Economic Highlights

New Delhi, 16 January 2010

 Difficult Year Ahead

REDUCE PERSONAL INCOME-TAX

By Shivaji Sarkar

Rising prices, growing Central Government deficit and fall in personal income-tax collection are grim indicators of the difficult days ahead. The UPA government is also under pressure to have a re-look at the personal income tax rates. The stimulus has boosted corporate profits. The individual has suffered erosion in terms of job losses, wage cuts and by contributing far less to the government kitty. Now it is their turn to get a stimulus through a cut in income-tax rates.

It has been an effort on the part of the government to project each of these as unrelated events. The recent Union Cabinet meeting has not taken any concrete step to bring down the prices. Rhetoric of requesting the States would not reduce these. It requires a political will and a firm action plan. The government has merely tweaked the ears of a minister, who is promoting the interests of the sugar and food grain lobby he represents. It is not easy to understand why such a person is not thrown out. Such an action would help reinforce the faith of the people in the system.

There is little effort at managing the supply side problems. No proposal has come up from the Cabinet for reinforcing the distribution of food items. Apathy is evident in creating a parallel intervening system to keep the market in check. The government can claim that a system exists for those below the poverty line. But as per government statistics not more than one-third of the poor are covered by it. If discrepancies in poverty estimates are taken into account it would include about 60 per cent of the population.

The way the prices continue to rise, the salaried middle-class is too getting closer to the poverty line. This apart, even industry leaders have impressed upon the government to take steps to reduce food prices. High prices affect disposal income – spare money – of the people and leads to reduction in demand for manufactured goods. It affects the health of the industry on various counts – higher wages, higher costs, consequent higher prices of products and lower profit margins. Sadly, the Cabinet has not taken note of the precarious situation.

This despite that it also affects government finances. A review of the April-September 2009 finances of Central government indicates that all the key deficit indicators widened significantly over the corresponding period of the previous year, Division of Central Finances (DCF) of Reserve Bank says. Growth in receipt declined due to decline in tax revenue. Excise duty collection alone reduced by 22.9 per cent as against an increase of 6.6 per cent the previous year.

The DCF has expressed a grim view about the way the government is financing its expenses. These are coming from the dividend and public transfers from the government-owned finance institutions. It means the dividend that should have gone to create infrastructure and strengthen the public sector enterprises is being utilized to meet government expenses. Public transfers are borrowings. The government has raised Rs 58,802 crore from these two sources.

Notably, the government’s expenditure has risen to Rs 448,848 crore-- a growth of 23.6 per cent. Most of it has come from market borrowings, says the DCF. As on November 23, the government had borrowed Rs 406,369 crore – 82.8 per cent of budget estimates (BE) as against Rs 163,904 core in (47.8 per cent of BE) in 2008-09. It simply means that the entire corporate stimulus package, which has not benefited the common man, is funded by raising debt.

Another concern is the deceleration in plan expenditure. It rose by only 15 per cent against 31 per cent a year back. If inflation figures are taken into account actual raise in allocation is far lower. It is certain to impact the developmental aspects and affect the people at large.

That the common man is losing is testified by the personal income-tax figures, which have come down by 19.7 per cent to Rs 13,117 crore from 16,345 in the same period last year. The government has yet not come out with a strategy to help the individual tax payer. High inflation is eroding his earning and high taxes are leaving little with him for spending. Unless he spends there would not be a real revival of the economy. Panacea suggested by corporate leaders to the government to borrow more and disinvest public sector companies is clearly not the solution.

Government expenditure is maintaining a rising momentum. This puts it in a catch 22 situation. If it does not spend then progress is hit. If it does not give relief to the individual tax payer – rate cut of income-tax rates - there would be no boost to the market spending. In addition, it can not raise other taxes because these too would have detrimental effect.

The growth of loans by banks has been slow despite the huge liquidity with the banks. Non-food credit – borrowings by industry and others for productive purposes - grew by 11 per cent year on year as on December 4 as against 26.3 per cent in the same period in 2008. According to the Reserve Bank of India weekly statistical supplement the total bank credit year-on-year as on December 4, 2009, was Rs 2,77,479 crore compared to Rs 6,27,529 crore on Dec. 4, 2009. Against this the deposits increased to Rs 6, 61,064 crore in 2009 over Rs 6, 27,529 crore in 2008. This indicates that the stimulus is not benefiting the economy, but is boosting individual corporate profits. The government needs to reconsider its decision.

It also has to take stern steps, just not cosmetic rhetoric, to control the prices. High prices again benefit some corporates but the economy is suffering. It has to act with short-term and long-term strategies. In the former it has to rejuvenate the PDS, so that the market knows that the people have an alternative to meet their needs. In the long-run, the government has to have a pragmatic agriculture policy, where both the market and government would have a role to play. So far all strategies are half-hearted and that the government appears to be on “daily wages”.

The government’s dilly-dallying attitude does not suggest there would be any relief either from high prices or other malaise. Growth is not real. It is more propaganda. The nation is in abyss and must be prepared for far more difficult days. ---INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 9 January 2010

Subsidising The Rich

ROLL BACK STIMULUS PACKAGE

By Shivaji Sarkar

It is a strange country! The poor man’s night shelter is demolished in the national Capital, Delhi in the height of a cold wave. Subsidies for the poor are considered a burden. Rising prices deprive the poor of the little food that he could have afforded. Farmers, whether growing sugarcane or food grains, are denied prices that could help them get back their investments. In contrast, the rich corporates demand the continuance of the Rs 60,000 crore stimulus – subsidy – packages so that they can pay the ridiculous and unrealistic high salaries to their top executives, fleece the working class and increase their profits further.

Enough is enough. It is time now for rolling back the stimulus so that the poor can benefit and the budgetary deficit is utilized on projects for the needy and not greedy people. The Government must not succumb to the pleas of the business leaders to sell its precious silver – PSU stocks – to manage the 6.8 per cent budgetary deficit.

These are the same corporates who took the maximum advantage of the so-called meltdown and sacked about 5 lakh workers in different sectors across the country. Even the supposedly thriving IT industry laid off thousands of its employees or what they euphemistically said “sent on leave or a sabbatical”. Workers and their families bore the maximum brunt of the “meltdown” that is said to have hit this country the least.

Even those who were fortunately retained had their salaries frozen for the last two years. In effect, it meant their salaries were reduced by over 20 per cent if the inflation figures are taken into account. The dearness not only remained non-neutralized but in effect the workforce was penalised so that their top bosses could earn a fatter packet and the companies they were serving could earn higher profits. (Not a single corporate boss took a voluntary pay cut).

Even Infosys has laid off workers without naming it so. It has offered the employees to take a sabbatical from the company and receive 50 per cent of the wages. If this is no a lay-off what is it then? More so, when no company can lay-off workers without the permission of the labour commissioner. Likewise, some of the large companies like the Tatas and Mahindra & Mahindra sacked employees who were working as casual for years together. It saved the company’s money as it did not have to seek any permission to remove casual workers.

The law of the land, particularly those pertaining to the labour, is being violated blatantly by companies of all sizes. The so-called ‘pro-poor and pro-worker’ Government has turned a blind eye even though it is empowered to take action. Sadly, its machinery wastes no time to harass and book an employee even if he has not committed a mistake. At the same time, it virtually encourages the corporate to violate the law with impunity. Not one corporate is known to have been sued.

The figures available so far prove that hardly any corporate has suffered a loss during the period of the so-called meltdown. In many cases their profits have increased manifold. Direct tax collections bear testimony.  It has risen 44 per cent from December 2008 to December 2009 and during April-December 2009 it rose by 14 per cent. Accruals from the corporate jumped from Rs 37,002 crore to Rs 53,923 crore - an increased of 15 per cent. Just the opposite is on the personal income-tax front. It has come down by 19.7 per cent to Rs 13,117 crore from 16,345 in the same period last year.

This testifies what is being feared the most. It is the working class, whose earning capacity has suffered enormously that they are unable to pay even the taxes. Clearly, it is a warning that the country’s crores of workers’ happiness index is nose-diving for the benefit of the few corporates, who are trying to exploit the people.

It is just not the tax indicator that suggests withdrawal of the stimulus package but also their actual performance. Reason enough for scrapping the stimulus directed towards the corporate. The head of research of Motilal Oswal Securities, Rajat Rajgarhia, says that the third quarter, October-December, profit after tax (PAT) for the companies registered with the Bombay Stock Exchange (BSE) has risen by 18 per cent. Some other estimates say PAT is much more. The metal companies’ PAT rose by 38 per cent, pharmaceuticals 20 per cent, fast-moving consumer goods (FMCG) 26 per cent and cement 25 per cent. Textile and media stocks are expected to post a strong performance at 147 and 53 per cent, respectively. Even the IT sector is to have a minimum of 6.8 per cent growth.

Indeed, it is a sorry state of affairs that the Indian corporate has not come out of the 50s’ mindset. Then too they had refused to contribute to the growth of the country. And now they are more cartelized and unionized. They are bamboozling the Government to give them what is not their due. Take the sugar lobbies as a pointer. They pay the least to the farmers but have hoarded stocks to jack up sugar prices from Rs 12-13 a kg, 18 months ago, to Rs 48 a kg; the corporate food grain dealers have more than doubled wheat and sugar prices and almost three times the prices of pulses. To top it all they are now manipulating the vegetable prices. Shockingly then the profit has gone to the large corporates and the grower, with the farmer only getting further impoverished.

Not enough, the corporate are trying to maximise their gains further. While on the one hand they are lobbying against giving farm subsidies, on the other many have garbed themselves as “farmers” to further hoodwink the Government on their tax payment.

All this must stop. The Government should ask the Assocham President Swsati Piramal, who recommended the Finance Minister to disinvest PSUs, why it should do so. Importantly, when the disinvestment is going to benefit the corporates as they alone would be buying these shares.

Undoubtedly, the time has come to suggest to the corporates to hand over some of the profit-making units to the Government so that the nation’s poor can have a slice of the pie. They should be sternly told to keep their evil eyes off the PSUs – the people’s, and not just the Government’s wealth. The stimulus that is aimed at the corporates must be scrapped. Indeed, the corporates should be told in no uncertain terms to stand on their own feet and not look for crutches. --  INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 2 January 2010

PSU Disinvestment

APEX BODY WARNS AGAINST IT

By Shivaji Sarkar

While the market is abuzz with expectations of public sector divestment, the apex public sector organization, Standing Conference of Public Enterprises (SCOPE), has advised the government against flooding of public sector listings.

It has told the government: “There should be no flooding of offers of public sector companies in stock markets or else it would eat into their valuations”. Two PSUS - NHPC and Oil India – have already gone public. The NTPC, Satluj Jal Vidyut Nigam, REC and many others are in the queue.

The Finance Ministry has taken the decision to disinvest 20 per cent government stake to compensate for its severe fiscal deficit. The deficit has risen by 73 per cent estimate to Rs 3.06 lakh in the first eight months against Rs 1.77 lakh crore a year ago. The total deficit may exceed budget estimate of Rs 4.01 crore.

Another reason that has possibly made the government take the decision is the year-end rallying beyond 17,000 sensex points at Bombay Stock Exchange. The bourse on the other hand has reportedly rallied with the expectations that 18 PSUs are likely to come up with plans to hit the market with initial public offers (IPO). Some consider this as a trap to entice the government to come up with the offers, which it could not do earlier under the pressure of the Left parties.

This is where the government has to take extreme caution. The bourses despite many regulatory mechanisms at best remain least regulated. A recent study by SMC Capitals that has also come at the-year end says that “greed” is becoming the driver for the stock market.

The study found that the ratio of market cap to bank deposits, which fell to a low of 74 per cent – 0.74 times of total bank deposits - in Feb 2009, bounced back to the pre-Lehman collapse level of 138 per cent by November. This means that market cap is 1.38 times that of aggregate bank deposits. In January 2007, the market cap was at 152 per cent or 1.52 times the deposits. The bull race had taken the market cap to touch 235 per cent or 2.35 times as the Lehman scandal hit the market.

The government needs to treat these as severe warnings. The study notes that the deposits available with all the banks in the country put together could not even buy half of the BSE stocks. This raises a critical question how the stock assets are valued. It only hints at the high speculative values jacked up beyond the real strength of a scrip.

The government also has to look at the figures of February 2009, when in the wake of a Lehman scam the market cap steeped down to 74 per cent. This means the entire BSE listed stocks could be bought with the bank deposits and still 26 per cent of the deposits would be left. It is also important to note that small players are virtually absent at the stock market. The big fish manipulates it to suit their needs for bull (high) or bear (low) phase.

Though the SCOPE has suggested a phased scheduling of the IPOs, in reality it wants the government to shelve the decision during this critical phase of world economy. It has apprehensions about the manipulations in the market that is what it means by “eating into their valuations”.

The stock traders function in a cartelized manner. They fix and dictate values of each of the scrip. The market is fully manipulated. Chances for fair play are limited. Since the government controls SCOPE, it has limitation in tendering its frank advice. It couches its critical advice in phrases and words so that the political bosses do not feel offended. But what it has suggested only means that the government needs to put off the decision of disinvestment.

It has not said in so many words, but the SCOPE officials have reportedly pointed to some of the controversial previous divestments like the Centaur Hotel, which had appeared to have developed into a sort of scam.

Dilutions of stakes in organizations built up with the blood and sweat of the people also need to be reconsidered because the government is only the custodian of the assets. The dilution of the government or better to say people’s stake would reduce its holding to less than 67 per cent post-issue. The decision would finally hit the people. Share dilution has its impact on the control and governance of the companies. This becomes an easy route for elements who want to usurp the people’s wealth and create private monopolies. Ultimately, they even dictate the price of products so that they could be the profiteer from it.

The proceeds from the share sales would also not go back to the coffers of the PSUs. It would be used by the government to fund social sector reforms. The government has said that the fresh issue would be used to augment the capital base of PSUs to meet its future capital needs. But the way the government has been playing with such funds it only creates doubts about the intentions.

The government needs to learn from the food sector as well. Having virtually done away with the public sector distribution system (PDS) and allowing private cartels to enter the food market, it has not left itself with any instrument to regulate the prices either of food grains, pulses, vegetables or other commodities. The PSUs are engaged in public utilities like power, gas and steel. If the government’s control on these organizations loosens it would virtually leave the populace to be devoured by sharks as they would be able to dictate the prices and increase their profits. (An example is the BSES that was handed over power distribution in Delhi. It hiked power rates, sent inflated bills and rarely listened to the Delhi government’s advice).

Democracy elects a government to protect the people. Failure of that trust and duty is a sacrilege. The government needs to listen to the advice of SCOPE and stop itself from playing the dangerous game. Heavens would not fall if the PSUs are not disinvested. --INFA

(Copyright, India News and Feature Alliance)

Open Forum

New Delhi, 25 March 2010

Environment Watchdog

UN PROPOSES WTO-STYLE BODY

By Dr P K Vasudeva

A global environmental watchdog modelled on the powerful World Trade Organisation (WTO) could be formed as part of any international climate change treaty, according to environment ministers meeting in Bali recently. They agreed to form a new working group to investigate proposed reforms to environmental governance procedures.

Speaking to reporters at the close of the meeting, Achim Steiner, Executive Director of the UN Environment Programme (UNEP), signalled there was growing support for the formation of a new World Environment Organisation (WEO). "The status quo... is no longer an option," he said in regard to the current international environmental governance regime. Within the broader reform options, “the WEO concept is one of them."

The 135 nations present at the meeting had agreed to establish a new high-level ministerial group to assess proposed reforms, which will convene within a few months. Concerns over environmental governance emerged as one of the main sticking points at the Copenhagen Summit of December 2009, where the US negotiators insisted that countries should agree to some form of inspection scheme designed to ensure they are making good on commitments to cut emissions. The proposals drew an angry response from emerging economies such as China and India, which insisted that any such regime would impinge upon their sovereignty.

Any proposals for a WEO are likely to face similar concerns and Steiner was unable to provide details as to whether the proposed watchdog would have the power to impose punitive measures against countries that breach environmental rules in a manner similar to the WTO.

However, the formation of the new working group, which comes just days after the launch of a similar group tasked with investigating approaches to increasing flows of climate funding for developing countries, will fuel optimism that international negotiations are regaining momentum after the Copenhagen Summit.

The Environmental Working Group (EWG) of the US is an environmental organisation that specializes in environmental research and advocacy in the areas of toxic chemicals, agricultural subsidies, public lands, and corporate accountability. EWG is a non-profit organization whose mission, according to their website, is "to use the power of public information to protect public health and the environment." Their funding is from "private foundations, individuals and select corporations." The earlier EWG was founded in 1993 by Ken Cook and Richard Wiles, and is headquartered in Washington DC. The UN EWG could be formulated on similar lines with a few amendments based on discussions at Copenhagen so that consensus of all nations is arrived at.

The EWG of the US works on three main policy or issue areas: toxic chemicals and human health, farming and agricultural subsidies, and public lands and natural resources. The group’s largest focus is reform of the Toxic Substances Control Act (TSCA). When the act passed it declared safe some 62,000 chemicals already on the market, even though there were little or no data to support this policy. Since that time another 20,000 chemicals have been put into commerce in the United States, also with little or no data to support their safety. EWG is working to pass the Kid-Safe Chemical Act, which would requires that industrial chemicals be safe for infants, kids and other vulnerable groups. The 52 per cent of EWG's resources go to toxic chemicals and human health.

The EWG has created a cosmetics safety database, which indexes and scores products based on their ingredients. Their Guide to Pesticides in Produce lists 44 fruits and vegetables based on the number of pesticides they were found to contain according to US data. A series of studies testing for the presence of chemicals in people's bodies is known as body burden. The organization has also constructed a national database of tap water testing results from public water utilities. Their work has extended to a variety of other chemicals, including bisphenol A, perchlorate, mercury, flame retardants, and arsenic in treated wood.

The EWG publishes a database of agricultural subsidies and their recipients. Its Action Fund advocates for farm bill reform in the form of decreased disaster payments and subsidies for commodity crops, and increased funding for nutrition programmes, conservation, specialty crops (i.e. fruits and vegetables), and organic agriculture.

The 2010 Global Biodiversity Challenge is perhaps the most important declaration ever to be made in support of environmental protection for sustainable development. Achieving this target will improve the living standards of millions of people and has the potential to raise many from abject poverty.

The focus on human development is underlined by the words of Setijati D.Sastrapradja, Chair, Natura Indonesiana, and one of the participants in the conference. He said: “The 2010 target gives us indicators of success for our efforts to reduce the loss of resources that support our lives. Without such a target nobody knows how much biodiversity is left for the future of our people. The biggest environmental problem is the greed of those who have the power to exploit natural resources and their ignorance of the resulting problems – flood, coral reef damage, timber species/biodiversity loss, land degradation, freshwater scarcity – that are felt by common people. If the meeting in London achieves one thing it should be to produce ways to influence the main decision-makers to use biodiversity wisely.”

The organisation investigates and publishes information regarding oil and gas drilling and mining projects that may pose a threat to human health and the environment.

Additionally, the EWG launched a cell phone radiation report in September 2009 that stated while the long term effects of cell phone radiation are still be studied, there is sufficient research that shows higher risk for brain and salivary gland tumours among heavy cell phone users. It encouraged consumers to look up their cell phone's radiation level, and to wear a headset when talking on the phone to limit their exposure.

For the first time in a decade, the UNEP meeting closed with the release of a formal declaration, which set out a series of detailed policies, including commitments to ensure earthquake-stricken Haiti is redeveloped in an environmentally sustainable manner. Significantly, the declaration also proposed that environment ministers meet again in June to discuss plans to develop a panel of scientists similar to the Intergovernmental Panel on Climate Change (IPCC) to address biodiversity challenges. All eyes would be on the deliberations---INFA

(Copyright, India News and Feature Alliance)