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

Business Standard

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.

Delayed but welcome

The country is headed for another spell of sugar glut unless the government lifts all curbs on sugar exports. With the sugar output in 2011-12 expected to exceed the projected demand by three to four million tonnes, it will be the second consecutive year when the market will have to contend with a surplus. Between 2000 and 2003 and again between 2006 and 2008, a similar surplus situation had hit both the sugar industry and sugarcane farmers.

Redundant controls

It is not often that petrol prices in India see a downward revision. In the last five years, petrol prices have been cut only on five occasions, with the last revision taking place on Wednesday. The significance of the latest price cut of about three per cent, however, lies not so much in the low frequency of such instances as in its timing. Less than a fortnight ago, oil companies had raised petrol prices by 2.7 per cent, which was the 13th such increase since the government decontrolled its pricing in June 2010. Coming as it did when wholesale price index-based inflation was close to double digits and food inflation was even higher, the petrol price increase had expectedly evoked loud protests from various political parties, which demanded a reversal of the decision. But in an unusual show of courage and forthrightness, the government held its ground arguing that after decontrol it had nothing to do with the pricing decision of oil marketing companies.

Towards better pricing

A recent public interest litigation over the procedures followed in the appointment of the chairman of the Securities and Exchange Board of India (Sebi), U K Sinha, raises a broad range of public issues relating to the manner in which the government goes about selecting regulators for various markets and industries. The government has now admitted that until at least 2008, it did not have a fixed procedure for selecting who would head the capital markets regulator. In 2008, a search committee was appointed to find the next Sebi chairman. The committee shortlisted C B Bhave, who was then with the National Securities Depository Limited, and Mr Sinha; the former was appointed. Mr Bhave was refused an extension in February 2011, and Mr Sinha took over. The government&rsquo;s response to the public interest litigation does not throw much light on how the appointment was made.

Row over selection 

Almost eight years after the Atal Bihari Vajpayee government set up the Pension Fund Regulatory and Development Authority, or PFRDA, through an executive order, the Manmohan Singh government has now got its Cabinet to approve legislation to give the body a statutory status. The task is not over yet. The Bill will now be presented to Parliament during its winter session starting next week. Political hurdles to the Bill, too, are not over. The Bharatiya Janata Party (BJP) is not too happy with the government&rsquo;s decision to not accept two key recommendations on the Bill made by the parliamentary standing committee, which is headed by BJP leader and former finance minister Yashwant Sinha. If proof is needed of how tardy the process of economic reforms has become in this country, it is this. Also, the irony of the nature of the opposition to the Bill should not be lost on anyone.

Pension reforms under way

The end-September 2011 quarter saw a worrying decline in the performance of banks. The level of non-performing assets (NPAs) of all listed banks went up by 15 per cent over the previous quarter, the fastest quarter-on-quarter growth in five years. This marks a 33 per cent or one-third rise in six months, compared to the end of the last financial year.

The gloom deepens

Underlying inflationary pressures have accentuated, warns the Reserve Bank of India (RBI) in its mid-quarter review of monetary policy, adding that &lsquo;risks to growth&rsquo; are also emerging. These concerns, the RBI explains, justify its decision to hike the repo and the reverse repo rates, under the liquidity adjustment facility (LAF), by 25 basis points, from 6.5 per cent to 6.75 per cent and from 5.5 per cent to 5.75 per cent, respectively. Would the RBI have been compelled to take this action this week if there was no mid-quarter review? Or, would this action have been superfluous if the central bank had, in fact, raised rates by 50 basis points at the time of its last quarterly review, instead of the 25 basis points hike? Economists and market analysts will debate that issue as much as whether the RBI&rsquo;s monetary policy actions will make any difference at all to the price level when a variety of non-monetary factors are also responsible for driving up prices.

Have policy, will act

There is a fundamental inequality in the governance arrangement in New Delhi that continues to plague the United Progressive Alliance. Members of Congress party president Sonia Gandhi&rsquo;s National Advisory Council feel they have the right to criticise the government and its functionaries all the time, while no one in government is willing to return the compliment. In an interview to this newspaper, (March 13) the self-proclaimed father of India&rsquo;s green revolution, Dr M S Swaminathan, hurled invectives against planning commission deputy chairman Montek Singh Ahluwalia and the newly appointed chairperson of the Commission on Agricultural Costs and Price (CACP) Ashok Gulati. While Dr Swaminathan then sent a letter to the editor (March 16) denying he had said any such thing, the fact is that he did. The moot point is not what Dr Swaminathan said, but the fact that he felt no hesitation criticising two important members of the Union government, while himself being a member of NAC.

NAC vs government

Last year, Harvard University was the recipient of Rs 270 crore of donations from two Indian business houses. Anand Mahindra, Vice-Chairman and Managing Director of Mahindra and Mahindra, who graduated from Harvard in 1977 and earned an MBA degree in 1981, gifted Rs 45 crore to Harvard&rsquo;s Humanities Centre, the largest for the centre so far. A few days later, the Tata Group pitched in with Rs 225 crore &mdash; the largest international donation in the school&rsquo;s 102-year history.

The art of fund raising

The 15 per cent fall in the rupee&rsquo;s external value, measured against the US dollar, reflects the manifest weaknesses in the country&rsquo;s external account. The imports of goods exceed their exports by as much as 50 per cent. After taking into account the trade in services and remittances from Indians overseas, the total current account deficit is running at about three per cent of GDP, a higher level than what most economists would consider safe.

Cheaper rupee = opportunity

The civil aviation ministry has mooted a proposal to allow foreign airlines to buy up to 24 per cent in Indian airline companies. Foreign direct investment (FDI) of up to 49 per cent is allowed in the sector; but foreign airlines cannot invest, whereas soap manufacturers can. The proposal to permit airlines is expected to work its way through the government and eventually get Cabinet approval.

Using FDI for a bailout

No critic of the United Progressive Alliance (UPA) government can deny that it has shrugged its lethargy off in the past few weeks. Instead of perpetuating the perception of policy stasis through inaction in many areas that require urgent action, the Union government has initiated several measures for policy change.

A K Bhattacharya: Out of the deep freeze?

The momentum is building up for the creation of new, smaller states. On Monday, the Uttar Pradesh Assembly passed a resolution for carving Uttar Pradesh into four states, as Chief Minister Mayawati had proposed recently. Meanwhile, the long-standing agitation for hiving off Telangana from Andhra Pradesh continues apace. Next, someone in Maharashtra may revive the idea of trifurcating the state which, after Uttar Pradesh, sends the largest number of members to the Lok Sabha. At some point, the logic of the situation might necessitate appointing another states reorganisation commission.

The perils of smaller states

Since January 2011, the Nifty has lost over 21 per cent. The global slowdown and currency issues have affected overseas investments during the last 11 months. Foreign institutional investors (FIIs) have been net equity sellers to the tune of Rs 18,573 crore between January 1 and November 18. Domestic interest rates have also risen, affecting corporate margins as well as the ability to raise financing for new ventures. The primary market has stagnated.

Staying invested

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, has said in an unusually frank television interview that the central fiscal deficit this year could end up being as high as 5.5 per cent of GDP, significantly higher than the Budget figure of 4.6 per cent and also much higher than the level in the last financial year. Adjusting for changes in the definition of the deficit, made in or about 2003, the deficit level today is higher than in the first year of economic reform, back in 1991-92 (about six per cent). Forget fiscal correction, there has been fiscal deterioration over the past 20 years &mdash; in part because the Budget now has a significantly smaller investment component; far more money goes in what is called &ldquo;revenue&rdquo; rather than &ldquo;capital&rdquo; expenditure, reflecting growing subsidies and new entitlement programmes.

Learn from Jayalalithaa

The United Progressive Alliance government at the Centre has announced a Rs 6,234-crore package for 1.3 million weavers in the country. This will directly involve about 200,000 weavers in poll-bound Uttar Pradesh. The move was an immediate follow-up to the letter written by Congress General Secretary Rahul Gandhi to Commerce and Industry Minister Anand Sharma, who holds additional charge of the textiles ministry. Interestingly, Finance Minister Pranab Mukherjee had announced a Rs 3,000-crore debt waiver package for weavers in his Budget speech in February this year. It took Mr Gandhi&rsquo;s letter to actually implement the promise made by the finance minister.

The making of a leader

Almost three months ago, the Union Cabinet cleared the Land Acquisition, Rehabilitation and Resettlement Bill, 2011. For all projects without a public purpose and requiring more than 100 acres of land, the Bill had made mandatory the consent of 80 per cent of the people whose land would have to be acquired. In addition, the compensation for land was pegged at 100 to 300 per cent over the market price and there were provisions for a subsistence allowance of Rs 3,000 per month for every displaced family for a year and an annuity of Rs 2,000 per family per month for 20 years. Not surprisingly, the Bill had raised concerns over many of its provisions. These included the definition of what would constitute a public purpose project and who would define the market price on the basis of which the compensation amount would be determined.

Striking a middle path

After a gap of ten long years, the government has decided to find out if additional spectrum was given away beyond the contracted level to two wireless service providers, Airtel and Vodafone, by the then telecommunications minister Pramod Mahajan, former telecom secretary Shyamal Ghosh and another official during 2001-03. Towards this end, raids were conducted over the weekend by the Central Bureau of Investigation (CBI) at the premises of the two firms and the residence of the two officials. What is the wisdom of this course of action today when Mr Mahajan has passed away, Mr Ghosh has retired, and Hutch, which was the operator then, has been acquired by Vodafone? The window of investigation chosen, when the BJP (now in opposition and spearheading the attack on the government over the spectrum issue) was leading the coalition government at the Centre and one of its members was holding the telecommunications portfolio, points to there being a political agenda behind the investigation.

Long time to wake up

Incisive columns and editorial comment by top opinion leaders

Page 632 - Editorial Comment