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NEW DELHI I SATURDAY I SEPTEMBER 1 I 2012

TheIndian EXPRESS
www.indianexpress.com

The Indian EXPRESS

BECAUSE THE TRUTH INVOLVES US ALL

PM must find a way out of the logjam. Only parliamentary engagement can reform coal sector
blocks allotted to private companies and PSUs flagged by the CAG that have not shown progress. In this scenario, a judicial probe may be the only possibility that both government and opposition could forge an agreement on. Much like the presidential election, the furore over coal has been an occasion for parties to signal proximity and distance from each other. While the crackle in the air is unmistakably in anticipation of the general election, parties must also make space for calm deliberation. Parliament is the only space where the distortions in the coal sector can be comprehensively addressed. Parties concerned about it can begin by pushing through the Coal Mines (Nationalisation) Amendment Bill pending in the Rajya Sabha. Opening up coal mining to private investment with a strong regulator would ensure that India does not fall short of coal because of Coal Indias inability to provide it. The only way to get to that juncture is to first break the impasse by political give-and-take, and then sit down to a serious engagement in Parliament. If the major parties can commit themselves to that end, this could be a moment of reckoning and herald a transformation for the coal sector as in telecom earlier with cronyism giving way to fair competition, easing the way for greater investment.

Coal comfort

HE first thing that Prime Minister Manmohan Singh must do on his return to India from Tehran is break the destructive impasse over coal block allotments that has held up parliamentary functioning for eight days now. This presents a political challenge, given that the protesting BJP has taken a maximalist position. It has demanded that the PM accept moral responsibility and resign, existing allotments be cancelled, and an independent investigation begin. The first is obviously non-negotiable for the Congress. The second does not appear to be feasible either, given the collateral damage it would visit upon the firms that have already invested in coal extraction, both in terms of capital wasted as well as the uncertainty about supplying industrial projects, in power, steel, etc. There is also the question of where the line might be drawn. Would all allotments, post-1993, which have followed the same process, be redone, or would it be some other arbitrary cut-off for allotments declared suspect? An alternative option would be to allow coal from the disputed mines to be sold only to power plants where electricity tariff is regulated this would clip the windfall profit. Auctions will begin for 54 identified coal blocks next year, and an inter-ministerial probe is already looking into the 57 coal

ROM the heady growth rates of 8 per cent and above, the economy seems to be adjusting to a new normal range of 5 to 6 per cent growth. The implications for per capita income, employment prospects and investment opportunities will be dismal as long as this new range persists. The 5.5 per cent growth rate of GDP for the April-June period also means that the Prime Ministers Economic Advisory Councils assumption of a 6.7 per cent growth rate for the whole year has become more shaky. The worrying sign is the persisting weakness in the growth of fixed investment that has come in at 0.7 per cent, compared with 14.7 per cent a year ago. This is because the inventories of companies are still running high. As long as these do not melt, the chances of fresh investment are bleak. Along with the GDP numbers, other data also released on Friday show that this bear phase could continue longer. Core sector growth rate in construction and

For the economy to break out of the sub-normal GDP growth rate, policy paralysis must end
electricity, the two sectors that have held up the GDP numbers till June, has worsened in July. Data on government finance shows that New Delhi had used up 50 per cent of its fiscal headroom within the first four months of the year. This means the curb on government expenditure that RBI has asked for is nowhere in sight. Even worse, the rise in expenditure is not in investment nonplan expenditure accounts for three-fourths of the total expenditure. Coupled with the GDP data, the Reserve Bank of Indias surmise could be that the economy will be no better off with any further cut in interest rates. The only good news at this point is the slight improvement in private consumption expenditure. But the absolute numbers do not add up, which could mean this too might be revised downwards in November. Overall, there is only one way the economy will break out of the below 6 per cent range: the government must act decisively.

Growing dismally

ERE are some tricky questions we need to face, even if we cannot convincingly answer them. Is UPA 2 the most entrepreneur-unfriendly government since the reform of 1991? Or, is it the most crony capitalist regime in Indias history? Or could it, indeed, be a bit of both? And, if so, how do you explain, or rationalise, that incredible contradiction? Lets now turn these questions around. Do Indias businessmen detest UPA 2 more than any other government in three decades except V.P. Singhs (mercifully) short raid-raj interlude in 1989-90? And then, have so many Indian businessmen fattened themselves more under any other regime in post-reform India than under this one, even while showing no particular entrepreneurial spark, raping their bankers and vacuum-cleaning minority shareholders? Or, to repeat the earlier question, can both be true? If so, to repeat again, how do you explain, or rationalise, that incredible contradiction? The fact is there is nothing incredible or contradictory about this. You dont need a PhD to understand or explain how crony capitalism is the very death of genuine entrepreneurship. It snuffs out the virtuous animal spirits of enterprise that the prime minister is so fond of talking about. It also provides a permanent do-nothing excuse and an ATM for the political class. Worst of all, it ruins public opinion for businessmen as it confirms the worst old fears of all of them being carpet-bagging robber barons or vicious oligarchs of some sort. The reason reform not only succeeded but prospered in India for two decades was that its success was widely visible, and also available to be shared by a wide section of our people. Why has the picture then changed so dramatically? Could it be just a consequence of the global commodity boom fired by easy liquidity flooding the larger Western economies after the 2008 financial crisis? It has created windfallbillionaires overnight all over the world, including in India: the Reddy brothers of Bellary are an example. Or, could it be something more complex?

Fixerpreneurship
National Interest Why this thrives under UPA 2 and is punished by the market
SHEKHAR GUPTA
or products, but of land banks, political connections, mining leases and, in one specific case, telecom spectrum. That heady success story the markets have now sorted out, and brutally so. Most such asset companies are now penny stocks and the bankers are chasing after their promoters with auction notices provided much remains to be auctioned. The big collateral losers in the process are some half-decent infrastructure companies, even those with a reasonable record of efficient delivery. The two companies building and running private airports in India, Delhi-Hyderabad and Mumbai-Bangalore, are valued at no more than Rs 2,500 crore and earlier in this column (Dirty business, IE, December 11, 2010, goo.gl/1GG7Y; That sinking feeling, IE, December 10, 2011, goo.gl/eLyXx; Anybody out there?, IE, May 19, 2012, goo.gl/KFZ2o), UPA 2 decided to generally avoid even being seen in public with entrepreneurial India, while indeed working closely with them behind closed doors. It resulted in yet another fascinating contradiction: at an institutional and larger policy level, Indian business has never been as uninfluential as it is now since 1991. Yet, at operative levels, many of them have been able to work with government and the political class at various levels. Think of a situa-

EDITOR Letter of the

Letters to the

cultivates them fondly in dark corridors, people do wonder what is going on. Particularly when the value of their hard-earned savings has been, meanwhile, dwindling. F you draw a simple chart of the large companies that have lost the most value on the stock markets over the past three years, youd notice that almost all of these were doing business on the same cusp of politics, finance and natural resources. To that extent, you have to admit that the market has been the first to sense the rot and has applied a stunning self-correction, severely punishing those responsible for it. Many of those who called themselves masters of the universe until just the other day, flaunting Bentleys, private jets, yachts, Swiss chalets and more, are now hiding from their bankers and shareholders and blaming the system. Obviously, there can be no sympathy for them or for their bankers. The small shareholder is always the victim of hype. So the markets, at least, have responded to this multi-layered crisis of governance. But what about the government? Lets not call it anti-business. Let us just say that compulsions of the return of ideological nostalgia made it shy of being seen to be engaging with business. When it came to an impression of big-ticket match-fixing, it even tried to separate the cronies and the capitalists here and there. But it is because it was such a weak government that a completely different quality of businessmen, or rather fixerpreneurs, moved into that space, in the company of some rampaging politicians, carrying their own preferences or hit-lists. Transparency, fair regulation, clearly stated policies, open communication are the engines of a reformed free-market economy. But underlying all of that has to be a strong, decisive and clearheaded government, which UPA 2 has most certainly not been. So you have seen the kind of cronyism visible in some mine and spectrum allocations as well as the selective targeting of some of Indias largest, most substantive business houses, particularly in the field of minerals, and oil and gas. A remarkable illustration of this destruction by crony capitalism in reverse is the loss of value of Indias three largest showpiece oil and gas exploring companies RIL and Vedanta (Cairn Energy) in the private sector and ONGC in the public sector. Manmohan Singhs reform 20 years ago brought Indian entrepreneurship and passports global respect, admiration, and $300 billion of reserves. Today its all in a shambles. Can he, and the political class, now pick up the pieces and rebuild this wreck? Or, the India story is gravely in danger of going the way of Russia, and of course, without any of its stupendous riches.
sg@expressindia.com

WEEK

The long arm

THE Chief Justice of

India, S.H. Kapadia, was right to advocate restraint for the courts. In recent times, the courts have delivered pathbreaking judgments that have been welcomed by the people. However, it is important that the judiciary acknowledges its role as the interpreter and protector of the law and respects the separation of powers among the three organs of the state. The courts should effectively interpret and enforce laws already in place and not tread on the legislatures territory. Jasleen Kaur Chandigarh

Name of the law

courts judgment, convicting 32 accused in the Naroda Patiya massacre, including BJP MLA Maya Kodnani and Bajrang Dal activist Babu Bajrangi, is a ray of hope for the kin of those who suffered in the Gujarat riots of 2002 (Where law wins out, IE, August 30). It has proved that justice might be done to those who were killed in the riots, even if it takes years. The judiciary has lived up to the common mans faith in it. Now is the time to strengthen that faith by convicting those responsible for the Assam riots and for spreading panic among people from the Northeast. Altamash Aiman New Delhi
THE Gujarat special

How the market raps companies on the cusp of finance, politics and natural resources
STOCK HIGHEST MCAP CURRENT MCAP MCAP EROSION (Rs cr) (Rs cr) (Rs cr) DB REALTY 11,250.66 1,825.19 9,425.47 DLF 66,748.28 33,278.18 33,470.1 IND BULLS REAL EST 9,528.11 1,984.33 7,543.78 IND BULLS POWER 8,028.73 2,633.97 5,394.76 JINDAL STEEL 70,014.65 32,933.0 37,081.65 LANCO INFRA 17,079.08 2,647.92 14,431.16 RELIANCE COMM 38,514.43 10,030.55 28,483.88 RELIANCE CAPITAL 21,226.71 7,899.23 13,327.28 RELIANCE INDUSTRIES 3,59,523.8 2,49,819.71 1,09,704.09 RELIANCE POWER 52,125.31 21,612.53 30,512.78 UNITECH 25,146.68 4,841.12 20,305.56 GMR 23,102.91 7,106.79 15,996.12 ONGC 3,00,511.29 2,36,267.56 64,243.73 Total market cap erosion of these companies is Rs 3,89,920.36 crore.
(Highest market capitalisation over a 24-month period from August 31, 2010; current market capitalisation for day ending August 31, 2012; all figures from Bombay Stock Exchange)

THE BIG FALL

Silent show

ETS look at some of the new Indian entrepreneurial class before we turn on the usual suspect, the government. This decade of commodity and property price boom has seen the rise of a new generation of businessmen, or rather fixerpreneurs, with the unique talent and connections to work on that most lucrative cusp of finance, politics and natural resources. Many of these quickly got listed on the stock markets in boom times, and kept leveraging their balance sheets as if the train will never stop. But the underlying asset value was not that of their brands

Rs 1,500 crore and carry a debt burden almost 15 and 40 times that much, respectively. Whether they deserve this plight, endangering their bankers, shareholders and the vital projects they are implementing, is not the point. This is precisely what you expect when the market and its customers the investors and lenders lose faith in governance, political as well as economic. To go back to our original questions, the economy and markets have floundered not because UPA 2 is pro- or anti-business, but because it has been so hypocritical about private economy. Because of the Congresss internal political reasons, conflicts and ideological confusions discussed

tion where, except in the odd instance, the prime minister and the leading lights of UPA dont go to formal CII/FICCI-type functions, or even an IIM convocation, when the prime minister has spoken only rarely with Indian business formally and in public in this term, and yet one group after another can troop into 7 RCR for meetings and problem-solving. Not just that, individual businessmen can visit the capital on fixed days and meet who they want in the PMO and elsewhere. It is nobodys case that only irregular deal-making and fixing take place behind closed doors. But when the establishment makes such rich, povertarian virtue of staying away from businessmen while it

shadows (IE, August 30) indicates that Americas Republican presidential candidate, Mitt Romney, is still something of an enigma. Romneys wife has tried to boost his ratings by assuring voters that he can be trusted, but this may not be enough. Voters like a candidate with a vision. In contrast, the Democratic President Barack Obama has sustained an impressive campaign. Romneys reticence on several key issues might make the presidential battle easier for Obama. S.C. Vaid Greater Noida

THE editorial In the

Guarding secrets

THE Supreme Courts

HERE is increasing concern about a trend towards obesity in Indian schoolchildren, accompanied by a vulnerability to lifestyle disorders earlier restricted to the adult population. WHO projects that one in three Indians will be under treatment for diabetes or cardiovascular disorders by 2030, when these children will be adults. Sports Minister Ajay Makens proposal to inculcate a culture of fitness by rewarding physically fit schoolchildren is, therefore, well-intentioned. But, equally, the idea of rewarding children with academic points is ill-advised. The draft of Makens National Physical Fitness Programme will be open to public comments for a month, in which this particular proposal will no doubt be hammered vengefully. The Indian education environment is steered by tiger moms and dads who invest their lives, materially and temporally, in the academic performance and prospects of their children.

What is needed is a new public health culture, not physical fitness scores in schools
They will not take kindly to extra academic points being awarded to children who can jump higher or have a better body mass index than their own kids. If the proposed programme is forced upon parents, we shall witness a new plague of childrens dietary clinics and jumping tutorial academies, making the race for scores even more bizarre than it is today. There is no denying that schoolchildren are at risk. But that is part of a larger health crisis. The real need is for a new, evolved universal health policy that acknowledges the crisis. It should favour a fitness culture and regular medical testing, the first lines of defence that are currently not prioritised. It must provide for basic facilities like public spaces for exercise and include insurance covering preemptive clinical strategies. Confusing public health with education, as Maken is doing, would only create a controversy without producing a solution.

Marked fit

TANVI MADAN
HERE had been a little bit of retreat, little bit of backsliding in US-India relations under the Obama administration, noted Mitchell Reiss, an adviser to Republican presidential candidate Mitt Romney, last week. He emphasised that a Romney administration would restore relations. These comments provide fodder for the view that Republican presidents have generally been better than Democratic ones. This narrative, however, does not really hold up. Given how often one hears the assessment that Republican presidents are better for India, it is easy to forget how recent this belief is. Historically, the opposite view has been held, with many in India cheering when Democrats won. There was more support for India among Democrats through the 1960s, but backing for India was not restricted to one side of the aisle. Republicans like President Eisenhower came to support India, especially in its development race against China. Republicans in the Congress also joined Democratic presidents in passing aid legislation for India. In the narrative of US-India rela-

In Washington today, there is bipartisan support for strong India-US ties

tions, however, credit for any bonhomie was given to Democrats. Policymakers like John F. Kennedy and Chester Bowles were considered heroes in the pantheon of US-India relations, while Republicans like John Foster Dulles and Richard Nixon were seen as villains. The more recent contention that Republican presidents are better for India can be traced to the perception that the Clinton administration, for years, emphasised non-proliferation above all else in its relations with India and to the landmark India-US nuclear deal signed under the Bush administration. For about the last decade and a half, however, three different presidents have proclaimed that a strong relationship with India is in US interests. Barack Obama has not shown any sign that he is anti-India. Some have pointed to his rhetoric about Bangalore and the invocation of India in campaign ads attacking Romney on the issue of outsourcing. These ads, however, are not generated because the administration is anti-India or wants to limit US-India economic ties, but because certain aspects of Romneys business background appear to make him vulnerable. Neither an Obama nor a Romney administration will make policy on the basis of whether its key policymakers are anti- or pro-India. In both cases, policy will be based on the perception of US interests and Indias role in helping achieve them. Regardless of which party wins later this year, major agreements like the nuclear deal are unlikely to be repeated. Even if a potential Romney administration makes concessions to India of the kind made under the nuclear deal, they are likely to come with higher expectations. Republicans have based their support of India on certain assumptions: shared democratic values, shared interests, especially vis-a-vis China, and the potential of India as a market for American capital and goods. If India is not seen to cooperate with the US on the last two fronts, Republican policymakers are likely to question the value of India. A change in administration is not a pre-requisite for change to occur. The Clinton administrations approach toward India, for example, changed over time. The Bush administration, which came to office emphasising the need to prioritise India, spent considerable time building a relationship with Pakistan. Earlier Indian complaints that the Obama administration was building relations with China at the expense of India have been subdued by the declaration of a US pivot to Asia. Evolving strategic circumstances can change an administrations priorities. Changes in personnel or positions when a president gets re-elected can also bring in people with different backgrounds and worldviews. In Washington today, there is support for a strong relationship with India across party aisles. The major task ahead is to maintain the momentum and follow through on the various agreements reached under the last three administrations which will require effort on both sides, regardless of who wins the elections. This approach does not preclude significant change; it may indeed lay the basis for it. The writer is director of the India Project at the Brookings Institution in Washington, DC
express@expressindia.com

Red or blue

observation on the Radia tapes seems to imply that the government should guard its documents and secrets better (Radia tapes: Such leaks threat to security, says SC, IE, August 30). However, sometimes leaks work to a governments advantage. Governments all over the world have been known to let slip secrets at opportune moments, to serve their own purposes. Velji B. Ganatra Delaware

Copy that

THE case against the

WORDLY WISE
Jorge Luis Borges

Democracy is an abuse of statistics.

photocopier in Delhi Universitys North Campus could hinder the pursuit of higher education in the country. In his article Publishers vs Students (IE, August 30), Shamnad Basheer was right to point out that intellectual property owners price their goods so high that they are out of reach of the common man, and then they block access to cheaper versions. Every sphere of intellectual activity cannot be subjected to a draconian copyright regime. Perhaps the present case could be used to fight the tyranny of this regime. Sahil Garg New Delhi