Events & Issues

New Delhi, 6 January 2010

Climate Change Watch

INDIA TO DEPLOY SATELLITES

By Radhakrishna Rao

In its bid to gather real time, reliable data on multitudes of factors responsible for climate change, India will launch two exclusive climate research satellites into the polar orbit. These satellites will make India one of the few countries in the world to have such an advanced, dedicated space systems to study the dynamics of global climate change. The first satellite, planned to be launched sometime this year would be a 50-kg mini space platform designed to facilitate the measurement aerosols in the atmosphere. This satellite will be built by the Indian Space Research Organisation (ISRO) in tie-up with the Space Flight Laboratory at the University of Toronto’s Institute of Aerospace Studies in Canada.

The second satellite to be launched in 2001 would be a full-fledged remote sensing space platform to monitor the emissions of greenhouses gases including carbon dioxide and methane. The use of satellite technology will also demonstrate that India is serious about global warming, according to the pro-active Union Minister for Environment and Forests, Jairam Ramesh.

The launching of the satellites can be viewed as a step in the right direction, given the fact that the Copenhagen climate change conference held in December last could not achieve a breakthrough in arriving at a consensus on the climate deal. Most of the developing countries described the proposal on emission cuts as “one sided and suicidal”. India along with China stoutly opposed the US-sponsored climate deal that required the developing nations to commit themselves to carbon dioxide emission cuts.

The Environment ministry has repeatedly maintained that India cannot afford to depend on the data—on the dynamics of climate changes over the Indian sub-continent—from western countries. Asserts Ramesh: “We cannot depend on others to tell what is happening in our country.” More so when in some cases, data compiled by western countries has been biased. For example, the analysis of the melting of the Himalayan glaciers was based on changes in Arctic glaciers.

According to R.R.Navalgund, Director of the Ahmedabad-based Space Applications Centre (SAC) of ISRO, satellite data analysis shows the retreat of Gangotri glaciers in the Himalayas by 1.5-km over the past three decades. But he points out that it is really difficult to conclude whether the glacier retreat is linked to the climate change.

Interestingly, India’s full-fledged ocean watch satellite Oceansat-II launched in September last by means of the four-stage space workhorse Polar Satellite Launch Vehicle (PSLV), in addition to monitoring the melting of the polar ice caps, would help in evaluating the productivity of the oceans. And, this is particularly useful in measuring the carbon sink in the oceans.

Oceansat-II, which replaced the Oceansat-1, a similar Indian Ocean watch satellite launched in 1999, is the 16^th Indian remote sensing satellite. It carries three payloads: Ocean Colour Monitor (OCM), a Ku band Pencil Beam Scatterometer and a radio Occultation sounder for Atmospheric Studies (ROSA) contributed by the Italian Space Agency.

The OCM and Scatterometer were fully designed and developed by SAC. The former is capable of imaging plant life in oceans in addition to detecting algal blooms, which are harmful to the fish schools in the oceanic waters. Therefore, with the help of data being made available by OCM, it would be possible to determine the potential fishing zones in the oceanic waters around India.

The Italian ROSA is basically a GPS receiver which can easily determine the position of ships and vessels moving in the ocean water using radio signals. Importantly, the Scatterometer, equipped with one-metre diameter antenna is capable of measuring sea surface winds which can provide a pointer to the climatic changes and monitoring the origin of cyclones.

Similarly, the Indo-French climate research satellite Megha Tropiques, slated for launch sometime this year, would help shed new light on the climatic dynamics of the tropical regions. Not to be left behind the 83-kg, mini remote sensing satellite IMS-I launched by ISRO in 2008 continues to provide data on the changes affecting the “atmosphere and environment”.

Additionally, Prof J Srinivasan of the Centre for Atmospheric and Oceanic Sciences of the Indian Institute of Science (IISc) in Bangalore has stressed the point that ISRO must use radars on satellites to measure rainfall patterns and derive long-term models of monsoon forecasting. As it is, the Indian space agency has already hinted at a plan to expand its network of ground stations and towers in forest areas to monitor the absorption of the carbon sink.

On another front, and as part of the plan to strengthen the mechanism for the primary monitoring of climate related changes, the Ministry of Environment and Forests will be joining hands with ISRO to set up a National Institute for Climate and Environmental Sciences (NICE) with an initial investment of Rs.400-million. NICE would take up long term projects to study the impact of climate changes on aspects such as agriculture and water. The Ministry’s aim is to build a world-class institute which will be a data hub on all issues relating to climate change. 

In fact, the NICE is a huge step forward in creating the nucleus for long term research. According to plans it will be located in Bangalore, and will be initially supported by around 100 scientists who will study the impact of climate change and green house gases emissions. In particular, NICE, using satellite technology, will undertake an exercise to monitor the health of the Himalayan glaciers which feed most of the rivers flowing into the plains of North India.

The three-year programme would monitor the health of the Himalayan glaciers which is of great importance to the country’s water security.  Further into the future, NICE will measure the impact of greenhouse emissions on forests in the Western Ghats in Karnataka and Kerala, the North East, Uttarakhand and parts of Central India.

More importantly, the Indian Network for Climate Change Assessment (INCCA), brought into being by the involvement of 127 research bodies in India will join hands with NICE and ISRO to build India’s” monitoring, measuring and modelling “capabilities in the critical area of climate changes. It will study the effect of the climate change on the national economy and suggest ways and means to combat it.

In the ultimate analysis, India is rightly keen on making an original and significant contribution to the research on climate change with a view to avert the negative fall out of global warming.—INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 27 March 2010

Investment In Agriculture

INFRA FOCUS NEEDS A RELOOK

By Shivaji Sarkar

The proposed Rs 45-lakh crore investments in infrastructure during the 12^th Plan should have caused elation. But it has not. It is being seen as a roadmap to the difficult days ahead. However, the country needs infrastructure but not for the sake of enriching the Fortune 500 companies.

Sadly, the proposal ignores the basic need of the country – food. Instead it seeks to make agriculture more expensive, beyond the reach of the peasants and withdraws the little State support that it has, in effect cut subsidies. In the coming days, this is bound to create havoc for the people.

The public-private partnership model, the country has witnessed, benefits only the large private corporate at the taxpayers cost. The highway sector is a blatant example of how public money is being transferred to private giants making movement of persons and goods expensive and fuelling prices of commodities.

The Planning Commission has scaled down the GDP growth to 8.1 per cent from 9 per cent during the 11^th  Plan itself. But it may be far less. The panel, strangely enough has not turned to reason and blamed it on external factors such as global recession. The Commission should have looked at closer home. The growth is coming down for some basic reasons; fall in agricultural investments, job losses, lower real income and lower consumption.

Indeed, it is a peculiar mix. More the countrymen are losing; more are the profits of large corporate. Even in a year, that the Planning Commission says it has to compromise on its growth projection, corporate profits have been phenomenal.

The Commission is supposed to be the country’s think tank. It should have displayed wisdom in its thinking process and should have analysed the past trends closely. It should have looked at the results of the recent 20-year experience of its western-backed model of supporting corporate. They have not gone into critical sectors like power and have tried to enter fast-quick-profit sectors. The big question is: Why is the Planning Commission trying to reward them?

Sadly, it has not even once explained why it is trying to ignore the base of the nation’s economy – agriculture. It has also not taken the pains to explain what way the country could have a robust growth if the availability of food at affordable prices flounders. The Commission regrettably draws its inspiration from the US economy.

Just the contrary may happen in the 12^th Plan. Forget about affordability, the country would be left hardly with any food to feed its burgeoning population. The need in 2050 would be 400 million tonnes for a population of 150 crore!

But mere focus on infrastructure has severe implications. Infrastructure projects be it road, building, industry or any other require large tracts of land, mostly prime agricultural land. Since 1980 the arable land has come down to 146 million hectare from 182 million hectare. In 1990, 165 million hectare was available. More such projects mean further reduction in arable land. The Planning Commission should have come out with a policy to preserve land for farm purposes and devised ways to prevent diversion of its uses.

The 11^th Plan document itself expresses concern over the trend and fall in private investment, largely at individual farmers level, in agriculture. “Private investment in agriculture stagnated as a result, the area cultivated fell, and diversification slowed down—all leading to deceleration. Moreover, public investment remained low and technology generation became negligible”, the 11^th Plan document states.

It further adds: “An important reason for recent farm distress was that after improving steadily from 1980 to 1997, terms of trade turned against agriculture from 1999 and, almost for the first time in post-independent India, farm incomes depressed, and also increased farm debt considerably. More generally, farmers are now subject to greater risk because variability of world prices is much higher than what Indian farmers have been used to in the past. There is need to evolve a clear policy on how to deal with this situation”.

Surprisingly enough the document does not find a solution except that it advocates contract farming “whereby the private corporate sector can establish linkages between farmers and markets”. It extols the role of future trade, where corporate rake in huge profits and also calls for strengthening food processing to create demand for agricultural produce, cut down or eliminate post-production losses and provide value added products and create jobs”. It talks of food security but does not speak of affordability. Unfortunately, food processing provides roles to corporate and makes food unaffordable to large population.

A country that has progressed primarily through public sector investment has virtually seen no role in agriculture. Even the public sector enterprises have turned to net savers instead of being net investors. The Food Corporation of India receives Rs 56,000 crore investment from the government every year.  The Planning Commission should have chalked out a role for it in investing in the farm sector. The money given to it by the government is not being utilized for a good cause except hoarding food grains. Should it not have a productive role to play so that farm production increases and the nation can depend on it for availability of food?

That would certainly not suit such sharks that are out to gobble up the people’s money. But the Planning Commission was mooted as an instrument to protect the people against those sharks. It is time to remind it of its primary role. In its definition of infrastructure, surprisingly, the Prime Minister, who is also the chairman of the Commission does not mention agriculture once.

The Planning Commission must redraft the present plan focus and modify the 12^th Plan document to make agriculture as the base for all economic activity. The growth rate in this sector has come down to 0.89 per cent since the 10^th Plan. What the Prime Minister and the Planning Commission is aiming for – higher GDP growth – would not be possible unless this base grows faster. All other plans would be utopian as the trend since 1991 amply exemplifies. The nation has paid heavily for its corporate focus. It is needed but too much dependence on it would only lead to lop-sided development, as we are witnessing. –INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 22 March 2010

LIC Investment Mode

SMALL POLICY HOLDERS AT RISK

By Shivaji Sarkar

The government’s plan of collecting Rs 40,000 crore  from  the market through disinvestment of  shares of public sector companies has not only entered into a rough patch but has put the small policy holders at great risk. There are few takers for government initial public offers (IPO). These have virtually been rescued by government financial institutions. This raises other questions, including whether it is a viable option or not.

The private insurance companies are wary of putting large bids in initial offers. A fall in price of the scrip dips not only into their profits but even the basic capital. On the contrary LIC has been investing in such initial offers of public sector companies by dipping into its traditional life fund.

The LIC has invested close to Rs 60,000 crore in equity in the current fiscal. It is likely to pump in another Rs 7,000 crore to Rs 8,000 crore. Equity will account for nearly one-third of the total investments of Rs 200,000 crore by the Corporation this fiscal. It has total assets of Rs 10,000,000 crore. This simply means that the money of the insurer has been put to a great risk. This is what the Unit Trust of India had done at the height of the Harshad Mehta share scam, which saw small investors lose Rs 64,000 crore.

Three recent PSU issues – NMDC, REC and NTPC – fared badly in the market. There were hardly any takers for the issues. It is a different debate whether the government should adopt this route or not. The companies are profit-making and rated high within the government. Even the market perception is that they are well-managed profit-making entities. The policy formulators had expected that the renewed activity at the stock exchange would be favourable for the launch of the public sector issues.

Considering the market conditions, not many had been hopeful that public sector equities would make a great mark. It is a devious way to raise finances for the government. Though it has raised finances for the government, which can show gains in its books, in effect it has tremendously compromised with the savings of the public. This apart it raises ethical questions.

As the share prices are bound to dip in the secondary trading, the LIC and similar institutions are bound to lose thousands of crores. It would result in poorer bonus (interest) accumulation per policy. This would imply that the poor investors would be losing heavily to meet the obligation of the government institutions. In other words, it could be said that investors are being taxed to meet the shortfall of the government!

To put it in a different way the government is eating into the institutional finance to show that it was borrowing less. The reality is that borrowings – fiscal  deficit - are bound to increase stressing further the banking and financial sector and is likely to have a telling effect on the  interest regime and the price situation, which is becoming critical if a recent statement of the Planning Commission Deputy Chairman, Montek Singh Ahluwalia, is  to be believed.

It was this misplaced faith in the stock market system that remains uncertain. Domestic players are playing too safe. The small individual investors having burnt their fingers in the three major scams in the 90s have not yet been able to muster courage to go back to the stock market. Even the big players are now cautious. They play in more liquid equities and feel that the public sector despite its improved performance during the last decade is not exactly what they look for in quick profits.

The Public sector’s clean performance is also considered a bad share market asset. Many private sector companies have a different reputation. They not only launch their issues but also remain active players to decide the price of their scrip, often in league with the brokers. This makes their issues attractive to the few investors who are in the market for quick profit taking. And, this is precisely how foreign institutional investors (FII) are making a quick buck by investing $ 64 million – Rs 4307 crore - in four days after the presentation of the Union Budget.

According to the SEBI, the FII funds saw a net outflow of Rs 1716 crore in January and February. For the past few years local speculators, traders and investors have taken their cue from FIIs as they continue to hold sway over the market behaviour. The public sector has always been a less favourable buy for the FIIs. Even during March, the most popular new issues were from less known companies such as  Texmo Pipes, Man Infra and ARSS Infra. All these shares were far oversubscribed.

Compared with this, the performance of the PSU offers were poor – bids for only 2.52 crore shares came against 11.56 crore shares on offer. The rest of the demands were met largely by the LIC and some other government institutions. In other words, the government institutions that hold funds from the people squandered it away so that the lust of the government could be fulfilled. This is a risky behavior. The LIC acted as the major rescuer because of the sizeable funds it has generated from traditional policies. Investments made out of these funds need not be marked to market on a daily basis, which is the requirement for unit-linked mutual fund type schemes – the main resource generators for private companies.

Indeed, all this calls for framing of new rules for the LIC-type institutions so that they do not have a free hand to squander away people’s money. It has a cap of about 10 per cent of the capital for equity exposure. But in large PSUs such as the NTPC and NMDC, the corporation can pump in hundreds of crores, without breaching that limit.

The LIC and similar other institutions should be debarred from this practice. Investments in PSU bonds could be safe but when it is shares, the risk is manifold. The small policy holders must be protected. They are getting far less in bonus because of the so-called autonomy that LIC has in making bad investments. Additionally, the government too should not take recourse to such devious disinvestments for raising the so-called revenue. It fulfils certain technicalities though in reality it deprives every citizen of his/her money and it is questionable whether it adds to GDP---INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 12 March 2010

‘Hoarding’ Food Subsidy

REVAMPING OF FCI CRITICAL

By Shivaji Sarkar

Food subsidy has become a simple tool for hoarding at public expense and bleeding the consumer with higher food prices. It needs to be looked whether the subsidy is helping the farmers and consumers or the big traders -- the national and multi-national corporate. In effect, it has resulted in turning the Food Corporation of India (FCI) as the biggest hoarder by virtually not serving the society, its stated objective.

Indeed, the role of the FCI in aiding the process of food inflation from 17 to 20 per cent needs to be studied and probed. However, the role of subsidies is not restricted to food grains. It spills over to sugar. It gets a subsidy of Rs 653 crore as proposed in 2010-11. The sugar undertakings were given a direct subsidy of 501.83 crore during 2009-10. This is in addition to the reimbursement of Rs 285 crore to sugar factories for internal transport and freight charges to export shipment of sugar. This year Rs 200 crore has been allocated on this count.

Finance Minister Pranab Mukherjee has decided to give many tax sops and continue with the “subsidy’ for food (not agriculture). And, food subsidy is to the tune of Rs 55,578 crore. It is an impressive figure for a poor country and poorer farmers. This is so when the country is at a critical juncture, where strong government focus on agriculture is needed. In the current year, India is stated to have grown by around 7 per cent, while at the same time the agriculture output has grown at less than 1 per cent.

India has around 146 million hectares (ha) of land under agriculture, which yields around 230 million tonnes of food grain, while in case of China it has 100 million ha of land, which yields 400 million tonnes of food grain. The present budget like the last many does not propose much of an allocation to increase the farm yield.

India produces around 600 million tonnes of food products (fruits + vegetables), of which around 25-30 per cent is wasted due to lack of adequate logistical support. Hence, the need to raise production along with productivity of land and developing cohesive logistical support are of utmost importance to manage the long-term food security issue.

So logically farm subsidies are needed to increase farm production so that yield could be raised with the help of: (a) modern irrigation systems, (b) access to better quality seeds, (c) access to right fertilizers and (d) increasing priority sector lending norms

But who benefits? Not the Indian farmer. Entire food subsidy is given to the FCI. It is supposed to pass on the benefit to the farmers by purchasing their products at a minimum support price. The FCI has done this, but has not passed on the benefit to the consumers. Instead, it has become the biggest agency for hoarding food grains. It has not released any food grains, except for the BPL users.

In addition, the FCI is supposed to maintain a buffer stock of 82 lakh tonne of wheat and 118 lakh tonnes of rice while it maintains a stock of 230 lakh tonnes of wheat, and a stock of 242 lakh tonnes rice, more than double the requirement.

Even for sugar there is a carryover stock of 24 lakh tonnes and the current season is expected to produce 160 lakh tonnes against a domestic demand of 230 lakh tonnes. The shortage is being made up by 50 lakh tonnes of import.

Importantly, the FCI is envisaged as an agency that would maintain buffer stock for release during famines or food emergency. In normal circumstances it releases food grains for the targeted public distribution system (TPDS), which is now restricted to below poverty line (BPL) families. Not all the BPL families get the 35 kg quota or many do not lift it as well.  

It was expected that after Prime Minister Manmohan Singh’s address to the Chief Ministers’ meeting a decision would be taken to broad base the FCI. Further, it was envisaged to have a market interventionist role. But that is not being done. The FCI warehouses have become safe hoardings as traders know it would not come to their distress. Hence, the FCI is primarily serving the cause of the private big traders at the public’s expense.

Strangely enough nobody has discussed the issue in Parliament. With increased stocks the administrative costs and wastage also go up so gradually the food grains released would attract higher prices even for the BPL families, which many State governments again would subsidise for political reasons. In fact, the issue of raising the basic issue price has been discussed recently at the Union Cabinet but a decision was deferred for a possible political backlash.

The nation is thus subsidizing an inefficient system that corrupts the market more. Since this creates a shortage in the market, the benefit goes to private corporate, who has the option to jack up prices more and rake in higher profits. The FCI is being used instead of a market interventionist objective to help the market play havoc with the consumer.

The functioning of the FCI helps those who are against such subsidies particularly the lobbies in the World Trade Organisation (WTO). It weakens the nationalist lobby that is for continuance of subsidy for ensuring food security. The FCI is doing what international grain traders want so that they can have a field day.

In this given backdrop, the Finance Minister’s proposal to look for ways to directly transfer subsidies to the farmers seems to be a better option. But there are many pitfalls in the proposal. Despite that the need for FCI would not be obviated. But it calls for a revamp of its role and repositioning it as a dynamic mechanism to regulate the market. The welfare of consumers and farmers depends on its benign role and not the malignant one as it is now. ---INFA

(Copyright, India News and Feature Alliance