There are two ways of looking at the Telecom Regulatory Authority of India&rsquo;s (Trai&rsquo;s) recommendation of a hefty six-fold-plus increase in spectrum prices for operators offering 2G services. One, that it is recognising the scarcity value of a resource that incumbent operators have so far enjoyed at significantly lower costs.

Crossed connections

Business Standard

The $315 million AOL-Huffington Post deal follows about half a dozen others, including Newsweek-Daily Beast and AOL-TechCrunch deals, in 2010. All of them indicate two happy things. One, mainstream media&rsquo;s hopes from the Internet are still alive. Newsweek&rsquo;s owner Sidney Harman bought the beleaguered magazine for a token $1 from The Washington Post Co. He reckons that being in a 50:50 joint venture with Tina Brown&rsquo;s Daily Beast, a popular news site, will revive its fortunes.

Content is still king

Mubarak: This won't be the best of weekends for Middle Eastern autocrats. The forced departure of Egypt's 30-year president Hosni Mubarak, less than 24 hours after he pledged to stay in power, gives victory to the Tahrir Square protesters. Other dictators will worry about the trend. After all, it was only last month that Tunisian despot Zine El Abidine Ben Ali was forced from office.

Rallying cry

One of the high points of economic and fiscal reform in India in the past two decades has been the progressive moderation of direct tax rates. Thanks to this, the ratio of direct to indirect taxes has risen, a sign of greater progressiveness and equity in India&rsquo;s taxation system. Direct taxes are not easily passed on, as indirect taxes tend to be, and so their incidence is more directly on the individual or firm paying the tax. While this has been a positive trend, the ratio of total tax revenues to national income has, in fact, come down in recent years and remains below 12 per cent. India has a very low tax/GDP ratio by world standards. Apart from widespread tax evasion and avoidance, the complete exemption of certain types of income from taxation, like agricultural income, has made it that much more difficult for the tax authorities to capture all taxable incomes.

Taxing wealth

While the recent sporadic performance of the Indian manufacturing sector has justifiably evoked both concern and comment, another well-documented facet has not received commensurate attention. Organised sector manufacturing in India turned capital intensive in the 1990s and the trend continues inexorably. Research by Business Standard indicates that India Inc added over Rs 13 trillion in fixed assets over the past decade, with over 80 per cent of this accretion since 2005. On the other hand, labour costs using &ldquo;wages and salaries&rdquo; as a percentage of gross sales as a proxy, have remained flat at about 6.5 per cent during the same period. Since wages and salaries have increased across the board, it implies that recruitment in manufacturing firms is either flat or may even have declined slightly. Capital expenditure by the private sector has contributed substantially to both manufacturing sector productivity and by extension overall economic growth for two decades.

Jobless growth again?

The left hand of the Union government does not seem to know what the right hand does! The responses of the department of space, the Indian Space Research Organisation (ISRO), Antrix and the Prime Minister&rsquo;s Office to the observations made by the Comptroller and Auditor General of India (CAG) on the merits of the Antrix-Devas transponder deal have left everyone confused. While different arms of the government have been saying different things, the firm concerned, Devas, has been blowing hot and cold, first saying that the deal had been signed and sealed and averring, though not promising, that it could take legal recourse in case of cancellation and then declaring that it was open to renegotiation. The first point that emerges from this chain of events is that if there is anything worse than doing something wrong, then it is fumbling in response to allegation of wrongdoing. That can create the impression of culpability even when there may have been none.

Spaced out policy

The debate among New Delhi&rsquo;s more mature and non-partisan political journalists after Prime Minister Manmohan Singh concluded his 65-minute interaction with them, televised live, was whether he deserved 5/10 or 6/10 for his performance. This is not a bad outcome given that the Opposition would like to award him even less marks and few in his own party are doing much about defending him. The prime minister did not evade answering any question, nor did he try to spin out unconvincing answers. Even his claim that the alleged &ldquo;revenue loss&rdquo; from telecom spectrum licences was no different from the notional &ldquo;loss&rdquo; to the exchequer on account of a fertiliser or revenue subsidy is a credible argument, even if it was not adequately explained to a lay audience, giving the opposition Bharatiya Janata Party an opportunity to pooh-pooh it.

Mixed messages

The Business Standard (Rupee) billionaires club (BS, 16/2/2011) has 106 new members joining it in 2010, taking the number of &ldquo;super-rich&rdquo; in India to 657. India&rsquo;s dollar billionaires are still in double digits, having increased from 33 to 45 last year (way below the numbers for China and Russia). The total net worth of India&rsquo;s 657 Rupee billionaires was estimated at Rs 16 lakh crore, accounting for a fifth of the collective market value of all listed companies in India.

The rich get richer

A new chairperson takes charge of the Securities and Exchange Board of India (Sebi) today. Mr U K Sinha comes to Sebi in challenging times, when &ldquo;governance deficit&rdquo; is the new buzz word both in corporate India and in the field of regulation. He also collects the baton from a predecessor who has left behind a mixed track record of good governance and avoidable controversy. The world has changed and so has Sebi in the past two decades. Today, Indian markets have matured and are more integrated with world markets. This demands greater alertness to events and trends and increased finesse as well as sensitivity on Sebi&rsquo;s part in dealing with emerging issues. Sebi must be able to display this in its regulatory actions, in its dealings with another regulator and in resolving a dispute between two regulated entities.

The tasks for Mr Sinha

Even as everyone is celebrating the bounce in the economy with a return to 8.5 per cent growth, the jury is out on the accuracy of the agricultural output numbers. The impressive 5.4 per cent agricultural growth rate number is suspect if one looks at recent trends in farm productivity and output. The agriculture ministry anticipates foodgrain output to grow by 6.4 per cent to 232 million tonnes in 2010-11. But this growth rate is over the low figures for 2009-10, when grain output dropped by 6.98 per cent to 218 million tonnes owing to severe drought. In real terms, therefore, the output does not seem to have recovered to the pre-drought level of 234.4 million tonnes in 2008-09. Moreover, though the agriculture ministry has boasted of achieving new highs in the production of crops like wheat, pulses and cotton, in most of these cases, barring cotton, the advances are just marginal over their previous peaks.

A doubtful harvest

For a prime minister whose crowning achievement in his first term in office was the civil nuclear cooperation agreement with the United States and members of the Nuclear Suppliers Group &mdash; a move that enabled India to end its &lsquo;nuclear apartheid&rsquo; and enter a new era in its relations with major powers &mdash; and for a PM who has repeatedly been asked by the media what his plans for Pakistan were, it was striking that the media had hardly any questions on foreign policy for Prime

Home alone

After years of &lsquo;studying&rsquo; India, Japan has finally taken a long-term strategic view of the bilateral relationship and has given its imprimatur to a Comprehensive Economic Partnership Arrangement (Cepa). This will surely boost bilateral trade and increase Japanese investment in India, but it will also strengthen people-to-people relations between the two Asian democracies. The Cepa is expected to more than double bilateral trade from $10.3 billion to $ 25 billion by 2014. While this is an impressive increase, it pales in comparison to the existing level of bilateral trade between India and China, estimated at $60 billion, or Sino-Japanese trade, estimated at $ 302 billion. So this is just the beginning and there is a long road ahead to be travelled. Japan&rsquo;s 97 per cent tariff reduction on goods from India will benefit India&rsquo;s exports.

Land of rising trade

One way of looking at the notification on admission and fees of business management institutions put out by the All India Council for Technical Education (AICTE) last December is to view the sector regulator doing its job of protecting consumers&rsquo; interests (i.e. prospective students) from venal institutions that are cashing in on the growing demand for a B-school education. But, in addressing a problem that it has been responsible for, in no small measure, AICTE has overreached itself. So, it is not surprising that the issue now finds itself in court. Of the eight rules that AICTE has set out, two can be considered somewhat logical. The first stipulates that the admission for all management education courses cannot start before March 31. Most mainline B-schools begin the admission process in January, two months after the Common Entrance Test (CAT), one of the widely-used admission tests, in October, but others start later, depending on the timing of other entrance tests.

Off course

The government has taken the first concrete step to start disbursing subsidies for things like kerosene, cooking gas and fertilisers to individuals, families and farmers by direct cash transfer. A task force under the leadership of Nandan Nilekani, who heads the Unique Identification Authority of India, has been given the target of getting a pilot going by the end of the year. The transfer system will piggyback on the solution and infrastructure being set up to give every resident in India a unique identity (UID) and the group&rsquo;s main job will be to devise a way &ndash; the technological roadmap, so to speak &ndash; in which this can be done. As an operation like this can easily get derailed owing to lack of coordination among various stakeholders in the government system, the secretaries of various departments ranging from expenditure to financial services, food and public distribution, and chemicals and fertilisers have been included in the task force.

One step forward

India seems to have a problem managing both commodity shortages and surpluses. Government policy lurches from curbing exports when there is domestic shortage to subsidising them when there is a glut! The government&rsquo;s purely reactive strategy in dealing with food price inflation shows once again the absence of either a medium-term strategy or adequate crisis management systems.

Yo-yo on farm exports

Combating inflation, protecting the common man from the impact of rising food prices and sustaining the momentum of economic growth while ensuring the poor get a fair share of the &ldquo;fruits of growth&rdquo; are among the government&rsquo;s &ldquo;foremost priorities&rdquo; in 2011-12, President Pratibha Patil said in her address to Parliament this week. This sets the fiscal and policy framework for Union Finance Minister Pranab Mukherjee as he puts the finishing touches to his annual Budget speech in Parliament and approves his ministry&rsquo;s policy proposals for the year ahead. On the same day the president spoke, the head of the Prime Minister&rsquo;s Economic Advisory Council (PMEAC), C Rangarajan, urged the government to adhere to the finance commission&rsquo;s timetable for deficit reduction. The PMEAC is right to suggest that the time has come to roll back the fiscal stimulus that was rolled in during 2008-09 in response to the global economic slowdown.

Credible fiscal consolidation

Of all the infrastructure areas, the United Progressive Alliance government has fared worst in power. While the UPA&rsquo;s ultra mega power projects (UMPPs) programme promises to deliver increased capacity, much of the good news in power is only in generation and not in transmission and distribution (T&amp;D). Where generating companies (gencos) have captive consumers who are willing to pay, the T&amp;D problem is managed reasonably well. However, with few state electricity boards (SEBs) ready to make all consumers pay, and with populist politics denying consumers who are willing to pay the opportunity to do so and get access to assured power, the T&amp;D gap remains acute. While the entry of private players in generation has proceeded without resistance, SEBs are reluctant to permit the liberalisation of the lucrative and politically-sensitive T&amp;D segment.

Power play

It is now widely expected that Union Finance Minister Pranab Mukherjee will seek to get a grip on fiscal consolidation. How he does this will impact on his and India&rsquo;s credibility. His aim has to be not to lose revenues on the reforms roundabout that he gains on the growth swing. Although macroeconomic authorities remain optimistic about growth, some economic indicators (growth in the Index of Industrial Production for November and December 2010 were in low single digits) seem to point to a slowing down of the economy. Inflation is also likely to taper off over the year if the impact of tight monetary policy begins to work itself through the system. Both these trends will adversely affect revenue collection, particularly indirect taxes, since they imply slower nominal GDP growth. Besides, the current fiscal year produced a bonanza for the exchequer in the form of 3G spectrum auction receipts that exceeded the Budget estimate by over Rs 70,000 crore.

Taxes and the deficit

A renewal of concern about fiscal management in India is partly due to the resurgence of populism even in a post-election year. Instead of working to reduce the subsidy bill, various political elements seem to be pushing for even higher subsidies. The recent decision of a group of ministers to absorb higher import and production costs of fertilisers by raising subsidy, rather than increasing prices, is just one example. Some estimates put the likely fertiliser subsidy bill this year at anywhere between Rs 80,000 crore and Rs 83,000 crore, against the Budget allocation of merely Rs 49,981 crore. The danger is that the government, in its bid to contain the overall fiscal deficit, may let the payment of a part of the subsidy dues spill over to the next financial year, as has often been seen in the past. In 2007-08 and 2008-09, when unpaid subsidy dues had reached unsustainable levels, the government chose to issue fertiliser bonds instead of cash payments.

Fertilising policy

With crude oil prices hitting a 30-month high, as Brent crude moved close to $120 a barrel, it was only natural that the Indian rupee and the markets took a beating on Thursday. Tunisia, Egypt and Bahrain are not oil-exporting nations, but Libya is. While Libya is only the world&rsquo;s 12th largest exporter, it has reportedly cut at least 400,000 barrels of production per day (bpd) out of the country&rsquo;s 1.6 million bpd. It is important to note that Libya is not a major source of oil imports for India, with a share of less than 5 per cent in Indian crude oil imports. India&rsquo;s primary sources, Saudi Arabia (around 20 per cent), Iran (around 15 per cent), Kuwait, Iraq and the United Arab Emirates (around 10 per cent each) account for almost two-thirds of India&rsquo;s crude oil imports.

Jasmine and oil

The government may be well within its legal rights to censure Air India&rsquo;s Austrian COO Gustav Balduf for breaking his confidentiality agreement and complaining of political interference to a national newspaper earlier this week. But listening a little more closely to Balduf&rsquo;s message may do the airline a world of good, especially now that Air India&rsquo;s four independent directors are also questioning the management. It doesn&rsquo;t take a finance specialist to fathom that Air India is a failed enterprise that is being kept alive only by political will. Anywhere else in the world, a commercial entity that has run up a debt of Rs 40,000 crore on a topline of Rs 8,000 crore would be closed forthwith because no buyer would touch it. But with Air India, the more things change the more they remain the same. Consider the United Progressive Alliance&rsquo;s track record. Since it came to power in 2004, it has pumped in Rs 2,000 crore of taxpayers&rsquo; money into the airline.

AI's flight plight

Incisive columns and editorial comment by top opinion leaders

Page 394 - Editorial Comment