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

Business Standard

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

Six things can be said safely about the Tata succession. First, it took the search committee 18 meetings to find a suitable candidate, so there was no obvious choice. Second, Cyrus P Mistry is a relatively unknown commodity, but people who know him speak well of him. Third, someone familiar with the manifestly unique group&rsquo;s working would be the better choice, all other things being equal; and though Mr Mistry has not run any Tata company, he has been on the group&rsquo;s apex board for five years and before that he was a director at Tata Power for about a decade. Fourth, to the extent that the track record of the Shapoorji Pallonji group is a guide, the group has had good leadership over the past decade, and Mr Mistry has been one of its two managing directors.

More than a succession

It was only in 2006 that an American news publication nominated Vikram Akula as one of &ldquo;the world&rsquo;s 100 most influential people&rdquo;. His exit from the company he founded, SKS Microfinance, only underscores how correct the publication was. He has single-handedly influenced one of the world&rsquo;s largest microfinance markets in such a manner that it will take the sector years if not decades to recover. Before Mr Akula entered the sector, microfinance in India was largely the preserve of non-governmental organisations or NGOs, which used financing as a livelihood-enhancing tool. While some of these NGOs realised that aid funds were drying up and began turning into non-banking financial companies in order to access commercial funding from banks, it was Mr Akula who gave this access a completely different meaning.

Mr Akula's exit

Nearly 70 per cent of Indians have to meet their expenses on healthcare and medicines out of their own income, says a recent report of the World Health Organisation (WHO). This exposes the appalling state of the country&rsquo;s public healthcare system and inadequate public spending on health services. Leaving aside the rich welfare states, where governments take care of all or the bulk of the health needs of their citizens, India compares poorly in this respect even with its not-so-rich neighbours in Asia, where hardly 30 to 40 per cent of an individual&rsquo;s health expenses come out of her pocket. The consequences of such a dismal state of affairs are disturbing. The WHO report has far more damaging findings that should wake up our government. About 3.2 per cent of Indians are pushed into poverty annually because of high medical bills. Worse, about 30 per cent of the rural people in India do not seek cures for their ailments because of the financial costs involved.

Right to health

Last week&rsquo;s decision to allow 51 per cent foreign direct investment or FDI in multi-brand retail and 100 per cent in single-brand retail should easily count as one of the boldest economic reform measures initiated by the United Progressive Alliance (UPA) government in its second term. Confidence in the government&rsquo;s ability to take a big decision, like the one on opening up the retail sector, was low. Within the government, there were dissenting voices from members of at least two of its alliance partners &mdash; the Trinamool Congress and the Dravida Munnetra Kazhagam. The Congress also had a powerful section that had expressed strong reservations about the proposed liberalisation. The Left parties and the Bharatiya Janata Party, too, were opposed to the idea, arguing that the move would destroy domestic small retail businesses and result in more job losses.

Big-ticket reform

Like the previous two international climate summits at Copenhagen and Cancun, the upcoming United Nations-sponsored meet at Durban, beginning today, too, is unlikely to deliver a consensus-based globally-binding successor to the Kyoto protocol on climate change, which expires in December 2012. However, the conference may manage to avoid the stigma of failure by showing progress on some peripheral, though not insignificant, issues directed at taking the climate change mitigation process forward. The key hurdles in extending the Kyoto pact for a second commitment period, or evolving an alternative to it, include divergent, and often conflicting, agenda of different countries, high economic costs of green development, and domestic political compulsions. If the stance taken by different countries in the run-up to Durban on the critical issue of mandatory targets for slashing greenhouse gases is any indication, there seems little room for convergence of opinion.

Saving Durban

A week is a long time, it is said. And so last week we saw five top executives released on bail, and two top heads of companies humbled. And if we allow our mind to travel in space and time then the list is endless. So what does this make of the discipline of management? Is it still the science it masquerades as? Or is it art? But bad art never survives and yet bad management rises to the top echelons, so management is definitely not art. Perhaps it is sport, more of an adventure sport testing the limits of the law and the system. Alas! A letter is not about to evoke any soul-searching. It may require a doctoral thesis, not mere anecdotal evidence. In the meanwhile, &ldquo;this too shall pass&rdquo; would be the advisory.

Letters: The sport of management

Since January 2008, the rupee has seen three big trending moves. First, it dropped from Rs 39.27 per US dollar in January 2008 to Rs 52.06 in March 2009. Then it strengthened, peaking at Rs 44.03 in November 2010. Now it has slid again, to an all-time low of Rs 52.70. The gyrations have been strikingly correlated to hot flows. Portfolio investments from abroad peaked in January 2008, as did the stock market.

Preventing volatility

India&rsquo;s banking sector has been under stress of late, thanks to rising concerns about asset quality. As the Business Standard Banking Annual (released today with this newspaper) makes clear, the turn in the interest rate cycle in 2010 has hit the corporate sector hard, coinciding with other macroeconomic issues that have affected the performance of businesses in general. It is not surprising, then, that small and medium enterprises (SMEs) have come under pressure, with their interest payouts nearly doubling from one year to the next. In the second quarter of 2011-12, the asset quality of public sector banks deteriorated sharply, driven by 100 per cent migration to system-based recognition of non-performing assets (NPAs), and loan recovery problems. Interestingly, most of the asset quality problems this time are emerging from the agricultural and corporate sector, unlike during the previous slowdown of 2008, when a large part of the headaches came from the retail sector.

A familiar pattern

The political drama over the opening up of the retail sector to foreign investment is significant, not on account of whatever might happen to the immediate issue, but for what it says about the prospects of any kind of economic reform. In and of itself, the opening up of the retail sector is not hugely important, except as a signal that the government is still capable of taking decisions. This is not a time when businesses in the West is looking to make large investments anywhere.

Goodbye to reform?

The fertiliser sector has been in the doldrums for long. Many new policy initiatives taken by the government in the recent past have failed to the meet the desired objectives. This has made the fertiliser sector unattractive for potential investors. Virtually no fresh funding has been committed in over a decade towards setting up new units to produce urea, the main and only fertiliser that the country can produce wholly indigenously. Urea imports, consequently, are on the rise.

Fertiliser blues 

With nearly 8,000 persons confirmed dead, several thousands wounded or missing, and a growing number of persons exposed to radiation, the earthquake followed by the tsunami and then a nuclear accident have combined to create the biggest tragedy confronting the people of Japan since World War II. Nearly 40,000 persons have been rendered homeless and are being housed in emergency shelters. About 90,000 rescue workers are working round the clock to help. An entire week has been consumed in coming to terms with a shock and a tragedy of enormous proportions in a tiny island. The entire global community has expressed solidarity with the people of Japan. While many Indians living in Japan have returned home to India, many others are staying on. Infosys Technologies has done well to re-assure that it will continue its operations in Japan even though 200 of its staff have opted to return home.

Dignified and efficient

After having raised an alarm over what it saw as an unacceptably high current account deficit to gross national product (GDP) ratio of nearly 4.0 per cent, the Reserve Bank of India noted in its recent policy statement that the CAD/GDP ratio was at a more manageable level of closer to 2.5 per cent. A large part of this comfort has come from an impressive performance on the export front. Recent export data have come as a break in the clouds after months of not-so-positive news on the external trade front. Exports grew at 31.4 per cent (year-on-year), during April-February of FY11, to a total of US$208 billion. Exports for the year as a whole are projected to be $235 billion, 9 per cent higher than the earlier estimate of $215 billion. Year-on-Year growth in imports during April-February was of the order of 18 per cent. Annual imports for FY11 are expected to be in the vicinity of $350 billion, which would lead to a lower trade deficit of $115 billion.

Exports look up

Given the vulnerability of Indian agriculture to climate change, the country&rsquo;s food security is threatened by global warming. The Union agriculture ministry is right, therefore, to warn of a possible foodgrain deficit, of as much as 20 million tonne by the end of this decade if measures are not taken to combat the impact of global warming on food production. It has also reportedly asked for an additional budgetary support of Rs 1,08,000 crore in the next five years for developing the required infrastructure, technology and crop varieties capable of adapting to the changed climate. This is for the first time that Krishi Bhawan has quantified the adverse impact of global warning on the output of food crops, notably wheat, rice, coarse cereals and pulses, and the resources needed to avert it. With business as usual, the foodgrain output would at best be 261 million tonne by 2020, from the present 234 million tonne, where as food demand is projected to be 281 million tonne.

The climate for food

The entire world is closely following the aftermath of the accident at the Fukushima nuclear power plants in north-eastern Japan, caused more by the tsunami than the original earthquake. Prime Minister Manmohan Singh has done well to seek a review of safety standards at Indian nuclear power plants. Indian authorities have been reassuring that India&rsquo;s track record has been good and there should be no fear of similar accidents occurring in earthquake and tsunami prone regions of India.

Fission, not fusion

Sam Pitroda, telecommunications icon and knowledge guru, has highlighted India&rsquo;s dependence on electronics hardware imports even as it excels in software exports. This is a well worn theme and the inability to excel in hardware has till now been attributed to the country&rsquo;s overall poor manufacturing competitiveness. But Indian manufacturing has in recent years taken significant strides and the country is now considered a preferred location for manufacturing capability. Hence, the question arises: if this is a good geography to manufacture cars then why not electronics hardware? The issue is important as electronics is the largest and fastest-growing segment in overall global manufacturing. So, Mr Pitroda&rsquo;s concern is legitimate but the two reasons cited for it are incorrect. India imports more than half of all the hardware it consumes, and should present trends continue, the trade imbalance on this score will be worrying.

Choices in hardware

Make no mistake, all countries seek to strike a balance between narrow self interest and broad-minded idealism in adopting positions on international affairs. If French President Nicholas Sarkozy and British Prime Minister David Cameron are so exercised about lack of democracy in Libya, it is as much to do, perhaps even more, with their sagging domestic image and enduring economic interests as it is to do with their commitment to human rights in the Arab world. If US President Barrack Obama is dithering about how much force to use in Libya to protect Libyan lives, it has as much to do with domestic politics as it has to do with oil economics, even if dithering has become second nature to Mr Obama. Perhaps a new great game is afoot in the Arab world, perhaps it is not and what we see is what there is to see &mdash; support for an uprising against a repressive regime.

India and Libya

Incisive columns and editorial comment by top opinion leaders

Page 633 - Editorial Comment