One of the mantras of the era of globalisation has been that while all economics is global, all politics is local. The problem for the member countries of the European Union (EU) is that they have yet to find a regional solution to this conundrum. Caught between the global implications of the national and regional economic plans that have so far come up to deal with the Eurozone&rsquo;s debt crisis and local politics that hold back governments from administering the bitter medicine of fiscal adjustment, EU has failed to come up with a regional solution to its economic and financial crises. It is, therefore, not surprising that German Chancellor Angela Merkel and French President Nicolas Sarkozy have once again failed to come up with an acceptable region-wide solution to the problems of Portugal, Italy, Greece and Spain (PIGS). Consequently, the euro has taken a hit, many European banks have come under increased pressure and the markets are in a tizzy.

European disunion

Business Standard

State Bank of India (SBI) has turned in another quarter of poor performance with its net profit for the period ended June 30 registering a fall of 45.6 per cent year-on-year. This is not the end of the pain; there is more to come by way of catching up on provisioning mandated by the Reserve Bank of India (RBI). Though the provisioning coverage ratio is up at 67.25 per cent, it remains short of the 70 per cent that the banking regulator requires. The bank has also been affected &ndash; this is not specific to it &ndash; by rising interest rates, which has required provisioning for depreciation in the value of investments. Treasury operations have resulted in a net deficit of Rs 840 crore, compared to a surplus of Rs 675 crore in the corresponding period. This alone accounts for Rs 1,515 crore when net profit has shrunk by Rs 1,313 crore.

SBI's clean-up

The news of a meeting of minds between the Union finance ministry and the Reserve Bank of India (RBI) on the government&rsquo;s policy on issuing licences to new private sector banks has been widely welcomed. India needs new banks and a transparent and robust policy framework will boost public confidence in the licensing process. Given the heightened public concern about transparent licensing procedures, it is most unlikely that the government and the central bank would do anything to invite criticism. Although the final policy framework will be made public next week, information suggests that the minimum capital requirement for a new bank would be Rs 1,000 crore, of which the promoters&rsquo; contribution is expected to be fixed at 40 per cent, to be brought down over a 10-year period to half that.

Trust the gatekeeper

The United States federal government and the country&rsquo;s generic (out of patent) drug industry are reportedly close to an agreement under which the latter will pay $300 million in annual fees for the Food and Drug Administration (FDA) to inspect at least once in two years overseas plants from where active pharmaceutical ingredients (APIs) for generic drugs sold in the US are imported. This is important for two reasons. One, 75 per cent of all prescription medicines sold in the US are generics and 80 per cent of the APIs used in all medicines are imported, mostly from India and China. Two, the cost-cutting healthcare reforms that the Obama administration has initiated would entail greater use of generic drugs. The new funding mechanism should speed up the approval process for marketing new products. The new fees are part of a package that also covers branded drugs and medical devices.

Pay to be policed

Hurling charges against political opponents is par for the course in democratic politics. No one can object too much to political name calling, such as, &ldquo;so and so is a fascist&rdquo; or &ldquo;so and so is communal&rdquo;, and such like. Politicians routinely hurl such invective at each other. Less excusable is innuendo, but there is a lot of that too in politics around the world.

Uncivil society

The Planning Commission has finally set a growth target of nine per cent per annum for the 12th Five-Year Plan (2012-17). When the same target was set for the 11th Plan (2007-12), not only was there great optimism that the target would be attained, but it was also felt that India would be poised by the end of the 11th Plan for a double-digit growth target in the 12th Plan. The optimism of 2007 was based on the impressive nine per cent growth performance during the period 2003-07 and a sanguine view of the global environment. Prime Minister Manmohan Singh had then said famously, &ldquo;The world wants India to do well, our challenges are mainly at home.

Nine is necessary

Members of the Upper House of Parliament, the Rajya Sabha, stood tall last week as they held a member of the judiciary accountable for his actions. Opposition leaders Arun Jaitley and Sitaram Yechury spoke well &mdash; and so did the judge in the dock and ministers of the government. Though the impeachment of Justice Soumitra Sen of the Calcutta High Court will have to await the vote in the Lok Sabha, the impressive parliamentary proceedings do raise the question whether the country has to be subjected to such elaborate proceedings before a judge can be expected to step down after being found guilty of wrongdoing by a panel of eminent jurists. The long gap between Justice Sen&rsquo;s acts of commission that warranted this action and the final impeachment does point to the need for speedier procedure in the dismissal of judges as well as their appointment.

Judge and jury

While social activist Anna Hazare&rsquo;s Team Anna has captured popular imagination and prime-time news with the campaign for its version of the Lok Pal Bill, the popularity of its cause and the large following it has been able to attract &ndash; especially in New Delhi and Mumbai &ndash; should not detract from the fact that it has but one voice in an ocean of many voices. By definition, any representative of civil society reflects one viewpoint and there are many other contending viewpoints on any given issue. There is no measure, including the size of a rally or a gathering or the ability to bring large parts of a city to a halt, that can be used to assert that this alone is the &ldquo;voice of the people&rdquo; or the voice of the majority. Nothing less than parliamentary majority matters when it comes to making laws. Currently, only the Manmohan Singh government enjoys that privilege.

Anna vs Aruna

The Union finance ministry has reportedly asked all nationalised banks and financial institutions to make payments electronically and not by cheque. The groups identified are banks&rsquo; customers, employees, vendors and beneficiaries of social sector projects. The scope for corruption and delay in making payments by cheque is lessened when the electronic transfer mode is used. This is fine but it does not take things substantially forward. A key department under the same ministry that continues to make payments by cheque for all but very small amounts to individuals is the income tax department. Apart from that, banks must be making most of their payments to their own customers and employees electronically. The scope for electronic payments can be extended a little more by making it mandatory for vendors &mdash; not large at all in the overall scheme of things.

Not by fiat alone

With all the domestic preoccupations this week, few in India are paying attention to momentous developments in West Asia and North Africa (WANA). With the siege of Tripoli by rebel forces, aided by European powers, the bell tolls for Libyan leader Muammar Gaddafi. In Syria, the India-Brazil-South Africa (IBSA) initiative to prevent a Libya-like attack and secure political change through peaceful means is now facing new obstacles. Having ensured a change of regime in Libya, after Egypt, the West may well focus on Syria. India has had long-standing good relations with Libya and Syria, but neither is of great strategic importance to India today. Rather, the Arab nations of the Gulf, including Saudi Arabia, the United Arab Emirates (UAE) and other Gulf states, matter more for India from a purely economic (oil and remittances) as well as a strategic perspective. This part of the Arab world remains relatively stable for now.

West side story

The recent decision by the empowered group of ministers (EGoM) to free urea prices and bring urea under the nutrient-based subsidy (NBS) regime should have been taken along with the decontrol of phosphatic and potassic fertilisers in April 2010, if not earlier. In fact, the process of switching over to the well-conceived NBS system has been inconclusive without urea being covered in it. As a result, most of the key objectives of this move have remained unmet. These include promoting balanced application of plant nutrients to preserve soil health, encouraging production of innovative and situation-specific fertiliser products, rationalising fertiliser subsidy and attracting fresh investment in this sector. Surprisingly, though most of the ministries concerned &ndash; including those of agriculture and finance &ndash; favoured extending NBS to urea, the main administrative ministry, the fertiliser ministry, continued to have misgivings about it.

Halfway house

Standard &amp; Poor&rsquo;s (S&amp;P) may have been right to downgrade the United States sovereign credit rating from triple A to double A plus, on the grounds that the political risk of fiscal correction in the US had gone up. But S&amp;P seems to have underestimated the political risk of taking such a bold professional view. It is one thing to downgrade an India or a Russia, or even an Iceland and an Ireland, but how could S&amp;P hold a mirror to the US of A? Unheard of! So, off with his head! Everyone who knows anything about sovereign credit ratings and power politics will recognise that S&amp;P President Deven Sharma&rsquo;s decision to leave the organisation was occasioned by US anger at his forthrightness in downgrading that country&rsquo;s government debt.

Rating the raters

Another day of nerves in the Indian equity market, with a combination of bearishness and volatility, is keeping investors worried about medium-term prospects. While optimists see emerging markets benefiting from the problems of the ageing ones, pessimists argue that India cannot be decoupled from disturbing global trends. Mark Twain once said: &ldquo;Get your facts first, then you can distort them as you please.&rdquo; Marketmen seem to be following this counsel down to the last word. Developed economies are headed for a multi-year slowdown. Japan&rsquo;s downgrade is yet another indication of this. Will emerging economies also go down or will a &ldquo;flight to safety&rdquo; keep the markets in countries like India buoyant? If there were to be another &ldquo;Lehman moment&rdquo; with crisis enveloping the Eurozone, there could be a domino effect on the rest of the world, especially the United States.

Dalal Street blues

Partly in response to India&rsquo;s concerns about a huge trade imbalance in favour of China and partly in pursuit of the Indian middle-class market, Chinese companies have decided to invest in India. Sinovel, China&rsquo;s largest wind turbine manufacturer, and four Chinese automobile majors have announced plans to set up manufacturing units. This follows an earlier announcement by prominent Chinese power equipment manufacturers to do likewise. The motivations for the investments are diverse. In the case of power equipment, the Indian government&rsquo;s stipulation that only companies that manufacture their products domestically are eligible to compete for government-owned power projects effectively poses a barrier to entry for Chinese firms, which to date have been exporting capital equipment.

Enter the dragon

There are victors and vanquished only in a war. In a genuinely political engagement everyone must emerge a winner. That is made possible only through compromise, through &ldquo;give and take&rdquo;. Through his reasonable statement in Parliament, Prime Minister Manmohan Singh has opened the door to an honourable compromise between the government and civil society on the issue of the Lok Pal Bill. Dr Singh only stated the obvious when he said that Mr Hazare&rsquo;s fast had helped place the issue of corruption in public life at the centre of national political discourse. The government has also made several important concessions on substantial matters without conceding the primacy of Parliament in making laws. Mr Hazare and Team Anna should also take a step or two back from their hard-line position and accept that in a parliamentary democracy, Parliament must have the final word. &ldquo;My way or the highway&rdquo; cannot be the basis for negotiations in a democracy.

Voice of silent majority

Alarm bells are ringing in oceans around the globe. Recent studies show a sharper decline in marine biodiversity than earlier forecasts. A good part of precious sea and ocean life may be on the verge of extinction. What is worse, these studies indicate that the potential extinction of species, from tiny corals to large fish, could be comparable to the five great mass extinctions in antiquity during which much of life perished from this planet.

Ocean life adrift

India&rsquo;s biggest lesson to the world has been, and remains, the view that a negotiated compromise is always better than one&rsquo;s victory and another&rsquo;s defeat. Once again the elected representatives of the people in Parliament and a social activist who succeeded in galvanising a sizeable segment of civil society, with help from sections of the media, have ended a political impasse through a negotiated compromise that enables all concerned to declare victory.

Victory for all

There are many good reasons why there has been a global reaction to Apple founder Steven P Jobs&rsquo; decision to step down and call it a day. Apple Inc is regarded as one of the most valuable companies in the world &mdash; in terms of market capitalisation it briefly displaced oil giant Exxon Mobil, whose revenue is almost four times that of Apple, to become numero uno.

Apple without Jobs

The jury is still out on whether the global economy is headed for a &ldquo;double-dip&rdquo; recession or a prolonged period of sustained economic underperformance, wherein gross domestic product in developed economies grows at no more than one or two per cent per year. While available indicators point to the latter scenario, it is unlikely to offer more cheer than dire forecasts about a &ldquo;double dip&rdquo;. Ominously, the developed world seems to have blown its ammunition in terms of policy tools to confront the persisting crisis. Federal Reserve Chairman Ben Bernanke&rsquo;s Jackson Hole speech virtually ruling out a third round of stimulus for now was obviously guided by fears of stoking inflation, which would only make a bad situation worse. Either Mr Bernanke was keeping his policy cards close to his chest, or he has no more aces up his sleeve. The effectiveness of monetary policy in the United States is virtually at an end.

Hobson's choice

There is a remarkable difference in both style and substance of the first 100 days in office between Tamil Nadu Chief Minister J Jayalalithaa and West Bengal Chief Minister Mamata Banerjee. To be sure, the two situations are not comparable apart from the fact that both chief ministers happen to be women. Ms Banerjee swept to power on a tidal wave of high expectations of change and progress after three decades of Left Front rule which had become moribund. Ms Jayalalithaa is dealing with a less dramatic situation. Though both are mercurial in their own ways, Ms Jayalalithaa has proved to be more combative in office than Ms Banerjee, who has so far gone about doing her work in a quiet manner. The Tamil Nadu chief minister has declared war on land grabbing by influential people. This has resulted in scores of arrests, including those of several former ministers of the Dravida Munnettra Kazhagam (DMK) regime.

A tale of two governments 

The Reserve Bank of India (RBI) has made it clear that it would like to ensure only the &ldquo;fit and proper&rdquo; make the grade when it comes to securing licences to set up private banks. The onerous criteria laid down by the central bank do not explicitly bar firms with an interest in other lines of business activity, outside of real estate and capital market, from securing licences. But to do so these firms have to meet more stringent norms than insisted on ever before. The draft also explicitly refers to the need to prevent &ldquo;self-dealing&rdquo; by promoters. Given the mood in the country today, it is just as well that RBI has laid down such tough eligibility criteria. Finally, as in the past, the central bank has said a high-level group will process the applications after due diligence by various regulatory authorities as well as enforcement and investigation agencies.

Banking on licences

Incisive columns and editorial comment by top opinion leaders

Page 392 - Editorial Comment