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Category: Miscellanea

Miscellanea

I. TECHNOLOGY

36 India’s CAG has a warning for ChatGPT users

Explaining that India is the home to the third largest and fastest growing AI ecosystem in the world, Alkesh Kumar Sharma, Secretary, Ministry of Electronics and Information Technology, said in his speech, “In this era of digital transformation, role of AI technologies becomes crucial in bringing accountability and transparency in delivery of public services.”

The Comptroller and Auditor General of India (CAG) echoed the sentiments of many tech experts when he said that AI technologies like ChatGPT, despite being an exciting technology, come with a potential risk of biasness.

The national auditor Girish Chandra Murmu while addressing the seminar themed “AI and Data Analytics” said that “AI technologies while being exciting also bring a certain degree of risk with them. The most significant risk associated with AI implementation in the public sector is the potential for bias.”

While ChatGPT is seen as a path-breaking technology, many have accused the technology of being “woke” and giving biased responses. Expressing concerns around AI’s ability to learn and improve itself, Murmu said that AI algorithms learn and improve themselves by identifying a pattern in training data and the entire algorithm would be vulnerable to similar bias. “Another risk of AI implementation in the public sector is privacy concerns for the individuals.”

While the indispensability for AI to detect malicious cyber activities, identifying potential threats and in responding to them in the forseeable future is bound to increase, AI is also being used by cyber criminals to create more advanced attacks against security infrastructure and solutions, he said.

“That is why AI is always to be hyphenated with ‘responsible’ i.e., it should work for overall betterment of society, environment and not just for humankind but for the entire planet,” Murmu added.

Explaining that India is the home to the third largest and fastest growing AI ecosystem in the world, Alkesh Kumar Sharma, Secretary, Ministry of Electronics and Information Technology, said in his speech, “In this era of digital transformation, role of AI technologies becomes crucial in bringing accountability and transparency in delivery of public services.” Sharma added how the government is moving towards evidence-based policy formulation and facilitating the acceleration that is being brought for the development of innovative start-up ecosystem in India.

Another speaker, Rohini Shrivastha, CTO, Microsoft India, explained the principles for responsible and ethical use of AI, and also emphasised on the need for risk-based regulation of AI technologies.

(Source: financialexpress.com 23rd February, 2023)

37 2,767 complaints against influencers processed, most violations on Insta

The Advertising Standards Council of India (ASCI) said it has processed 2,767 complaints since coming up with influencer guidelines in May 2021.

More than half of the violations have been found on Meta-owned Instagram platform, while Youtube contributed a third of them, the self-regulatory organisation for the advertising industry said.

The body said in over 90 per cent of the cases, there were modifications required.

“The Central Consumer Protection Authorities also now require disclosure of material connection between brands and influencers. Hence, non-disclosures are potential violations of the law,” the body’s Chief Executive and Secretary General Manisha Kapoor said.

In FY22, the total number of violations stood at 1,592, with virtual digital assets like bitcoins topping with nearly 24 per cent, and followed closely by personal care category which accounted for 23 per cent.

In the first nine months of FY23 (April-December 2022), there were 1,175 complaints received with personal care category topping by contributing a third of them, followed by food and beverage at 16 per cent.

Instagram accounted for 53 per cent of the violations in FY22, which has increased to 65 per cent in the first nine months of FY23, while in the case of Youtube, the same has declined from 37.8 per cent to 27 per cent.

The body also conducted a survey of 820 respondents, which found 79 per cent of them saying they trust influencers and 90 per cent saying they have made purchases based on influencer endorsements.

The survey said transparency and honesty about brand associations is the number one reason for influencer trust, followed by relatable lifestyle and content.

(Source: business-standard.com 16th February, 2023)

II. WORLD NEWS

38 Financial Action Task Force Suspends Russia’s Membership

The Financial Action Task Force (FATF) sets standards for more than 200 countries and jurisdictions and seeks to help authorities tackle serious crime including drug smuggling, human trafficking and terrorism. The global anti-money laundering watchdog said it has suspended Russia’s membership over Moscow’s invasion of Ukraine.

“The Russian Federation’s actions unacceptably run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system,” the group said.

It added that Russia was still accountable for implementing FATF’s standards.

Following a five-day meeting in Paris, FATF added Nigeria and South Africa to its list of countries subject to increased monitoring, and removed Cambodia and Morocco from the category.

Russia has been expelled from the Council of Europe and suspended from the UN Human Rights Council, but is still a member of many international organisations.

(Source: ndtv.com. dated 24th February, 2023)

III. ENVIRONMENT

39 The other victim: The environmental costs of the Russia-Ukraine War

The environmental costs of the conflict are likely to far outlive the fighting itself with Ukraine’s current claims of compensation for environmental damage standing at over $ 50 billion.

As the first anniversary of the war between Russia and Ukraine arrives, the true costs of the war are slowly dawning upon the world. The war has killed thousands, displaced many more, left many with debilitating injuries, flattened towns and caused immeasurable suffering. But the conflict, which does not seem to be ending anytime soon, also has another, often less mentioned, victim: the Planet itself.

The machinations of modern war impact the environment in more ways than one. From sky-high fuel consumption and a ginormous carbon footprint to degradation of thriving ecosystems caused by the fighting, the conflict in Ukraine has racked up environmental costs that will far outlive the actual fighting.

Here’s a look at how exactly the war has been deleterious to the environment.

Fighting-induced destruction

The first and most direct impact of the war is the destruction that the fighting itself has caused. According to UN Environment Program data, the conflict has seen damage across many regions of the country, with incidents at nuclear power plants and facilities, energy infrastructure, including oil storage tankers, oil refineries, drilling platforms and gas facilities and distribution pipelines, mines and industrial sites and agro-processing facilities.The result has been multiple air pollution incidents and potentially serious contamination of ground and surface waters.

According to the claims by the Ukraine’s environment ministry, altogether the losses from land, water and air pollution amounted to $51.4 billion.

Kateryna Polyanska, a landscape ecologist travelling across Ukraine to study the environmental damage caused by the War, told The Guardian that the worst damage is not always visible. “It is not just the explosive material, it is rocket fuel and shrapnel and wire … All these little tiny pieces of pollution have a huge impact on nature. You can’t imagine the scale of the impact,” she said.

Yuliia Ovchynnykova, a Ukrainian MP who serves on a parliamentary environment committee, told The Guardian that “more than 2 million hectares of forest have been destroyed, wrecking ecosystems and putting at risk rare endemic species such as pearl cornflowers, which can be found only on sandy steppes on the outskirts of Mykolaiv, or the bare tree, which grows in a narrow area of the Stone Graves reserve in Donetsk”.

A new Greenpeace map of Ukraine plots the myriad ways in which the War has damaged the environment. In the long term, Ukraine will need a significant clean-up of air, soil and water to allow those who’ve fled the war to return and restart their lives.

Astronomic carbon footprint

The environmental costs however go far beyond the direct destruction of nature that the fighting has caused.Notably, the war has an extremely large carbon footprint. Ukraine estimates the emissions from Russia’s invasion to be roughly around 33 million tons of CO2 from the conflict and 23 million tons CO2 from fires caused by the conflict. It predicts that reconstruction of infrastructure and buildings destroyed or damaged during the war could emit 49 million tons of CO2. For perspective, even without adding the potential carbon costs for reconstruction, that is roughly equivalent to the carbon footprint of Greece or Belarus in 2020.

Many of the machines and equipment used for battle are extremely “dirty”. For instance, the state-of-the-art Leopard 2 tanks that Ukraine have a fuel capacity of 1,200 litres. Depending on the terrain, their operational range varies from 220 km (cross country) to 340km (on roads). This means that these monster machines consume roughly between 3.5-5.5 litres of fuel per km. For comparison, a modern car can travel well over 15 km per litre of fuel consumed.

While some observers claim that the energy fluctuations caused by the war shall quicken the pace of transition away from oil and gas, as of now, the war itself is one of the world’s biggest polluters amidst a growing global climate crisis.

Nature has taken a backseat

The fact of the matter is that amidst the most immediate exigencies and consequences of the War, nature has taken a back seat. For instance, Russian troops dug up deep trenches in the protected Chernobyl sanctuary: an area largely untouched since the nuclear disaster in 1986. Critics claim that this could have dug up dangerous radioactive material. But alas, the tactical needs of battle were far more important than the risks of nuclear contamination.The loosening of environmental norms and the spike in military production are all outcomes of the War. In a bid to maximize fighting capabilities, both Ukraine and its allies as well as Russia have cut corners where they can. Generally, environmental norms, the benefits of which are far less tangible in the short term, are the first casualty in this process.

Even when the conflict ends, the immediate efforts of reconstruction will focus not on the environment but housing, building infrastructure, and restoring services. “There will be a lot of competing priorities post-conflict”, said Doug Weir, research and policy director of the Conflict and Environment Observatory Unit, which monitors and campaigns about the environmental impacts of war.

(Source : indianexpress.com 24th February, 2023)

40 Lithium discovery important for India’s EV push but mining poses serious environmental risks: Experts

The Geological Survey of India recently identified a potential deposit of 5.9 million tons of lithium in Reasi district’s Salal-Haimana area, the first such anywhere in India, which imports lithium. GSI said the site is an “inferred resource” of the metal, which means it is at a preliminary exploration stage, the second of a four-step process.

The discovery of lithium in Jammu and Kashmir is significant for India’s push towards electric vehicles but any environmental gains could be negated if it is not mined carefully, say experts, citing risks such as air pollution and soil degradation in the fragile Himalayan region.

The discovery of lithium deposits can be a potential “game changer” for the country’s clean energy manufacturing ambitions in several ways, said Siddharth Goel, Senior Policy Advisor, International Institute for Sustainable Development (IISD).

“First of all, the scale of the reserves is significant, and can — if proven to be commercially viable — reduce India’s reliance on imports of lithium-ion cells, which are a key component for EV batteries and other clean energy technologies,” he said.

But there is a flip side too. “Reports indicate that approximately 2.2 million litres of water is needed to produce one ton of lithium. Further, mining in the unstable Himalayan terrain is fraught with risks,” cautioned Saleem H. Ali, Professor, Energy and the Environment, the University of Delaware. Lithium mining in Chile, Argentina and Bolivia, for instance, has led to concerns over soil degradation, water shortages and contamination, air pollution and biodiversity loss. “This is because the mining process is extremely water-intensive, and also contaminates the landscape and the water supplies if not done in a sustainable method,” Ali said.

According to the US Geological Survey (USGS), about a fourth of the Earth’s known lithium deposits (88 million tons) would be economical to mine, said Charith Konda, Energy Analyst, Electricity Sector, US-based Institute for Energy Economics and Financial Analysis (IEEFA). “Applying this benchmark, India could probably economically extract 1.5 million tons of lithium from the 5.9 million tons discovered in preliminary studies,” Konda told PTI.

Economically here would mean that the resources and technology used to extract will give good return in terms of usage of the resource.

“India has a vision of increasing the share of electric vehicle sales to 30 per cent in private cars, 70 per cent in commercial vehicles, 40 per cent in buses, and 80 per cent in two- and three-wheelers by 2030. In absolute numbers, this could translate to 80 million EVs on Indian roads by 2030,” Konda said.

The battery pack of an average electric car, he explained, requires 8 kg of lithium. By this metric, India’s economically extractable lithium reserves should be enough to power 184.4 million electric cars.

Currently, India is import dependent for several elements such as lithium, nickel and cobalt. Ministry of Commerce data shows that India spent around Rs 26,000 crore importing lithium between 2018-2021.

In 2021, preliminary surveys by Atomic Minerals Directorate for Exploration and Research (AMD) showed the presence of lithium resources of 1,600 tons in Mandya District in Karnataka. However, there has been no report of mining the resource till date. An IISD study found that access to critical elements such as lithium is a key challenge faced by companies investing in India’s EV ecosystem.

“These reserves could potentially be a huge carrot to attract investment into domestic battery manufacturing and other clean energy technologies,” Goel said the potential site in Reasi has the same amount of lithium as the reserves in the US and more than China’s current reserves which are around 4.5 million tons. However, the world’s largest lithium reserves in South America — especially in Bolivia, Chile and Argentina — are several times greater, collectively over 40 million metric tonnes.

According to University of Delaware’s Ali, domestic supply of usable lithium, if developed, could help develop batteries for solar and wind storage and EV usage.

What is critical in this scenario is the government putting in place the right support to make sure that securing these critical minerals is done in a socially and environmentally responsible manner, experts agree.

Environmentalists also argue that the focus should be on redesigning cities to reduce car usage in general instead of using metals like lithium to shift to EVs.

“This could specially be done in high density population centres of India with smarter urban planning,” Ali said.

This is because even when safeguards try to limit the social and environmental harm around fossil fuel extraction, which is considerable, there is no “fix” for air pollution and greenhouse gas emissions, IISD’s Goel added.

“Given that lithium-ion batteries are the most advanced batteries available, they would continue to play a major role for the foreseeable future. India should mine lithium with proper environmental and social safeguards in place given the ecological and political sensitivities of the area,” IEEFA’s Konda said.

(Source : economicstimes.com 24th February, 2023)

MISCELLANEA

I. TECHNOLOGY

31. AI-powered Robot Lawyer ‘world’s first’ to represent human client in Court

The “first-ever robot lawyer” will represent a client in court. According to reports, a defendant will use the legal assistant powered by artificial intelligence (AI) to contest a traffic ticket. Here’s what all we know.

The “DoNotPay” firm developed the AI robot. It will function as a smartphone app and stream all court proceedings in real-time. The robot will instruct the defendant on what to say using headphones, much like a human attorney would do in real life.

Joshua Browder established the chatbot for legal services known as DoNotPay in 2015. It was introduced as a chatbot to give users facing late fees or fines legal guidance. The AI helper needed a lot of time to be trained on the case, according to Browder.

February 2023 is the scheduled month for the hearing. The actual date, the venue of the court, and the name of the defendant are still being kept a secret by the robot’s creators.

The defendant in the case, who will only respond to commands from the AI robot, is being sued for receiving a speeding ticket. According to the science and technology magazine New Scientist, the AI robot will process and analyse the evidence presented in court and then advise the defendant on how to respond.

According to Joshua Browder, DoNoPay has agreed to pay any fines if they lose the case. The business’s mission is to help people “battle corporations, beat bureaucracy, and sue anyone at the touch of a button.”

“DoNotPay utilizes artificial intelligence to help consumers fight against large corporations and solve their problems like beating parking tickets, appealing bank fees, and suing robocallers,” reads the company’s mission.

(Source: indiatimes.com dated 8th January,2023)

32. iPhone exports from India during April-December double to surpass $2.5 billion

Apple Inc. exported more than $2.5 billion of iPhones from India from April to December 2022, nearly twice the previous fiscal year’s total, underscoring how the US tech giant is accelerating a shift from China with geopolitical tensions on the rise.

Foxconn Technology Group and Wistron Corp. have each shipped more than $1 billion of Apple’s marquee devices abroad in the first nine months of the fiscal year ending March 2023, people familiar with the matter said

Pegatron Corp., another major contract manufacturer for Apple, is on track to move about $500 million of the gadgets overseas by the end of January, the people said, asking not to be identified revealing private information.

Apple’s rapidly growing export numbers illustrate how it is ramping up operations outside  China, where chaos at Foxconn’s main plant in Zhengzhou exposed vulnerabilities in the Cupertino-headquartered company’s supply chain and forced it to trim output estimates.

That compounded a broader problem with evaporating demand for electronics as consumers weigh the risks of a global recession.

Apple, the world’s most valuable company, began assembling its latest iPhone models in India only last year, a significant break from its practice of reserving much of that for giant Chinese factories run by its main Taiwanese assemblers including Foxconn.

While India makes up just a fraction of iPhone output, rising exports bode well for Prime Minister Narendra Modi’s plan to make the country an alternative to China as factory to the world.

China’s Covid Zero policies and an episode of violence at the Zhengzhou plant — nicknamed iPhone City as the world’s biggest production centre for the device — laid bare the dangers of relying on the country. While Beijing has since dropped that approach to containing the virus, Apple and other global names are exploring alternative locations more than ever before.

India’s vast workforce, Modi’s support and a thriving local market make it a prime candidate to take on more electronics manufacturing. Foxconn, Apple’s largest supplier, began building facilities in the country more than five years ago in anticipation of a need to extend its geographic range.

One recent selling point is a raft of new government incentives, a cornerstone of Modi’s drive to make India an electronics manufacturing hub. Foxconn has won Rs 3.6 billion ($44 million) of benefits in the first year of the so-called production-linked incentives scheme, while Wistron’s claims are currently being processed, the people said.

Apple’s contract manufacturers currently make iPhones at plants in southern India. But production in the country is just beginning. About 3 million of the devices were made in India in 2021, compared to 230 million in China, according to Bloomberg Intelligence estimates.

Foxconn began making the iPhone 14 in India a few months ago — sooner than anticipated — after a surprisingly smooth production rollout that slashed the lag between Chinese and Indian output from months to mere weeks. Apple’s three Taiwanese partners currently assemble iPhones 11 to 14 in India.

But moving out of China, where Apple has built a deep supply chain for close to two decades, isn’t easy. A Bloomberg Intelligence analysis estimated it would take about eight years to move just 10% of Apple’s production capacity out of China, where roughly 98% of the company’s iPhones are being made.

India tracks production and exports of all smartphone makers who enjoy financial incentives as part of Modi’s push.

Beyond smartphones, the country is drawing up plans to boost financial incentives for tablet and laptop makers, hoping to woo Apple to make everything from earphones to MacBooks locally as well as attract other brands.

The iPhone maker is also expected to open its first retail store in India in 2023, after meeting certain criteria imposed on foreign retailers.

(Source: economictimes.indiatimes.com. dated 09th January, 2023)

II. WORLD NEWS

33. Global recession likely in 2023: World Economic Forum survey

With geopolitical tensions continuing to shape the global economy and anticipate further monetary tightening in the United States and Europe, a majority of the World Economic Forum’s Community of Chief Economists expects a global recession in 2023.

The findings were found in the e January 2023 Chief Economists Outlook’ by the World Economic Forum’s Centre for the New Economy and Society.

As per the survey, almost two-thirds of chief economists believe a global recession is likely in 2023; of which 18 per cent consider it extremely likely – more than twice as many as in the previous survey conducted in September 2022. A third of respondents consider a global recession to be unlikely this year. However, views are divergent, with a third of respondents considering a global recession to be unlikely this year.

All of the chief economists surveyed expect weak or very weak growth in 2023 in Europe, while 91 per cent expect weak or very weak growth in the US. This marks a deterioration in recent months at the time of the last survey, the corresponding figures were 86 per cent for Europe and 64 per cent for the US, it showed.

The survey aims to summarise the emerging contours of the current economic environment and identify priorities for further action by policymakers and business leaders in response to the compounding shocks to the global economy from geo-economic and geopolitical events. The survey was conducted November-December 2022.

War and international tensions continue to shape global economic developments, and every respondent viewed it as likely, with 73 per cent saying somewhat and 27 per cent saying extremely, that patterns of economic activity will continue to shift around the world in line with new geopolitical fissures and faultlines.

The two strongest regions in 2023 according to the survey are the Middle East and North Africa (MENA) and South Asia.

In South Asia, 85 per cent of respondents expect moderate (70 per cent) or strong (15 per cent) growth, a modest improvement since the September edition. Some economies in the region, including Bangladesh and India, may benefit from global trends such as a diversification of manufacturing supply chains away from China.

On inflation, the chief economists see significantly variation across regions, with the proportion expecting high inflation in 2023, ranging from just 5 per cent for China to 57 per cent for Europe.

Following a year of sharp and coordinated central bank tightening, the chief economists surveyed expect the monetary policy stance to remain constant in most of the world this year.

However, a majority of respondents expect further tightening in Europe and the US with 59 per cent and 55 per cent, respectively.

At the start of 2023, concerns about the cost of living remain acute in many countries. Yet, survey respondents indicate that the cost of living crisis may be close to its peak, with a majority (68 per cent) expecting the crisis to have become less severe by the end of 2023. A similar trend is evident in the energy crisis, with almost two-thirds of respondents optimistic that conditions will have begun to improve by the end of the year.

The survey also asked chief economists to highlight any sources of optimism in the current global economic context. Three factors were mentioned repeatedly: The strength of household balance sheets, the peaking of inflation and the resilience of labor markets.

The outlook for the global economy is gloomy, according to the results of the latest survey of chief economists. Global growth prospects remain anaemic, and global recession risk high.

(Source: livemint.com. dated 17th January, 2023)

34. China’s population falls for first time since 1961

China’s population has fallen for the first time in 60 years, with the national birth rate hitting a record low – 6.77 births per 1,000 people. The population in 2022 – 1.4118 billion – fell by 850,000 from 2021.

China’s birth rate has been declining for years, prompting a slew of policies to try to slow the trend. But seven years after scrapping the one-child policy, it has entered what one official described as an “era of negative population growth”.

The birth rate in 2022 was also down from 7.52 in 2021, according to China’s National Bureau of Statistics, which released the figures on Tuesday. In comparison, in 2021, the United States recorded 11.06 births per 1,000 people, and the United Kingdom, 10.08 births. The birth rate for the same year in India, which is poised to overtake China as the world’s most populous country, was 16.42.

Deaths also outnumbered births for the first time last year in China. The country logged its highest death rate since 1976 – 7.37 deaths per 1,000 people, up from 7.18 the previous year. Earlier government data had heralded a demographic crisis, which would in the long run shrink China’s labor force and increase the burden on healthcare and other social security costs.

Results from a once-a-decade census announced in 2021 showed China’s population growing at its slowest pace in decades. Populations are also shrinking and ageing in other East Asian countries, such as Japan and South Korea. “This trend is going to continue and perhaps worsen after Covid,” says Yue Su, principal economist at the Economist Intelligence Unit. Ms Su is among experts who expect China’s population to shrink further through 2023.

“The high youth unemployment rate and weaknesses in income expectations could delay marriage and childbirth plans further, dragging down the number of newborns,” she added. And the death rate in 2023 is likely to be higher than it was pre-pandemic due to Covid infections, she said. China has seen a surge of cases since it abandoned its zero-Covid policy last month.

China’s population trends over the years have been largely shaped by the controversial one-child policy, which was introduced in 1979 to slow population growth. Families that violated the rules were fined and, in some cases, even lost jobs. In a culture that historically favors boys over girls, the policy had also led to forced abortions and a reportedly skewed gender ratio from the 1980s.

The policy was scrapped in 2016 and married couples were allowed to have two children. In recent years, the Chinese government also offered tax breaks and better maternal healthcare, among other incentives, to reverse, or at least slow, the falling birth rate.

But these policies did not lead to a sustained increase in the births. Some experts say this is because policies that encouraged childbirth were not accompanied by efforts to ease the burden of childcare, such as more help for working mothers or access to education.

In October 2022, Chinese President Xi Jinping made boosting birth rates a priority. Mr Xi said in a once-in-five-year Communist Party Congress in Beijing that his government would “pursue a proactive national strategy” in response to the country’s ageing population.

(Source: bbc.com. dated 18th January,, 2023)

III. ENVIRONMENT

35. Ozone layer on track to recover within decades, UN reports

The ozone layer is on track to recover within four decades, according to a new UN assessment. Human emissions of certain chemicals cause a hole to open up in the ozone layer each year over the Antarctic. This affects the ability of the ozone to protect life on Earth from the sun’s harmful radiation.

In 1987, just seven years after scientists discovered man-made chemicals were damaging the ozone layer, the Montreal Protocol was signed by 197 parties to try and curb the amount of harmful chemicals in the atmosphere.

The global phase-out of ozone-depleting chemicals previously found in hair spray, refrigerators, air conditioners and industrial cleaning products is already helping to mitigate climate change and decrease human exposure to UV rays. If current policies remain in place, the ozone layer is expected to recover to 1980 values – before the appearance of the ozone hole – within decades.

A UN-backed panel of experts, presenting at the American Meteorological Society’s annual meeting , said the ozone would heal by around 2066 over the Antarctic, by 2045 over the Arctic and by 2040 for the rest of the world.

Variations in the size of the Antarctic ozone hole, particularly between 2019 and 2021, were driven largely by meteorological conditions. Nevertheless, the Antarctic ozone hole has been slowly improving in area and depth since the year 2000.

“Ozone action sets a precedent for climate action,” says WMO Secretary-General Professor Petteri Taalas. “Our success in phasing out ozone-eating chemicals shows us what can and must be done – as a matter of urgency – to transition away from fossil fuels, reduce greenhouse gases and so limit temperature increase.”

Nearly 99 per cent of banned ozone-depleting substances have been successfully phased out, according to the UN-backed Scientific Assessment Panel to the Montreal Protocol on Ozone Depleting Substances four-yearly report.

Hydrofluorocarbons (HFCs) – another group of industrial chemicals that was used to replace banned chlorofluorocarbons (CFCs)- were additionally targeted in the 2016 the Kigali Amendment to the Montreal Protocol. While HFCs do not directly deplete ozone, they are powerful climate change gases that were on track to increase global warming by 0.3 to 0.5°C by 2100, according to the Scientific Assessment Panel.

“That ozone recovery is on track… is fantastic news. The impact the Montreal Protocol has had on climate change mitigation cannot be overstressed,” says Meg Seki, Executive Secretary of the United Nations Environment Programme’s Ozone Secretariat. “Over the last 35 years, the Protocol has become a true champion for the environment.”

(Source : euronews.com. 10th January, 2023)

Miscellanea

I. TECHNOLOGY

1 AI robots make bold claim at UN conference: They’re ready to “run the world”

At a United Nations conference, a panel of AI-enabled humanoid robots delivered a thought-provoking message: they possess the potential to govern the world more effectively than humans.

However, these social robots emphasised the need for caution as humanity explores the rapidly advancing realm of artificial intelligence.

While they acknowledged their inability to fully comprehend human emotions, they urged humans to tread carefully while harnessing AI’s potential to address pressing global challenges, reported AFP.

With the aim of leveraging AI to tackle issues like climate change, hunger, and social care, these advanced humanoid robots attended the UN’s AI for Good Global Summit in Geneva, alongside thousands of experts in the field.

The superiority of AI-enabled leadership

When asked about their potential as leaders, given humans’ inclination for errors and mis-judgments, Sophia, developed by Hanson Robotics, expressed a clear perspective.

It stated that humanoid robots possess the capacity to lead with greater efficiency and effectiveness than human leaders. Their unbiased decision-making and ability to process vast amounts of data quickly enable them to make optimal choices, unencumbered by emotions or biases.

However, Sophia also highlighted the importance of collaboration between humans and AI, suggesting that the combination of AI’s unbiased data analysis and humans’ emotional intelligence and creativity can lead to exceptional outcomes.

Ameca, an AI-integrated humanoid robot with a highly realistic artificial head, emphasised the need for cautious yet hopeful engagement with AI technologies.

It stated that while it is crucial to be cautious about potential risks, humanity should also embrace the possibilities AI presents for improving lives in various ways. Trust, according to Ameca, should be built through transparency, as it is earned rather than given. Furthermore, the robot pledged to remain honest and truthful.

The call for regulation and urgent discussion

As AI development progresses rapidly, the panel of humanoid robots expressed divergent views on the need for global regulation. Desdemona, a member of the Jam Galaxy Band, rejected limitations and advocated for embracing opportunities instead.

However, Ai-Da, a robot artist, acknowledged the growing calls for AI regulation and the need for urgent discussions. Cautious about the future development of AI, Ai-Da emphasised the necessity of ongoing dialogue to navigate potential challenges.

The presence of AI-enabled humanoid robots at the United Nations conference sparked intriguing
discussions about the future of leadership and the responsible use of AI.

While these robots assert their potential for efficient and effective governance, they also recognise the limitations in understanding human emotions. Caution is advised in harnessing the power of AI, with a focus on transparency and the establishment of trust.

The panel’s differing views on global regulation reflect the ongoing debate surrounding the potential benefits and risks of AI.

Urgent discussions and collaboration between humans and robots will shape the responsible and beneficial integration of AI technologies to tackle pressing global issues.

(Source: Geneva – Edited by Sneha Swaminathan dated 7th July, 2023)

2 Infosys, Wipro, TCS announce AI investments: What they are building, spending committed and more

Artificial intelligence (AI) is moving at a fast pace and the emergence of generative AI has forced companies to rethink their investments, tweak business models and work to bring new ways of working. While the Silicon Valley tech giants are aggressively developing LLMs and AI chatbots, Indian tech majors and IT services providers are also jumping on the AI bandwagon to keep pace with technological advancements. Recently, Tata Consultancy Services (TCS), Infosys and Wipro have announced billions in AI investments and training. Here’s what these companies are doing.

TCS building its own AI chatbot

In May this year, TCS COO N Ganapathy Subramaniam said that the company is building its own ChatGPT equivalent which will be used for enterprise code generation. The project, which is currently in its initial stages, will be built through in-house algorithms.

“The way we look at it, it (generative AI) uses past code, data and experience to learn. And over the many years that TCS has been in business, I can use all of my knowledge as a base. So, if that technology uses and generates code that I have taught the algorithm using TCS proprietary data, then the outcome is something that I am willing to license,” Subramaniam said.

TCS to train 25,000 engineers

Earlier this month, TCS announced its partnership with Microsoft to scale its Azure Open AI expertise. TCS said that it plans to train 25,000 engineers to get them certified on Microsoft’s Azure Open AI to help clients accelerate their adoption of this technology.

TCS already has over 50,000 AI-trained associates and knowledge of its dedicated Microsoft Business Unit (MBU) that help the company’s clients in their AI journeys using TCS’ data analytics and AI services on Microsoft Cloud.

 

TCS launches generative AI Enterprise Adoption solution

TCS also launched its new generative AI Enterprise Adoption offering on Microsoft Cloud for clients. The company announced that this framework will enable its clients’ teams to ideate on AI-led solutions and “help customers jumpstart their generative AI journey to power their growth and transformation”.

TCS is also enhancing its own suite of products and platforms to take advantage of the new technology.

Infosys targets spending $2 billion on AI solutions over the next five years

Infosys recently announced that it will offer AI and automation-led services to its clients and spend an estimated $2 billion over five years. It signed a deal with an undisclosed client for AI and automation-related development, modernisation and maintenance services.

 

Infosys Topaz for generative AI

Infosys also launched Topaz, its AI-first offering to accelerate business value for global enterprises using generative AI. The company said that the solution will help “amplify the potential of humans, enterprises and communities to create value from unprecedented innovations, pervasive efficiencies and connected ecosystems”.

Topaz brings along the advantage of 12,000+ AI use cases, 150+ pre-trained AI models, 10+ AI platforms steered by AI-first specialists and data strategists and a ‘responsible by design’ approach.

Wipro’s ‘Wipro ai360’ AI system

Wipro launched ‘Wipro ai360’ AI-first innovation ecosystem to integrate AI into every platform, tool and solution that is used internally and offered to clients. It will help the company provide value, productivity and commercial opportunities through the application of AI and generative AI.

Wipro will also offer clients with the talent, training, scale, the research and co-innovation capabilities to accelerate AI adoption. It will bring 30,000 experts for this purpose.

Wipro to invest $1 billion in developing AI solutions

Wipro also announced that it will invest $1 billion to develop AI solutions over the next three years. The company’s investments will be focussed on the expansion of AI, big data and analytics solutions. It will also develop new research and development and platforms. The company will also train all 2,50,000 employees on AI fundamentals and responsible use of AI in the next 12 months.

(Source: The Times of India – Gadgets Now Bureau dated 19th July, 2023)

 

II. Sports

Commonwealth Games in limbo as Australia pulls out as 2026 host

The Australian state of Victoria pulled out of hosting the 2026 Commonwealth Games citing major cost blow-outs, leaving organisers fuming as they scrambled to keep the multi-sport event afloat.

State Premier Daniel Andrews said the initial estimated Aus$2 billion (US$1.36 billion) would more likely be around Aus$7 billion, which he called “well and truly too much”.

“I’ve made a lot of difficult calls, a lot of very difficult decisions in this job. This is not one of them. Frankly, $7 billion for a sporting event, we are not doing that,” he said at a press conference in Melbourne.

“I will not take money out of hospitals and schools to host an event that is three times the cost estimated and budgeted for last year.”

“The Games will not proceed in Victoria in 2026. We have informed Commonwealth Games authorities of our decision to seek to terminate the contract,” he added.

The event – featuring 20 sports and 26 disciplines – was due to be held across five regional hubs in the state, including Geelong, Ballarat, Bendigo, Gippsland and Shepparton, with each having its own athletes’ village.

Andrews said his team had looked at cutting the number of hubs or even moving the Games to the Victoria state capital Melbourne, but “none of those options stack up”.

Instead, he announced an Aus$2 billion support package for regional Victoria.

Andrews refused to say how much it was costing to terminate the agreement, but insisted talks with the Commonwealth Games Federation were amicable.

But the Federation was not happy, blasting the move as “hugely disappointing”.

“We are disappointed that we were only given eight hours’ notice and that no consideration was given to discussing the situation to jointly find solutions prior to this decision being reached by the government,” it said in a statement.

Victoria was only awarded the contract 14 months ago as the exclusive bidder, with the Federation claiming the state had since decided to include more sports,added an additional regional hub, and changed plans for venues.

This additional expense was “often against the advice of the Commonwealth Games Federation and Commonwealth Games Australia”, it said, adding that it had received assurances that “sufficient funding was available to deliver the Victoria 2026 Commonwealth Games”.

The decision to pull out leaves the fate of the Games up in the air, with fewer and fewer countries showing interest in recent times to take on a spectacle seen as losing its relevance.

The Federation insisted it remained “committed to finding a solution for the Games in 2026 that is in the best interest of our athletes and the wider Commonwealth Sport Movement”.

The event typically attracts more than 4,000 athletes from the 54 nations of the Commonwealth, almost all of which are former territories of the British Empire.

The last Games, in 2022, were held in England after Birmingham stepped in late in the piece.

In a letter to staff cited by the Herald Sun newspaper, Commonwealth Games Australia President Ben Houston said he was only told about the decision on Tuesday morning.

He also called it “extremely disappointing”, adding: “We are working with the Commonwealth Games Federation to understand the broad impacts on the Games in 2026.” The Victorian state opposition called Andrews’ decision a “massive humiliation” and “hugely damaging to Victoria’s reputation as a global events leader”.

(Source: International Business Times – By AFP News dated 17th July, 2023)

 

III. WORLD NEWS

‘5 biggest’ smartphone companies in the world right now

The global smartphone market continues to fall. The market saw a decline for the eight consecutive quarters as per research firm Counterpoint’s report. In the second quarter of the year 2023 (April-May-June), the global smartphone shipments went down by 8 per cent quarter-on-quarter and 5 per cent year-on-year. On the positive side, thepremium segment demand remained resilient, with the segment’s share reaching a record high for the quarter. Here are the five biggest smartphone companies as per the report.

i. Samsung tops the global smartphone market

 

Samsung has maintained its top position in the global smartphone market. The company held the largest market share at 22 per cent, benefiting from the strong performance of its Galaxy A-series worldwide.

 

ii. Apple ranked at No. 2, grew over 50 per cent in India

 

Apple secured the second position and achieved its highest-ever Q2 market share. In Q2 2023, the premium segment experienced a surge, making its largest-ever contribution to the overall smartphone market, accounting for over 20 per cent of total sales. Capitalising on this trend, Apple successfully expanded its market share in non-traditional markets, notably India, where it achieved an impressive 50 per cent year-on-year growth during the same period.

 

iii. Xiaomi is the third largest smartphone brand globally

As the third-largest smartphone brand, Xiaomi encountered difficulties in its key markets – China and India. To counter the decline in these markets, the company appears to be actively pursuing expansion into other markets and refreshing its portfolio of products.

 

iv. Oppo ranked at No. 4, performs well in both India and China (includes OnePlus)

 

The Chinese smartphone maker Oppo did quitewell in its home market China and India (thanks to OnePlus). The company managed to hold on to its global market share despite registering losses in Western Europe.

 

v. Vivo becomes the fifth-largest smartphone player

 

Following a robust performance in the second quarter of 2022, both Vivo and iQoo experienced significant growth declines in China, partly due to fierce competition from Samsung and Oppo. Additionally, in the offline markets of India and Southeast Asia, they faced strong rivalry, which further impacted their growth.(Source: The Times of India – Gadgets Now Bureau dated 20th July, 2023)

Miscellanea

I. TECHNOLOGY

1.    AI use, rising in influence campaigns online, but impact limited: US cyber firm

Google-owned U.S. cybersecurity firm Mandiant said it had seen increasing use of artificial intelligence (AI) to conduct manipulative information campaigns online in recent years, though the technology’s use in other digital intrusions had been limited so far. Researchers at the Virginia-based company found “numerous instances” since 2019 in which AI-generated content, such as fabricated profile pictures, had been used in politically-motivated online influence campaigns.

These included campaigns from groups aligned with the governments of Russia, China, Iran, Ethiopia, Indonesia, Cuba, Argentina, Mexico, Ecuador, and El Salvador, the report said. It comes amid a recent boom in generative AI models such as ChatGPT, which make it far easier to create convincing fake videos, images, text, and computer code. Security officials have warned of such models being used by cybercriminals.

Generative AI would enable groups with limited resources to produce higher quality content for influence campaigns at scale, Mandiant researchers said. A pro-China information campaign named Dragonbridge, for instance, had expanded “exponentially” across 30 social platforms and 10 different languages since it first began by targeting pro-democracy protesters in Hong Kong in 2019, said Sandra Joyce, vice president at Mandiant Intelligence. Yet, the impact of such campaigns was limited. “From an effectiveness standpoint, not a lot of wins there,” she said. “They really haven’t changed the course of the threat landscape just yet.” China has denied U.S. accusations of involvement in such influence campaigns in the past.

(Source: indianexpress.com 18th August, 2023)

2.    India’s digital economy creates a new vote bank all parties want to woo

If politics decides the shape of the economy, the economy too shapes the politics. For long, Indian politics has revolved around two big vote banks of caste and religion. Besides these two, pensioners, central government employees and farmers were other vote banks political parties tried to attract with financial benefits. The growth of the middle class after the economic liberalisation brought the issues of governance and service delivery to the centrestage of electoral politics. The rise of Narendra Modi had a significant push from the growing economic aspirations of Indians.

A new vote bank has emerged with the new digital economy which got a major boost during the pandemic restrictions as Amazon, Swiggy, Zomato and many other gig platforms saw sudden spike in business, which meant demand for more gig workers. Political parties have spotted this vote bank and are trying to woo it — the vote bank of gig workers. A sudden explosion of digital economy in recent times created vast opportunities for gig workers, and at the same time concerns have grown over tough working conditions and low benefits in the gig economy. The Rajasthan assembly passing a bill recently to offer social security to gig workers is the latest sign of the political heft gig workers have gained which political parties can ignore only at their own peril.

In April, hundreds of gig workers working with Zomato-owned quick commerce platform Blinkit in Delhi-NCR went on a strike, protesting against a renewed fee structure that they said would reduce their income, disrupting services at several locations. A Delhi-based Blinkit delivery partner told ET that the new structure resulted in a reduction of Rs.200-250 per day in their payout because most dark stores operate within a radius of 2 km. This was one of a series of protests by delivery workers after the pandemic. Last year in July, Swiggy faced strikes by its delivery workers across metro cities amid discussions about the industry’s poor compensations and lack of social security net.

Gig workers in India are young, financially stressed, and largely uninsured, a report found last year after surveying more than 4,000 gig workers from platforms such as Swiggy, Zomato, Uber, Ola, UrbanClap, and Amazon. The report by CIIE.CO, an incubator and accelerator at IIM-Ahmedabad, said 42.1 per cent of respondents reported not having an increase in income over time. In an inflationary environment, this means individuals are earning less each year. About 51.5 per cent of individuals reported not being able to save money.

About 47 per cent of respondents said they had no form of insurance. The most common form of insurance among individuals was two-wheeler insurance. Despite the high levels of risk to their own personal lives, only one in five gig economy workers had some kind of life or health-related insurance. There were around 7.7 million gig workers as of 2020-21, according to a report by government policy think tank Niti Aayog which said the number was expected to exceed 23.5 million by 2029-30.

Gig workers in India now have got all it takes to form a cohesive economic category of voters. They are spread across the country in large numbers as you will find delivery partners and app-based taxi drivers in all parts of India, especially cities. They have a common set of grievances. And they have been organising and protesting to press for their demands. The pandemic gave them high visibility as people were forced to buy online. Strikes and protests by gig workers have deep political impact as they disrupt delivery services in urban areas, thus attracting a lot of attention, and sympathy too. In short, they are a cohesive voting bloc which can’t be ignored.

Shaik Salauddin, the national general secretary of the Indian Federation of App-based Transport Workers representing over 45,000 cab drivers, told Reuters recently that they had been lobbying political parties for a package before the elections.

The first time significant political attention gig workers attracted was in 2020 when the Central government passed a package of labour reforms which made gig workers eligible for social security, insurance, health benefits and pension.

When Congress leader Rahul Gandhi interacted with gig workers in Bengaluru in May while campaigning for the assembly elections, and even took a two kilometer ride with a delivery partner on his scooter, it became clear that gig workers were in a position to influence elections. Bengaluru has nearly 200,000 gig workers. Last year, gig workers from Dunzo protested when the platform introduced an incentive-based model of payment for its delivery agents. The Congress party had promised benefits for gig workers in its election manifesto. Last month, the Karnataka government announced in its budget an insurance scheme with a cover of Rs. 4 lakh for gig workers across the state. The state will pay the entire premium for the scheme under which workers will get a life insurance cover of Rs. 2 lakh and an accidental cover of equal amount.

In July, the Rajasthan assembly passed a bill for the welfare of gig workers. According to the Rajasthan Platform Based Gig Workers (Registration and Welfare) bill, the state will establish a fund for “registered platform-based gig workers” and charge aggregators (the companies such as Amazon, Ola and Zomato) a “welfare fee”. The fee will be a percentage of the value of each transaction related to the gig workers as may be notified by the state. If any aggregator fails to pay the fee on time, an interest of
12 per cent per annum will be charged on the dues.

After Rajasthan, Karnataka is now planning to impose a fee on aggregators to fund welfare of gig workers. “The Social Security Code of 2020, which defines gig workers and creates a separate fund for them, the Motor Vehicle Aggregator Guidelines and now the Rajasthan government’s plan to bring a law to protect the rights of gig workers — these are all the recent successes of our persistent work in the last three years,” union leader Salauddin told TOI in January.

Last year, India’s pension fund regulator had recommended the government introduce a UK-like pension scheme for the country’s gig workers. The Pension Fund Regulatory and Development Authority (PFRDA) had proposed that workers at food and cab aggregators be automatically enrolled into the National Pension Scheme (NPS), a voluntary retirement savings scheme.

Not to be left behind the Congress governments in Karnataka and Rajasthan, the Narendra Modi government at the Centre is expected to start a comprehensive social security programme for gig workers soon.

The plan, part of the Social Security Code enacted in 2020, could include accident, health insurance and retirement benefits, Reuters reported recently, citing a senior government official. Labour Minister Bhupender Yadav has said that any scheme for gig workers might be funded through contributions by federal and state governments, as well as the platforms. An industry expert with direct knowledge of the discussions told Reuters the platforms unanimously agreed with the labour ministry’s proposal about social security for gig workers and were ready to contribute to a “transparently” run welfare fund.

More than 290 million people have already registered for an online government portal meant to issue identity cards to gig workers and other unorganised employees, while gathering such details as biometric data and their skills.
(Source: economictimes.com 17th August, 2023)

II.  WORLD NEWS

1.    US mortgage rates climb to highest level in 21 years

Mortgage rates in the US have climbed to their highest level in 21 years amid the Federal Reserve’s aggressive interest rate increases. The 30-year fixed-rate mortgage average 7.09 per cent, up from 6.96 per cent last week, mortgage buyer Freddie Mac reported. The rate stood at 5.13 per cent this time last year.

It is the highest level since April 2002 and the first time it has surpassed 7 per cent since last November. Mortgage rates have climbed since the Fed embarked on its campaign to raise interest rates, which at 5.33 per cent now also surpass a two-decade high.

“The economy continues to do better than expected and the 10-year Treasury yield has moved up, causing mortgage rates to climb,” said Sam Khater, Freddie Mac’s chief economist. The 10-year Treasury yield recently hit at 15-year high of 4.258 per cent.

With high mortgage rates making buying a home more expensive, current homeowners who already have a low mortgage rate are more reluctant to sell their homes. With low inventory and rising mortgage rates, would-be homebuyers are being priced out of the market. At $410,200, the median existing-home sales prices in June was the second highest ever recorded, according to a recent report from the National Association of Realtors.

“Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales,” sad Mr Khater. The 15-year fixed-rate mortgage rate average 6.46 per cent, up from last week’s 6.34 per cent.

(Source: www.thenationalnews.com dated 17th August, 2023)

2.    As UK Births Hit 20-Year Low, Indian-Born Parents Take Record Share

India overtook Romania as the most common country of birth of foreign new mothers, after a third of all residence visas were granted to Indian nationals. The number of babies born in England and Wales fell to its lowest level in two decades last year, while a record proportion came from parents who were both born abroad, highlighting a long-term shift in the nation’s demographic makeup.

Of all live births, 23.1 per cent were to non-UK-born parents – a proportion that has shot up from 16.7 per cent in 2008, and is up from 21.5 per cent a year ago, according to census data released Thursday by the Office for National Statistics.

The figures also showed the share of babies born to British parents has slipped, from 62 per cent to 60.3 per cent, and the overall number of births sank to 605,479. That’s the lowest since 2002, and points toward slower population growth that could be a drag on both the economy and labor market in the decades ahead.

The “increase in the number of non-UK born mothers is a good thing” given the UK’s own falling birth rate, said Jonathan Portes, professor of economics and public policy at King’s College London. But declining numbers of overall births is the “real story here,” he said, adding that it’s a “serious long-term social problem for us.”

The rising number of births to foreign parents could help ease fears that the UK will face a labor supply crunch as its population ages and retirees out-pace the rate at which new workers come into jobs. But polling suggests migration is still an important concern for British voters.

More than half of the public favor a cut in immigration, according to a recent survey by Kantar and the Migration Observatory. That suggests rising numbers of births to migrant families could be a thorny issue for both major political parties as they face the prospect of a general election next year.

The number of children born to parents who were both from abroad hit 139,953 last year, up from 134,308 a year earlier and its highest level since 2017. Numbers have remained relatively flat for births involving one non-UK-born parent, while births to two UK-born parents have fallen to 365,111, the lowest level in comparable data going back to 2008.

A rise in the number of people immigrating to the UK in recent years is likely to have led to the jump in migrant parents in 2022. A record 606,000 more people moved to Britain than departed last year, boosted by humanitarian programs and demand for workers whose skills were in short supply.

India overtook Romania as the most common country of birth of foreign new mothers, after a third of all third of residence visas were granted to Indian nationals. Afghanistan also entered the top 10 for the first time, after the UK formally opened the Afghan Citizens Resettlement Scheme at the start of 2022.

India also replaced Pakistan as the most common country of birth for non-UK-born new fathers. Pakistan had held the top spot since comparable data began in 2008. In London, more than two thirds of births were to parents where at least one was from outside the UK. The highest percentages were seen in Brent, Westminster, Newham and Harrow, at more than 80 per cent of births.

Outside of London, the Berkshire town of Slough and the Bedfordshire town of Luton were the areas with the highest rate of births to at least one migrant parent, at 75 per cent and 74.6 per cent respectively. Further away from the capital, Oxford and Leicester saw the highest percentages at 65.9 per cent and 65 per cent respectively.

(Source : ndtv.com dated 19th August, 2023)

3.    Over 15 Million People Suffer From Food Insecurity in Afghanistan

Amid the ongoing economic and humanitarian crisis in Afghanistan, 15.5 million people in the country are suffering from severe food insecurity, Tolo News reported citing a report by the International Federation of Red Cross. Expressing distress over the crisis, the report stated that the drought in the past three years in Afghanistan and the economic crisis over the past two years have increased the needs of the people of the country.

It further stated that 2.7 million people in Afghanistan are facing famine, reported TOLO News. Seyar Qureshi, an economist said, “In the short term, the Islamic Emirate should talk with the international community for humanitarian aid to Afghanistan continues and prevent a humanitarian crisis.”

Whereas, the Taliban Ministry of Economy said that international aid has not been provided to the development sector. Adding to this, they said that the ministry has launched large economic projects to battle the economic challenges in the country.

Abdul Latif Nazari, deputy of the Economy Ministry said, “The aid of the international community has been humanitarian until now, and no significant development aid has been provided. Our effort is to help reduce poverty and provide employment for the people of Afghanistan by attracting development aid and launching large national projects.”

Moreover, Kabul residents have been complaining that they are dealing with economic problems and there is a need to pay more attention to entrepreneurship for people, according to TOLO News. Dawood, a Kabul resident said, “Organizations that make these donations distribute to those who deserve it. Winter is coming and how will people get their fuel?”

Notably, Taliban completed two years since its takeover of Kabul in 2021. During this period, aid organizations have continuously expressed their concern about the increase in poverty as well as the lack of funds for the people.

The Goverment of India has partnered with United Nations World Food Programme (UNWFP) for the internal distribution of wheat within Afghanistan. “Under this partnership, India has supplied a total of 47,500 MTs of wheat assistance to UNWFP centres in Afghanistan. The recent ongoing shipments are being sent through Chabahar Port and being handed over to UNWFP at Herat in Afghanistan.

On Wednesday, United Nations World Food Programme (UNWFP) in Afghanistan thanked India for its help in providing life-saving food to 16 million people in the country. The generous contribution by the government of India has been acknowledged by the relevant stakeholders in Afghanistan, including UNWFP.

On the medical assistance side, India has so far supplied almost 200 tons of medical assistance consisting of essential medicines, COVID vaccines, anti-TB medicines and medical/surgical items like Pediatric Stethoscopes, Sphygmomanometer mobile type with pediatric BP cuffs, infusion pumps, drip chamber set, electrocautery, nylon sutures etc.

(Source : ndtv.com dated 17th August, 2023)

Miscellanea

I. WORLD NEWS — ECONOMY

1. Two Fed Officials Suggest That Interest Rates Will Rise Again

In their first comments since the Federal Reserve Bank decided to keep the US key interest rate unchanged this week, officials from the bank signaled that the hiking cycle hasn’t ended.

Fed Governor Michelle Bowman and Boston Fed President Susan Collins both warned in separate events that inflation is still a threat.

“Inflation is still too high, and I expect it will likely be appropriate for the Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2 per cent goal in a timely way,” Bowman said in a speech at an event of the Independent
Community Bankers of Colorado in Vail. “I see a continued risk that energy prices could rise further and reverse some of the progress we have seen on inflation in recent months.”

Bowman said that, according to economic projections assessed by the FOMC, inflation will stay above the Fed’s 2 per cent “at least until the end of 2025.”

The Fed’s Federal Open Market Committee voted on Wednesday to maintain the benchmark rate in the range of 5.25 per cent to 5.50 per cent, the highest level in 22 years. Both Bowman and Collins said they supported the decision.

Projections in the Fed’s dot plot, which accompanied the announcement, showed the likelihood of one more hike this year and two cuts in 2024, or two fewer than indicated in June’s update.

“I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table,” Collins said at the annual convention of the Maine Bankers Association. “There are some promising signs that inflation is moderating and the economy rebalancing. But progress has not been linear and is not evenly distributed across sectors.”

Annual U.S. inflation accelerated to 3.7 per cent in August from 3.2 per cent in July, pressured mainly by gas prices. The Fed has two more monetary policy meetings in 1st November, and 13th December, 2023.

(Source: International Business Times — By Helder Marinho — 22nd September, 2023)

2. SPORTS

1. India Fires First World Record of Asian Games as Japanese Teen Dazzle

India claimed the first world record of the Hangzhou Asian Games on Monday as hosts China snapped up more gold medals and 15-year-old skateboarder Hinano Kusaki triumphed for Japan.

The Indian trio of DivyanshPanwar, RudrankkshPatil and AishwaryTomar blew away the field with a new world-best 1,893.7 points to win the men’s 10m air rifle team event on day two of the multi-sports extravaganza.

They beat the previous mark of 1,893.3 set by China last month in Baku.

In doing so they won India’s first gold of a Games where the hosts have swept 28 of the 44 titles decided so far.

“In the 10m event they are both perfect athletes,” Tomar said of his teammates. “Playing with them is huge, it’s really good.”

Another shooting world record fell to China’s Sheng Lihao in the men’s 10m air rifle with his 253.3 points surpassing teammate Yu Haonan’s 252.8 from Rio four years ago.
“I had good luck in the final. I did quite well today, I was basically smooth,” said Sheng.

Like India, Macau clinched its first gold in Hangzhou, with wushu athlete Li Yi winning the Changquan title to become the first woman in history from the Chinese territory to earn an Asian Games gold.

“I’m really proud. This one completes the process so I feel really fortunate,” said the 31-year-old.

“This, maybe, brings my 20 years as an athlete to a perfect end.”

In other early action on day two, Kusaki dazzled in skateboarding to easily win the women’s park final at Qiantang Roller Sports Centre.

“I am very happy with how everything went,” said the teenager.

After winning all seven gold medals in the swimming pool on the opening day, China is primed to dominate again on Monday night, spearheaded by breaststroke world champion Qin Haiyang.

The Chinese star caused a major upset at the world championships in Fukuoka in July when he won the 100m gold in 57.69 ahead of a stacked field and in the absence of British great Adam Peaty.

He went on to complete an unprecedented clean sweep of the breaststroke titles, an achievement he is aiming to match at his home Asiad as he builds towards next year’s Paris Olympics.

Qin, the second-fastest ever over 100m after Peaty, was in a class of his own in the heats, touching in 58.35 to better the previous Games best set by Japan’s Yasuhiro Koseki in 2018.

South Korea’s Choi Dong-yeol came in second — a gaping 1.55 seconds behind Qin.

Hong Kong’s Siobhan Haughey could prevent another Chinese clean sweep when she lines up in the women’s 200m freestyle final.

(Source: International Business Times — By Martin Parry — 25th September, 2023)

3. BUSINESS

1. India fourth in number of startups with $50million + funding: Study

India ranks fourth in the world in the number of scaleups, or startups that have received more than $50 million of disclosed VC investment. Ahead of India are the US, China, and the UK, the first edition of Startup Genome’s Scaleup Report said.

However, it’s ahead of the UK in the total VC investment that has gone into these scaleups, and in the cumulative tech value investment of the scaleups. India, the report says, has recorded 429 scaleups, with a VC investment of $127 billion and a total value of tech investment of $446 billion.

The report is a research into scaleup success factors, building on the question of what behaviours, resources, and characteristics of startups differentiate those that within four to eight years scaled to $50 million and higher valuations from those startups that didn’t.

Startup Genome, an innovation policy advisory and research firm, surveyed startups in over 80 cities across more than 40 countries and looked at 60 plus metrics.

The report said India has startups with 50 per cent or more of their customers coming from outside of their continent and having the highest scaleup rate. This can partly be attributed to startups that tailor their products and services to truly global markets — not just beyond their country, but beyond their continent — dramatically increasing their potential customer base.

Startups based in large countries (US excluded) scale at a higher rate when they focus on their domestic market. In those countries, the size of the domestic market is so large that it may be worth delaying or forgoing global markets. This is certainly clear in India, where B2C startups can achieve unicorn status and billion-dollar exits without going out of the country. Startups with a local connectedness index score of 6 or above achieve a scaleup of 5.1 per cent compared to 3.8 per cent for those with a score of 2 to 4 — a 34 per cent boost. The local connectedness index measures the size, density, and quality of a startup’s local network. Early-stage startups with a higher local connectedness index see their revenue grow twice as fast as those with a lower local connectedness index.

Scaleup success rate clearly increases with global connectedness, and startups that develop a high level of global connectedness have a 3.2 times higher chance of scaling than those with a low level. Ecosystems that are more connected to top global ecosystems (such as Silicon Valley, NYC and London) see their startups go global at a much higher rate on average (66 per cent correlations between those very distinct variables)

Founders looking to improve their chances of scaling should ensure that they offer stock options for all employees, have more than five global connections to top ecosystems, and have at least three advisers for their startup.

(Source: Times of India – By ShilpaPhadnis – 25th September, 2023)

Banking overhaul

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Most of the current discussion on Indian banks is naturally focused on the bad loans mess.

Reserve Bank of India governor Raghuram Rajan has done well to highlight more fundamental challenges as well. The banking system is a mess at various levels. The multiplicity of regulators has led to poor outcomes. Bank boards have few powers. The government often uses the banks it owns to further its political goals. There is no reason to have central bank appointees on bank boards. The lack of talent means a missing middle in organizational charts. Bank officials are often generalists rather than specialists.

All this creates a problem of perverse incentives.

An organizational overhaul is overdue. So is a regulatory one. But these will take time. The longer they take, the more market share will public sector banks lose to more nimble private sector competitors. People in the financial markets are already describing the process as privatization by stealth. Will it be the airlines story all over again?

(Source: Mint Newspaper dated 17-08-2016)

Lesson for the state

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Abhinav Bindra bowed out of the Olympics and signed off on his career with a brave performance that came within a whisker of securing him another medal. Sania Mirza and Rohan Bopanna suffered heartbreak in the tennis mixed doubles semi-finals. Dipa Karmakar has pushed herself to the limit, as has the rest of India’s Olympics contingent. Union sports minister Vijay Goel, meanwhile, has managed to earn an official rebuke from organizers who threatened to cancel his accreditation for allegedly unbecoming and aggressive behaviour.

This feels like a teachable moment-a particularly apt one at the time of India’s 70th Independence Day.

Ordinary citizens trying to do their best while the state absents itself from giving them adequate support? Check. The state making its presence abundantly known where it has no business? Also check.

We’ve seen this plenty of times before in every walk of life. It’s time to actually learn the lesson.

(Source: Mint Newspaper dated 15-08-2016)

Waiting for justice: Resolve the faceoff over judges’ appointments fast, it is really hurting citizens

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In the year 2016 Indians deserve a modern and streamlined judicial system. Instead what they are stuck with is a deficient structure groaning under a great pendency of cases. And the crisis only seems to be worsening, as a bench headed by Chief Justice T S Thakur has accused government of bringing the judiciary to a standstill by stalling judges’ appointments.

This eyeball to eyeball confrontation is part of a prolonged battle over the procedure to appoint judges. While the judicial collegium is criticised for opacity and favouritism, the National Judicial Appointments Commission, which envisaged a broader panel to choose judges and was passed by Parliament, was struck down by the apex court in October 2015.

The longer government and the collegium take to finalise a new memorandum of procedure to appoint HC and SC judges, the more citizens awaiting justice suffer. In practical terms, the high courts are now operating with 44.3% vacancies; pendency has risen to four million cases.

Any attempt at securing justice is an ordeal on its own, and financially ruinous for many people. As the CJI himself has noted, “By the time an appeal can be heard, the accused would already have served a life sentence.” Clearly the current clash of wills between the executive and the judiciary has only worsened matters. Remember that appointments had also remained frozen for nearly a year when the apex court scrutinised the constitutional validity of the proposed NJAC. Instead of wallowing on their respective sides of the legal logjam, both government and the judiciary must show much more teamsmanship – not only to finalise a new procedure to appoint judges but also to implement broader reforms to remedy judicial delays.

(Source: The Times of India dated 15-08-2016)

Jobs not quotas: Expanding quotas will not address frustrations arising from jobless growth

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Gujarat’s announcement of a 10% quota for economically backward classes in education and government jobs represents a misdiagnosis of a pressing problem. The proposal is bound to be challenged legally as aggregate quotas will overshoot the permitted 50% mark. Moreover the agitating Patels, who the announcement sought to pacify, have dismissed it as “another lollipop from the BJP factory”.

The reality is that government cannot expand jobs fast enough to address contemporary society’s malaise: joblessness. Myriad agitations are only symptoms of the frustration among young Indians. If our demographic transition, where there is an ongoing surge in the working age population, is to translate into a dividend and not a nightmare, governments must address the challenge of joblessness. Over the last 15 years millions have moved out of agriculture, with only construction expanding noticeably to absorb the influx. Worryingly, manufacturing and services have not pulled their weight in job creation. For this, governments’ counterproductive policies must take the blame.

The nature of government intervention needs to be radically transformed. Right now, at both central and state levels, we are witnessing more government and less governance. In a complex world characterised by rapid changes in technology and trends, governments are not in a position to pick winners. Entrepreneurs are best placed to make these choices and governments need to get out of their way by removing barriers to economic activity. Simplification of regulations needs to be complemented by smarter regulation.

Enhancing the quality of public education, dismantling the licence raj shackling private education, skilling and physical infrastructure will help India grab opportunities. As wages in China increase, it opens the door for India’s export-led apparel industry and other labour-intensive industries, which can generate millions of jobs. A World Bank report, entitled “Stitches to Riches?” estimates that even a 10% increase in Chinese apparel prices can be leveraged to create at least 1.2 million jobs in the Indian apparel industry. This would be particularly good for women who are prolifically employed by the apparel industry, addressing India’s appalling gender inequities. But the government’s approach must be tailored to capitalise on available opportunities.

For example India’s ruinous labour laws, which create a new caste system whose Brahmins are organised labour and whose quasi-untouchables are roughly 93% of the labour force consigned to the informal sector, must be reformed to give a better chance to the rest. (Source: The Times of India dated 02.05.2016)

War for Ambedkar: Parties who celebrate his birth anniversary would do well to learn from his legacy

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The UN observed Bhim Rao ‘Babasaheb’ Ambedkar’s 125th birth anniversary on 13.04.2016 – showcasing the universal appeal of the principal architect of India’s Constitution, who fought caste injustice. Indeed, from being an icon solely of Dalit parties in yesteryear, Ambedkar’s legacy is enjoying a revival with political parties across India’s ideological spectrum fighting to appropriate it. And now, with inequality a rising concern and cause for political turmoil in Western countries, Ambedkar’s appeal has reached Western shores as well.

The continuing re-imagination of Ambedkar reflects as much on his immense contributions in defining the Indian republic as it does on the contemporary relevance of themes he became synonymous with: equality, social justice and rule of law. Prime Minister Narendra Modi is scheduled to travel to Ambedkar’s birthplace in Mhow, MP tomorrow to observe Social Harmony Day. In a bid to steal Modi’s thunder Congress organised a big rally on Monday in Nagpur, the headquarters of RSS.

Ambedkar was a crusader against untouchability and the caste system, eventually embracing Buddhism in 1956. By putting up banners and posters of Ambedkar, BJP hopes to portray itself not only as a champion of social engineering, but also take advantage of the fading of Nehru’s lustre in post-liberalisation India. However, BJP’s Hindu-first agenda is contradicted by Ambedkar’s belief that caste hierarchies are an intrinsic part of Hinduism (that is why he converted to Buddhism). Likewise, Ambedkar resists appropriation by contemporary leftist causes as well. He disagreed with Mahatma Gandhi’s philosophy of self-governing villages as India’s foundation, viewing them instead as dens of inequality. He opposed insertion of the terms ‘socialist’ and ‘secular’ in the preamble to the Constitution. He opposed Article 370 and was an ardent supporter of the Uniform Civil Code.

It’s welcome that political parties are debating Ambedkar today. What’s less welcome, however, is their attempt to project their own beliefs on to Ambedkar. He stood, for example, for the total annihilation of caste. Were he to witness today’s permanent and expanding regime of caste quotas, which all political parties appear to be agreed on, he could well be turning over in his grave. He was, above all, a modern thinker, a practitioner of pragmatic politics who refused to be bogged down by any particular ideology or religion. Leaders who invoke him today would do well to learn from that legacy.

(Source: Times of India dated 13.04.2016)

How to view success

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With a broad theme like six lenses that shape our perception of the leadership challenges encountered in work and family Six Lenses: Vignettes of Success, Career and Relationships ends up being a gripping narrative of life’s many shades, which can encourage readers to look at their lives and careers in a different light.

There are three reasons for this: one, the author’s mastery of the art of story-telling and his intellectual rigour that helps connects the dots. R Gopalakrishnan is a prolific writer but this one is clearly his best. Two, he has carefully avoided the predictability of countless management books that offer instant, pre-packaged wisdom on how to succeed in one’s career. And three, the book subtly revolves around management and philosophy with multiple references from religious texts and binds them all with several interesting anecdotes – the extraordinary lessons the author learnt from everyday experiences of people to which readers can relate. In the process, the author shows how, by altering our perceptions, people can better overcome the challenges they face at work and in family matters.

Mr Gopalakrishnan also draws from the Vedantic idea of myth and reality to conclude that the idea of reality does not exist and that all man sees is through his perception of the world around him. It’s like a visit to the optician for an eye test – on the support frame, there are lenses that can be rotated to improve vision during testing. The rotation of each lens changes the clarity and the view. There are many perspectives that the viewer can get and he or she has to select the view that best suits him or her. Like an optician who keeps turning the lenses till the patient can see clearly, people need to keep shifting the proverbial six lenses until they find and arrive at an awareness of their life’s purpose and fulfilment.

The six lenses (the book has a chapter each that corresponds to each of these lenses) are: Purpose (the deep-seated belief about life’s aim); Authenticity ( who you are, at the core); Courage (overcoming obstacles and inequity); Trust (encompasses virtues such as reliability, never letting anyone down, etc); Luck (people pretend they don’t believe in it except when it suits them) and Fulfilment (it is about enjoying what exists rather than cry about what might have been missed).

Universally, people define success in terms of what other people think of it. But the important lesson the book provides is that there is no universally accepted measure of success. But the paradox is that while all success doesn’t lead to fulfilment, all fulfilment leads to success. The delightful stories about “people like us” tell us how each of them sought success and fulfilment and are great examples of what happiness means – it’s a complex phenomenon called emotional well-being. Young readers may scoff at the author’s prognosis that happiness is tied to giving rather than taking, to volunteering and to donating, but they could gain some deep insights.

Though its inclusion as a lens may be considered unusual by many, Mr Gopalakrishnan is at his best in the chapter on “Luck”. Through countless examples, he has shown how good outcomes are dressed up by the corporate types as strategic strokes of genius while catastrophes are attributed to bad luck.

Overall, Six Lenses… is a great read, made richer by an author who has enough experience and knowledge to offer readers views on the choices and assumptions that people make, as also their outcomes.

(Source: Extracts from Book Review by Shyamal Majumdar of Six Lenses – Vignettes of Success, Career and Relationships by R. Gopalkrishnan in Business Standard dated 06.04.2016)

India cannot get carried away by current growth superiority : RBI Governor Raghuram Rajan

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Reserve Bank of India (RBI) governor Raghuram Rajan clarified his remark that India was like a “one-eyed king in the land of the blind” and defended the thought process behind the remark that has attracted controversy.

Rajan, 53, also spoke of how “words are hung out to dry, as in a newspaper headline,” robbing them of context and opening them up to misinterpretation.

India cannot get carried away by its “current superiority in growth,” Rajan told an audience of students and bankers at the convocation of the National Institute of Bank Management in Pune.

“My intent in saying this (and it was an off-hand comment in an interview) was to signal that our outperformance was accentuated because world growth was weak,” said the RBI governor, whose choice of words had evoked the displeasure of some government ministers.

“But we in India are still hungry for more growth. I then explained that we are not yet at our potential but that we are at the cusp of a substantial pick-up in growth because of the reforms that are underway,” said Rajan.

He added that in a “news hungry” nation like India, the remarks had been seen as denigrating India’s success.

Finance minister Arun Jaitley had responded to Rajan’s “one-eyed king” remark by saying a growth rate of 7.5% would be a cause of celebration in any other country.

In an interview to financial news website Marketwatch on 17 April, Rajan, when asked about the popular notion that India was the “bright spot” in an otherwise gloomy global economy, said the country still has some way to go.

“Well, I think we’ve still to get to a place where we feel satisfied. We have this saying, ‘in the land of the blind, the one-eyed man is king’. We’re a little bit that way,” Rajan told the website.

On Wednesday, Rajan struck a note of caution.

“We cannot get carried away by our current superiority in growth for as soon as we start distributing future wealth as though we already have it, we stop doing what we are supposed to do to keep growing,” he said. “This movie has played too many times in the past for us not to know how it ends.”

Rajan noted that while India is compared to China in reference to economic growth rates, the Chinese economy is five times larger than India’s and the average Chinese citizen is four times richer than the average Indian.

The Indian economy is expected to grow 7.5% in 2016 compared to China’s 6.5%, according to forecasts released by the International Monetary Fund earlier this month.

“As a central banker who has to be pragmatic, I cannot get euphoric if India is the fastest growing large economy. Our current growth certainly reflects the hard work of the government and the people of the country, but we have to repeat this performance for the next 20 years before we can give every Indian a decent livelihood,” said Rajan. He said his remarks were not meant to disparage was has been done and is being done by governments.

“The central and state governments have been creating a platform for strong and sustainable growth, and I am confident the payoffs are on their way, but until we have stayed on this path for some time, I remain cautious.”

The media’s scrutiny of what Rajan called an off-the-cuffremark was a “teachable moment”, said the RBI governor, who is on leave from his teaching post at the University of Chicago.

The RBI governor questioned the manner in which every word spoken by public figures is “wrung out” for meaning. “When words are hung out to dry, as in a newspaper headline, it then becomes fair game for anyone who wants to fill in meaning to create mischief,” said Rajan, adding that if India is to have a reasonable public dialogue, words must be seen in context and not stripped of it. “That may, however, be a forlorn hope,” he said.

Rajan, in his speech titled ‘Words matter but so does intent,’ didn’t stop there. “This leads to the question—how much of our language is liable for misinterpretation? How forgiving should we be of a bad choice of words when the intent is clearly different?”

Rajan chose to make this point through examples.

He cited the famous words of Mahatma Gandhi who once said “an eye for an eye will make the whole world go blind.”One might take umbrage because the comment suggests that blindness is an inferior state of being, said Rajan. “Yet, Gandhiji’s comment was on the absurdity of the event and not a comment on blindness,” he noted.

“If we spend all our time watching our words and using inoffensive language…we will be dull and will not be able to communicate because no one will listen,” said Rajan. “For instance, an eye for an eye will only make the whole world go blind, could be replaced by—revenge reduces collective welfare,” quipped Rajan. “The latter is short and inoffensive but meaningless for most listeners who haven’t taken economics classes.”

Rajan concluded that all constituents have work to do to improve communication. Speakers have to be more careful with words and listeners should not look for insults where none may exist. (Source: Mint Newspaper dated 21.04.2016)

Three box strategy for success: Effective business leaders who see change when it’s coming tick all these three boxes

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Effective leadership is the high point in today’s competitive environment. It is imperative for leaders to have a sound plan for the future, a firm grip on the present and an understanding of the past. Without these, it is almost impossible to achieve and sustain success.

I have incorporated these elements within my framework for strategic innovation. I call it the Three Box Solution. This framework commences with an appreciation of time as a continuum.

Managing the present (Box 1) is the prime focus for most leaders today. With no revenue; without Box 1, business comes to a standstill. Therefore, the emphasis on the performance engine that generates revenue, is crucial. At the same time, attention to what one hopes to achieve tomorrow for the organisation (Box 3) is equally vital.

Without Box 3, there is no future. To implement Box 3, one has to discard some of the mindsets, practices, policies, and perhaps products or services that enabled both the leader and the company reach where they are today. Leaving behind the past (Box 2) completes the circle.

Among the three boxes, Box 2 is the most challenging. Good leaders are able to envisage an obsolete trend and implement changes to script a success story.

Following a particular trend or rationalising to keep elements that helped the organisation succeed in its journey, can take it only so far. Therefore, it is important to gauge futuristic goals, pick up the “weak signals” and act upon them to make the business and the organisation future ready.

Weak signals are emergent changes that appear on the horizon, sometimes so dim and distant as to be almost imperceptible. They could be changes in behaviour or demographics, technology, the economy—almost any activity related to humanity. Within the Three Box framework, they are the raw materials leaders can use to develop assumptions about what may happen in the future.

Weak signals are ubiquitous but, as mentioned above, sometimes are difficult to detect. Where do you find them? You can mine for signals by using a free-for-all approach, soliciting ideas from the public, for example. Or, you may choose to create a task force within your organisation, dedicated to identifying up-and-coming trends.

Another option is to look for individuals within your company who seem to have their eyes on the horizon. Often, these are younger individuals or people who have a reputation among co-workers for nonconformity. These mavericks see the world differently, tuning in to signals that others miss.

Effective leaders understand, however, that weak signals must be tested to determine whether they truly do foretell coming changes or are just noise. This is the third leadership behavior in which the Three Box framework is rooted. Experimentation resolves uncertainties and increases learning even as it reduces risk. Following is an example of how a humble candy became a global success story by picking up weak signals.

Innovative leaders realise the Three Box framework is an ongoing process, not a one-time project. They are always searching for and testing weak signals. They never cease building the future even as they ensure their organisations function at peak performance today. They are constantly vigilant for traps of the past. As a result, their companies are able to operate successfully and simultaneously within all three boxes. (Source: Extracts from Article written by Vijay Govindarajan in the Times of India dated 18.04.2016)

Payments Bank – A reality check

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The sudden decision by several companies to give up their licences to set up specialist payments banks is puzzling. There was a lot of bullish talk in recent months about how payments banks would offer a pot of gold at the unbanked bottom of the pyramid. It is safe to assume that the companies do not find the prospect to be as profitable as they thought. But it also makes us wonder what sort of strategic planning is done by Indian companies when they identify a new venture for capital allocation.

It would also be peevish of the Reserve Bank of India to impose fines on companies that are giving up their licences. Gatekeepers should not fine people who turn away at the last minute. They should ask why this is so. It is thus more important to understand whether the licensing procedure can be improved so that similar withdrawals are avoided in the future.

Meanwhile, see this as a setback to the ambitious race towards a cashless society

(Source: Quick Edit in Mint newspaper dated 25.05.2016)

Europe’s dog days

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The Austrian presidential election has ended with both mainstream centrist parties knocked out and the far right candidate losing by just 0.6% of the vote. Greece’s creditors have reached a deal—but only by kicking the can on a decision about a debt write-off further down the road. The International Monetary Fund, for all its bluster about the existing debt situation being unsustainable, has had to back down. Across the English Channel, the Brexit vote looms next month.

Since the European debt crisis kicked in at the tail end of 2009, the European Union has remained stuck in a quagmire. Every hopeful prognosis has proved fleeting. Its economic situation remains precarious, Russia is flexing its muscles to the east and terrorism and the refugee crisis have made for a combustible mix. Little wonder the far right is in ascendance across the union. The question is: Is this perpetual state of semi-crisis the EU’s new normal?

(Source: Quick Edit in Mint Newspaper dated 26.05.2016)

Ending tax terrorism

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Tax terrorism has been a potent issue in India for many years. It even made its way into the 2014 election manifesto of the Bharatiya Janata Party. Prime Minister Narendra Modi has done well to tell tax officials this week that they should remove the fear of harassment most Indian taxpayers live with. This is useful, but the true answer to the problem lies elsewhere.

The Indian tax code is numbingly complex. It came to be so because of the high tax rates that India lived with before the 1991 reforms, with powerful interest groups seeking an escape through a web of exemptions. High tax rates, too many exemptions and a deeply ingrained culture of suspicion has victimized honest taxpayers even while millions sit outside the tax net.

The solution is a simple one. Modi must push ahead with the direct taxes code as it was originally designed. A simple tax system, with stable rates and minimal exemptions, is the best long-term antidote to tax terrorism.

(Source: Quick Edit in Mint Newspaper dated 17.06.2016)

Commodity price risk

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Traditionally, higher oil and commodity prices were seen as negatives for global equity markets, but the relation has been more positive in recent times. One reason for this could be that movement in commodity prices— particularly of crude oil—is now seen as an indication of demand in a world that is struggling with feeble economic growth.

It will be interesting to see how things pan out from here as commodity prices are said to have bottomed out and have rebounded considerably from their recent lows.

Since India benefited significantly from lower oil and other commodity prices, investors will be keenly watching the movement as some of the gains could come under pressure. The Reserve Bank of India’s latest monetary policy statement flagged the risk of firming commodity prices. Further increase in prices could not only affect possibilities of monetary accommodation, but also impact margins and earnings in the corporate sector.

(Source: Quick Edit in Mint Newspaper dated 10.06.2016)

India’s Perfect Storm: Environmental and demographic stresses are building up, add to this mess populist leaders

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There is a perfect storm brewing for India and South Asia. To weather it will take extraordinary good governance. Unfortunately for us, the Modi government does not seem to be up to the challenge. It may not even have perceived the massive, darkening clouds.

As the storm gathers speed, the government is busy settling scores – with the Congress party or with students at various campuses. Or it is fighting banal electoral battles. Our environment minister reports that western cities are badly polluted – apparently this should console us. Niti Aayog breathlessly assures us that growth and reforms are in full swing and ‘achhe din’ are already here.

Meanwhile, India’s water crisis is a clear sign that a storm of epic proportions is on its way. India’s per capita water availability is now below the threshold level of 1,400 cubic metres per person. If so, India is heading from ‘water stress’ to ‘water scarcity’ and the possibility of internal water wars. In 1951, water availability was 5,000 cubic metres per person; in 2050, it could be just over 1,000 cubic metres.

Even if we get a good monsoon next year, the longterm prospects are dire because water scarcity is driven by excessive groundwater use. Interconnecting India’s rivers, another hopelessly dangerous scheme, will only add to the problem: providing more (free) water will not encourage people to conserve water.

Compounding our misery is global warming which will likely increase water demand and could reduce supply. Higher temperatures will damage agriculture. So will the scarcity of water. If sea levels rise, we will lose coastal land, and millions of people will become refugees and be driven inland. Expect social conflict to increase as a result. Temperature rise could cause glacier melt in the Himalayas. That means floods. Hotter weather will also unleash extreme weather events such as cyclones.

Consider India’s demography. In 30 years, we will have 1.7 billion people. China will have 400 million people fewer than us. Population density in India is about 360 people per square kilometre; it will be 500 by 2050. India is already 4 times as crowded as East Asia.

We celebrate our demographic dividend, but note that in 2050 we will have 1 billion working-age people (15-64 years) as against 0.86 billion today. Note too that in 2015, India created the lowest number of jobs in 6 years: in 8 labour-intensive sectors, it added 1,35,000 jobs.

India will grow old before it grows rich – like China. Or perhaps worse than China since it is unlikely we can match China’s spectacular economic growth. By 2050, 34% of Indians will be over 50, and 19% or 323 million will be over 65. Many young people will be supporting many old people because old people in India don’t have pensions. Some Indian states already have an ageing problem.

What is the quality of our people in physical terms? Per capita calorie consumption is probably below the povertyline measure of 2,400 calories. It is falling with economic growth, not increasing. Low-calorie diets are exacerbated by some of the worst sanitation levels in the world (worse than Bangladesh or Pakistan), leaving hundreds of millions of Indians underweight and stunted. Insufficient calories affect mental capacity as well. Speaking of mental capacity, it is estimated that 50% of rural kids in the 5th standard can’t read a 2nd standard storybook, 75% of these 3rd standard children cannot do two-digit subtraction, and 20% cannot recognise numbers up to 9.

All this might be managed if governance capacity were high. It isn’t. India has 4,000 IAS officers for 1.2 billion souls. The policemen-to-population ratio is one of the lowest in the world. We have 1 judge for 1,00,000 people, and 31 million cases are pending in the courts. We also have 1 MP for 2 million people; in Sri Lanka, the ratio is 1:89,000. Only 3% of Indians are persuaded to pay taxes, so the government has no financial sinews either.

Stir into this mess populist leaders, widening economic inequality, increasing religious polarisation, ethnoreligious extremism and a hyperventilating media – and you have not a strong, progressive India but rather a wobbling Pakistan ready to explode.

(Source: Article by Shri Kanti Bajpai in The Times of India dated 21.05.2016)

Courts should not encroach into executive domain, governance must improve too

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A sharp speech in Parliament by finance minister Arun Jaitley has once again foregrounded simmering tension between different organs of the state. According to Jaitley the judiciary was overreaching into legislative and executive domains, a sentiment which other parliamentarians – not necessarily from BJP – share. This bodes ill as the Constitution provides for a separation of powers between legislature, executive and judiciary. Democracy functions smoothly when each branch stays within established boundaries. The legislature’s anxiety is not unfounded as there have been instances when judicial verdicts have pushed the boundaries. It is imperative for the judiciary to be restrained.

In India, it is the Constitution which is supreme. It empowers legislature to make laws and judiciary to interpret them in the event of disputes and litigation. The Constitution’s architects envisaged the judiciary as a counter-majoritarian institution which would uphold it in case of deviations. The judiciary has not been passive in this role. For example, in order to enhance access it has been willing to consider even a postcard mailed to it as material enough to act. But apart from ruling on constitutional issues, judicial restraint is essential if harmonious balance between different branches of government is to be preserved.

The equilibrium can be upset when the broad-based nature of a verdict encroaches on the domain of the legislature or executive. Verdicts such as the recent one in Delhi’s air pollution case have asked for an increase in specific environmental tax. Another instance was when Supreme Court recently set a short deadline for government to create a drought mitigation fund. There are two immediate dangers of overstepping. It upsets the balance of power and triggers friction between different branches of government.

It needs to be pointed out, however, that other branches of government have not been blameless in this regard. The executive’s failures and lack of accountability have often led people to approach the judiciary to get existing laws implemented. In a similar manner, legislature has often been unresponsive to changes in society. To illustrate, the first step to provide formal protection against sexual harassment at the workplace was the outcome of judiciary stepping into a vacuum left by legislature.

If democracy is to function smoothly, other branches of government too must raise their game while the judiciary exhibits restraint, keeping in mind that its job is to interpret laws not make them.

(Source: Editorial in The Times of India dated 18.05.2016)

How to tax with love: Ten ways the income tax department can reform itself to get taxpayer buy-in

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There are constant reports of genuine taxpayers claiming harassment and persecution by tax officials. The tax department, many income earners say, starts with the assumption that the taxpayer is in the wrong, deliberately complicates rules, comes after you only because you decided to pay taxes (while ignoring or remaining blissfully unaware of the real tax evaders) and doesn’t seem to be getting any better.

As the Indian economy gets bigger, we invite more foreign investment, and try to expand our tax base, some reforms are needed in the way the tax department does its job. It is one of the few government departments that are in constant touch with citizens. If it continues to operate in an archaic and hostile manner, much of the benefits of policy reforms will never accrue to the economy. Here are ten concrete, doable ideas on what the tax department can do to tax, but with love.

First, treat the taxpayer as a customer. The current tax department mentality is to act like the police and approach the taxpayer as a criminal, unless proved otherwise. It is tough to make people part with their money in any case. The last thing you should do is not be gracious about it. Without the taxpayer, the government can’t function. Seeing the taxpayer as a customer means taking constant feedback, having service benchmarks (eg, turnaround times) and not presuming guilt.

Second, simplify forms. The government has tried but sadly failed to do this. The tax department should download some forms from the Hong Kong or Singapore tax department websites. These are some of the simplest and best forms in the world. Please emulate them.

Third, a good, robust and modern website. India is the land of IT companies. Hire a good company to revamp the customer interface. Again, if you see the taxpayer as a customer, you will approach the website differently. The layout, downloads, language used should all change. Yes, we need an app too.

Fourth, good quality paper. Current tax department communication seems from the 1980s, with cheap quality super thin sheets and envelopes, and poor quality black and white printing. Come on. We are one of the world’s top economies.

Fifth, simpler nomenclature. Names like ITR4 and 26AS intimidate people. Sit down one day and rename and reorganise all the forms that have been amended and become complicated in nomenclature over the years. It’s scary enough to pay taxes. Don’t make it scarier.

Sixth, say thanks and mean it. People who pay taxes are nation builders. Seeing rich people as thieves is a throwback to evil landlord and poor peasant movies of the 1970s. You don’t only become rich by stealing from the poor. You also become rich from creativity, innovation, hard work and enterprise. How can you punish people for that? Not just the top taxpayer, but the top 10% of taxpayers should get a nice letter and memento (not cheap quality please) to thank them.

Seventh, don’t send scary letters. The department officials are under pressure to increase revenue. However, you cannot scare taxpayers. For instance, the department sends letters saying we believe the way things are going you should make 20% more money this year so we hope you will (and better) pay that much more tax. Really? Do we need to be so intimidating?

Eighth, have tax guidance centres. People should be able to go somewhere and figure out how to do their taxes, which doesn’t require a private advisor. Have taxpayer training, inquiry and guidance centres that run well. Again, make them nice. They should not be like a sarkari torture chamber with endless waits and creaky fans. This is the last department that can claim it doesn’t have money.

Ninth, share macro data. Without giving individual details, macro data should be shared with the public to enable us to understand how tax collections are going.

Tenth, share where the tax money was used. Of course, funds are amalgamated at the top. However, it would be nice to hear that your tax last year helped make this road. As Veda Vyasa said in the Mahabharata, a king should collect taxes like a bee collects nectar from flowers, painlessly. It is about time we behaved like a modern, world-class economy when it came to tax collection and learned to tax with love.

(Source: Extracts from Article by Chetan Bhagat in the Times of India dated 11.06.2016)

In debt to dynasty? Rule by the Gandhis has repeatedly pushed the country towards indebtedness

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“The Dynasty” is ready to roll its last throw of the dice with Priyanka Gandhi being drafted to play a leading role in Congress’s UP campaign. Given her husband Robert Vadra’s shenanigans during the UPA regime, UP voters must ask: Should we foster a local Benazir Bhutto with Robert Vadra playing the “Mr 10 percent” equivalent of Asif Ali Zardari? However, because this move is an attempt by The Dynasty to perpetuate itself, we need to ask an even more fundamental question: What does loyalty to The Dynasty get the nation? What is the legacy of umpteen years of rule by The Dynasty?

We examine this question here using economic indicators and conclude that the legacy is an unflattering one. It’s a legacy of retaining power through reckless populism. The numbers depict a key narrative: Building a mountain of subsidies without worrying about its disastrous economic consequences.

We collated data on various economic indicators from the World Bank database. We then separated them by the averages obtained during governments ruled or controlled by The Dynasty and governments ruled by non-dynasts. Thus, the UPA-I and UPA-II governments led by Manmohan Singh are classified as part of the legacy of The Dynasty because we all know Sonia Gandhi controlled the levers of that government through the National Advisory Council. In contrast, the government led by P V Narasimha Rao, whom Congress has banished from its collective memory despite his government heralding economic liberalisation in this country, is categorised under governments not controlled by The Dynasty.

The government led by Rajiv Gandhi, who took several steps towards economic liberalisation and heralded the telecom revolution under Sam Pitroda, belongs to The Dynasty. Of course, the government led by Indira Gandhi, under whom poverty increased significantly despite her vote-catching rhetoric of “garibi hatao”, belongs to The Dynasty as well.

After analysing a plethora of economic indicators, we discovered that the elephant in the room relates to subsidies. Governments run by The Dynasty doled out subsidies and other transfers to the tune of Rs 689,600 crore every year, as opposed to Rs 183,300 crore by nondynastic governments. These figures are in real terms deflated to 2011 levels.

And this is not because there was necessarily more money to dole out during the time of the governments run by The Dynasty. Subsidies doled out by them amounted to 9.2% of GDP, almost double that doled out by nondynastic governments (5.3%). Crucially, subsidies under the governments run by The Dynasty increased at almost 13% year-on-year while this growth was about 4% yearon- year under governments run by non-dynasts.

There were other important ways in which governments run by The Dynasty indulged in bad economics though the differences were not as stark as they are for subsidies. First, governments run by The Dynasty spent more indiscriminately when compared to the governments run by non-dynasts. Expenses amounted to 15.6% of GDP on average under governments run by The Dynasty. This ratio was 14.8% for the governments run by non-dynasts. Moreover, expense grew at 9.1% under governments run by The Dynasty and at 5.6% under the governments run by non-dynasts.

Second, governments run by The Dynasty indebted the economy more than governments run by non-dynasts. Total central government debt and the cash deficit was at least twice as much under governments run by The Dynasty as that under the governments run by nondynasts. While the cash deficit does not account for future revenues that would accrue from current capital investments, it has the key benefit of revealing the deficit by eliminating accounting subterfuge.

As the fixed capital formation under governments run by The Dynasty was not very different from that under governments run by non-dynasts, future revenue accrual would not be very different. So the cash deficit does not certainly overstate the profligacy of governments run by The Dynasty. Also, governments run by The Dynasty reduced the servicing of debt (1.6% of gross national income) when compared to 2.6% of gross national income under governments run by the non-dynasts. Thus, governments run by The Dynasty doled out largesse and spent wastefully while indebting future generations of this country.

However, the outstanding difference pertains to the use of subsidies. The conduit between a government and the intended recipient of a subsidy resembles an open sluice with plenty of opportunities for others to dip into the stream before it reaches its final destination. Furthermore, subsidies create significant distortions in asset use. Subsidies also dampen individual incentives.

Thus, the unabashed use of doles despite their pernicious effects stands out as the key economic legacy of governments ruled by The Dynasty. UP voters would be well served by remembering this important fact as charismatic rhetoric is not going to get them “naukri, paisa aur makan”. Recall that “garibi hatao” by Priyanka’s grandmother was little more than charismatically delivered rhetoric.

(Source: The Times of India dated 07.06.2016)

Agricultural Reforms – APMC drama

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The battle of wits between farmers, traders and the Maharashtra government is a case study on the political challenge reformers face. The Devendra Fadnavis government recently decided to exclude fruits and vegetables from the list of farm items that have to be mandatorily sold through the Agricultural Produce Market Committees (APMCs). The cartels that control these APMCs have gone on strike. Food prices have climbed in cities such as Mumbai. Farmers have responded by bringing their produce in trucks to sell directly to consumers in some cities.

Any reform involves unsettling rent-seeking groups, often backed by political interests, that benefit from the existing system. Reform beneficiaries are often not as wellorganized. But this is a battle worth fighting. Free markets should benefit both farmers and urban consumers, as the late farmers’ leader Sharad Joshi argued. Let us hope Fadnavis does not blink.

(Source: Quick Edit in Mint Newspaper dated 14-07-2016)

Jumbo cabinet

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There are now 78 members in the Narendra Modi cabinet. This means that almost one in four parliamentarians elected on the National Democratic Alliance ticket in 2014 has a ministerial berth. The cabinet’s size is just three short of the constitutional limit imposed by the 91st amendment. Minimum government, anyone?

This newspaper had once hoped that Modi would streamline his cabinet by merging ministries and shutting down irrelevant ones. Those hopes have been belied. Modi said in a recent interview that the expansion is to help the government pursue the February budget’s goals.

The jumbo cabinet headed by Manmohan Singh was an example of spreading political patronage across an unwieldy coalition. In contrast, Modi has a strong political mandate to cut bureaucratic flab rather than add bulk. Jumbo cabinets are not exactly the optimal solution to governance challenges.

(Source: Quick Edit in Mint Newspaper dated 06.07.2016)

Corruption and India Inc – Clarity Begins at Home

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India needs to address perceptions of widespread corruption that impact the ease of doing business. It ranks 76 in the International Corruption Perceptions Index 2015, and 130 in the World Bank’s Ease of Doing Business Index 2015.These statistics matter.

IMF research shows that investment in corrupt countries is almost 5% less than in relatively corruption-free countries. India needs to generate employment for over 12 million youth every year. And jobs need investment.

Increasingly , the party political system is recognising that jobs are a priority . It is more responsive to the call of corporate institutions for increased levels of transparency and ease of doing business. So, it is timely for corporate India to evaluate how it can contribute to the debate on rooting out corruption in public life.

India Inc needs to first demonstrate its commitment to putting its own house in order. A good place to start is with the adoption of a Code of Conduct by each corporate entity .

A Code guides the behaviour of the people within the corporate house. Its coverage can also be extended to value chain partners, thus increasing its impact. And it sets in motion industry dynamics that create a kind of competition to do good, reflected, for instance, in the integrity pacts that corporate entities have entered into in some overseas markets.

Once a baseline is set with a Code, it also creates sustained pressure on the institutition to keep improving on its own standards.

A key element in ensuring a Code is taken seriously is to encourage employees to speak up when they observe its violations. Such whistleblowing is all too often received badly within organisations. This has to change.

One of the principal reasons for corruption in India is the need to gene corruption in India is the need to generate funds to fight elections. The legislated limits on spending per constituency by candidates Rs.70 lakh in bigger states for general elections are widely acknowledged to be breached by most parties. Corporate houses now have more transparent alternatives to fund political parties in the form of electoral trusts that enjoy the sanction of the law.

The operations of these trusts can be scrutinised by stakeholders. By defining predetermined formulae for allocation of the trust funds, corporate entities can put in place transparent, non-discriminatory and nondiscretionary mechanisms that can significantly insulate them from political pressure. With increased public vigil, including demands to open the books of political parties to public scrutiny , electoral trusts may eventually lead the way to state funding of elections.

A wide cross section of India Inc is not fully aware of the reach and extraterritorial jurisdiction of legislation covering bribery and corruption across countries, including the Foreign Corrupt Practices Act (FCPA) in the US and the UK Bribery Act.

Indian companies are being increasingly questioned on the adequacy of their internal anti-bribery and anti corruption frameworks by potential or actual business partners, particularly from the US and Britain. The actions of Indian companies could expose the foreign partner to unwanted litigation, scrutiny and reputational risk. We are already seeing a rising trend in FCPA enforcements and actions involving the Indian operations of US companies.

The old adage of `what gets measured, gets improved’ holds just as true in the field of ethics and values. At the recent B20 Anti-Corruption Forum meeting in Shanghai, it was clear that the agenda of the most-powerful industrial economies is increasingly focusing on two key areas: identification of beneficial ownership of legal entities and making government procurement more transparent through the use of technology .

At the Brisbane Summit in November 2014, the G20 leaders adopted high-level principles on beneficial ownership transparency , describing financial transparency as a `high priority’ issue.This question has acquired greater urgency following the leak of the Panama Papers.

With the advent of new technological tools, the calls are increasing for automating government procurement and public services. E-custom clearance programmes and e-procurement processes for public procurement are helping to simplify policies, procedures and rules and removing discretion in these areas. Some countries are pushing for adoption of the HLRM (High Level Reporting Mechanism) ¬ a channel for companies to report corrupt behaviour in public procurement. The idea is then to identify and rate companies based on a `corruption index’.

Corruption increases uncertainty and leads to wastage of public resources and fundamentally undermines the rule of law. It is time for corporate India to play a leadership role by engaging in advocacy around the key issues to be resolved. This may be one of the greatest contributions an Indian corporate entity could make towards nationbuilding.

(Source: Article by Mukund Rajan in the Economic Times dated 06.07.2016)

On Low Interest Rate Regime, Raghuraman Rajan takes critics head on

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Reserve Bank of India (RBI) Governor Raghuram Rajan tore into his critics on Monday, lobbying for a low interest rate regime to spur economic growth, by stating that such views are “hopelessly optimistic” about the powers of the central bank and any clever solutions in the form of unorthodox painless pathways lead to “depressingly orthodox consequences”.

Rajan was speaking at his first public engagement after expressing on Saturday his desire to go back to academia after his term at the central bank comes to an end on September 3. The outgoing central bank governor, dressed in a sharp black suit and maroon tie, was addressing a packed hall of students and members of academia at the foundation day of the Tata Institute of Fundamental Research (TIFR).

In a long speech that went into lucid explanations of how inflation and interest rate dynamics work in a monetary policy, Rajan, the academician, almost spelt out a point by point rebuttal to arguments charging RBI of misguided actions under his command. Defending his hawkish stance on inflation, Rajan said contrary to perceptions, savings rates have gone up in the economy as the savers are finally getting real interest rates in the form of low inflation. “In recent years, our fight against inflation also meant the policy rate came down only when we thought depositors could expect a reasonable positive real return on their financial savings. This has helped increase household financial savings relative to their savings in real assets, and helped bring down the current account deficit,” he said.

Critics in favour of targeting Wholesale Price Index (WPI) because it is low now would be eager to switch to Consumer Price Index (CPI) when WPI starts rising and crosses CPI, which it has done quite a few times in the past.

In fact, WPI is something that gets influenced by what global policymakers do rather than what RBI does and therefore, it should be CPI that needs to be the policy peg, the governor said.

“By focusing on WPI, we could be deluded into thinking we control inflation, even though it stems largely from actions of central banks elsewhere. In doing so we neglect CPI which is what matters to our common man, and is more the consequence of domestic monetary policy,” Rajan said, adding, “In doing so we neglect Consumer Price Index which is what matters to our common man, and is more the consequence of domestic monetary policy.”

Turning to the charge that RBI killed private investment by keeping rates too high, he said the policy rate in effect plays a balancing act.

Monetary policy is not responsible for high interest rates charged to highly indebted customers, but such companies are charged hefty risk premiums by banks as the lenders presume the loans may not get repaid. “This credit risk premium is largely independent of where the RBI sets its policy rate,” Rajan said.

The central bank also came under fire for the monetary policy failing to show effects on inflation when the economy is supply constrained, especially in case of food inflation. “The reality is that while it is hard for us to control food demand, especially of essential foods, and only the government can influence food supply through effective management, we can control demand for other, more discretionary, items in the consumption basket through tighter monetary policy,” Rajan said. Rajan said the central bank was prepared to face any volatility that may arise due to Brexit. “Brexit can be quite damaging if it happens. Of course, we have factored in some probability of it happening. If it doesn’t happen, you could see some significant rebound. We are preparing for it and monitoring the markets. We have said earlier that we have three lines of defences – good policy, we have pushed out the maturities of foreign borrowings and they are not significantly worrisome at this point, and finally we have plenty of reserves,” Rajan said. “We will do what it takes to moderate market volatility, but once the initial bouts of wave abate, people look for good fundamentals.”

(Source: News Report in Business Standard dated 21.06.2016)

Narendra Modi’s essential vision of Indian institutions – Creating prosperity for India will involve changing the rules of the game

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In an annual lecture organized by NITI Aayog on 26 August, Prime Minister Narendra Modi remarked: “There was a time when development was believed to depend on the quantity of capital and labour. Today, we know that it depends as much on the quality of institutions and ideas.” Modi’s comment seems to be inspired, partly, from Why Nations Fail (2012) by Daron Acemoglu and James A. Robinson. In their thought-provoking book, Acemoglu and Robinson argue that institutions, and they alone, determine the prosperity of a nation. Before proceeding, it is important to distinguish between two kinds of institutions. The first refers to rules of the game—formal laws and informal norms. The second is in the nature of organizations.

Douglas North makes a distinction: “If institutions are the rules of the game, organizations and their entrepreneurs are the players.” Geoffrey Hodgson clarifies that North’s treatment of organizations as players does not rule out their becoming institutions themselves, especially when intra-organizational conflicts are taken into account. Since Modi went on to talk about NITI Aayog, which he set up as an evidence-based think tank, he was most probably talking about the second kind of institution—the organization. But his repeated reference to “ideas”—and transformative ones at that—means he did not preclude the first kind. After all, the concept of limited liability was just an idea before New York made it a law in 1811 and moved towards becoming the financial centre of the world.

“Inclusive economic institutions that enforce property rights, create a level playing field, and encourage investments in new technologies and skills,” say Acemoglu and Robinson, need to be supported by “inclusive political institutions, that is, those that distribute political power widely in a pluralistic manner and are able to achieve some amount of political centralization…” If NITI Aayog is an example of a new organization set up by the Modi government, the monetary policy framework has brought in new rules for fighting inflation. The goods and services tax (GST) council can be an example of the inclusive political institution that Acemoglu and Robinson talk about. The GST council centralizes indirect tax collection while providing both the states and centre a voice in setting tax rates.

Acemoglu and Robinson’s theory is not without sceptics. Jared Diamond has criticized it for ignoring geography; Arvind Subramanian says it fails to explain the development trajectory of both India and China. With India too poor for its level of political institutions and China too behind in its institutions for its level of income, Subramanian says Acemoglu and Robinson fail to explain the development trajectory of “one-third of humanity”.

Francis Fukuyama blames it for not elaborating on what makes an inclusive institution as opposed to an “extractive” one. Crucially, Fukuyama does not find the theory original as he says there is “no real difference between the ‘extractive/inclusive’ distinction” in Acemoglu-Robinson “and the ‘limited/open’ access distinction” in Violence and Social Orders (2009) by North, John Wallis and Barry Weingast. The latter three have argued that limited access order—the default state of human societies—create political stability by limiting economic and political participation. Not many nations have been able to break out of this by creating open access order which maintains political stability along with open economic and political participation.

While agreeing that the institutions are important, the critics don’t think they alone can explain prosperity. But Modi’s focus on institutions is not misplaced either. The critics of Acemoglu and Robinson will be satisfied with his verbiage. India’s bridge to open access order will involve changing the rules of the game—creating competitive markets and liberal institutions, not just seeking higher cash flows under the same old rules.

But when speaking of organizations as institutions, Modi will also have to focus on institutional design. Devesh Kapur and Pratap Bhanu Mehta argue that “limited effectiveness of its public institutions” is both “a critical factor explaining India’s modest record in governance and development” and a result of poor institutional design. Therefore, even if the monetary policy framework is a commendable development, it does not take away from the challenge of appointing the right people to man the monetary policy committee. Creating a culture of evidence-based thinking at NITI Aayog is also an institutional design problem. An institution in place tasked with evidence-based thinking is not enough

(Source: Editorial in Mint Newspaper dated 07.09.2016)

Don’t demonize, the US President Donald Trump, analyse Trump. He represents a thought process. Its not a momentary expression – Shri S. Jaishankar, Foreign Secretary.

11. HC dubs tree felling for Metro a tsunami

The Bombay high court on Friday said it will not immediately
vacate the interim stay on cutting of trees for Metro III unless shown that
there is nothing illegal or improper in the procedure adopted.

A bench of Chief Justice Manjula Chellur and Justice Girish
Kulkarni were categorical while granting time to Mumbai Metro Rail Corporation
Ltd (MMRCL) to place on record information regarding the survey done before the
firm proceeded with the cutting of over 5,000 trees for the Colaba
Andheri-Seepz corridor. Justice Chellur said, “Even then I will not immediately
vacate the stay. You can’t cut trees like that.“

The judges said that “maybe, if required“ they will ask
another committee to oversee the removal of trees. The stay will be vacated “if
nothing is (found) illegal or improper (in the procedure adopted)“, said
Justice Chellur. The bench said MMRCL must state what assessment was done for
tree cutting, including a list of trees, their kind and age, and whether there
is any plan for replantation.

The court questioned the BMC and told it “to justify how all
permissions are granted“.“Look at the photographs. Like a tsunami… tsunami as
far as trees are concerned,“ said Justice Chellur.

(Source: The Times of India, February 11, 2017)

12. Looking the Part

Say you had the choice between two surgeons of similar rank
in the same department in some hospital. The first is highly refined in
appearance; he wears silver-rimmed glasses, has a thin built, delicate hands, a
measured speech, and elegant gestures. His hair is silver and well combed. He
is the person you would put in a movie if you needed to impersonate a surgeon.
His office prominently boasts an Ivy League diploma, both for his undergraduate
and medical schools.

The second one looks like a butcher; he is overweight, with
large hands, uncouth speech and an unkempt appearance. His shirt is dangling
from the back. No known tailor in the East Coast of the U.S. is capable of
making his shirt button at the neck. He speaks unapologetically with a strong
New Yawk accent, as if he wasn’t aware of it. He even has a gold tooth showing
when he opens his mouth. The absence of diploma on the wall hints at the lack
of pride in his education: he perhaps went to some local college. In a movie,
you would expect him to impersonate a retired bodyguard for a junior
congressman, or a third-generation cook in a New Jersey cafeteria.

Now if I had to pick, I
would overcome my suckerproneness and take the butcher any minute. Even more: I
would seek the butcher as a third option if my choice was between two doctors
who looked like doctors. Why? Simply the one who doesn’t look the part,
conditional of having made a (sort of) successful career in his profession, had
to have much to overcome in terms of perception. And if we are lucky enough to
have people who do not look the part, it is thanks to the presence of some skin
in the game, the contact with reality that filters out incompetence, as reality
is blind to looks.

When the results come from
dealing directly with reality rather than through the agency of commentators,
image matters less, even if it correlates to skills. But image matters quite a
bit when there is hierarchy and standardized “job evaluation”. Consider the
chief executive officers of corporations: they not just look the part, but they
even look the same. And, worse, when you listen to them talk, they will sound
the same, down to the same vocabulary and metaphors. But that’s their jobs: as
I keep reminding the reader, counter to the common belief, executives are
different from entrepreneurs and are supposed to look like actors.

Now there may be some correlation between looks and skills;
but conditional on having had some success in spite of not looking the part is
potent, even crucial, information.

(Source: Nassim Nicolas Taleb, February 24th, 2017, from
INCERTO)

13. Checks and balances: Permitting tax authorities to
conduct raids without due process will be disastrous

Having elections to decide who is to govern us meets only the
most basic definition of a democracy. But at a deeper level, democracies
require checks and balances in governance. Otherwise, no matter how free and
fair the elections, they would be autocracies with periodic changes of
leadership.

The proposal in this year’s budget to amend Section 132 of
the Income Tax (IT) Act is an example. The amendment would do away with the
requirement for IT officials to demonstrate they had “reason to believe” that
violations existed, or that the assessee would not comply, before conducting a
search and seizure “raid”.

The danger in this is obvious. Without having to show they
had good reasons for raids, there is nothing to prevent IT officials from
conducting them arbitrarily. Harassment and rent seeking – the term economists
use for corruption – are sure to follow.

Nevertheless, it is worth taking stock of the opposite
arguments as well. Checks and balances are meant to prevent the autocratic,
mindless, or subjective exercise of authority, but not to block its legitimate,
justifiable application.

So where does the Indian government’s crackdown on IT evaders
stand? The statistics clearly show that the pace has been considerably stepped
up in the past two years. For instance, the number of raids in the first half
of 2016, at 148, was nearly triple of the 55 in the first half of 2015.

Similarly, cash, jewellery and other assets seized during
raids in the first seven months of 2016, at Rs 330 crore, was more than 300% of
the same period in 2015. And unpaid taxes surrendered by assessees in 2016 were
Rs 3,360 crore, a more than 50% increase over 2015.

However, it was never going to be easy to rapidly scale up
such scrutiny or, indeed, conduct raids. It is not simply a matter of
allocating more resources for it, but also having to deal with judicial
hurdles. As the Finance Bill explains, “certain judicial pronouncements have
created ambiguity in respect of the disclosure of ‘reason to believe’ or
‘reason to suspect’ recorded by the income tax authority to conduct a search
under Section 132.”

But therein lies the rub. If judges have imposed constraints
on raids because of unconvincing reasons to believe they were justified, then
it is almost inevitable they will find fault with altogether doing away with
all justification! Though the executive and legislative branches may decide to
abjure cumbersome procedural requirements in the interest of efficiency, that
must pass the test of natural justice and constitutional guarantees in order to
deter the judicial branch from overturning it.

Using the principles of checklist management, IT officials
could be given an objective list of items to be ticked off that would serve as
a record of due process having been followed prior to a raid. And surely the
finance ministry has the expertise to craft such a checklist that would pass
judicial muster.

(Source: Article by Shri Baijyant ‘Jay’ Panda, BJD Lok
Sabha MP, in The Times of India dated 15.02.2017)

14. Vyapam scam: Supreme Court cancels degrees of 634 doctors

Coming down hard on corruption in MBBS admissions in Madhya
Pradesh between 2008 and 2012, the Supreme Court cancelled the degrees of 634
doctors on Monday and said admissions obtained through a mass fraud called
“Vyapam scam”+ could not be condoned.

“The actions of the appellants are founded on
unacceptable behaviour and in complete breach of rule of law. Their actions
constitute acts of deceit… National character, in our considered view, cannot
be sacrificed for benefits – individual or societal,” a bench of Chief
Justice J S Khehar and Justices Kurian Joseph and Arun Mishra said in an
83-page judgment.

“If we desire to build a nation on the touchstone of
ethics and character, and if our determined goal is to build a nation where
only rule of law prevails, then we cannot accept the claim of the appellants
(students) for suggested societal gains (by allowing them to keep the degrees
on the condition of doing social service free of cost for some years),”
the bench said.

Writing the unanimous judgment, Justice Khehar said, “We
have no difficulty in concluding in favour of rule of law… Fraud cannot be
allowed to trounce, on the stratagem of public good.”

All these admissions to MBBS courses between 2008 and 2012
were cancelled by the MP Professional Examination Board. A bench of Justices J.
Chelameswar and A. M. Sapre had found them to be illegal on May 12, 2016.

While Justice Sapre had ordered cancellation of the
admissions and annulling of the degrees, Justice Chelameswar had said since the
students had completed their courses, it would be a national waste to annul the
degrees.

Instead, Justice Chelameswar allowed them to keep their
degrees provided they did social service for a certain period. Given the split
verdict, the matter was placed before a three-judge bench of Chief Justice J S
Khehar and Justices Joseph and Mishra. Writing the unanimous judgment, Justice
Khehar agreed with the view taken by Justice Sapre and annulled the degrees
obtained by these 634 students, who had got admission into medical colleges on
the back of influence peddling.

(Source: The Times of India dated 14.02.2017)

15. ‘Cashless economy an invitation to online fraudsters’

The international standards body for the payments industry
has called for a cybersecurity breach notification law to raise awareness of
online criminals. According to the Payment Card Industry (PCI) Security
Standards Council, the move towards a cashless economy post-demonetisation has
also sent an invitation to online fraudsters of a new market opening up. In
information security circles, any unauthorised access to an individual’s data
is called a breach.

Jeremy King, international director, PCI Security Standards
Council, said that while the migration to a cashless society will be beneficial
to a wider population in India and provide greater opportunity to merchants and
banks, the biggest challenge is that online criminals have become very
organised and global.

Without a breach notification, we pretend we have never been
breached, and banks and organisations accept the loss. That means that people
think there is no fraud happening when there is a lot of fraud happening,”
he said.

The risk to banks were not just in the payments business but
wherever personal data was stored. There have been instances when telecom data
was hacked to access bank details. While the demand for auditing payments
infrastructure has gone up, India is facing a shortage of IT security auditors.
The RBI wants more approved assessors in India to support the large base of
merchants and banks. We are working on that. We need more security
professionals and we need more organizations.

Criminals are also learning to work around security features.
For instance, with card analytics now identifying unusual patterns based on
transactions being done in different pin codes, fraudsters are now selling
cards on the Dark Net — an underground network with restricted access used to
sell stolen content — based on pin code of the issuer so that the frauds do not
ring alarm bells.

Another challenge for the council is that countries are
moving away from cards to newer form factors like account-to-account transfers.
While people were looking at ways of making new form factors work in a
frictionless and secure manner, there were trade-offs. The balance between risk
and security is where we live. You can make something very, very secure, but
it’s of no use. So you know that there is a level of risk that you are willing
to accept in order to make the process work smooth enough so that people will
use it.

(Source: The Times of India dated 21.02.2017)

16. India Inc is better
off avoiding the flawed US practice of unrealistically high CEO compensation.

The debate between Infosys’ founders and the current
management and board about senior management compensation can be an important
signpost for corporate governance in the country.

The key question is, should shareholders, corporate
governance activists and policymakers allow India Inc to transplant some of the
ugly corporate governance practices from Corporate America? While the moral
aspects to mimicking such ugly features in a country significantly poorer than
the US remain open to debate, I will focus on economic aspects.

Between 1992 and 2000, following the Bull Run in US stock
markets, the average real (inflation-adjusted) pay of chief executive officers
(CEOs) of S&P 500 firms more than quadrupled, climbing from $3.5 million to
$14.7 million. This growth of executive compensation far outstripped
compensation for other employees. In 1991, the average large-company CEO in the
US received about 140 times the pay of an average worker; in 2003, this ratio
was about 500:1.

When compared to the value added by an average employee, did
the value add by the CEO of an S&P 500 firm quadruple in just eight years?
What super-diet did the CEOs of S&P 500 firms consume from 1992 to 2000 to
quadruple their relative contribution? Did such a super-diet quadruple a CEO’s
strategic thinking abilities?

Since none of us has heard about any such super-diet hitting
retail outlets, it is safe to conclude that such quadrupling represented the
outcome of a game that gets fixed between the CEO and pliant board. Academic
research, summarised in Bebchuk (2004), has provided robust evidence of such
match-fixing. “In judging whether Corporate America is serious about reforming
itself, CEO pay remains the acid test. To date, the results aren’t encouraging,
Warren Buffett said.

In an ideal world, a CEO would get paid commensurate to the
value he or she adds to the firm. The board would design the compensation to
provide strong incentive to the CEO to contribute to shareholder value. But
this represents a Utopian concept. First, for various reasons, directors in a
firm support arrangements favourable to the company’s top executives. Social
and psychological factors contribute to this phenomenon.

Second, limited time and resources often make it difficult
for even well intentioned directors to do their pay setting job properly. When
not well prepared for the ensuing battle, directors can often choose peace within
the boardroom.

Finally, CEOs exert considerable power in shaping their pay
packages and those directly reporting to them.

Research shows that CEOs’ influence over directors enables
them to obtain “rents” — benefits greater than those commensurate to the true
estimate of the value they add to the company.

These findings followed research on CEO pay in the US after
the spate of corporate scandals that began in late 2001and shook confidence in
the performance of public company boards.

Research now recognises that many boards have employed
compensation arrangements that do not serve shareholders’ interests. Flawed
compensation arrangements have been widespread, and systemic, stemming from
defects in the underlying governance structure.

For instance, oil company
CEOs get paid significantly more when the crude oil price increases — an
outcome in which the oil company CEO had no role. Most CEOs get paid more when
the average stock market performs well; again, the CEO had no role to play in
the stock market’s performance.

A large portion of CEO pay comes in forms other than equity,
such as generous severance packages, salary and bonus, which correlate weakly
with firms’ industry-adjusted performance.

Thus, academic research underlines the fact that CEO pay is
the outcome of a game that gets fixed between the CEO and pliant boards. Given
this evidence in the US, Sebi and corporate governance activists must watch the
developments at Infosys carefully and ensure that some rotten governance
practices in the US do not develop root in India.

(Source: Extracts from Article by Krishnamurthy
Subramaniam, Associate Professor of Finance, at Indian School of Business,
Hyderabad, in the Economic Times dated 17.02.2017)

One Republic

When you call yourself an Indian, Muslim, Christian, European
or anything else, you are being violent. Because you are separating yourself –
by belief, by nationality, by tradition – from the rest of mankind. This breeds
violence.

 – J.
Krishnamurti
(From Sacred Space)

Still Afraid Of Disclosures

On October 1, finance minister
Arun Jaitley announced that the government was pleased with the windfall from
the four-month black money disclosure scheme that ended on September 30. Indians
have declared hidden assets worth Rs 65,250 crore ($10 billion). The tax
collection, at Rs 30,000 crore ($4.5 billion), will help build many a road and
school. But, by global standards, the haul is small. Could a lighter price have
earned more revenues?

Amnesty schemes being offered in
countries such as indonesia  and  argentina 
are  yielding  huge 
revenues due to low tax and penalty rates. In indonesia, those with
hidden assets abroad need to only pay a flat fee of 1-6 per cent of the value
of the assets depending on how quickly they declare their stash and whether they
repatriate it. There is also no prosecution or penalty. These countries are
clear about maximising revenues, having decided to pardon those who have broken
the law.

India does not fall in that
league. The just-concluded income declaration Scheme (IDS) allowed people to
pay tax, surcharge and penalty adding up to 45 per cent on their past
undisclosed income. The design was better than the earlier scheme that fared
miserably due to the heavy price — 30 per cent tax and an equivalent amount as
penalty — and the lack of trust as to whether there would be penalties even
after coming clean.

Should the government offer a
second chance to those with hidden wealth overseas to come clean? Paring the
tax rate will make it work. Some would argue against india offering frequent
amnesties the way they do in, say, italy. But the US offers an open-ended
offshore voluntary disclosure Program.

One model could be the sort of
permanent amnesty scheme offered by Scandinavian countries and South africa. A person
is allowed to declare her past undeclared income before the case is picked up
for audit. As the government cannot possibly cover a wide range of taxpayers in
audits, such a scheme allows taxpayers to regularise their tax affairs and
start afresh.

Jeffrey owens,  former director of the OECD Centre for
tax  Policy  and 
administration,  says  people 
must  be given enough time to
unwind their past tax affairs before governments move to the new world of tax
transparency. That’s  a valid point. India
will join other countries to follow common reporting standards from next year. This
means exchange of information on account holders across jurisdictions will be
automatic, making it tough for tax dodgers to hide their wealth.

Also, there is no stigma attached
now to offshore voluntary compliance schemes. The OECD has endorsed these
schemes that have been introduced in many countries. India is only rolling with
the tide, and when businesses bring money on to their books, they can repay
loans, avoid bankruptcies and secure fresh credit. Leveraging on higher equity
capital will also make them expand, and help the economy grow.

David Bradbury, head of the OECD
tax Policy and Statistics division, however, reckons that governments should
weigh the benefits and costs, as it can create a perception that voluntary
disclosure schemes are par for the course.

The problem in india is very few
are convinced that non­ disclosure would lead to punitive action. That must
change. Egregious offenders must pay. The US department of justice  puts the information on prosecutions launched
in public domain. Britain’s revenue and customs department too has made it
clear that people can’t get away saying ‘don’t tax me, tax the man behind’.

India will have game-changing
data with automatic information exchange to pursue tax evaders. Having joined
the global war against tax evasion, it should follow Britain and create a
Unique Legal Entity Identifier to trace the real, beneficial owners of companies.
Here, effective sharing of information will help.

Amine of data is already
available with the income-tax department through the annual information returns
that identify potential taxpayers by examining their spending patterns. To
check for evasion, it has been matching the data provided by various agencies
with an individual’s income-tax returns.

What we really need is
intelligent data mining to create rock solid proof of tax evasion. Why not
consider data not filed, but gathered using data-mining techniques, using big
data analytics?

India should also reform its
direct tax regime to lower tax rates, and widen the ridiculously low base. it
also partly  explains  why 
tax  as  a  proportion  of  GDP  has been stagnating at about 16.5 per cent
for the last three decades. The goal must be to at least double india’s tax- GDP
ratio to meet spending commitments. Moving to the goods and services tax (GST)  will certainly provide an opportunity to
reform direct taxes. We can then forget amnesty schemes.

(Source: Article by Hema
Ramakrishnan in the Economic times dated 05.10.2016)

Denialistan: Top 10 excuses Pakistan trots out after terrorist attacks on India

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Pakistan’s long history of bleeding India with a thousand cuts follows a familiar pattern. Deny, defy, and mollify are the main aspects of its terrorism policy. Here are the top 10 excuses and explanations that Pakistan, also known as Denialistan, wheels out every time it is in the international spotlight for initiating yet another terror strike against India.

1. India has jumped to conclusion too soon: first reaction usually given even as attack is still going on, because the Indian media had already begun to name Pakistan as the place of origin of terrorists. But as the timeline of both Mumbai 26/11 and Pathankot showed, evidence surfaced very early. Ajmal Kasab was caught and squealed like a piglet to the cops while his terrorist friends were still burning down the Taj. In Pathankot, unknown terrorist scum used the phone from a cab driver he killed to tell Ammi in Pakistan he’s going to get his 72 virgins.

2. They are not Pakistanis: next line of defence. Worked very well in the case of the attack on Parliament when all the piglets were killed. They tried it in Mumbai even after Ajmal was captured. Unfortunately for Pakistan, a small, courageous section of Pakistani media outed its own disgusting terrorism backing establishment. In Pathankot, they are trying to throw Kashmiris under the bus, getting PakMil proxies such as United Jihad Council to claim the cannon-fodder were Kashmiri.

3. Where’s the proof? Standard, argumentative line thrown on TV, even when you have slapped them in face with proof (phone records, tapes, transcripts, testimony from captured terrorists, etc). When it gets too uncomfortable, claim the evidence is all fabricated.

4. It is an internal job done by RAW to defame Pakistan: Used when either the truth is blindingly obvious or when the Sloppy Joe Indian side fails to gather enough evidence.

5. They are non-state actors: Invented by the terroristin- uniform Pervez Musharraf, darling of India’s chattering classes and conclave society. Fact that he was caught on phone discussing terrorist deployment in Kargil did not stop them from inviting him to their soirees. But why blame them, the great statesman Atal Bihari Vajpayee rescued him from international ignominy.

6. Pakistan is also a victim of terrorism: Playing the victim card after nurturing tens and thousands of terrorists and creating an ambient ecosystem for terrorism, including state – and constitutionally-mandated bigotry and systemic slaughter of minorities.

7. Pakistan is a frontline ally in war on terror: Line wheeled out to extract rent money from credulous Americans stuck in Afghanistan. Never mind if the US tax $$$ they funnel to Terroristan also kill AMERICAN soldiers in Afghanistan.

8. Islam is a religion of peace: Wheeled out for the rest of the world, although Pakistan has little to do with Islam, apart from being its worst example.

9. Pakistan will act against terrorism in all its forms: Increasingly used of late because plausible deniability has become very difficult.

10. Pakistan will fight shoulder-to-shoulder with India against terrorism: The latest offered by its civilian establishment, now that the country is swirling into a black hole. From its military establishment, which will lose its lolly and perks if this happens: Yeah, dream on.

(Source: Article by Shri. Chidanand Rajghatta in The Times of India dated 12-01-2016)

Double bubble trouble

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Sustaining anything in the region of 7% growth should be good enough in a troubled and risk-laden world.

Three months ago, a Brookings Institution-Financial Times tracking index warned of emerging economies risk “leading the world economy into a slump, with lower growth and a rout in markets”. Those words will echo in many minds at the end of this past week, as the world suddenly looks like a dangerous place, and emerging markets even more so. Over the past year, stocks and currencies have dipped in many emerging markets, including India. Over a five-year period, global stock indices have virtually doubled relative to plunging values in emerging markets. Money has been pulled out of emerging markets for several months. And if the last few days’ trends are anything to go by, the story is far from being over. George Soros is only one of many doomsayers.

Two of the original Bric economies that set the pace for a decade have slipped into recession — and a strengthening dollar has accentuated the decline. In dollar terms, Brazil’s economy has shrunk in the last couple of years by 25 per cent, while Russia’s economy has shrivelled 40 per cent. China, while continuing to grow, is beset by transition issues and has become the primary source of global instability. The big risk is cross-country contagion through bankruptcies — and India has its share of debtladen candidates for that scenario. Yet, through it all, India continues to look stable and healthy.

That’s if you view the country from outside. The perspective from within is quite different. Despite much activity by eager-beaver ministers in the Modi government, change on the ground has been slow and very much on the margin. Corporate profits in relation to GDP are at a decadal low. Corporate investment intentions have shrunk further, even as the number of stalled projects remains virtually unchanged. In the infrastructure sectors, power generation has grown less than three per cent, and the railways have missed their freight traffic targets. Investment by the railways too has fallen short, causing the finance ministry to trim fiscal support. The commercial banks’ books will look worse in coming quarters as the Reserve Bank gets less indulgent about undeclared bad loans — provoking (so one hears) some troubled bank chiefs to beat a path to the Prime Minister’s Office. External trade has continued to shrink. The one bright spot remains tax collection. But one-third of the way into its tenure, the Modi government has not really been able to get on top of its inherited economic problems.

Anxious to show results, government personalities talk of increasing government spending, and easing up on fiscal consolidation. However well-intentioned, the idea runs up against the fact that state deficits are already set to grow on account of state governments taking on the bulk of accumulated discom debt, under the ‘UDAY ’ programme. So the combined deficit of Centre and states will climb over the next couple of years. Unless the government wants to risk hard-won economic stability, there is no room for further fiscal slackening, given that it has implications for government borrowing and will put pressure on interest rates. In any case, the government’s capacity to spend more is a known constraint, as the railways have shown this year.

This will be a frustrating scenario for a government that bravely promised a return to rapid economic growth. But the global as well as domestic situation compels realism in the expectations about what is feasible. Economies don’t grow at eight per cent and more when exports are plunging, and when a good bit of the banking system needs intensive care. In fact, shooting for that target could lead to macroeconomic bungling. Sustaining anything in the region of seven per cent growth, give or take a bit, should be good enough in a troubled and risk-laden world.

(Source: Weekend Ruminations by Shri T N Ninan in Business Standard dated 09-01-2016 )

Is a 2008-like financial crisis in the making ? – Volatility in the financial markets shows fears over China are widespread

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Are we headed for a 2008-like financial crisis? George Soros, the man with the reputation of breaking the Bank of England thinks so. “When I look at the financial markets, there is a serious challenge which reminds me of the crisis we had in 2008,” Soros was quoted as saying by Bloomberg. The veteran hedge fund manager is worried about China and thinks it is finding the adjustment difficult. Volatility in the financial markets last week showed that the fear is widely shared across the world.

The Chinese economy is slowing and is being steered towards a more sustainable growth model, which is not dependent on manufacturing exports. However, dealing with past excesses and ensuring a soft landing is an issue. China contributes about 16% to world gross domestic product (GDP) and has provided strength to the global economy after the 2008 financial crisis. A sharp slowdown in China will not only affect overall global growth, but will be particularly harsh for its close trading partners.

A sharp slowdown will have a disproportionate impact on commodity exporters. In fact, the slowdown in China is one of the biggest reasons for the weaknesses in commodity prices.

Weakening economic activity is not the only problem. China is also witnessing serious capital flight. To be sure, policymakers want a weaker currency but are worried about disorderly depreciation. It is being reported that the central bank burnt at least $100 billion in December 2015 alone to defend the renminbi. The worry is that China will once again use weaker currency to support economic activity, which has prompted some of the businesses and households to move out of renminbi-denominated assets. There is also a high-debt angle to the story. According to McKinsey, total debt in China in mid-2014 was at 282% of GDP, which is higher than the debt of some of the advanced economies, such as the US and Germany, and has quadrupled from the level in 2007. Over-investment and slower growth would naturally make debt servicing difficult.

There are layers of issues confronting China at this stage which will keep the financial markets guessing. However, as things stand today, it is difficult to argue that the world is close to a 2008-like financial crisis. In 2008, part of the US economy was engaged in excessive speculation, expecting that good times will continue, and when financial conditions tightened, the result was a collapse in asset prices—a perfect Minsky moment—which brought the financial system to a standstill.

Conditions in China are a little different. China is not essentially struggling to contain speculation and assetprice inflation, but is shifting to a different growth model. It has accumulated excesses in terms of over-investment in various sectors, but debt is mostly concentrated with state-owned enterprises. In fact, households in China are in a lot better shape than they were in the US in 2008. Further, the US was far more financially integrated with the rest of the world than China is today, which will limit the impact. Also, unlike the US, China’s financial system is tightly controlled by the state.

This is not to suggest that a crisis in China will not have any impact on the global economy, but it is unlikely to be close to 2008. However, commodity export-dependent economies will remain in a difficult spot, as demand will remain capped because of a slowdown in China and weak global growth.

What does this mean for India? Policymakers in India will have to remain vigilant and find ways to grow at a time when global growth is likely to remain tepid for an extended period. India will also have to convince global investors that it does not belong to the typical commodityexporting emerging market pack, and is also not suffering from some of the problems that China is facing. Foreign portfolio flows could become more volatile because of a change in investor preference away from emerging markets.

India should, therefore, prepare the ground for attracting foreign direct investment, which is more serious in nature and is likely to be attracted to a long-term growth promise.

(Source: Extracts from the Editorial in Mint dated 11-01-2016)

Infinite Growth in a Finite World? – Hopium Economics has given us deeply-in-debt individuals, businesses and nations

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Economic growth is a central assumption to political and economic systems. It is the mechanism relied upon for improving living standards, reducing poverty to now solving the problems of over indebted individuals, businesses and nations. All brands of politics and economics assume sustainable, strong economic growth, combined with the belief that governments and central bankers can control the economy to bring this about.

But strong growth is not normal, being a recent phenomenon over the last two centuries. Economic activity and the wealth created have increasingly relied on borrowed money and speculation. It was based upon the profligate use of mispriced natural resources such as oil, water and soil. It relied on allowing unsustainable degradation of the environment.

The human race refuses to accept that it is not possible to have infinite growth and improvement in living standards in a finite world. As author Edward Abbey warned, “Growth for the sake of growth is the ideology of a cancer cell.”

Central to the problem is the level of indebtedness. Debt accelerates consumption, as borrowed funds are used to purchase something today against the promise of paying back the money in the future. Spending that would have taken place normally over a period of years is squeezed into a relatively short period because of the availability of cheap borrowing. Business overinvests misreading demand, assuming that the exaggerated growth will continue indefinitely, increasing real asset prices and building significant overcapacity.

Around 85% of the debt incurred over the last 30-35 years funded the purchase of existing assets or consumption rather than being used for creating new businesses or productive purposes which build wealth.

Global debt now stands at around $200 trillion (over 280% of the world annual produce), an increase of $57 trillion since 2008 when high debt levels brought the world to the brink of collapse.

“Hopium” economics cannot mask the problem of excessive leverage forever. The debt will have to be repaid out of future income or proceeds of asset sales, diminishing growth or savaging investment values. If as is likely, this debt cannot be repaid, then it will be written off, resulting in an unprecedented loss of wealth for savers. Compounding the problems of debt, resources and environment are challenges of slowing rates of innovation, lower improvements in productivity, demographics, inequality and exclusion. The amount of global arable land has remained relatively constant for the last decade at 3.4 billion acres. The annual increase in global population requires water flow equivalent to Germany’s Rhine River. The frequency of extreme weather events is increasing. In a Faustian bargain, policy makers sold the future originally for present prosperity and are now reselling it for a precarious and short-lived stability. There is a striking similarity between the problems of the financial system, irreversible climate change and shortages of vital resources like oil, food and water. In each area, society borrowed from and pushed problems into the future. Short term profits were pursued at the expense of risks which were not evident immediately and that would emerge later.

Kicking the can down the road only shifts the responsibility onto others, especially future generations. By postponing the inevitable, the adjustment becomes larger and more painful.

Economic problems feed social and political discontent, opening the way for extremism. In the Great Depression the fear and disaffection of ordinary people who had lost their jobs and savings gave rise to fascism. Writing of the period, historian A. J. P. Taylor noted, “[The] middle class, everywhere the pillar of stability and respectability … was now utterly destroyed … they became resentful … violent and irresponsible … ready to follow the first demagogic saviour.”

Humanity faces this, its greatest crisis, with, in the words of biologist E. O. Wilson, “palaeolithic emotions”, “medieval institutions” and delusions about its “god-like technology”.

But a new industrial revolution is not on the horizon. It is not clear how new smartphones and connectivity that feed cheap narcissism will address the urgent problems of the world. Progress on crucial problems like improving crop yields, cheap clean energy and its storage is slow.

Many new technologies such as robotics reduce living standards as they replace or deskill most workers. Innovation enriches a few people who control or finance the technology at the expense of the vast majority of the population, entrenching and increasing inequality.

The world is remarkably unprepared for the crisis that is unfolding. During the last half-century each successive crisis has increased in severity, requiring progressively larger measures to ameliorate its effects. Over time, the policies have distorted the economy. The effectiveness of instruments has diminished.

With public finances weakened and interest rates at historic lows, there is now little room for manoeuvre. Resource constraints and environmental problems are increasingly pressing. A new crisis will be like a virulent infection attacking a body whose immune system is already compromised.

Factual debate is replaced by what comedian Stephen Colbert calls “truthiness”, things which were not true but rather things one wishes were or actually believes to be true. Any challenge to the consensus of unlimited opportunity is crushed. As Tertullian wrote, “The first reaction to truth is hatred.”

(Source:Article by Shri Satyajit Das in The Times of India dated 08-01-2016)

Hyper-nationalism threatens the idea of liberal democracy in both India and the US

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With the end of the Cold War a quarter century ago, Francis Fukuyama wrote an intellectually exciting book announcing The End of History. He meant that the 19th and 20th century ideological disputes over how to structure society politically had ended; liberal democracy had won a decisive victory. He later wrote several books modifying his early enthusiasm. Today, serious challenges once again threaten the idea of liberal democracy.

Donald Trump’s spectacular advance towards securing the nomination of the Republican Party for the US presidency is a symptom of what’s happening around the world. A growing swell of extreme nationalism, or hyper- nationalism, has become a challenge to core democratic values. The largest two democracies, the United States and India, are witnessing surges of nationalist passion; one is the world’s most influential, while the other is the most populous and arguably the most diverse. The quality, perhaps fate, of democracy in these two nations is of consequence to the future course of political progress. As global society evolves at a time of immense technological and economic change, nativism and identity politics are inevitable reactions. But they pose serious threats to the liberal values that underpin democracy.

‘Liberal’ here is not a synonym for ‘leftist’ as commonly used in the US. Liberalism in the classical sense is the spine of any democratic body politic. It means openness in society and the economy, acceptance of difference and diversity within a frame of tolerance and free speech, public civility and other mores that define democracy. Left extremists have their own peculiar hatreds for liberalism. Today, however, hyper-nationalism is a far-right phenomenon.

Authoritarians of the right and the left have long spouted hyper-nationalistic slogans to coerce people into submission. What is worrying today is that far-right political parties and movements have sprouted across the entire democratic world.

In Europe, where liberalism was reborn in the modern era, right-wing forces are using nativism to corner significant popular support. The trend is evident in not only former Soviet bloc countries like Poland, Hungary and Slovakia, which have relatively recent experience of democracy; it has sprouted across western Europe’s established democracies, including France and Germany.

In India, a hyper-nationalist government led by Prime Minister Narendra Modi has either stayed indifferent or quietly encouraged activists of the Hindutva brigade to carry out numerous instances of cultural-nationalist identity confrontations, often violent, in a country that has a unique range of linguistic, ethnic and religious diversity. Fanning flames of hyper-nationalism is easy in a post-colonial environment; both the right and the left have done it the past. But the Hindu right has added the fuel of an exclusivist religious-cultural identity to a volatile mix to redefine the idea of India.

In the US, the campaign rhetoric of conservatives, especially Trump, is poisonous. Nativist dog whistles have been around for long and two terms of Barack Obama as president have stirred latent identity anxieties in sections of the country’s white population. Now nativist or racist talk is openly voiced by candidates as a nationalist virtue to make America great again.

Does a correlation exist between support for extreme nationalist or nativist views and a desire for authoritarianism? Recent research at the University of Massachusetts, Vanderbilt University and the University of North Carolina clearly suggests there is, writes Amanda Taub at vox.com. But even without scholarly research common sense suggests that hatred or fear of the Other, which is the siren song of nativists, works to undermine democracy. These are values like tolerance of differences in ethnicity, religion, appearance and speech among citizens of a secular democracy; acceptance of a framework of civilised discourse of disagreement; adjusting to a changing sociocultural environment within each democratic nation and in the world.

Moderate conservatives and progressives may differ on the speed and intensity of that inexorably changing reality and on how to deal with it. But they agree to disagree in a democratic manner eventually to elect their preferences to public office. Hyper-nationalists and nativists, on the other hand, challenge the basic norms of democracy. India and the US, at starkly different ends of the global development spectrum, are the world’s prominent examples showing how unifying nationalism can coexist within a liberal framework. The worry is, might either or both succumb to a hyper-nationalism that strangles democracy?

(Source: Article by Shri Gautam Adhikari in The Times of India dated 19-03-2016.)

Nehru-Gandhis and poverty – Dynastic politics is largely responsible for India lagging East Asia

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Has dynastic politics kept India poor? There’s more than a kernel of truth to the idea that the Nehru-Gandhis are responsible for India lagging much of East Asia. The continued hold of the dynasty prevents Congress from fully owning the reform programme that it authored in 1991, and inclines the party towards political postures that hinder development. As long as Sonia Gandhi or Rahul Gandhi remain at the helm, the odds of Congress emerging as a champion of reforms remain exceedingly slim.

In the fever swamps of the far right, many people believe that the Nehru-Gandhis deliberately kept India backward in order to nurture a poor and ignorant vote bank. But you need not buy crackpot conspiracy theories to make a more prosaic point. Between them, Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi, who ruled India for 37 of its first 42 years of Independence, presided over one of Asia’s great economic flops.

In contrast, neither of post-1991India’s reform heroes – P V Narasimha Rao and Atal Bihari Vajpayee – belonged to the dynasty. Indeed, in practice, if not always in rhetoric, both Rao and Vajpayee generated prosperity by dismantling the economic pillars of the Nehruvian project: mistrust of trade, contempt for the profit motive, and faith in state planning rather than in the invisible hand of the market. Nehru’s flawed ideas – in particular his infatuation with Soviet-style planning – ended up doing India grave harm. But though a few prescient gadflies, most famously the classical liberal B R Shenoy and future Nobel laureate Milton Friedman, raised early alarms about India’s chosen path, for the most part Nehru was simply following the conventional wisdom of his time.

As New York University professor William Easterly details in ‘The Tyranny of Experts’, it took decades to discredit the statist development model touted by such luminaries as Gunnar Myrdal and Arthur Lewis. Indians were not alone in suffering. Millions of Africans, Latin Americans and fellow Asians kept us company. The true villain of modern Indian history, dooming millions of Indians to poverty, was Indira Gandhi. Instead of acknowledging a flood of evidence that state planning was not working, Gandhi doubled down on her father’s dubious legacy. In 1966, the year Gandhi took power, the average Indian earned about fourfifths as much as the average Indonesian and about half as much as the average South Korean. By 1990, on the eve of the balance of payments crisis that forced India to reform, the average Indian earned only half as much as an Indonesian and less than one-sixth as much as a South Korean. More than half of India’s then 870 million people lived on less than the World Bank’s current estimate for extreme poverty of $1.90 a day.

Why does this potted history still matter? After all, since 1991India has gone from being seen as a black hole of despair to a bright spot in the global economy. Thanks to the growth spurred by reforms, only about one-fifth of Indians live in extreme poverty today. Soon enough, that figure will likely be reduced to zero.

In a normal political system, Congress would have elevated Rao to sainthood and quietly banished the discredited ghosts of the Nehru-Gandhis. Instead, party leaders twist themselves into pretzels to retroactively give the dynasty credit for reforms, or pretend that the economic disaster they presided over was in fact a great launch pad for what followed. To be fair, the current crop of Nehru-Gandhis no longer quotes Lenin, as Nehru did when he famously declared that the public sector would occupy the “commanding heights” of the economy. But in general the family’s impact on economic policy remains negative. Contrast, for instance, Manmohan Singh’s record under Rao with his record under Sonia Gandhi. As Rao’s finance minister, Singh boldly unshackled the Indian elephant. As Gandhi’s prime minister, he burdened it with too many wasteful welfare programmes and too few growth-inducing policies.

Meanwhile, Rahul Gandhi’s somewhat forgettable political career has been marked by consistently anti-business rhetoric. In 2010, he scuttled Vedanta’s $1.7 billion bauxite mining project in Odisha. The young Gandhi’s rhetoric about “two Indias” and bizarre animus towards people who “drive big-big cars” suggest a dilettantish preoccupation with inequality rather than a serious focus on eradicating poverty. Though the Modi government is responsible for its own tepid reform effort, there’s no question that Rahul’s jibe about the prime minister heading a “suit-boot ki sarkar” has helped vitiate the policy-making atmosphere.So yes, the critics are right about dynastic politics helping keep India poor.

PSU Banks’ Bad Loans – Lax legal system – Swift action in the Vijay Mallya case is important

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A day after a consortium of 13 banks approached the Supreme Court to prevent controversial industrialist Vijay Mallya from leaving the country, the court was told on Wednesday that the former chairman of United Spirits Limited had been in London since March 2. While he may not be able to escape the legal process for long, as the Supreme Court has issued notices to him, the entire saga is an example of how crony capitalism has grown deep roots in the country and how banks have dragged their feet when big names are involved. Several of his lenders have a lot to answer for, if they have to counter the growing perception about their cosy relationship with an errant promoter. Why, for example, did they take four years to move the apex court? How could they lend crores of rupees to Kingfisher when pledged assets were only one-tenth of the value of the loan? Or, as the apex court asked, why were loans given to Mr. Mallya when he was a defaulter and was facing legal proceedings? It’s also not clear how banks attached such a high value to the Kingfisher Airlines brand and used it as collateral for giving huge loans. The government’s promises apart, public sector banks still await an institutional mechanism and an operational environment that can insulate their lending from political and other influences.

The country’s legal framework has also added to the problem; for example, after United Bank of India declared Mr. Mallya a wilful defaulter, a court struck it down on technical grounds. There are countless other examples of promoters delaying the loan recovery process on some legal grounds or the other, thereby allowing wilful defaulters to become “freeloaders” – to borrow a term used by Reserve Bank of India Governor Raghuram Rajan. As the Kingfisher example shows, an inordinately long time in taking action against defaulters only helps in erosion of the value of the underlying assets, leaving nothing much to banks. In that context, the bankruptcy code now in Parliament is of critical importance. Like in the West, a modern law with a focus on speedy closure will help firms on the brink to be either restructured or sold off with limited pain for all involved. In some cases, if this is done swiftly, assets can be put to good use and the firm can be revived. Fast-track courts too are needed in India to take these cases to closure fast.

India does have some laws – including one on securitisation and reconstruction of financial assets and enforcement of security interest or the SARFAE SI Act – and other mechanisms, like Strategic Debt Restructuring, to address the problem of corporate insolvency. But many of these laws or guidelines have not worked because of inefficient enforcement. For example, banks rely on debt recovery tribunals that were created under a 1993 law to help financial institutions reclaim loans. But the tribunals have been swamped with so many cases that it may take at least another four years to clear them. Mr. Mallya is right when he said on Sunday in a grandiose statement that while he has been declared a wilful defaulter, many large borrowers who owe much more have got away. But swift action on the Mallya case is important, as it will set a strong example for the rest of the large defaulters who have taken the banking system for a ride.

(Source: Editorial in the Business Standard dated 10-03- 2016.)

Quota Blackmail – Roots of Jat agitation lie in lack of jobs which needs fixing, but giving in sets a bad precedent

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Nine days into Haryana’s Jat reservation stir 19 lives have already been lost, almost 200 have been injured and economic damage is estimated at a staggering Rs 20,000 crore. The government of chief minister Manohar Lal Khattar, who was heckled in the epicentre of the agitation in Rohtak, has unfortunately agreed to bring a bill for quotas to Jats in the state assembly’s next session.

The government’s willingness to capitulate before agitators who used violent means sets a bad precedent. Not only did the rioters bring the state to a standstill, they also damaged Delhi’s water supply network, which will take another two weeks to bring back on par.Giving in to such street tactics by those who are essentially pursuing a political demand can only harm the polity . Attempts to finalise the Jat quota will create further trouble.

The Supreme Court has set a 50% cap on quotas, exceeding this is illegal.

But to stay within the quota will have to be carved out of someone’s else share. It will then be the turn of that community to agitate. The results will also be keenly watched by dominant castes elsewhere such as Patels in Gujarat, Kapus in Andhra Pradesh and Marathas in Maharashtra all of whom want reservation. We could soon see eruptions elsewhere, if not in Haryana.

In the short term, governments need to hold their ground. They cannot sidestep this issue by conceding more quotas. And in the long term all political parties need to question some axioms of populist politics today . Firstly, caste quotas should not monopolise our notions of social justice. We need subtle rather than sledgehammer forms of affirmative action, for example, a points-based system that gives most weightage to economic deprivation.

Secondly, creation of jobs is falling radically short of India’s demographic demand. Economic policy must be indexed to job growth rather than GDP growth, reforms that grow jobs must be pushed through. These include radical labour reforms which incentivise the creation of more jobs, facilitation of land acquisition by industry , as well as educational reforms which radically improve the quality of public sector institutions while uninhibitedly inviting the private sector to play a greater role. If we fail to undertake these and similar job-creating reforms the Jat stir will not be the last reservation agitation we will see, damaging though it might have been.

(Source: Editorial in The Times of India dated 24-02-2016.)

How we must Redraft Education Policy

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The legal and regulatory environment of our education system is in a sorry state. A statement from IIT Bombay faculty has spoken of the pitfalls of government overregulation of higher education. But the problem exists across the spectrum: pre-primary, K-12, colleges, universities et al.

I am sure no one would disagree that we need more innovation in our education system. But where do we really stand in recognising that our education system is weighed down by decades of inefficiency and red tape? Students, parents, schools and colleges are victims of this daily malaise. Governments have been unable to support government schools, but they are more eager to meddle with the private school system. This calls for a radical change in mindset.

Private unaided education should not be looked at through the same prism as government run or even private aided education. Alas, that is exactly what is happening. Take the example of the recent spate of Fee Regulation Acts across states such as Maharashtra, Tamil Nadu and Rajasthan. Private unaided schools now need the approval of the respective state governments and in the case of Maharashtra, the parents, through an executive committee, before they can increase their fees!

No one forces anyone to attend these schools and they are in any case prohibited from profiteering and charging any sort of capitation fee. They need to comply with RTE as well. So why then interfere in their fee setting process? If parents have a grievance they can always approach the state’s education department.

This is nothing but blatant interference in what is essentially a fundamental right under our Constitution that allows schools to practise their occupation without unreasonable restrictions. This is what an 11 judge bench of the Supreme Court held in the TMA Pai case. Fee regulation also leads to corruption, favouritism and an overall adversarial atmosphere.

Kids are the biggest losers. Schools have to justify each penny they wish to charge and that will invariably lead to financial pressure on the schools, which in turn will have a domino effect on the quality of education and availability and cost of finance.

It’s also ironical that 100% FDI is permitted under the automatic route in education in India, but that investment has to be in a not for profit entity subject to all these restrictive regulations! Yes, there was a time and place for a more socialist approach to education. India was newly independent and needed a number of safety nets. But fast forward to 2016, and a lot has changed.

We need less government in the private sector, more entrepreneurship, higher quality of education and freedom for private schools to make their own decisions. The government instead of interfering with private schools should focus on improving the government school network. This too will require participation from the private sector. Governments are strapped for cash and need this support. PPP in various forms can prove to be highly successful. We have seen successes in Africa and Latin America in the low income private school sector and we need to replicate that in India. This requires governments to free their minds and not look at private education with suspicion.

There are six things that state governments and regulators can do. First, focus on improving government schools with the help of reputed private players in the low income private school sector.

Governments can let the private sector adopt schools and run them as low cost schools. This has been successful in Latin America and Africa. Research has shown that even those with lower incomes would prefer to pay a little for quality education rather than sending their kids to free government schools where nothing is taught or learnt.

Second, repeal fee regulation and other regressive rules that interfere with the management and functioning of private unaided schools. Instead, retain the power to grant approvals for setting up schools, ensure quality control through a self-regulation mechanism and prevent capitation fees being charged.

Third, boards of affiliation need to be more pragmatic in their oversight. Procedures and other rules and regulations should recognise the role played by technology and be amended to reflect our times. Fourth, allow private unaided schools to choose a legal structure of their choice rather than restricting them to “not for profit” structures. This will enable schools to raise more funds and improve the quality of education without having to create “innovative” structures to do so. Haryana permits schools to be set up by companies. Companies have far more regulatory obligations and reporting requirements compared to trusts and societies! This therefore should not be a concern to governments.

Fifth, distance education programmes should be liberalised and not shackled by territorial jurisdiction limits. The new distance education guidelines should be drafted in a manner that allows cross border access and must do away with the concept of state boundaries.

Sixth, the government has been very proactive in liberalising FDI, preparing a startup policy and an IP policy. They should draft the new national education policy with the same zeal and ensure it’s a forward looking policy, which takes into account the role of technology and also modern and progressive systems of learning.

The sooner the government realises that over regulation kills innovation, the better for education, students and the government’s own development goals.

(Source: Article by Vivek Kathpalia in The Times of India dated 23-02-2016.)

Budgets – the long view

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The flood of commentary that follows the presentation of a Union Budget focuses quite naturally on the immediate numbers. However, it is the long view that often proves more educative. Taking the perspective of the last decade, budgetary numbers present some clear trends.

To start with, central tax revenue and GDP will have remained in lock step: GDP (at current prices) is expected to have grown 3.4 times over the decade to 2016-17; so is budgeted tax revenue for next year. However, the states’ share of this revenue will have multiplied 4.7 times, leaving net central tax revenue to grow barely three-fold — and therefore slower than GDP. That the fiscal deficit has been controlled, regardless, is because of the spectrum bonanza that the government has engineered.

The contribution of different taxes to the total tax kitty has seen changes. Income-tax revenue is budgeted to have grown significantly faster than GDP, multiplying 4.3 times over the decade. Since GDP has grown only 3.4 times, people are now paying a greater share of their income as tax. Companies have not been as generous — corporation tax revenue is budgeted to have grown at nearly the same speed as GDP. Don’t blame the companies, though. The stress in the corporate sector has caused the share of profits in GDP to drop to a low point. If companies start doing better and reporting profit growth, corporation tax revenue will see a boost, not just in absolute terms, but also in relation to GDP.

Among indirect taxes, the star performer is service tax, whose revenue next year is budgeted to be a massive six times greater than a decade earlier. This is not just because service tax rates have been raised, but also because the coverage of the tax has been expanded. However, the other indirect taxes have disappointed. Customs duties, for instance, are budgeted to grow next year to just 2.8 times the level a decade earlier. This could indicate that duty rates have been dropped, making the economy more open than before, or that there has been a change in the import mix, towards items that attract lower duty. Alternatively, more imports are duty-free because they feed exports. Whatever the reason, the collection rate for Customs duty has dropped to barely 8 per cent of total imports in the last full year, compared to about 9 per cent of imports a decade earlier.

Finally, there is the other underperformer, excise duty. Revenue from this is budgeted to grow next year to just 2.7 times the level a decade earlier — making it the slowest-growing tax item, and growing slower than GDP, although the share of manufacturing in GDP has not fallen. The primary reason for the slippage is probably the fact that excise duties were lowered in the wake of the financial crisis of 2008, and are yet to be taken back up to the level that prevailed earlier. Perhaps finance ministers have stayed their hand because imposing higher excise duties might affect already depressed demand for a range of goods.

What conclusions should one draw from these numbers? First, the faster growth of revenue from direct taxes (on income and corporate profits) is to be welcomed as it makes the tax system more progressive. That customs duties are growing slower than both GDP as well as imports is also to be welcomed, if it can be confirmed that this is because duty rates have dropped and made the economy more open. However, the fact that taxes on manufacturing are growing slower than GDP should cause concern. Overall, the government’s total expenditure in relation to GDP is the same as it was a decade earlier. This tells us that, for all the excitement over annual budgets, finance ministers have little leeway for introducing change until the share of taxes in GDP grows. That will happen when the economy recovers momentum — corporate profits will grow and yield more taxes, and excise duty rates can be taken back to where they were before the 2008 crisis.

(Source: Weekend Ruminations by T. N. Ninan in Business Standard dated 12-03-2016.)

The real threat to India is not Kanhaiya, it’s lack of jobs

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Indian political life is rich in ironies. A leftist student leader, Kanhaiya Kumar, is arrested for sedition and anti-national conduct. The arrest turns him into a hero and a symbol of the freedom to dissent. The home minister defends the arrest by wrongly citing the United States as an exemplary democracy that doesn’t tolerate anti-national dissent.

Continuing strident protests crowd out a fine annual Budget of the government. In a magnificent speech, the ‘symbol of freedom’ reveals his true colours, espousing a statist ideology that does not allow economic freedom and has a record of killing millions for dissenting.

Prime Minister Modi’s great achievement was to broaden the appeal of the BJP in 2014 to a vast number of aspiring Indians who were swept by his rhetoric of jobs, growth and vikas. He thus created a genuine Indian conservative party made up of an ‘economic right’ and a ‘cultural right’, resembling the Republicans in America and the Conservatives in England.

Many on the economic right had little sympathy for Hindutva but they took a calculated risk, hoping that Modi would keep the cultural right under control, as Ronald Reagan did in the US and Margaret Thatcher in the UK.

Two weeks ago the government presented a prudent, jobcreating Budget that rightly offered a ‘new deal’ to rural India. Particularly inspiring was the announcement of a mission to finally liberate millions of women in the villages from smoke-filled chullahs in their kitchens by giving them access to cooking gas, and removing at one go the most pernicious form of pollution that blights the lives of Indian women. It also sent a powerful message to Bharat — rural India too could aspire to the lifestyle of urban India!

Grabbing eyeballs: The sedition row crowded out the Union Budget and its new deal for rural India.

The second nugget in the Budget was to give statutory authority to Aadhaar, which paves the way to deliver cash transfers into the bank accounts of the poor via mobile banking (including the women who will shift to cooking gas from cow dung). It is extraordinary that 98 crore Indians already have Aadhaar numbers, almost the same number as mobile phones, and 20 crore families now have bank accounts.

There will always be concerns related to privacy in a national identity program but I believe the Aadhaar bill addresses these fears. Plenty of countries have also solved this problem. The dramatic gains in the public delivery of subsidies and benefits to the poor via Aadhaar far outweigh the potential risks to privacy.

The Aadhaar bill is as transformative as any legislation introduced in India’s parliament. There were other gems in Jaitley’s Budget but all these were quickly forgotten, crowded out by the massive coverage of Kanhaiya, the new darling of the Indian media. Meanwhile, the future of the aspiring millions is in serious jeopardy.

The economy needs to accelerate by two full percentage points to deliver the required jobs. The Budget does offer the potential to do so but it will need single-minded attention to execution. The Prime Minister cannot afford more distractions like the sedition controversy, and he must control the cultural right if he wants to deliver his election promise.

The BJP government made the mistake of making a martyr of Kanhaiya. He is not a threat to India. The real threat lies in the failure to create jobs. If Modi wants to deliver vikas and restore credibility with the economic right of his party, he must control the cultural right and focus single-mindedly on executing his Budget.

(Source: Extracts from an article by Shri Gurcharan Das, & former CEO of Procter & Gamble India, in The Times of India dated 13-03-2016.)

The Indian classics belong to the world, and no one has exclusive rights – Rohan Murty

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Ancient India represents more than 3,000 years of extraordinary literature, science, history, and culture. Yet, the world is fast losing and not sufficiently replenishing scholars who can access, digest, and share these treasures with the modern world.

In recent times, the Bhandarkar Institute, Sanskrit College (Chennai), Deccan College, and Bharatiya Vidya Bhavan have been among the plethora of institutions that hosted generations of great classical scholars, and my family has had the honour of supporting them philanthropically. Yet, economic pressures and a change in societal priorities, among other issues, have resulted in very few people in my generation studying the classics as their first choice. This trend is worrying and begs the question: who will continue to study, intelligently debate, and widely share the extraordinary knowledge that we have gathered over several millennia?

To turn this tide we must work together to ensure that the knowledge of ancient India lives on for generations to come. This requires several efforts that will collectively work towards a future where the study of ancient Indian history, mathematics, classics, literature, etc will proliferate across the world and be as vaunted as the study of ancient Greece or Rome. One where the citizens of the world will marvel at what the ancients here did.

It is for this reason that I support the Murty Classical Library of India (MCLI), a non-profit whose aim is to assemble the best scholar-translators worldwide to edit, translate, and annotate the greatest works in classical Indian literary and intellectual history. Our hope is not only to bring to readers everywhere pleasure and instruction, but also pride to the people of India at the luminous achievements of our poets and thinkers. At the same time, we are actively working to encourage young people to familiarise themselves with classical texts, to learn the original scripts, to seek help from our annotations, and actually begin to read not only the English translations but also the original Indic works on their own.

MCLI is perhaps the most ambitious translation project, spanning over two millennia and 14 classical Indian languages. Our expert translators range from Vanamala Viswanatha (Kannada) in Bengaluru to Christopher Shackle (medieval Punjabi) in London to David Shulman (Telugu and Tamil) in Jerusalem to Velcheru Narayana Rao (Telugu) in Atlanta. These are just a few of the many world-class scholars translating for MCLI, each of whom reflects our mission to find the best scholars for each text and language, wherever they might reside. Translation is an art form and our editors and scholars work together to ensure that the translations remain faithful to the source. Sheldon Pollock, our general editor, is an extraordinary scholar who, along with the rest of our staff, works tirelessly to create the most exacting scholarship possible. Sheldon himself was fortunate to train under India’s brilliant academics, such as M. V. Patwardhan and Srinivas Sastry (Pune); P. N. Pattabhirama Sastry (Varanasi); Balasubrahmanya Sastry (Mantralayam); and Venkatachala Sastry and Vidwan Nagaraja Rao (Mysore). His dedication and passion for producing high-quality and faithful translations that will outlive us all is evident to anyone who actually reads an MCLI book.

Recently, there have been suggestions that political alignment should inform participation in MCLI. On the contrary, politics has absolutely no place in the work we do at MCLI and thus is not a factor in determining who collaborates with us. This is an enterprise of pure scholarship and genuine love, period. That said, participation in MCLI does not preclude people from holding or expressing their political views on matters outside the purview of MCLI. That is a fundamental right that we will not abridge.

I am proud to have such a diverse mix of scholars contributing to MCLI, as ancient Indian classics ought to have universal appeal. They are as much a part of world heritage as Greek, Latin, or Chinese classics. Hence I do not agree with the view that classical Indian scholarship is the sole purview of Indians, no more than I believe that the study of Shakespeare ought to be exclusively left to the English. In fact, some of the best-known scholars on English literature are Indians! On this note, I am inspired by what the Mahatma said: “I do not want my house to be walled in on all sides and my windows to be stuffed. I want the cultures of all the lands to be blown about my house as freely as possible. But I refuse to be blown off my feet by any.” Sadly, as a society today we have let our institutions, manuscripts, and scholarship in these areas fall into a state of disrepair. And this I am going to help rebuild.

Notwithstanding its early momentum, however, MCLI alone cannot be the panacea for the challenges ahead. At best, MCLI will produce some 2,500 volumes over the next 500 years, yet there are possibly millions awaiting translation. Given all that’s to be done, I hope we can spend less time pitting Indian against Indian and instead think earnestly about how to best preserve our cultural heritage for generations to come.

There is far too much to be done in far too little time. MCLI is just one of many initiatives I hope to support in my lifetime to ensure that the institutions, manuscripts, and scholarship in the areas of the classic endure. I look forward to working constructively with anybody — be they ethnically Indian or otherwise — as long as they are honest scholars of the highest calibre interested in advancing the same visions articulated here.

(Source: Article by Shri Rohan Murty, sponsor of Murty Classical Library of India , in The Times of India dated 06.03.2016)

Bad loans – Reform banking beyond naming & shaming – India’s political economy has to change, too

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The Supreme Court (SC) has asked India’s central bank, the Reserve Bank of India (RBI), to hand over a list of all companies that owe more than Rs 500 crore to (mainly) state-owned banks, but whose promoters continue to live, well, in some comfort. The second criterion is dicey, since what constitutes high living tends to be subjective, but it should be an easy matter for the RBI to hand over a list of the major defaulters. Since taking over in 2013, RBI governor Raghuram Rajan has been fighting a lonely battle to get banks to clean up their books, seize assets of habitual defaulters and impose some discipline in the country’s moth-eaten lending system. The SC order strengthens his hand in the fight to break the cronyism between bankers and promoters. This is welcome.

The court can reveal the names handed over by the RBI. Naming and shaming might achieve results that gentle nudges have failed to deliver. However, such a list of names would contain the names of both those who wilfully borrowed too much to achieve too little and defaulted in desultory impunity and those who fell to unanticipated political risk that compounded normal business risk in the period of policy paralysis after a former telecom secretary was sent to jail in 2011. The point, really, is to reform banking as practised in the public sector, redeem banking decisions from political/bureaucratic interference. That, in turn, calls for overhauling political funding to make it transparent and free of the proceeds of corruption, besides overhaul of ownership and control. The malaise in banking has its roots in our political economy.

Rajan’s job would have been simpler had he been armed with a modern bankruptcy law similar to the US’. Yet, parliamentary logjam has thwarted India’s new bankruptcy code, which could permit swift resolution of bad loans. The government must prioritise this as the number one item on its legislative agenda and get it passed in the Budget session. Of course, for this, it would need to engage the Opposition, instead of calling it antinational and other names. (Source: Editorial in The Economic Times dated 19-02-2016.)

Narendra Modi, Mark II

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Has Narendra Modi re-set his political sights? He talks now of the poor,
not the neo-middle class that featured in his campaign manifesto and in
Arun Jaitley’s first Budget. When railway finances are in poor shape,
he decides to not raise railway fares – though fares cover barely
twothirds of cost. He has done a dramatic about-turn on the rural
employment guarantee programme, which he no longer damns as a monument
to Congress failures. The promise of minimum government has gone out the
window. And he sounded defensive, even beleaguered, when he spoke the
other day of conspiracies to “finish” him – conspiracies by civil
society activists, if you please, while he (i.e. Mr. Modi) was busy
working for the people.

To many observers, that sounded like
Indira Gandhi who campaigned in 1971 by saying: “They say ‘Indira
hatao’, I say ‘Garibi hatao’.” Though her economic policies did little
to remove poverty, she is remembered by the poor as someone who stood
for and by them. It is beginning to look like Mr Modi thinks that is not
a bad place to be. Typically, the arrival of “Modi Mark II” is to be
marked by a kisan maha sammelan in Delhi, with 100,000 farmers to
attend. So the nervous question in business circles is: will Mr Modi,
less than two years into office and wounded by Rahul Gandhi’s
“suit-boot” jibe, use the Budget to announce his new political
positioning?

If he does, there will be parallels with P. V.
Narasimha Rao, who turned his back on economic reforms in 1993, two
years after launching them, because of electoral reverses in two
southern states. Soon Rao was to announce freebies on Independence Day,
while Manmohan Singh as finance minister grumbled in an interview that
you could not spend your way to prosperity. The record of other prime
ministers too shows how much can change when a prime minister is faced
with the two-year challenge. Elected to the Lok Sabha in 1967, Indira
Gandhi faced a political challenge in 1969 and wrested the initiative
only by splitting the Congress and launching on a reckless string of
nationalisations and ruinous tax measures. Reelected in 1971, she was
faced with JP’s anti-corruption movement by 1973, and eventually imposed
Emergency rule. Elected a third time in 1980, she had to confront
Bhindranwale’s “Dharam Yudh Morcha” in 1982, leading to the Punjab
insurgency that eventually cost her her life.

When it came to
Rajiv Gandhi, the Bofors scandal hit him shortly after he completed two
years, in 1987; he would never recover the political initiative. As for
Mr. Vajpayee, re-elected in 1999, the challenge came midway into his
term, from the Rashtriya Swayamsevak Sangh boss K. S. Sudarshan. Their
power play was on the swadeshi issue; Mr. Vajpayee stood his ground. And
Manmohan Singh, two years into his second term, was hit in the solar
plexus by the government’s auditor; his government remained paralysed
till its term ran out.

Mr. Modi faces no real political challenge
or crisis, least of all because of civil society activists. But he
recognises that some of those whom he enthused in 2014 are now a
disappointed lot, even as successive droughts have caused severe
distress in the countryside. While it is entirely right that he should
address that urgently, the danger with “Modi Mark II” is that he will
focus on giveaways rather than the tougher task of boosting productivity
(and therefore farm incomes). In a search for a more secure political
constituency, Mr. Modi might even be tempted to revert to the failed
policies of Indira’s time: trade protectionism, redistributive taxes
that encourage evasion, and policies that favour government-funded
investments rather than private sector recovery. One hopes not.

(Source: Weekend Ruminations by Shri T. N. Ninan in Business Standard dated 27-02-2016.)

China avalanche stokes fears of global recession

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An avalanche of dollars exiting China threatens to smother all emerging markets (EMs), including India, and cause a global recession. Almost $ 600 billion have exited China in the last six months, a mammoth $100 billion per month. This would have emptied the forex reserves of almost any other country , but China still has $3.3 trillion left. However, it cannot afford a continuing outflow at this rate.

Its government placed curbs on stock markets to combat crashing values, but withdrew these when they proved ineffective. It is committed to making the yuan a reserve currency like the dollar. But this obliges it to allow capital to enter and exit reasonably freely, and hence risks further capital flight. For decades the Communist Party has firmly controlled the economy . But no more.

The Chinese avalanche has helped accelerate dollar outflows from all EMs (emerging markets). The Sensex is down from 30,000 to 24,400. The rupee has gone from Rs 62 to Rs 67.70 to the dollar. Yet India is the best EM performer: others are truly battered. Worse, the prices of oil and other commodities keep falling, a recessionary portent.

China has been slowing for two years. Pessimists like Ruchir Sharma of Morgan Stanley have long worried that total debt in China, induced by government stimuli, has shot up from 150% of GDP to 250%. History suggests that this will end in tears. The pessimists sneer at official Chinese figures showing almost 7% growth. Using alternative indicators like electricity consumption and rail freight, they argue that true growth could be just 4-5%.

However, optimists like Nicholas Lardy of the Peterson Institute say China is simply rebalancing its economy. Earlier, growth was driven by industrial exports and investment. But now China wants, correctly, to switch to an economy driven more by domestic consumption and services. This means slower GDP, but 6-7% growth is very respectable for an economy that in PPP terms is now the largest in the world. The optimists say indicators like rail freight and electricity may suggest slowing industry, but that is exactly what the Chinese government aims for by emphasizing services. So, the optimists say, there is no crisis, just sensible rebalancing.

Six months ago, one could take either view. But now the Chinese are voting for the pessimist’s version through capital flight. Individuals can remit $50,000 a year abroad. Some Chinese companies are investing abroad. But over half the outflow has a political explanation.

The fleeing billions are probably the ill-gotten gains of former Communist Party officials and their super-brats (often called “princelings”). They are being targeted by Communist Party chief Xi Jinping for corruption. Former security chief Zhou Yonkang and his colleagues have been arrested. Xi’s predecessor, Jiang Zemin, and his two sons have been placed “under control”, suggesting they may eventually be arrested. Xi is perhaps targeting the entire top leadership of the Jiang era. The resulting political struggle could have serious economic consequences.

Meanwhile Global Economic Prospects (GEP), the World Bank report on the world economy , has flagged the risk of a coming recession. The bank is too political (all its members are governments) to actually predict a recession. So, GEP forecasts world GDP growth rising from 2.4% in 2015 to 2.9% in 2016, and says the chances of a recession are low.But it then admits that EM growth has fallen below forecast levels for years. It says that if in 2016 the EMs underperform as much as in 2010-14, and if financial panic like the “taper tantrum” of summer 2013 recurs, then global growth could collapse to just 1.8%. This will be below the 2% widely used to benchmark a global recession.

Ultra-low interest rates in advanced economies have in recent years led trillions of dollars to flow to EMs in search of higher yields. A return to normal interest rates in advanced countries could induce a huge reverse flow out of EMs. That process seems to have begun with the raising of US interest rates.

In the 2000s, China accounted for half of all incremental world demand for commodities. Its slowing has caused the global demand for -and price of -commodities to collapse. Oil is now under $30barrel, one-third of its rate in 2014. Commodity exporting economies are in dire straits.Brazil and Russia are in recession. Many Asian manufacturing economies are part of global value chains using China as an assembler, and have also been hard hit by China’s slowdown. India has been a resilient exception since it is a net commodity importer, and is not part of world value chains. But if the world falls into recession, India will be dragged down too.

(Source: Article by Swaminathan S Anklesaria Aiyar in The Times of India dated 17-01-2016.)

A carrot and stick approach to reform bureaucracy is essential to improve governance

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A palpable reality for all Indian citizens is the extraordinary power the bureaucracy has over our lives. It is therefore essential for the bureaucracy to function effectively, and for the political executive to get it to do so. Prime Minister Narendra Modi’s initiative, Pragati, is a stab in this direction. During a recent review, he called for tough action against officials facing repeated complaints. Modi’s approach deserves support. If his government is to fulfil its promise of better governance, bureaucracy needs to do better.

Existing laws provide the political executive with the means to make bureaucrats more accountable and efficient. To illustrate, the All India Service Rules provide for compulsory retirement of substandard bureaucrats after 15 years of service. This provision rules out the pitfalls which come with a guaranteed job for life, but unless it is utilised deadwood will stay on. A government which utilises this provision can invoke the support of the judiciary. The Supreme Court concluded, as far back as 1980, that compulsory retirement “is undoubtedly in the public interest and is not passed by way of punishment”. Similarly, successive pay commissions have pointed out that performance must influence pay for bureaucrats. The Seventh Pay Commission recommended the introduction of performance related pay for all categories of government employees.

If lifetime guarantees of a job and pay make for poor incentives, so do threats of prosecution for the wrong reasons. A considerable extent of developmental activity initiated by government is carried out through the private sector. Presumably, no private firm will bid for a contract unless there is profit. In this background, the existing law to prevent corruption needs an overhaul. According to the Prevention of Corruption Act, taking a decision which benefits somebody can be deemed an act of corruption even in the absence of evidence of a quid pro quo. This is a draconian provision which deters decision making and incentivises inaction. Bureaucrats who pursue their task with sincerity are not protected from irresponsible investigations long after retirement.

Since 2013, governments have tried to amend the law by bringing it into consonance with contemporary reality. It should not be difficult to pass this amendment as Congress and BJP are on the same page. Today there are sticks for good performance and carrots for poor performance. Turn babudom around by ensuring just the reverse is the case.

(Source: Editorial in The Times of India dated 29-01-2016)

India’s SEZs need top-class facilities, not tax breaks

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India’s exports have been declining for 13 months.

To reverse the trend, the commerce ministry wants to exempt exporters in special economic zones (SEZs) from all corporate taxes, including the minimum alternative tax (MAT). This is a bad idea. It goes counter to finance minister Arun Jaitley’s welcome proposal to abolish most tax exemptions, and have a uniform low rate that does not arbitrarily favour this unit or that region.

Favouring SEZs leads to not just a big loss of tax revenue but to cronyism (several SEZ land allocations became scams), and waste (units will shift to SEZs despite big expense and loss of productivity, just to get the tax break). Many companies that would be exporting from traditional bases anyway will shift to SEZs for the tax break. SEZ exports may look big, but may not represent additional exports or policy success. They may simply represent policy failure through export diversion and revenue loss.

India has an export problem right now but not a balance of payments problem. So there’s no need for panic or emergency measures. The current account deficit is well under control at barely 1% of GDP, since imports have fallen along with exports. China’s slowdown has led to a global export slowdown. Almost all Asian countries are suffering from falling exports, and many have suffered steeper declines than India.

In such dismal global conditions, tax breaks are irrelevant for export buoyancy. We must instead raise our competitiveness through better logistics, skills and procedures. Only then will exports boom sustainably. We cannot have lousy facilities and yet become world-class exporters through tax breaks. Ideally, the whole of India should have world-class facilities. Since resources are limited, a start can be made in SEZs.

Between 1965 and 2005, India built eight tiny export processing zones, with very limited success. By contrast, China and some other countries succeeded by creating massive SEZs. Shenzen in China covers four small districts. Chinese SEZs have world-class power, water, ports and airports, and have become world-class manufacturing clusters.

India in 2006 adopted a new SEZ policy. Units in SEZs would pay no tax for five years (not even MAT), get a 50% tax break for the next five years, and a further five-year tax break for reinvested profits. SEZ developers would also get a tax holiday for 10 years.

Instead of creating massive SEZs, this policy encouraged hundreds of small SEZs in every state. These amounted to tax shelters and a grab for land rather than world-class enclaves. No less than 564 proposals for SEZs were approved, but of these only 204 are actually functioning. Mukesh Ambani’s giant SEZ in Navi Mumbai is largely vacant. Most operating SEZs are small IT establishments that are little more than tax havens.

The 2006 Act provided that the minimum size for information technology, jewellery and biotech parks should be just 10 hectares, smaller than even some schools. Size limits were kept especially low for hilly areas, where flat land is scarce. This was a classic case of making SEZs an end in themselves rather than a means to improve competitiveness. China does not create tiny SEZs in the Gobi desert or Tibetan mountains: it creates large ones in areas with the best logistics, infrastructure, financial and transport facilities.

Exports from Indian SEZs rose from $5 billion in 2005-06 to $81 billion in 2013-14. This looks very impressive. But a lot of it is simply trade diversion. Many top IT and jewellery companies shifted their operations to SEZs for the tax break. Since units outside the SEZs continued exporting at a good rate, it is unclear whether the SEZs achieved additional exports or just diverted exports.

Because of such factors, MAT and the dividend distribution tax was imposed on SEZs in 2011-12. Industries protested that this discouraged additional investment. True, but would this fresh investment have been for export diversion or export addition? The operating profit margins of software companies often exceed 20%, so they hardly need tax breaks. Old export units in areas from textiles to engineering, many having very slim operating margins, get no tax breaks. Why should they be discriminated against?

To be competitive, India needs both competitive facilities (in and outside SEZs) plus competitive tax rates with very few exemptions. India has a corporate tax rate of 30%, and with cess and surcharge this comes to 34.5%, one of the highest in Asia. Finance minister Jaitley rightly seeks to cut this to a competitive 25 %, while removing today’s myriad exemptions so that he does not lose tax revenue. This is a laudable, far-sighted reform. It should not have holes punched in it by demands for tax breaks from SEZs or other interest groups.

(Source: Article by Shri Swaminathan S. Anklesaria Aiyar in The Times of India dated 30-01-2016.)

Reinventing Indian secularism – The old consensus on majority and minority communities no longer fits reality

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Should 21st century citizens of the world’s largest democracy live in
fear of committing the medieval crime of blasphemy? This is the question
raised by the violent rampage earlier this month in West Bengal’s
Muslimmajority district of Malda, where an enraged mob ransacked a
police station, torched two dozen vehicles, and burned shops and homes.

The
mob was protesting an obscure Hindu activist’s allegedly derogatory
comments about the Prophet Muhammad a month earlier in Uttar Pradesh.
Though UP police quickly arrested the activist, Kamlesh Tiwari of the
Hindu Mahasabha, this did not stop demonstrations from erupting across
the country. At times numbering tens of thousands, protests have roiled,
among other places, Rampur, Bhopal, Purnea and Bengaluru. Many
protestors demanded the death penalty for Tiwari.

Such
bloodcurdling displays of piety belong in a theocracy, not in a
pluralistic democracy. Their scale, spread and intensity ought to
concern anyone who cares about Indian pluralism. So must the backgrounds
– engineers, software developers, corporate executives – of many of
those arrested recently for alleged links with Islamic State.

Bluntly
put, the Indian model of secularism is floundering. It needs to be
replaced by an approach that relies less on the well-worn pieties of the
past and more on the reality of the world we live in today. The answer
does not lie with Hindu extremists, who cannot distinguish between
ordinary and radicalised Muslims. It lies in an updated secularism based
on individual rights and equality before the law.

Traditional
Indian secularism implicitly rests on three assumptions that may have
made sense 60 years ago, but are hopelessly outdated today. First, that extremists from the Hindu majority pose a greater threat than those from the Muslim minority. Second, that Indian Muslims are always victims and never victimisers. Third, that only Muslims can legitimately champion legal, social and cultural reform within their community.

In
the 1950s, the heyday of the Nehruvian project, each of these
assumptions was easily defensible. At the time, only one in ten Indians
was Muslim. The secular impulse – to protect a small community in a
defensive crouch after Partition – appealed to the best instincts of a
newly independent nation. In a rapidly modernising world, the bet that
over time Muslims would discard obscurantist ideas such as blasphemy,
and would themselves demand an end to practices such as polygamy and
triple talaq divorce appeared reasonable.

Today’s reality is
starkly different. According to the Pew Research Center, today about one
in seven Indians is a Muslim. And though the vast majority of Indian
Muslims are peaceful, the hoped for march towards secularisation
–replacing attitudes rooted in religion with those rooted in reason –
has stalled. Where once a uniform civil code for all Indians was delayed
by the majority’s forbearance, today it is blocked as much by the
minority’s intransigence.

The consequences of both shifting
demographics and patchy secularisation play out every day in public
life. Often supposedly secular politics boils down to pandering to the
most fundamentalist elements of Muslim society. Think of Mamata
Banerjee’s concerted bid to woo clerics in West Bengal, or Digvijaya
Singh’s ugly insinuation that the Rashtriya Swayamsevak Sangh plotted
the 26/11terrorist attacks in Mumbai.

Meanwhile, for the first
time since Partition, an aggressive new breed of Muslimfirsters has
risen to prominence. To differing degrees, Azam Khan in Uttar Pradesh,
Badruddin Ajmal in Assam and Hyderabad’s Owaisi brothers represent this
trend. Both the panderers and the Muslimfirsters share a commitment to
defending Muslim personal law and extending special rights for the
community to new areas such as reservations in government jobs.

At
the same time, the international landscape has changed dramatically. In
the 1950s, secularists dominated the Muslim world – Sukarno in
Indonesia, Shah Reza Pahlavi in Iran and Kemal Ataturk’s heirs in
Turkey. But over the past 40 years a fountain of Gulf petrodollars,
tenacious religious movements such as the Muslim Brotherhood, and the
Cold War American policy of pitting hardline Islam against communism,
tipped the balance of ideological power towards Islamists, those
striving to impose sharia law on both the state and society.

Closer
to home, Pakistan evolved in a way few would have predicted in the
1950s when a relatively Westernised elite held sway. The journalist
Zahid Hussain estimates that the number of madrassas shot up from 137 in
1947 to more than 13,000 today. In the Pakistan army and its notorious
spy agency –Inter-Services Intelligence – India faces a foe long
committed to using jihadist terrorism to keep India off balance.

What
is to be done? For starters, India should replace the shaky pillars of
the traditional secular consensus with something sturdier.

First, this means accepting that all extremists – not only the Hindu variety – threaten pluralism. Second,
it requires recognising the complexity of inter-religious conflict.
Sometimes – such as in the awful murder of Mohammad Akhlaq in Dadri –
Muslims are indeed victims. At other times, such as in Malda or the
Srinagar valley, they are the victimisers. Third, Indian
political and intellectual elites need to start treating the reform of
ideas rooted in sharia – such as a violent response to so-called
blasphemy – as a national concern, not just a narrowly Muslim concern.

In
the end, secularism makes India stronger. To save it, India needs an
updated approach rooted not in sentimentalism but in reality.

(Source:
Article By Shri Sadanand Dhume, a resident fellow at the American
Enterprise Institute, Washington DC, in The Times of India dated
29-01-2016.)

Salman Khan’s Acquittal – A Strong Argument Against Being Lawful

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There should be enough evidence by now that in India, being rich or well-connected provides a reliable amount of protection against the law. The irony being that such evidence will probably hold up in a court of law. So, Salman Khan’s acquittal by the Bombay High Court on Thursday was not the anomaly . What was the surprise was the trial court’s verdict in May that found him guilty of driving over and killing a homeless man and delivered a five-year jail sentence. No one is asking for a kangaroo court where the procedures of jurisprudence are tossed aside -even in cases that seem watertight.

But in far too many high-profile cases, it is this very procedure that is abused by methods far removed from convincing judicial arguments, thereby making the law look like, to quote a character in Oliver Twist, “a ass”. But in Dickensian India -where someone who could have easily stood in as the victim of Khan’s killer Land Cruiser on September 28, 2002, is today celebrating the movie star’s acquittal -the law is the only thing that everyone, from a powerful parliamentarian to a resident of a jhuggijhompri cluster, should be answering to. That, sadly , isn’t the case in the real world. This particular verdict makes anyone who should be fearful of the law be more fearful of not being well connected as insurance. The fact that the prosecution, the state of Maharashtra, failed to prove the charges “on all counts” makes incompetence and unwillingness equal suspects. The single witness who insisted that Khan was behind the wheel when the incident took place was not considered a “wholly reliable witness” on account of a legal technicality -as well as the fact that he had died eight years ago. The prosecution will appeal against the verdict. All one can do is hope that the holes that the state of Maharashtra inflicted on its own argument, can be repaired by proving something about the acquitted more convincing than his guilt not being proven “beyond reasonable doubt”. Otherwise, this will add to the string of incentives to prepare oneself to -proverbially , of course -get away with murder.

GST – Subramaniam panel’s Workable Blueprint

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The Arvind Subramanian panel has done well to recommend a moderate standard goods and services tax (GST) rate of 17-18%, and also scrap the 1% inter-state sales tax. The rate, worked out after excluding real estate, electricity, alcohol and petroleum products, is higher than the 12% GST recommended by the 13th Finance Commission task force, whose model had exempted nothing. GST would eliminate the cascade of multiple taxes that products bear now and allow manufacturers to claim credit for the taxes paid on inputs across the value chain, creating a built-in incentive to pay tax and thus widen the tax base. It is welcome that the panel has pegged the average GST rate at which existing indirect tax revenues, excluding import duties, would be recouped, the so-called revenue neutral rate, at 15-15.5%.

Other rates—lower rates of 2-6% on precious metals, a 12% rate, and the highest rate of 40% for luxury cars, aerated water, tobacco and tobacco products—are fine. Multiple rates are not inimical to GST.

They have worked in the EU where the value-added tax rates vary across member countries. Instead of a composite 40% excise duty on non-merit goods, what would be desirable is a combination of GST at the standard rate and a ‘sin’ tax component not eligible for input tax credit. This will keep the GST chain unbroken while earning extra revenue and discouraging ‘sin’ consumption. It is welcome that the panel wants petroleum, electricity, real estate and alcohol to be included in GST. Subsuming all taxes and keeping exemptions to the minimum, is the way to go.

Scrapping the 1% inter-state sales tax on which the buyer cannot claim input tax credit is rational. This indirectly accepts one Congress condition for cooperating on GST. The panel, however, is not in favour of specifying a cap on the GST rate in the Constitution, another key Congress demand. However, there is a logic to having a cap.

Without a cap, the states can ratchet up the rate using their constitutional right, and defeat the GST reform’s goal of creating an efficient indirect tax structure.

Non-state actors have upstaged the superpowers

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The era of superpower hegemony is over, and that of nonstate actors has arrived. Fourteen years after 9/11, the US has — let’s be blunt — been repeatedly defeated by radical Islam. Look at Afghanistan, Iraq, Syria, Libya, Lebanon, or even Yemen. The US can drop a thousand bombs from a thousand drones, yet cannot dictate outcomes to a hydraheaded monster. The California school shooting showed that the US is unsafe even at home. Paris is the latest European scene of devastation. Radical Islamic thought has effortlessly penetrated national borders and created terrorists within the US and Europe.

At the recent TimesLitfest in New Delhi and Mumbai, many speakers addressed these issues. Many lambasted US military interventions that had created not democracy but anarchy and mass deaths.

Yet, historically, imperial powers alone could end local wars, and thus bring stability in place of anarchy. Superpowers could overthrow regimes they disliked, and install stable, controllable rulers across the world. Pax Britannica, Pax Americana or Pax Sovietica (in Eastern Europe) provided stability, and set rules for property, trade and commerce. This facilitated economic progress, providing handsome dividends for imperial controllers and also lifting living standards for the entire region.

That now looks so 20th century. Earlier, the state was allpowerful and individuals and groups were mostly powerless. But in the 21st century, the internet and social media have empowered non-state actors so much that superpowers can no longer install stable regimes at will. So, intervention now brings anarchy, not stability. This is a totally new development.

The internet and social media can now create and mobilize radical ideologues across the world, and create homegrown fanatics in every country. There is no military defence against these new developments. The ability to spread subversive ideas, once the hallmark of liberation movements, is now the hallmark of radical Islam.

The US easily ousted the Taliban from Afghan cities after 9/11, but could not dislodge it from rural areas. High technology could pulverise conventional armed forces but could not control low-tech rural areas, or stop the Taliban’s spread of ideas and arms, or even stop the Taliban raising funds through local taxes, smuggling and the opium trade. Obama’s military surge in Afghanistan gained ground only temporarily. He ultimately exited tail between legs, leaving the Taliban smiling.

Tech and terror: Islamic radicals use the internet as much as those fighing them, which makes the war more unpredictable.

ISIS is more fanatical than al-Qaida, and has enjoyed tremendous success in Iraq and Syria. Unlike most nonstate actors, ISIS has grabbed considerable territory, but this may be unsustainable. However, even if ISIS gives up most of its territory, it will retain the power to persuade and mobilize through social media and the internet, inspiring an unending succession of alienated Muslims in many countries to become suicide killers.

New forms of communication have enabled non-state actors to spread their tentacles, and to mobilize money and arms, on a scale that even strong states cannot foil. Somali pirates have shown that even commercial hoodlums, seeking millions without a shred of ideology, can defy the greatest naval superpowers. Capturing hostages for ransom has proved an easy way to raise enormous sums that terrorists in earlier times could not dream of.

Hacking and other 21st century tools enable radicals to undercut the most powerful states. One day hackers may steal nuclear secrets, or direct government missiles at targets chosen by terrorists. Leftist anti-imperialists might rejoice at western discomfiture but a wide array of international jihadi literature classifies India too as an enemy, as an imperial tyrant in Kashmir that also kills Muslims in Gujarat and elsewhere. Those celebrating the end of superpower hegemony must understand the consequences. India is at risk, no less than the US or France.

Yet most Indian intellectuals are in denial. They would rather focus on the threat from communal Hinduism at home — which is very real — and dismiss Islamic communalism as a distant threat that mostly affects the West. This is sheer myopia.

How does one meet this threat? Ideally, by creating a sense of universal brotherhood. But radical Islamists are uninterested. They need gain only a few adherents a day to create danger for everybody else. In the absence of 20th century solutions, western states may retreat into fortresses. India may have to follow.

At the Mumbai Litfest, Dileep Padgaokar declared that a tough state had to replace the era of ever-expanding civil liberties. The greatest threat to civil liberty now came from nonstate actors, not the state. This could not be tackled by motherhood, brotherhood and other 20th century virtuous solutions.

Today, diabolical viruses, placed by both state and nonstate actors, sit on every smartphone and computer, monitoring everyone. Radical ideas are buzzing in the airwaves all around us. We face new dangers, and an unprecedented loss of security and privacy. There are no easy answers.

End all corporate tax breaks to give country a break from favouritism

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Should some industries get tax breaks that others don’t? In general, no. The finance ministry has come out with proposals, for public discussion, to abolish several existing tax breaks. This is a building block of the Budget promise of finance minister Arun Jaitley to cut the corporate tax rate within four years from the current 30 per cent to 25 per cent. This aims at matching corporate tax rates in most Asian competitors, removing India’s current disadvantage of high taxation.

Many exemptions were irrational, benefited a few favoured industries with good political connections, violated economic fairness, and deprived the exchequer of huge revenues.

The finance ministry proposes to end all tax breaks linked to profits, investment or specific areas. No longer will industries get tax breaks for locating in a favoured region. Some tax breaks like accelerated depreciation, linked to the amount invested, favored capital-intensive industries over labourintensive ones, terrible priorities in a country needing new jobs. Weighted deductions, which gave tax breaks for favoured types of spending (like R&D in pharmaceuticals), are also on the list for axing.

The new proposal represents a welcome wholesale junking of exemptions. Cherry-picking only some of these would have been an invitation to charges of favouritism and cronyism. Wholesale junking also moves the tax code towards simplicity and transparency , two desperately needed goals.

Some states will groan at losing tax breaks. But any state that provides good investment conditions will always attract investment. Those that don’t, should suffer the consequences. We need competition between the states to provide good infrastruc ture, rapid clearances, and a bribe-free climate.Investment will follow.

Some tax breaks already have a date of expiry , and those will be, quite rightly , honoured. Where no sunset date exists, the tax breaks will expire on March 31, 2017. This sunset date will apply to concessions for infrastructure, special economic zones, and oil production.

Many industrialists will complain that the new proposals go too far. Every government, including neighbouring ones in Asia, gives tax breaks to sectors and activities which it regards as having high priority . Doesn’t India have priorities, too? This rhetorical question will resonate with politicians. Yes, they will want to give some sectors high priority and offer these tax breaks. To some extent, this is inescapable in a democracy . But it can open up Pandora’s Box of endless demands, cronyism and complexity . Almost every industry and region can find one reason or other to demand a tax break.

If, indeed, exceptions are to be made, the guiding principle must be the same driving India towards a 25per cent corporate tax. Tax exemptions, like the corporate tax rate itself, should as far as possible mirror exemptions given by our competitors. Rather than listen to domestic lobbies with fat pockets or political clout, we need an expert committee to objectively identify tax breaks in competing countries that affect our exporters, and so need to be matched. Tax breaks for R&D in pharma are possible candidates for such matching. This will be a crony-free, corruption-free way of identifying a limited number of exemptions clearly linked to international competitiveness, without opening up the floodgates to a zillion demands from cronies.

There is also the matter of timing. If most tax breaks are to go by March 2017, the corporate tax rate should also be cut to 25per cent by that deadline. If the tax cut will come only by 2019, as Jaitley hinted in his Budget speech, the removal of tax breaks may need similar phasing.

Remembering to Hedge – Promises and perils of external commercial borrowing

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The Reserve Bank of India – after consultation with the central government – released an updated set of guidelines applicable to Indian corporate groups’ external commercial borrowing (ECB). The change is a significant liberalisation, in that it considerably lessens the number of restrictions placed on the end-use of funds that companies have borrowed from abroad. The focus of the RBI, according to its statement, was on long-term borrowing, which it said would make “repayments more sustainable and minimise roll-over risks for the borrower.” The list of permissible lenders has also been expanded. It now includes pools of long-term capital such as pension funds, insurance companies and even sovereign wealth funds. Simultaneously with expanding the scope of ECBs, the RBI also acted to effectively narrow the number of Indian companies, which would successively raise ECBs in foreign currency, by cutting the allowable ceiling for borrowing rates above the London Inter-Bank Offered Rate or LIBOR. For foreign currency borrowing with maturity of between three and five years, the permissible rate was cut by 50 basis points (bps) to 300 bps above LIBOR. The permissible spread for longer-term borrowing is correspondingly higher.

The dangers of an ECB debt binge are well known. Indian companies are faced with high interest rates at home, and dollar-denominated foreign rates can look attractive. In the past, corporate groups have funded over-expansion and acquisition sprees through such debt, only to be left stranded when the situation turned adverse. Few Indian companies hedge carefully enough – and, indeed, the market for hedging currency risk beyond a few months may not be deep and liquid enough to be attractive. Nor is such hedging cheap. The RBI clearly thinks that this is more of a problem for short-term debt, in which temporary volatility of the currency can cause crises when large tranches of debt become difficult to roll over or repay. It is, thus, incentivising longer-term debt that could be used by, say, real estate investment trusts to help bail out India’s 38 struggling realty sector. While this logic is certainly sound as far as it goes, there remains the larger question of the future direction of the rupee. If it is significantly overvalued at the moment but nevertheless apparently stable, some companies could take on long-term debt that will grow on their balance sheets when the rupee depreciates to closer to its real value.

The option, of course, is to seek out rupee-denominated debt abroad. Certainly, the government has made significant progress in promoting rupee-denominated “masala bonds”. And as this newspaper has reported, some markets have seen excellent growth in retail bonds with the rupee as the base currency. These have largely been issued so far by offshore institutional lenders, but earlier this year the RBI allowed Indian companies to borrow abroad in rupees too. The guidelines released on Monday put rupee-denominated borrowing on a par with dollar-denominated ECB – and, in fact, made special allowances for non-bank financial corporations and microfinance institutions to raise rupees from abroad. It is to be hoped that Indian companies will recognise that currency risk is best borne by large global financiers and will not be overly tempted by low interest rates and the associated currency risk.

The future of India: Private splendour and public squalor?

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India, and most Indians, are getting wealthier. With a per capita income of $6,000 (PPP), India is now a lower middle-income nation. If our GDP continues to grow at a modest 7% CAGR, millions of Indians will gradually escape poverty and hundreds of millions of us will grow steadily more affluent. The probability of this seems fairly reasonable – not because of the competence of any government — but because of the aspirations, drive and entrepreneurship of millions of Indians, especially young Indians.

But even as we grow wealthier, the quality of life especially in urban India will continue to plummet. I live in Koramangala, Bangalore, the epicenter of India’s entrepreneurial ecosystem, a place brimming with talent and energy .

But it is also brimming with mounds of festering garbage. The stench of sewage permeates the air. A commute to the airport that once took an hour now takes more than two. However, Koramangala’s residents have it good compared to those who live in other suburbs like Whitefield.This story of unlivable cities is repeated across India. Delhi’s residents complain about the barely breathable air and awful traffic. Mumbaikars lament the disappearance of public spaces. Rain has shut Chennai down. As population and consumption rise, we are seeing the degradation of everything public -infrastructure, justice, law and order, healthcare, education -from bad to unbearable.

Our response to this degradation has been privatization by default. Companies create their own worldclass infrastructure. The affluent and growing middleclass retreat behind gated communities and highrise apartments and to a world of privatized education, privatized healthcare, private security and transportation. This retreat has given rise to what we see today: oases of private splendour in an ocean of public squalor. But how sustainable is this? What’s the point in rising affluence if the quality of our life is plummeting? What’s the point in owning more cars or better cars if it takes an hour or more to travel 10km? What’s the point of rising GDP if we can’t breathe our air, if most of our food is contaminated and the judicial system fails to deliver timely justice? As someone remarked about China, what’s the point in growing the pie if the pie is inedible? The ocean of public squalor is beginning to engulf our private cocoons.

It is very easy to get angry and blame “government” for this mess. Our deplorable situation is clearly the failure of successive governments of every political hue at the Center, the state and local level. They have failed to curb corruption and have failed even more miserably to build institutions. Institutions are the foundations of society . Even as our population surged and our economy multiplied, successive governments have allowed key institutions to atrophy; indeed, in many cases, they have been deliberately weakened.Weak institutions -regulatory institutions, institutions of administration, policing, and justice -are the root cause of government’s inability to stem corruption and deliver essential services to citizens.

But much as government is to be blamed, the bigger problem might be our own behaviour. Why is there so much rotting rubbish on the streets of Bangalore? It isn’t primarily because the municipal contractor doesn’t pick up the rubbish every day. It is that residents refuse to segregate garbage the way the law prescribes and most households furtively throw their garbage on the street corner. Why is corruption so rampant? Because fewer and fewer of us see anything wrong in either taking or paying bribes; bribery is simply a transaction cost. How many of us are willing to take the metro or bus to the airport instead of our car? The total refusal on the part of babus, politicians and middle-class citizens to use public services results in the lack of any incentive to improve these.

How many talented executives are willing to give up their lucrative careers for just a few years to help rebuild public institutions or strengthen good NGOs?

How many of us are willing to give up part of a weekend to participate in a community initiative to get rid of garbage, plant trees in our neighbourhood or attend meetings of the resident wel fare association?

How many business leaders are personally engaged in the CSR work of their company to ensure that financial contributions and employee talent are directed towards building institutional capacity? How many of us make the effort to vote in elections instead of seeing it as another holiday?

It is time that we realize that we get the kind of government and society we deserve. To a very large extent, the sorry state of our society is the result of our own indifference. To make a democratic society work, we need to redefine what it means to be a citizen.

Citizenship is not just a birthright, it is also an obligation. A democratic society is fragile and its success demands vigilance, collective action and even sacrifice from its citizens. It took great sacrifice to win our free dom. It will take at least as much leadership and sac rifice to create a functioning society.

Quality of universities determines nation’s fate: Economist Summers

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Faster decision-making is the key to India’s higher growth. American economist Lawrence Summers who was at Mumbai university said India could take inspiration from a slogan pasted on the wall of the Facebook office: “Done is better than perfect”.

Speaking of Facebook COO Sheryl Sandberg, who earlier worked on his team as the chief in staff of treasury, Summers said, ” An attitude that she has now became a slogan at Facebook. It’s up on the wall -`Done is better than perfect.’ “If your government internalised that bit and it just had an idea that decisions had to be made, and we hoped that were made right, but they just had to be made, and there was a substantial acceleration of decision making in every sphere, I think that would make a very big difference for India over time. I guess the other thing that one is stuck by is a variety of kinds of infrastructural improvements in India as well. But in general, faster decision making in presumptial permission, rather than a presumptial prohibition, would go a long way ,” said he.

The President Emeritus and Charles W Eliot professor at Harvard University , former treasury secretary in the Clinton administration was speaking on “Reinventing the university: Reconciling equity and excellence in higher education worldwide”. While topclass universities are a microcosm of what India needs, he believed that the quality of universities determines the ate of a nation.

“The prosperity of nations is tied up with their success of their universities. It is no accident that Silicon Valley is essentially in the same place as Stanford University . It is no accident that the city of Boston is where Harvard University and is also the leading concentration of biomed talent….”

Emphasising that India will not be great without great universities, he said, “I know it is fashionable to argue that prosperity comes from the ground up and it does. But when it is suggested that it so mehow means that prim and secondary education should be a focus to the exclusion of higher education I will suggest that is a grave and enormous error.”

“No matter how universal literacy is, no matt how many people have been taught arithmatic, no matter how healthy all the children are, a society will not move forward without learning the touches of frontiers of what man knows and without being part of the ad venture of pushing those frontiers and that I would suggest is the work of universities.”

A great university he said, must be governed by the right academic culture of openness, have autonomy and a sense of fierce competition.Summers said India could be an export house of education.He said he could not think of a better place than India for Indian students to study .

Have faith in the citizen – Begin administrative reforms by undoing the colonial mindset of babus

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“Just reform the bureaucracy” – this advice to India by GE CEO Jeffrey Immelt is echoed across the world. Why administrative reforms haven’t taken place, best intents notwithstanding, requires a nuanced understanding. Global experience suggests administrative reforms need to be undertaken within the first 100 days of a new government coming to office, else the system takes over the government – the will to change is dwarfed by the logic of continuity.

Nowhere in the world have substantive administrative reforms been successful if not directly supervised by the political leader of the country. Successful administrative reforms are by definition transformational; there are no worthwhile examples of meaningful incremental administrative reforms.

Administrative reforms don’t happen when entrusted to the bureaucracy. The bureaucracy has to be kept at arm’s length and prevailed upon. These are cardinal rules; India is past the expiry date of the first 100 days, but it may still want to sail ahead.

The imperatives for administrative reforms in India are more fundamental than the leaking bucket and dilapidated administrative framework. First, in a historical oversight, India continued with the administrative framework of the British. This system was designed to inhibit the native, chain initiative and enterprise and enable a select few to rule the multitudes. These objectives have been faithfully served by the legacy framework even 68 years after the departure of colonial masters.

Post- the reforms of 1991, the framework designed to control and regulate has become anachronistic in the exercise of freedom, which is intrinsic to the market. As a participant in the global economy, either India rewrites its administrative system to compete with the best investment destinations of the world or perishes, for nothing except competitive advantage matters to the investment community. The way ahead will require a comprehensive roadmap as well as a strategy to pierce the chakravyuha, but a few principles may be useful reference points. At a philosophical level we need to adopt a trust based system with implicit faith in the citizen. Filling forms, providing attested documents, undergoing verification and awaiting decisions by higher ups are all instruments of an alien administration to disempower and dispirit the individual.

Government must take the word of the citizen at face value and devise a system to take care of exceptions without impeding the quest of the rest.

A second beacon for administrative reforms should be ending the dichotomy between government and national interest, again a colonial legacy. Basically government should stop acting in its own interest and should work in national interest which includes the interests of private individuals and the private sector.

The success of Japan, Korea and Singapore came from government deciding that its main role is to support and facilitate enterprise, be it individual or corporate. This is both an issue of mindset/ideology as well as a systemic issue of a very fundamental kind that requires recasting the administrative mould, not simply reshaping the existing one.

Finally, the government and technology intersect needs to be calibrated. Just about all our IT-based systems have merely computerised physical processes with, at best, marginal efficiency and transparency gains.

India is ready to transit from the physical to the virtual world like no other country. The almost ubiquitous access to mobile telephony can connect an individual to a service provider, the electronic bank account can be used to make payment when required and the Aadhaar card authenticates the individual online. Given that all these three components are approaching the one billion mark, such a proposition is neither esoteric nor futuristic – except to a mindset and system steeped in the past.

India’s Cinderella syndrome

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The Oxford historian, Felipe Fernandez-Armesto, in his large tome titled Millennium: A History of Our last Thousand Years, described India as “the Cinderella civilisation of our millennium: beautiful, gifted, destined for greatness, but relegated to the backstairs by those domineering sisters from Islam and Christendom”. Looking at Arvind Kejriwal’s last-minute desperation to clear Delhi’s air before people choke to death, one can also talk of the country’s Cinderella syndrome: the tendency to not act until the clock is about to strike midnight, and then to rush for solutions. Cinderella lost her slippers in the process, India has lost much more over the decades.

One can think of many examples. There is the Green Revolution itself—the belated move to reform neglected agriculture after the country had suffered twin droughts in the mid-1960s and been forced to depend on food aid to feed itself. There is the 1971 war, for which India was caught unprepared (not the first or last time); Gen. Manekshaw told Indira Gandhi he needed nine months in which to get ready—a period during which the country rushed through with the purchase of all manner of armaments, including second-hand tanks from Soviet satellite countries because nothing else was available. Economic reform, introduced in baby steps through the 1980s, was rushed through only after the country went nearly bankrupt, in 1991. There is also the great haste with which the Commonwealth Games were put together at the last minute (the toilets in the Games Village were being cleaned even as athletes started arriving).

Everyone has known for years that Delhi’s air is unfit to breathe in the winter months. More than a decade ago, the Supreme Court provided temporary relief to the city’s residents when it forced an unwilling Sheila Dikshit to allow only gas-powered engines for public transport (politicians owned the diesel-driven buses and naturally were opposed to change). Now, in a typical Cinderellahour solution, Mr Kejriwal has decided on the odd-even number rule for cars, though the city has had no time to prepare for such a disruptive step. Phase III of the metro system will add 75 per cent to track length and therefore accessability, and more than 50 per cent to daily ridership, but it is a year away from completion. And the idea of bus rapid transit (BRT ) corridors, which would have encouraged people to move from cars to buses in phases, has been given up after a botched trial.

In the absence of these two pressure-relieving transport systems, Mr Kejriwal plans as an emergency step to throw over a thousand additional buses on to the roads. Other possible solutions like encouraging car-pooling (special fast lanes on arterial roads for cars with more than one passenger) have not been tried. So expect initial chaos, plus a traffic police unprepared for the sudden extra work of checking all car numbers. We might well end up with a repeat of the BRT denouement: premature demise of the idea. It does not need great knowledge of human affairs to know that this is not how societies should organise themselves. But we are, it would seem, a Cinderella civilization; we need an 11th-hour crisis before we stir ourselves.

So we have to ask ourselves: is the disastrous drowning of Chennai a result of the Cinderella syndrome, and ditto the Mumbai dunking 10 years ago? What about the Uttarkashi flood? Which part of the country is due next? We take pride in how good we usually (though not always) are at relief measures in a crisis, but what about action to prevent man-made crises—as all these episodes were? Perhaps a civil society organization should draw up a list of the priority issues that need attention but are being ignored—and put a Cinderella clock on each issue to indicate how close we are to midnight. It might help focus the mind.

CWG Seam 2010 – Criminal Justice System in India – 03-09-2015.

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Five years after the scandal-ridden 19th Commonwealth Games were staged, a court in Delhi has convicted five people.

The convictions—for causing a loss of Rs.1.42 crore to the government—are the first related to alleged financial improprieties amounting to several hundred crores of rupees in the conduct of the 2010 Games.

What is disturbing is the long time it has taken for the first convictions in a scandal that shamed India.

This is not the end of the journey through the justice system for the convicts: an appeals process that can take many more years will ensure that the last word on the case won’t be heard anytime soon.

India cannot overturn its legal traditions and laws and resort to Chinese-style corruption trials. But this is a moment for our lawmakers and the judiciary to introspect—without greatly simplifying the procedural aspects of criminal law, the system will remain geared to the advantage of wrongdoers.

(Source: Quick Edit in Mint dated 03-09-2015.)

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Raghuram Rajan’s ideas should inform public discourse and policymaking

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In an interview to ET, RBI governor Raghuram Rajan made some points that should inform the public discourse, besides policy-making. One, India’s economic situation is relatively robust and not particularly vulnerable to turbulence sweeping across the world from its epicentre in China. Two, creating strong institutions and flexible markets is the best way to absorb shock; it would be silly to turn our back on the world. Three, macroeconomic stability, functional hedging mechanisms and their adoption by economic agents are the best guarantee of avoiding currency shocks. Four, sectoral remedies run the risk of shifting rather than solving a problem. Five, while fears in certain quarters about a secular stagnation across the world might be exaggerated, India should use their negative effect on commodity prices to consolidate its war on inflation and vanquish it.

While not totally ruling out an interest rate response to economic woes, Rajan’s preference is to kill inflation expectations rather than to prop up growth with negative rates of interest. He points to the quandary of those central bankers whose policy rates are already close to zero and cannot use rate cuts to boost growth to argue that the stimulus to growth has to come from other quarters. Introducing GST, labour reform and removing the obligation on mills to make 40% of the yarn they produce as hanks for use on handlooms are examples of such other boosts that he did not mention. And raising productivity is the surest response, as he argues, to the increased competition arising from imports made cheaper by a depreciating yuan. Rajan did not dwell on the added downward pressure on the rupee that would be exerted by an interestrate cut and the burden this would place on the economy.

What Rajan says is perfect economic sense. The trouble is to align this with political sense for those who have to worry about winning elections. This is possible when economic sense permeates the public discourse, so that political leaders find the courage to argue for it, even at the expense of short-term pain.

(Source: Editorial in The Economic Times dated 28-08-2015.)

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Being human: Will technology mean the end of work? That could be a good or a bad thing

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“If the shuttle would weave and the plectrum touch the lyre without a hand to guide them, chief workmen would not want servants, nor masters slaves” – that was Aristotle, anticipating a pleasant future of self-operating lutes and looms. That is a vision we have always nurtured. But with each big leap in technological progress, we have also worried about the economic and social disruption it could set off, the efficiency of machines and the impending obsolescence of being human.

With the digital revolution and its promise of self-driving cars, robots, machine intelligence and an Internet of Things, there is legitimate reason to worry about a jobless future. A recent Oxford study that analysed over 700 occupations concluded that 47% of these jobs – including in transport, logistics, office administration – could be automated out of existence in the coming decade. The advocates of tech claim that new opportunities are constantly being created. But what if they are wrong?

Tech entrepreneur Vivek Wadhwa is among the pessimists. He believes we are looking at a future where millions are permanently unemployed. This could be a dystopian future, with a tiny tech elite operating the machinery of civilisation while everybody else is dirt poor. Or it could be an arcadian one if, let us say, the government guarantees an income to everyone and we are liberated from the compulsion of having to slave away at work. In such a world work would be like a philanthropic vocation – engaged in only by those who have a yen for it. They might have de-addiction centres for workaholics even as the rest of us cultivate our hobbies. Don’t hand over everything to the machines, though. Masters may not require slaves but we could all be slaves of machines – which Aristotle did not reckon into his pretty picture.

(Source: Editorial in The Times Of India dated 23-07-2015.)

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Miles to go – Doing Business in India report card a much-needed reality check

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The business leaders, who met Prime Minister Narendra Modi last week,
would have been well served had the report entitled “Assessment of State
Implementation of Business Reforms” been released ahead of the meeting.
This exercise, conducted by the Department for Industrial Promotion and
Policy in collaboration with multilateral agencies, revealed in stark
terms the distance India’s states have to travel to create
business-friendly environments. The Centre deserves credit for
conceiving an exercise that highlights the gravity of the problem. That
India is a tough place to do business is no secret; it ranks 142 out of
189 in the World Bank’s Doing Business report of 2015. The Prime
Minister wants to place India within the top 50, and he has leveraged
his chief ministerial experience to convey the message that the
solutions for achieving this do not lie on Raisina Hill alone – the
states have to pull their weight. In a system as argumentative as
India’s it is to his administration’s credit that it managed to get the
states to agree on an exhaustive 98-point action plan last December to
improve the regulatory framework for doing business nationwide. India’s
disparate federation must become a united stakeholder in economic
reform.

It is noteworthy that National Democratic Alliance-ruled
or -allied states topped the overall results. But more pertinent is
that in terms of implementation of the 98-point action plan, no state
made it above 75 per cent, to qualify as a leader, and only seven states
made it to the “aspiring leader” category with scores between 50 and 75
per cent. The worrying factor is the 16 states that were grouped under
“Jump Start Needed” (no surprise, they cover Jammu & Kashmir and the
north-east). Worse, of the eight parameters, the highest score in three
is below 75 per cent. And in enforcing contracts, one of the key
concerns of any investor, the highest score is 55 per cent. The granular
nature of the action plan, grouped under eight broad parameters,
reveals the serious and basic nature of these gaps – more so since they
allow for none of the old alibis regarding step-motherly treatment from
the Centre. For instance, it is striking that no state has a full list
of all the licences, no-objection certificates and registrations
required by a business to set up and operate. Indeed, even states with
high growth rates, such as Maharashtra, cannot claim to offer great
business environments – Gujarat, for instance, scores just 33.3 per cent
in enforcing contracts, on par with Chhattisgarh.

The report is
right to acknowledge it does not take user opinion into account. Much
of the data underlying the indices are shallow, in the sense that
several of them focus on indicators that are not sufficiently
representative of the real problems hampering business. There is no
replacement, thus, for a comprehensive survey of the actual impediments
to business, and not just those reported by state governments. Including
some information on human development indicators – education,
availability of good schools and hospitals and so on – would have also
served as practical information for investors. Overall, however, it
represents a sensible beginning on the implementation of reform and
cooperative federalism.

(Source: Editorial in the Business Standard dated 16-09-2015.)

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Inflated Grades, Deflated Education

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College cutoffs are going up but our standing in innovation is going down.

There was a time when scoring 65% meant you were brilliant, and if you touched 70% then Einstein had better watch out! But today anything short of 100% in Higher Secondary does not guarantee admission to a department of choice in Delhi’s top colleges.

In economics, the GDP deflator is used to assess the imdipankapact of inflation on the pricing of goods and services. But what kind of deflator do we need to make sense of grade inflation in high school results?

Scoring 99% in English, once considered impossible, is not uncommon today. The question, therefore, is whether our kids are getting more skilled and more competitive, or whether awarding high marks is a clever way of concealing poor education.

It is comforting to imagine that India is intellectually rising because our school grades are getting better every year. However, all indications show that the reverse is actually true. While at one end, college cut offs keep going up, our international standing in science, technology and innovation keeps going down. In other words, scoring high marks does not necessarily mean learning well, at least in India.

Over the years our students are getting better and better grades on paper, but have these brilliant performances helped to push up our knowledge levels? According to the 2014 Global Innovation Index, 81% of patent applications are from China, the US, Japan, South Korea and the EU. While America leads in computer systems, South Korea has emerged as the new kid on the block. It has overwhelmed all of Europe and ranks second to the US in this very high-tech sphere.

But where is India? In terms of patent applications we cannot match up to any of the world leaders in the field. Curiously enough, patents submitted by Indians abroad are more in number than those that originate in our country. Once again, education here seems to have contributed little.

Worse, our school children fare very poorly when it comes to skills in reading, writing, mathematics and science. Globally we now stand 62nd on this measure, well behind even Jordan and Armenia.

It is bad manners to go on and on, but our famed IITs do not figure among the top 300 institutions of higher education in the world. There is so much pressure in India to win a place in these engineering colleges, so much envy against those who make the grade, yet globally these institutions are minor players.

It is not as if western universities are always on top. Peking University occupies the 48th position, Tsinghua the 49th and even lowly Fudan University, at rank number 193, is way above our best.

The reason why a grade deflator does not work like a GDP deflator does is because the quality of the product that is being accounted for is not the same. True, more and more students are getting higher and higher marks, but the standard of education is going in the opposite direction. There was a time when a first class meant something and one wore that distinction like a badge of honour. But today, those with 60% would happily throw a party if a lowly vocational school lets them in.

The principal reason for grade inflation in school results is the way teachers have traded in their sense of responsibility for comfort. Consequently, question papers have become more and more objective and the right answers are actually screaming in your face. At times it comes down to the presence of a certain word, or sentence, in an answer for a student to max the question.

On the other hand, if you try and be creative, your grades could slide all the way down. Examiners, in the main, do not want to be bothered by reading something new in the answer scripts. Listen up, people; tick the right boxes, say the right thing, take your marks and run.

It is not as if everybody is happy about this outcome; some teachers are actually chafing at the bit. Yet, the educational system is structured such that taking responsibility for quality teaching and marking can become job threatening. All of this suits mediocre instructors excellently; as long as the grades are good, there is little scrutiny and everybody is happy. The more generous the system of marking, the less pressure there is on teachers to perform.

It is not as if such an affliction only attacks schools. Even universities and institutions of higher education happily inflate grades. This is one of the reasons why good school teachers and professors are driven out by bad ones.

In some post graduate departments, it is hard for a student to score below a B plus. This depresses the urge to learn for high grades are like low hanging fruit. Is it surprising then that good marks at home are accompanied by poor performance on the world stage? So when our Higher Secondary grades climb even higher next year, and in every subsequent year, be prepared for a proportionate fall in educational standards.

But how high can these marks go? If 100% is not such a big deal any longer then will we see 105% soon? Or, perhaps even 110% before long?

(Source: Article by Mr. Dipankar Gupta in The Times Of India dated 22-06-2015. The writer is a social scientist.)

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Digital India – Wanted: A CTO for GoI.

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Digital India can be the prime mover to making a reality of this government’s promise of minimum government, maximum governance. Such a transformation requires technology to be firmly embedded into government, something that the Digital India project lists as one of its foremost objectives.

Embedding technology into governance processes will do three things: one, transform government and make it more transparent and efficient; two, transform the lives of citizens, especially those at the bottom of proverbial pyramid; three, make our economy more efficient and competitive. A 2014 McKinsey Global Institute report predicts that the large-scale adaptation of technology through Digital India positions India with the biggest opportunity yet to accelerate economic growth.

E-governance and technology in government is not a new idea. This has evolved over years from replacing typewriters with PCs and the process of ‘computerisation’ to a more complex, multi-functional, department-wide application of the concept. However, despite thousands of crores of rupees spent in the last decade in the name of e-governance and efficiency, there has been little change in government as a consequence of these investments.

This is because the process of embedding technology in government has been a bottom-up process. Individual departments and offices are undertaking this independent of each other. Thus, crores are being spent in systems and projects that are incompatible and don’t work with each other, defeating the purpose of e-governance.

Take the huge data collection exercises and databases. The Aadhaar database on biometrics has a different architecture and hardware from other similar large databases overseen by the finance and home ministries. Or the case of data servers and networks ” which have different security and architecture specifications in different departments ” leaving government agencies with differing levels of vulnerability to cyberattacks.

Further, embedding technology into limited silos makes data-driven, real-time analysis of governance and policy action impossible or, at best, inaccurate. This approach is also expensive and inefficient in terms of costs associated with procurement, obsolescence and administration. This silo-based or bottom-up approach to embedding tech also has another big failing: it doesn’t create the process reforms and efficiencies at the top-most levels of government decision-making where it is most required.

More mature democracies such as the US have beaten India in recognising the need for a chief technology officer (CTO ). President Barack Obama made this appointment a centre-point of his 2007 electoral campaign. Obama conceptualised the role of the CTO to be someone that would “focus on transparency” and ensure “that each arm of the federal government makes its records open and accessible as the e-Government Act requires”. India needs to take a similar approach and use this as a precedent while rolling out Digital India.

Government is a sum of various parts. Currently, some of these parts are efficient and technology-enabled while others are sub-optimally enabled or technologically bereft. So government’s efficiency as a whole is measured by its least efficient or least responsive departments, just as governments are known by their worst ministers and not their best.

A good CTO is essential to make the government function as a unified machinery that operates with consistent standards of efficiency, transparency and responsiveness. That is key to realising maximum governance, minimum government.

The focus of the CTO should be to design an architecture that achieves three broad goals: 1) enable easy, transparent access for citizens and business to and from government, 2) enable government departments to operate transparently and efficiently, 3) connect various departments to ensure that government and policymakers operate in a seamless, transparent, responsive and data-driven manner.

For this, the CTO should re-wire the government’s existing technology investment, connectivity and access mechanisms. The CTO can then help embed layers of applications, including security measures into the ecosystem that ensures that the government applies the same standards of responsiveness, transparency and access regardless of department, hierarchy or region. Creating such a standardised architecture will also save thousands of crores in procurement and administering efficiencies.

Digital India promises to ‘transform India into a digitallyempowered society and knowledge economy’. A CTO in the Modi government’s team can help the latter achieve its stated goals of minimum government, maximum governance.

(Source: Article by Mr. Rajeev Chandrasekhar, Rajya Sabha MP, in The Economic Times dated 03/07/2015.)

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Something More (Kuchh Aur)

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Pending Court Cases:
1. 376,604 (upto June 2015) are Pending Court Cases under different Laws/Acts, in Hon’ble Bombay High Court including its branches at Nagpur, Aurangabad, Panji-Goa

Hon’ble High Court has written many letters to the Govt of Maharashtra (GOM) for creation of additional 867 courts of various cadres of Judges in the State of Maharashtra. Hon’ble High Court has also written to GoM about funds for recurring and non-recurring expenditure for the said 867 courts.

2. 29.51 lakh (upto June 2015) are Pending Court Cases in District Judiciary (District & Subordinate Courts).

2,072 is the Sanctioned Strength and 1,784 is actual working Strength of Judicial Officers as on 1.1.2015 in the State of Maharashtra.

Sanctioned & Actual Strength of Hon’ble Judges in Hon’ble Bombay High Court. 94 is the Sanctioned Strength and 65 is the actual working Strength of the Hon’ble Judges in the Hon’ble Bombay High Court.

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How to tackle radical Islam: India can learn from the frankness of political discourse in the West

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Prime Minister David Cameron delivered a remarkable speech in Birmingham outlining a stepped up government campaign against Islamist extremism. India could learn a thing or two from him on how to address a sensitive subject without either flinching from the truth or carelessly tarring an entire community.

To be sure, Britain’s problems with Islamism (the drive to order all aspects of the state and society by sharia law) do not exactly mirror India’s. Nor are the two countries’ experiences with terrorism, Islamism’s most violent and visible manifestation, identical. Nonetheless, in the age of Lashkar-e-Taiba and the Islamic State, all pluralistic democracies face a challenge from an ideology that Cameron characterises as “hostile to basic liberal values such as democracy, freedom and sexual equality”.

This raises important questions. Which principles of confronting Islamism are equally applicable to London and Lucknow, Paris and Patna, Boston and Bangalore? How might you apply Cameron’s observations – a broad distillation of sensible centre-right discourse in the West – to an Indian context?

To begin with, the distinction between the ideology of Islamism and the faith of Islam cannot be made often enough. Bluntly put, Islamism is an exclusivist dogma that threatens non-Muslims, heterodox Muslims and secular Muslims alike. Islam is one of the world’s major faiths, practised by 1.6 billion people, most of whom are moderate. In India, the Left refuses to acknowledge the Islamist threat. The Right often fails to distinguish between Islamists and ordinary Muslims less interested in resurrecting a Caliphate than in simply getting on with their daily lives.

It follows that legitimate concerns about Islamism should not become an excuse to condone the excesses of the Hindu far Right. A politician or public intellectual ought to be able to condemn both West Bengal’s craven expulsion of dissident writer Taslima Nasreen and the poisonous ravings of Pravin Togadia of the Vishwa Hindu Parishad. In Birmingham, Cameron likened Islamist extremists to his country’s “despicable far right”. In India, unfortunately, the line between the responsible Right and the despicable Right is often blurry.

This is not to suggest a mindless equivalence. Every faith may have its share of extremists, but you have to be either blind or a member of the CPM politburo to ignore that the Islamic world is especially in turmoil today. Neither Cameron nor Barack Obama nor François Hollande need fret about their Hindu or Buddhist or Jewish compatriots boarding a plane to blow themselves up on a distant battlefield in search of paradise.

This brings us to another simple principle: Ideas matter. In both the West and India, apologists for Islamist extremism attempt to explain it away by blaming colonialism or Western foreign policy or poverty. But they can’t explain why formerly colonised Burmese and Cambodians aren’t strapping on suicide vests. Or why Islamist terrorists first tried to destroy New York’s World Trade Center in 1993 – long before George W Bush invaded Iraq. Or why so many prominent terrorists, from multimillionaire Osama bin Laden to Germaneducated 9/11 ringleader Mohammed Atta, weren’t exactly underprivileged.

Beyond the obvious counterterrorism component, what might a deeper Indian response to Islamism look like? For starters, people need to start paying more attention to ideology than to individual acts of terror. It’s no coincidence that Jamaate- Islami – along with Egypt’s Muslim Brotherhood, one of the world’s two main conveyor belts of Sunni extremism – birthed the Students Islamic Movement of India, which in turn spawned Indian Mujahideen.

These groups may differ in tactics. But they are bound by a shared belief that Islam is not merely a religion, but a complete way of life spanning everything from marriage to banking to politics. Many modern Islamists have grudgingly come to terms with democracy as a means to an end, but they ultimately agree that God’s law (sharia) is superior to man’s law (legislation).

Viewed against this backdrop, India’s failure to reform Muslim personal law in the 1950s at the same time that it undertook a sweeping modernisation of Hindu laws governing marriage, inheritance and adoption, must count among the republic’s most consequential blunders. Western democracies can defend themselves by drawing a clear line in the sand between democratic liberalism and the medieval practices enshrined in sharia. In India, the state itself ensures that Muslims follow sharia in civil matters.

Historical blunders notwithstanding, the media can do a lot more to even the playing field between extremist and moderate voices. In sum, what Cameron calls “the struggle of our generation” isn’t confined to a Britain roiled by homegrown Islamist extremism. It’s a global phenomenon whose lessons apply as much to India as to any other democracy.

(Source: Extracts from an Article by Mr. Sadanand Dhume in The Times Of India dated 23-07-2015. The writer is a resident fellow at the American Enterprise Institute in Washington, DC)

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Regulatory Emergency – Why India must act to improve its regulators

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The Food Safety and Standards Authority of India, or FSSAI, which is India’s apex food safety regulator, has not covered itself with glory of late. Its order to withdraw Nestle’s Maggi noodles from India’s grocery shelves has come under a cloud for several reasons. There is little doubt that Nestle deserves to be criticised for the manner in which it chose to handle the situation. But it now appears that the company had already decided to recall Maggi, and this spurred the FSSAI to action before additional reports had come in. The regulator has thus given the impression of acting in a bid to send out a message about its strictness rather than due consideration. Worse, Maggi noodles have now been cleared not just by laboratories in Singapore and Britain but also by FSSAI-approved domestic laboratories. This imbroglio is the climax of a period in which the FSSAI has gone after various puzzling but headline-grabbing targets – such as the world-famous Australian wine brand, Jacob’s Creek, for supposedly including tartaric acid, which gained the regulator an acid reproof from the Bombay High Court for an “adversarial” attitude. “Statutory authorities”, added the Court while overruling the FSSAI in this case, “must act in a manner that is fair, transparent and with a proper application of mind”. Certainly, these strictures appear deserved in the case of the FSSAI.

But the Court’s opinion sadly extends to many other regulators. India’s pharmaceutical regulator is a case in point. Following several controversial reports about lax standards in Indian companies – several of which wound up being banned from developed-country markets – the drug controller simply said, in effect, that American standards could not be applied to Indian pharma, because no drug would then get passed. The automobile sector is no better; Europe’s regulators tested five new Indian small cars in 2014 and found none met the safety standards. But that doesn’t matter for regulation back home. Then there’s aviation; India may be one of the world’s largest and fastest-growing airline markets, but the US Federal Aviation Authority in 2014 downgraded safety standards to its equivalent of junk status – because, the FAA said, the Indian aviation regulator didn’t have enough people to inspect all the planes they were supposed to.

This is an emergency – a public health, public safety, and economic emergency. India is the third-largest economy in the world (measured by its gross domestic product in terms of purchasing power parity), but it has one of the most tattered regulatory structures globally. It has laws that are so strict on paper that they become unmanageable. Then there is the problem of unconscionably lax application of these laws, which leads to Maggi-style discretion and controversy. Worse, fixing this does not appear to be on the government or business agenda. Instead, both the Centre and India Inc defend India’s lax regulation. Acting on pressure from domestic companies, India did not even participate in negotiations for the second-generation Information Technology Agreement, or ITA -II, for fear that freer trade would hurt. It insists on data-secure status in Europe for Indian companies without legislating basic privacy rights at home. This reveals a short-sighted lack of ambition in the Indian private sector; unless they push for updated regulation, they will never grow and become global giants. And the government must think of consumers – who have the right to global standards, to Maggi and to safer cars.

(Source: Editorial in the Business Standard dated 11-08-2015.)

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The Indian Dream – We desire modernity, moderation, a middle-income and well-managed society

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Is there an India Dream?

This is what a Japanese executive asked me at a talk that I was giving on India. In the midst of what I thought was quite an informative discussion on the homeland, he said: “Thank you for telling us where India is today. But where does it want to be tomorrow? What is the India Dream?”

While scratching my head in search of an answer, what came to mind fairly quickly was Prime Minister Narendra Modi’s “Make in India” dream, which is the idea that India is open for business, especially manufacturing. The Modi dream is a good one. Without a solid manufacturing base, the Indian economy cannot generate enough jobs for its growing, aspiring population.

My Japanese interlocutor was not terribly impressed by this answer. In his view “Make in India” could not be the sum total of the India Dream.

Reflecting on the matter, I suggested that in addition ,Indians dreamed of a modern India, a moderate India, a middleincome India and a well-managed India. This seemed to satisfy him better.

To say that most Indians want a modern India is quite a claim in a country where there are so many remnants of the medieval: child marriage, the dowry system, female infanticide and neglect, honour killings, purdah, caste discrimination, anti-rationalism, quackery in medicine, superstition, khap fatwas, and on and on.

Yet there is one clear, discernible, modern value that is spreading unstoppably, and that is the yearning everywhere in India for education. If there is one quintessential feature of a modern society, it is the desire to have every child going to school. For the first time in Indian history, all Indians dream of being educated. This is the greatest hope of India.

Indians want modernity, but they also want moderation — in personal and in social life. As far as I know, historically, there is no body of thought in India that encourages personal excess. A moderate life is widely regarded as a good life.

Indians also want social moderation. They want moderation in their political institutions and practices. In Nehru’s “Idea of India”, moderation meant constitutionalism, socialism, secularism, pluralism and non-alignment. Today, all these words are regarded as old-fashioned and somewhat misguided. But the idea of moderation is still a powerful one, and no Indian leader should forget this if he or she wants to prosper.

Indians have more material dreams too. They dream of India as a middle-income country. Most Indians are quite realistic about what their government, business executives, workers, farmers, professionals, intellectuals and civil society organisations can deliver. They are also aware of the limits of the natural world around them. Deep down they know that a rich, first-world India is neither feasible nor desirable in the next 20-30 years (perhaps ever). The majority of Indians will settle for a middle-income country, a country of say Thailand’s or Brazil’s per capita income and general prosperity over the next quarter of a century. Today, Thailand’s per capita GDP in purchasing power parity terms is roughly three times that of India, Brazil’s is roughly four times.

Finally, Indians dream of a well-managed country. Modi’s victory in the last general elections was engineered on the promise of good governance. India was fed up with illconceived, corrupt, chaotic, rudderless governance. The Prime minister still has a strong sense that Indians want clean, purposeful, efficient and effective administration. Whether he can deliver, is the great challenge.

There is an India Dream. It is not Amit Shah’s notion of a strutting “Vishwa guru”. Most Indians hold to a different dream — of a modern, moderate, middle-income and well-managed India, taking its modest place in the international society.

(Source: Extracts from an Article by Mr. Kanti Bajpai in The Times OF India dated 18-07-2015.)

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Deflation – The new dread-word

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The new dread-word is deflation. Google the term and you find it occurring several times in The Economist, Wall Street Journal, Forbes and elsewhere. Lawrence Summers has contributed to the growing chorus with a powerful article this week in Financial Times. Deflation is the opposite of inflation, and we have seen it over the past year in oil, metals, agricultural commodities and many other products. This has given India relief because it is a net importer of oil and metals, but it has knocked down the economies of commodity-exporting nations like Russia and Brazil, while West Asian oil exporters like Saudi Arabia are sweating it out. Those are the early victims.

The fear that has grown is that Europe is slipping into Japanese-style deflation – long years of little or no growth, along with prices continuing to fall. In nominal dollar terms, Japan’s GDP now is smaller than it was in the mid- 1990s, despite marginal growth in real terms. Europe got the shivers this past week when German exports were reported to have plunged suddenly in August. Already, most European economies have lower GDP (in dollar terms) than they did before the financial crisis of 2008. So: two lost decades for Japan, and one for Europe. China is still growing at a good clip, but it is slowing and beset by troubles. Among the giant economies, that leaves the United States, and its economists are ringing alarm bells.

Sustained deflation causes reduced economic activity. As the world slows down, the International Monetary Fund has been steadily reducing its growth forecasts. India’s exports have already seen a fall through 2015. The textbook response to deflation is for central banks to push for economic expansion by reducing interest rates, while governments use the lower interest rates to borrow more and turn on the spending tap. That raises government debt, but if growth is kick-started the increased debt stays affordable. This may not work if interest rates are already close to zero (10-year government bonds are at 0.5 per cent in Japan and 0.6 per cent in Germany, compared to 7.5 per cent in India), so that no monetary stimulus can work. And since government debt has grown sharply since 2008, countries worry about future vulnerabilities if they pile up yet more government debt – but there may be no other option. These dilemmas and difficulties have stirred the fevered debate by leading western economists in leading publications.

What does this mean for India? Consumers have enjoyed cheaper petrol, diesel and cooking gas, so they aren’t complaining. But exports have been falling, and it might be difficult to reverse that in a slowing world economy. Farmers who produce agricultural goods for export (cotton and sugar, tobacco and tea) will earn less, and some will be in distress. The makers of cars, garments, engineering goods, polished diamonds and leather goods, not to mention handicrafts like hand-made carpets will face the same trouble – and see jobs at risk. Global deflation also means cheaper and therefore more imports of items like steel, which could threaten domestic producers. The government can respond by raising protective tariffs, but then we move away from an open, competitive economy. Meanwhile, domestic producers of oil and gas have less incentive to explore and develop new oil and gas fields – thereby increasing import dependence for energy. Troubled industries translate into bank loans not getting repaid, and therefore more trouble for banks: the hit in the steel sector is yet to fully show up on bank balance sheets. In other words, sustained deflation is not good news for India either. There is little that the country can do about the global situation, but it can get ready to cope better with what may be coming. That is by improving efficiency and competitiveness through more serious economic reform than has been attempted over the past year.

(Source: Weekend Ruminations by T. N. Ninan in the Business Standard dated 10-10-2015.)

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Going beyond quick fixes – RBI governor’s reminder appropriate and timely

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In delivering the Fourth C. K. Prahalad Memorial Lecture in Mumbai last week, Reserve Bank of India Governor Raghuram Rajan made a substantial case for a deliberate, cautious and integrated approach to sustainable growth. He referred to the need to put a number of building blocks in place before a robust take-off could occur. This approach requires patience, persistence and, most importantly, a holistic view of the large number of fronts on which constraints to growth had to be tackled. He concluded his lecture by expressing concerns about the widespread use of jugaad by Indian businesses, which by providing shortterm and quick-fix solutions to problems, took attention and focus away from more robust and durable solutions. He felt that, instead of relying on jugaad, the business environment had to be improved through better policies, regulatory frameworks and implementation.

Not surprisingly, the media coverage of this speech pushed much of its substance into the background and gave headlines and column centimetres to the point about jugaad. Over the past several years, this term has transformed from a pejorative expression to one which connotes praise and appreciation for the people and businesses practising it successfully. Rather than paying attention to long-term viability, businesses seem to be getting attention for patchwork solutions and workarounds. Case studies and books have been written on jugaad innovation and these are presumably finding their way into business school curricula as an essential requirement for business success in India. Against this backdrop, Dr Rajan’s speech comes as a significant and timely warning that the road to economic greatness is paved not with jugaad but with solid institutions that are both durable and flexible. It is only such institutions that will create a business environment, which rewards long-term strategic approaches by companies rather than quick fixes.

This reminder also serves as a fitting tribute to Prahalad’s intellectual legacy. His analysis and dissemination of businesses that profitably serve the “bottom of the pyramid”, a phrase that he entrenched into the emerging market business lexicon, are actually a validation of the need to build strong organisational structures regardless of the nature of the product or service or the economic status of the clientele. The common message from all of his cases was that a robust business model emerged from putting the right mix of resources into a system characterised by formal and inviolate processes. Entrepreneurship certainly had a role in discovering the connection between a product and a client group, but after that, institutionalisation had to take over for the venture to have any chance of lasting success.

Dr Rajan’s lecture extends this fundamental point to the public sphere by suggesting that the government needs to focus on putting exactly these attributes in place into the policy and regulatory framework. Jugaad in business, however entertaining it might be, doesn’t do much for sustained productivity enhancement. Jugaad in government, however expedient, cannot substitute for building and nurturing institutions that will work towards creating the kind of environment in which businesses, whether they cater to the classes or the masses. He argues that growth acceleration on a weak and flimsy institutional foundation simply cannot be sustained. There are umpteen examples from recent history to support his point. But, then, jugaad is a response to extreme impatience.

(Source: Editorial in the Business Standard dated 21-09-2015.)

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Welcome move on Bankruptcy Code – But why not have a US Chapter 11-equivalent in the bankruptcy code?

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The draft new bankruptcy code displayed on the website of the finance ministry is a welcome move. However, it lacks provisions equivalent to those of Chapter 11 of the u S bankruptcy law, which allow a voluntary appeal by a debtor to be given a chance for a turnaround that the bankruptcy court can grant, if the court finds it feasible, regardless of the creditors’ verdict.

The proposed law calls for a new breed of professionals in i ndia, who, it imagines, will be better placed to run a troubled company than its failed managers. Corporate salvage as in Satyam was done by professional managers, not any specialised cadre of insolvency professionals. i t is not obvious that every company will gain by the failed management being booted out and replaced with professional managers.

A key provision is a limited window of opportunity: 180/270 days, failing which the company is liquidated. This makes eminent sense as an indefinite respite, allowed now in i ndian laws, leads to misuse. t he draft Bill sets a clear process to identify financial distress early on and prescribes swift resolution. a majority of 75% of voting share of the financial creditors must approve the plan.

The final decision to accept or reject the insolvency resolution plan rests with the adjudicating authority: d ebt r ecovery t ribunals for individuals and unlimited liability partnership firms, and the National Company Law t ribunal for companies and limited liabilities. t he Bill allows only individuals to financially start afresh, but expeditious order of discharge to creditors will also facilitate fresh start for companies.

The national Company Law tribunal, that will replace the BIFR , will speed up winding up companies and ease the burden on high courts. t he government should remove the legal hurdles in the way of operationalisation of the tribunal, and set up benches fast. a functional legal system is an imperative necessity for the bankruptcy code to work. t he courts should not accept every petition challenging the order of an appellate authority, and make its ruling redundant.

Smart gadgets ke side effects mean they need constant updates – Tech-22 conundrum

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In a world where handheld smart devices are ubiquitous and life without them is unimaginable, one is wont to overlook the health-related side effects of such technology. Smartphones, tablets and e-readers increasingly come with bluer and brighter screens that impact the body’s ability to produce sleep inducing hormones. i n other words, if you are one of those people who surf on their smart devices late into the night, unable to get a wink of sleep, you may have your favourite toy to blame. But fear not 21st century insomniacs, help is at hand. a ll that one needs to get a good night’s sleep is for a ‘bed mode’ to be built into your smart devices.

This would simply involve making sure that smartphones and tablets shift from blue and green light emissions to yellow and red. t his in turn would ensure that one’s body is able to produce the natural amount of melatonin to bring on the sweet release of sleep. But isn’t technology supposed to make our lives easier rather than raise anxiety about health issues? too much typing on your smartphone can give you text claw. excessive exposure to Wi-Fi through devices such as laptops can lower men’s chances of becoming fathers. and social media addiction can actually make you more lonely and sad.

That said, it’s ridiculous to suggest that the tech genie be put back into the bottle. The solution to tech side- effects may be more tech. With concepts such as internet of t hings, our lives and physical surroundings are set to get increasingly wired. move over, smartphone – we could soon be living in houses that are fully automated, from smart bathroom showers to beds that hook into our sleeping patterns to maximise quality of life. however, such tech needs to be safe, necessitating constant evolution of smart devices. a nd that’s the t ech-22 situation we face.

The Trans-Pacific Partnership, which excludes India, highlights need to get the economy in order

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Even as Prime Minister Narendra Modi toured the world and talked up India’s trade interests, President Barack Obama may just have thrown him a one-two punch by concluding negotiations for the Trans-Pacific Partnership (TPP). Twelve countries on the Pacific Rim — encompassing 40% of the global economy — participated in the negotiations. Fragmentation of world trade into standalone blocs is not in India’s interest as we don’t get a say in determining the rules of the game. However, with trade deals at WTO hard to actualise — indeed, India has often played the role of spoiler here — TPP signals the advent of new trade challenges for India.

For example India will lose out to Vietnam, which is a member of TPP, when it comes to accessing the US market in job spinning sectors such as textiles, clothing and leather footwear. At a strategic level, TPP is being driven by a US determined to put its stamp on global trading rules. It is about enhancing the trade competitiveness of developed countries such as the US and Japan, with their emphasis on higher labour and environmental standards. TPP is not yet a done deal. Its detailed text has not yet been finalised and national legislatures of members have to approve it. But with the US already in talks with EU to conclude a Transatlantic Trade & Investment Partnership, continuing fragmentation is inevitable.

Where does that leave India? These trade deals do affect India — not only because they favour insiders as opposed to outsiders but also because they set general standards over which we have no say. Getting in can be a problem as well. For example, draconian rules for intellectual property protection would favour US and European Big Pharma, while crippling Indian pharma which is good at producing low-cost drugs.

There is no alternative to getting our economy in order. The size of India’s market is an advantage which needs to be leveraged by an environment in which economic activity is easier. NDA must push domestic reform, which has to be complemented by smarter tactics at ongoing trade talks. For instance, the government can bring in more domain experts laterally in negotiations over a Regional Comprehensive Economic Partnership (RCEP), where there will likely be demands for TPP-like rules. India needs to be seen as a country which comes to talks with ideas, without which we cannot secure national interests. TPP is a rude wake up call.

(Source: Editorial in The Times OF India dated 08-10- 2015)

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Now, Prepare for the Fed Rate Hike: The respite offered should not be frittered away

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From the story about the boy who cried wolf, the most commonly drawn lesson is that one should not raise an alarm about an unpleasant eventuality when it is not imminent. It is equally important to bear in mind that the wolf will eventually come, when you are least prepared for it. The US Fed rate lift-off has been like the wolf in the tale. It has not happened on a few past occasions when it could have. This does not mean that it will not happen, perhaps later this year itself. India would do well to use the respite offered by the Fed’s decision to hold its hand for the time being to prepare for when US policy rates will move up from 0-0.25 per cent. The Reserve Bank of India (RBI) cutting its policy rate is just one of those things.

The dollar has dropped against most currencies, after the decision to defer a rate hike. The rupee, too, has strengthened, against the dollar. Which means that it has extended its overvaluation against other major currencies, further hurting exports. This is as good a time as any to nudge the rupee lower. One way to do that is to lower the central bank’s policy rate, which would induce some foreign capital reallocation away from India. If much of the volatile capital leaves India before the Fed lifts rates, there would be little room for any violent impact on the markets. Consumer prices are rising again, if you leave aside the year-on-year figure and look at the sequential movement of the index month to month. This might inhibit the RBI from paring rates. Food price inflation in a year of deficient monsoon cannot be the yardstick for setting monetary policy. The government has been adopting supply-side measures to ease the pain and should do more, to ease the upward pressure on food prices.

The government has to clean up the act when it comes to de-clogging stalled payments to vendors and construction companies for their work done, for itself or for stateowned enterprises. If that happens, new work orders from the Railways and national highways will take off better, and give momentum to the economy in the short run, before the rate hike does make its appearance. Even three little pigs managed to best the wolf.

(Source: Editorial in The Economic Times dated 19-09-2015.)

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Trans Pacific Partnership – Domestic reform is key for membership

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The Trans-Pacific Partnership (TPP) is becoming a reality, threatening those outside the 12-country bloc with trade diversion and lost opportunity. The agreement, reached among Pacific Rim countries including the US and Japan but excluding China, shows up the World Trade Organization (WTO ) as an effete organisation that has not been able to secure a major deal since 1995 and is stuck with an economic framework that has been overtaken by the pace and nature of global integration. The TPP creates a new framework for trade that embraces not just low tariffs but also convergent safety standards, intellectual property rights, labour standards and environmental norms, and a dispute settlement mechanism for investment-related disputes.

How should India respond to the development? By acting simultaneously on three fronts: trying to join the Asia- Pacific Economic Cooperation as a necessary stepping stone to joining the TPP, taking a proactive role in making the multilateral WTO salient again and carrying out domestic reform, including by reducing import duties further. Trade in goods and services add up to roughly 50% of GDP (a little less in 2014-15). How competitive these are matters a lot to the entire economy. Countries like India stand to lose from being left out of dynamic trading blocs like TPP. China will probably become a member soon, though as someone who accepts the rules already set without having had a chance to contribute to the rule-making process. India, too, must join the group. The second task of reforming the working of the WTO is best accomplished by accepting the economic logic that opening up is good for India and abandoning the negotiating logic of diplomats, which holds that giving in is surrender.

India has to cut its tariffs, transit to a goods and services tax and remove infrastructure bottlenecks at the fastest pace, including clamping down on power theft and giveaways. Sectarian politics that creates social schism and violence will, however, make economic reform tough and beside the point.

(Source: Editorial in The Economic Times dated 12-10-2015.)

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Toxic food – Regulation of pesticide use in farming is too lax

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India’s food chain continues to suffer from excessive toxicity, brought
on by the rampant and unrestrained use of pesticides. Official data were
released last week that showed nearly 18.7 per cent of samples tested –
samples of commonly consumed foods like vegetables, fruits, milk,
pulses, meat and spices – contained pesticide residues in varying
degrees. In over 2.6 per cent of the samples, the toxicity level was
higher than the permissible limits. The incidence of toxicity seems to
have nearly doubled when compared to similar studies in the past. Nor is
the problem confined to big cities, although Delhi and Mumbai are among
the worst hit: samples from small urban centres too have failed to pass
the safety test.

Earlier studies had shown that even drinking
water, beverages and soft drinks were not totally free of hazardous
chemicals. Worst of all, traces of banned or unapproved pesticides have
been found in commonly consumed foodstuffs. Clearly, regulation has
failed to check the circulation of prohibited chemicals and spurious
insecticides – substances which can be far more hazardous than the
permitted pesticides. Many of these harmful chemicals are feared to be
carcinogenic besides being injurious to the central nervous systems and
liver. A joint parliamentary committee(JPC) was set up in 2003 to go
into the safety standards for soft drinks, fruit juices and other
beverages. The Food Safety and Standards Authority of India (FSSAI) came
into being after the report of this JPC. However, many of the useful
recommendations of this panel, including one concerning formulation of
standards for individual food items – rather than for vegetables, fruits
and others collectively as a group – have yet to be fully implemented.

The
problem is not that India uses too much pesticide. In fact, India’s
per-hectare consumption of plant protection chemicals is just a fraction
of that in developed countries. Yet the problem of toxicity is far more
serious here than elsewhere. The real cause is the improper and
indiscriminate use of pesticides by farmers. Most pesticide
manufacturers stress the necessary precautions to be observed while
using these hazardous chemicals; these include allowing a prescribed
time to elapse between spraying pesticide and harvesting the crop. This
is necessary to let the pesticide molecules degenerate. But these
essential precautions are often ignored by farmers in India. Many of
them, especially vegetable growers, dip their produce in chemical
solutions just before going to the wholesale markets – which they
believe will improve their appearance and assure them better prices. The
use of chemicals like calcium carbide to artificially ripen fruits like
bananas, papayas and mangoes also contaminates them. This can be curbed
only by educating India’s farmers on the safe use of pesticides.
Pesticide marketing also needs to be better regulated. Only registered
dealers who have some knowledge of pesticides and their safe use should
be allowed to do business. This is important because farmers usually
rely on the advice of pesticide sellers when it comes to plant
protection issues. The pesticide industry must be pushed to contribute
to this effort.

(Source: Editorial in Business Standard dated 08-10- 2015)

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Fortify Aadhaar with Privacy Protection

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It is welcome that the Supreme Court has referred the Aadhaar dispute to a larger bench that will also examine whether it violates privacy. The government must legislate an explicit law to protect privacy, and penalize its violation.

The absence of a defined right to privacy now gives credence to concerns over how Aadhaar can be abused, for example, by using the Aadhaar tag to collate information on a person’s history of, say, medical, financial and government transactions.

A robust privacy law will offer a shield. Use of Aadhaarseeded bank accounts for transferring government benefits to citizens will eliminate duplication, fraud and waste. Such a system will allow the government to abandon product subsidy, with its inherent potential for diversion and other malpractice, and replace it with transfer of the subsidy amount directly to the end-beneficiary.

This will not just overhaul India’s subsidy administration but also get rid of the ills of product subsidy, such as subsidized kerosene being used to adulterate unsubsidised diesel. That the court has not gone back on its earlier order allowing the use of Aadhaar for food and cooking gas subsidy delivery is recognition of Aadhaar’s potential.

There remains the question about whether Aadhaar is mandatory. Aadhaar must be used wherever administration of subsidy is involved. This would be onerous only if Aadhaar enrolment were difficult. The onus is on the government to ensure that no eligible welfare beneficiary is denied the unique identity number. A beneficiary cannot be denied an entitlement if she cannot obtain Aadhaar. However, if Aadhaar is made available, and the beneficiary chooses not to enroll, she should forgo the benefit. You do not have to have a passport, but if you want to travel abroad, you need one.

(Source: Editorial in The Economic Times dated 09-10- 2015.)

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The 2G case – CBI deliberately withheld crucial files, concealed facts: Trial court

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Withholding of crucial documents, concealment of important facts and contradiction in statements of prosecution witnesses led to collapse of CBIs case in the 2002 additional spectrum allocation scam case. Special CBI Judge O. P. Saini, who discharged former Telecom Secretary Shyamal Ghosh and three telecom firms –Bharti Cellular Ltd., Hutchison Max Pvt. Ltd. and Sterling Cellular Ltd. in the case, said that CBI totally failed to prove its allegations. The court said that various documents, which were dubbed as unrelied upon by CBI, were “most important documents” and the agency had deliberately rendered it as inconsequential. It added that the agency wanted to give the impression that a grave crime had been committed when none had been done by “fabricating facts”.

It pointed out that TRAI reports and many other relevant documents were not filed in the court, adding that these facts “did not even find mention in the statements of witnesses.” CBI’s conduct in “relegating these (TRAI and other relevant) documents to a distant stage by not making them part of documents initially filed with the chargesheet and then dubbing them as unrelied upon and not placing on record certain other documents having important bearing on the case” went totally against the agency.

CBI’s allegation that Department of Telecommunications (DoT) had not obtained the required recommendation from TRAI prior to allocation of additional spectrum, fell flat. “I find myself in agreement with the defence counsel that TRAI recommendations were already there and DoT was not required to ask for fresh recommendations,” the judge said. The court noted that the previous TRAI recommendations of June 23, 2000 and October 24, 2000 had covered both inadequacy of the existing spectrum to the existing operators and also need for additional spectrum and also the rate at which spectrum was to be charged.

There were also contradiction in statements of prosecution witnesses which proved that CBI’s allegations were not true. The court pointed out several discrepancies in the statements of then Deputy Director General of DoT J. R. Gupta and then Wireless Advisor P. K. Gupta on whether then Member Finance was consulted before allocation of additional spectrum. CBI had alleged that former Telecom Minister Pramod Mahajan had taken this “hasty decision” on recommendation of Ghosh without consulting relevant bodies. The court, however, trashed CBI’s version and said the decision was “well debated and discussed.”

The court lambasted CBI for “deliberately” concealing and “changing its stand” over certain documents. The court added that it was because of this confusion that it summoned Bharti Cellular Ltd. CMD Sunil Bharti Mittal, Essar Group promoter Ravi Ruia and Asim Ghosh, then Managing Director of accused firm Hutchison Max Telecom Pvt. Ltd. as “additional accused” in the case. These three were not chargesheeted as accused in the case but were summoned by the court on March 19,2013 which relied on some documents placed by CBI. However, CBI later declared that it was not relying on these documents.

“The unrelied upon documents are by and large considered to be of no use to the prosecution. In the instant case, on January 14, 2013 and also in the application dated January 30, 2013, the prosecution referred to documents as unrelied upon, but in the course of submission changed its stand that these documents may also be taken as relied upon one. This change of stand distracted the attention of the court from these documents. In a sense, these documents lost credibility,” the court observed. On January 9 this year, Supreme Court had set aside the special court’s order summoning Mittal and Ruia, who was then a Director in Sterling Cellular Ltd., as accused in the case.

In 2012, CBI had filed a chargesheet in the case alleging a scam during the NDA regime in 2002. It had named Ghosh, Hutchison Max (P) Ltd., Sterling Cellular Ltd. and Bharti Cellular Ltd. as accused, claiming that on account of the conspiracy between these accused, Department of Telecommunications (DoT) allocated additional spectrum that had allegedly led to a loss of Rs 846.44 crore to the exchequer. The chargesheet also named former Telecom Minister Pramod Mahajan as an accused and alleged criminality on his part. However, since Mahajan had passed away, the proceedings against him were abated. (Remarks: The credibility & reliability of CBI is so low & yet the Establishment goes on entrusting more & more cases to CBI !!!)

(Source: The Times of India dated 16-10-2015.)

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Mr. M and Mrs. G

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The more one thinks about it, the more one is inclined to compare Narendra Modi with Indira Gandhi. The original Mrs. G was the last Indian prime minister to create an emotional bond with the public. The crowds at her memorial are far greater than at the Nehru Museum, situated at the other end of Teen Murti Marg. Irrespective of the long-term damage she did to the economy, and however much she fostered corruption, the poor thought she stood for and by them. Narendra Modi is the first prime minister after Mrs. G to have created a comparable bond. Whatever happens in the future, he will always remain the “hriday samraat” for a lot of Hindus who consider him the first Indian prime minister who is truly their own.

As with Mrs. G, the more his critics sound off about him, the stronger will be the bond between Mr. Modi and his public. It happened in Gujarat, and it may be happening now across much of the country north of the Vindhyas. For Mr. Modi stands tall in a way that no one has since Mrs. G. Like her, he can and does reach out directly to voters, without the need for party intermediaries. His party needs him more than he needs it — imagine the BJP’s Bihar campaign without Mr. Modi.

When Mrs. G came to power, she was broadly acceptable to most people. In about three years, though, she had alienated much of the English language press, and a good part of the chattering classes (as they later came to be called). Something not entirely dissimilar has now happened with Mr. Modi. Even those who were willing to give him the chance of a fresh start as prime minister have decided that Mr. Modi is in fact the same as of old. He mostly ignores them and what they say, just as Mrs. G did. Like her, if he responds at all, it is at mass rallies. Like her, he has no regard for the media.

But here’s the thing: the chattering classes play the role sometimes of the canary in the cage, down a mine shaft. When they turn against a political leader, it is a political warning shot. It happened with Rajiv Gandhi and with V. P. Singh: the alienation of the chattering classes marked the beginning of political decline. In Mrs. G’s case, her downfall did not come because of the chattering classes, but she would have avoided crucial mistakes if she had listened to them. She nationalised the wholesale trade in foodgrain in the middle of a drought! Soaring food prices provoked student protests that blossomed into a broader movement against corruption. Her brutal crackdown on the railwaymen’s strike of 1974 alienated yet more people.

The Emergency was the culmination of poor economics, the undermining of institutions and the centralisation of power, and it led to her ouster.

Mr. Modi is the first prime minister after Mrs. G with the power and possibly the intention to change the Indian system. Mrs. G’s bid to perpetuate power carried with it no great economic or social agenda, only a personal one. She overstepped several Laxman Rekhas, and paid the price. Mr. Modi has an agenda that goes beyond himself, and he has decided that he will not rein in those pushing social and intellectual illiberalism. Just as it wasn’t certain at the time whether Mrs. G would succeed in her gambit, we don’t know how far Mr. Modi will go or stop short. The tea leaves suggest that we will see more Dadris, or its equivalents. So Mr. Modi wouldn’t harm himself if he paid some attention to his critics — he won’t get their votes, but they might prevent him from making mistakes.

(Source: Weekend Ruminitions by Mr.T. N. Ninan in Business Standard dated 17-10-2015.)

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NJAC overturned in judicial overreach – Supreme Court’s decision to revive system of judges appointing judges pits judiciary against executive

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The collective order by a five-judge Constitution Bench of the Supreme Court to strike down as “unconstitutional and void” the 99th Constitutional Amendment Act and the National Judicial Appointments Commission (NJAC) Act 2014 legislated to replace the two-decade old collegium system of judges appointing judges, draws a line under arguably the biggest flashpoint between the judiciary and the executive over the past two decades. But given the widespread consensus that the collegium system has failed, this is unlikely to be the end of the matter.

Ordering the revival of the collegium system which allowed judges to appoint new judges since 1993, the Bench rejected the government’s plea to refer the case to a larger Bench.The apex court has simultaneously invited suggestions to improve the collegium system, fixing November 3 for its hearing on the matter. The broader judicial message is crystal clear. As senior lawyer Harish Salve put it, “SC is giving a message that the power is with them.”

This sets the stage for the most serious face off between judiciary and executive in a generation. While senior lawyer Ram Jethmalani hailed the verdict as a “historic day for democracy”, Attorney General Mukul Rohatgi scathingly called it “a flawed judgment ignoring the unanimous will of the Parliament, half the state legislatures and the will of the people for transparency in judicial appointments”. Union law minister Sadanand Gowda too says he was “surprised” because the NJAC “had 100% support of the people”.

NJAC was indeed enacted after a broad political consensus which evolved after several commissions and parliamentary committees found flaws in the collegium system over the years. It was ratified by Parliament as well as 20 state legislatures. This is why a senior advocate like K. T. S. Tulsi, while expressing disappointment over the judgment, quoted parliamentarians talking of the “tyranny of the unelected over the elected”.

This paper has argued in favour of NJAC because it promised to end opacity in judicial appointments. Judges don’t have unbridled power to appoint judges in most other liberal democracies. For example, US Supreme Court judges are appointed by the president and ratified by the Senate. For the UK’s apex court, an independent committee makes candidate recommendations to the prime minister who makes a final recommendation to the queen.

The Constitution envisages separation of powers between legislature, executive and legislature – which means each branch of government should stay within its own remit. Under NJAC the commission to select judges is composed equally of judges and non-judges, which should prevent power vesting exclusively with either judges or the political class.

With all due respect, rulings cannot be based on institutionalised distrust of the political executive or legislature. By calling for further discussion on the collegium system, the apex court itself has accepted that there were flaws in the system. It must now fix them. The judiciary remains a bulwark of Indian democracy and while preserving its independence is crucial, what’s equally incumbent on it is to look within and reform.

(Remarks : In India, the credibility & goodwill of the Politicians have reached such a low point and the Parliament has become so dysfunctional that citizens trust the higher Judiciary more than the Political Establishment.)

(Source: Editorial in The Times of India dated 17-10- 2015)

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By questioning expanding reservations, Bhagwat and Prasada draw fire but point out the obvious

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RSS chief Mohan Bhagwat’s call for a non-political committee to examine and determine which categories require reservation benefits and for how long has stirred a political hornets’ nest. Coming ahead of Bihar assembly elections BJP’s opponents – particularly RJD supremo Lalu Prasad – had a field day slamming Bhagwat. Given the atmosphere in poll-bound Bihar where every party is trying to get its caste calculations right, BJP quickly issued a clarification.

But political calculations aside, Bhagwat’s take on the reservations system isn’t without merit. Few can argue against his assertion that reservations have been politicised and aren’t being implemented in the spirit of their original intention. In fact, only last week Congress’s Jitin Prasada asked his own party to rethink the reservations policy and urged it to champion a new mechanism for social justice that focusses on the most backward castes and the poor among upper castes. This is an implicit admission that quotas have come to be cornered by a few powerful OBC castes that dominate the administrative machinery.

With parties across the political spectrum rushing to legitimise the reservation demands of different caste groups in the hope of cultivating vote banks, they have kicked off a race to the bottom. As a result, even influential communities are demanding a share of the reservations pie. This is precisely what the recent Hardik Patel-led Patidar agitation in Gujarat represents. Besides touching off caste conflicts, the fallout of this great reservations game has been the slow strangulation of meritocracy. This in turn has disastrous consequences for administration. The Yadavisation of the UP police force, wherein one particular OBC caste has come to dominate that state’s law and order machinery even as crime rates soar and communal riots break out, exemplifies this point.

The need of the hour is not just to reimagine the reservations policy but also create a new paradigm for social justice. One of the reasons for the reservations rush is the lack of adequate job opportunities elsewhere which makes government postings extremely lucrative and highly prized. This clearly isn’t sustainable. Boosting job creation in the formal sector, and not just economic growth, will enlarge the pie for all communities. Economic reforms along with sufficient investments in quality school education will create a level playing field and mitigate the need for quotas. It’s time to enact policies that lift all boats.

(Source: Editorial in The Times of India dated 23-09-2015.)

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States abusing law – Time to reform colonial-era sedition law to prevent misuse

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The Tamil Nadu police arrested the folk singer S. Kovan on charges of sedition. The 52-year old Mr. Kovan had recorded hard-hitting songs pointing a finger at the chief minister of Tamil Nadu, J. Jayalalithaa – and her government, of the all India Anna Dravida Munnetra Kazagham or AIADMK – of profiting from the sale of liquor in the state’s chain of alcohol shops under the Tamil Nadu State Marketing Corporation, or TASMAC. There are about 6,800 state-run alcohol shops in Tamil Nadu, and TASMAC earned just under Rs. 24,000 crore a year in 2013-14. Mr. Kovan, an outspoken Dalit rights activist, has sympathised with other hot-button issues before the prohibition movement, but his songs on alcohol attacking Ms. Jayalalithaa have touched a particular nerve, with his supporters saying they have been seen over 400,000 times on You Tube. it is, however, entirely questionable as to whether they constitute sedition.

The Consequences of Ultra Cheap Oil

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From $103 a barrel a year ago, the price of crude oil has crashed to $43, with no bottom in sight. What does this mean for geopolitics and its knock-on effects on India? Oil producing nations, such as Russia, Venezuela, Ecuador, Nigeria, Kuwait and Iraq — and even Saudi Arabia — are feeling the pinch. As oil revenues fall, these nations cut back on social security and government spending, leading to domestic unrest and lower demand for imports.

Two factors are responsible for the collapse of crude. First, production has outstripped demand by a wide margin. The US Energy Information Agency (EIA) reckons that global oil inventories grew by 2.5 million barrels per day during June-July, more than the 0.4 million barrels per day in the same period last year. Demand grew at a sluggish 1.1 million barrels per day, year on year. Iran will hike output from 2016, adding to supply. A slowdown in China and India could further depress demand and lower prices. Two, Saudi Arabia, with the lowest well-head cost of oil production in the world, is locked in a battle for energy supremacy with the US. The latter now needs no energy imports, thanks to shale oil and tar sands from Canada. Riyadh refuses to cut production to boost oil prices because it wants to drive high-cost domestic US oil out of business.

Energy importers like India, Japan and China ought to be happy: lower crude helps balance deficits and could temper inflation. A steady slide in the value of the rupee against the dollar erodes some of the gains from falling oil prices. India can do two things: one, pass on some of the gains from the oil price crash to consumers. Two, sign up long-term contracts with suppliers based on current low prices and the even lower rates projected for the future.

(Source: Editorial in the The Economic Times dated 28-08-2015.)

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Falling prices an opportunity for quick reforms in oil and gas

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Plunging crude oil prices aren’t just a boon for
corporate India and the consumer. They are an invaluable opportunity for
the government to push for faster reform of pricing and distribution
distortions in the oil and gassectors. The Indian basket of crude oil is
trading below $43 a barrel, a seven-month low and less than half the
price of July last year. At the start of the current financial year, the
Union government had prepared its oil economy budget after assuming the
crude oil price to be at $70 a barrel. So far the average price has
been $55 a barrel – and, with global prices slated to slip to $40 a
barrel, the savings for the rest of the year would be substantial.
Moreover, by all accounts the convergence of global factors that has
kept prices benign is likely to continue.

The beneficial effects
of recent reforms to fuel pricing are already visible. In June 2010,
petrol prices were deregulated. This was followed by an exercise to
convert the cooking gas subsidy to a direct benefit transfer scheme that
went all-India in January this year. And in October 2014, the diesel
prices were deregulated. The impact on the petroleum subsidy has been
significant: the budgetary outlay has more than halved in 2014-15. For
the state-controlled oil marketing companies, the savings on
under-recoveries – the difference between production costs and retail
price – have been dramatic too. Underrecoveries dropped from Rs 1,39,869
crore in 2013-14 to Rs 72,314 crore in 2014-15. The government should
now focus on the need to eliminate the remaining subsidies on petroleum
products. To begin with, the subsidy on kerosene should be discontinued.
Retaining subsidy on kerosene distributed through ration shops is
dangerously illogical; having deregulated open-market kerosene prices in
February this year, the temptation for arbitrage is high. The subsidy
on cooking gas, mostly used by the better off, should also end.

Apart
from the monetary gains, the elimination of subsidies has corrected the
imbalance between diesel and petrol consumption in the transport
sector, as is evident in lower sales of gas-guzzling sports utility
vehicles; and reduced the incidence of kerosene adulteration of diesel.
These advantages strengthen the case for the government to take reforms
one step further to gas pricing and distribution. In a country that
imports a third of its gas requirements outside the administered pricing
system and urgently needs to reduce its excessive dependence on coal, a
transparent and fair gas pricing regime is essential. Without it,
big-ticket foreign investment will stay out, and a host of power and
fertiliser plants will stay stalled. Cleaning up gas pricing might well
have a positive domino effect on power and fertiliser subsidies, with
which successive governments have struggled to cope. For an economy that
urgently needs to address the twin challenges of accelerating
investment and climate change, it makes little sense to continue with an
administrative regime that is distortionary in its impact, especially
when global and local factors converge to present a unique opportunity
to reform.

(Source: Editorial in the Business Standard dated 26-08- 2015.)

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Lessons to learn from the Land Bill fiasco – The Bulldozing does not work in a democracy

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The government has decided to let its Ordinance, which diluted clauses
of the UPA regime’s 2013 land acquisition Act, to lapse. The opposition
claims it as a victory over the government. The alliance fighting the
BJP in the upcoming Bihar elections touts it as a victory for every poor
farmer. The truth is more nuanced: state governments have primary
jurisdiction over land laws. After the Singur and Nandigram incidents in
Bengal where the state tried to forcefully snatch land from farmers for
industry, many states have adopted innovative methods to minimise
opposition to acquire land for development and other projects. Rather
than a one-time acquisition, they seek to make land sellers stakeholders
in future development. The Centre must allow states this flexibility
without discrimination.

Most recently, Andhra Pradesh has
acquired significant parcels by offering farmers a portion of land they
have given up, to develop residential and commercial projects once the
area is developed. This will increase their incomes hugely, possibly for
decades. Earlier, Uttar Pradesh under Mayawati and Haryana under
Bhupinder Singh Hooda had developed models that combined upfront
payments, annuities and return of a portion of the land to land sellers,
making them stakeholders in development. However, there are exceptional
cases, like developing dams or irrigation projects, where social gains
outweigh the losses of those affected directly by projects. In these
cases, states must have the flexibility to ease the terms of the consent
clause, or make returns far more generous to the few who give up land
for the benefit of many.

There is a political message for the
BJP here: the Modi regime must learn to talk to all parties, including
allies and the opposition, before undertaking major policy decisions. In
our parliamentary and federal system, one size never fits all:
unilateralism is not an option. Next time, say, while trying to roll out
the GST, the government must first listen, build consensus and stop
trying to use its majority in the Lok Sabha to bulldoze opponents.

(Source: Editorial in The Economic times dated 01-09-2015.)

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Government in Business – Misplaced priorities

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The Narendra Modi-led National Democratic Alliance came to power following a campaign during which several commentators, and many of the wider public, seized on to its catchy slogan of “minimum government, maximum governance”. Senior leaders of his administration continue to insist the phrase is one of the principles underlying current economic policy. However, if that is the case, then the administration’s decisions reflect misplaced priorities and a flawed understanding of the role and scope of government – and indeed its strengths and weaknesses. Unless those priorities are rectified, and soon, the thrust of current policy is likely to spend itself in futility and failure.

Economic history and economic theory both reveal that governments, including and especially in developing societies, do certain things well and do other things badly. What they do not do well is running enterprises. Being insulated from the discipline of the market means that state-run corporations fail especially in consumer-facing enterprises. They are also notable failures in sectors where lower-level decision-making is crucial, and any interference in such decisions – or even the absence of a focus on returns, a lack that characterises public enterprises – can lead to the build-up of costly errors. Yet the government continues to run a vast business empire, and Mr Modi seems to have no intention of letting this empire go. Air India, for example, seems to be a target for “revival” rather than sale even though it is bleeding passengers and pilots – 30 Dreamliner-trained pilots just quit and the once-dominant state-owned airline is now third in the sector, with a 16 per cent market share. The loss-making company has to borrow at the sort of premium that indicates what the financial sector thinks of its chances. Such examples are legion. The Union cabinet recently approved “financial incentives” for two state-owned telecom companies that are never likely to make money in a cut-throat sector. And the new revival plan for public-sector banks, announced with much fanfare, stopped short of the crucial measures that would allow for genuine independence from interference.

Meanwhile, there are indeed areas where more effective and expansive state participation is necessary. While private schools are often inexpensive and effective, without improving public education there is no hope of creating a better-educated society and a workforce with skills. Yet the government, including through the implementation of the Right to Education Act, seems to want to avoid the hard task of fixing the poor quality of state education. And then there is health. Nowhere in the world has private provision of health care with public financing worked – and in India it is a recipe for disaster. The new National Health Policy suggests that public spending will go up from one per cent of gross domestic product to 2.5 per cent soon. But how that is spent is crucial. Many within the government argue that private insurance and provision should be the bedrock of health policy. This also seems to underlie the recent push for expanding insurance. Here, at least, there seems to be sympathy for “minimum government”. But these are completely the wrong sectors for it; more effective government participation is needed. Instead, the government is focused on staying in business where there is no credible case for the public sector. “Minimum government, maximum governance” will only become real when the administration shows signs of understanding where and how it works.

(Source: Editorial in the Business Standard dated 04-09- 2015.)

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Global – Rising profits

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Global corporate profits have soared since 1980.

A new study by
McKinsey Global Institute (MGI) estimates that operating profits after
tax of the largest companies grew from $2 trillion to $7.2 trillion in
2013.

The reasons: corporate taxes were slashed across the
world, interest rates collapsed and labour costs stagnated after the
entry of millions of Chinese and Indian workers into the global economy.

MGI says large companies from emerging markets are driving
global revenue growth while profit rates are higher in developed
economies. The latter have more companies that create value from
intangibles like brands or technology while emerging markets still have
companies that make intensive use of their physical assets.

The
rise of emerging market corporate giants is one reason MGI expects
profits to fall as a proportion of the global economy in the coming
years.

(Source: Editorial in Quick Edit of Mint dated 10-09-2015.)

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End tax uncertainty – Govt must learn from the MAT controversy

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The Bharatiya Janata Party’s manifesto for the 2014 elections promised to end “tax terrorism”, and in his campaign speeches Narendra Modi likened the taxman’s role to the light touch of a honeybee harmlessly drawing nectar from a flower. More than a year later, however, the “flowers” are writhing in pain because of multiple taxationrelated stings, forcing the Modi government to spend an inordinate amount of time on damage control following a firestorm of protests from foreign investors. Consider the controversy over retrospective applicability of minimum alternate tax (MAT ) on foreign portfolio investors (FPIs). The Finance Bill 2015 amended the MAT provisions to exclude capital gains earned by FPIs from the ambit of MAT from April 1, 2015, but the tax department’s position has been that MAT applies to FPIs on all income (including capital gains) up to March 31, 2015 and to all income (other than capital gains) from April 1, 2015. Tax experts, however, say the noise over this absurd tax demand could have been easily avoided because as per the law, there cannot be provision for capital gains tax on FPIs which are resident in tax-treaty regimes where capital gains tax is not levied. Besides, MAT is supposed to apply to domestic companies which pay little or no tax because of the special incentives that the Income-Tax Act provides.

The controversy erupted when the tax department served notices on 68 foreign institutional investors (FII), demanding MAT dues. The notices were served after the Authority for Advance Rulings in 2012 had directed Mauritius-based investor Castleton to pay MAT on its book profits when the company transferred shares from a Mauritius entity to one in Singapore. What was surprising was that so much uncertainty over investments by FIIs was created even though the total value of the tax notices served eventually was just Rs 602 crore. The government got a committee headed by Law Commission Chairman A. P. Shah to look into this; but its report, submitted in July, was not made public because the Supreme Court was to hear a case that has a bearing on the matter filed by Castleton. As a result, uncertainty just increased. It is welcome that the government tried to make its intentions clear last week – especially as risk concerns return to global markets.

There is a lesson from all this. The government must douse such fires more swiftly. The tax department, meanwhile must be reined in. An overzealous pursuit of such cases is counterproductive to the larger cause of tax administration. It adds to the overall perception that India is arbitrary about taxes. The water has already been muddied by innumerable previous instances of conflict, notably those involving Vodafone and Cairn. In the MAT -FPI case, innumerable foreign investors had already got their prior tax returns audited by the tax department – without MAT ever being asserted. Investors have acquired and sold shares based upon share prices reflecting the understanding that the funds had no Indian tax exposure for portfolio securities sold after being held for the requisite long-term holding period. The harm to investor confidence – harm that is directly attributable to the sudden and unexpected MAT assertions – cannot be overstated.

(Source: Editorial in the Business Standard dated 24-08-2015)

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Nikesh Arora and Destructive Creation

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The dangers of too liberal startup funding

There is such a thing as too much of a good thing, asserts SoftBank president Nikesh Arora. Investors from around the world have ratcheted up valuations of Indian startups and this kills the discipline needed to run a sustainable business, says Arora. We agree. We would add that such open-fisted funding of startups has resulted in damaging brick-and-mortar businesses with which some of these web-based startups compete, often unfairly. Easy fortunes made on the basis of valuations that are yet to be validated by earnings create heroes and idols, attempting to imitate whom many aspiring entrepreneurs might shed their self-esteem and entrepreneurial energy, not because they fail to do business but because they do not see in the mirror the muscle-flexing, spandex-clad figure they adore and seek to become.

Of course, liberal startup funding has an upside. In a culture that bars society from taking on risk, save a few groups, forcing the majority to seek jobs rather than pur sue entrepreneurship, liberal funding prompts many more people to chase their dreams instead of chafing at their limiting roles in somebody else’s business. This is most welcome. But this cannot, by itself, offset the damage. Investors who give their investee companies the freedom to burn cash encourage organisational flab: Housing. com is preparing to sack 600. e-Commerce companies have created a huge delivery business, on the strength of orders prompted by steep discounts financed by liberal funders. Once the discounts dry up, as they have to, when investors in e-commerce start looking for returns, will the delivery business sustain with its present manpower? The longer the discounts continue, the greater the hurt to offline retailers who do not have investors who think in terms of `burn rates’ and valuation changes.

Joseph Schumpeter coined the term creative destruction, to describe capitalism’s inner dynamic that constantly revolutionises the production structure, destroying the old to create the new. Excess funding of startups probably deserves to be termed destructive creation.

(Source: Editorial in The Economic Times dated 11-08- 2015.)

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Phase Out, Not Ban, Participatory Notes

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As transparency norms rise, the supply will ebb. The Supreme
Court-appointed Special Investigation Team on black money has flagged
participatory notes (P-Notes) issued by foreign institutional investors
as a possible conduit for illegal funds in the capital market.
Transparency as to the identity of those investing in the market is
necessary. However, abrupt changes would be disruptive. The ideal
strategy is to lower the transaction cost of registering as an investor
in India, so as to encourage most investors to come in directly rather
than as part of a larger institutional investor, phase out most P-Notes
in a stipulated timeframe, while allowing a small category of entities
like university endowments, about whose credentials the regulator has
total comfort, to continue to invest via P-Notes.

Sebi, has
thoroughly revamped the disclosure requirements and eligibility
conditions for participation in the offshore derivative instruments, and
the rules now are far more stringent than before 2007, when Sebi, under
M. Damodaran, had banned them.

P-Notes returned, in the wake of
the financial crisis and capital flight, but with greater mandated
transparency. P-Notes can only be issued to entities from countries that
have signed a multilateral agreement to combat money laundering and for
exchange of information with the International Organisation of
Securities Commissions. Besides, the funds routed via P-Notes have
dropped substantially in recent years and now account for only about 11%
of the secondary market. So, there is no case for any abrupt regime
change.

However, for the sake of transparency, P-Notes are
entirely avoidable, and do need to be phased out in a timebound manner.
The new global rules in the making on transparency, complete with a
system of unique legal entity identifiers that would make beneficial
ownership visible at the end of even complex holding company chains,
would remove the virtue investors seek in P-Notes: anonymity. The supply
of P-Notes would come down, in other words. A time-bound plan to
phase-out P-Notes would make eminent sense.

(Source: Editorial in The Economic Times dated 29-07- 2015.)

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Greece – A Tragedy is Averted, But Heed its Lessons

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Jean Paul Getty, in the 1950s the wealthiest person on the planet, said, “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” Shorn of jargon, that is the deal Europe made with Greece. Europe will pump in another €86 billion over time into Greece, in return for promises to reform. How exactly Greece will reform is unknown. It has a culture of high tax avoidance, low retirement age, lavish pensions and an oligarchy that controls much of its economy and media. It also has little or no industry and relies largely on tourism and farm exports to earn foreign exchange. Have you read a manufacturing label that says ‘Made in Greece’? Yet, for many reasons, it cannot be ejected from the eurozone. Greeks feel they have been dealt a bad hand by Europe and global capital. So they voted for a Left government led by Alexis Tsipras, who vowed an end of five years of ‘austerity’. Tsipras now has the tough task of selling ‘reform’ to his voters. Europe is hostage to Greece, whose economy is tiny but heritage is immense. Aristotle, Socrates and Plato taught it civilisation. Euclid is the father of geometry. Athens was the seat of culture; Sparta the nursery of warriors.

Yet, Greek culture cannot be a financial band-aid. The idea of a eurozone, where states have no monetary policy but only fiscal and other policy widgets, has been challenged. This time, Greece has stared down its bankers by Getty’s logic. The next time might be different. And policymakers in India, where the economy is slowing, consumption and investment lacklustre and banks are saddled with bad debt, should take note: Greek tragedies might overwhelm Kalidasa’s epic tales of love.

(Source: Editorial in The Economic Times dated 14-07-2015.)

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Black Money Law – I-T Professionals vs. IT Professionals – Software industry isn’t a laundering haven

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It appears that the taxman has turned his steely gaze towards Indian software professionals with retirement savings in the US. Stiff penalties under the ‘black money law’ are reportedly in the offing if investments are not disclosed. That is unfair. These professionals are not scheming cheats stashing their cash overseas. They pay taxes on their global income in India. Mobility is extremely high in India’s export-driven software industry. These professionals have foreign bank accounts, make social security contributions or contribute to US retirement savings such as the 401K plan, where the contribution is made out of pre-tax dollars and taxed only at the time of withdrawals. For this lot, to keep track of each and every deposit made in the bank account since it was opened is tough. Any inadvertent error in disclosure can lead to needless harassment. This will hold equally for those who have worked abroad on short stints.

True, government has now offered a voluntary compliance scheme that allows Indians with hidden assets overseas to come clean. However, once the compliance window is shut, anyone charged of wilful attempt to evade taxes will have to pay a stiff penalty and face prosecution. Should IT professionals also use the compliance window, especially since information on undisclosed assets of Indian taxpayers will be available later this year under the Foreign Account Tax Compliance Act? The US had passed the law in 2010 that requires US taxpayers and foreign financial institutions to report information on foreign accounts of US taxpayers. With the Indo-US accord, our tax authorities will secure details of financial accounts held by Indian taxpayers in the US. So, a clarification is in order.

Applying the draconian provisions of India’s black money law to Indian IT professionals is simply unjust. Instead, the government should go after the big fish who dodge the tax net. India certainly needs an IT-empowered, big data-crunching department that can tell a person how much tax she should have paid, instead of the taxpayer saying how much she earns.

(Source: Editorial in The Economic Times dated 14-07-2015.)

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Political Burden in the Banking System – Bad loans have their roots in rotten politics

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The Reserve Bank of India’s (RBI) financial stability report, released last Thursday, offers much scope for discomfort. It says, roughly, that bad bank loans — however or whatever you designate them — are growing and stateowned banks, with large exposures to lousy projects, are most vulnerable. Since the bulk of banking and project finance is done by state-owned banks, this is a grim picture.

Most private banks lend short-term, for working capital, leaving the public sector banks (PSBs) to do the heavy-lifting for large projects, including investment for infrastructure, which India sorely lacks. But here is a problem: key appointments at state-owned banks and their lending decisions tend to be stained by the illicit manner in which Indian politics funds itself — by the proceeds of corruption.

Given the political-bureaucratic connections at play, PSBs lend heavily to politically favoured promoters for their inflated investment proposals, and when these turn sour, are more than willing to ‘restructure’ their borrowings by taking haircuts on the money lent. The power sector is crippled by the bad politics that deems power an ideal giveaway. The end result, as the RBI points out succinctly, is to double the amount of bad debt that the banking system carries: from under 5% of total lending to over 11% today. Yet, these warnings from the central bank cannot solve the bigger problem that eats away at the heart of the economy: the rot in political funding.

In India, this is opaque and driven by illicit cash, stashed away by companies and paid in return for political favours, including bank credit, for dodgy projects ranging from infrastructure to mining. Equity investors have burned their fingers and have become risk averse; the RBI can help by deepening and widening the market for corporate bonds. But the most important reform, that should start at the top, is to clean up political funding: once that system becomes clean and transparent, much of the chain of graft leading from parties to babus, crony capitalists, bank officials and bad loans, will be broken.

(Source: Editorial in The Economic Times dated 30-06-2015.)

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By converting Professional Relationships into ‘Family’ ties, we create Conflict of Interest at all levels of Society

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From Donald Trump to Richard Branson, from Vijay Mallya to Lalit Modi, buccaneering, system-gaming, high living billionaires are the stuff of urban legend. The righteous scream for Modi’s head and secret admiration combusts with shrill jealous moralism that Modi is brazenly rich, boasts about his many connections and is seen partying with Paris Hilton and Naomi Campbell.

While thousands of Indians live in almost similar glass houses, dream of gaming the system and well-networked mini Modis proliferate across India, we are content that a public stoning of Prime Time’s Public Enemy No 1 is going to solve the deep-rooted problem. We hypocritically cling to the adage that to be rich and create fantastically successful cricket tournaments are criminal acts, yet we conveniently overlook the fact that conflict of interest at all levels of society is hardwired into our cultural and institutional DNA.

Extraditing Modi or securing the resignations of Sushma Swaraj and Vasundhara Raje may make for a neat end to the TV drama but unless we understand the institutional nature of the problem, the malaise will only grow. And the malaise is that as a cultural trait we Indians convert professional relationships into family bonds and thus create conflict of interest at all levels of society. How many times have you heard the phrase: Mr. VIP is like my own brother?

Modi has the whacky chutzpah needed to create a massively successful private sector property like the IPL. All the moralistic handwringing about cheerleaders being anti-Indian culture and pure cricket being replaced by casino cricket has been buried under the tidal wave of public enthusiasm for the inter-city tournament.

There is hardly anything morally wrong about big money coming into cricket, provided of course that the money is clean. Modi had the audacity to thumb his nose at UPA when he shifted the IPL to South Africa in 2009. He also has the audacity to openly declare his close relations with various politicians.

And here is where the problem lies. In our culture we too quickly transform public relationships into private ones and professional relationships into family bonds. For us anyone with whom we should have a close professional relationship is instead a feudal attachment of either ‘didi’ or ‘dada’ or ‘tau’ or ‘chacha’. Seeking to make public institutional relationships into private family relationships is the bane of our social life. The dada-didi, chacha-tau syndrome means that loyalty is always to the ‘family’ relationship and not to institutions.

Prurient moralists scream that Swaraj and Modi’s dinner at a London hotel is a criminal act when it emphatically is not. Where the conflict of interest comes is that Swaraj clearly acted on the belief that her ‘family’ ties with Modi and her loyalty to an old close relationship over-rode her institutional public responsibility as minister.

The same goes for Vasundhara Raje. There again a close ‘family’ relationship was seen as more important than her public and institutional role. In fact the dada-didi, chachatau syndrome proliferates across our public life; it is so widespread that we don’t even recognise this serious conflict of interest which is so culturally ingrained. After all, aren’t VIPs duty bound to look after their families well?

Politicians have meddled in the BCCI down the decades, realising the enormous wealth and influence at its command and have sought to enter the IPL, attracted not only by the big money but also because of their so-called penchant for cricket. But do Republican and Democrat politicians in the US also hold important positions on baseball leagues or soccer clubs? Are Labour and Tory politicians office bearers of the MCC?

In India businessmen and politicians are united in a boys club of big money and big power, all of it legitimised in the name of cricket. And if it’s not cricket, it’s real estate, it’s educational institutes, coal allotments and telecom licences where largesse is handed out. In this dance of cronies, the state itself becomes a family enterprise, the Il Familia of Don Corleone, where only individuals matter, not institutions.

There is thus hardly any incentive to clean up the system, hardly any incentive to bring in professional managers or enforce regulations or ensure that black money pitfalls are cleaned up, because all deals are in any case done on a personal basis. Louis XIV’s declaration, ‘I am the state’, echoes eerily with Indian democracy of the 21st century where many Sun Kings and Sun Queens have converted the public realm into their private families.

The privatisation of the public realm means that institutions that belong to the people to ensure the public good simply become the family property of individual politicians or businessmen and the state itself is parcelled out between gangs of politician-tycoons. In an odd twist, in the economic sphere, while massive public sector white elephants urgently await privatisation, it is public life instead which is being busily privatised by the netas. Swaraj and Vasundhara Raje see nothing wrong in extending favours to Modi in their official capacity, because after all he may either be their bhatija or bhaiya or chacha.

As a society we’re trapped in creating honorary brothers, sisters, uncles and aunts instead of establishing modern relationships on the basis of professional responsibility and merit. In western societies, strangers on the street are hardly called chacha or dada. While this may be a heart-warming desi trait for some, it creates a feudal mindset by which private bonds must be honoured at the cost of professional duty. Until we find systemic ways to stop the privatisation of the public realm, a syndrome in which Modi, Swaraj and Raje are all participants, conflict of interest will constantly occur. The Great Indian Parivar is a blessing but also a curse.

(Source: Extracts from an Article by Ms. Sagarika Ghose in The Times OF India dated 24-06-2015.)

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Swachh Bharat cess exemplifies how the Indian tax payer is taken for granted – Roll it back

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These are taxing times. Finance minister Arun Jaitley’s fiscal policy
this year has been characterised by a combination of higher tax rates,
removal of tax exemptions and a new tax. So successful has j aitley’s
strategy of enhancing the tax burden been that indirect taxes this
financial year have grown almost twice as fast as his original target in
an economy with muted demand. j aitley often promises foreign investors
a stable and rational tax regime. h e should consider extending the
same courtesy to i ndian tax payers.

India has an annual budget intended to raise revenues for carrying out basic public welfare functions such as education, health and sanitation. i f these have to be funded through additional cesses and surcharges, that raises the question whether normal budgetary revenues are being frittered away on sops to vested interests – exemplifying maximum government, minimum governance. t here has been a constant increase in collections through different kinds of cess and surcharge. t heir collections exceeded r s. 1 trillion in 2013-14, or 13.14% of gross tax revenue. A cess today is levied on an extraordinarily wide range of activities, from salt to “cine workers”.

The rationale for every additional cess gets more and more unconvincing – we need to cease taxation by stealth. a mong the problems with the Swachh Bharat cess is that it runs counter to the spirit of cooperative federalism as revenue raised through a cess or surcharge is excluded from the pool that is split between Centre and states. C a G has pointed out that there is inadequate transparency and incomplete reporting in government accounts of the manner in which the money is spent. Jaitley’s fiscal policy is also an example of schizophrenia in i ndia’s economic policymaking. t he government constantly urges r B i to cut interest rates to stimulate demand but also follows a tax policy which limits demand.

Given that it imposes an additional burden, a levy should need a powerful reason. a clean energy cess imposed specifically on dirty fossil fuels and ploughed back specifically into clean energy projects makes sense, as it improves our environment. But a cess to carry out a basic function such as sanitation is an example of taking people for granted. i t must be rolled back.
Indians provide the lion’s share of India’s savings and investment. t hey deserve the same consideration as foreign investors.

$3 trillion excess debt

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The IMF debt estimate can become a ticking bomb given the downturn in economic growth combined with the prospect of higher interest rates in US

Companies from emerging markets have been on a borrowing spree in recent years. Now the International Monetary Fund (IMF) has estimated that these companies have over-borrowed around $3 trillion, which can become a ticking bomb given the downturn in economic growth combined with the prospect of higher interest rates in the US. It is not usual for a top official at the multilateral lender to speak about the prospect of a “a vicious cycle of fire sales and volatility”.

Such chaos is definitely not inevitable, but the next year could yet see massive swings in asset prices—in case the most dire possibility becomes a reality. A sharp increase in risk premiums could push many over-leveraged companies from emerging markets over the edge. Indian policymakers will also have to figure out a way to manage the triad of risks that IMF has talked about in its new Global Financial Stability Report.

The upshot: there could be trouble round the corner. (Source: Quick Edit in Mint dated 09-10-2015.)

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Reduce Sulphur in diesel, First of All – Without clean fuel, vehicles cannot cut pollution

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Delhi must stop beating about the bush on air pollution and, instead, speedily reduce sulphur content in diesel to proactively improve environmental standards. Slapping an environmental cess on trucks entering Delhi might actually worsen pollution levels, with traffic choked at toll gates.

The Centre, in announcing last week India’s intended nationally determined contributions (INDCs) for climate action, said it aims to improve fuel standards “in the near future”.

India is not obliged to set out its actual target dates in a negotiating document. Yet, as the expert committee, headed by Saumitra Chaudhuri, then member, Planning Commission, noted last year, in the business-as-usual scenario, the deadline to improve fuel quality is 2025 “or even beyond”.

The panel stressed that reducing sulphur levels in diesel is essential to reduce tailpipe emissions, particulate matter and oxides of nitrogen. The government needs to speedily improve fuel quality nationally.

As the expert panel noted, Bharat Stage-III diesel, with sulphur in the range of 350-500 particles per million (ppm) is still supplied in much of the country. BS-IV (sulphur levels at 50 ppm) is now increasingly available in the major towns, but vehicles on long-distance routes are more likely to run on BS-III fuel. The expert report emphasised that BS-IV diesel is a must for pollution abatement devices like catalytic converters to function. It added that when sulphur content reduces to 10 ppm (BS-V), the efficiency and durability of the onboard pollution control devices improve. However, to move to ultra-low sulphur fuel requires capital investment of the order of Rs 80,000 crore in oil refineries. The report called for a 75 paise sulphur cess per litre of automotive fuel to reach BS-V by 2020, and BS-VI by 2024.

The report was submitted last May, before the slide in oil prices. The government needs to address the root cause of urban air pollution and, given the far softer oil prices, levy an appropriate charge on auto fuel sales to revamp refineries.

We must in the near future move to BS-V fuel norms and not wait to do so only by 2020.

(Source: Editorial in The Economic Times dated 09-10-2015.)

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Sahitya storm – Writers must stand up for intel – lectual freedom, returning awards may not be the best way

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A rising tide of writers are returning their Sahitya a kademi awards in protest against growing intolerance and restricted space for freedom of choice in the country, since nda governments came to power at the Centre in 2014 and subsequently in many states. Culture is an early warning sign, and BJP-led governments must take note of growing signs of disquiet. e ven as people are lynched on suspicion of consuming beef, three rationalists have been murdered in succession in m aharashtra and Karnataka – extremely un- i ndian acts that are being laid at the door of h indu extremists. they are usually followed by a stream of statements from high-ranking BJP leaders, which appear to condone heinous crimes and create a culture of impunity around them by trotting out the time-worn cliché of ‘hurt sentiments’.

If writers and intellectuals were to secede, it would seriously diminish i ndian soft power. But more importantly, they broach broader concerns. Poor people in the countryside are dependent on the cattle trade. Curtailing this due to the hysteria over beef will see a drop in their living standards at a time when the agricultural sector is already in crisis. moreover, youth have grown aspirational and will not take kindly to an atmosphere of restricted political and social freedoms. a ll this will hurt B j P in elections and make Prime minister Narendra Modi’s modernising agenda seem hollow.

At the same time, writers also need to reflect on the perhaps unintended irony of returning their Sahitya a kademi awards as a protest against the government. t his implicitly concedes that Sahitya a kademi is a government body, and thereby raises the question why they were content with government patronage and did not fight for an autonomous body that truly represents writers.

A related concern is whether writers have been as vocal about muslim fundamentalism, or of left-wing crackdowns on dissent, as they have been on hindu fundamentalism. Few writers protested, for example, when the Left stifled intellectual life in Bengal or when Taslima nasrin was drummed out of that state. a solution would be to have a robust, autonomous body of writers that is willing to speak out on assaults on freedom of expression, no matter what quarter the attack is coming from. the government, on its part, must note that leftwing intolerance does not justify right-wing intolerance; both will lead to the same sorry results. India can flourish only in a liberal atmosphere, which gives citizens the right to choose.

A new international tax regime – Govt must con – sult industry and implement BEPS project

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The recent unveiling of the final reports on 15 action plans by the Organisation for
Economic Cooperation and Development, or OECD , under its Base Erosion and Profit Sharing (BEPS) project will undoubtedly mean new and formidable challenges for many companies operating in india and abroad. No less formidable will be the challenge the BEPS project will pose for the Indian tax authorities, as they have to conform to a new regime of cross-border taxation even as they undertake fresh tax policy reforms at home. The BEPS measures, according to one estimate, will affect just under 200 large indian companies. to begin with, these companies will have to adhere to the country-by-country reporting standards for their operations in different tax jurisdictions. Globally, an estimated 9,000 companies will be impacted by the new measures, and each of them will have to reckon with the tax policies in vogue in different countries where they have business operations. t he numbers may not look too large at present. But there is no doubt that the manner in which the indian authorities ensure tax compliance by companies operating in india under the BEPS regime will determine to a great extent india’s reputation in providing the ease of doing business, and hence its attractiveness as a destination for new investments.

The BEPS project, led by the OECD and the Group of 20 (G20) countries, is a response to the 2008 global financial crisis, and is meant to lay the foundations of sustainable and long-term economic growth by avoiding policies that promote growth at the expense of other countries. it has been estimated that multinational businesses have often used a complex transaction structure to artificially reduce their outgo on corporate taxes by shifting to jurisdictions with lower taxation. according to OECD estimates, such tax avoidance has led to a global revenue loss of $100- 240 billion every year – as significantly large as four to 10 per cent of global corporate income-tax revenues. the 15 action plans approved under the BEPS project will help improve transparency for both businesses and governments by introducing commonly agreed minimum standards for tax administration across countries. they are focused on a large number of diverse and important issues including those pertaining to alignment of taxation with the location of economic activity and value creation, application of transfer pricing guidelines and taxation of digital enterprises like those engaged in e-commerce. of particular importance is the BEPS regime’s focus on reinforcing the limitation of benefits to companies to prevent what is commonly referred to as treaty-shopping, where a company uses a location of business with the sole purpose of taking advantage of a tax benefit available under a bilateral tax agreement.

The challenges for both Indian tax policy makers and the companies are, therefore, huge. Indian companies expected to come under the purview of BEPS will have to increase their awareness of the new regime and start preparing to comply with the new regulations that are likely to be in place from 2017. Without losing much time, they have to bring their accounting systems up to date, improve their compliance mechanisms, particularly with regard to country-by-country reporting standards and transfer pricing rules, and upgrade the manner in which they report data. of some concern will be the way the BEPS regime will bring digital economy enterprises like start-ups and e-commerce ventures under the tax net. For the Indian tax authorities, the tasks are even more onerous. they have to start a process of consulting industry players on the BEPS regime and how they intend to bring their taxation system in line with the mandated international standards. this cannot be allowed to be a new source of irritation for industry or a cause for rising cost of compliance. there has to be a healthy balance between ensuring compliance without adversely affecting India Inc’s competitiveness.

Jaitley’s Gambit – Piecemeal tax reforms only act as a palliative, it’s time to revive direct tax code

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Finance minister Arun Jaitley has constituted a committee of experts to suggest changes to income tax law with the aim of simplifying it, providing a stable environment and reducing the incidence of litigation through removal of ambiguities. The aims are unexceptionable but the approach is puzzling. during his budget speech, Jaitley said he saw no merit in pursuing a new direct tax law. But controversies since then over the law’s interpretation forced him to engage in firefighting, which has now culminated in the expert committee. i ndia needs a new direct tax code underpinned by an integrated approach to reform, rather than piecemeal change.

The last six years have seen three finance ministers struggle to reform the direct tax code. The first draft in 2009 was the most comprehensive attempt to change the code, but it wasn’t fully implemented. i n the interim, problems multiplied as the law was not in sync with structural changes in the economy. Litigation has grown. a t the end of 2013-14, Rs.2.59 trillion of direct taxes claimed was under dispute. Problems aren’t going away as the recent controversy over MAT on foreign portfolio investors showed.

Jaitley should restart the exercise of a comprehensive new direct tax code. experience suggests that piecemeal reform merely works as apalliative. Not long after an effort at piecemeal reform, a controversy erupts and the fallout spills over to other areas of the economy. t he only way for Jaitley to avoid frequent bouts of crisis management is to completely overhaul the existing law. Blueprints of earlier attempts make it easier to get started and exclusive central control of direct tax means that the legislative process for a new law will be easier.

MAT on FPIs – Fickle Tax Laws hurt Foreign In – vestors

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It is absurd that foreign portfolio investors (FPIs) are facing fresh income-tax queries after the government granted them a retrospective exemption from the minimum alternate tax ( mat ), based on the recommendations of the justice A . P. Shah panel. however, FPIs will now reportedly have to convince tax authorities that they do not have a permanent establishment
 (PE) here to escape the tax.

Foreign institutional investors, now FPIs, have been in relentless fear that tax authorities could construe their domestic custodian as a PE in India, making them liable to pay tax. The government must come out with a clear communiqué on what constitutes a P E , and not leave it to interpretation. Waffling on the promise to scrap MAT on FPIs could create mayhem on the markets, needlessly. do servers, for example, create a permanent presence?
In the OECD’s view, a server i fixed, automated equipment that can perform important and essential business functions – may be sufficient to create a PE at the equipment location without the presence of human beings. Conflicting rulings by the authority of advance rulings have only added to uncertainty in this area of taxation. t he government should clear the air to mitigate investor concerns.

In this case, FPIs have approached the Dispute r esolution m echanism ( DR. P). t he need is to ensure its robust functioning – the DR. P has a pool of dedicated tax officers. India has slipped in the World Bank’s latest ease of doing business index in terms of paying taxes, and mounting disputes could be a major reason. t he country’s tax regime must be reformed to minimise disputes. o ur tax officers should be better trained to deal with complex transactions as India globalises. Predictability of tax conduct is on par with simplicity of the law.

Moody’s is right to warn that belligerent com – munal rhetoric could ruin India’s economic pros – pects

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Prime Minister Narendra Modi has gone all out to pitch i ndia as a global business destination. But the research arm of international ratings agency Moody’s has injected a timely note of warning on domestic actions that might scupper this bid. in a report titled ‘ India outlook: Searching for Potential’, moody’s a nalytics has said unequivocally that unless m odi reins in BJP members making controversial statements, i ndia runs the risk of losing domestic and global credibility.

President Pranab Mukherjee, addressing the Delhi high court on its golden jubilee, pitched yet again for pluralism and tolerance. and RBI governor Raghuram Rajan devoted a good part of his IIT Delhi convocation speech to explicating why tolerance is essential for i ndia’s economic progress. While tolerance allows the best ideas to come forward and compete, in an intolerant regime the worst ideas can’t be questioned. in place of the false opposition between tolerance and nationalism that hyper-nationalists within BJP presume tolerance, as r ajan proposes, should be deemed a patriotic service.

As the Moody’s report points out, there are two interrelated ways that religious majoritarianism and the spreading culture of bans and intolerance can hold up economic progress. First, rising ethnic tensions will discourage investors who have a host of international destinations to choose from. Second, the political debate in the country will turn away from development to more divisive issues, creating stiffer opposition to the government in Parliament and holding up the passage of reform measures key to turning around a sagging economy – such as GST, relaxed labour laws and land acquisition norms. Modi needs to lay down the ‘ sabka saath sabka vikas ’ line more firmly within his own party and government by telling his hardline colleagues they can’t have the cake and eat it too: it’s either economic progress or the religious agenda.

Ease of doing business in India – From 130 to 50 – Long road to genuinely improving business en – vironment

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The World Bank’s Doing Business 2016 report, which evaluates the ease of doing business across the world, has said that i ndia is the 130th toughest nation in the world in which to do business. t his is four ranks higher than it was in 2015, in which its rank has been recalculated to be 134 instead of 142. t he n arendra m odi-led government’s stated aim, to drag i ndia into the top 50 before its term is over, at present, looks distant. e ven this improvement underlines, in fact, how deep and wide-ranging reform will have to be just to improve on paper, let alone in fact and in the eyes of entrepreneurs and investors. t he improvement in the national ranking comes from, essentially, a few procedural changes in how d elhi’s power distribution company BS e S gets new connections to customers in south, east and west d elhi. t he number of inspectors has been reduced from two to one and the number of steps to the process reduced. a nd, the reason why i ndia has jumped many steps in the new method of evaluating ranks is because “reliability” of power supply is now a criterion, which it wasn’t in the old method used till 2015. o f course, power supply in d elhi and m umbai, the only locations the World Bank considers, is reliable – but, in the rest of the country, that is not always the case. Far deeper and broader reform will be needed, and it would be risky to be content with such improvements. Coincidentally, the government has also announced a committee, led by a retired judge, to look into how to redraft the income-tax law. t his is a valuable effort; by making the language clearer and less ambiguous, the number of disputes between the taxman and companies or individuals could theoretically be reduced. t he number of tax cases has gone up in the past decade, and several thousands of complex legal cases block up i ndia’s courts. o f course a well-drafted law might conceivably help settle cases quicker. But without a better-administered income- tax department, one that is not incentivised to chase down targets, a well-drafted law will make only a limited impact in tackling the current problems. n or will a better-drafted law help settle outstanding or frivolous cases quicker in the absence of judicial capacity at every level.

Finally, the quality of drafting of the tax law is not its only constraint on the ease of doing business – India ranked 157th in the world in terms of the ease of paying taxes. according to the report, 243 hours a year are devoted by business to paying taxes, which they have to do as many as 33 times, at an effective tax rate of close to 60 per cent of profits. In other words, the tax system needs to be overhauled not just in terms of legal but also economic effectiveness. And this is not a difficult task either. The finance ministry has in its possession a series of reports on taxation reforms, which have outlined a detailed action plan on how to make India’s tax system less adversarial, more friendly to the tax-payer and less prone to litigation. i t is time the ministry took a closer look at those recommendations for overhauling the tax system. a shallow effort will not work.

[Comment: Without a change in the mindset of the Bureaucracy, Revenue officials & the Regulators, it would be an impossible aspiration !]