PolicyWatch

Published by Consumer Unity & Trust Society (CUTS), D-217, Bhaskar Marg, Bani Park, Jaipur 302 016, IndiaPhone: 91.141.228 2821, Fax: 91.141.228 2485 Email: cuts@cuts.org, Web site: www.cuts-international.org

Printed by: Jaipur Printers P. Ltd., M.I. Road, Jaipur 302 001, India. Annual Subscription Rs. 150 p.a./US$30

PolicyWatchVolume 6, No. 2 April-June 2005

Covering developmentson policy responses,policy implementationand policy distortionson a quarterly basis.Comments are welcome.

The UPA government has completed one year in office,and it is time to assess its performance on the

touchstone of competition as laid out in the NationalCommon Minimum Programme (NCMP), which states:

“The UPA government believes that privatisationshould increase competition, not decrease it. It will notsupport the emergence of any monopoly that only restrictscompetition. All regulatory institutions will bestrengthened to ensure that competition is free and fair.These institutions will be run professionally”.

The most significant achievement over the past oneyear has been the implementationof the value added tax (VAT). Thisis a big step towards a singlemarket for the country, andpromises to remove severaldistortions in the market place.

True to the spirit of the NCMP,certain measures have been takento end the monopoly ofincumbents. For instance, themonopoly of the Gas Authorityof India Limited (GAIL) in gaspipeline infrastructure is set to end. Private operators havebeen allowed in the movement of container trains, thusbringing an end to the monopoly enjoyed by Concor.

Measures were taken to ensure a level-playing field incertain areas. Guidelines have been issued that put majorport trusts and private terminal operators at par on tariffdetermination. The new Petrochem Policy seeks to addressthe inverted import duty structure that disallows faircompetition and cripples units producing finishedproducts.

The Planning Commission is preparing a policy paperfor the establishment of an effective regulatory regimebased on international best practices. There is now anappreciation of the need for setting up independentregulatory authorities in the infrastructure sector. However,certain turf issues remain unresolved. For instance, whilethe Planning Commission is in favour of an independentrail regulator, the Ministry of Railways is strongly opposingthe move, fearful of losing its power and authority.

One Year Competition Scorecard: 3 on 10Civil aviation has been one of the active sectors on the

policy radar. The restructuring of Delhi and Mumbai airportsis underway. Private airlines have been allowed to fly toforeign destinations, providing a platter of choices andcompetitive prices to consumers. However, the lucrativeGulf sector continues to be reserved for the public airlines.Furthermore, domestic airlines with less than five years ofexperience have been kept out. Despite all efforts, the longawaited civil aviation policy and a civil aviation regulatorhave not seen the light of day.

Oil was another sector that generated a lot of news dueto the spurt in international crudeprices. It is widely recognised thatthere is absolutely notransparency in the pricing ofpetroleum products, and both thegovernment and the oilcompanies continue to reapbenefits from distortionarypolicies and practices at the costof consumers. Against thisbackdrop, the government’sproposal to set up a Petroleum &

Natural Gas Regulatory Board is welcome.The extention of the purchase preference policy for

central public sector enterprises1 for another three years,and continuation of access deficit charge payments toBSNL are two examples of the distortion of the competitiveneutrality principle.

As promised in the NCMP, the National ManufacturingCompetitiveness Council (NMCC) is preparing a draftstrategy paper to suggest measures for enhancingcompetitiveness in certain sectors. One of the competitionconcerns is in the polyester staple fibre industry, wherethe dominant player, Reliance (85 percent market share)and Indo Rama are following an exploitative pricing policy.

In several commodities, the government continues tofollow an inverted duty structure that hampers thecompetitiveness of domestic goods. For instance, whileimport duty on natural rubber is 20 percent, the duty onimported finished tyres is only 10 percent. While crudepalm oil attracts a customs duty of 65 percent, imported

HIG

HLI

GH

TS Inverted Duties under Fire ... 2

Green Signal for Bio-fuel .... 3

Time-of-day Tariffs ............. 4

Post Offices as Retail ........ 7

Working Weekend! .............. 8

India among Winners ........ 13

Cosmetics to Come Clear .. 14

Bribery in Bihar ................. 15

Job Prez-cription ............... 18

Infrastructure is the Key .. 19

One-year Milestone of the . 20

Mid-Term Appraisal ............ 23

“The reformer has enemies in all thosewho profit by the old order and onlylukewarm defenders in all those whowould profit by the new.”

Machiavelli, in The Prince

The Economic Times

2 PolicyWatch

C O V E R S T O R Y

vanaspati attracts a much lower duty of 30 percent. Thisphenomenon of reverse tariff escalation causes distortionsin the market.

It would, therefore, be good if the NMCC also examineshow government’s policy and lack of an effective competitionlaw affect the competitiveness of the Indian manufacturingindustry. This also requires active involvement of theCompetition Commission of India. Despite being mentionedin the thrust areas for policy implementation in six monthsidentified by the Prime Minister’s Office for 2005, the fate ofthe Competition Commission is still vague.

In the absence of a working competition law, the economycontinues to suffer from myriad abuses. Thus, deals such asthe recent one between Videocon and Electrolux that is likelyto reduce competition in the lower end of the consumerdurables market, go unchecked.

The brouhaha over trade margins on medicines is yet tobe resolved. The country has moved on to the product patents

T H E M E : C O M P E T I T I O N P E R F O R M A N C E O F T H E U P A R E G I M E

regime, but the role of the Competition Commission toexamine matters relating to abuse of intellectual propertyrights does not find any mention.

There is a strong need for the government to conducta competition assessment of all its policies and practices.This calls for the adoption of a National CompetitionPolicy to provide guidelines in maintaining theappropriate competition dimension. The need for such apolicy was stated in the mid-term appraisal of the 9th

Plan. Does it really matter that it was a differentgovernment that said it, but did not do anything?

The government has shown the right intent and therehave been some major policy announcements, but theaction on the ground is still to come. Most of the effortshave been half-hearted, which need to be reinforced bytaking a holistic view so that their full benefits can berealised. Given the huge agenda that lies ahead, the realtest of the government’s performance has just begun.

Retail Trade Margins in PharmaThe Department of Chemicals and

Petrochemicals recently looked intothe issue of overcharging by drugcompanies, and observed anabnormally high trade marginsprevailing, particularly, in genericdrugs.

The government decided to levyan excise duty on drugs after givingan abatement of 35 percent from thedeclared retail price. This is expectedto help in controlling the huge trade

margins paid by generic companies towholesalers and retailers.

The abatement takes into account10 percent margin to the wholesaler,20 percent margin to the retailer andthe statutory levies. In effect, exciseduty is charged at 16 percent on 65percent of the retail price.

(BL, 08.01.05 & ieport.com, Feb 2005)

Anti-dumping NotorietyIndia has been notorious for

initiating anti-dumping measures

against importers. It is in third placewith 14 initiations of newinvestigations during July-December2004, registering a decline of more than50 percent from its 33 initiations in thesame period in 2003.

The Directorate-General of anti-dumping and allied duties observedthat various parameters, such assignificant decline in production,decline in capacity utilisation, closureof several power looms, decline insales, drop in employment, loss ofmarket share in demand, decline inprofitability and losses to domesticindustry, prima facie, indicated thatthe Indian silk industry had sufferedmaterial injury on account ofdumping.

If the trend continues, it will resultin an import of US$80mn worth ofsynthetic filament yarn from Chinaannually. The negligible increase infilament fabric production in Indiaonly complicates matters further.

(WTO Press/406, 19.05.05 & BS,01.06.05)

Purchase Preference ExtendedThe central government extended

the purchase preference policy forcentral public sector enterprises(CPSEs) for three years up to March2008, after which it would beterminated. The purchase preferencepolicy gives preference to CPSEs incase of purchases made by thegovernment departments and otherCPSEs. (BL, 01.07.05)

Inverted Duties under Fire

The Commerce Ministry has urgedthe Finance Ministry to address

the inverted duty structure in theUnion Budget of 2005-06. Highercustoms duties on raw materials andintermediates thanfinished products aresaid to be distortingd o m e s t i cmanufacturing cost.Inverted duty structureis impeding theexport efforts,especially in thecontext of the freetrade agreement (FTA)India has signed withThailand, Sri Lanka and theAssociation of South East AsianNations (ASEAN).

The India Pepper and Spice TradeAssociation (IPSTA) expressed itsdiscontent with the flooding of thedomestic market with imported

pepper from the South AsianAssociation for Regional Cooperation(SAARC) countries at a concessionalduty. IPSTA claims that the FTA withthe neighbouring countries had given

an added advantage toSri Lanka to dumpblack pepper intoIndia, which resultedin declining domesticprices.

Suggestions havealso been made for therestructuring ofindirect taxes for thepetrochemical valuechain right up to

synthetic fibres. High duties on rawmaterials have discouraged creationof large capacities at the relativelyhigher ends of the twin value chainsof polymers and synthetic fibres.

(BL, 13.08.04, ieport.com, Feb 2005& FE, 20.01.05)

The

Hin

du B

usin

ess

Line

3 PolicyWatch

India-Iran DealIran has agreed to export liquefied

natural gas (LNG) to India for 25 yearsfrom the end of 2009. The head ofIranian Gas Export Company saidexports would start at four milliontonnes per year and would build up tofive million tonnes over the first year ofthe contract. The Indian partners in thedeal would be the state-run Indian OilCorporation (IOC) and Gail (India) Ltd.

The deal fell 2.5 million tonnesshort of an original 7.5 million tonnesthat India had demanded, but an Indianofficial said discussions were on forthe extra tonnage.

Iran also offered to give IOC and itsIranian partner, Petropars, a block in theNorth Pars gas field, which is believedto contain over 47 trillion cubic feet ofgas reserves, for production of LNG andits export to India and other countries.

(BL, 14.06.05)

National Gas Grid on CardsThe Parliamentary Standing

Committee on Petroleum & NaturalGas has supported the implementationof the 8,000-km national gas gridproject to link various supply sourceswith the markets in different parts ofthe country. With increasingavailability of gas from varioussources, the government shoulddevelop a national gas grid on thelines of the power grid to ensure

OIL & GASI N F R A S T R U C T U R E

Green Signal forBiofuel

High oil prices have triggereda demand for bio-fuel,

ethanol blended petrol. A majorhurdle was the price of ethanol.With the sugar industry agreeingto sell ethanol at Rs 19.50 perlitre, this issue has been resolved.This offer is way below the Rs 22per litre fixed in the past by thesugar industry.

Petroleum Minister ManiShankar Aiyar asked the PSU oilcompanies to quickly arrive at aframework to buy ethanol fromthe sugar manufacturers on aregular basis. The PMO will sortout other outstanding issuesbetween the oil companies,buyers of ethanol and the sugarindustry. (ET, 26.05.05)

Coal Price Mechanism

In a move that would have a huge impact on the power sector, the centrehas agreed to the Andhra Pradesh (AP)

government’s suggestion to establish a regulatorymechanism for coal pricing and referred it to aTariff Commission.

AP took up this issue with the centre in thelight of unilateral decision taken by Coal Indiato increase prices by 15 percent from June 2004,resulting in an additional burden of Rs 128 croreson AP Transmission Corporation. The problemgets accentuated for the state because 60 percentof its power projects are coal-based.

The logic behind deregulating coal prices isthe sheer monopoly of production by Coal India(86 percent of the total output). (ET, 25.06.05)

regional balance, keeping in view theuneven availability of gas in variousregions of the country.

In reply to the committee, thePetroleum Ministry said that thegovernment is finalising a national gaspipeline policy, which envisagesprogressive development of a nation-wide gas grid in a competitiveenvironment, involving both thepublic and private players, under aregulator. (FE, 12.05.05)

Two Oil BehemothsThe Planning Commission

recommended, in its mid-termappraisal of the Tenth Five Year Plan(2002-07), two fully integrated publicsector national oil companies,competing with each other and withprivate companies.

The two companies carved out ofthe existing six could engage inexploration and production activitiesin oil and gas, have downstreamrefining and marketing operation andinvest in oil and gas equity overseas.

At present, public sector units arecompeting with each other andseeking vertical integration based onthe public funds at their disposal. Thisapproach leads to sub-optimalinvestments, which offers no strategicadvantage either for the sector, or tothe consumer. (BS, 08.04.05)

Pilot Project for KeroseneMinister for Petroleum and Natural

Gas, Mani Shankar Aiyar, has assuredthat the government is taking punitiveaction against those indulging inadulteration of diesel by mixingkerosene, and an innovative pilot

project to revamp the kerosenedistribution network has beenapproved.

The primary objective of the projectis to ensure the heavily subsidisedproduct is made available in the requiredquantities to the intended beneficiaries,and secondly, to cap, reverse andeventually eliminate the diversion ofkerosene available through publicdistribution system for adulteration.

The pilot project is to beimplemented in 10 percent of the blocksof the country for a period of six months,and thereafter, the working of thescheme would be independentlyassessed and the government willscale up to cover the entire country.

(BL, 13.05.05)

Competition at WorkPrice competition and aggressive

bidding by multiple petroleum refinersbrought down diesel prices for therailways. The magic of the marketplacereduced diesel prices for the singlelargest consumer in India by Rs 1,040per kilolitre. This has been broughtabout by newer refiners like Reliance,Mangalore Refinery andPetrochemicals Limited (MRPL) andEssar seeking to push sales in the bulkend of the market.

There is no reason to limit pricecompetition to just diesel; what weneed is competition and efficiency forthe entire retailing of oil products,especially household fuels. Given theadministered, cost-plus prices for bothliquified petroleum gas (LPG) andkerosene, there is just no incentive torev up efficiency, improve logisticsand cut costs. (ET, 12.05.05)

The Financial Express

4 PolicyWatch

I N F R A S T R U C T U R E

High Industrial TariffsAccording to latest energy

statistics from the International EnergyAgency, the Indian industry pays muchhigher for the power it consumes incomparison with even developednations, such as the US, Germany andthe UK, with only Japan paying more.

On the flip side, Indian householdsare the most pampered electricityconsumers in the world, paying thelowest tariffs for the power theyconsume, as per the statistics availablefor 30 countries. The extent to whichcross-subsidies are rooted in thedomestic tariff structure is evidentfrom the fact that while Indiandomestic tariffs are less than half ofwhat is paid by industry, not even oneof the other 29 countries included inthe survey charged industry morethan domestic consumers. (BL, 08.06.05)

Dabhol Deal on TrackThe long-drawn battle over the

Dabhol power plant in Maharashtrais over, with the lenders to the projectreaching a settlement with 85 percentequity holders, GE and Bechtel.

A joint venture special purposevehicle, formed by National ThermalPower Corporation (NTPC), GAIL,Maharashtra State Electricity Board(MSEB) and the financial institutions,is expected to file application forregistration, and an integrated companywould be formed with a Chief ExecutiveOfficer. The existing utility of 2,184 MWcapacity would be further expanded by2,500 MW at the same location and theoverall capacity of the station wouldgo up to 5,000 MW. (BL, 23.06.05)

Captive PowerWith power shortages affecting

much of the country, the governmentplans to bring in around 5,000MW ofelectricity into the system over thenext two years by providing gridconnectivity to the larger captiveplants, said the union Power Minister,PM Sayeed. Captive units accountsfor nearly 20,000MW and with thepassage of Electricity Act 2003,owners can sell their surplus powerto the grid.

The ministry has started workingtowards improving the efficiency ofpower stations with a plant load factorof less than 60 percent to improveoverall output. Sayeed claimed thatthe ministry would achieve over 90percent of its capacity addition targetof 41,110MW during the current planperiod. (BL, 16.05.05)

POWER

Time-of-day Tariffs

Initiating a step forward in powersector reforms, the Forum of

Indian Regulators, a statutory bodycomprising central and state powerregulators, discussed the issue ofintroducing time-of-day tariffsacross various consumer categories,starting with industrial andcommercial consumers. Time-of-day electricity tariffs entaildifferential tariffs for peak and non-peak hours, with consumersneeding to shell out a premium forthe electricity consumed duringcertain designated peak hours.

Some states, including TamilNadu and Kerala, have alreadytaken the first step towardsintroducing differential tariffsacross the day by installing specialtime-of-day meters for bulkconsumers. (BL, 29.04.05)

Switch Off Free Power!

The acute shortage of electricity in the country has prompted PrimeMinister, Manmohan Singh to rule out free power supply, as it has been

a major hurdle in additional electricity generation. Speaking at a functionfor the Rajiv Gandhi Grameen Vidyutikaran Yojna under which 74,000

villages were included to be providedwith electricity by 2009, the PrimeMinister also called for a politicalconsensus on energy policy toimprove the performances of StateElectricity Boards.

“The challenge of economicgeneration, distribution and pricingof electricity has to be addressed in

a non partisan manner, so that we can, in fact, ensure rapid spread ofelectrification across the country and can attract new investments in thisvital sector”, he said. (FE & BL, 29.05.05 & BS, 05.04.05)

(in US cents K/h)

Electricity tariffsCountry Industry DomesticIndia 7 3Belgium 4 13Canada 3 5Chinese Taipei 6 8Germany 5 12Sweden 3 8Japan 16 23S. Korea 6 7Mexico 5 7New Zealand 2 6Portugal 6 11Spain 5 12UK 5 10US 4 8

New Tariff PolicyThe Ministry of Power modified

the power tariff policy to incorporatea series of important changes dealingwith rate of return on investment indistribution, depreciation rates,operating norms and competitiveprocurement of power. The changesclarify that since distribution involveshigher risks, a higher return on equityshould be allowed there as comparedto generation or transmission.

For calculating tariffs, the policyrecommends a debt-equity ratio of70:30 for all capital based projects. Mostof the states felt that the rule of 30percent equity would not be possiblefor existing/older plants, which havehigher equity. (FE, 23.05.05)

At Last, Bihar Gets an SERCPushing ahead the much awaited

power sector reforms, the Bihargovernment finally constituted the StateElectricity Regulatory Commission(SERC), to be headed by retired judgeof the Patna High Court, Justice B N PSingh. A three-member searchcommittee will soon select the other twomembers of the Commission.

Apart from augmenting revenuefor the Bihar State Electricity Board, theCommission will also help in promotingeconomic development of the state.The SERC will be empowered todetermine power tariffs, which have notbeen revised since 1993. (ET, 06.05.05)

The Econom

ic Times

5 PolicyWatch

I N F R A S T R U C T U R E

Roll Out Rural NetworksThe government is considering

amending the Telegraph Act tofacilitate mobile operators to roll outnetworks in rural areas by sharinginfrastructure that is funded by theUniversal Service Obligation (USO)fund.

The aim is to take telephoneconnectivity to villages, highwaysand rail lines, the Communications andIT Minister, Dayanidhi Maran said. Sofar, Rs 1,841.50 crore has been madeavailable to operators for ruraltelephony, of which, Rs 1,341.50 crorehas been provided during 2004-05. For2005-06, a provision of Rs 1,200 crorehas been made for USO support.

Five percent of the revenue share,given by telecom companies to thegovernment, currently goes towardsthe USO fund. (BL, 14.04.05)

Price Cut RepealedThe Telecom Dispute Settlement

Appellate Tribunal (TDSAT) quashedthe TRAI’s order to reduce internationalbandwidth tariff by 70 percent.

The decision comes as a relief toVidesh Sanchar Nigam Ltd (VSNL),which had contested TRAI’s order onthe grounds that the telecom regulatorhad not followed an appropriateprocess in fixing the tariffs. On theother hand, the TDSAT’s order comesas a blow to consumers ofinternational bandwidth, includinginternet service providers andbusiness process outsourcing units.

Setting aside TRAI’s order, theTribunal asked the regulator to havea re-look at the entire exercise andshare the full facts and basis ofcalculation with VSNL in a transparentmanner. (BL, 29.04.05)

Financial Autonomy DeniedThe Finance Ministry has shot

down a proposal from the TelecomRegulatory Authority of India (TRAI)to fund its operations from the licensefee collected from operators insteadof the present system of receivinggrants from the government.

TRAI, in turn, proposes to takeup the matter again with thegovernment, possibly at a levelhigher than the Finance Ministry.TRAI suggested that the governmentshould give it 0.05 percent of therevenues collected as license fee fromthe operators.

Pradip Baijal, Chairman, TRAIsaid, “in the absence of itsindependent source of funding, TRAIis not able to improve the serviceconditions of its employees andattract necessary talent to theorganisation”.

According to TRAI, regulators in72 countries are funded from license,spectrum, numbering and regulatoryfees. In India, the InsuranceRegulatory and DevelopmentAuthority raises its revenue throughcess and fees. The Security andExchange Board of India also followsa similar approach. (BL, 04.04.05)

STD Calls at Local RatesThe Department of Telecom (DoT)

permitted inter-service areaconnectivity in the states ofMaharashtra, Tamil Nadu, UttarPradesh and West Bengal. Thismeans, calls within these four stateswill be treated as local calls.

The move will have a positiveimpact on nearly 17.69 millionsubscribers in the GSM segment alone.This includes 7.5 million users inMaharashtra, 4.5 million in Tamil Nadu,2.15 million in West Bengal and nearly3.5 million in UP.

With a little over 42mn GSMsubscribers in the country, this orderwill impact about 40 percent of them,besides a large base of CDMAsubscribers in these states, and spurthe growth of mobile telephony inthese states. (ET, 22.05.05)

CAS Is Coming Again!The Information & Broadcasting

(I&B) Ministry decided to resurrect thecontroversial Conditional AccessSystem (CAS) in the four metropolitancities of New Delhi, Mumbai, Chennaiand Kolkata. According to the unionI&B Minister, Jaipal Reddy, it wasagreed that a detailed scheme forimplementation would be worked outby the centre in consultation with thestates, “keeping in view the interest ofconsumers and the larger investmentsrequired by cable operators fordigitisation of operations”. However, theGovernment has not set any time-frame.

In another move, the states agreedto bring entertainment tax down to 25-30 percent. To curb piracy, videolibraries would be brought under aregulatory regime of a local authorityeither through registration or licensing.The I&B Ministry is also mooting theidea of having a separate optical disclegislation to tackle piracy.

(TH, 17.04.05)

TELECOMThe H

indu Business Line

Slashing Spectrum Charges

The Telecom Regulatory Authority of India (TRAI) has recommendedthat existing operators should be given spectrum to offer third generation

(3G) services without anyadditional entry fee. The telecomregulator has also suggestedbringing down the annualspectrum fee from a maximum of6 percent of the operator’srevenues to 4 percent a year, whichmay lower mobile tariffs further.

To maintain the level playingfield, new players will have to paya one-time entry fee for getting 3G spectrum, which will be the same asthose being paid by mobile operators under the unified access license regime.TRAI recommended setting up a Group of Ministers to monitor the allocationof spectrum. (BL, 14.05.05)

Telecom Revolution

The total telephone subscriber basein the country, including fixed

lines and mobiles, has crossed the100 million mark. Even broadbandconnections have started to growsteadily in 2005. In the month ofApril 2005, 2 million fixed line andmobile subscribers were added and44,000 broadband connections wereprovided. The teledensity of thecountry has reached 9.26.

(BL, 10.05.05)

6 PolicyWatch

I N F R A S T R U C T U R E

TRANSPORT

Transport RegulatorThe government may soon

appoint a regulator for the entiretransport sector covering roads,ports, civil aviation and railways tospeed up decision-making, saidPrithiviraj Chavan, Minister of Statein the PMO.

Once ready, the proposedregulatory system will do away withthe present system of having separatebills through Parliament for each ofthe sectors. In addition, it will speedup the machinery and boost theconfidence of private investors to putmoney into the infrastructure sector.The proposed transport regulator isalso expected to look into the criticalaspect of financing. (ET, 04.04.05)

National Land Port AuthorityThe Government of India (GoI) is

in the process of setting up a NationalLand Port Authority, which willmanage the land customs stations,

said Dr Christy Fernandez, AdditionalSecretary, Ministry of Commerce, GoI.The authority is likely to be under thesupervision of the Department ofBorder Management in the Ministryof Home Affairs.

Meanwhile, the CommerceMinistry identified several locationsin the Northeastern states as bilateraltrade points. This is as part of the‘Look East’ policy of the CommerceMinistry to revive traditional traderoutes between the Northeasternstates and neighbouring countries.

(BL, 16.06.05)

Railways Offers Freight SopsThe Indian Railways announced

tariff discounts for certaincommodities moving in the under-utilised routes. The discounts will alsobe extended to the incremental loadingof those commodities.

The move is expected to benefitcement, iron, steel and petroleumcompanies among others. Moreover, ithas also increased the free time allottedto a user during train loading andunloading by one to two hoursdepending on the type of wagon used.

A rebate of 20 percent will accrue tothose goods that are charged at class140 or above when they are beingtransported on notified empty flowdirections to generate the revenue, saidthe Union Railway Minister, LaluPrasad Yadav. (BL, 31.06.05)

Draft Road Transport PolicyThe department of road transport

and highways drafted a national roadtransport policy that aims to ensuregreater private sector participationand rationalisation of motor vehicle

Fare War of Airlines

The softening of air fares, a shiftfrom upper class train berths to

airlines and the surge in leisuretravel, driven by the entry of AirDeccan less than two years ago hasgathered momentum of its own now.Consequently, the next 12-15months may well raise a toast to thesuccess of Low Cost Airlines (LCAs)and first time travellers in India.

Recent Director General of CivilAviation (DGCA) data on market shareof domestic airlines indicate that thecustomer is voting with his feet.

So, while full service carriers likeJet Airways and Indian Airlinescontinue to be the biggest players inthe domestic skies, it is anticipatedthat by last quarter of 2006, LCAslike Air Deccan, Kingfisher andSpicejet may together command amarket share of 15-20 percent on awider base. (ET, 21.05.05)

tax regime across states to eliminateoctroi alongside implementation ofvalue added tax.

The draft policy calls for creationof equipment leasing companies,accreditation of vehicle body buildersand a differential taxation system toencourage use of multi-axle vehicles.

The proposed policy makes astrong case of state-level statutes tofacilitate land acquisition, shifting ofutilities, approval for cutting of trees, andcontrol of law and order andencroachments for the on-goingNational Highway Development Project.

“To augment availability ofresources for the sector, the budgetaryresources could be leveraged to raiseprivate investments” the draft said.

(ET, 10.05.05)

Open Skies!The European Union and India are

all set to negotiate a new bilateralagreement that will allow Europeancarriers unrestricted access to India.As per the proposed agreement, anyEuropean carrier can fly to India fromany European country.

However, the proposed agreementwill not do away with the individualbilateral agreement that India has withindividual European countries.

In another development inaviation sector, India and the US signedan Air Service Agreement that wouldresult in more commercial flights, lowerfares and stronger economic tiesbetween the two countries. This newpact will replace the 1956 agreement,which, though quite liberal, had somerestrictions on the points of call as wellas capacity on certain routes.

(BS, 11.05.05 & BL, 15.04.05)

ww

w.tr

avel

euro

pegu

ide.

com

Failure to Tap Funds

Road transport officials and highways ministry are shocked at the under-utilisation of the central road fund by the states. As per statistics, the

total accruals to statesfrom the fund from2000-01 to 2004-05stand at Rs 4,526.68crore. However, thetotal release of funds sofar, which depends onprogress and utilisationby states stands at Rs3,061.88 crore. Thismeans, when thecentre is pushing infrastructure development, a balance of Rs 1,464.80 crorelies unutilised in the segment. (BL, 15.06.05)

CRF: Poor State of UtilisationFunds

CRF Accruals Released BalanceMaharashtra 503.86 332.88 170.98Tamil Nadu 321.12 245.08 76.04Uttar Pradesh 435.97 205.94 230.04Rajasthan 367.26 290.25 77.01AP 395.72 341.60 54.12Delhi 137.70 18.84 118.86Karnataka 279 215.34 63.66Period: 2000-01 to March 2005 (Rs. crore)

7 PolicyWatch

I N F R A S T R U C T U R E

MIXED BAG

Independent Regulators Wanted!The Infrastructure and Regulatory

Council under the Confederation ofIndian Industry (CII) suggested thatthe government set up financially andadministratively independentregulators for all major infrastructuresectors.

The apex industry body specifiedthat the work of these regulators mustbe independent of what theCompetition Commission has beenmandated to deliver. It stressed theneed for autonomy, accountability andprofessionalism in these regulatorybodies. CII also recommended that theselection of the chairman andmembers in the regulatory body mustbe through transparent and pre-defined methods. (BS, 23.05.05)

Urban Renewal MissionAs a part of the National Urban

Renewal Mission, the centre hasdrawn up a plan to boost infrastructuredevelopment in 60 cities including 7mega cities. The total expenditure willexceed Rs 1,20,000 crore over the nextfive years with a Rs 5,500 crore outlayin 2005-06 alone. The Union Cabinetwill soon clear a proposal that will setup a National Steering Group toexecute the renewal mission.

With the centre providing 25-75percent of funding for the projects –the percentage depending on thepopulation of the city and certain othercriteria – the mission would coverphysical infrastructure, such as water,lighting, sanitation, energy andhousing. (ET, 19.05.05)

Investment RegulationThe Forward Markets

Commission would regulate theinvestment to be made by banks andmutual funds in commodity futures,

once investment through thesechannels is allowed. Currently, thematter is under consideration of theLaw Ministry, according toConsumer Affairs Secretary,Labanyendu Mansingh.

The Government of India tabled aBill in the Parliament, proposing toamend the Banking Regulation Act.The Bill intends to includecommodity futures in the definitionof approved securities that banks andmutual funds can invest in. TheForward Contracts (Regulation) Actis also being carefully scrutinised foramendment to facilitate the foray ofbanks and mutual funds in this sector.

(BS, 21.05.05)

Tie-ups for Micro-InsuranceThe Insurance Regulatory

Development Authority (IRDA) willallow a life insurance company to tieup with a non-life insurance companyto spin-off micro-insurance products.It will also introduce regulations topromote micro-insurance and createguidelines that stipulate theinsurance cover in unit-linkedinsurance products.

“We are in the process of bringingout a regulation that will provide an

infrastructure within which micro-insurance can be developed in aproper manner. For such products theregulator will allow a tie up between alife and a non-life insurance companyso that a composite product is availableto the rural poor through a singlewindow”, said TK Banerjee, member, lifeinsurance, IRDA. (BL, 21.04.05)

Lending LongBanks should expand their credit

portfolio to increase lending to smalland medium industries, said the PrimeMinister, Dr Manmohan Singh, whileaddressing a function to mark thebicentennial celebrations of the StateBank of India.

He said that there is shortage ofcredit to the small and mediumindustries and the agriculture sector.Long-term finance is a major area ofconcern. Therefore, the country needsan active debt market to satisfy thelong-term capital requirements of largeand medium industries. The bankshould also spearhead the wideningand deepening of the market for ruralcredit and meet the needs of small andmarginal farmers, said Dr Singh.

(BL, 05.06.05)

Post Offices as Retail Stores

Westside and Marks & Spencer might face competition from ruralIndia! With post offices in the hinterland doubling up as stores,

they could well be the largest retail chain at least in terms of sheer numbers.Of the 1.56 lakh post offices across the country, 1.30 lakh are in rural

areas. These post offices will sell everything from mobile SIM cards to teaand coffee. Post offices selling products and services will get a commission.The objective behind the retail post scheme is to increase the revenueearnings of the postal department.

An average post office in India offers its services to 21.17 km of area andserves nearly 6,614 people. No one can rival such a network, said SuvenduSwain, Director of Indian Post. Since the core strength of post offices lies intheir connectivity and the personal rapport the postman has with every housein the village, retail post is expected to be a successful venture. (HT, 14.06.05)

After a gap of four years, the Reserve Bank of India (RBI) isconsidering to permit public sector banks to set up insurance

subsidiaries, provided the new ventures are widely held.About six new licenses are scheduled to be given out to banks,

which include Bank of Baroda, Punjab National Bank (life insurance)and the State Bank of India (non-life insurance).

For four years, the RBI has not been allowing public sector banksto set up insurance subsidiaries. Earlier, it allowed only the State Bankof India and private banks like ICICI Bank, ING Vysya Bank and KotakMahindra Bank to enter the insurance business. (BS, 16.04.05)

Green Signal to Insurance Arm

The Hindu Business Line

8 PolicyWatch

G O V E R N A N C E & R E F O R M S

No Smoking!The government hasannounced a ban onthe screening oftobacco products inmovies and tele-serials from August 1,

2005. Six provisions have beenincluded in the existing law, whichrequire mandatory display orprominent scroll containing warningwhen use of tobacco products isshown.

Further, the new provisions alsoban sale of tobacco by minors andthrough vending machines. India isone of the countries that have ratifiedits framework convention on tobaccocontrol and is working towardsformulating a ‘national tobaccocontrol programme’.

A high level committee comprisingMPs, officials from information andbroadcasting and health, has beenformed to deal with surrogateadvertising on a case-to-case basis.

(FE, 31.05.05)

Outlays vs OutcomesThe Finance Ministry has ordered

high-spending ministries like ruraldevelopment, power, health and familywelfare and education to submitmonthly accounts of their spendingin order to ensure that outlays onprogrammes match with outcomes.

This is one step forward for thegovernment’s directive to all thecentral ministries to avoid spendingmore than 33 percent of their outlays.

The government had also initiated acomprehensive exercise to strengthenthe role of financial advisors in theentire central ministry to curbexpenditure. This is basically anattempt to put in place mechanismsto measure development outcomes ofall the programmes throughformulation, appraisal, approval andimplementation. (BS, 05.06.05)

Regulated Microcredit?The government is actively

engaged in drafting legislation toregulate micro finance institutions,which would increase credibility ofthese bodies. The draft is supposedto be put up for public debate invitingsuggestions from all stakeholders. Itis expected to lend legal sanctity tothe suggestions without curbing thebasic tenets of micro finance.

However, Dr. C Rangarajan,Chairman of the Economic AdvisoryCouncil to the Prime Minister felt thatthere must be a system of self-regulation rather than going forregulation directly. Even the RBIopposes the idea for a separateregulator on the grounds that most ofthe microfinance portfolio will remainunder the banks and NBFCs, whichcome under the regulatory frameworkof the RBI.

(FE, 03.05.05 & BS, 02.06.05)

Frontiers of KnowledgeThe government has constituted

a National Knowledge Commissionwith communication expert, Sam

Pitroda as its Chairman to “sharpenIndia’s knowledge edge” and promoteexcellence in the education system.

The Commission in addition tointeracting with various ministries willadvise the Prime Minister on matterssuch as institutions of knowledgeproduction, use and dissemination.

It is also expected to suggest waysin which the government’s knowledgecapabilities could be made moreeffective, making the government moretransparent and accountable to thepublic. (ET, 02.06.05)

MPLADS Faces OppositionAt a time when the government

was engaged in preparing newguidelines for the MP Local AreaDevelopment Scheme (MPLADS), theNational Advisory Committee (NAC),after having a detailed discussion,recommended scrapping of thescheme to facilitate greaterdecentralisation of power.

The NAC has also come out withan alternative in case of oppositionfrom political adversaries. It is of theopinion that if MPLADS is to continuein the present form, the funds shouldbe allocated to local governments andtheir utilisation should be under theircontrol. (TH, 13.06.05)

Stem Cell Cure Authentic?The Parliamentary Standing

Committee on Health and FamilyWelfare has asked the government tocheck clinics promising cure forvarious diseases using stem cells.

The Committee had sought theviews of the Director General of theIndian Council of Medical Research(ICMR) on the authenticity of theclaim by stem cell clinics to curediseases such as muscular dystrophy,neuromuscular disorder, stroke, livercirrhosis and diabetes. As per ICMRvery few centres have approached itfor approval. ICMR reported thatDelhi-based NuTech Media World hadfailed to submit a detailed procedureand protocol even after severalreminders.

The government is engaged infinalising the draft guidelines to helpregulate stem cell research in thecountry. It envisages the setting upof a multi-disciplinary National ApexCommittee. (BL, 02.05.05)

Working Weekend!

The President A P J Kalam has asked the judges of the Supreme Court andHigh Courts to work on Saturdays to reduce the huge load of pending

cases.The figures show an increase

in the pendency of cases in theHigh Courts from 3 million to 3.4million, and from 20.6 million to23.4 million in District Courts,while the number in the SupremeCourt came down from 36,000 in1995 to 30,000 in 2004.

The President said that if thejudges take up the pending cases

by giving every Saturday and two additional working hours on all workingdays, the huge backlog could be minimised substantially. He also advocatedfor exemplary penalty for seeking undue adjournment and initiating frivolouslitigation. (TH, 01.05.05)

S M T W T F S

x x x x

ww

w.aaos.org

9 PolicyWatch

G O V E R N A N C E & R E F O R M S

Cut in Quota ProposedThe government has proposed to

reduce the quantity of wheat given tofamilies below the poverty line from35 to 25 kg/month. There is also aproposal to increase the price at whichwheat will be sold to families abovethe poverty line by about Rs 200 pertonne to depress demand. Moreimportantly, the Food Corporation ofIndia may even raise the price of wheatin the open market and insist thatbuyers bear the cost of transportation.This is sure to dampen demand.

The plan to cut ration shopallocations will only push up openmarket prices and make the poor spendmore. This proposal is under debate,as it would mean exposing the poorestsections to high prices just when theyneed maximum protection.

(ET, 06.06.05)

Environmental Concern45 public interest groups have

launched an Environment ClearanceWatch (EC Watch) to monitorclearances granted to projects by theMinistry of Environment and Forests(MoEF). The idea is to have centresto monitor environmental clearancesall over the country and shareinformation and resources.

An agitation called ‘Dilli Chalo’is also expected to be launched tochallenge the MoEF’s proposedreforms on environmental clearance.This is coming at a time when theMoEF is busy examining the entireprocess of Environment ImpactAssessment (EIA).

“The EIA notification offers publichearings as a forum to listen to thepeople’s concerns but this space ismanipulated by project authorities and

government agencies to suit theirneeds”, said a report titled ‘ElevenYears of the Environmental ImpactAssessment Notification, 1994. HowEffective Has it Been? by KanchiKohli of Kalpavriksh EnvironmentalAction Group. (TH, 07.06.05)

Drug Regulator on CardsThe government is about to make

drug regulation more stringent toensure quality. There is a proposal toset up an independent drugsregulatory authority, the completestructure of which will be ready in twoyears. This move is expected to sealthe chances of drug firms selling withstate governments’ licences, withoutsecuring the mandatory marketingnod from the drugs controller generalof India.

Health and Family WelfareMinister, Dr. Ramadoss met with theUS food and drug commissioner anddecided that in the first phase, theIndian health ministry will replicate themechanisms operational in the USFood and Drug Administration (FDA)and tie up with them in the second.India is the biggest manufacturer ofFDA-approved pharmaceuticalproducts outside US and thereforethis move was essential to keep pacewith the growth in manufacturing.

(ET, 24.06.05)

Powers to Insurance CouncilThe IRDA has been promised self-

regulatory powers for Life InsuranceCouncil, an industry association oflife insurance companies. Among theissues that Life Insurance Councilwould address would be prohibitionof rebates of commission and trainingagents. C S Rao, the chairman of

IRDA said that since regulationinhibits innovation, the best way toreconcile the two is to self-regulate –make innovative products transparentand keep policymakers fully informed.

The IRDA sub-committee for stand-alone health insurance companies hasrecommended that the capitalrequirement be reduced from Rs 100 to25 crore and FDI limit be raised from 26to 51 percent. These recommendationsare aimed towards encouraging theformation of 15-16 new stand-alonehealth insurance companies – theminimum number the committeebelieves will be required for the revivalof the sector. (ET & FE, 09.08.05)

The government is all set to bring in labour reforms shortly, wherein corporates would be given the flexibility tobifurcate their employees into core and non-core.While stringent norms would protect core employees, non-core

employees would be taken off the ambit of labour laws. Consequently,corporates, public sector enterprises, government departments, ministriesand autonomous bodies will have power to hire and fire non-coreemployees. Core employees would be shielded by labour laws.

The main idea has been to protect the interests of the employeeswhile giving corporates flexibility on fresh recruits and non-core staff.The proposal comes close on the heels of the amendments to the LabourLaws Act of 1988 approved by the Union Cabinet early in May 2005.

(HT, 24.05.05)

You’ve Got the Power

A Bill seeking to provide Rightto Information to all citizens,

after much debate and severalrounds of drafting, receivedapproval from both the houses ofParliament. The passage of the Billwould create opportunities for thepeople of India to participate inthe democratic governance andempower them to monitor andexpose corruption.

This would demand from thegovernment a better system ofmaintaining records and a moreeffective and speedy system ofgrievance redressal.

The Right to Information Act,2005 will be applicable to thecentre, state governments as wellas local bodies. Further, it alsoprovides for access to informationfrom security and intelligenceagencies on matters relating tocorruption and human rightsviolations. (TH, 13.05.05)

Labouring for Core StaffB

usiness Standard

10 PolicyWatch

G O V E R N A N C E & R E F O R M S

Overhaul AgricultureMajor reforms are being initiated

in the agriculture sector in order tomake the Indian farmer globallycompetitive. This was seen asessential in a situation where reformsare as important for the individualfarmers trying to improve his/her livingstandards with limited resources andknowledge of the market, as they arefor the private sector seekingprofitable investments in the agri-business sector.

Even the mid term appraisal by thePlan Panel has recognised the needand recommended that irrigation andwater management alone wouldrequire a whopping Rs 110,000 croreover the next seven years. The needfor a new legislation for the farmsector was emphasised, which wouldenable contract farming on acommercial basis.

(BS, 07.04.05 & ToI 02.04.05)

CBI Raids the Corrupt In the second nationwide swoop,

the Central Bureau of Investigation(CBI) carried out raids at 60 placesagainst various senior governmentofficials suspected of indulging incorrupt practices and recovered lakhsof rupees in cash.

A disproportionate assets case wasregistered against an executive engineerfor allegedly amassing assets over Rs1.21 crore. The CBI has claimed to haverecovered cash worth Rs. 1.3 lakh fromhis residence. Raids were conducted atsix places in New Delhi against a DeputyCommissioner of Police, in charge of

Supreme Court security. Furthermore,one person was arrested for allegedlyselling fake stamps and letterheads ofCBI. (ToI, 07.04.05)

EGS Funds Under-utilisedWith one exception of the

Employment Guarantee Scheme (EGS),most of the programmes inMaharashtra suffer from scarcity ofresources. EGS has unspent fundsamounting to more than Rs 9,000crores with an annual addition of Rs3,000 crores. Accrual to this schemetakes place through specific taxes andlevies on land revenue and sales tax,plus statutory grants.

A cash-strapped governmenttreats the EGS money, raisedspecifically to fund its implementation,like a cash cow to be used at will.However the Employment GuaranteeAct, 1977 disallows such diversions.

Since 1975, expenditure on EGShas been increasing. But annualreceipts and grants have far outpacedthat. (TH, 06.06.05)

Target MisplacedA study carried out by the

Planning Commission shows thatleakages from the targeted publicdistribution system (TPDS) are higherthan those in the public distributionsystem (PDS), which it was meant toreplace.

Under TPDS, about 36 percent ofthe grain is siphoned off the supplychain and 22 percent is going to thoseabove the poverty line. Leakages anddiversion to unintended beneficiaries,

As India steps towards a free-market environment, state-ownedorganisations and government bodies are tuning their HR policies to

make them performance-oriented. Governments of Kerala and AP, StateElectricity Boards of Andhra Pradesh, the Punjab, Haryana, Indian Oil

Corporations, and the Department ofSales Tax, Delhi have soughtprofessional help from consulting firms.

A consultancy firm, Ernst & Youngthat is helping organisations toaccomplish this task said that whilethe broad HR goals for both privateand public sectors are the same, thelatter demands a different approach to

planning and implementation, as both the sectors face different sets ofchallenges. Limited availability of data and scope of activities are the majorconstraints observed in public sector enterprises. (ET, 31.05.05)

A Taste of Performance Culture

The Econom

ic Times

results in only the remaining 42percent of the subsidised grainreaching the poor.

Although the TPDS has resultedin greater participation of consumersand higher off-take of grain by thepoor, the change over from PDS toTPDS has neither led to a reduction inbudgetary food subsidies nor has itbeen able to benefit the large majorityof food insecure households.

(BS, 15.06.05)

Revive Panchayati RajPanchayati Raj Minister, Mani

Shankar Aiyer is determined to bringin a revolution in rural India by theestablishment of rural business hubs.He believes that the 300 odd centrallyrun schemes, if run through thePanchayati Raj Institutions (PRIs),could help achieve “poorna swaraj”as envisioned by Mahatma Gandhi.The ministry had already sent a list of150 recommendations to all ChiefMinisters on devolution of powers tothese institutions.

Even the internal structure of PRIsneeds an audit system to buildaccountability and reduce corruption.Some of the state ministers suggestedthe setting up of a National AccountingStandards Board for PRIs along withan audit commissioner or similar bodies.

(TH, 17.05.05, FE, 01.04.05)

Tightening ControlThe government has decided to

tighten its control over various not-for-profit entities, such as educationalinstitutions and hospitals that arecurrently availing various income-taxexemptions for their charitableactivities.

The Taxation Laws AmendmentBill 2005, among its other suggestions,proposes to make an auditcompulsory for charitable entities witha total income of more than Rs 50,000per annum and they would have tofile returns if their total income exceedsRs one lakh per annum.

The Bill also provides that theCentral Board of Direct Taxes would laydown rules and guidelines by which anorganisation, university, college orother institutions would apply for andreceive exemptions from the IncomeTax Act related to expenditure onscientific research. (BL, 12.05.05)

11 PolicyWatch

E - G O V E R N A N C E

IT in JudiciaryEquipping the Members of the Bar

with a computerised environment andonline delivery system is the need ofthe hour, as tech-savvy foreignlawyers are ready to invade the country.

H R Bhardwaj, Union Minister ofLaw and Justice said that an e-governance cell has already been setup within the Law Ministry. Aprovision of Rs 400 crore has beenmade to modernise the High Courtsand the District Courts. The Districtand Sessions Courts of Rajasthanhave already been provided with e-mail and Internet connectivity byNational Informatics Centre (NIC),Rajasthan.

As the problem of mounting casesis getting difficult to manage,miscellaneous matters could easily betackled through the AlternativeDispute Resolution, a fast tracksystem of speedier justice.

(BL, 19.04.05 & www.nic.in, 27.06.05)

Seamless ConnectivityTRAI plans to send a proposal to

the government for allowing cableoperators in rural areas to offer basictelephony and internet services. Thegovernment will issue guidelines anddecide whether the cable operators canoffer services outside the ambit of theunified license. It has also suggested areduction in the license fee andspectrum charges for rural cellularservices.

TRAI is planning to allow cableoperators to have tie-ups withtelephone service providers or set uptheir own infrastructure. They canprovide the last mile connectivitythrough their networks, though thewire used by them will need to bechanged to accommodate additionalservices. (BS, 27.05.05)

Tech-savvy PanchayatsThe Electronic Industrialisation

Infrastructure Development (EIID), ascientific society under ErnakulamDistrict Panchayat of Kerala, enteredthe IT world by taking up a uniquemodel of e-governance. It is providingguidance to three gram panchayatsin the district to establish informationnetworks as part of their plan projects.The EIID is using freely availablesoftware with open source codes withLinux Operating System andPostgresSQL for Relational DatabaseManagement.

As the data entry work reaches thefinal stage, the project will have adatabase, which will cover basicgovernment offices like panchayats,villages, primary health centres,agriculture offices, schools andveterinary centres.

In this new system, the local self-government institution will be acustodian of a computer aided database server of all primary data relevantto any government office in the state.

(http://www.darpg.nic.in/content/upload/egovexp69.doc)

e-Chaupals Network Indian Villages

The ITC e-chaupal network aims to cover over 1,00,000 Indian villages,representing a sixth of rural India and linking up more than 10 million

farmers over the next decade. At present, the e-chaupal network empowersover 3.1 million farmers (includingmarginal farmers), enabling them toreadily access crop specific, customisedand comprehensive information in theirnative language via vernacular web sites.The network helps farmers accessprevailing Indian and international prices

and price trends for crops, along with expertknowledge on best farming practices and

micro-level weather forecast.The availability of bulk information on

agriculture will greatly improve the decision-making ability at the rural level,helping align agricultural production better to market demand and upgradequality and productivity.

ITC Ltd, in its second phase of e-chaupal, plans to open 30 more ruralsector malls in 2006, after having established the first of its kind at Sehore inMadhya Pradesh. (BS, 02.06.05 & 19.06.05)

Rural Schools in Cyber WorldFive secondary schools in the

hinterland of Satara welcomed acomputer for the first time. These arethe used computers donatedanonymously by successful sons ofthe soil who have moved out of thevillages, and now “want to givesomething back to their roots”. Theidea is to encourage the students toget rid of the fear of machines.

28,000 secondary schools arewaiting to bridge the digital divide.Pradeep Lokhande, Director of RuralRelations, wonders how to get there,since only 3 of 900 corporatesresponded to appeals for donation.

Only schools with a trainedcomputer teacher are selected for thegift. So far, students in 12 schoolshave benefited since 1999.

(www.darpg.nic.in/content/upload/egovexp70.doc)

SPICE Up!Chief Minister of Pondicherry, N

Rangasamy inaugurated the issue ofpermanent Caste Certificates at thepilot location of Villianur in May 2005.The software application, SPICE(Software Package for Issue ofPermanent Caste Certificate), wasdeveloped for this project by NIC,Pondicherry.

The certificates have a validityperiod of 15 years in contrast to thenormal certificates that have a limitedvalidity of 1 year. Salient featuresinclude the capturing of a photographthrough digital camera andfingerprints using biometric devices,which are later used forauthentication. (www.nic.in, 24.06.05)

Himachal on Tech PathThe system of Computerised

Online Jamabandis (land records) atBangana, Himachal Pradesh wasinaugurated on June 16, 2005.

Till September 2004, land recordsof 325 villages of Bangana had beenmade online and copies were availablefor distribution. On 16th June 2005, 66records were due for rewriting.Changes were being fed into thecomputer the very next day with thehelp of HimBhoomi software. In themanual system, this process wassupposed to be completed bySeptember 1, 2005, but the softwarehelped in accomplishing the task inone day. (www.nic.in, 17.06.05)

12 PolicyWatch

T R A D E & E C O N O M I C S

Kick-starting SEPCThe Commerce Ministry has taken

the first step towards operationalisingthe Services Export PromotionCouncil (SEPC) by appointing L.B.Singhal as its Executive Director.Singhal is currently the Director-General of Export Promotion Councilfor export oriented units and specialeconomic zones.

The council would formulatepolicies and work out strategies toenhance exports of all major services.The council would cover all the 160-odd services, includingentertainment, health, tourism,education, hospitality, consultancy,legal and accountability servicesnotified by the WTO except softwareservices and hotels, which haveseparate export promotion councils.

Since services account for about50 percent of the country’s GDP, anexport promotion council for thissector was first proposed in the five-year Foreign Trade Policy 2004-09.

(BL, 27.04.05)

To Peace and Prosperity!Announcing a cooperative and

strategic partnership for peace andprosperity, Prime Ministers of Chinaand India, Wen Jiabao andManmohan Singh have signedseveral agreements, including theborder issue, passenger flights,expanded military cooperation andefforts to boost trade.

Relations between the nuclearpowers have been steadily improving,

and their rapid emergence as economicsuperpowers forms a strongfoundation for greater cooperation.But there is still a long way to go andan end to the border dispute could stillbe years off, although both sidesappear to be moving towardsaccepting the status quo along theirfrontier. (Reuters, 11.04.05)

Rejection of ExportsIn a stern move, the US rejected as

many as 251 Indian exportconsignments in May 2005 on variousquality parameters, such as unsafecolours, improper labelling and forcontaining salmonella and aflatoxin.The EU also rejected 16 foodconsignments from India in May 2005and one in early June.

Even Poland, UK, Germany,Lithuania and Italy rejected Indianexports on account of the presence oftoxins and illegal colour. The ExecutiveDirector of Centre for InternationalTrade in Agriculture and Agro-basedIndustries (CITA) said that Indiashould also enforce stringent qualitynorms to deter sub-standard imports.

(FE, 16.06.05)

Increasing Agri-InvestmentsThe government has decided to

step up investments in agriculturethrough introduction of marketingreforms for promoting public-privatepartnership, Agriculture MinisterSharad Pawar told the Lok Sabha.

Several measures such as increaseof rural credit, special programme fordry land farming, increasing public

investment in agriculture research andstrengthening rural infrastructure andirrigation have been initiated, he said.To ameliorate the lot of farmers in thewake of suicide cases, severalmeasures like issuing of standingguidelines to banks for providingrelief to farmers in areas affected bynatural calamities have been taken.

(FE, 03.05.05)

Trade Dominates Foreign PolicyEconomic diplomacy has taken a

big leap forward in the first year ofthe UPA Government. India’s growingclout in the global arena is evidentfrom the fact that at least eight headsof states including the Chinese andthe Russian, have visited New Delhi.

Two trade pacts, with Chile andThailand, have been inked in 2005.Significant headway has been madein engaging ASEAN to make India apartner in its proposed free tradeagreement with member countries.

The growing recognition of Indiaas an indispensable partner by theinternational community is reflected,particularly in the 25-member EUseeking a strategic partnership withIndia. (FE, 09.05.05)

Ballooning Trade SharePrime Minister, Manmohan Singh

called upon captains of trade andindustry to work towards increasingIndia’s trade to US$500bn (1.5 percentof global share) by 2010 from thepresent US$200bn.

In line with the buoyant growthwitnessed in recent times, India’sforeign trade has touched US$186bnduring 2004-05 as compared toUS$41bn the previous financial year,a distinct increase to 0.82 percent atthe end of 2004 to 0.66 percent in 2000.

In a move to address importanttrade issues, the reconstituted Boardof Trade has decided to set up fiveworking groups on export promotionschemes, trade facilitation, sectoralinitiatives, manufacturingbottlenecks, and special economiczones. Kamal Nath, Commerce andIndustry Minister, expressedconfidence that it would be possibleto achieve this target. The thrust, headded, would be on increasingagricultural, marine and leatherexports. (ET, 29.04.05 & FE, 18.06.05)

The government is planning to divide retailing into separate categories,setting the stage for the flow of FDI into the sector. As part of the

organised retailing policy, the government is trying to fashion ground rulesbefore the likes of Wal-Mart and Tesco land inIndia.

To ensure that the smallplayers are not crowdedout, the idea of puttinggeographical restrictionson large retailers has alsobeen suggested. Thegovernment has asked theMinistry of Consumer

Affairs to prepare a detailed note on organised retail. The ministry is studyingexisting rules and regulations, which have a bearing on large-format retailing.

(ET, 20.05.05)

New Rules for Retailing

Business S

tandard

13 PolicyWatch

T R A D E & E C O N O M I C S

Boosting Jute ExportsThe National Jute Policy 2005,

unveiled on April 15, 2005 aims ataugmenting jute and jute productsexports from Rs 1,000 crore to Rs 5,000crore by 2010 through a multi-prongedstrategy.

The highlights of the strategyinclude creation of the National JuteBoard, which would rectify the lackof coordination among multiple jute-related organisations and be afacilitator rather than a regulator forthe sector and to operate the JuteTechnology Mission, approved bythe Planning Commission in the firsthalf of 2005. It is also proposed toincorporate the Jute Export PromotionCouncil in the proposed Jute Board.

Responding to questions, theUnion Minister of Textiles, S Vaghelasaid that the ministry had sought Rs350-400 crore from the PlanningCommission for modernisation of thejute sector. The government wastrying to revive ailing jute mills byreferring them to the Board forIndustrial and FinancialReconstruction. (BL, 16.04.05)

New Policy FrameworkFinance Minister, P Chidambaram

has promised to come up with a newcomprehensive policy on financialservices by September 2005. The newpolicy will cover banking, pension,insurance and capital market.

Addressing the annual sessionof the CII, the Minister soughtsupport in formulating the policy. Heurged industry to hold dialogue withpolitical parties, state governments,trading and exporting communitiesand the banking sector to ensurethat its views were taken intoaccount.

He said the doors would be keptopen for foreign institutionalinvestments, FDI, foreign remittancesand enhanced earnings from tourismand services exports. (BL, 18.05.05)

Slipping CompetitivenessAccording to a world

competitiveness ranking report bySwitzerland based IMD, India hasslipped five notches to 39th rank in2005 from previous year’s 34th. Chinatoo has come down to 31st rank fromprevious year’s 24th, despite a robust

GDP growth of 9.5 percent. Accordingto the IMD report, the US is the largestdirect investor abroad and the rapidexpansion of Asia has accelerated theprocess.

India’s performance in the fastgrowing information technology hascome up for praise, particularlytechnological infrastructureinvestment in special economic zonessuch as Bangalore and Mysore.

(FE, 14.06.05)

Curbs on Chinese SilkIndia recently initiated anti-

dumping investigations againstimport of silk fabrics from China. TheDirectorate General of Anti-dumpingand Allied Duties said there was primafacie evidence of silk fabric beingdumped by Chinese exporters.

The move has threatenedprospects of value-added silkexporters from India. They fear thatthe move will encourage smugglingfrom across the border. “There is ashortage of satin silk fabric in thecountry, which is one of the mainfabrics used for value-added exports.Even the quality of Indian chiffon andgeorgette are inferior compared toChinese silk. In such a situation, anymove to impose anti-dumping dutywill be counter-productive”, SilkGarment Exporters’ Associationpatron P Jacob Samuel said.

According to experts, thegovernment should help domestic rawsilk producers and weavers improvethe quality of their products ratherthan trying to protect them.

(ET, 02.06.05)

Gain from Indo-Pak TradeConsumers across the border

would be the biggest gainers of anymove towards formal and fair tradebetween India and Pakistan.

Prabir Sengupta, Director, IndianInstitute of Foreign Trade, was certainthat formal trade between theneighbours would benefit Pakistaniconsumers and Indian exportersgreatly.

Pradeep S. Mehta, secretarygeneral, CUTS and Nagesh Kumar,Director-General, Research andInformation System for non-alignedand other developing countriesshared the opinion that consumers inPakistan are paying a huge price forcommodities that are going from Indiabut routed through a third country.

The Federation of IndianChambers of Commerce and Industryestimated bilateral trade at US$200-250mn, while trade through a thirdcountry was estimated at US$1bnalong with contraband trade of US$1-2bn. The revenue loss for India andPakistan was estimated at US$200-400mn. (BS, 19.04.05)

India among Winners

India and China would emerge among the winners in the post-quotaregime in the textile and garments sector, according to a study carried

out by Exim Bank.The determinants of increase or decrease in market share in the medium-

term would, however, depend upon the cost, quality and timely deliveryof the products, the studysaid. In the long-run, therewere possibilities ofcontraction in intra-EU tradein textile and garments andreduction of market share ofTurkey in EU and market shareof Mexico and Canada in theUS, providing moreopportunities for developingcountries like India.

In most of the quota products imported by the US, India was one ofthe leading suppliers of readymade garments. Though China was a majorcompetitor, the unit prices for most of these product groups were high,which provided opportunities for Indian business, the Exim bank studynoted. (FE, 16.04.05)

The Econom

ic Times

14 PolicyWatch

C O R P O R A T E G O V E R N A N C E

No Escape!In a judgement that has wide

implications for corporate India, theapex court has ruled that companiescan no longer claim ‘blanket immunity’from prosecution, and the court canimpose fines on them.

The judgement assumessignificance in the backdrop of thelarge-scale financial irregularities,which have hit corporate India in therecent past. A plethora of files couldnow be turned open against firms likeANZ, Grindlays Bank, StanChart bank,and others involved in the stock scamof 1992.

The decision has received mixedreactions from the legal fraternity, andhas put the corporate sector on theback foot! (FE, 06.05.05)

CG – An InvestmentSecurities and Exchange Board of

India (SEBI) supremo M. Damodaranhas called on companies to analysethe cost of compliance with corporategovernance norms from the perspectiveof investment in protecting theinterests of the shareholders ratherthan as expenditure.

He added that the Ministry ofCompany Affairs was committed toimplementing strict compliance normsto ensure protection of stakeholderinterests. Recognising enforcement ofCG norms as a major challenge beforethe regulator, Damodaran was hopefulthat the Indian Inc. would play a pro-active role and set high benchmarks.

(BL, 01.04.05)

Dutch Firms Found WantingA report commissioned by the

India Committee of The Netherlandsand jointly carried out by the

Consultancy and Research forEnvironmental Management andPartners in Change, an NGO, hasrevealed that hardly any multi-national Dutch company involves itsIndian daughter company fordeveloping their official corporatepolicy or code of conduct.

The report further added thatthese companies are unconcerned,when it comes to checking if theproduction in their sub-contractingchain was being carried out in linewith internationally agreed labourand other human rights andenvironmental standards.

The report has raised acontentious issue regarding the lackof clarity amongst Dutch companiesand their Indian subsidiaries as towho would bear the responsibilityfor addressing corporate socialresponsibilty issues. (FT, 24.05.05)

Independent DirectorsSEBI has warned companies to

get prepared to face the music, if theyviolate the norm of appointing therequisite number of independentdirectors. However, there seems tobe disagreement between therecommendations of SEBI and the JJIrani Committee, working on the newCompanies Act, on the proportionof independent directors in acompany’s board.

While SEBI, according to Clause49 compliance, stipulates at least ahalf of the members of the board ofdirectors to be independent, the JJIrani Committee recommends thatindependent directors shouldconstitute at least a third of the boardof listed and unlisted companies.

(FE, 08.05.05 & BS, 01.06.05)

Three Mantras

Social scientist Dipankar Guptaof the Jawaharlal Nehru

University has prescribed threemantras, for corporate socialresponsibility (CSR) initiatives tobe successful, which shoulddirectly impact the effectivenessof a company’s operations.

First, CSR can only besustained if a company relies onits core competence. ExcelIndustry, an agro-based company,leveraged its expertise in dealingwith solid waste and volunteeredfor recycling Mumbai’s garbage.This initiative benefited thecompany as well as thecommunity, besides earning Excelenormous reputation as a businesshouse.

The second mantra iscommunity driven CSR. Lipton, inEtah, started a veterinary hospitalin the region from where itprocured milk. This helped Liptonget an assured supply of milk, keptthe dairy farmers happy, andbrought prosperity to the region.

The third mantra is consumerdriven CSR, whereby a companycan create new consumerexpectations through innovationand turn the heat on its competitors.Body Shop created greater value bymaking all its products free fromanimal extracts. (ET, 26.05.05)

The Drugs ConsultativeCommittee has decided to

include labelling of ingredients oncosmetic products under thelabelling norm of the Drugsand Cosmetics Rules, 1945.Cosmetics would now have tolist out the ingredients on thelabels.

This follows a controversyin Mumbai when theauthorities challenged claims made

Real-time Disclosures Please!Rating agencies want listed

companies to disclose defaults on areal-time basis in the settlement ofobligations, and to them, absence ofsuch critical information in publicdomain is a disservice to the investorcommunity at large.

Material information of a companydefaulting on obligation of payment ofinterest or principal on a due date needsto be conveyed to stock exchanges,agencies have demanded. They arguethat in most global markets, corporatesare required to disclose defaultinformation within 24 hours of the duedate. In India, companies however, shyaway from making incidents of defaultspublic.

(Academy of Corporate GovernanceJournal, April-June 2005)

Cosmetics to Come Clearby Johnson & Johnson for its babyoil that were not fully authenticated.

The move to include cosmeticsunder the Drug andCosmetic Rules is a stepin the right direction forensuring the labelling andquality/safety profile of theproducts. A decision hasalso been taken to registerimported cosmetics, just

like imported drugs. (BL, 25.06.05)

ww

w.w

vec.

com

15 PolicyWatch

R E P O R T D E S K

Legal Framework VitalCII, in its report, said that a stable

and clearly defined legal andregulatory framework is vital forattracting private sector participationin the infrastructure sector.

The consultation processbetween the public and private sectorsand the mechanism for disputeresolution between the infrastructureproviders and the users of theseservices had not been up toexpectations, it added. Anotherproblem highlighted has been thefailure to separate regulation anddispute resolution fromadministration, in order to avoidconflicts of interest.

One major recommendation hasbeen the establishment ofautonomous regulatory agencies withindependent funding andprofessional staff as a possiblesolution to this impasse. (BL, 03.05.05)

Leverage Buying PowerThe National Manufacturing

Competitiveness Council (NMCC) hasrecommended in its report that whenorganisations such as defense,railways, Air India and Indian Airlinesbuy their requirements from abroad,they should insist on transfer oftechnology to Indian companies.

These organisations shouldleverage their large purchases to getIndian companies some share of thebusiness, said V. Krishnamurthy,Chairman, NMCC. He cited the exampleof Malaysia, which wanted as muchlocal sourcing as possible when ittendered for 20 frigates recently.

The report also recommends a newscheme for the small-scale sector,which is likely to be modeled on a

similar scheme in the US, called TradeAdjustment Assistance, which is a‘cost-sharing federal assistanceprogramme’. The elements of theprogramme include assistance to firmsaffected by import competitionthrough part funding of theirrestructuring efforts. (BL, 06.04.05)

Repeal Land Ceiling ActThe repeal of the Urban Land

Ceiling Act (ULCA) and rationalisingof property tax all over the countrywill not only facilitate foray of foreigncompanies in retail, but also create amultiplier effect for agriculture,manufacturing and food-processingand create employment for a minimumof 50 lakh people in these sectors inthe next 4-5 years. This was revealedfrom an assessment by the AssociatedChambers of Commerce and Industry(Assocham) on the impact ofprototype laws, such as ULCA andProperty Tax on retail business.

Assocham pointed out that theopening up of the retail sector wouldsee a spurt in the number of malls,which will go up from the existing 50 toover 300 by 2010. Further, the numberof townships will also go up

substantially and a massive demand forcement, steel, electric wires will begenerated. (BS, 20.06.05 & BL, 20.06.05)

Indians Right on TopAn online survey on Global

Consumer Confidence and Opinionsconducted by market research majorACNielsen said that 88 percent of theIndians surveyed felt that theeconomy would do well over the next12 months. This was ahead ofconsumers in China and Hong Kongwho polled 80 and 71 percent,respectively. The index comparesconfidence levels across countriesbased on three parameters – jobprospects, personal finance andspending desires.

79 percent of Indian respondentsalso felt the economy performed wellover the last six months. On issueslike job prospects in the next 12months, 18 percent believed that theprospects were ‘excellent’ while 69percent felt that prospects were‘good’.

At the top of the index was India,with a score of 127, followed by NewZealand and Ireland. The globalaverage score was 92. (BS, 20.06.05)

EAC’s Prescription

The Prime Minister’s Economic Advisory Council (EAC) has askedthe government to initiate reforms in the labour and infrastructure sectors to

ensure that the country achieved at least seven percent growth in the currentfiscal.

In its monthly report, it has taken note of sluggishness in the manufacturingsector in recent months and cautioned that steps need to be taken to perk upinvestment and improve business confidence in the economy. It urged the governmentto move forward with policy initiatives to bring about higher investment by theprivate corporate and public sector. The panel does not have high expectationsfrom agriculture this year, given the high base of the previous year.

The panel, headed by C. Rangarajan, is also planning to prepare a specialpaper on financial sector reforms with a focus on improving the efficiency andstrength of this sector. (BL, 10.06.05)

Bribery in Bihar

Bihar is at the bottom of the list in Transparency International’s firststate-wise survey of corruption in the Indian bureaucracy. This survey

was conducted along with the Centre for Media Studies (CMS) in 356villages spread across 151 districts in 20 States and covered 11 publicservices. Bihar also has the distinction of having the most corrupt publicdistribution system. The highly literate Kerala is the least corrupt state.

Himachal Pradesh, Gujarat, Andhra Pradesh and Maharashtra followKerala as the least corrupt of states surveyed to find out how much acommon man has to pay as bribes to avail himself of public services.The survey reveals that common citizens pay bribes of Rs 21,068 croreevery year. (BS, 01.07.05)

The Econom

ic Times

16 PolicyWatch

R E P O R T D E S K

Remodelling Corporate LawsA paper on reform of business

laws and administration of justice,prepared by FICCI and the BarAssociation of India, recommendsrevamping of the country’s judiciallandscape to facilitate effective andspeedy justice for prompt andunfettered business decisions by thecorporate sector.

Remodelling the Companies Act,the Takeover Code and theCompetition Act with a view toformulating a road map for futurebusiness growth is a key element, thepaper said. It urges the creation of amechanism to ensure moretransparency and prevention of anymisuse of funds through transfersfrom one company to another.

(BL, 27.04.05)

World Bank Plan for TNTamil Nadu has achieved faster

economic growth and povertyreduction than the Indian average inthe 1990s. India’s fifth largest state –in economic terms – however, has alot to do in terms of development,says a World Bank report on the state.

Repeated droughts and growingwater shortages have heightened theimportance of structuraltransformation in Tamil Nadu. Forfaster growth, the Bank identifiedsome priority reforms, which includelabour market flexibility, a moreresponsive urban land supplyscheme, a more efficient tax policy and

administration and continuing reformof entry and operation. Power sectorreforms, infrastructure developmentand labour reforms are recognised asneeding immediate attention.

Financing mechanisms withtargeted use of state governmentcontribution and guarantees wouldhave to be developed.

The World Bank is most active inAndhra Pradesh, Uttar Pradesh, andKarnataka, which, with a combinedpopulation of about 300 million,account for around one third of India’spoor people. A key focus of the workhas been supporting fiscal reforms,reducing corruption and increasingaccountability of state governments.

(BS, 22.06.05 & www.worldbank.org)

India One up on ChinaIn the long run, India will overtake

China in economic growth owing tohome-grown entrepreneurship,stronger infrastructure to supportprivate enterprise and companies,which compete internationally withglobal firms, according to a mediareport written by Yasheng Huang,professor at the MassachusettsInstitute of Technology and TarunKhanna, professor at HarvardBusiness School.

The report said that India issuperior in utilising its resources, thuscontributing to economicperformance. India has also developeda much stronger infrastructure tosupport private enterprise. Its legal

Wanted: Ministry of Employment

The country’s labour force growth of 2 percent a year needs 8 millionnew jobs just to keep unemployment frozen where it is. With an

employment elasticity of GDP of 0.15 and an incremental capital outputratio of 3.75, creation of 8 million jobs needs a sustained nominal GDP

growth of 13.6 per cent andinvestments of US$125bn,according to ManishSabharwal, Chairman ofTeamlease, India’s largeststaffing solutions company.

“These numbers arepractically impossible toachieve and we can’t havemassive job creation unless

we raise the employment elasticity of GDP”, says Sabharwal.One immediate solution could be to merge the ministries of HRD and

labour and rename the new entity Ministry of Employment. Sabharwal feelsthis would help reorient the focus from preserving jobs to creating jobs.

(BS, 22.04.05)

system, while not without substantialflaws, is considerably more advanced,the two argued.

(www.rediff.com, 29.06.05)

Eternally IndebtedAlmost half – 48.6 percent – of farmerhouseholds in India are indebted, withthe degree of indebtedness beingfairly high in states like AndhraPradesh, Tamil Nadu and Punjab,according to the NSSO’s (NationalSample Survey Organisation) firstever situation assessment survey ofthe farmers in India. Out of a total ofabout 210 million households, 89.3million farmer households wereindebted in 2003.

In Andhra Pradesh, 82 percent offarmer households are indebted,followed by Tamil Nadu with 74.5percent. Punjab reported 65.4 percentindebtedness among farmerhouseholds, whereas Meghalaya hadjust 4 percent.

More than half of indebted farmerhouseholds have taken loans for thepurpose of capital or currentexpenditure in farm business, said thereport. Marriages and ceremonies arethe next major cause of indebtedness.

(BS, 05.05.05)

States’ GDP Per Capita RankingRanked by per capita GDP in 1993-

94, the top five states were Punjab,Maharashtra, Haryana, Gujarat andTamil Nadu. Ten years down the line,Maharashtra has moved closer toPunjab and Gujarat has overtakenHaryana for slot three.

These shifts probably indicatethat the reforms did more to spur thenon-agricultural sectors than theagricultural ones. Agriculture inPunjab and Haryana grew slowly overthe period 1993-94 and 2001-02, by 16percent and 11 percent respectively,slower than the national average of 17.4percent. Their industrial and servicessectors kept them in their ranks.

States that had a large anddynamic industrial and servicessectors grew more rapidly than thosewhere agriculture has predominance.The striking success stories in thiscategory are Karnataka and WestBengal. The per capita GDP in thesetwo states grew by 44 and 37 percentrespectively. (BL, 09.06.05)

Business Standard

17 PolicyWatch

E X P E R T C O R N E R

No Free Water for FarmingThe agriculture sector has

deteriorated after 1996 and its growthrate has slipped from 3 to less than 2percent. The reason for this is the lackof policies encouraging investment inagriculture and irrigation. Accordingto Montek Singh Ahluwalia, DeputyChairman, Planning Commission, thenotion that water should be suppliedfree is completely mistaken. Anappropriate policy to encourageoptimal use of a resource that is fastbecoming scarce is necessary.

Food grain production is abovethe level that the economy canabsorb. Therefore, diversification intopoultry, horticulture and dairy isrequired. As export of agri- productscan generate high income for farmers,there is a need for research andinstitutional change.

Ahluwalia stressed the need forspecial purpose vehicles as a meansto utilise India’s ample foreignreserves for infrastructure projects.

(BL, 25.06.05)

Cost-Competitive IndustryFICCI has outlined a multi-

pronged agenda to unshacklecorporate India from the strangleholdof the 450-odd economic andcommercial regulations. The move aimsto make industry cost-competitive andboost confidence of foreign investors.

Vast numbers of compliancerequirements cause greenfieldprojects and expansion plans to runinto delays and cost over-runs. FICCIpresident Onkar S Kanwar was of theopinion that the Indian industry waslooking at streamlining the system andstruggling to cut cost, while beingburdened with high litigation costs.

While increasing courts and thenumber of judges and rationalisingprocedures is important, thegovernment must also enact a flexibleand user-friendly Companies Act.

(FE, 05.05.05)

Against PSBs ConsolidationThe eight-member independent

commission, chaired by former UnionFinance and Commerce Secretary, onbanking and finance was set up toexamine the vulnerability of thebanking system. The commission,comprising of mostly eminent left wing

economists, feels consolidation is notnecessary for Public Sector Banks tocompete with the new generationprivate or foreign banks. There is noevidence to support an automaticassociation between large size andprofitability.

The argument that the threat todomestic banking arising from anincrease in foreign banking presenceshould be dealt through consolidationof domestic banks, which would alsoserve to strengthen them and makethem global players, is without logicalor empirical basis. (FE, 31.05.05)

Jalan’s RecipeIn his new book “The Future of

India – Politics, Economics andGovernance” Dr. Bimal Jalan, Member,Rajya Sabha, and former RBIGovernor, has stressed the need forgreater interface between the inter-related areas of politics, economicsand governance. Their combinedeffect on the functioning of democracyis the key to economic success. If Indiahas to achieve its full potential, allthree have to work in harmony.

It has been proved in the last twogeneral elections that what agovernment achieves economicallydoes not influence electoral results.Economic reforms per se would notusher in growth, but what would reallymatter would be the outcomes. Thereis no certainty that the presenteuphoria will last unless there is

political will to seize the newopportunities that are available.

Dr. Jalan suggests steps that canbe taken to smoothen the path toprogress – ways to strengthen theParliament and the judiciary. He callsfor a series of political reforms thatwould see greater accountabilityamong union ministers and ways tocurb corruption and enhance fiscalviability. (BL, 17.06.05 & 30.05.05)

Freedom from HungerDr Kirit Parikh, member of the

Planning Commission, said that manysolutions have been suggested todeal with hunger and poverty butthey do not work because they relyon the market, and the poor areoutside the market. Non-marketsolutions also have not worked wellbecause of the failure of governanceat various levels.

Outlining the solutions, Dr Parikhsaid that skills, assets andopportunities for remunerative jobsand livelihoods can abolish povertyand hunger in a more sustainable way.But the most important thing is tocreate alternative job opportunitieswhere more income is available. So, awell thought-out plan to abolishhunger can push economic growthin a direction where a lot of productivejobs are created.

He alleged that jobs created bythe anti-poverty programmes aremere palliatives for the short-term.

(FE, 13.06.05)

India’s textile and garment exporters feel that the prospect of Chinaswamping the US and EU markets at the cost of India was a gross

overestimation. According to D K Nair, Secretary General, Indian CottonMills’ Federation, it would be quite inappropriate to speculate onIndia’s gaining or losing wholly from China’s market moves.

Dr R K Dhawan, Chairman, Northern region,Federation of Indian Export Organisation(FIEO) said that India can increase and gainthrough exports, but its gains will be mostlyfrom the abolition of the Multi-fibreAgreement (MFA) and not from China’slosing markets.

There are significant differences ininternational markets where textileproducts of both countries are traded.China’s industry is known for its massproduction items that are priced verycompetitively; whereas India’s strength is inhandling small orders for casual fashion wear. (FE, 04.06.05)

How Big is the Dragon?

ww

w.blonnet.com

18 PolicyWatch

E X P E R T C O R N E R

Hunger Estimates ChallengedProf. Utsa Patnaik, a leading

economist from Jawaharlal NehruUniversity, has challenged the officialestimates of hunger in India. Themajority of academics andgovernment officials, as well as thePlanning Commission make twoclaims: first, that there is oversupplyof food grains relative to demand andthus food grains should be cut backin favour of diversification; second,that poverty is declining in India inthe era of reforms.

The factually correct position,according to her, is precisely theopposite. There isn’t an oversupplyof food grains, but a drastic decline ineffective demand because of anabnormally fast loss of purchasingpower over the last six years. Povertyis very high, affecting at least 3 quartersof rural and over two-fifths of theurban population. (FE, 18.04.05)

Policy for Rural HousingAssocham has called for a

national housing and habitat policyto promote rural housing under theBharat Nirman project.

The housing finance companies,which were required to provide threepercent of their incremental profit forthe housing sector since 1988, had notbeen able to achieve the desiredresults due to non-availability offunds. Assocham suggested that thenumber of housing finance firmsshould be more than doubled tobenefit the rural populace.

The Chamber’s findings alsoreveal that people in villages have

been more punctual in repaying theprincipal and interest amountdisbursed compared to those in theurban areas. (TH, 06.06.05)

…For Smooth SailingAzim Premji, Chairman of Wipro

Ltd. has expressed dissatisfactionover the lack of progress in thedevelopment of new seaport facilitiesin the country.

He noted that the country hasexper ienced unpara l le ledimprovements in the telecom sector,especially in wireless telephony.Private investment was also underwayin the roads and airport sector.However, no such development iswitnessed in the seaports sector andport congestions may prove costly tothe country in the long run. He alsoidentified water and power as the twoother areas that need immediateattention.

Maintaining quality, focusing oncore competitiveness, stressing onteam work by being sensitive todifferent cultures and world classleadership are the key internal factorsfor creating a world class enterprise.

(BL, 05.04.05)

Quality over Quantity PleaseA report of the group on

investment credit from the RBI,scripted by Y S P Thorat, ManagingDirector, NABARD admits that theagricultural sector in India is poorlyfunded.

The Gross Capital Formation(GFC) in the public sector has declinedby about half, to 23 percent between

Job Prez-cription

The president, A P J Abdul Kalam, listed out schemes that couldgenerate about 56mn jobs in five years. Among the significant areas

was bio-fuel generation; the country’s abundant wasteland can be used togrow bio-fuel plants. “11 mn hectares can yield a revenue of Rs 20,000crore a year and provide employment to over 12 mn people for plantationand extraction”. The use of new technology for wasteland reclamation,and water harvesting has the potential to create more than 20mn jobs.The bamboo mission could be very useful in creating market opportunitiesin the northeastern states.

The healthcare and textiles and clothing industries are other areaswhere large scale development and employment generation can beexpected. The President is of the opinion that the creation of villageknowledge centres, enhanced rural finance, programmes like ‘ProvidingUrban Amenities in Rural Areas’ (PURA), interlinking of river, etc mustbe encouraged for maximum employment generation. (FE, 07.04.05)

The Hindu B

usiness Line

over two decades. GCF in the privatesector, on the other hand, moved upfrom 55 to 77 percent.

The ratio of GCF to GDP is animportant indicator of the efficiencyin the use of funds. Separatecalculations for the public and privatesectors clearly indicate better fundutilisation in the private sector.

The quality of credit in the publicsector is also suffering in several ways– expenditure on revenue account ismounting, thus drawing funds awayfrom capital expenditure. Term credit,which facilitates investment inagriculture, seems to be declining inimportance. (BL, 25.06.05)

Insulated from GlobalSwings

The Indian economy is insulatedfrom episodes of global financial

instability, as the country has over theyears built resilience to shocks dueto international oil prices andinflation and is less vulnerable tooutput volatility, according to RBIGovernor, Dr Y V Reddy at the eighth

meeting of the Bank of InternationalSettlements (BIS) Working Party onMonetary policy in Asia.

Over the years policymaking isbecoming more globalised ascyclical changes are becoming moresynchronised, especially since the1990’s. The multiple indicatorapproach followed by the RBI wasa logical outcome of the multipleobjectives that characterise themonetary policy framework. Inaddition, he drew the attentiontowards the data gaps in the conductof monetary policy in the country.

(BL, 08.06.05)

19 PolicyWatch

S P E C I A L T O P I C

The Congress led UPA government has completed oneyear in office – a year that has been quite satisfactory

on the economic front. Despite a less-than-averagemonsoon, India may well end up with slightly over sevenpercent GDP growth for 2004-05. In spite of significantlyhardened oil prices, the industry is trotting along quitenicely, with almost eight percent growth, the servicescontinue to grow at a rate above 8.5 percent andnotwithstanding higher energy as well as raw materialprices, companies will post a sizable growth in profits for2004-05. Yet, as a pragmatic economist, the Prime Ministermust be thinking about the sustainability of economicgrowth, and grappling with a key question: “What canIndia do to ensure that it forever alters its growth trajectoryfrom an average of 6.1percent that it achievedbetween 1992 and 2004 toseven percent and then,perhaps, even eightpercent over the nextdecade or so?”

The issue reallyreduces to just one word:“infrastructure”. Nodoubt, some sectorshave been doingincredibly well. Themobile telephone is onesuch success story.Thanks to the privatesector-led triple-digitgrowth in mobile phones, our tele-density has doubledfrom under five percent a few years ago to close to 10percent today. There are now almost 60 million mobilesubscribers, and the number of mobile phones outnumberslandlines. Yet, the fact remains that China had 344 millionmobile users and another 319 million fixed line subscribersin Feburary 2005, which translated to a tele-density of 25.9percent for mobiles and another 24.9 percent for fixed lines– or 50.8 percent in all.

Many would also consider our highway programme tobe a success story. After all, 4,611km of the 5,846km, whichcomprises the golden quadrilateral, have been completed,and another 1,235 km are under implementation. However,another fact is that only 692 out of 7,300km of the North-South-East-West corridor have been completed. One maynote that there is a sense that the pace of construction andawarding of contracts has slowed down since electionswere announced last year. If we compare ourselves withourselves, we may have done well. But we only need tocompare ourselves with China to realise how much morewe need to do. By 2004, China already had over 25,000 kmof modern multi-laned, tolled highways, much of whichwas financed by FDI.

The same goes for the case of ports in India. Whilethere have been improvements compared to a decade ago,

Infrastructure is the Key- Omkar Goswami

we still have a long way to go before being in the sameleague as Shanghai, Tanjung, Johore, Penang or Colombo,leave aside Singapore. For instance, while India handledless than 10 million twenty-foot equivalent units (TEU) ofcontainer cargo, China handled over 50.

The power situation is too embarrassing to speak of.Though the beneficial enabling effects of the ElectricityAct, 2003 are in place, there just isn’t enough powergeneration, transmission and distribution on the ground.The fact that 60 percent of Indian manufacturing entitiesneed to have their captive power generating units orgensets, says it all. In China it is 16 percent, in Brazil 17percent and even in Pakistan it is 42 percent.

A recent study conducted by the World Bank suggeststhat in order to maintainthe Tenth and theEleventh plan targets,the investments neededin roads, power,railways, ports, airportsand telecom for the nextdecade will be Rs1,914,300 crore - of whichthe central governmentmay at best be able tofinance Rs1,360,100crore. There is no way wecan sustain even a sevenpercent GDP growth rateover the next five yearswithout a push in

infrastructure.Unfortunately, it is a very desperate business, with

each sector falling under different, often overlappingministries. There is lack of sufficient coordination andaccountability in the real sense. Barring the numbers givenin plan documents, there are no clear infrastructure plans,targets and defined implementation schedules.

In order to give infrastructure its due share ofimportance, there has to be a signal that the ownership liesat the highest level of government. There is a need to havean infrastructure secretariat reporting to the Prime Minister,which will not only monitor the status of projects in differentsectors but also convene meetings once every two monthsbetween the PM and the concerned infrastructure ministers.

This secretariat would certainly ensure consistency inpolicies, quickly identify problems and refer them toappropriate levels, and most importantly, regularly monitorprogress. Such an arrangement would go a long way todemonstrate the government focus on infrastructure. Ifproperly executed, it would prove that implementation isthe key.

NR Narayana Murthy has rightly pointed out “Profitsare an opinion, cash in the bank is a fact”. Similarly, “policiesare words, infrastructure on the ground is a fact”.

(Abridged from an article in ET, 25.04.05)

The Economic Tim

es

20 PolicyWatch

V I E W P O I N T

Management Successes:• Teetering between a WTO deadline and the Left

opposition, the passing of the Patents Bill was nothingshort of a miracle.

• Managing to rebuild the economy after the Tsunami farbetter than the neighbouring economies. India leveragedthe disaster to prove it is no longer a passive third worldrecipient of aid but in a position to disburse it.

Coups:• The UPA took the NDA initiative on the peace process

with Pakistan further, braving the threats and reprisalkillings in Kashmir.

• The PM sprang the announcement to scrap the PressNote 18 (which gave draconian powers to Indianpartners of foreign investors) on unsuspectingministers, as a measure to increase foreign investmentin India.

Incomplete Tasks:• Not much headway has been made with labour laws

despite talks with the trade unions and industry.

One-year Milestone of the UPA Regime• The entire FDI regime is being reviewed and the

government hopes to do a lot, once it has the go-aheadfrom the Left.

• The idea was to eliminate unwanted subsidies andtarget the poor and needy. A policy paper was preparedand tabled in the Parliament, but awaits action.

Fiascos:• The government thought of legislating for the private

sector to take in SC/ST employees, but backtracked sinceit would have to write HR policies for MNCs. The idea tohave a “dialogue” on the issue has also meandered away.

• The government saw the Naxal problem as a socio-economic one and wanted to talk about it. Once theNaxalites converged on Andhra Pradesh and killed atop Police official, thinking in this direction stopped.

Embarrassment:• In both Goa and Jharkhand, the governors were so

eager to swear in Congress governments to power, thatthey overlooked the minor issue of whether or not theChief Ministers had a majority. (BS, 21.05.05)

Just Pass MarksA year in Indian politics is a very short

while for tangible achievements even for thosewho are familiar with it and hold longexperience, as has been the case with the UPAgovernment. There are two dimensions to themanner in which performance can be evaluated.

The first, “control” dimension, is aboutwhether or not the government is able to judgethe factors that will impact the medium termperformance of the economy, put in placemechanisms that protect the economy andcreate opportunities. The threat posed by theglobal oil scenario is a case in point. WhileIndian energy needs will intensify and oilprocess cannot be controlled, the way forwardis to minimise our dependence on it. Thegovernment has shown initiative by lockingoil supplies through outward foreigninvestment, and utilising domestic natural gas.

The second dimension is that of “action”.This includes things that were under the controlof the governmental and of those that it did orfailed to do. The implementation of VAT is oneof its achievements. But it has failed on thepower sector since a solution is not in sightand industrial growth cannot be achievedwithout increases in power availability.

Therefore to be fair to the UPA government,it has had its share of achievements and deservesa “pass” for the past year.

Subir Gokarn,Chief Economist, CRISIL

(BS, 09.05.05)

Far from SatisfactorySingh himself is fretting that out

of 40 odd promises made in theCommon Minimum Programme, 30have not been kept. According to areport compiled by the PrimeMinister’s Office in April, progress ononly four promises is described as‘satisfactory’. The four promises relateto setting up of a commission for thewelfare of minorities, establishment ofa North East Council, arranging forcrop and livestock insurance and someschemes for village electrification. Onthings like reserving 33 percent ofparliamentary seats for women,making state-owned banks fullyautonomous, reviewing the ElectricityAct of 2003 and reserving jobs in theprivate sector, there has been nomovement at all.

Among the Ministries that haveattracted maximum flak are ShivrajPatil’s Home, Arjun Singh’s HRD,Sharad Pawar’s Agriculture, MeiraKumar’s Social Justice &Empowerment and P M Sayeed’sPower. Trains get derailed withmonotonous regularity and no actionis taken against Laloo Prasad. The listof UPA’s shortcomings is endless.

M V Kamath,Prasar Bharati

(newstodaynet.com)

FM’s ConfessionPresenting the

performance report of the UPAgovernment for last year, theFinance Minister, PChidambaram claimed to havekept the GDP growth at 6.9percent and projected a threepercent growth in agriculture.The balance of paymentssituation is not as vulnerableowing to a comfortable foreignexchange reserves despite awidening trade deficit.International credit ratingagencies also corroborate thisand have upgraded theirinvestment ratings for India.

The government hasbeen able to control the priceline through variousmonetary and fiscalmeasures; the WholesalePrice Index (WPI) came downfrom 8.7 percent to 5 percent.

He claims that progress ininfrastructure – telecom,roads, ports, aviation, steeland power – was a successstory. Shortage of coal hadbeen a limiting factor and sothe next major reform wouldbe in the coal sector.

(TH, 27.05.05)

21 PolicyWatch

G O O D P R A C T I C E S

Creating Democracy in the Power SectorBackground

Power is one of the most important constituents ofinfrastructure, the performance of which directly impactsthe overall economy.

In India, electricity has been accorded a high prioritysince independence, which has resulted in a phenomenalgrowth and exemplary progress in the sector. However, intime, the power sector succumbed to the changing socialand political pressures and ploys from strong vestedinterests.

Lack of awareness among consumers compounded theproblem and virtually no effort was made either by thegovernment or the utility to educate them. Absence ofany formal mechanism for the engagement of stakeholdersled to distrust between the consumers and the utility.Consumers have often been the most neglected segmentin the state-owned and operated electricity sector. Theywere not provided with the institutional mechanism requiredto raise concerns to policy circles. Indeed, the situationwas a lose-lose proposition for utilityas well as the consumers. The state-owned utilities have been on theverge of bankruptcy, thanks to thepoor recovery of user charges andoperational inefficiencies. The sectorhas been moving towards adownward spiral of poor recovery ofuser charges, sub-optimal investment,inefficient infrastructure and poor services.

There was a dire need to reinvigorate the sector. In1996, the Conference of Chief Ministers approved theCommon Minimum National Action Plan for Power, whichincluded establishment of the Electricity RegulatoryCommissions (ERCs) at the central and state levels.Promulgation of the ERC Act, 1998 by the government ofIndia paved the way for the establishment of a StateElectricity Regulatory Commission to set standards for theelectricity industry in the state, which included quality,continuity and reliability of service, and also to ensure afair deal to the customers.

Reform Scenario in RajasthanThe power system in Rajasthan was characterised by

problems of frequent service interruptions, high systemlosses, unexpected voltage and frequency swings,restrictions on demand, poor cost recovery and heavycommercial losses, which was no different from situationsprevalent in the rest of the country. The RajasthanElectricity Regulatory Commission (RERC) was an outcomeof the reform process. As an autonomous regulatoryauthority, it regulates power purchase and procurementprocess of the transmission and distribution utilities,determines tariff for electricity transmission and supply,promotes transparency, efficiency and economy in theoperation and management of the power utilities,encourages competition and helps the power sector attractprivate capital for development.

It was realised that it would be beneficial to have aninstitutional mechanism where the regulator, the utility andthe consumers would understand and share each other’sconcerns.

Provision of institutional mechanism to raise concernsis the most significant improvement that the inception ofthe regulatory commission has brought in for commonconsumers. As a part of the reform process, the RERCtook several measures for consumers’ grievance redressal.Fora such as Complaint Centre, District Level Forum andCorporate Level Forum were set up. An ombudsman wasalso appointed for the consumers who were harried bynon-redressal of their grievances by the forum. A charterof consumers’ rights with regard to supply of safe, reliableand efficient power to the consumers has also beenpublished.

Although these measures are aimed at addressing theconcerns of the consumers, ignorance about theprovisions hampers their efficacy. None of them provides

for education of the consumers,which is very important in acomplex issue like power. Further,the concept of independentregulation assumes that allstakeholders are capable ofrepresenting their interests beforethe regulator effectively. However,in practice this does not hold true.

Absence of an appropriate forum to raise concerns ofconsumers also stunts the ability of consumer groups todo the needful.

It has been realised that until consumer representativesacquire capacity to represent consumer interestseffectively, creation of institutional space for representationwould have little meaning.

CUTS-FES InvolvementRealising the significance of involving consumers in

the reform process and with the view to fill the statedgaps, CUTS, along with Friedrich Ebert Stiftung (FES), aGerman Development, conceptualised a programme –‘Involvement of Consumers in Power Sector Reforms’. Itadopted a three-pronged strategy, in association with itsnetwork partners at the grassroots level for the purpose,especially because the benefits of reforms did not reachconsumers. The consumers believe that, despite thereforms, the quality of services remained poor coupledwith substantial tariff hikes. The attitude and behaviourof the staff of the utility remained the same –uncompromising, discourteous and inefficient whileresponding to complaints. Apparently, it was a continuanceof the mistrust that prevailed in the pre-reform era. Therewas no platform to bring the utility and consumers togetherand help them do away with mutual distrust and findsolutions to various problems collectively. The three-pronged strategy was:

The power system in Rajasthan wascharacterised by problems of frequentservice interruptions, high systemlosses, unexpected voltage andfrequency swings, restrictions ondemand, poor cost recovery andheavy commercial losses.

22 PolicyWatch

G O O D P R A C T I C E S

• advocacy at policy level to achieve greater institutionalspace for consumers’ concerns

• establishing a network at the grassroots level to createinstitutional spaces for consultation at each level

• creating an effective two-way communication system.

FES became a willing partner of CUTS to provideactivity-based support in this endeavour. The CUTS-FESmodel seeks to involve consumers in reforming the powersector in Rajasthan for a mutually beneficial association ofall the stakeholders. Since the resources were not sufficientto launch the programme in the entire state, it was decidedto start the programme on a pilot basis in six select districts.One partner organisation was selected in each of the sixdistricts, which was supposed to undertake activities likeformation of consumers’ groups at the village level andtheir capacity building.

In order to operationalise the above-mentionedstrategy, CUTS-FES focused on:• Consumers’ awareness about the reform process,

including their rights and responsibilities• Capacity building of network partners and other civil

society organisations on regulatory issues• Sensitising the other stakeholders like utility,

politicians, media, consumers, panchayati rajinstitutions (PRI) representatives, block and districtadministration officials and regulators

• Information generation• Raising policy issues at appropriate forums

The programme was launchedin August 2001 with a time frameof three years. Success of theprogramme was linked to theefficacy of the network partners.CUTS and FES were to supportthese activities. The entire networkwas supposed to facilitate theupward as well as downward flow of communication. Whilethe downward communication is used for informationdissemination, the upward communication facilitatesinformation collection.

For developing the capacities of its network partnersand grassroots level civil society organisations, a seriesof workshops were planned. They provided a commonplatform where all the stakeholders, including consumers,consumer activists, PRI representatives, block and districtadministration officials, political leaders, officials of utilityand regulators, were targeted.

Information was also disseminated through publishedmaterials, which were further distributed by the networkpartners. Research studies and information collection byCUTS for identifying issues to be taken up at the policylevel was accomplished with the help of partners. Themedia was involved to bring various issues to the publicdomain. CUTS-FES mobilised and organised the peoplewith a view to empowering them, breaking the culture ofsilence and dependence and converting the ignorantconsumers from passive recipients to active participantsin the development process.

Pursuant to the ERC Act 1998, RERC after consultationwith the state government, constituted the CommissionAdvisory Committee, comprising of 21 members. CUTSwas nominated to this Committee.

Impact AssessmentThe CUTS-FES programme was an attempt to bring

consumers’ concerns into active consideration in the policyarena. It has enabled the engagement of citizens in policymaking, and the organisation of service delivery. Withenabling regulatory framework in place, it has achievedconsiderable successes.

The process of reforms cannot achieve the desiredresults overnight, nor can changes be brought aboutovernight. Implementation of the pilot programme hasoffered a valuable learning: having critical mass of capableconsumer representatives is imperative to bring aboutdesirable changes in policies and regulations.

The World Bank’s Water and Sanitation Programmefor South Asia has carried out an impact assessment ofthe project and has documented the initiative as a ‘goodpractice’ to raise consumer voice and client power to makeservice providers accountable.

The report observes, “NGO-state relationship is oftenpromoted by a realisation on the part of the state thatthere is lack of proper institutional mechanism for its ownagenda. The reform process in Rajasthan had also notpaid adequate attention towards developing institutionalspace for citizens’ engagement, while it realised that the

consumer was the centre of itsactivities”.

The programme facilitatedattainment of minimum consensusamong political parties on powersector reforms as well. Whileinaugurating the launch workshopof the CUTS-FES programme, Dr.Chandrabhan, the then Minister for

Industry and Energy, Rajasthan, stated: “power reformscannot achieve their end objectives without activeparticipation of consumers and a greater consensus amongpolitical parties on the reforms”. Leaders of majoropposition party also participated in the workshop and aminimum consensus on some of the issues could emerge.

The report mentioned, “the strength of the model isthat it serves the interests of all the stakeholders withinthe given regulatory framework. The RERC receivesinputs regarding consumers’ concerns, the governmentcan shed its tendencies for taking populist measureswithout compromising its political agenda, distributioncompanies can expect better revenue realisation andcooperation from consumers and the consumers canexpect an improved service delivery and better interactionwith the utility.”

NGOs, often called the fourth sector, have emerged ina big way in the developing countries and now the largerquestion revolves around the issue: how should the stateand NGO relate to each other? The CUTS-FES modelsuggests one answer.

CUTS-FES mobilised and organised thepeople with a view to empowering them,breaking the culture of silence anddependence and converting the ignorantconsumers from passive recipients toactive participants in the developmentprocess.

23 PolicyWatch

D I S C U S S I O N T O P I C

Recommendations• Expand tax base, integrate service tax with commodity

excise• Rationalise taxes further and introduce user charges• Expand VAT to include petroleum products• Cut peak customs tariff to 10 percent from 15 percent• Make modernisation schemes, like Technology

Upgradation Fund Scheme, WTO compliant• Allow FDI in retail• Restructure irrigation departments• Amend the Agricultural Produce Marketing Committee

Act• Include regulation of upstream sector in petroleum Bill

2004• Allow foreign operators to recover oils and gas from

marginal fields• Introduce price competition in all petroleum products• Restructure Coal India by dismantling the holding

company structure• Extend autonomy to individual coal companies and

allow them to compete• Remove coal from essential commodities list and allow

trading• Make competitive bidding the basis for all future power

projects• Make project finance the norm rather than corporate

finance

On Economic GrowthThe most talked about aspect of the report is that the

GDP growth target has been reduced to 7-8 percent fromthe initial 8.1 percent. This has been done with a view toachieving greater credibility. The average growth for thefirst three years of the Plan period is 6.56 percent. To makethe target of 8.1 percent, the remaining two years wouldhave to see 10.4 percent growth each! This is a tall ordereven for normal conditions. Add to that the fact that manyexperts are foreseeing the strong possibility of an industrialdownturn for the coming year, after three years ofsuccessive robust growth.

Public Investment Scaled DownResource constraints have forced the Planning

Commission to scale down investments by 12.5 percent incrucial areas. “Public investment has fallen seriously shortof target in the first two years of the plan, especially inagriculture, manufacturing, electricity, publicadministration, social and personal services, and it appearsunlikely that these backlogs can be made up in theremaining three years”, the MTA said, justifying thereduction. Communication is the only sector in which the

Mid-Term Appraisal

MTA has increased its public investments by over 30percent.

Are the Recommendations Acceptable?Mainly for these two reasons, it has been said that the

MTA has passed a very important test of integrity. Aneternal dilemma that economists and other professionalsin government have to deal with is whether or not adviceshould be given based on a judgment of the best policyoption, regardless of political acceptability. It is only whenthe best options are articulated that it is possible to assessthe costs that politics imposes on economic performance.The MTA has clearly come down in favour of this approach.

It may also be argued that if the recommendations arenot politically feasible, then no matter how economicallysound they are, they will remain just that –recommendations. After all, an economy is not run byeconomists – it is politicians who are running the showhere. This takes away most of the shine from the MTA.

Labour reforms should pave the way for improved growthas the Industrial Disputes Act is amended to allow easierretrenchment. The amendment should cause an immediateinducement to hire more workers in the manufacturingsector, which will contribute to growth through higherconsumption spending. A good example of an area whereit may be difficult or impossible to see real action.

Too Late?This report has come too late to be of direct relevance as

a mid-course appraisal of the Tenth Five Year Plan. What itdoes is to take the policy recommendations that have comeout of deliberations of various groups and combine theminto a comprehensive blueprint for the Eleventh Plan (2007-12), recognising the fact that the benefits of any changewill be reinforced or diluted if others are made or not made.

Among the recommendations reported, there are nonethat are new or original. But the reason they have beenmade, is that they have not been implemented yet. It needsto be remembered that is it very difficult for this kind of all-or-none approach to economic development to work in arepresentative democracy. So the good intentions of onegroup of leaders are sacrificed at the altar of the aspirationsof another. The gargantuan exercise that the think-tankundertook in August 2004 should not go down as justanother periodic exercise in futility. The government mustgive it the attention it deserves and implement therecommendations with due consideration. Or is thegovernment in a position to do more than just pay lip serviceto the advice contained in the MTA?

(The information in this article has been taken from FE, ET andBS over the period May-June 2005)

The Planning Commission’s Mid-Term Appraisal (MTA) is a reality check on the ambitious Tenth Plan growth ratetarget of 8.1 percent for the period 2002-07. The scaling down of the GDP growth rate target to 7-8 percent wasinevitable. The MTA final document has not confined itself to the limits of appraisal; it is a platform that lays out acomprehensive agenda for reform and has recommended 58 priority areas of action to be undertaken by the government.What remains to be seen is how much consensus there is and how far these recommendations are feasible, given thecurrent political context.

The news/stories in this Newsletter are compressed from several newspapers. The sources given are to be usedas a reference for further information and do not indicate the literal transcript of a particular news/story.

SOURCESBL: The Hindu Business Line, BS: Business Standard, ET: The Economic Times, FE: The Financial Express, FT: Financial Times,

HT: Hindustan Times, TH: The Hindu, ToI: Times of India

In MediaE V E N T S & P U B L I C A T I O N S

In the beginning of 1990, there were about 30 countrieswith a competition law, but now the number is about 100,

informs Vijay Kelkar in his foreword to a new book fromAcademic Foundation(www.academicfoundation.com),titled Towards a FunctionalCompetition Policy for India: AnOverview edited by Pradeep S.Mehta.

The book is a compilation ofmore than a score chapters writtenby experts and the topics covered include evolution ofcompetition policy, the Competition Act, mergers andacquisitions, cross-border competition issues, competitionin agriculture, manufacturing, and so on. Another chapter

Latest Publications

studies ‘competition abuses at consumer level’ and focuseson ‘tied-selling in healthcare and education services’.

On ‘competition and professional services’, T.C.A. Anantstates that the key feature is that theservices, supplied throughindividuals, are highlyidiosyncratic in character, and soservices are strictly not comparableacross consumers. Thischaracteristic lays the ground fordifferent types of market failure,

which can be due to informational issues, both asymmetricand imperfect, or externalities, comments the author.

A book to keep pace with.(BL, 04.08.05)

It was a pleasure going through your book, Towards aFunctional Competition Policy for India. The book hascome out very well. It would be useful for our managementstudents. I am also recommending this book to the HCMlibrary and to the University of Rajasthan for its wider use.

Ashok BapnaDirector, IILM Academy of Higher Learning,

Jaipur Campus

The Competition Game

Consumer-friendly Cable TV

CUTS conducted an all India survey oncable TV industry in 2003. It showed

that despite relatively strong consumerawareness in the country, the cable TVsector is a seller’s market. Consumers pay forchannels they do not watch, and may not receive channelsthey would like to pay for and watch. Attempts to introduce theconditional access system (CAS) in the four metropolitan cities and tofreeze cable charges failed miserably.

This research report explores various issues of concern related to the cable TVsector and analyses them in the light of the several surveys conducted by CUTS toassess the structure of cable TV market in four metros, gauge the level of influencecable operators have on consumers and to find out the consumers’ perception ofCAS. It finally makes certain recommendations towards ensuring a consumer-friendlycable TV system. (Suggested Contribution: Rs 100/US$15)

ReguLetter (Volume 6, Issue 2/2005)

ReguLetter is the flagship newsletter ofC-CIER, which reports and analyses

competition-related issues from around theworld. The latest issue discusses the inter-linkages between domestic regulation for adeveloping country and the GeneralAgreement on Trade in Services (GATS)

commitments. Given that services figureprominently on the economic profile of many growing

economies, greater awareness on these issues and a stronghold over domestic policy are called for.Zooming out geographically, a look at regional competition policy,

in the ‘Perspective’ section, yields new insights into their essentialdependence on the civil society for formulation and implementation. Thoughconsumer organisations have a significant role to play in promoting a healthycompetition culture, it is felt that the gravity of this need has not been appreciated.

It has special articles, ‘Giving the Consumer a Voice in Competition Law’ and‘Competition Policy and Developments in the Mauritian Banking Sector’. A specialfour-page insert details out the major projects that C-CIER has implemented andother activities it has been involved in. (Subscription: Rs 150//US$30 per annum)

CUTS Institute forRegulation & Competition

Preliminary research indicatesthat Asia and Africa

conspicuously lack institutionalcapacity to enhance theknowledge base and cater to therising demand for trainedpersonnel in economicregulation, competition policyand commercial diplomacy. Inan attempt to fill this gap, CUTSaims to establish the CUTSInstitute for Regulation &Competition, a resource centreon these and related issues inJaipur, India. CIRC will run as anot-for-profit institute and aimto be self-sufficient over time.

A Governing Council,chaired by Dr. C. Rangarajan,has been constituted. Anacademic council and amanagement committee forproduct designing and otheradministrative purposes arebeing defined.

Programmes that will beoffered are doctoralprogrammes, masters degrees,diploma courses, certification,training courses. It will also offerconsultancy services to regulatorybodies, governments andbusinesses, organise seminars,conferences, workshops on thesubject and visitors programmes.