Will Modi Administration Revive Indo-US Nuclear Deal?

Business Economics & Services Team (BEST)


  Will Modi Administration Revive Indo-US Nuclear Deal?

After being caught in the limbo for a long time, India's effort to flag off the Indo-US Nuclear deal signed in 2008 has kicked off new hopes and equal number of concerns. The Modi administration's decision  to revisit  the deal has rekindled the hopes of many who pitch for augmenting India's energy production through the perceived risky route of nuclear reactors. The implementation of the landmark deal was caught up in several complex issues. The foremost among them is the lack of consensus on supplier liability in the event of an accident.
The latest thinking is that the liability has to be shared  between the supplier of the equipment and the operator. Since the private sector participation is not envisaged in the initial stages of Indian nuclear roll out, the Indian government has to assume the role of the operator. Around 30 reactors which are in operation now are owned by the state-run Nuclear Power Corporation of  India (NPCIL). Importantly, the foreign suppliers want to know their liability well before  they take a call on investing in India. That saidi, many US companies are well poised to supply to India equipment, which can fetch them several billion dollars.
India has set a road map for investing US$ 85 billion  in the conceivable future for taking its nuclear production from a low of  4780 MW to 63,000 MW. This quantum jump has to be achieved for ensuring a good cover for achieving the objective of ensuring uninterrupted power supply to manufacturing units dotted across the country.
There is no denial that anything connected with power, be it thermal, hydel or nuclear, will kick off a political debate, especially when the  green lobby is taking strong roots in India. The governmental fiat seldom works in this country, if there is a massive public outcry. With the setting up of the Green Tribunal, the role of the watch dog and oversight committees have become more important. Against this backdrop, what is more important is to create an awareness among the people about the advantages of the nuclear power. The resistance being faced in Kundamkulam in Tamil Nadu was mainly borne out of the fears cast by the Chernobyl. Genuine efforts have to be made to make the people understand the exact nature,impact and the safegueards against the unlikely event of an accident.
Protectiveness should be hallmark of any implementation strategy. An insurance fund has to be created to meet the exigencies and the unlikely accidents. Also, steps should be  taken to minimize the loses on account of accident. The foreign equipment suppliers are keen to know exactly what would be the quantum of their contributions in that insurance fund. Also, the liability will be cast far and wide including on the components suppliers. Should their liability be at par with the original equipment suppliers is another area that has to be decided.
Nuclear Power generation always cannot remain in the precincts of the government. Sometime down the line, the private sector has to be brought into the game. There are some corporations like L&T, which have shown  interest in investing in nuclear power. Having regard to the fact that, it is a highly capital intensive sector, a serious thought has to be given for funding pattern, gestation period of setting up of the plants, the return on investment etc.
Equally significant is the possibility of import of second hand machines. A threshold age should be set for the import of such machines to obviate the possibility of India becoming a dumping ground of such machines. Stringent standards and specifications have to be laid for the import of machines.
Another important factor is the need for importing only the  state-of-the-art technologies and it should be made liable on the supplier to maintain the machine sufficiently for  a long time             

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How Reliable Is Official Statistics in India?

Business Economics & Services Team (BEST)



                                        How Reliable Is Official Statistics in India?
Many people are openly questioning the veracity of official statistics in India. The old idiom - lies, blatant lies and statistics - seems to have come back.  Look at the official statistics that has been put in the public domain yesterday. It says that  GDP growth for July-September 2014 has slowed down to 5.3 % as against 5.7% in April -June quarter. But many newspapers refused to take cognizance that the  growth rate in July-September is marginally better than 5.2% clocked in the same quarter in the previous year.

The perceived slide down in the growth rate is triggered by the lackluster performance of the  manufacturing sector, which contributes roughly 15 % of the GDP. Despite, these pitfalls., the stock market  has witnessed a steady rally mainly due to higher growth expectations on account of the likely cut in interest rates and the prospects of further reforms.
Now let us analyze the economic parameters in the public domain. For the last one moth or so, a lot of stories have been churned out in various newspapers indirectly cajoling the RBI Governor to cut the interest rate and that too a steep cut. The stories  are twisted and colored to serve that ultimate purpose. Let us look at some of these stories. Important among them are the slide down in the rate of growth of  whole sale and consumer indices, which have been played up out of proportion in most of the newspapers. Why it was done? The reason why RBI kept the interest rate unchanged was the enhanced inflationary expectation. One need not dispute the fact that both the parameters -wholesale and consumer indices-have fallen marginally. The rate of growth of inflation has only fallen from a higher base. That does not mean that in absolute terms the inflation has come down. Prices have not fallen for essential items of common man. Prices of almost all food articles are at least 25 to 35 % higher than what they were in the previous year and almost 50% higher than what they were two years back. It is also true for poultry, fruits and other items and in some cases they  are higher than the average increase in the prices of food articles.
The government can hide behind the statistics that they roll out. But the common man is facing the brunt. Some of the sections of the public are partly insulated from the onslaught of this increase. They may be businessmen, traders, salaried people and to a lesser extent the government pensioners, whose compensation is partly linked to   the inflation indices. What about vast majority of people who are not covered by the safety net? They are suffering and their wrath no government can overlook only at their own peril.  

Now, the other factor that is refusing to come into the public domain is the net saving that the government and the oil companies have reaped on account of the steep cut in the oil prices. From close to US $100  per barrel, it is expected to hit  below US$70 billion. The oil prices are decided by a combination of factors like oil futures, which is a function of demand and supply, both expected and current and the geopolitics factors like uneasiness among countries, transport bottlenecks etc. The public should  know the profile of prices at which oil contracts are concluded and other modalities like whether is there any middlemen and who negotiated the prices and a host of connected issues. That is what transparency means and any effort to hide these facts will perpetrate the opaqueness in the system.

Equally  significant is why rupee is still above Rs 60 vis a vis dollar. Rupee could have shored up against the dollar on account of the decline in the foreign exchange outflow triggered by lower oil prices. People who are in the know of things maintain that even if the  oil prices slide below US$50 per barrel, India's import bill will not come down since there is a huge pent up demand for import particularly for gold. Instead of tightening the screw  for gold imports, the government in fact has eased the import regime, which can offset the gains on account of the lower oil prices.
                  

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Will Oil Loose its Shine?

Business Economics & services team (BEST)


                                                Will Oil Loose Its Shine ?
As expected, the OPEC has voted against cutting back oil production to stem the falling prices. Is there any method in the madness? What are the reasons for the roll over of the production target? If one  expects that answers to these questions are simple and straight forward, he or she is living in fool's paradise. Oil economics is mired in complexities, intrigues, double speaks, cut backs and what have you. Earlier, the oil world was divided into two: producers and consumers. Hegemony of producers have led to non producers exploring oil wealth and some of them have succeeded, some partially and the rest failed. When more countries and economies have emerged as oil producers, there was division among them as poor and rich oil producers and newly oil found countriesl. Over the years, a number of sub-groups emerged such as shell gas producers, producers who can meet domestic demand partially and those who have to resort to import in varying degrees for meeting the demand.

Every oil consuming country stands to benefit from the cut in oil prices, which pundits believe are on two counts. One excessive production, which has led to a glut in the market, which exerted a downward pressure on oil prices  and two cutting down the cascading effect cast by increased oil prices on their economies. In the immediate run, it will impact on the prices.
 A slowdown of the manufacturing sector and its consequent impact on the economic growth necessitate only lesser imports of  oil at a time the international prices are ruling very low. The oil price cut has given a reprieve to economies like India, which often face current account deficit on account of mainly heavy oil imports. But, imports of  non-merit  goods like gold, luxury items etc have gone up partially offsetting the benefits accrued under the oil price cut. Also, its beleaguered manufacturing sector is refusing to budge and buck the trend. Ideally, a country like India can reap profits from the price cuts only when its investments picks up. The foreign exchange saved from lower oil rices can be used for   importing capital goods, which go into the manufacturing sector. In the absence of such a shift in import demand, oil price cut may become a zero-sum game
The  grapevine making the round  amidst the deep oil cuts is the arm twisting the US and its axis group in oil production are indulging in to ensure their  hegemony in the oil economy. The Russia-US diplomatic relations, perhaps is at the lowest ebb in the recent times. Ukraine issue has almost isolated Russia from other developed countries. The steadily eroding   Ruble against dollar and the low realization of  Russia from the oil sector on account of  low prices are well-known. There are also unsubstantiated news or mere rumors about  Putin's health, which is also putting great strains on the  Russian economy. if the low prices continue, sooner or later Russia will be hard hit.
It is also true that the US and Saudi Arabia cannot afford to have a low oil price for ever. Shell gas production in the US is expensive and once the oil prices hit the bottom, it will not be economical for the US to mine shell gas. So, they also need a price recovery. Of course, the US and Saudi Arabia  csan wait for some more time unlike the poorer countries like Venezuela, Algeria and Iran etc, who are already reeling under the impact of low prices.
What will be the game plan of the US? They know very well that the price slump can be managed for sometime. In the meantime, great damage will be caused to the smaller oil producing countries. Some of them will put the oil wells on bloc and others may vacate the field at least for a short term. In the meantime, gaining from the low oil prices, economies like China and India will recover. The demand will shoot up several notches above the present level. That time, they will emerge as the winners reminding one about the old adage: "head I win tail you loose".     

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India-US IPR War Awaits Obama, Modi Mediation

Business Economic & services Team (BEST)

              India -US IPR War Awaits  Obama  Modi Mediation

  A lot of debate, informed and ill - informed,  is happening on the India-US stand off in the IPR regime. There are accusations and counter accusations from both countries. Happily, the severest of the criticisms from either side are couched in diplomatic niceties, unlike the bilateral talk between India and Pakistan, where the words and phrases are intimidating and used by both sides to hit each other below the belt.

The latest to join the fray is Intel, with a clear warning that India should protect the trade secrets, ostensibly telling that the findings of their research laboratory situated in Bangalore should be protected from theft either by their own employees or by the regulatory authorities, who can stealthily divulge the secrets when mandatory filings are made. If one wants to read in between the lines, the allegation is very serious. It has two imports. One, the government is soft on those who commit the theft. Instead of sending the thief to bird (jail), they seem to have a field day by not invoking criminal proceedings against them. The second allegation is more sinister and that they openly proclaim that they do not have any faith in the credibility of the the Indian regulatory system, which tends to leak out the research findings, which can be  worth billions of dollars.

Intel is one among the long array of complainants of the IPR regime in India. A few days back, pharmaceutical companies have made similar allegations, followed  by electronics and telecom majors. Thankfully, two important segments, which are happy with Indian IPR regime are food processing and aviation sectors. It seems that they have  informed the USTR their appreciation and satisfaction about India's IPR regime in writing to USTR.
Now let us analyze why all on a sudden the Indian media is agog with stories on IPR, some of them seem to give the impression to the discerning  readers that they  are   outright  plants by vested interests. ( I refrain from telling  that they are planted by the companies themselves). The US companies feel that the forthcoming  visit t of  President Obama will provide an ideal platform for thrashing out the rough edges in the India's IPR regime.

In the given milieu, what  happening is inadequate orchestration of India's concerns on IPRs. There is a real threat from the US by misappropriating India's traditional knowledge and copy rights on certain segments like music, entertainment etc. It is being said that the Bollywood films and music are freely available in the grey market in the US. Also, medicinal properties of Indian herbs and plants, contained in the ancient books of India are used widely by the US companies to evolve new medicines, which are marketed widely.

It is significant to note that  the   assurances that are coming forth from the Indian authorities are vague and are couched in hyperbolas. For instance, the stock answer from the official sources in India against the unilateral decisions imposed by the US is that the issue would be discussed at the Innovation & Creativity Focus Group, set up between the two countries and a decision would be taken only after that . Some of the social activists have expressed the opinion that  the government was buckling under the US pressure and  threatened that any amendments to the IPR Act would have severe backlash.
There is no denial that there will be irritants in a dynamic and growing  trade relationship. These have to be addressed and resolved  in the spirit of give and take. India has a lot of concerns while doing business with the US. The foremost is the visa issues. The second issue is relating to large amount of unclaimed money vested with the US by way of  social security tax imposed on Indians who have short stay in the US. The third issue is the one relating to transfer of state-of-the-art technologies to India. Across the discussion table, these issues have to be discussed along with the US concerns  and agreement arrived.

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.Better Late Than Never-A Critique on Possible Relief to Shell & Voda

Business Economics & Services Team (BEST)


                                             Better Late Than Never-A Critique on Possible Relief to Shell & Voda

The statement of the Attorney General of India, that the Government is unlikely to approach the Supreme Court against the Bombay High Court decision, which has laid down some clarity on the tax on assets that are   transferred  is welcomed widely both in India and abroad. Many term this decision, if followed up in letter and spirit, can be a major incentive for attracting foreign direct investment (FDI). The benefits of this decision will flow to many other multinational corporations like IBM, Nokia etc.
The pertinent point is whether the public is sufficiently aware of the merits and demerits of the case. I suspect not many including some of the correspondents covering the subject are  aware of the implications of the case.

To put the issue in perspective, it is important to keep in  mind three developments. One, the recent judgement of the Bombay High Court, which ruled in the Shell case that the transfer of shares of   Indian wing of Shell to another group company abroad did not amount to transfer of capital assets and did not attract  tax. In another case, that is Vodofone, the Bombay High Court in 2008 held that a similar transaction was one of transfer of capital assets situated in India and hence Indian tax authorities has the jurisdiction to levy tax.

Subsequently, aggrieved by the decision, Vodofone went in appeal to the Supreme Court. The apex court held that  the transaction between Vodofone and Hutch was a share transfer and not a transfer of capital assets. To ensure brevity, the reasoning of the Supreme Court is not reproduced here. The court has made a legal distinction  between a company and its shareholders. The judgement also did not make a distinction between the shareholding that constituted a controlling interest and shares that are purely financial investment. The court laid stress on the legal identity of the company  and held that once the shareholders of the company have a legal identity distinct from the company, no matter what the proportion of the shares they hold, it follows that the two companies would have distinct identities even if one held a controlling share in the other.  It  emphasizes that even a subsidiary has an identity that is distinct from its parent holding company.

The second important point is that the tax  authorities should not ask (look through) whether the transaction is a tax avoidance method, but apply the "look at" test to ascertain its legal nature.  Going behind the "corporate veil"  or looking through would be legitimate only in cases where it can be established that there is a deliberate intention of evading taxes.
However, the Indian government feels that if an Indian company conducts a financial transaction, the government should get its tax. In 2012, India changed its Income Tax Act retrospectively and made accountable for companies in similar situations to pay taxes and confirmed that Vodofoe  will have to pay taxes to the tune of US$ 3.3 billion.   (Esteemed readers are advised to refer the Court judgments to have a clear idea about the intent of the judgements)
A few points that have to be considered in this cae are the following:
1. Since the opinions of the jurists, legal experts, policy makers etc. are sharply divided in this case, should we have a more informed debate on this issue before taking a decision. The finance  minister has announced that that an empowered committee was set up to look into the issue of retrospective tax in the last Budget. The public should be informed as to what stage are the deliberations of the committee and when will it come out with the report.
2. Foreign investors make up their decision to invest in a country based on many factors. One among them is the certainty and continuity of tax, rules, legislation etc. since  they  can plan it well in advance and make arrangements accordingly. The government coming out with a clear legislation in this regard will augur well and it should fact in what are the tax provisions for similar situations in foreign countries. This will obviate delayed litigation and the so called policy paralysis.
3. The legislative pieces governing tranafer pricing should be referred to the law commission to look into the complex issues that have been addressed in the judgements such as look in and look through, distinction between money investment coming from clean sources as against  tax havens. In the said case of Vodofone investment has come through Canyon Islands, a tax haven. Significantly, transfer price issues have come up in India in the recent times, ever since mergers and acquisitions have become  frequent happenings. Our legislation in this regard is at a nascent stage. We have to have more clarity since it is going to be a regualr feature in our  economic landscape.
4. Also, the judgement has to be seen in perspective of many such mergers and acquisitions in the pipeline. Some of the companies, after such mergers or acquisitions will emerge stronger cornering a sizable market share, defeating the very purpose of competition laws.  
5. Similarly, an empowered body can decide doing away with retrospective tax, which by the very import of the word in uncertain and unpredictable. In this regard, it is better to give amnesty to the past cases by imposing fines decided by both government and  parties rather than allowing such cases to drift in the court.

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Be Courageous Rajan: Keep Nation's Interest First

Business Economics & Services Team (BEST)
             



Business Economics & Services Team (BEST)


Be Courageous Rajan: Keep Nation's Interest First

 The media is hell bent on pushing RBI Governor Raghurm Rajan  to do the most expected and that is slashing the interest rate. There are suggestive stories appearing with regularity in almost all newspapers about the imminent rate cut, He seemed to be a listener most of the time the cacophony of demands and sometimes veiled threats. But Rajan gives  some indications, of late, that he is his own man and can rough up pressure exerted from any source, however powerful they may be.

RBI Governor's lambasting of low debt recovery from the corporate defaulters is significant. Corporate can roll out umpteen reasons for the low recovery, such as economic slowdown, high cost of capital, widespread sickness etc. The outstanding value of debt accumulated over the years works out to quite a tidy sum; something  close to Rs 2.5 lakh crore. This is enough to fund the entire Swatch Bharat or enough to build houses for a sizable number of homeless people or providing basic health  to  millions of people.
Importantly, a causal look at the time series on defaults indicates that it was prevalent even during the boom years also. There are many cases studies, which bear testimony to the fact most of the accumulated debts are due to mismanagement, family disputes, willful default and diversion of funds  disbursed  for other activities including speculative operations.
Rajan is not new to such situations. In the past also, he experienced similar contradictions and aberrations. His magnum opus " Fault Lines" is a crystallization of  his hands-on experience and thoughts on crony capitalism and how it has subverted the market polices to the advantage of a few and powerful.

By now the RBI Governor must have realized the opaqueness of the Indian financial sector, which is mired in myriad of  loosely cobbled up policies, exemptions and conditions that are heavily loaded in favor of certain sections of the people. For instance, there are policies that act as cushion  against  higher interest rates. A case in point is the 5 percent interest subsidy enjoyed by certain segments of industry like textiles under Technology Up-gradation Fund(TPF), which is a hotbed of corruption. Some of the well run industries get funds at zero or negligible rate. The public would like to know how many such companies are defaulting teh reapymnets, which comes to them almost free of interest rate.    Rajan should ask himself why hell break loose when the capital market dithers and all out cries at high decibels resonate the Indian media space. Death due to negligence, poverty or high handedness of officialdom go unreported or pushed to  innocuous corners. This is the great Indian paradox.

Now there is a new pitch on cut in interest rate. A snap poll conducted by a powerful media group found that the possibility of a rate cut in December this year is remote. The survey claims that it is the perception of the entrepreneurs, whom they have surveyed. The survey also suggests that possibly in February 2015, a rate cut can be expected. I do not know the coincidence of the so called survey and freeloaders charge made by Rajan on the debt defaulters.  

The RBI Governor has been put into a spot when the finance minister has aligned with the protagonists of interest rate reduction.  The FM  believes that a reduction in interest rate will kick start the economy. I sincerely hope that the erudite finance minister is not swayed by the well orchestrated campaign conducted by the vested interests. Rajan should realize that two of his immediate predecessors were not decorated as much as he himself, but they valiantly stood the ground to see that monetary policies are rolled out based on the ground realities and not according to the  whims and fancies of the concerned minister or the media reports. One expects Rajan also to show some courage and stick to his rules even if that  costs him dearly. That is what his two immediate predecessors did and they will be remembered for that courage and conviction. 






    

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Many More to Follow Xiaomi Trail in Telecom

Business Economic & Services Team (BEST)

                              Many More to  Follow Xiaomi Trail in Telecom
   

For the growing tribe of Indian mobile telephone users, lovers and connoisseurs, the news about Xiaomi's, China's largest mobile phone manufacturer proposing to set up a manufacturing base in India, will be a welcome news. So also for the government, which is embarking on a massive Make in India campaign to give a leg up to the manufacturing sector in India. This blogger also a few days back in one of the columns mentioned about the need for for making India a prime destination for manufacturing electronics and components  items. The column argued that the inverted indirect tax structure of  the country, where the customs duty chargeable on imported items are heavily skewed for certain items in electronics  on account of the higher duty on raw materials and components and lesser duty on finished products, which led to heavy import of finished electronics goods into the country. That also led to a growth without adeqate employment  in the country.

According to reports emanating from certain quarters, the world-wide trade in electronics goods will swell to close to US$ 2.2  trillion  by 2014-15 and the components alone will account for US$ 547 billion for the same period. This is a huge market and perhaps, it is a trade volume hitting close to the trade turnover of oil, which many predict that will surpass in the coming years. India, it is estimated that by 2020, will have to import close to US$ 300 billion worth of electronics goods into the country to met the burgeoning domestic demand, which is estimated at US$ 400 billion. The domestic production that time around will be only US$ 100 billion. That means our import bill will be huge even surpassing the oil import bill.

Earlier to Xiaomi, which has become a hotly chased mobile phone on account of its embedded multiple operations and sleek look has already became a new found fad. Its exclusive marketing tie up with e-commerce companies has made the distribution cheaper and the prices, therefore, are competitive. Many believe that  the setting up of local manufacturing base will help the company to reduce the prices further to upstage other predominant  smart phone manufacturers in the country.

In the euphoria, that has been lapped up by many one should not lose sight on  few issues that merrit close attention by the government. One is about the realization that our earlier campaign to attract the world telcom majors into the country fell flat. SriPermbudar in Chennai was floated as an exclusive zone for manufacturing electronic goods. many telecom giants had set up their bases including Nokia. Most of them have wound up their operations or in the process of it. One has to study very carefully the reasons for such large scale closure.

Two, India should not become a dumping ground for e-waste. Telecom manufacturing will lead to a lot of e-wastes and some of the developed nations resistance to go for large scale production is emanating from that reason. We have to have proper system in place for treating the e-waste, without leading to any healht hazards.

Third, the giants which are manufacturing telecom devices should be encouraged to source their raw materials and intermediate goods from India. Prior to 1997, we had a burgeoning electronic and telecom  components  industry. They bit the dust when India had become  a signatory of the International Telecom Agreement, wherein the customs duty of  most of the products were brought to zero. Even now there is pressure from major countries to preempt India from imposing customs duty on the products that were innovated after the cut-off date of 1997. The recent stand taken by some of the major telecom operators in India against the import duty on telecom gear is a case in point.

Fourth,  for mass level production of electronic goods, India should set up hardware parks, where there should be facilities for manpower training, uninterrupted supply of power, facilities for dumping e-waste without creating health hazards, workers' hostels etc. More such facilities should be set up in SEZs, where the CAG recently came out with a data that they caused huge losses to the government on account of tax diversions. It is a prudent to allow the electronics industry to set up their base in these areas.

Fifth, there should be testing laboratories of high repute and standing set up close to these hardware parks or places where electronics goods  are being manufactured since there is a threat perception that  the manufacturers may tend to use spyware and malware, as reported widely across the world. Xiaomi is the first Chinese telecom device manufacturing company, which has announced its intention to start manufacturing from Indian base. Some type of checks and balances are important, since anything from Chinese is looked with some suspicion in India.       

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US IPR Group's Meeting with Indian Higher Judiciary Thwarted-Does it Augur Well?

   Business Economics & Services Team (BEST)              



 US IPR Group's Meeting with Indian Higher Judiciary Thwarted-Does it  Augur Well?

   The raging debate today is whether the pressure groups are allowed to meet the judiciary to explain their  views. The case in point is the effort of the US IP body -Intellectual Property Owners' Association -to meet the higher judiciary -Delhi High Court judges and the Intellectual Property  Appellate Board(IPAB) was postponed presumably because of the pressure exerted by  activist groups  in India  consisting of  patients groups, social and health activists and lawyers. The IP group from the US  has already met the officials deling with IP related issues in the government and is reported to have aired their views and perceptions about the working of IP legislation in India, the pitfalls and how they can be toned up to encourage flow of state-of-the -art technologies to India.

A lot of views have expressed in open for and against such meetings of pressure groups  with  the higher judiciary.A shade of Indian public opinion feels that such meetings are healthy since the industry representatives will be able to explain to the judiciary their side of the concern. Having regard to the fact that IP laws and rules are relatively of recent origin in India, they feel that such high level interactions will enable the judiciary to keep abreast of the latest thinking on the issues governing the laws. It is a  fact that   many in the higher judiciary  were  not sufficiently oriented or grounded in such laws during their  days in the law school. The same is the case with application of economic laws to legal conundrums. A large part of laws governing competition, anti-dumping, taxes, etc. have strong economic base. For instance, the methodology for measuring the injury in an anti-dumping case is purely on the basis of economic  calculations based on econometric models.

The new entrants to the judicial service or the new advocates passing out from the known law schools, undergoing the five year integrated course may be aware of  such techniques and postulates. But such people reaching the higher layers of judiciary may take some more time. In the given situation, there is no harm in allowing the existing people in the judiciary to pick up some knowledge through interactions either with the specific interest groups or taking part in seminars and workshops held in other places. I would go a step further in suggesting that the relatively younger judges should be given sabbatical leave for honing up their skills in areas where they did not get any orientation during their law school days.Another proposal worth considering is calling social activists also for such interactions, provided that the deliberations are free from verbal attacks on each other.

Understandably, there is a mistrust between social activists and the judiciary. Perhaps, this could be more on account of the lack of interface between the two. Social activists often quote the Novartis case decided in 2011, when a judge had to acquiesce himself when it was pointed out that he attended a seminar or workshop  abroad mostly funded by the pharmaceutical major was a sponsor. There is a solution for obviating such unsavory occurrences by state sponsoring such trips of the judges. The entrie expenses have to be borne by the state.
Undeniably, IPR issues will occupy a significant quantum of court time in the coming years. Awareness about patents, trademarks, copyrights etc. are gradually percolating to the grassroots. Pharma companies are not alone in their fight against the Indian IPR regime. Of late, electronics and telecom companies from the US have aired their concern  about the indiscriminate  use of compulsory licensing  and data protection. They are also taking their stand for a higher period of IPR protection in India. In the given environs, our judges should be oriented in these specialized laws and at the same time  reasonable measures should be taken to ward off the perception that the judiciary will be pressurized to take lenient measures, if  interactions take place between judiciary and the pressure groups.        

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FM's Romance with Middle Class

Business Economics & Services Team (BEST)



                                               FM's Romance with Middle Class

When the General Budget is round the corner, the vested interests have their own way to influence the finance minister. With little support from media, their wish lists can be played up to any proportion. That is happening every year. This year also it has started well in advance. First because the two states are going for election from 25th November this year onwards and it will be completed only by third week of next month. The government cannot be held responsible for that. It is the election commission that takes the call on elections and its schedules.  Secondly and more importantly, the Delhi State will go for election any time from now and many speculate that it can be February next year. In any case, most likely the event will take place before the presentation of the next Budget on 28th of February 2015.
The Finance Minister has to address three  constituencies of the mammoth vote bank : the business , middle class and the salaried  people. In an election year, for certain, it will be a populist budget. But this time around, election is taking place in certain isolated pockets. Barring Delhi, the rst of the two states  -J&K and Jharkhand-are not electorally significant from the present government's perspective. Delhi is important because a failure can cause embarrassment to the ruling party since the party they are mainly pitted against -AAP- is a new political formation and has formed the ministry here and ruled for more than a month and abdicated the chair on its own, which in its own admission is a grand strategic mistake.
 Here in the city of office goers, businessmen, middle men and shopkeepers, it is widely felt that AAP has made inroads into the vote bank of economically poorer classes, minorities and the groupings of such ilk because, there is a growing discontentment against the present government on account of still high prices, lack of civic amenities and the high talks when there is only very little  to show in their progress card.  Also,some of the ardent supporters of BJP among the government servants,   tell  in private that the stringent attendance rules and the perceived over play of  a few from a particular state as informers and watch dogs. This has created a sense of discomfiture among them. That group has to be humored and brought to the fold

.Fiscal incentives and more civic amenities can offset some of their misgivings. Importantly, the Delhi government has put on hold the proposal to increase the power rates keeping elections in mind.
But the finance minister will be loosing the theme, if he tries to ignore the hardships of economically poor people, retired lots without pension and other vulnerable sections, because they are the hard hit lots. The statistics that have been rolled out to prove that the inflation is under check is not sending right signals to the common man. Even now, the onions, tomatoes, potatoes, vegetables etc are beyond the reach of the common man. Lat year, at this time, potatoes cost only Rs 10 per kg and in certain days and places it came down to the level of Rs 10 for two kgs. This year price for the ordinary variety did not come down below Rs 25 a kg in many markets at least in Delhi. So also the case or other vegetables.  Common man does not believe in statistics, which can be  interpreted  in any way one likes. One can compare with the prices in the previous quarter if last year's price is not comparable or less etc.
At the end of the day, finance minister has to bear the responsibility for all these happenings.  The decibel of blame and passing on the bucks will be more prominent  if the election results go against the ruling party. The good part is that the like the previous FM, the incumbent is  a lawyer and articulate. He can reason out and silence the critics. But the pertinent point is: how long?       

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What Happens When Modi meets Obama in New Delhi on 26th January 2015?

                                  What Happens When Modi meets Obama  in New Delhi on 26th January 2015?

News reports are pouring about the forthcoming visit of US President Barak Obama to India to be the guest of honor for the Republic Day   parade of India, a ritualistic event held every year with a lot of enthusiasm and fanfare. Those who are known about Prime Minister Modi's penchant for event management will vouch that it will be a perfect show played to the prepared text and candor. Bereft of any  major business consultations, the event most probably will be marked by bonhomie and to an  extent some theatrics by both leaders  to gravitate towards the public. It will be tagged as an exercise to build people - to-people contacts and to cement the sentimental ties between the two largest democracies.
There are apparently some similarities between  the two heads of states. One was a tea boy and the other in his younger days carried the baggage of discrimination on several counts. Both are self made people who worked their way up despite discrimination and apathy from the so called elite class. Both are people who had fought the system from within and every mental agony perpetrated unto them  honed up their fighting skills and sagacity and perseverance to face adversities. Importantly, both of them are crowd pullers and to a very great extent made to the top through their oratory and organizing power.
There are  marked differences between the two. Prime Minister Modi had the advantage of growing up in a family along with his siblings in a poor yet comfortable family confines. But President Obama had faced the vicissitudes of life right from the beginning. He was born into a multi-racial and religious family, his father a Muslim and mother a Christian,  his early separation from his father, his sojourn in Indonesia along with his mother and step-father, his return to the US to continue his studies under the supervision of his grand parents having diametrically opposite characters (see his autobiography), his early disdain with studies and the signs of a rebel are well documented by him.
President Obama was born in a land of opportunity and that way he could work his way up once he made up his mind to shun the past and look towards the future. From a social organizer, who worked at the grassroots fighting for the rights of the underprivileged and underdogs, when opportunity presented, he quickly grabbed it and made most of it by enrolling himself  at the best law school in the world - Harvard  Law School- and from there there was no looking back.

Prime Minister Modi' that way was not lucky to get education from ivy league. Drafted into the cultural wing of the BJP at an young age( that time it was known as Jansangh), the RSS, Modi  from his own accounts graduated to a  Prachark  (an organizer of sort) from  a tea boy, and got himself intensely involved in the activities of the organization. Whatever education he could get was through correspondence courses. There is a mismatch between his political acumen and known scholastic achievements. He would have made up that deficit  by traveling across the country and beyond and  actively participating in the social outreach programs.

Like Prime Minister Modi, President Obama has sentimental attachments to his roots. His visit to Kenya in the later part of his life, his association with his half siblings, step-father and a few unknown step-mothers, his paternal grand mother  and close relatives in Kenya are reminders of his sentimental touch that go beyond the  comprehension of  a suave, urbane and  highly educated person. That also highlights his capability to connect with the people. One looming picture that comes to mind is Prime Minister Modi visiting his mother in a nondescript house in Ahmadabad to seek  her  blessings surrounded by his relatives  after getting the mandate to  rule the largest democracy in the world.
Interestingly, President  Obama had realized that fighting against discrimination needed support from all sections of the people including those who vehemently perpetrated that in their action. His idea was to fight against the mindset and not the man. In his struggle towards that goal, he took the support of all - whites, browns,blacks, Hispanics, gays, single parents etc. That is why he had become the first elected black President of the United States. His is a treatise that will be remembered for ever and emulation was that is near impossible.  
President Obama, for some strange reason, has a culinary affinity with India. In his autobiography,  he mentions about our poor samosa several times and if my memory is right   there are narrations of him gorging that poor man's delicacy either in US or in Kenya. While I do not know whether Prime Minister Modi likes burgers or hotdogs, I am reasonably sure tat some delicacies of  Gujarat may find place in the exclusive menu card crafted for President Obama.
 Importantly, as days roll by, President Obama may  be inching towards the  end  of his career as the President of the United Sates of America, whereas Prime Minister Modi has just started his run. Does it portend anything significant?                   

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Will China’s Interest Rate Cut Impact India?

Business Economics & Services Team (BEST)

                                          Will China’s Interest Rate Cut Impact India?

The good news is that the People’s Bank of China has decided to cut its bench mark one year lending rate by 40 basis point (0.4%) to 5.6% from 6 % and the one year deposit rate by 25 basis point (0.25%)to 2.75 % effective from today. This has come close on the heels of its decision to inject US$ 81 billion into the banking system to support credit growth.

Everyone is asking will this cut influence RBI decision on interest rate. Expectation of a turnaround of the Indian economy is widely expected. With the fall in the rate of growth of whole sale and retail inflation, the corporates are expecting a rate cut around first week of December 2014, when the RBI will review the monetary ecosystem. Apart from the fall in the rate of inflation, the protagonists of interest rate cut say that the economy is expected to clock a growth rate closer to 6 %, which will be an all-time high in the recent years. Coupled with the softening of oil prices and a consistent recovery of the US economy, policy watchers  predict that the RBI cannot delay the interest rate cut for long. Significantly, none other than the Finance Minister of the country has put his weight behind the increasing number of corporates, business associations and others for a rate cut. It is also important to note the cautious reaction coming out from the RBI sources that mere demand for a cut in interest rate alone will not hold good: there should be a conductive eco system that supports the rate cut.

In the meantime, the corporates have upped their demand for a sizeable rate cut. Any reduction in interest rate less than one percent, according to them, will not help in stimulating the economy. The reasons are that the cost of capital is very high as compared to that is available domestically for competing countries. This has led to a complete jolt on Greenfield projects. Even implementation of some of the projects already underway, is struck at various stages on account of higher cost of credit. This trend has to be reversed: earlier the better.

Another cause  of worry is the increasing non-performing assets (NPAs) with the public sector banks.  According to reports, NPAs of at least five PSU banks have gone worse and they have been embarking on a massive restructure to hide the increasing ratio. In certain cases, the NPAs are as high as one-fifth of their loan book. The restructuring measures include conversion of debt into equity, extending the repayment cycle of loan etc. Along with restructured loans, which  are not counted along with NPAs, in some banks the non-performing assets is high as 20.5%. On an average, across the PSU banks, this works out to over 12%, which is definitely a worrisome indicator.

The worst of all these developments, as reported in media, is the rising share of NPAs in home loans, which always bucked the trend and had a mellowing effect, unlike the corporate lending. The data in the public domain reveals that the NPAs in the housing loan segment have grown up to 1.5% in September, this year   from 1.4% estimated in March. On the top of it, for three PSU banks, the NPAs in the house loan sector is  5% of advances. Not many years ago, the trigger for the world economy to enter a recessionary phase was the sub-prime lending crisis in the US, which had a snowball effect. Against the backdrop of  standstill in the realty sector for quite some time ( there are reports  that realty  sector prices  in most of the cities and towns have come down), we have to ward off a US like situation in India, when the people will rather forego property rather than paying the increased burden of  EMI.

All said, RBI has its own system to monitor the state of the economy. Some of the reports appearing in newspaper columns may be colored or being planted by the vested interest. The decisions of the RBI should be balanced  since there are a whole lot of honest people who are depending on their hard earned money in fixed deposits and similar instruments to  make their both ends meet. Any reduction in deposit rate will reduce their income considerably. The worst thing is that their voice is seldom heard in the public domain.

  

The People´s Bank of China decided to cut its benchmark one-year lending rate by 40 bps to 5.6 percent on November 21st. It is the first rate cut in more than two years as the economy slows.

The one-year lending rate was cut by 40 bps to 5.6 percent and the one-year deposit rate by 25 bps to 2.75 percent, effective November 22nd. Policymakers also decided to increase ceiling for deposit rates to 1.2 times the benchmark rate from the previous 1.1 times.

China’s central bank is said to be injecting CNY 500 billion (USD 81 billion) into the banking system, aiming to support credit and growth. Published on 2014-09-17

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More On Shell Decision-A Follow Up Story

Business Economics & Services Team (BEST)

     A follow Up Story                                                       
                                         More On Shell Decision


It is being reported that the Union Government has sought the opinion of the Attorney General,the highest law officer of  the country  to look into the recently come out  delivered Bombay High Court decision on Shell company regarding applicability of  transfer   pricing  rules to its transaction of shares to its group company abroad. As per the report, te government's future course of action of filing an Special Leave Petition  (SLP) in the Supreme Court will be heavily dependent on the opinion of the Attorney General.

Insiders say that there will  be little chance of the Government going against the decision since there is an attempt on the part of the government to project a positive image about the investment climate in India. There is a widely held perception that India is heavily litigated country, thus creating a lot of delays in the project implementation once the project is caught up in litigation.
The other view is that the government has already set up an empowered committee, as  proposed  in the Budget 2014-15 to look into the transfer pricing issues in general and applicability of the retrospective tax triggered by the ongoing debate on Vodofone case. The government has already clarified that in future it will deist from introducing such taxes.
There are also reports that reconsideration of the government's stand, if at it all it happens, will be triggered by the stiff stand taken by RSS, the cultural wing of the ruling BJP, which is famously known for its cautious stand against FDI. Since the revenue loss on account of Vodofone and Shell cases are huge, some people in the know of things observe that RSS is firming up their stand against such concessions.
A few political watchers scotch this view arguing that for the next one year or so, there may not be any stiff resistance from the RSS on account of the promise that had given that they will not upset the government policies for at least for an year. Also, the present government is well set in power for the next five years and even if they have to cross with RSS on ideological ground, they can make up in the next five years, when the country again goes to  polls. 

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SAARC Free Trade Zone -More Hype, a Non Starter

 Business Economics $ Services Team (BEST)





                                        SAARC Free Trade Zone -More  Hype,  a Non Starter

Ahead of the forthcoming Summit of the South Asian Association for Regional Cooperation (SAARC) to be held in Kathmandu shortly, a lot of news are in the public domain speculating on the agenda, outcome and things of that nature. Most hotly debated issues are the likely conclusion of two agreements -SAARC Motor Vehicle Agreement and pact on Railways. This is nothing new and has been going on for several years with almost zero results.
As a concept SAARC  had caught up with the imagination of many leaders from the region. During Prime Minister Gujral's time, he took it as his pet subject and created a special cell in the PMO to deal with the SAARC region. His short stint at the helm of affairs was one among the several reasons for not making any headway in that direction. That time also a road route through Pakistan for exporting Indian goods to CIS countries was preferred. Lack of  road connectivity forced Indian exporters to use Bunder Abbbas  in Iran as a transhipment point for exporting to CIS, adding up to their transaction costs considerably. The project was shelved on account of the passive resistance from Pakistan.

Similarly, another plan was formed to bring the natural gas from  Bangladesh to India to provide uninterrupted feedstock to Indian companies. Many grand plans were formulated and a number of US companies were keen to tap the gas from Bangladesh and to bring them through pipe into  India for finding lasting solutions to India's energy defict. The project had to be shelled or remained as a non-starter allegedly due to the pressure exerted by China on Bangladesh.
Another project was floated for trapping the hydel resources in Nepal for electricity generation to be used by the Indian companies adjoining that area and the surplus to be sold to Bhutan, which has to depend on energy from Indian sources. Some of the hydel projects were identified. But the work did  not start on account of the high cost of generation. Also, that was the time, many companies like Dabhol, Cogentrix etc had withdrawn from India on account of the high generation cost, which would  translate into higher cost of energy for the consumers.
India  had grand plans for Sri Lanka and many Indian companies had started their operations in that island country. Because of the huge availability of natural rubber, a few Indian Tyre companies had either evinced their interest in launching their operations and one or two among them really started their operations. Later these operations were wound up for one reason or the other.

Admittedly, all these concepts  were floated during a time when regional cooperation was the talk among diplomats, economists, policy makers and political higher ups. NAFTA, ASIA Pacific Rim, ASEAN,Caribbean Cooperation Agreement etc. were exotic terminologies, close on the heels of  formation of European Union (EU). Many thoughts that was the trend that would sustain. SAARC also inked the concept of free trade and prior to that, to increase the intra-regional investment and trade, SAPTA was evolved giving prefrential access to countries in the region for each others market. India unilaterally cut the tariff of many items to facilitate more imports from other SAARC countries, which were constantly complaining about  the limited market access to the Indian market. A free trade zone was created between Sri Lanka and India for limited products like tea and rubber. Border trade was allowed between India and Pakistan to circumvent the smuggling and  switch deals of Indian products through Dubai to Pakistan, increasing the transaction cost considerably.  But that did not increase either the intra-trade or investment, which is roughly calculated at 5 to 6 percent of the total trade from the region. Whereas such figures for EU is more than 60 percent and ASEAN close to 40 percent.

Now the SAARC has come in focus again. What is important to keep the target and road map realistic. The first attempt should be to plug the trust deficit among the nations, which has not shown any marked improvement. Trade  and investment flow only when there is peace in the sub-continent. Major diplomatic breakthroughs are needed in this regard   particularly between India and Pakistan, two major players in the sub-continent. Basic to that is the evolution of a consensus for dealing with terrorism in an iron-fisted manner. Two, focus on low lying fruits initially rather than coming out with grand plans. The lowest lying fruit in this regard is promotion of intra-toursim, which is easier tap and will be beneficial to all countries in  an equitable manner.
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