Economic Highlights

New Delhi, 30 April 2010

RBI’s Mandate

MANAGE BORROWINGS, NOT INFLATION

By Shivaji Sarkar

The Reserve Bank’s monetary policy is sectoral and too much emphasis is laid on its capability of curbing inflation. The new credit policy is like old wine in a new bottle. Each of the steps taken during the past one year has not been able to contain inflation. Additionally, there is a candid admission by the Central bank that this time too it may not succeed. Its primary concern remains managing the borrowings for the government.

Ironically, more the steps are taken to suck in liquidity more has been the inflation in recent times. In January, it took a drastic step in raising the cash reserve ratio (CRR) from 5 per cent to 5.75 and sucked in Rs 16500 crore from the scheduled commercial banks. The RBI estimated it would help limit inflation to 8.5 per cent by March end. It did not. It touched 9.9 per cent.

Would the present steps of raising the CRR by 0.25 per cent and taking Rs 12500 crore out of circulation, raising the banks’ rates parking and withdrawing money be of any help? The undertone of the Monetary Policy Statement does not suggest so. It only obliquely admits its primary responsibility of the task entrusted to it – raising funds for the government. Now it forecasts further firming up of inflationary tendencies.

The new policy is based on what RBI Governor D Subbarao states “a dilemma” – despite lower budgeted government borrowings this fiscal, fresh issuance of securities will be 36.3 per cent higher than last year’s. This means much higher borrowings in real terms and consideration of lowering liquidity. “The Reserve Bank has to do a fine balancing act and ensure that while absorbing excess liquidity, the government borrowing is not hampered”, he explains.

Fresh issuance of securities – instrument for raising government loans – in 2010-11 would be Rs 3,42,300 crore up from Rs 2,51,000 crore last year. It makes debt servicing expensive and has portent danger for managing next budget’s finances. It is also likely to make private borrowings difficult as most of the government loans are raised from open market operations. It makes private borrowing expensive and is likely to further increase commodity prices.

Inflationary trends have accentuated in the recent period and hover between 16 and 20 per cent for food items. Now the Bank says it is spreading to other areas as high prices of primary commodities result in higher expenses and these have to be recovered from the consumer. Another matter of concern is that inflation is not fueled by “supply side” factors – any shortage of supply. A major concern is the “evidence that the pricing power of corporate has returned” - a hint at cartelization.

Despite a possibility of growth many uncertainties persist. Private demand in advanced countries continues to be weak due to high unemployment rates, weak income growth and tight credit conditions. There is a risk that once the impact of the US and other government spending-stimulus wanes the recovery process would be stalled.

This apart, private consumption too has drastically come down in the country. The issue of inflation control hinges on the monsoon. Any unfavourable pattern could exacerbate food inflation, impose a fiscal burden and dampen rural consumer and investment demand, warns the RBI.  The bank’s quarterly inflation expectations survey for households indicates that household inflation expectations have remained at an elevated level.

If there is global recovery, even then it is not good news. It is likely to firm up commodity and energy prices, which even otherwise remain volatile. The recent monetary steps are likely to increase interest rates in the coming months. The scheduled commercial banks have so far not indicated this because there is yet not much of a sign of credit offtake. But it is believed that interest rates are bound to firm up as the policy would gradually raise the cost of banking operations.

Essentially this is a double-edged sword. It adds to inflation but also invites parking of money – dollars by foreign investors. The glee of the stock market is well-placed. The foreign institutional investors are likely to flock here. So would the NRIs and other investors. It raises forex reserve to $ 279 billion. This is good news as it also has a cost for managing the fund.

Evidently, it is too much to expect of the central bank to manage inflation. It is not the cause. It does not have control on all the parameters that lead to inflation, which is driven by a bad market management and the government’s unwillingness to control the elements which play truant with it. There is no shortage of most commodities and if the buffer stock is taken into account most food items are there in the stock. But the lack of an interventionist policy, tough dealing with hoarders and market manipulators, including now the corporate, are all responsible for the abnormal price situation.

The central bank can have only a limited role. Policy formulations are restricted to official money supply. There are many other sources and it is not easy to manage. This apart there is evidence of a parallel money chain. Basically, the monetary policy is restricted to transactions through the official banking system. The central bank as a regulator could in the limited sense only restrict operations. It has powers, more ethical than real and it is right to expect a miracle from it.

As a watchdog of economy, the RBI is concerned that it has to stretch itself for raising finances for the government. It affects its role as a regulator as it forces banks to put money with it, which should normally be available to the industrial and private lenders. Presently, it is concerned that government measures have not been able to create the requisite conducive atmosphere for the market to raise funds.

This has made its task of raising government borrowings easier though the chairman of State Bank of India, OP Bhat, says it has made the commercial banks’ job difficult. If the lending rates are changed “we may ourselves be out of market,” he asserts. Indeed, the country needs a proper lending policy. The lack of it can lead to a crisis for the entire banking sector.—INFA

(Copyright, India News and Feature Alliance)

Open Forum

New Delhi, 30 April 2010

In Search Of Excellence

WHERE ARE THE INCENTIVES?

By Dharmendra Nath (Retd. IAS)

Ostensibly we seem to be suffering from a surfeit of excellence. It is strewn everywhere around us as a part of almost every name. We are surrounded by all kinds of institutions of excellence, Schools of Excellence, Colleges of Excellence, even Colleges with Potential for Excellence under a UGC scheme. If excellence was a matter of nomenclature only then there would be no problem.

‘Water, water every where, not a drop to drink,’ perhaps describes our situation aptly and also the limitations of a short sighted name-based excellence policy. Such a policy clearly raises unrealistic expectations and runs the risk of giving less than promised.

Harvard, Yale, Massachusetts or Oxford and Cambridge do not describe themselves as institutions of excellence; they are so rated by the people. In our own country before the craze began nearly a decade ago, we had widely known and respected institutions of excellence without any mention of it in their names. Everyone knew and flocked to them. In fact, their names defined excellence.

Of late, however, we are seeing excellence more in the name. Are we thereby replacing efforts to achieve excellence with excellence bestowed from above as a baptismal gift? Do we read excellence in names only and are quite unable to recognise it in its true colours?

A look at our performance paints a rather dismal picture. Our institutions of excellence are frequently manned by contract appointees, who are paid even less than the regular ones. This is ostensibly done in the name of scarce resources. But how do we hope to attain excellence without adequate compensation? As for money, there is no shortage of it in the country today. Turn any stone and you will find a hoard beneath it.

Commonsense says that contract employees are to be paid higher than regular ones partly to compensate them for the future uncertainty and partly to offset various other benefits that regular employment entails. But that does not seem to bother us. We would not like to recognise this and instead we merrily recruit those who are prepared to rough it out or to shortchange the system. This necessarily excludes the best and reduces the size of the talent pool tapped.

If our search for excellence is genuine it can be no excuse that there are long queues of applicants even under the present regimen. We all know that we can buy any thing cheap, only we have to compromise on quality. But that surely is not the road to stardom.

The bard of Avon said ‘What is in a name? A rose called by any other name will smell as sweet.’ We do not seem to subscribe to that at all. We try to put it all in the name. He also said ‘Some are born great, some achieve greatness and some have greatness thrust upon them’. From the evidence around us it appears that we are earnest believers in the third route to greatness. Greatness is to be bestowed rather than achieved.

Not only with institutions, but in other walks of life too we seem to place a disproportionate faith in names. So we call ourselves Suyash,Vishal and Pragati. Our shops and establishments are named Santushti, Samarpan and Niramaya. Our residential colonies follow the same pattern Rameshwaram, Indraprastha etc. Our food articles and food supplements are similarly named to support their high-flying claims. A body trimming food supplement currently being advertised is suitably named Fatgo. For nutrition you clearly take Nutricharge. Are we so full of ‘hollow men’ and hollow institutions and such great believers in names?

The logic seems to be: just put it in the name and every thing else shall follow. Taste of the pudding is in the eating. Whoever said that? Not we. We would not like to go beneath the surface.

Name and face value carry such a lot of weight with us. Does our cultural orientation favour profession over practice? Swayed by profession and tall promises we see around us a lot of gullible people taken for a ride by conmen and fake salesmen. We read of those stories in the newspapers all the time. Turning ashes into gold!

It has been said that nothing compares with the misery of holding a position and not deserving it. That too does not bother us. In personal life the effort by and large is to get there by any means and not to look back or reflect too much on why and wherefore of things. But is that the road to excellence?

Even so, tall claims without substance will not delude even the credulous for long. And surely this kind of hide-and-seek entails loss of precious time and opportunity. We should be considering some alternative approach. For example, we could go in for some kind of an open grading system, something like star-rating of establishments. One could grade institutions on a star scale and also provide for some incentive scheme to improve star-rating. These ratings can then be assessed and reassessed periodically. That is far more likely to generate widespread excellence.

Building and maintaining incentives to excellence in the society is an ongoing task. The issue should therefore be taken seriously. To illustrate my point I will cite just one instance where we did away with an existing system of incentives to excellence.

We once had a system, perhaps by accident, to motivate achievement in public services. There were Municipal services, then State services and finally Central services, all with different grades of pay. Municipal services had the lowest grades, then came the State services and finally the Central services, which had the highest grades. People strove to improve their position by moving from the lower to the higher one. That provided an incentive to excel, to do better. In the name of equal pay for equal work we did away with that. Now almost all grades are the same and the advantage of an inbuilt incentive system has been lost.

Let us take a lesson from this. Communism has already inflicted a setback on our search for excellence for long by limiting human concerns to food, clothing and shelter. Human horizons cannot be limited in this way. Education, health, culture and self-improvement did not figure in their list of human aspirations. They never realized: ‘What a piece of work is man, how noble in reason, how infinite in faculties, in form and moving how express and admirable, in action how like an angel, in apprehension how like A god! the beauty of the world………’

Let us not dither nor delude ourselves. Let us put in place an open hierarchy of institutions to nurture the competitive spirit in them and to encourage superior performance by whoever can. Bestowing the honour of excellence in name is ill-conceived and counterproductive.—INFA

(Copyright, India News and Feature Alliance)

Political Diary

New Delhi, 1 May 2010

Opposition Cut Motion

UPA TRIUMPS, BUT WAR CONTINUES

By Poonam I Kaushish

Billed as the political IPL’s battle of nerves, it ended with three ‘magical’ alphabets becoming the game changer: CBI. Call it the Central Bureau of Investigation or by its present-day nickname, Congress Bureau of convenience, connivance and corruption it matters little. Clearly, the ‘kanooni nautanki’ exposed once again that political maya can be traded for legal nirvana with the devil taking the hindmost! Dividing the Opposition by hook and by CBI crook.

All over a silly do-or-die-but-doomed Opposition sponsored cut motion in the Lok Sabha against the Government's decision to hike the prices of urea and petrol. Thanks to the killer instincts of seasoned Congress managers, CBI ‘agreeing’ to play footsie with  BSP’s Mayawati leading to her ‘I love Congress’ googly, BJP Jharkhand ally JMM’s Shibu Soren’s sudden ‘Alziemher’cross-voting, Mulayam-Lalu duo’s `socialist betrayal’ of the comrades, the Right and Left ended up inflicting a comical self-goal.

 Adding insult to injury, post the ‘floor collapse’ the Opposition advertised that it cannot come together even on neutral issues like price rise. Worse, the BJP and Left find itself in a piquant predicament: They don’t know who are with them and who are not. Mulayam-Lalu inflicted the unkindest cut; participating in the 13-Party Left sponsored Bharat Bandh only to dump it hours later for the comrades `joint-venture’ with ‘communal’ BJP.  Even the 3MPs-strong JD (S) Deve Gowda, Chandrashekhara Rao’s two-member TRS and ‘Congress rebel’ Bhajan Lal all failed to turn up for voting .

At the same time it was a wake-up call to the Congress as its credibility plank had taken a severe hit. True, thanks to CBI crook it had enticed Maya and Soren, got Mulayam-Lalu to stage a walk-out and exploded the myth of Opposition unity with 289 MPs voting for the UPA. But it no longer could be sanguine about its allies support. Take away the BSP’s 21 MPs and JMM chief Shibu Soren’s vote and the UPA tally is 267, seven below the half-way mark, UPA II is not close to being formidable. Their support comes with a heavy price tag:  a case by case basis rather than agreement on policy. The fate of the Women’s Reservations Bill a case in point.  

There is a growing disquiet sense among some of its allies whose support is critical, that the Congress is moving away from a coalition dharma towards a single-Party rule mindset. NCP’s Pawar seems to think that the IPL ‘leaks’ are the handiwork of the Government to embarrass him.  Trinamool’s Mamata is worried about the forthcoming W Bengal Assembly polls, DMK is undergoing family upheaval and a defeat in next year’s State polls could lead to another political realignment. Last but not least staunch ally Lalu who resents being sidelined and kept out of the Cabinet.

The Congress’ doing business with arch rival BSP once again highlights the use and misuse of the CBI for political ends. Getting the investigative agency to consider Mayawati's plea for closing a disproportionate assets case against her and ‘go-slow’ on similar cases against Mulayam, Lalu and  Soren. On the facetious familiar “secular logic” against “communal forces.”

However, the Congress will have to walk a tightrope during its on-going UP yatra to expose the corruption under the BSP regime. Given that it is attempting to emerge as the main Opposition party in the run-up to the 2012 UP polls. In keeping with this gameplan, the Congress has mounted a strong campaign against Mayawati and christened her daulat ki beti and moortidevi after the innumerable statues built by her. Ironically, despite such strong criticism it is now forced to treat Mayawati as an ally and is at a loss to explain the Congress’ strategy in UP in the coming days.

For the main Opposition Party BJP, the going couldn’t get any worse. Not only was its motion defeated but it inflicted a collateral damage on the Party when it Jharkhand ally Chief Minister Soren ditched it in the Lok Sabha. Not only did it demonstrate how clueless the BJP’s floor-managers were but also how coolly Soren dined with BJP President Gadkari’s after casting his vote, with the latter having no inkling that the JMM Chief had bolted from its stable.

The Party retaliated swiftly by withdrawing support to Soren’s Government, but by then, enough damage had been done to the BJP’s credibility and standing in a State which was until a few years ago it considered its stronghold. Party leaders admit that the decision to embrace Soren three months ago to form the Government was rank opportunism but are all said to do it again.

The Left must be equally embarrassed, as it had bought Mulayam’s sound byte of a larger non-UPA “secular” alliance taking shape at the Centre. It was hoping that the coming together of “secular” parties in Parliament would be the first step towards a realignment of forces. But the Yadav duos’ walkout from the Lok Sabha, showed that the Third Front is an idea whose time might never come. The second time in less than two years that the SP Chief has ditched the Left for the Congress. First over the Indo-US nuclear deal in July 2008. It remains to be seen if the Left has learnt its lesson yet.

As for Mulayam and Lalu both have exposed their inherent inability to take on Congress. Given that it would be imprudent for the m to antagonise the ruling Party.  Both need the Centre’s ‘help’ to get out of various cases against them and family members. The good news for Mulayam is that his arch UP rival too, has come to Congress’ aid. But the tacit backing for the UPA would make it difficult for the SP to claim that it has the wherewithal to take on Congress.

For Lalu, with Bihar poll bound the implications are more serious. Given that JD(U) and NDA doesn’t tire of dubbing the RJD as a Congress B-team. But the Grand Dame is clear: support for the Centre in the hour of crisis will not change its’ attitude towards the RJD and will go it alone in the coming polls in Bihar.

As for BSP’s Mayawati none knows her next move. Congressmen read her newfound bonhomie, as her way of blurring the partisan faultlines when Congress is seeking to cast itself, as her principal opposition. Even as she underlined her support to the UPA she repeatedly asserted that protest against the Centre on discrimination towards UP would continue. This dictomy is reflective of Mayawatis’ dilemma as she is conscious of the fact that siding with the Opposition against the UPA does not gain her anything. On the contrary, bailing the Government out has helped her legally. By refusing to play second fiddle to the Left Opposition grouping Mayawati made plain she was not billing to subsume her identify to the Left or BJP.  As she sees the BSP as the ‘’third national party’ after the Congress and BJP and has never hidden her prime ministerial ambition.

“By supporting the UPA, we cannot take a strong stand in Parliament against the government on many issues and become bound to support its policies,” an MP said. “We must spell out clearly what exactly we mean by outside support. How can we support the Congress here, whom we are so critical of back home?” said another MP.

Sadly, a more serious political fallout was the brazen wrecking of CBI’s image as a “professional investigative agency.” In fact, like successive Governments prior to it, UPA I and II have successfully undermined its autonomy and independence. Be it Bofors scandal in 1990s or Lalu, Mulayam and Mayawati in 2010, all have used an abused the CBI to further their political interests.

The tragedy of it all, in an era where political image has come to be branded like detergents, quick-fix solutions are sought for chronic maladies.  Times out of number our netagan are only thinking of themselves, seeking an image rectification instead of dealing with chronic maladies that plague India. Time for our powers-that-be to desist from playing further havoc. CBI or no CBI, at the end of the day, are we going to mortgage our conscience to corrupt and tainted leaders.  INFA

(Copyright, India News and Feature Alliance)

Sunday Reading

New Delhi, 27 April 2010 

Just 1411 Tigers

WHERE DO WE GO FROM HERE?

By Syed Ali Mujtaba

The advertisement campaign that there are only 1411 tigers left in India has attracted wide attention. It has also moved a large number of hearts. People from Kashmir to Kanyakumari and from Gujarat to Arunachal Pradesh want to know the root of the problem. They are perplexed how such a catastrophe is taking place right under the Government’s nose and no solution has been found to stem the decline of the tigers’ population.   

One of the reasons for this decline is obviously poaching, which is done because there is a huge demand for tiger body parts and its skins. The body parts are used in a wide variety of traditional medicine and black magicians use its skin as a seat. In order to meet these demands there are criminal gangs that fund the poaching operations in India. It’s an organized crime conducted in collusion with local people, forest communities and the wild life protection officials.

Poor infrastructure is another reason for the decline of the tiger population. The under-equipped forest guards find it difficult to protect the tiger reserves. Most of these have very limited frontline staff and each would have to cover an area of 65-70 sq km. This is ridiculous task and sometimes forest officials would inflate the figures of the tigers to save their jobs. The tiger reserves also exist in an environment where thousands of indigenous communities live side by side. The relationship with the local communities and the forest is the "weak link” in the conservation effort of the tigers.

Of late tiger conservationists want the local communities out of the reserve as it felt that they are a hindrance in protecting the animals. However, the local communities are shifted from the core areas of the reserves without being given any alternative access for grazing or fuel collection. They have no other option but to turn to the reserves for their survival and poach tigers for their livelihood.

Additionally, the developmental priorities of the government are causing an irreversible ecological transition in the tiger reserves resulting in the decline of their population. Extractive industries like mining and manufacturing and power plants are found in the reserves. Thus the insidious encroachment of the development projects is coming in the way of saving the tigers. 

Clearly the fate of the tigers is entwined with the area of forest reserves. The depleting forest area poses a challenge to the conservation plan and it is estimated that 726 sq km of forest area has decreased in the past one decade.

Indeed, tigers are territorial animal. They literally need land to roam freely. With the birth of a male tiger, this search starts. Either the old tiger gives way or the male has to look beyond the protected areas of the forest and move into the guarded area of the forest. The tiger could expand its space when the outside world was forested, but now when the forests are degraded, they have no where to go except outside the reserve zone.

The total core area of a national park is about 17,000 sq km. A tiger needs a minimum 10 sq km territory to roam, mate and live. If we compare this with the dwindling forest space, then we can rationalize why we have so few tigers left.

The census has revealed that many more tigers lived outside reserves than those inside. The 2001 census put the number at about 1,500 tigers inside and as many as 2,000 outside. The 2005 census found the number of tigers in the reserves between 1,165 and 1,657 but did not account those living outside. What happened to them? Where did they disappear? Were they all killed by those who live outside the reserves?

This could be true because the people who live outside the reserve are poor and resent these animals. The tigers kill their cattle, the herbivores and wild boars in the reserve eat their growing crop. Thus those living around tiger land are at the receiving end and therefore it would be in their best interest to kill the big cats and its preys.

So where do we go from here? How do we save the tiger? Do we plan to expand and increase the forest area or save those people who live outside the reserves or save the tigers? The best way would be a combination of all three. We have to protect the forests from depleting. The conservation of the tigers should not be at the expense of the indigenous people who live outside the reserve. The best way could be a co-existence formula between the forest, the tigers and the indigenous people. 

Unless we re-imagine the conservation efforts differently there is little hope to expect anything from the ad campaigns. The hard fact is that more forest land is needed to safeguard the tigers and for this systematic planning must be done. The tract of land outside the reserves has to be to be planted with trees that will help survive the cattle and the goats. In addition, we have to look after the people who live outside the reserves. They should be generously compensated for the crops destroyed or their cattle killed and provided with alternative access to grazing and fuel collection.

Moreover, substantial and disproportionate development investment in the areas adjoining a tiger reserve must be ensured. This would benefit the people around the reserves and they must be made partners, owners and earners from the tiger conservation plan.

All this, however, does not mean that we should not improve the infrastructure and manpower to watch and ward the forest. This is equally essential to stop poaching. Efforts should also be made to improve the prey population so that tigers can feed upon them easily. More camera traps should be set up to monitor the tigers and their prey. These could be also used for surveillance against the poachers and the timber cutters, who are depleting the forest with impunity.

Indeed, the entire apparatus for the conservation of the tigers from bottom up should be streamlined. The head in-charge of the tiger reserve should be made accountable and their work should be periodically monitored. Anyone found neglecting his/her duty should be taken to task.

Unfortunately, the tiger conservation plan is infested by lobby and pressure groups that call the shots. They are the ones who block the positive move to conserve the tigers. It’s thus imperative that the wings of such groups should be clipped.

The media campaign should move from making noises that there only 1411 tigers left. Instead, it is its duty to drum up a new agenda for the conservation of the tigers. The focus should shift to reclaim the forest land and how to add on it. It should also address the issues confronting the indigenous communities.

Finally, the countrymen must wakeup to the reality and identify the solutions and volunteer to monitor the changes taking place on the ground. Unless something drastically is done to change the discourse of tiger conservation, nothing concrete is going to come out from making sheer noises that there are only 1411 tigers left. ---INFA

(Copyright, India News and Feature Alliance)