The improved IIP figures should not make RBI sit on its hands.

Patchy recovery

Business Standard

The gains from Bt cotton must be consolidated by introducing new genetically modified varieties.

What's good for GM

The government finds itself between a rock and a hard place on account of rising deficits and the difficulty in raising new revenues due to the slowdown. Between April and October, the fiscal deficit hit Rs 3,07,009 crore, about 75 per cent of the budgeted Rs 4,12,817 crore for the full year. One new source of revenue (perhaps small initially) could be the black economy. This is variously estimated to be between 30 and 40 per cent of official gross domestic product (GDP). Even a modest contribution from the &ldquo;black&rdquo; could be useful in getting government finances out of the red. Rather than adopt amnesty schemes, which are one-time measures, it would be better to legitimise and regulate a large chunk of the black economy, thus ensuring recurrent revenues. One option would be to legitimise and tax illegal gambling.

Black and red 

Several pieces of news out of Europe last week pointed to the fact that a resolution of the euro crisis remains distant. The most attention-catching was the announcement on Friday by the credit rating agency Standard &amp; Poor&rsquo;s that it was downgrading nine European economies. In some ways, the new ratings merely reflect fundamentals that were already transparently visible to market participants &mdash; and thus it could be argued that they had, to an extent, been priced in. However, their impact on the ability to raise funds and roll over debt is considerable. Heavily indebted Italy now has a rating of BBB+; its sovereign paper is now just three notches away from losing investment-grade status. France and Austria have lost their AAA ratings. Some funds require AAA-equivalent ratings for their investments, so the effect on borrowing capabilities should not be ignored.

Downgrade sounds the alert 

Pakistan&rsquo;s government is under siege. The federal administration, led by the Pakistan Peoples Party, is facing a series of challenges from a motley set of adversaries, and its troubles seem to be about to boil over. Even so, there are signs of hope: the successive crises could be read as showing how both the government and its challenges seem to be evolving towards a more mature manner of dealing with frictions within Pakistan&rsquo;s delicately balanced establishment. Prime Minister Yousuf Raza Gilani declared on Sunday that what mattered was that the democratically-elected National Assembly &mdash; in which the PPP-led alliance enjoys a comfortable majority &mdash; should complete its term and not be forced out, regardless of the fate of the prime minister or the current government. Negotiations are on with the main opposition Pakistan Muslim League-Nawaz, or PML-N, to pass a parliamentary resolution reiterating the country&rsquo;s commitment to democracy.

No tanks this time?

Drafting the Union Budget for 2012-13 will not be easy. It is vital for macroeconomic stability that the central government attempt a return to fiscal prudence. In the 2011-12 Budget, it was estimated that the fiscal deficit would be 4.6 per cent of GDP. It is clear that the actual figure will overshoot this estimate, and settle at 5.5 per cent or more. The finance minister had also said that the deficit would be progressively reduced to 3.5 per cent by 2013-14, which looks like an impossible task. Disinvestment targets have been missed; and there is no equivalent of the 3G auction windfall which made the 2010-11 figures look respectable. It appears that the finance ministry is well aware of the difficulty of its task, and is looking everywhere for solutions. Many of these are of the quick-fix variety &mdash; for example, the endeavour to persuade cash-rich public-sector companies to buy back some of their own shares.

State of spending

Only the wilfully self-delusional are likely to be surprised by the findings of OECD&rsquo;s Programme for International Student Assessment (PISA), which has ranked India second last among 73 countries in maths, reading and science abilities, being ahead only of Kyrgyzstan. The findings should be a wake-up call for policy makers who may be congratulating themselves on the higher enrolments achieved under the massive Sarva Shiksha Abhiyan, and the passage of the Right to Education Act. That&rsquo;s because the dismal showing has come from students from Tamil Nadu and Himachal Pradesh, two states hand-picked by the government as showpieces for education and development. Yet 15-year-old students from these states managed to consistently lag on almost every parameter. In reading English texts, for instance, Indian students bested only Kyrgyzstan.

Learning disability

No fresh cases of polio have been reported in India in the past year, but any celebration of that fact is premature. There are few guarantees that the disease is gone; several critical diseases, once near eradication, have come back with even greater virulence. Just this month, India was formally declared free of the avian influenza virus &mdash; and barely three days later, it resurfaced in Orissa. Several times earlier, the government mistakenly pronounced the &ldquo;bird flu&rdquo; virus gone. Consider also leprosy: in January 2006, the government claimed it was eliminated nationally, but World Health Organisation data still record India as having the world&rsquo;s highest number of leprosy cases every year. Similarly, malaria was once more or less controlled. But it came back, and brought along with it several other forms of mosquito-borne diseases, such as dengue and chikungunya, earlier unheard-of.

More than one year

Big business has owned media companies before. The undivided Birlas had Hindustan Times in Delhi and Searchlight in Patna; the Dalmia-Sahu Jain combine (which later split) had Bennett, Coleman (publishers of, among other titles, The Times of India and The Economic Times); and the Tatas had a connection with The Statesman in what was then Calcutta.

Media ownership and independence

The Reserve Bank of India&rsquo;s next review of monetary policy is scheduled for Tuesday, when it will announce whether it is cutting rates or holding them steady. This comes after a sequence of 13 increases, during which the central bank raised the policy rate from 3.25 per cent to 8.5 per cent. Last month, as signs that the economy was slowing became unmistakable, the RBI indicated a shift in its stance, saying that future changes in the policy rate would likely be downwards.

Addressing the slowdown

The army chief, General Vijay Kumar Singh, has taken the government to the Supreme Court after it insisted that his date of birth in its relevant records was May 10, 1950 &mdash; and not May 10, 1951, as he has claimed, and in support of which he has extensive documentation. Accepting the later date would mean that the army chief will stay in office for almost a year more than was originally intended. Gen Singh, meanwhile, has said that he is not fighting for another year in office, but to save his &ldquo;honour&rdquo;, which he claims has been affected by the government&rsquo;s stance since he is being portrayed in effect as a liar. Defence Secretary Shashikant Sharma has been recalled from an official visit to Malaysia, and Prime Minister Manmohan Singh has held consultations with Defence Minister A K Antony and Law Minister Salman Khurshid.

Dating a birth

The same week that Wikipedia and several other highly trafficked websites went dark to protest legislation in the United States that would severely curtail their operations, the Delhi High Court was hearing an attempt by the Indian government to take on 21 social networking sites (owned by 10 overseas companies) for &ldquo;promoting enmity between classes, causing prejudice to national integration and insulting religion or religious belief of any class&rdquo; under various sections of the

Licence-permit web

Civil Aviation Minister Ajit Singh announced on Tuesday that a consensus had been reached to allow foreign airlines to invest in the Indian aviation sector. Foreign carriers would be allowed to buy up to 49 per cent of India&rsquo;s airlines, he said, adding that this consensus would soon be taken to the Union Cabinet for approval. Foreign direct investment (FDI) in India&rsquo;s aviation sector is long overdue; the Cabinet should back Mr Singh&rsquo;s decision &mdash; which was taken following a meeting with Finance Minister Pranab Mukherjee, Petroleum Minister Jaipal Reddy and Commerce Minister Anand Sharma. Given the uproar over FDI in retail recently, it is worthwhile to restate how foreign investment can help domestic sectors. It reduces the cost of capital to domestic firms, allowing them to undertake necessary investment. It eases the process of the transfer of cutting-edge technology and global best practices.

Time to take off

The Human Resource Development Ministry&rsquo;s project, a low-cost tablet computer meant for students, has been plagued with problems since it was first announced. In early 2009, what was supposed to be a &ldquo;ten-dollar laptop&rdquo; was unveiled, produced jointly by the Vellore Institute of Technology, the Indian Institute of Science, and IIT Chennai, with some private-sector effort in the mix. This followed the ministry's hubristic decision to decline collaboration with the longstanding project at the Massachusetts Institute of Technology called &ldquo;One Laptop Per Child&rdquo;, which had produced a rugged, durable, low-cost laptop &mdash; but one which a Ministry statement called &ldquo;pedagogically suspect&rdquo;.

Tablet of errors 

When Reliance Industries Limited (RIL) announced its buyback recently, the stock price soared even before the details were made public. The buyback will &ldquo;retire&rdquo; a maximum of 120 million shares at a price of Rs 870, for a maximum cost of Rs 10,440 crore. That&rsquo;s equivalent to 3.7 per cent of equity, at a premium of about 10 per cent over the last quoted price on Friday. Many implications could be drawn from the buyback offer. The normal justification for a buyback is that a cash-rich business cannot see an obvious way to deploy its resources profitably. A buyback boosts returns to shareholders who don&rsquo;t opt for the offer, by shrinking the equity base. Assuming the bigger shareholders don&rsquo;t sell, it also helps them consolidate holdings, which may have control implications. While the buyback is &ldquo;live&rdquo;, there&rsquo;s a floor on the price.

Decoding the buyback

The results of the Indian software leaders, Tata Consultancy Services (TCS) and Infosys Technologies (Cognizant, which is now number three, does not publish comparable Indian GAAP figures), in the last quarter have been boosted by the recent depreciation of the rupee. But under active policy intervention by the central bank, the rupee has started to rise again. On present reckoning, the conversion rate used by Infosys for the third-quarter results for the US dollar, Rs 52, is unlikely to rule at the end of this financial year. So the sharply improved performance may be a bit transient in nature, due to exogenous factors. But still, the recovery from the trough created by the global financial crisis is nothing short of spectacular. In the third quarter of 2009-10, Infosys&rsquo; topline fell by 0.8 per cent. Precisely two years on, it has grown by 30.8 per cent. Over the same period, TCS&rsquo; topline growth has transited from 2.9 per cent to 36.8 per cent.

Depreciation has helped

Farmers in Punjab, Uttar Pradesh and West Bengal, hurt by crashing prices, have taken to dumping their potatoes on the roads. This dramatic but little-watched series of events should be a warning: what hurts growers in the short run winds up hurting consumers in the longer run, as the iron laws of supply and demand act to discourage production. The price crash the farmers were protesting is not limited to potatoes; it cuts across commodities, affecting almost all those crops whose prices are not supported through government procurement. The exceptions, therefore, are wheat and rice. Vegetables like onions, tomato, ginger, and garlic have become significantly cheaper, as have plantation products &mdash; notably pepper &mdash; and fibres like cotton and silk. Costs, too have gone up, driven by higher labour and input costs.

Tears over spilt onions

A three-judge bench of the Supreme Court ruled on Friday on what has been one of the most watched and fiercely fought tax disputes in recent memory. It ended in victory for the giant mobile phone provider Vodafone, which the Court judged would not have to pay Rs11,000 crore in tax following its 2007 purchase of a 67 per cent stake in Hutchison Essar from the Hong Kong-based Hutchison Whampoa. This reversed the ruling of the Bombay High Court, which held in 2010 that tax was payable on the deal. The income-tax department will now have to return the funds the company paid over following that judgment &mdash; Rs 2,500 crore, along with interest charges of 4 per cent per annum. The numbers involved certainly catch and hold the attention.

Looking forward on tax

In its third quarter review of monetary policy, released on Tuesday, the Reserve Bank of India kept the policy rate &mdash; the repo rate for banks &mdash; constant at 8.5 per cent, while cutting the cash reserve ratio (CRR) by 50 basis points, from 6.0 per cent to 5.5 per cent of their net demand and time liabilities. The RBI has argued that the latter action can be taken to ease liquidity without diluting its current policy stance.

Passing the buck on policy

Indian diplomats over the last month have demonstrated that they have a good grasp of the Palmerstonian adage that nations never have permanent allies, only permanent interests. By stating unequivocally that the country will heed only United Nations-mandated sanctions on Iran rather than those imposed by a single country or regional grouping, India has sent out a strong signal that it is unwilling to sacrifice its energy security on the altar of global power politics. The routing of payments via a Turkish bank (an option that may no longer be available) had already indicated as much. Now, there are signs of other creative solutions from the negotiating team that has just returned from Teheran: reports suggest that the Iranian central bank could open an account with one of the public sector banks that does not have dealings with the US to settle some of their payments in rupees.

Stand and deliver 

In the end, Salman Rushdie could not even speak over video-link from London to the crowds that had assembled to hear him at the Jaipur Literature Festival. The festival&rsquo;s organisers, visibly overwrought, said the Rajasthan police &mdash; while supportive &mdash; had warned that angry protestors were marching towards the festival, and in some cases were already inside. Rushdie had already been warned not to come to Jaipur, following threats to his life issued allegedly by militant groups.

Intolerant India

Incisive columns and editorial comment by top opinion leaders

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