Will Rajan Idenify Faultlines Before Reducing Interest Rates?

Clamor for interest rate cut is gaining ground day by day. Finance Minister has already lent his moral support  for a reduction. He cannot dictate his term to the RBI. That is the beauty of delicate balance of power between union finance ministry and the RBI. While fiscal measures are within the exclusive purview of the finance ministry, monetary policy is tooled by the RBI. There were instances of power equations getting awry: one trying to transgress the turf of the other, leading to bitter exchanges. But consultations between the two are the order rather  than exception.  

Industry is expecting the long awaited cut to happen now. The government also has created an enabling situation for the RBI to go ahead with the rate cut. Reduction in fuel prices riding on the back of a sliding global price is an enabler. The other is the reduction in the wholesale price index, which  registered a five year low low of 2.36% in September. Consumer price index also went south. Industrial output moved up, according to the recent government data released.

The RBI, however cannot loose sight of the ground level realities. Prices of  food, vegetable, fruits and poultry prices  are   still ruling high in the retail market. For instance, tomato prices range between Rs 25 to 35 per kg, potato prices rules at Rs 25 to 45 per kg depending on the quality. Onion prices, though have come down from the peak, is still very high, as compared to the previous seasons. Most of the vegetables have become pricey in the recent days. Cost of medicines has increased after taking out a large number of items from the administered list. The only thing that has remained stagnant or near stagnant  are prices of real estate and  rentals, which have only limited bearing on the budget of the common man.

The RBI should also take note that the increased DA and salaries are applicable only to those who are in the organized sector or in the salaried group. For many in the informal sector and self-occupied people, their incomes are the same. With the increase in inflation, their purchasing power has considerably eroded. Many of them are tightening their belt. Those who cannot do that are selling their disposable properties  or  are liquidating their past savings to make both ends meet.

Unfortunately, our print media, particularly financial papers are focusing only the point of view of businesses. Naturally so,because they are their major clients  and benefactors. Voices of the  common man get downed in the cacophony of well orchestrated campaigns spearheaded by the vested interests. Governance apparatus should fact into their policy decisions  unknown and unheard voices.

Not that I am against a  cut  in the interest rate. If that is needed to kick start the economy, the RBI should not hesitate to do so. But the present governor of RBI is very good at identifying the  fault lines. He should do that here also very diligently to see that with the reduction in the interest rates, funds  are channelized for productive purposes and not for speculative deals. Such things had happened here earlier.

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A Land Mark Judgement on Sick Industries

                       

Not many would have read a recent judgement by a three  judge  bench of the Supreme Court of India, which will have far reaching implications on the recovery proceedings against sick companies. The disputed issue was the provisions of the Sick Industrial Companies Act (SICA),1985 and in particular Section 22 of the Act. In the landmark judgement, the apex court said that SICA will prevail over the Recovery of Debts Due to Banks and Financial Institutions (RDBB) Act 1993. The bench ruled that recovery proceedings cannot be initiated while the revival process was on. However, the apex court held that protection under SICA would not be available to a company  if recovery proceedings had concluded under the RDDB Act.

The facts of the case in brief are the following:-

M/S Arihant Threads Ltd, leased a plot in Amritsar, Punjab for 99 years for setting up an export oriented spinning unit. There was an overriding condition that it would not transfer the interest in it for the first 15 years without the lessor's permission, but allowed to  mortgage the leasehold rights to a bank for a loan. IDBI financed the project. The company failed to repay the loan and IDBI filed a case before the Debt Recovery Tribunal (DRT) under the RDDB Act.

DRT passed an order in IDBI's favor on July 2003 for the recovery of Rs 25.3 crore with 7.8% interest per year. On failure to comply, IDBI was allowed to sell the mortgaged property and recover the amount. The recovery officer appointed by IDBI fixed the reserve price of the property at Rs 12.5 crore. In October 2004, Arhant filed aan appeal against the DRT order.

KSL & Industries was the highest bidder  at the auction sale at Rs 12.5 crore.  The DRT set aside the auction on the condition that Arihant has to pay a certain amount, expenses and interest.   But Arihant filed an appeal against the DRT order in the Debt recovery Appellate Tribunal. KSL also approached the DRAT aggrieved by the setting aside of the auction. In the meantime, invoking the provisions of the SICA, Arihant also filed a reference before the Board of Industrial  Finance & Reconstruction (BIFR). Later DRAT dismissed the Arihant's appeal and confirmed the auction to KSL& Industries. Arihant filed two writ petitions before the Delhi Court, which held that no recovery could be made as revival proceedings are underway. BIFR rejected Arihant's reference and subsequently  Arihant  went to the Supreme Court, which gave the decision that  revival of a sick company will take precedence over recovery proceedings.  

( The facts of the case is picked up from the secondary sources and the readers are advised to refer the original judgement)

For details contact:: Business Economics and Services Team (BEST) E mail:jthac1234@gmail.com,jthac1234@yahoo.com

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Indian Stock Market on Rolls?

Of late, there is a  buoyancy in the capital market. As on 12.24 Pm today, BSE index has peaked to 27,886, up 26 points and NSE index perked to 8333 up 9 points. The stocks which have shown solid performance are banking, capital goods, healthcare and realty sectors. However,  oil and gas & power sector scrips have shown weakness. A detailed update will be made available only later and the factors which have pushed up and pulled down the sectors.

Notwithstanding that, a few factors have to be taken into cognizance for the upward rally of  the Sensex. Foremost, is the cut in the oil prices (both petrol and diesel)  in the recent days riding on the back of slide down in the global prices. It is expected that the prices will slide further   or at least become  stable in the next few days, giving the hope that the fuel cost across the industry will come down  by  a good margin. The only rider is that the OPEC will not resort to any cut in production. Pundits say that it is quite unlikely given the complex nature of oil politics.

Secondly, the credit off take of the industry has increased in the recent days. Bank credit to industry, as per the recent data released by RBI, has improved to 11% as on October 17,2014, though it continues to under perform the growth in deposits, which has grown by 12.6%. Some two weeks back, bank credit growth was 9.7 %  and deposits growth was 13.4%.

Taking cue from this higher off take of credit by the industry, leading public sector  banks have reduced the deposit rates by 100 basis points in a staggered manner. The SBI, ICICI Bank and Central Bank of India had reduced rates earlier this month and now Bank of India, Bank of Baroda and Andhra Bank followed the suit. Also, the banks expect clear signals from RBI to lower lending rates in December 2014 policy review.

Significantly, there is a lot of  positive vibes in industry with the installation of a majority government at the Center and stable governments at the Sates. A slew of reform measures have already announced and a few are expected any time from now.   The news that the Congress party, the main opposition,  will support certain decisions like coal bloc auctioning, insurance reforms etc.  have sent the right signals to the stock market.

Media reports also must have contributed substantially to the spiraling stock indices. A lot of report about mergers and acquisitions across the spectrum of industry,  the statement of intent of  healthcare companies to focus more on India against the backdrop of  Clean India, India focused  roll out plans of the tech companies like Google, Microsoft etc would have boosted up the market.

Sensex is driven by sentiments. One can create a situation by orchestrating growth sentiments. But after a time, people will look at the ground level performance to assess the quality of governance. We can discount that reality at our own peril only. 

For More details: Business Economics & Services Team (BEST) E Mail: jthac1234@gmail.com,jthac1234@yahoo.com

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When will we say No to Union General Budget?

Indian Fiance Minister Arun Jaitley will move the second General Budget on 28th February 2015. The first one he introduced was only a few days him taking over finance portfolio and possibly many of the promises made in the BJP (read NDA) manifesto could not be included.

Now that the finance minister has set up a group of chosen bureaucrats for making the budget exercises, including a new chief economic adviser, who has been drafted from  academics and has an orientation in multilateral organizations.  Newspapers, specific lobby groups, trade unions  etc, will be active in the coming days in pouring their views and suggestions. Also, the new regime is actively encouraging every citizen to participate in the budget making. In all such suggestions, there will be a post script that  the measures are meant to revitalize the economy.

 Interestingly, in today's Times of India, there is an edit page article written by one NY Krishnakumar, who has introduced himself as a money manager titled " Disrupt and Grow". He has alluded to disruptive innovation of budget process and tax procedures to improve financial transparency and tax terrorism. He has also suggestions for disrupting the government departments to make them more functional.

I eagerly went through his suggestions whether he has made any exhortation on abolishing the Budget. There is no such suggestions expressed. I do not know whether he intended one. If he has suggested that measure, I would have completely agreed with him, Because the Budget exercise has become mundane and more ceremonial than anything else.

I do not know presentation of General Budget by the union government is a constitutional provision or not. Assuming that it is a constitutional provision, Budget means only presentation of accounts that is Revenue and Expenditure for the next year. it should not be clubbed along with announcement of slew of measures supposedly to kick start the economy. Many had voiced this view several times. But the Budget exercise continues as it is, though  with some cosmetic changes.

Let me talk about one of  of the cosmetic changes that have been effected over the years. A few years back, the Budget was presented on the last day of February barring a Sunday  and the Budget proceedings would start sharp at 5 PM. I used to often wonder why at 5 PM? No one could give me a proper explanation. Later, I came to know that it was something followed by the British to synchronize Indian time  with he British since   some of the tax proposals in India was eagerly  awaited  across the continent particularly by the so called FERA companies.  A lot of speculative activities were carried out  in anticipation of the Budget. Thankfully, we had snapped the bonds with that heritage. Could we now de-link our major decision making process  from the Union Budget and take them at our will and when needed. The government that did away with Planning Commission can do this also. Are the Prime Minister and Finance Minister listening?

 For more details pl. contact Business Economics and Services Team (BEST) E mai: jthac1234@yahoo.com,jthac1234@google.com

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The Great Indian IPR Dilemma

Close on the heels of the allegation by the  foreign banks that India is not playing by the  rules in revealing the names of account holders in foreign banks, another controversy is awaiting to happen. That is the stand of the United States Trade Representative (USTR) to  review patent regime in India and to find out whether Indian authorities are adhering to tenets of compulsory licensing, data protection and incremental innovation. The problem is mostly with the pharmaceutical  companies based in US and operating in India. Some of the companies, which have raised their voice against Indian patent regime are having a long term association with Indian market.

A proper understanding about about the Indian health sector is important in this regard. Only a fraction of Indian population has an health cover to take care of their needs. An average citizen will have to spend a lot once he or she visits a doctor not only in terms of doctor's fee but also for medicines that one buys. He or she is not getting any reimbursement for such medicines and has to bear from his or her sources unlike the case in the US or in other developed countries. Things are worst, if they are afflicted with a terminal diseases like cancer or a chronic disease like diabetes or blood pressure, which  are  very common in India. The government is planning comprehensive health plans through the insurance route. But its coverage is too little. Even where the coverage is there, high incidence of disputes by the insurance companies deny any quick benefits to the common man. The rural health schemes, initiated by the earlier dispensation  has not made any dent. There are widespread scams and mismanagement in the scheme, which prevent the benefits being percolated to the grassroots.

Given this situation, it is difficult for the government to de-regulate  all medicines. Recently, the government had taken a long list of medicines out from the administered prices and allowed the prices to be determined by the market forces. The prices all on a sudden shot up, leading to public uproar. So far the discontentment is through whispers and innuendos. Once the honeymoon period of the government is over, the media will actively pickup the issue to the discomfiture of the government in power. 

Interestingly, many US companies like PEPSI, Honeywell, Boeing etc, which are operating in other sectors have indicated their satisfaction about the operation of the IPR rules in India. Even if thy have any concern, it is not orchestrated at high decibels. They feel that these issues can be sorted out through bilateral discussions and an approach of give and take. One has to keep in mind that these companies are operating in sectors which are not  immediately relevant to the common man. That is the not the case with pharmaceuticals. 

Also, pharma companies have to bear in mind that the incremental progress in the IPR regime of India. Even in the case of pharmaceutical comapnies, India had come a long way in granting the product patents as against process and becoming a signatory to the Paris  Convention. As years roll by, there will be improvement in these spheres also. One point about the compulsory licensing. it is something that can be resorted to under WTO agreement on TRIPS. However, there is merrit in the assertion of th multinational companies that there should be a dialogue for that and it should not be unilateral unless vitiated by emergencies or stubborn positioning of the patent holder.

For more details: Contact Business Economics Services Team (BEST)  E Mail:jthac1234@yahoo.com or  jthac1234@gmail.com

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The Electronics Revolution in India

Everyone in India is talking about revolutions in many sectors be they  e-commerce, telecom (read 4G), health, education and the list goes on. But one sector that has  been less quoted in the run-up to revolutions is electronics. Let the facts speak for itself. By 2020, India needs  close to US$ 400 billion worth of electronics hardware. Gauged by the pace of domestic production, the production might perk up to US$ 100 billion. That leaves a gap of US$ 300 billion. At this rate, India's import bill on account of electronics will surpass that of the oil bill.

Economists and policy makers are wary of this trend. They believe that this single factor could widen the current account deficit (CAD)  of India, which already peaked up to dizzy heights mainly on account of the heavy imports of oil and, of late, gold. There is a talk of curbing gold imports after the festival season, where gold and gold ornaments are bought  as a matter of custom and ritual.

But India cannot curb the import of electronics, which is needed for its heavy automation undertaken across the spectrum of industries. The recent policy decisions like internet based jan dhan scheme (financial inclusion), Make in India, Swatch Bharat (Clean India) etc are going to push up the demand for electronics goods in India either for automation or creating infrastructure for enabling these schemes to work. 

The Government has already unveiled an electronics policy, which lays down considerable importance for upping the domestic production and making India a destination for manufacturing the stat-of-the art electronics goods. There was a time, when electronics industry thought that  their sector could catch up with the software sector, which made phenomenal progress in the last few decades. Their dreams were dashed when the domestic industry was thrown to cut throat competition from multinational giants. India signing the international protocol for bringing down the tariff to the zero level had witnessed the near extinct of this sector and dominance of the foreign players.

At one point of time, India had numerous players in television, automatic washing machines, refrigerators,air conditioners, radios, and several other electronic items. But most of them have bitten the dust. Barring a few, all those brands are extinct from the Indian scene. Later, the government  had embarked on hardware parks and one such park was set up in Sriperumbador near Chennai. That also proved to be a flop on account of  the bureaucratic hurdles and lack of  policy direction.

Now a new awareness is seeping through the corridors of power. Several hardware parks are waiting to be set up. One such park is going to be set up in Delhi. Another park n Bhiwadi in Haryana is about to be commissioned soon. In a few years time, many such parks will dot across the breadth and length of the country. This throws open unique investment opportunities  in  the country. As per the recent report, the hardware park in Bhiwadi already attracted investments from over 50 foreign companies. It is an 100 acre park, which will have employee hostel, manufacturers of components which go into the final electronic goods, facilities for treating e-waste, captive power units etc. Also, it boasts of easy sourcing of skilled manpower and reportedly flexible labor laws.

Admittedly, this experiment will be a game changer in India's march towards augmenting the domestic production in electronics. Undoubtedly, it will be a great opportunity   for the foreign companies  to set up their bases in India. For more details: Mail us: Business Economics and services team, E mail:jthac1234@gmail.com, jthac1234@yahoo.com

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Politics on Prostitution-Let not the the Poor Suffer

                

  I was in a trepidation after deciding to write a blog on the raging debate in India about legalization on prostitution in India. My difficulty is to decide on which blog should I post the write up. Thanks to my friends, I have three blogs in a short time, one on Indian economy, two, on social issues and third on personal musings. With great mental debate, I decided to post the blog in the Indian economy, fully realizing that  prostitution is a human issue, though the business of prostitution can be categorized as an economic issue. I am not differentiating between the two. But my heart goes with  the unfortunate multitude of   women especially children, who are forced to prostitution by the accident of their birth.

Some years ago, I believe that in Economist, there was an incisive article which analyzed the entire gamut of business of prostitution and underscored the need for legalizing them. Should women be considered object of pleasure and enjoyment? Historians and sociologists may point out that the institution of prostitution is as old as mankind. They may have their reasons to categorize them as a part of societal life. Some of them argue that but for those who are practicing this profession, rape incidences  would have gone up , family lives would have become vitiated  and so on. That is why epics across the millennium  talk about prostitution. References of prostitution is there in Bible, Sumerian epics, Greek mythologies, and our epics like Mahabharata and Ramayan.

I am not an anthropologist. But I  believe that such credos are heavily tilted towards the victims who are practicing the trade. Once you consider prostitution as a part of business, what guarantee one is providing the practitioners  to pursue  trade. In India, it is reckoned that there are around 50 million sex workers. Most of them are victims of trafficking and hail from very poor regions and families. Most of them are sold at an young age by their parents to middlemen, who make a killing by selling them to Kothis in Delhi, Mumbai, Kolkata etc. A few of them land up in the confines of the rich people in villages and  double  as their maids concubines.

We have to be realistic while making an assessment. The average working span  of a sex worker is only a few years. After that most of them are left high and dry. A sizable percentage of them are susceptible to  communicable diseases. With no one to look after them, they vanish into thin blue unknown and unheard. Leave aside the society, the government seems to be washing off their hand on the issue. No proper government scheme has come forth to protect the lot of the unfortunate people.

Recently,  the apex court of India has set up a panel to look into the legalization  legalizing  prostitution. The panelists seem to be sharply divided on the issue of amendment to the archaic Immoral Traffic (Prevention) Act 1956 (ITPA). Everyone in the panel says that they have the best of interest of those who are trafficked. One set of panelists say that licensing prostitution will open up the floodgate of more people joining the ranks and middlemen taking advantage of the situation. The group which favors the licensing believe that the amendment to the law will break the nexus between Kothi wahllas ( euphemism for those who running prostitution) police and politicians and make the trade  less vulnerable to exploitation.

Importantly, on 8th November 2014, there is the crucial meeting of the panel to deliberate on the subject. I just have to remind the learned panelists that by legalizing prostitution, you are not  closing the door for those who want to quit the profession to start anew in other areas. Rather, you will give them more confidence, money and security to opt for their profession and empower them to lead a decent life. Both licensing and empowerment should go together and not in isolation. Let not  intellectual expansionism and egotism block the future of   this unfortunate lots              

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