lead to greater concentration of voting control as the sold shares convert to Class A.

Trusting Zuckerberg

The robustness of an economy is partly reflected in the health and standing of its multinational or transnational companies. This, in turn, reveals the relative strength of its different industries and the prowess of leading corporate entities. The Indian School of Business, in co-operation with a Brazilian counterpart, has constructed a transnational index to rank Indian multinationals and thereby gain available insights.

Indian MNCs get robust

According to a recent study in the&nbsp;Lancet Infectious Diseases&nbsp;journal, the drug-resistant bacterial strain known as New Delhi metallo-beta-lactamase 1, or NDM-1, has spread to 40 countries. This is quite remarkable, given that it was only discovered in 2008 in the UK, among patients who had recently been hospitalised in India. The &ldquo;superbug&rdquo;, as it is commonly known, is feared for its ability to cause many types of bacteria to become resistant to most antibiotics. This could turn previously incurable diseases fatal. It is, of course, important to both control its spread and look urgently for alternative antibiotics that are more effective against it. If not, the consequences could be catastrophic &mdash; a health hazard more formidable than any encountered in the recent past.

The spreading superbug

In a set of misguided restrictions, the Telecom Regulatory Authority of India, or Trai, has ordered all television channels to ensure that advertisements do not exceed 12 minutes in any given hour. These 12 minutes cannot be carried over onto later hours. Advertisements should be at least 15 minutes apart &mdash; except on movie channels, when they should be at least 30 minutes apart. There are a number of other, related proscriptions &mdash; banning drop-down advertisements, for example, and saying the average volume level of advertisements should not be greater than that of the programme they are sponsoring. Broadcasters, understandably, are up in arms: they have claimed this could impact their advertising revenues by as much as 40 per cent in some cases. Spot rates for television advertising have already fallen considerably, reflecting the weak economy and competition among channels.

Freedom to advertise

Lutyens&rsquo; Delhi &ndash; the beauteous heart of the capital city, with tree-lined boulevards and colonial bungalows &ndash; was built by rulers (the British) to set themselves apart from the ruled. Eighty years after the bungalows were built by Edwin Lutyens, after whom the area is named in official papers as the Lutyens Bungalow Zone or LBZ, they are crumbling edifices caught in a time warp, or rebuilt by their occupants to modernise the interiors and (illegally) add rooms.

Red-light zone

New York Life last month exited its decade-long life insurance partnership with Max India by selling its 26 per cent stake to Mitsui Sumitomo for Rs 2,731 crore. Investors in quite a few other life insurance companies are also looking to sell their stake. That&rsquo;s because the business case for the country&rsquo;s 23 private life insurers doesn&rsquo;t look very good. Twelve years after the sector was thrown open for private investment, only a handful of them are profitable. Income from new premiums has declined for at least six quarters. Rising gold and real estate prices reveal those are preferred destinations for investment. Unit-linked insurance plans, or Ulips, went out of favour once the regulator capped the expenses that could be deducted from the premium.

At a premium?

Most of the world&rsquo;s money consists of electronic ledger entries that happen to be backed by one central bank or another. At need, they may be turned into paper inscribed with promises to pay the bearer a certain sum. If someone brandishes one of those pieces of paper at a central bank governor and demands redemption, he would merely exchange it for a similar piece of paper. The magic of a currency is that so long as people use it to exchange goods and services requiring real resources to produce, it has value.

Virtual monetary reality 

The analyses by this newspaper of corporate results for the fourth quarter of 2011-12 reveal that the trend of falling profit margins continues, allied to persistent inflation and a growth slowdown. This is the fifth successive quarter that margins have fallen and equity analysts have shaved forward estimates. Consensus earnings estimates of 2012-13 for the Nifty basket have been downgraded by two or three per cent since fourth-quarter results were received.

Margin trouble

The parliamentary standing committee on rural development has scrutinised the Centre&rsquo;s Land Acquisition, Rehabilitation and Resettlement Bill, 2011 (the LARR Bill), and suggested several major changes. In particular, the committee thinks it desirable that the government be strictly limited in its acquisition of land &mdash; to projects with a clear infrastructural or social purpose. Further, its definition of such purposes specifically excludes any projects in which private, profit-driven players participate. The minister responsible for the LARR Bill&rsquo;s passage, Rural Development Minister Jairam Ramesh, has rightly rejected these parts of the committee&rsquo;s recommendations, pointing out that &ldquo;industrialisation and urbanisation have become inevitable and desirable&rdquo;.

Public-private purpose

The second UPA government is observing its third anniversary. The second of those three years saw rampant and large-scale corruption emerge as a hot-button issue. The third and latest year has been disastrous for the economy. So the two principal attributes credited to Prime Minister Manmohan Singh &ndash; as a man of probity and as the author of economic reforms &ndash; have ceased to be political assets for the Congress party and the government. Those favourably inclined to the prime minister have been advising him for the past many months to get down to business. Despite the occasional promises made about action being forthcoming, what has been in evidence is more drift. And so the government gives every impression of being rudderless, limp and without energy or ideas, at a time when the Congress faces severe challenges in retaining popular support in key states across the country. The economy meanwhile is in danger of slipping from distress into crisis.

Time for change

The government&rsquo;s approach to controlling India&rsquo;s black money economy, as outlined in the White Paper on the issue tabled in Parliament on Monday, is misguided. Central to the suggestions that are immediately operable is a scheme similar to past voluntary disclosures of income, which the White Paper says can be a &ldquo;one-time option&rdquo; to encourage Indians to bring back illicit money stashed abroad. Of course, as the Paper itself mentions while introducing the possibility, such schemes have often been tried before &mdash; meaning that it is not to be viewed as credibly being a &ldquo;one-time&rdquo; option. This actually sets up perverse incentives for tax evaders. It might help the government manage India&rsquo;s troubled external balances, but it is not a genuine solution to the problem. A related error in judgement is visible in the proposal that tax immunity be extended towards those with gold holdings, if they come forward to make deposits.

Black into white

Incisive columns and editorial comment by top opinion leaders

Page 621 - Editorial Comment