The government&rsquo;s recent announcement on an action plan to ensure the supply of adequate amounts of coal for new power projects with an estimated capacity of more than 50,000 mw is a significant step, though how far it will help resolve the electricity sector&rsquo;s problems is a moot point. The action plan, approved by a committee of secretaries with none else than the prime minister&rsquo;s principal secretary at its head, stipulates that Coal India Limited will sign fuel supply agreements with power producing companies that will commission projects before March 2015 and for which they have entered into long-term power-purchase agreements with distribution entities. And for power plants that have been commissioned by December 2011, the fuel supply agreement will have to be signed before the end of the current financial year. If Coal India fails to meet its commitment under the fuel supply agreeement, it will have to arrange for the supply of coal through imports.

Fix the tariff

Business Standard

Throughout his 16-year career, Rahul Dravid has been Indian cricket&rsquo;s go-to man. Need someone to see out the new ball in testing conditions on a pitch that is helping the bowlers? Dravid was there. Need someone to keep wickets to accommodate a specialist batsman in one-day cricket? Enter, Dravid. Need a safe pair of hands in the slip cordon or someone willing to field in close-in positions? Dravid again. So it was no surprise when Indian cricket&rsquo;s crisis engendered calls for the ageing stars to be replaced, it was Dravid who stood up and called it a day. Not that he isn&rsquo;t good enough &mdash; five centuries in 2011 including three in England are testimony to his tremendous ability &mdash; but he felt it was the right time to leave.

A gentleman walks

The Supreme Court&rsquo;s startling directive to the Centre to set up a &ldquo;special committee&rdquo; to expedite river interlinking, which the Court declared was in the &ldquo;national interest&rdquo;, has caused the grandiose project to be, once again, closely examined. The idea has been fashionable in fits and starts; it was conceived as far back as the 1970s, and was promoted by the National Democratic Alliance (NDA) government after the 2002 drought.

Giant and impractical 

Monetary policy is most effective when it is unanticipated, and the Reserve Bank of India&rsquo;s (RBI&rsquo;s) decision to cut the cash reserve ratio, or CRR, for banks by 75 basis points on Friday was indeed unexpected. This is a pleasant change, for the central bank has in recent times chosen to focus on its regular schedule of reviews instead of responding to the needs of the market more spontaneously.

RBI waits for FM

The government&rsquo;s sudden move to ban cotton exports &ndash; rolled back in less than a week following anger from cotton farmers and adverse political fallout &mdash; reflects very poorly on its policy management. The commerce ministry clamped down on exports without clear logic; prior consultations with other ministries concerned were also cursory or non-existent. Unsurprisingly, most players in the cotton sector were taken by surprise. The agriculture ministry was out of the loop, and so was the group of ministers that normally deals with key import-export issues involving agri-commodities. This mindless exercise hurt not only farmers, who still have considerable unsold stocks of the fibre, but also exporters, who had entered into supply contracts with foreign buyers after formally registering the exports with the government. Worst hit were those whose consignments were lying at the ports but were stopped from being shipped.

A welcome rollback

A M Naik&rsquo;s commitment to Larsen &amp; Toubro, or L&amp;T, is beyond doubt. He even wants to move to an apartment near the company&rsquo;s Powai factory once he retires so that &ldquo;when I die, I will be facing L&amp;T&rdquo;. That statement, made to this newspaper a couple of years ago, can be interpreted in two ways. One, it shows his devotion to an organisation he has served for almost half a century for 14 hours a day, seven days a week, turning it into India&rsquo;s biggest engineering and construction conglomerate. But the statement can also be seen as reflecting the obsession of a leader who has forgotten how to let go. There is no denying that Mr Naik has been L&amp;T&rsquo;s biggest value driver &mdash; ever since he took over as chairman in 2003, net sales have grown five times and market value 17 times.

Letting go at L&T

There is little doubt that India&rsquo;s public health spending is disgracefully low, at just over one per cent of gross domestic product. Given that a large number of Indians are positioned unstably just above or just below the poverty line, the consequence of catastrophic health failure and high healthcare costs is that entire families are frequently sent back, highly indebted, to subsistence levels of consumption. Like education, accessible quality healthcare is indeed an essential ingredient of a stable, decent society with built-in social mobility. As India grows, it is essential to put into place a sensible universal healthcare provision, which should avoid the traps revealed by both European welfare states and American laissez-faire. Yet, as India prepares for a 2012-13 Budget that must prioritise the control and reform of government spending, sensible voices must be raised against creating another badly designed entitlement system.

No more entitlements

Like a cancer patient in remission, Greece now greets every little victory with disproportionate joy, in the knowledge that it has only postponed the inevitable. Thus, the financial mavens in Brussels and Athens may be celebrating the fact that Greece managed to avert a default and obtain agreement from over 80 per cent of its bondholders on a debt swap as a precondition for a second bailout worth euro 130 billion. This is certainly a major achievement, since it means bondholders have taken a haircut of 53.5 per cent on the euro 206-billion debt that they hold. But a reprieve is not the same thing as survival; and, despite the weekend deal, the larger question of the Greek economy&rsquo;s ability to recover remains unanswered. A bond-swap agreement may look great when it reduces Greek&rsquo;s debt burden by euro 100 billion. It looks less impressive when seen as a percentage of gross domestic product (GDP).

Greece's exit option

The tremendously difficult times, partly of its own making, that the Indian Railways (IR) is passing through are well known. They have been captured in the forbidding financial details contained in the revised estimates for 2011-12 and Budget estimates for 2012-13. Some of the steps announced by Railway Minister Dinesh Trivedi to prevent the Railways from going, in his own words, further &ldquo;downhill&rdquo; thus come as a pleasant surprise. The action that needs to be welcomed most is the attempt to, after nearly a decade, raise passenger fares. The extent of the rise may not be enough. But the fact that it has been tried, causing the public displeasure of his party leader Mamata Banerjee, amounts to a show of courage such as has been displayed so far by any of his ministerial colleagues in the UPA. His decision to alter the hitherto unchanging structure of the Railway Board by adding members for public-private partnerships, marketing, and safety is also welcome.

Trivedi's Budget surprise

Last week, India issued its first &ldquo;compulsory licence&rdquo;. The licence allowed the mid-sized domestic pharmaceutical firm Natco to manufacture and sell a generic version of a patent-protected cancer medicine from Germany-based Bayer at a price that is 97 per cent lower than that of the innovator&rsquo;s brand.

Breaking the patent

The two major pieces of economic news on Thursday have just made Finance Minister Pranab Mukherjee&rsquo;s job today harder. Neither the government&rsquo;s pre-Budget Economic Survey nor the mid-quarter monetary policy review from the Reserve Bank of India (RBI) has actually aided the Budget exercise.

Waiting for the Budget

Railway Minister Dinesh Trivedi has done what was expected of him. He presented a Railway Budget that, while not going far enough in fixing the serious problems facing the Indian Railways, is nevertheless a substantial and welcome step. That his party, the Trinamool Congress (TMC), has chosen to distance itself from this piece of responsible policy making and call for his censure and resignation reflects a politics of populism and negativity that could be ruinous for the Indian economy.

Ruling from Writers'

The Economic Survey acknowledges that the current slowdown is entirely due to slippage in industrial growth. As a consequence, despite highest-ever foodgrain production, the annual GDP growth for the current financial year will be one of the lowest in the last eight years. The industry will barely clock four per cent. And there&rsquo;s no external Lehman episode to blame.

Handbook rich in ideas and data: Ajit Ranade

The finance minister needed to do three things in the Budget: control the deficit, bring down inflation, and create the conditions for faster economic growth. He can be said to have succeeded substantially, but not wholly. The unfinished task is that the deficit has been left too high, as also market borrowings which go up next year.

Halfway there

The market may have reacted positively to the government&rsquo;s decision to allow two-way fungibility in Indian depository receipts (IDRs) but that may not be enough to help develop the market for this instrument.

Two-way fungibility may not be enough to develop IDR market

The consensus opinion that has developed about the 2012-13 Budget presented by Finance Minister Pranab Mukherjee on Friday is that it was unambitious, especially in terms of reworking government spending. It delivered little in terms of a vision for reform, the argument goes, constrained as it was by the spending-hungry allies in the United Progressive Alliance (UPA) and the entitlement-hooked Congress leadership. A closer, more informed reading, however, reveals that this view is mistaken in important respects. Indeed, this Budget contains within it time-bound plans for a significant transformation of how the state spends and gathers its finances. It also suggests that a long-standing argument about India&rsquo;s policy direction within the UPA establishment has been won by reformist, progressive elements.

Building on Aadhaar

A cash-strapped government cannot fund the investment needed for India&rsquo;s growth story alone, as the 12th Five-Year Plan projections emphasise in their proposal that private sector resources be tapped to fuel roughly 50 per cent of investment. This means attracting a much larger share of household savings into equity and corporate debt, a government objective underlined by the Budget&rsquo;s tax provisions. The doubling of tax-free infrastructure bond issue limits to Rs 60,000 crore, for example, means more project finance paper on offer. The new Rajiv Gandhi Equity Savings Scheme, which offers individuals with a taxable income limit of Rs 10 lakh a deduction of 50 per cent for direct equity investments of Rs 50,000, appears to be designed to support the disinvestment programme. Securities transaction taxes have also been reduced.

Regulation, not incentives

Now that Dinesh Trivedi has resigned as railway minister, the fate of the fare increases he proposed is uncertain. His successor, also from the Trinamool Congress, may well roll back the increases, especially in second-class fares, which will be unfortunate. Mr Trivedi had shown the courage to stem the rot in the finances of the Indian Railways. His departure and the fear of an imminent fare rollback serve as a sad reminder that populism rules the roost and prudent management has few takers. If Mr Trivedi had indeed kept his party leader, Mamata Banerjee, in the dark about the fare increases then there is ground to seek his replacement. But it will be unwise to throw the baby out with the bathwater; let the reforms initiated by Mr Trivedi proceed.

Keep Mr Trivedi's reforms 

That the government has shown a determination to widen the tax net is commendable. Reform of certain aspects of the Direct Taxes Code is overdue. Often, lack of clarity in the law allows companies to cling to debatable interpretations that cause the intent of the legislation to remain unfulfilled. Many of the current requirements are incapable of dealing with a vastly more complex, globalised economy. In addition, there is a climate abroad against widespread tax evasion.

Taxman's joy 

Last week&rsquo;s Budget came at a time when higher government borrowing had already seriously hurt corporate investment and thus growth. Unable to sufficiently minimise the Centre&rsquo;s borrowing next year, the government has tried to open up various routes by which foreign money can help plug the gap for Indian companies. Qualified foreign investors are, for example, to be allowed to participate in the corporate bond market, though that, in the absence of a vibrant secondary market, is unlikely to be enough to invigorate the corporate debt market. It has also opened up a route for borrowing working capital overseas. Airlines will be allowed to borrow up to $1 billion worth of working capital strictly within the time frame of 2012-13. It is questionable if companies with balance sheets as damaged as those of Air India and Kingfisher Airlines will find overseas lenders even if they agreed to huge premiums. However, there could be serious long-term implications of this relaxation.

Banking on hot money

Back when the India growth story was unblemished and the ruling United Progressive Alliance (UPA) had emerged unscathed from the bruising nuclear deal confirmation and the elections that followed, there was an almost palpable sense that India had arrived as a major global player. It demanded as its right a larger share of responsibilities at international fora such as the International Monetary Fund (IMF) and the Group of Twenty.

Retreating India

Incisive columns and editorial comment by top opinion leaders

Page 626 - Editorial Comment