Reserve Bank of India (RBI) governor Duvvuri Subbarao has once again spoken the difficult truth. This time on the issue of the pay and compensation given to executives of public sector banks. Coming, as these views do, not just from the governor of the central bank but someone who belongs to the hallowed Indian Administrative Service (IAS) and one who has been Union finance secretary, they must be taken seriously. The governor is right to draw attention to the fact that in a highly competitive market for talent, public sector banks, indeed most public sector firms, are constrained from offering better pay to talented executives because of governmental restraints. The starting point of this problem is the unwritten rule that guides all government and public sector compensation that no chief executive officer of a firm or head of a government-funded institution should get a salary higher than that of his equivalent in the IAS hierarchy.

Paying the banker

Business Standard

The cup of woe of the Commonwealth Games seems to be metaphorically and literally spilling over with unrelenting and heavy monsoon rains. Incomplete event venues, widespread corruption, serial stadium malfunction, leaks, dengue and malaria fears and general mayhem, including theft of imported fittings at the Games Village, have all added to a sense of gloom and doom. An already alienated middle class public opinion now anticipates some sort of Games-related disaster that will shame India globally. Even the ever-popular A R Rahman does not seem to have made a difference. Perhaps for the first time in his career, he is facing criticism for the Games theme song. Mike Hooper, chief executive of the Commonwealth Games Federation, said last week that some Games events may be cancelled for lack of timely safety certificates for various stadiums and the Games Village from the organising committee. &ldquo;Things are surely going down to the wire,&rdquo; he told reporters bluntly.

Postpone the Games!

While the Indian information technology (IT) and related services industry&rsquo;s protest against a decision of the government of the state of Ohio in the United States on banning outsourcing of IT services in government procurement is understandable, India has no official ground to stand on in conveying its displeasure. By choosing to remain outside the existing plurilateral agreements on government procurement, even though India finally decided to become an observer on a World Trade Organisation (WTO) panel on government procurement earlier this year, the government cannot really take the US to the WTO on this issue. In announcing its decision to become an observer on the WTO panel this January, a government spokesperson said that India could be hurt by retaliatory action by the US that could impose a ban on Indian companies benefiting from US government procurement, if India did not open its own government procurement to global tenders under a WTO protocol.

Outsourcing protest

The drought in greenfield investment projects in the fertiliser sector in India is finally set to end after over a decade. Existing and prospective investors in fertiliser manufacture are reportedly willing to invest over Rs 45,000 crore in the next few years, both in expansion of existing capacities and creation of new ones. The rising excess demand for fertiliser is driving this renewed spurt in investment activity. The increase in the demand for plant nutrients has also been spurred by some recent favourable policy initiatives. These have helped the industry come out of the red. This is good news for a sector which has been in doldrums since the early 1990s and has gone through one of the worst patches in its history in the past decade. However, these investment intentions would materialise only if fertiliser sector reforms, initiated in 2008-09, are carried forward and uncertainties over the availability of feedstock are removed.

Fertilising policy reform

In his interaction with the media last week Prime Minister Manmohan Singh was right to list communal harmony as his government&rsquo;s first priority, and express the hope that whatever the verdict of the Special Bench of the Allahabad High Court on the dispute over the title suit of the land involving Babri Masjid-Ram Janmabhumi at Ayodhya, to be pronounced on September 24, normalcy would prevail in the country. The Bharatiya Janata Party has issued a statement that it would go by the verdict of the court. Of course, whatever the verdict of the special court, all concerned have the right to move the higher judiciary. In the event that one or the other party to the case chooses to move the higher court, all concerned must respect that decision and await the verdict of the highest court of the land. Having waited all these years, a few more years of waiting will do no one any harm.

India needs communal harmony

In the same week that the central government found itself needlessly embroiled in a controversy on the appointment of the Central Vigilance Commissioner, the prime minister chose to refer the matter of India&rsquo;s ratification of the United Nations Convention against Corruption (UNCAC) to a group of ministers (GoM). Cynics may yawn and say one more group of ministers is going to chew cud on a matter that affects millions of Indians every day. Hopefully, the GoM on the ratification of the UNCAC will consider the matter quickly and give its consent to ratification. India is in the not-so-reputable company of countries like Sudan, Saudi Arabia, Myanmar and Thailand, and a few others like Germany, Italy and New Zealand, to be among the minority that has not yet ratified the UNCAC. Only 19 of the 140 signatories to the convention have not yet ratified it. India may have good reasons for having delayed ratification.

Conviction on corruption

The government of India has reportedly constituted a committee to formulate a policy for the rational use of antibiotics. This is in response to a report in a globally reputed medical journal on a drug-resistant bacteria or superbug, which has been found to be currently confined to the subcontinent. A superbug represents the end of the road in fighting infections with newer drugs as bacteria become resistant to older ones. So, the only way to prevent getting to that stage is to slow down resistance to antibiotics by ensuring that they are used sparingly. A policy is welcome, indeed, to have uniform norms for the whole country in this battle. Today individual players in health care do pretty much what they think is sensible and can thus cancel out each other&rsquo;s efforts. Formulating a policy by putting eminent heads together is the easier part of the battle. But implementing that policy, even if it contains deterrent penalties, is difficult.

Misuse of antibiotics

The Reserve Bank of India (RBI) has every reason to pat itself on the back as far as its policy on prudential and capital adequacy norms for banks is concerned. The new Basel- III norms, agreed upon by central bankers from the major economies of the world and to be considered by heads of government at the next Group of 20 summit, will only be catching up with already existing norms in India as far as capital adequacy goes.

Banking beyond Basel

The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, has proposed that organised sector employers be mandated to initiate jointly funded health insurance cover for their employees. In the process he has flagged off what should be a major debate. As the Indian state raises its abysmally low expenditure on health care, should it all go into better funding of the public health-care system or should a part of the resources also be used as incentive to employers to partly pay for group health insurance cover for their employees? Since a carrot-and-stick combination works best, Mr Ahluwalia suggests, why not allow employers to claim tax deduction for employee expenditure if there is a health insurance element in it? What he is asking Indians is to debate whether to opt for the US private insurance-driven model or the European publicly funded model of health care, or a hybrid.

An Indian health-care model

In an ideal world, central bankers should be &ldquo;forward-looking&rdquo;, as the clich&eacute; goes, and should base policy decisions on their assessment of future inflation and growth rather than dwell on the past. In the real world, however, they tend to be guided by the ebb and flow of macroeconomic data that, by their very nature, relate to the past. It is thus unlikely that the Reserve Bank of India (RBI) will ignore the two key data releases of the past fortnight &mdash; the index of industrial production and inflation &mdash; in deciding its policy stance in the first ever mid-period monetary policy review due this week. Both data points, incidentally, would make a case for more monetary tightening. Industrial growth for July that printed at 13.8 per cent in last Friday&rsquo;s release beat even the most optimistic expectation by a mile, suggesting that the manufacturing sector has lost none of its traction.

Time to look ahead

India&rsquo;s Defence Minister A K Antony has woken up. Addressing the annual combined commanders&rsquo; conference this week, Mr Antony said that India needs to keep abreast of &ldquo;military modernisation&rdquo; in its neighbourhood to ensure that India&rsquo;s armed forces &ldquo;hold an edge in the region&rdquo;. India, Mr Antony said, &ldquo;cannot lose sight of the fact that China has been improving its military and physical infrastructure. In fact, there has been an increasing assertiveness on the part of China.&rdquo; Good morning, Mr Antony, welcome to India&rsquo;s new neighbourhood.

Rip Van Antony

The government of India&rsquo;s Department of Industrial Policy and Promotion has initiated a public discussion on whether the existing policy of a foreign partner of a joint venture needing a no objection certificate (NOC) from its Indian partner to venture out on its own should be done away with. This is an old measure which has stood in the way of liberalising and easing the process of foreign direct investment (FDI) entering India. While there may have been some justification in adopting the measure earlier, there is little sense in continuing with it a good 20 years after liberalisation started. To do so will mean continuing with a provision which allows some to play the role of door keeper and earn a rent income without any justification. The interests of incumbent Indian capital have stood in the way of putting in place an increasingly more friendly FDI regime in India.

Time for sunset

Google the words &ldquo;lessons from Lehman&rdquo; and you get 1,030,000 results. Everyone has a favourite list of lessons learnt and not learnt. Books have been written and money made, conferences have been organised and frequent-flyer miles logged in, and the circus goes on. In one line, the most important lesson is &ldquo;be wise, not smart&rdquo;. Too many smart people on Wall Street, too few wise men. That is how the signals went unheeded, the mistakes got repeated, the risks and the stakes got bigger and the rest is history. Problem is, it is not yet quite history. Two years after the collapse of Lehman Brothers and the consequent crisis in the United States and then western Europe and some other parts of the world, question marks still remain on whether the crisis is behind us or not, whether the right lessons have been learnt, and whether the correct remedies have been put in place. Many, like Raghuram Rajan, still believe that the appropriate lessons have not yet been learnt.

Life after Lehman

The Reserve Bank of India&rsquo;s (RBI&rsquo;s) decision, in its first ever mid-quarter monetary policy review, to hike the repo and reverse repo rates was along expected lines, even though the new inflation numbers made some salivate that the central bank may hold back on rate hikes.

Certainty amidst uncertainty

The clarification by a United Nations&rsquo; climate change official that the Kyoto protocol will continue even after 2012, when its scheduled emission reduction commitment period ends, provides only cold comfort. Unless there are fresh binding commitments for reduction in the emission of environment-injurious greenhouse gases (GHGs), the continuation of the toothless Kyoto accord will be pointless. In any case, even the action stipulated in the Kyoto accord for combating global warming fell far short of putting an end to global warming, though it was deemed a good beginning towards that end. Sadly, even the modest GHG reduction targets set for the developed countries under the Kyoto pact are unlikely to be fully met. This apart, the carbon market-based clean development mechanism (CDM) launched under the Kyoto protocol has also been found to suffer from several imperfections. It, thus, needs to be either suitably modified or replaced with another better-conceived one.

Cold comfort on Kyoto

The noughties has been a uniquely scandal-prone decade for global corporations. As the proliferation of NGOs and special interest groups suggests, the biggest fall-out of all of this has been the growing trust deficit in public perception. It&rsquo;s a notion that Global Inc has quickly understood. The real crisis is that it is being imperfectly tackled.

The naughty noughties

Building a public library network requires commitment &mdash; it took a fortune and the involvement of hundreds of women&rsquo;s groups to set up the 2,500-odd Carnegie libraries that became the bedrock of the US library system. It also requires ruthlessness, as the founders of the Library of Alexandria knew &mdash; the Library&rsquo;s collection, unparalleled in the ancient world, is said to have been built in part by stripping all ships that came in to port of their books.

Awaiting a library revolution

Lenders to Vijay Mallya-promoted Kingfisher Airlines have rejected the ailing carrier&rsquo;s demand for a bailout package. The 13-bank consortium has said that any fresh support to the debt-ridden company could be considered only after its promoters meet their commitment to bringing in about $300 million fresh equity through global depository receipts. This is a fair and legitimate demand.

Let the market prevail

The index of industrial production or IIP recording a 1.9 per cent growth rate in September, a two-year low, was no surprise. The signs of steadily decelerating industrial growth were evident in the three months since July 2011. In none of these months did industrial growth cross the four per cent mark.

Slowdown fears

In the current negative economic scenario, credit rating agency Moody&rsquo;s has done the expected: it has downgraded the outlook for Indian banks, indicating volatility and uncertain conditions in the coming 12 to 18 months. On the other hand, the other leading agency, Standard and Poor&rsquo;s (S&amp;P), has indicated a stable outlook for Indian banks. S&amp;P has also simultaneously changed the way it calculates country risk, clarifying that the resultant upgrade by a notch for India should not be seen as a rating upgrade. When leading agencies differ in their assessment, it is customary for the market to go by the lower rating.

Expected downgrade

The World Economic Forum&rsquo;s (WEF&rsquo;s) country-specific events are designed to showcase a nation&rsquo;s business prospects to the world. This year&rsquo;s India Economic Summit, which concluded on Monday, was even more important since it was held for the first time in India&rsquo;s financial capital. It was, therefore, surprising that Prime Minister Manmohan Singh and his top economic team, who had earlier used WEF events to showcase the country&rsquo;s prospects to foreign investors, decided to give the event a miss. As if on cue, the number of top global executives attending the event could also be counted almost on one hand. It is debatable whether their presence would have made the summit more fruitful, but what is certain is that the delegates who braved the infamous Mumbai traffic to attend the two-and-a-half day event would have felt more reassured on the return about the time they had spent.

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